FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 East Main Street, Washington, Iowa 52353
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319)653-7256
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
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 597,198 shares outstanding as of November 12, 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 September 30,
1999 (unaudited) and June 30, 1999
Unaudited Consolidated Statements of Income for the
three months ended September 30, 1999 and 1998
Unaudited Consolidated Statements of Comprehensive
Income for the three months ended September 30,
1999 and 1998
Unaudited Consolidated Statements of Cash Flows for the
three months ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Signatures
Exhibits
Item 1. Financial Information
WASHINGTON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, June 30,
1999 1999
----------------------------
ASSETS (unaudited)
Cash and cash equivalents
Interest-bearing ................................................ $ 3,276,515 $ 901,346
Noninterest-bearing ............................................. 1,762,720 1,656,084
Investment securities:
Held to maturity ................................................ 819,992 760,520
Available for sale .............................................. 20,635,926 20,695,366
Fed funds, sold ....................................................... 765,000 1,340,000
Loans receivable, net of allowance for loan losses
of $495,249 in 1999 and $472,187 in 1998 ........................ 76,261,535 72,779,177
Accrued interest receivable ........................................... 1,311,032 1,190,600
Federal Home Loan Bank stock .......................................... 1,000,700 860,000
Foreclosed real estate ................................................ 301,477 235,914
Premises and equipment, net ........................................... 864,544 874,551
Goodwill, net ......................................................... 1,256,885 1,280,526
Other assets .......................................................... 541,284 409,996
---------------------------
Total assets .................................................... $108,797,610 $102,984,080
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing ............................................. $ 4,155,990 $ 2,596,143
Interest-bearing ................................................ 73,548,889 73,093,323
---------------------------
Total deposits .................................................. 77,704,879 75,689,466
Borrowed funds ........................................................ 19,541,986 15,706,290
Advances from borrowers for taxes and insurance ....................... 99,323 223,033
Accrued expenses and other liabilities ................................ 499,248 464,638
---------------------------
Total liabilities ............................................... 97,845,436 92,083,427
---------------------------
Redeemable common stock held by ESOP .................................. 179,823 189,972
---------------------------
Stockholders' Equity
Common Stock
Common Stock .................................................... 6,511 6,511
Additional Paid-in Capital ...................................... 6,155,417 6,150,310
Retained Earnings ..................................................... 6,540,431 6,384,863
Unrealized loss on securities ......................................... (331,291) (235,778)
Treasury shares ....................................................... (987,310) (946,435)
Deferred Compensation ................................................. (63,134) (79,098)
Maximum cash obligation ESOP .......................................... (179,823) (189,972)
Unearned ESOP shares .................................................. (368,450) (379,720)
---------------------------
Total stockholders' equity ...................................... 10,772,351 10,710,681
---------------------------
Total liabilities and stockholders' equity ...................... $108,797,610 $102,984,080
===========================
See Notes to Consolidated Financial Statements
WASHINGTON BANCORP AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 1999 and 1998
1999 1998
-------------------------
Interest income:
Loans receivable:
First mortgage loans ............................................. $1,024,093 $ 1,017,251
Consumer and other loans ......................................... 562,173 479,159
Investment securities:
Taxable .......................................................... 336,219 308,490
Non-taxable ...................................................... 15,189 19,644
--------------------------
Total interest income ................................... 1,937,674 1,824,544
--------------------------
Interest expense:
Deposits ............................................................. 844,717 801,132
Borrowed funds ....................................................... 241,398 228,776
--------------------------
Total interest expense .................................. 1,086,115 1,029,908
--------------------------
Net interest income ..................................... 851,559 794,636
Provision for loan losses ................................................. 21,500 22,000
--------------------------
Net interest income after
provision for loan losses ............................. 830,059 772,636
--------------------------
Noninterest income:
Loan origination and commitment fees ................................. 1,850 600
Service charges and fees ............................................. 87,978 85,522
Insurance commisions ................................................. 10,988 7,479
Other ................................................................ 1,954 985
--------------------------
Total noninterest income ................................ 102,770 94,586
--------------------------
Noninterest expense:
Compensation and benefits ............................................ 330,225 290,491
Occupancy and equipment .............................................. 60,255 53,464
SAIF/BIF deposit insurance premium ................................... 14,183 14,196
Data processing ...................................................... 28,066 23,136
Goodwill amortization ................................................ 23,640 23,640
Other ................................................................ 120,535 127,071
--------------------------
Total noninterest expense ............................... 576,904 531,998
--------------------------
Income before income taxes .............................. 355,925 335,224
Income tax expense ........................................................ 133,160 140,061
--------------------------
Net income .............................................. $ 222,765 $ 195,163
==========================
Earnings per common share:
Basic ................................................................ $ 0.40 $ 0.34
==========================
Diluted .............................................................. $ 0.39 $ 0.33
==========================
Tangible earnings per common share: ....................................... $ 0.43 $ 0.37
==========================
Dividends per common share: ............................................... $ -- $ 0.12
==========================
Weighted average common shares for:
Basic earnings per share ............................................. 561,812 574,072
==========================
Diluted earnings per share ........................................... 571,813 590,800
==========================
See Notes to Consolidated Financial Statements.
