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, 1999
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
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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 May 7, 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 March 31, 1999 (unaudited) and
June 30, 1998
Unaudited Consolidated Statements of Income for the three
months ended March 31, 1999 and 1998 and for the nine months
ended March 31, 1999 and 1998
Unaudited Consolidated Statements of Comprehensive Income
for the three months ended March 31, 1999 and 1998 and for
the nine months ended March 31, 1999 and 1998
Unaudited Consolidated Statements of Cash Flows for the nine
months ended March 31, 1999 and 1998
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,
1999 1998
----------- -----------
(unaudited)
Assets
Cash and cash equivalents:
Interest-bearing............................... $ 2,406,915 $ 1,858,527
Noninterest-bearing............................ 1,160,549 1,447,847
------------ ------------
3,567,464 3,306,374
Investment securities
Held-to-maturity securities.................... 1,129,331 1,131,478
Available-for-sale securities.................. 20,961,131 19,122,283
Federal funds sold.................................. 3,582,683 659,497
Loans receivable, net............................... 70,266,213 65,884,941
Accrued interest receivable......................... 1,078,240 959,664
Federal Home Loan Bank stock........................ 860,000 812,400
Premises and equipment, net......................... 895,489 799,806
Foreclosed real estate.............................. 197,333 --
Goodwill............................................ 1,304,166 1,375,087
Other assets........................................ 378,574 275,416
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Total assets .............................. $104,220,624 $ 94,326,945
============ ============
Liabilities
Deposits ........................................... $ 77,671,963 $ 66,595,476
Borrowed funds...................................... 15,019,648 15,724,071
Advance payments from borrowers for
taxes and insurance................................ 110,591 221,911
Accrued expenses and other liabilities.............. 583,648 660,492
------------ ------------
Total liabilities.......................... 93,385,850 83,201,950
------------ ------------
Redeemable common stock held by Employee
Stock Ownership Plan (ESOP)........................ 204,204 153,788
------------ ------------
Stockholders' Equity
Common stock:
Common stock................................... 6,511 6,511
Additional paid-in capital..................... 6,146,461 6,122,664
Retained earnings................................... 6,141,597 5,825,363
Unrealized (loss) gain on securities
available for sale................................. (25,300) (507)
Less:
Cost of common shares acquired for treasury......... (948,616) (300,944)
Deferred compensation............................... (94,889) (104,962)
Maximum cash obligation related to ESOP shares...... (204,204) (153,788)
Unearned ESOP shares................................ (390,990) (423,130)
------------ ------------
Total stockholders' equity................. 10,630,570 10,971,207
------------ ------------
Total liabilities and
stockholders' equity ..................... $104,220,624 $ 94,326,945
============ ============
See Notes to Consolidated Financial Statements .....
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Income
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
---------------------- -----------------------
Interest income:
Loans receivable:
First mortgage loans........................... $ 937,944 $ 957,205 $2,948,121 $2,738,509
Consumer and other loans....................... 486,893 403,888 1,463,305 948,534
Investment securities:
Taxable........................................ 361,647 265,151 1,048,014 530,772
Non-taxable.................................... 19,641 18,112 61,088 28,845
--------- --------- ---------- ----------
Total interest income................. 1,806,125 1,644,356 5,520,528 4,246,660
--------- --------- ---------- ----------
Interest expense:
Deposits......................................... 853,990 727,134 2,560,475 1,827,409
Borrowed funds................................... 211,363 173,665 666,717 439,997
--------- --------- ---------- ----------
Total interest expense................ 1,065,353 900,799 3,227,192 2,267,406
--------- --------- ---------- ----------
Net interest income................... 740,772 743,557 2,293,336 1,979,254
Provision for loan losses 18,000 18,000 74,000 71,000
--------- --------- ---------- ----------
Net interest income after
provision for loan losses........... 722,772 725,557 2,219,336 1,908,254
--------- --------- ---------- ----------
Noninterest income:
Security gains, net.............................. 3,961 -- 15,315 --
Loan origination and commitment fees............. 2,792 2,843 6,155 8,147
Service charges and fees......................... 62,944 59,210 207,968 141,308
Insurance commisions............................. 15,782 11,691 37,554 57,400
Other............................................ 8,615 8,819 18,839 11,134
--------- --------- ---------- ----------
Total noninterest income.............. 94,094 82,563 285,831 217,989
--------- --------- ---------- ----------
Noninterest expense:
Compensation and benefits....................... 320,140 253,476 900,259 661,827
Occupancy and equipment......................... 56,850 49,332 170,403 124,268
SAIF/BIF deposit insurance premium.............. 14,292 12,947 43,473 36,829
Data processing................................. 22,989 21,233 65,805 60,444
Goodwill........................................ 23,640 19,700 70,921 19,700
Other........................................... 141,187 113,524 426,510 351,222