WASHINGTON BANCORP AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended September 30, 1999 and 1998
1999 1998
-------------------
Net income ......................................................................... $222,765 $195,163
Other comprehensive income, net of income taxes:
Unrealized holding gains (losses) arising during the
three months ended September 30, 1999 and 1998,
net of income taxes 1999 $57,206; 1998 $43,482 .......................... (95,513) 72,471
-------------------
Comprehensive income ............................................................... $127,252 $267,634
===================
WASHINGTON BANCORP AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended September 30, 1999 and 1998
1999 1998
----------------------------
Cash Flows from Operating Activities
Net Income .......................................................... $ 222,765 $ 195,163
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of premiums and discounts
on debt securities .......................................... 7,249 1,964
Amortization of goodwill ....................................... 23,641 23,640
Provision for loan losses ...................................... 21,500 22,000
Depreciaton .................................................... 21,857 13,878
Compensation under stock awards ................................ 15,964 19,469
ESOP contribution expense ...................................... 16,377 18,945
(Increase) in accrued interest receivable ...................... (120,432) (120,432)
Decrease in other assets ....................................... 10,869 6,446
(Decrease) in accrued expenses
and other liabilities ........................................ (50,342) (41,246)
----------------------------
Net cash provided by operating activities ........ 169,448 19,529
----------------------------
Cash Flows from Investing Activities
Held to maturity securities:
Purchases ...................................................... (60,000) - -
Available for sale securities:
Maturities and calls ........................................... 850,000 6,320,359
Purchases ...................................................... (950,000) (9,600,000)
Federal funds sold, net ............................................. 575,000 (874,763)
Purchase of Federal Home Loan Bank stock ............................ (140,700) (47,600)
Loans made to customers, net ........................................ (3,569,421) (3,139,117)
Purchase of premises and equipment .................................. (11,850) (28,700)
Net cash (used in) investing activities .......... (3,306,971) (7,369,821)
----------------------------
Cash Flows from Financing Activities
Net increase in deposits ............................................ 2,015,413 6,670,497
Proceeds from Federal Home Loan Bank advances ....................... 26,500,000 6,510,900
Principal payments on Federal Home Loan Bank advances ............... (22,664,304) (5,901,136)
Net increase (decrease) in advances from borrowers
for taxes and insurance ........................................ (123,710) (105,558)
Acquisition of common stock ......................................... (40,875) (684,125)
Dividends paid ...................................................... (67,197) (77,184)
Net cash provided by financing activities ........ 5,619,327 6,413,394
----------------------------
Net increase(decrease) in cash and cash
equivalents ................................. 2,481,804 (936,898)
Cash and cash equivalents:
Beginning ........................................ 2,557,430 3,306,374
----------------------------
Ending ........................................... $ 5,039,234 $ 2,369,476
============================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors .................................... $ 461,291 $ 389,951
Interest paid on other obligations ............................. 241,398 228,776
Income taxes, net of refunds ................................... 143,400 169,100
Supplemental Schedule of Noncash Investing
and Financing Activities
Transfers from loans to foreclosed
real estate .................................................... $ 65,563 $ 100,079
Contract sales of foreclosed real estate ............................ - - - -
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiary
Notes to Consolidated Financial Statements
Principles of consolidation. The accompanying consolidated financial statements
include the accounts of Washington Bancorp("Washington" or the "Company"),
Washington Federal Savings Bank ("Washington Federal" or "WFSB"), WFSB's
wholly-owned subsidiary, Washington Financial Services, Inc., which is a
discount brokerage firm, and Rubio Savings Bank of Brighton, Iowa ("Rubio" or
"RSB"). All significant intercompany balances and transactions have been
eliminated in consolidation.
Basis of presentation. Interim Financial Information (unaudited): The financial
statements and notes related thereto for the three month period ended September
30, 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, 1999 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. 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 Company's Employee Stock Ownership Plan
(the "ESOP") that have not been committed to be released are not considered
outstanding for the purpose of computing earnings per share.
In addition to the earnings per share ("EPS") information typically disclosed,
the Company provided "tangible" EPS as an alternative measure for evaluating the
Company's ability to grow its tangible capital. The Company's tangible EPS is
calculated by dividing the total of goodwill expense plus net income by the
weighted average number of diluted common shares outstanding.
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. The Company adopted the
recognition and retention plan in October 1996 whereby 26,300 shares of common
stock have been reserved for issuance to certain executive officers and
directors. During the year ended June 30, 1999, 1998 and 1997, awards were
granted for 2,192 shares, 2,127 shares and 19,914 shares respectively, with a
fair value of $16.63, $18.94 and $11.25 per share at the date of the grant,
respectively.
Redeemable common stock held by ESOP. The Company's maximum cash obligation
related to these shares is classified outside stockholders' equity because the
shares are not readily traded and could be put to the Company for cash. The
maximum cash obligation represents the approximate market value of the allocated
ESOP shares at the end of the reporting period.
Comprehensive Income. In 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income." Statement No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. The Company initially applied Statement
No. 130 for the three months ended September 30, 1998 and the statement of
comprehensive income has been added to the accompanying financial statements.
Regulatory capital requirements. Pursuant to the Financial Information Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), savings institutions must meet
three separate minimum capital-to-asset requirements. The following table
summarizes, as of September 30, 1999 the capital requirements of Washington
Federal under FIRREA and its actual capital ratios. As of September 30, 1999
Washington Federal exceeded all current regulatory capital requirement
standards.
At September 30, 1999
-----------------------
Amount Percent
-----------------------
(Dollars in thousands)
(unaudited)
Tangible Capital:
Capital Level ....................... $6,927 8.14%
Requirement ......................... 1,276 1.50%
------ -----
Excess .............................. $5,651 6.64%
------ -----
Core Capital:
Capital Level ....................... $6,927 8.14%
Requirement ......................... 3,404 4.00%
------ -----
Excess .............................. $3,523 4.14%
------ -----
Risk-Based Capital:
Capital Level ....................... $7,281 12.39%
Requirement ......................... 4,701 8.00%
------ -----
Excess .............................. $2,580 4.39%
------ -----
The following table summarizes the capital requirements of Rubio Savings Bank of
Brighton. As of September 30, 1999 Rubio substantially exceeded all current
regulatory capital requirement standards.
At September 30, 1999
----------------------
Amount Percent
----------------------
(Dollars in thousands)
(unaudited)
Tier 1 or Leverage Capital:
Capital Level ......................... $2,670 11.46%
Requirement ........................... 699 3.00%
------ ------
Excess ................................ $1,971 8.46%
------ ------
Tier 1 Risk-based Capital:
Capital Level ......................... $2,670 20.48%
Requirement ........................... 522 4.00%
------ ------
Excess ................................ $2,148 16.48%
------ ------
Risk-Based Capital:
Capital Level ......................... $2,828 21.69%
Requirement ........................... 1,043 8.00%
------ ------
Excess ................................ $1,785 13.69%
------ ------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
When used in this Form 10-QSB or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"project," "believe," or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made, and to advise readers that various factors, including regional
and national economic conditions, changes in levels of market interest rates,
credit risks of lending activities, and competitive and regulatory factors,
could affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from those anticipated or
projected.
The Company does not undertake, and specifically disclaims any obligations, to
revise any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
Impact of the Year 2000
In preparation for the century date change, the Banks have completed upgrades
and replacements of all computer systems and software that did not meet Year
2000 standards. Testing of the new products has been completed and the Banks are
satisfied that the products meet Year 2000 compliance. Four separate special
examinations for Year 2000 issues have been conducted by regulators since July
1, 1998 and the Banks have utilized the guidance of the OTS and the Federal
Deposit Insurance Corporation (the "FDIC") in applying their Year 2000 plans.
Communication with vendors and service providers is an on-going process to
assure uninterrupted services. The Banks have worked with local officials in
developing community-wide contingency plans for vital community-wide services
and have communicated with customers with regard to their Year 2000 preparations
and concerns. The Banks are committed to achieving the goal of Year 2000
readiness.