--------- --------- ---------- ----------
Total noninterest expense............ 579,098 470,212 1,677,371 1,254,290
--------- --------- ---------- ---------
Income before income taxes........... 237,768 337,908 827,796 871,953
Income tax expense................................ 84,619 121,935 307,059 299,530
--------- --------- ---------- ----------
Net income........................... $ 153,149 $ 215,973 $ 520,737 $ 572,423
========= ========= ========== ==========
Earnings per common share:
Basic........................................... $ 0.27 $ 0.36 $ 0.92 $ 0.94
========= ========= ========= ==========
Diluted......................................... $ 0.27 $ 0.35 $ 0.90 $ 0.92
========= ========= ========= ==========
Dividends per common share........................ $ 0.12 $ 0.12 $ 0.36 $ 0.34
========= ========= ========= ==========
Weighted average common shares for:
Basic earnings per share........................ 560,073 605,969 563,817 605,869
========= ========= ========= ==========
Diluted earnings per share...................... 573,926 624,776 578,744 623,390
========= ========= ========= ==========
See Notes to Consolidated Financial Statements.
Three Months Ended Nine months ended
March 31, March 31,
1999 1998 1999 1998
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Net income ....................................... $153,149 $215,973 $520,737 $572,423
Gross unrealized gains (losses) on
securities available for sale .................. (65,559) 20,233 (24,355) 31,350
Less reclassification adjustments for
gains included in net income.................... (3,961) -- (15,315) --
Income tax expense related to items
of other comprehensive income .................. 26,320 (7,587) 14,877 (11,756)
--------- -------- --------- ---------
Comprehensive income ............................. $109,949 $192,164 $495,944 $592,017
========= ======== ========= =========
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Nine months ended March 31, 1999 and 1998
1999 1998
------------ ------------
Cash Flows from Operating Activities
Net Income ..................................... $ 520,737 $ 572,423
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of premiums and discounts
on debt securities.......................... (51,599) 8,673
Amortization of goodwill...................... 70,921 19,700
Provision for loan losses..................... 74,000 71,000
(Gain) on sale of investment securities....... (15,205) --
(Gain)loss on sale of foreclosed real estate.. (9,899) (3,381)
Depreciation.................................. 55,450 48,371
Compensation under stock awards............... 46,524 39,442
ESOP contribution expense..................... 55,937 52,135
Deferred income tax........................... (76,153) (31,383)
(Increase) in accrued interest receivable..... (118,576) 13,228
(Increase)decrease in other assets............ (103,158) (17,615)
Increase(decrease) in accrued expenses
and other liabilities....................... 14,187 20,729
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Net cash provided by operating
activities.......................... 463,166 793,322
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Cash Flows from Investing Activities
Held to maturity:
Purchases..................................... -- (65,000)
Available for sale securities:
Sales......................................... 1,800,000 --
Maturities and calls.......................... 20,050,432 8,330,029
Purchases..................................... (23,660,000) (5,250,000)
Federal funds sold, net......................... (2,923,186) (1,226,295)
Purchase of Federal Home Loan Bank stock........ (47,600) (225,200)
Loans made to customers, net.................... (4,642,706) (3,573,890)
Purchase of premises and equipment.............. (151,133) (51,056)
Purchase of stock of Rubio Savings Bank
of Brighton, Iowa net of cash received........ -- (2,466,021)
-------------- ------------
Net cash (used in) investing
activities.......................... (9,574,193) (4,527,433)
-------------- ------------
Cash Flows from Financing Activities
Net increase in deposits........................ 11,076,487 2,652,730
Proceeds from Federal Home Loan Bank advances... 6,250,000 43,950,000
Principal payments on Federal Home Loan Bank
advances....................................... (6,954,423) (38,809,926)
Net increase (decrease) in advances from
borrowers for taxes and insurance............. (111,320) (84,758)
Acquisition of common stock..................... (684,125) (93,750)
Dividends paid.................................. (204,503) (197,364)
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Net cash provided by financing
activities......................... 9,372,116 7,416,932
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Net increase(decrease) in cash and
cash equivalents................... 261,090 3,682,821
Cash and cash equivalents:
Beginning............................ 3,306,374 807,805
-------------- ------------
Ending............................... $ 3,567,464 $4,490,626
============== ============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors................... $ 2,169,304 $ 1,437,901
Interest paid on other obligations............ 666,717 439,998
Income taxes, net of refunds.................. 334,312 310,164
Supplemental Schedule of Noncash Investing
and Financing Activities
Transfers from loans to foreclosed
real estate................................... $ 360,667 $ 61,619
Contract sales of foreclosed real estate........ 173,233 65,000
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.................................... -- 1,418,428
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,
1999 and for the nine months period ended March 31, 1999, 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.
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 March 31, 1999 the capital requirements of Washington Federal
under FIRREA and its actual capital ratios. As of March 31, 1999 Washington
Federal exceeded all current regulatory capital requirement standards.
At March 31, 1999
-----------------
Amount Percent
---------------------
(Dollars in thousands)
(unaudited)
Tangible Capital:
Capital Level........................... $ 6,594 8.26%
Requirement............................. 1,197 1.50%
-------- -------
Excess.................................. $ 5,397 6.76%
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Core Capital:
Capital Level........................... $ 6,594 8.26%
Requirement............................. 3,193 4.00%
-------- -------
Excess.................................. $ 3,401 4.26%
-------- -------
Risk-Based Capital:
Capital Level........................... $ 6,909 12.83%
Requirement............................. 4,308 8.00%
-------- -------
Excess.................................. $ 2,601 4.83%
-------- -------
The following table summarizes the capital requirements of Rubio Savings Bank of
Brighton. As of March 31, 1999 Rubio substantially exceeded all current
regulatory capital requirement standards.
At March 31, 1999
-----------------
Amount Percent
----------------------
(Dollars in thousands)
(unaudited)
Tier 1 or Leverage Capital:
Capital Level.......................... $ 2,609 11.11%
Requirement............................ 704 3.00%
--------- -------
Excess................................. $ 1,905 8.11%
--------- -------
Tier 1 Risk-based Capital:
Capital Level.......................... $ 2,609 21.55%
Requirement............................ 484 4.00%
--------- -------
Excess................................. $ 2,125 17.55%
--------- -------
Risk-Based Capital:
Capital Level.......................... $ 2,741 22.64%
Requirement............................ 969 8.00%
--------- -------
Excess................................. $ 1,772 14.64%
--------- -------
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. Despite assurances, however,
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 March 31, 1999 were
approximately $91,000 and are not expected to exceed $120,000.
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 owner occupied 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 agricultural loans, 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, Federal Agency 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 $9.9 million from $94.3
million at June 30, 1998 to $104.2 million at March 31, 1999. The increase was
primarily due to a $4.4 million increase in loans receivable, a $2.9 million
increase in federal funds sold, and a $1.8 million increase in investment
securities funded by a $11.1 million increase in deposits partially offset by a
$604,000 decrease in borrowed funds and a $341,000 decrease in stockholder's
equity.
Loans receivable. Loans receivable, net increased $4.4 million from $65.9
million at June 30, 1998 to $70.3 million at March 31, 1999. This increase is
primarily due to increased loan demand in the Company=s market area. The
Company's non-performing assets were $52,000 or 0.05 % of total assets at March
31, 1999 as compared to $89,000 or 0.09% 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 $1.8 million from
$19.1 million at June 30, 1998 to $20.9 million at March 31, 1999. The portfolio
of available-for-sale securities is comprised primarily of investment securities
carrying fixed interest rates. The fair value of these securities is subject to
changes in interest rates. The fair value of these securities was less on March
31, 1999 than their carrying value due to a fluctuation 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
loss.
Accrued interest receivable. Accrued interest receivable increased $119,000 from
$960,000 at June 30, 1998 to $1.1 million at March 31, 1999. 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 $11.1 million from $66.6 million at June 30, 1998
to $77.7 million at March 31, 1999. This increase is primarily due to the
seasonal deposits of local government and the competitive pricing of certificate
of deposit products. Interest credited to customer accounts totaled $2.2
million, while deposits exceeded withdrawals by $8.9 million. Transaction and
savings deposits decreased as a percentage of total deposits from $24.3 million
or 36.4% at June 30, 1998 to $28.1 million or 36.2% at March 31, 1999.