A cash management plan has been formulated to meet anticipated additional cash
needs of our customers. Capital expenditures for Year 2000 readiness to date
have been approximately $91,000, with an expected total of $120,000. These
expenses are not expected to have a significant impact on financial position or
results of operations.
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. In December 1998, Wellman Federal
Savings, a full-service branch of Washington Federal was opened in Wellman,
Iowa. In July 1999, Washington Federal formed a collaborative relationship with
Eagle One Financial Services, LLC, to provide financial planning services and
the sale of annuities, mutual funds, stocks and bonds. 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 invests in federal agency bonds, corporate bonds,
agricultural loans, commercial loans, consumer loans, and automobile loans.
Washington Federal filed an application with the Office of Thrift Supervision
(the "OTS") on August 19, 1998 to branch to Richland, Iowa, a small rural
community of 500, which currently has only a branch of a large regional bank.
The application is being evaluated by the OTS with plans to extend the period to
branch through October of 2000.
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, federal
agency bonds, corporate 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 $5.8 million from $103.0
million at June 30, 1999 to $108.8 million at September 30, 1999. The increase
was primarily due to a $3.5 million increase in loans receivable, a $2.5 million
increase in cash and cash equivalents, a $141,000 increase in Federal Home Loan
Bank stock, a $131,000 increase in other assets, and a $120,000 increase in
accrued interest receivable partially offset by a $575,000 decrease in federal
funds, sold. The increase was primarily funded by a $3.8 million increase in
borrowed funds and a $2.0 million increase in deposits.
Loans receivable. Loans receivable, net, increased $3.5 million from $72.8
million at June 30, 1999 to $76.3 million at September 30, 1999. This increase
is primarily due to increased loan demand in the Company's market area. The
Company's non-performing assets were $332,000 or 0.31% of total assets at
September 30, 1999 as compared to $326,000 or 0.32% of total assets at June 30,
1999. Management remains committed to maintaining the non-performing assets to
total assets ratio within industry standards.
Investment securities. Investment securities available-for-sale decreased
$59,000 from $20.7 million at June 30, 1999 to $20.6 million at September 30,
1999. Securities classified as held to maturity increased $59,000 from $761,000
at June 30, 1999 to $820,000 at September 30, 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
September 30, 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 $120,000 from
$1.2 million at June 30, 1999 to $1.3 million at September 30, 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 $2.0 million from $75.7 million at June 30, 1999 to
$77.7 million at September 30, 1999. This increase is primarily due to the
seasonal deposits of local government and the competitive pricing of certificate
of deposit products. Transaction and savings deposits increased as a percentage
of total deposits from $25.7 million or 34.0% at June 30, 1999 to $27.6 million
or 35.5% at September 30, 1999. Certificates of deposit decreased as a
percentage of total deposits from $50.0 million or 66.0% at June 30, 1999 to
$50.1 million or 64.5% at September 30, 1999.
FHLB Borrowings. The total principal balance in advances from the Federal Home
Loan Bank of Des Moines (FHLB) increased $3.8 million from $15.7 million at June
30, 1999 to $19.5 million at September 30, 1999. The increase is primarily due
to the increased need to borrow to fund loan activity and investment activity.
Washington has utilized the FHLB advances for this loan growth in efforts to
control cost of funds and interest rate risk. The portfolio of borrowings
contains both long and short term borrowings.
Advances from borrowers for taxes and insurance. The total balance in advances
from borrowers for taxes and insurance decreased $124,000 from $223,000 at June
30, 1999 to $99,000 at September 30, 1999 primarily due to the payment of
semi-annual real estate taxes which were due September 30, 1999.
Total stockholders' equity. Total stockholders' equity increased $61,000 from
$10.7 million at June 30, 1999 to $10.8 million at September 30, 1999. The
increase is primarily due to net income of $223,000, the allocation of shares in
the ESOP of $16,000, the amortization of deferred compensation under the
Recognition and Retention Plan of $16,000, and the change in redeemable common
stock held by the ESOP of $10,000, partially offset by the net unrealized loss
in available-for-sale securities of $96,000, dividends paid of $67,000, and the
purchase of 3,000 shares of the Company's common stock at a total cost of
$41,000.
Results of Operations - Three Months Ended September 30, 1999 As Compared To The
Three Months Ended September 30, 1998
Performance summary. Net earnings increased $28,000 to $223,000 for the three
months ended September 30, 1999 from $195,000 for the three months ended
September 30, 1998. The increase is primarily due to an increase in interest
income of $113,000, an increase in noninterest income of $8,000, and a decrease
in income tax expense of $7,000, which was partially offset by an increase in
interest expense of $56,000, and an increase in noninterest expense of $45,000.