Certificates of deposit increased as a percentage of total deposits from $42.3
million or 63.6% at June 30, 1998 to $49.5 million or 63.8% at March 31, 1999.
FHLB Borrowings. The total principal balance in advances from the Federal Home
Loan Bank of Des Moines (FHLB) decreased $704,000 from $15.7 million at June 30,
1998 to $15.0 million at March 31, 1999. The decrease is primarily due to the
reduced need to borrow to fund loan activity and investment activity due to
increased deposits. The borrowings are primarily long-term advances.
Advances from borrowers for taxes and insurance. The total balance in advances
from borrowers for taxes and insurance decreased $111,000 from $222,000 at June
30, 1998 to $111,000 at March 31, 1999 primarily due to the payment of
semi-annual real estate taxes which were due March 31, 1999.
Total stockholders' equity. Total stockholders' equity decreased $341,000 from
$11.0 million at June 30, 1998 to $10.6 million at March 31, 1999. 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, dividends paid of $205,000, the net unrealized loss
in available- for- sale securities of $25,000 and the change in redeemable
common stock held by the ESOP of $50,000. The decrease was partially offset by
net income of $521,000, the allocation of shares in the Employee Stock Ownership
Plan of $56,000, and the amortization of deferred compensation under the
Recognition and Retention Plan of $46,000. 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 was less than their
carrying value as of March 31, 1999.
Results of Operations - Three Months Ended March 31, 1999 As Compared To The
Three Months Ended March 31, 1998
Performance summary. Net earnings decreased $63,000 to $153,000 for the three
months ended March 31, 1999 from $216,000 for the three months ended March 31,
1998. The decrease is primarily due to an increase in interest expense of
$165,000 and an increase in noninterest expense of $109,000 partially offset by
an increase in interest income of $162,000, an increase in noninterest income of
$12,000, and a decrease in income tax expense of $37,000. For the three months
ended March 31, 1999 the annualized return on average assets was 0.60% compared
to 1.02% for the three months ended March 31, 1998, while the annualized return
on average equity was 5.77% for the three months ended March 31, 1999 compared
to 7.87% for the three months ended March 31, 1998.
Net interest income. Net interest income decreased $3,000 to $741,000 for the
three months ended March 31, 1999 from $744,000 for the three months ended March
31, 1998. The decrease is primarily due to the increase of $165,000 in interest
expense to $1.1 million for the three months ended March 31, 1999 from $901,000
for the three months ended March 31, 1998 partially offset by an increase in
interest income of $162,000 to $1.8 million for the three months ended March 31,
1999 from $1.6 million for the three months ended March 31, 1998.
For the three months ended March 31, 1999 the average yield on interest earning
assets was 7.54% compared to 8.13% for the three months ended March 31, 1998 due
to declining loan and bond rates. The average cost of interest-bearing
liabilities was 4.93% for the three months ended March 31, 1999 compared to
5.20% for the three months ended March 31, 1998. The average balance of interest
earning assets increased $15.2 million to $97.2 million for the three months
ended March 31, 1999 from $82.0 million for the three months ended March 31,
1998. During this same period, the average balance of interest-bearing
liabilities increased $17.3 million to $87.6 million for the three months ended
March 31, 1999 from $70.3 million for the three months ended March 31, 1998.
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 2.61% for the three months ended March 31, 1999 compared to 2.93% for the
three months ended March 31, 1998. Due to the increase in interest-bearing
liabilities as a percentage of interest-earning assets, the average net interest
margin was 3.09% for the three months ended March 31, 1999 compared to 3.68% for
the three months ended March 31, 1998.
Provision for loan loss. Provision for loan loss was constant at $18,000 for the
three months ended March 31, 1999 and for the three months ended March 31, 1998.
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 was $442,000 or .63% of loans receivable, net at March
31, 1999 compared to $366,000 or .57% of loans receivable, net at March 31,
1998. The allowance for loan loss as a percentage of non-performing assets was
949.47% at March 31, 1999, compared to 180.97% at March 31, 1998.
Noninterest income. Noninterest income increased $11,000 to $94,000 for the
three months ended March 31, 1999 from $83,000 for the three months ended March
31, 1998. The increase is primarily due to an increase in insurance commissions
of $4,000, an increase in security gains, net of $4,000, and an increase in bank
service charges of $3,000.
Insurance commissions increased $4,000 to $16,000 for the three months ended
March 31, 1999 from $12,000 for the three months ended March 31, 1998 primarily
due to the fluctuations in the volume of sales of credit life and disability
products. Gain on the sale of available securities increased $4,000 for the
three months ended March 31, 1999 due to the sale of U.S. Treasury securities.
Bank service charges and fees increased $3,000 to $62,000 for the three months
ended March 31, 1999 from $59,000 for the three months ended March 31, 1998
primarily due to a $2,000 increase in checking account service charges and a
$1,000 increase in late charges collected on loan payments.
Noninterest expense. Noninterest expense increased $109,000 to $579,000 for the
three months ended March 31, 1999 from $470,000 for the three months ended March
31, 1998. The increase is primarily due to a $67,000 increase in compensation
and benefits, a $28,000 increase in other expenses, an $8,000 increase in
occupancy and equipment, a $4,000 increase in goodwill expense, a $2,000
increase in data processing , and a $1,000 increase in FDIC insurance premium.
These increases were primarily due to the acquisition of Rubio and the addition
of Washington Federal's branch in Wellman, Iowa.
Income tax expense. Income tax expense decreased $37,000 to $85,000 for the
three months ended March 31, 1999 from $122,000 for the three months ended March
31, 1998. The decrease in income tax expense is primarily due to the decrease in
income before income taxes.
Results of Operations - Nine months ended March 31, 1999 As Compared To The Nine
Months Ended March 31, 1998
Performance summary. Net earnings decreased $52,000 to $521,000 for the nine
months ended March 31, 1999 from $572,000 for the nine months ended March 31,
1998. The decrease is primarily due to an increase in noninterest expense of
$423,000 and an increase in provision for loan loss of $3,000 partially offset
by an increase in net interest income of $314,000, an increase in noninterest
income of $68,000, and a decrease in income tax expense of $8,000. For the nine
months ended March 31, 1999 the annualized return on average assets was 0.70%
compared to 1.02% for the nine months ended March 31, 1998, while the annualized
return on average equity was 6.50% for the nine months ended March 31, 1999
compared to 7.02% for the nine months ended March 31, 1998.
Net interest income. Net interest income increased $314,000 to $2.3 million for
the nine months ended March 31, 1999 from $2.0 million for the nine months ended
March 31, 1998. The increase is primarily due to the increase of $1.3 million in
interest income to $5.5 million for the nine months ended March 31, 1999 from
$4.2 million for the nine months ended March 31, 1998 partially offset by an
increase in interest expense of $960,000 to $3.2 million for the nine months
ended March 31, 1999 from $2.3 million for the nine months ended March 31, 1998.
For the nine months ended March 31, 1999 the average yield on interest earning
assets was 7.77% compared to 8.03% for the nine months ended March 31, 1998 due
to declining loan and bond rates. The average cost of interest-bearing
liabilities was 5.06% for the nine months ended March 31, 1999 compared to 5.11%
for the nine months ended March 31, 1998. The average balance of interest
earning assets increased $24.2 million to $94.7 million for the nine months
ended March 31, 1999 from $70.5 million for the nine months ended March 31,
1998. During this same period, the average balance of interest-bearing
liabilities increased $25.9 million to $85.1 million for the nine months ended
March 31, 1999 from $59.2 million for the nine months ended March 31, 1998.
Due to the decrease in yield on the interest-earning assets and despite the
decrease in rate paid on the interest-bearing liabilities, the average interest
rate spread was 2.71% for the nine months ended March 31, 1999 compared to 2.92%
for the nine months ended March 31, 1998. Due to the increase in
interest-bearing liabilities as a percentage of interest-earning assets, the
average net interest margin was 3.23% for the nine months ended March 31, 1999
compared to 3.74% for the nine months ended March 31, 1998.
Provision for loan loss. Provision for loan loss increased $3,000 to $74,000 for
the nine months ended March 31, 1999 from $71,000 for the nine months ended
March 31, 1998. 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 was $442,000 or .63% of loans
receivable, net at March 31, 1999 compared to $366,000 or .57% of loans
receivable, net at March 31, 1998. The allowance for loan loss as a percentage
of non-performing assets was 949.47% at March 31, 1999, compared to 180.97% at
March 31, 1998.