For the three months ended September 30, 1999, the annualized return on average
assets was 0.86% as compared to 0.83% for the three months ended September 30,
1998. The annualized return on average equity was 8.34% for the three months
ended September 30, 1999, as compared to 7.26% for the three months ended
September 30, 1998.
Net interest income. Net interest income increased $57,000 to $852,000 for the
three months ended September 30, 1999 from $795,000 for the three months ended
September 30, 1998. The increase is primarily due to the increase of $113,000 in
interest income to $1.9 million for the three months ended September 30, 1999
from $1.8 million for the three months ended September 30, 1998, which was
partially offset by an increase in interest expense of $56,000 to $1.1 million
for the three months ended September 30, 1999 from $1.0 million for the three
months ended September 30, 1998.
For the three months ended September 30, 1999, the average yield on interest
earning assets was 7.88% compared to 8.13% for the three months ended September
30, 1998 due to declining loan and bond rates. The average cost of
interest-bearing liabilities was 4.88% for the three months ended September 30,
1999 compared to 5.14% for the three months ended September 30, 1998. The
average balance of interest earning assets increased $8.5 million to $98.3
million for the three months ended September 30, 1999 from $89.8 million for the
three months ended September 30, 1998. During this same period, the average
balance of interest-bearing liabilities increased $9.0 million to $89.0 million
for the three months ended September 30, 1999 from $80.0 million for the three
months ended September 30, 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 3.00% for the three months ended September 30, 1999 compared to 2.98% for
the three months ended September 30, 1998. Due to the increase in
interest-bearing liabilities as a percentage of interest-earning assets, the
average net interest margin was 3.46% for the three months ended September 30,
1999 compared to 3.54% for the three months ended September 30, 1998.
Provision for loan loss. Provision for loan loss decreased slightly for the
three months ended September 30, 1999 compared to the three months ended
September 30, 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 $495,000
or 0.65% of loans receivable, net at September 30, 1999 compared to $415,000 or
0.60% of loans receivable, net at September 30, 1998. The allowance for loan
loss as a percentage of non-performing assets was 149.17% at September 30, 1999,
as compared to 126.62% at September 30, 1998.
Noninterest income. Noninterest income increased $8,000 to $103,000 for the
three months ended September 30, 1999 from $95,000 for the three months ended
September 30, 1998. The increase is primarily due to an increase in insurance
commissions of $4,000, an increase in bank service charges of $2,000, and an
increase in loan origination and commitment fees of $1,000 and other noninterest
income of $1,000.
Insurance commissions increased $4,000 to $11,000 for the three months ended
September 30, 1999 from $7,000 for the three months ended September 30, 1998
primarily due to the fluctuations in the volume of sales of credit life and
disability products. Bank service charges and fees increased $2,000 to $88,000
for the three months ended September 30, 1999 from $86,000 for the three months
ended September 30, 1998 primarily due to continued efforts in restructuring fee
schedules..
Noninterest expense. Noninterest expense increased $45,000 to $577,000 for the
three months ended September 30, 1999 from $532,000 for the three months ended
September 30, 1998. The increase is primarily due to a $40,000 increase in
compensation and benefits, a $7,000 increase in occupancy and equipment expense
and a $5,000 increase in data processing, which was partially offset by a $7,000
decrease in other noninterest expense. These increases were primarily due to the
expansion of Washington Federal's service area through the opening of a branch
in Wellman, Iowa in November 1998.
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, other
governmental agency, and corporate securities and other obligations generally
having remaining maturities of less than five years. Washington Federal has
historically maintained its liquidity ratio at levels in excess of those
required. At September 30, 1999, Washington Federal's liquidity ratio was
12.89%.
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 September 30, 1999, Washington Federal had
outstanding commitments to extend credit which amounted to $2.7 million and
Rubio had outstanding commitments to extend credit which amounted to $833,000.
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.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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
ended September 30, 1999
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Washington Bancorp
(Registrant)
Date November 12, 1999 /s/ Stan Carlson
----------------- ------------------------------------
Stan Carlson, President and Chief
Executive Officer
Date November 12, 1999 /s/ Leisha A. Linge
----------------- ------------------------------------
Leisha A. Linge, Vice President and
Controller