Noninterest income. Noninterest income increased $68,000 to $286,000 for the
nine months ended March 31, 1999 from $218,000 for the nine months ended March
31, 1998. The increase is primarily due an increase in bank service charges of
$67,000, an increase in gains on the sale of available for sale securities of
$15,000 and an increase in other noninterest income of $8,000 partially offset
by a decrease in insurance commissions of $20,000 and a decrease in loan
origination and commitment fees of $2,000.
Bank service charges and fees increased $67,000 to $208,000 for the nine months
ended March 31, 1999 from $141,000 for the nine months ended March 31, 1998
primarily due to an increase in overdraft income of $41,000, an increase in
checking account service charges of $14,000, an increase in credit card and
merchant fees of $5,000, an increase in check cashing and commercial exchange
fees of $3,000, and increase in late fees collected of $3,000, and an increase
in safe deposit rental income of $1,000.
Gain on the sale of available- for- sale securities increased $15,000 for the
nine months ended March 31, 1999 due to the sale of U.S. Treasury securities.
Other noninterest income increased $8,000 to $19,000 for the nine months ended
March 31, 1999 from $11,000 for the nine months ended March 31, 1998 primarily
due to the gain on REO property. Insurance commissions decreased $20,000 to
$38,000 for the nine months ended March 31, 1999 from $57,000 for the nine
months ended March 31, 1998 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 $6,000 for the nine months ended March 31, 1999
from $8,000 for the nine months ended March 31, 1998 due to the fluctuations in
volume of loans sold to the secondary market.
Noninterest expense. Noninterest expense increased $423,000 to $1.7 million for
the nine months ended March 31, 1999 from $1.3 million for the nine months ended
March 31, 1998. The increase is primarily due to an increase in compensation and
benefits of $238,000, an increase in other expense of $75,000, an increase in
goodwill expense of $51,000, an increase in occupancy and equipment of $46,000,
an increase in FDIC insurance premium of $7,000, and an increase in data
processing of $5,000.
Compensation and benefits increased $238,000 to $900,000 for the nine months
ended March 31, 1999 from $662,000 for the nine months ended March 31, 1998
primarily due to the increase in full-time equivalent employees as a result of
the acquisition of Rubio, Washington Federal's new branch in Wellman, Iowa, and
to a lesser extent the normal salary increases effective in January.
Other noninterest expense increased $75,000 to $427,000 for the nine months
ended March 31, 1999 from $351,000 for the nine months ended March 31, 1998
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 $31,000, an
increase in fees paid for services provided by outside contractors of $14,000,
an increase in ATM and debit card processing fees of $12,000, an increase in
postage and delivery expense of $10,000, and an increase in non-capitalized
expenses related to the Year 2000 issue of $8,000.
Goodwill expense increased $51,000 to $71,000 for the nine months ended March
31, 1999 from $20,000 for the nine months ended March 31, 1998 due to the
acquisition of Rubio. Occupancy and equipment increased $46,000 to $170,000 for
the nine months ended March 31, 1999 from $124,000 for the nine months ended
March 31, 1998 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 $7,000 to $43,000 for the nine
months ended March 31, 1999 from $37,000 for the nine months ended March 31,
1998 primarily due to the increase in deposits since the acquisition of Rubio.
Data processing increased $5,000 to $66,000 for the nine months ended March 31,
1999 from $61,000 for the nine months ended March 31, 1998.
Income tax expense. Income tax expense increased $8,000 to $307,000 for the nine
months ended March 31, 1999 from $299,000 for the nine months ended March 31,
1998 despite the decrease in income before income taxes primarily due to the
non-deductible goodwill expense.
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 March 31, 1999, Washington Federal's liquidity ratio was 19.73%.
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 March 31, 1999, Washington Federal had outstanding
commitments to extend credit which amounted to $2.2 million and Rubio Savings
Bank had outstanding commitments to extend credit which amounted to $561,000.
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 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 March 31, 1999 the ESOP held 52,602 shares of the Company's common
stock, 12,376 of which were allocated, 1,127 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 March 31, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (listed by numbers corresponding to
the Exhibit Table of Item 601 on Regulation S-B)
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports in Form 8-K have been filed during the quarter for
which this report was filed.
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Washington Bancorp
------------------
(Registrant)
Date May 7, 1999 /s/ Stan Carlson
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Stan Carlson, President and Chief
Executive Officer
Date May 7, 1999 /s/ Leisha A. Linge
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Leisha A. Linge,Controller