SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
January 15, 1998
Washington Bancorp
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Iowa 0-25076 42-1446740
- ------------------------------------------------------------------------------
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification
incorporation) 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
- ------------------------------------------------------------------------------
N/A
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
The purpose of this amendment on Form 8-K/A to the Current Report on
Form 8-K of Washington Bancorp ("Washington") is to provide the pro forma
financial information required by Form 8-K which, at the time of the filing of
the 8-K, was impracticable for Washington to have provided.
Item 2. Acquisition or Disposition of Assets.
On January 15, 1998, Washington Bancorp ("Washington"), an Iowa
corporation and the holding company for Washington Federal Savings Bank (the
"Bank"), completed the acquisition of Rubio Savings Bank of Brighton
("Rubio"). The acquisition is being accounted for using the purchase method
of accounting. The acquisition was effected through the merger into Rubio of
an Iowa-chartered interim bank, with Rubio being the surviving corporation
and becoming a wholly owned subsidiary of Washington (the "Merger"). The Merger
was consummated pursuant to an Agreement and Plan of Reorganization, dated as
of June 24, 1997, by and between Rubio and Washington (the "Merger Agreement").
Each holder of the common stock of Rubio, par value $100.00 per share
("Rubio Common Stock"), received $2,334.00 in cash for each share of Rubio
Common Stock held. Based on the 2,000 outstanding shares of Rubio Common
Stock, the total consideration paid by Washington was approximately $4.7
million in cash. Washington financed the acquisition of Rubio with existing
cash.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
Index to Financial Statements Page No.
------------------------------------------------------------
Audited Financial Statements of
Rubio Savings Bank of Brighton
Independent Auditors' Report F-1
Balance Sheet as of December 31, 1997 F-2
Statement of Income for the year ended
December 31, 1997 F-3
Statement of Stockholders' Equity for
the year ended December 31, 1997 F-4
Statement of Cash Flows for the year
ended December 31, 1997 F-5
Notes to Financial Statements F-7
(b) Pro forma financial information.
The unaudited pro forma financial information has been
prepared to comply with Regulation S-X of the Securities and
Exchange Commission in connection with the filing of the Form 8-K
for Washington to report the completion on January 15, 1998 of
Washington's acquisition of Rubio. Pursuant to the Merger
Agreement, each holder of Rubio Common Stock received $2,334.00
in cash for each share of Rubio Common Stock held.
The unaudited pro forma financial information set forth
below presents the pro forma condensed balance sheet of Washington
and Rubio as of December 31, 1997, as if the Merger had been
consummated at such date. In addition, the unaudited pro forma
condensed statements of income of Washington and Rubio, for the
year ended June 30, 1997, and the six months ended December 31,
1997, are presented as if the Merger had been consummated as of
the beginning of the respective periods.
The following unaudited pro forma financial information has
been prepared from, and should be read in conjunction with, the
financial statements, including notes thereto, of Washington and
Rubio, respectively.
The unaudited pro forma financial information presented
below has been prepared using the purchase method of accounting,
whereby the total cost of the Merger was allocated to the tangible
and intangible assets acquired and liabilities assumed based upon
their respective fair values at the effective date of the Merger.
The unaudited pro forma financial information is provided
for informational purposes only and is not necessarily indicative
of the financial position or operating results that would have
occurred had the Merger been consummated on the dates indicated,
or at the beginning of the period for which the consummation of
such transaction is being given effect, nor is it necessarily
indicative of future operating results or financial position.
(c) Exhibits.
None.
WASHINGTON BANCORP AND SUBSIDIARY
PRO FORMA CONDENSED STATEMENT
OF FINANCIAL CONDITION (UNAUDITED)
DECEMBER 31, 1997
RUBIO
SAVINGS ADJUSTMENTS
WASHINGTON BANK OF FOR
BANCORP BRIGHTON ACQUISITION AS ADJUSTED
---------- ----------- ------------ ------------
ASSETS
Cash and cash equivalents $ 2,414,182 $ 457,129 $3,000,000 (1) $ 1,150,444
(4,720,867)(2)
Investment securities 6,105,677 12,152,093 --- 18,257,770
Federal funds sold --- 1,552,496 --- 1,552,496
Loans receivable, net 55,827,909 8,030,505 --- 63,858,414
Accrued interest receivable 568,778 324,319 --- 893,097
Federal Home Loan Bank stock 518,800 --- --- 518,800
Premises and equipment, net 543,654 43,735 183,031 (2) 770,420
Goodwill, net --- --- 1,437,301 (2) 1,437,301
Other assets 112,138 --- (76,822)(2) 35,316
----------- ----------- ---------- -----------
$66,091,138 $22,560,277 $ (177,357) $88,474,058
=========== =========== ========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities
Deposits $44,471,416 $19,076,877 --- $63,548,293
Borrowed funds 9,844,772 --- 3,000,000 (1) 12,844,772
Advances from borrowers for taxes
and insurance 178,620 --- --- 178,620
Accrued expenses and other
liabilities 537,683 237,773 68,270 (2) 843,726
----------- ----------- ---------- -----------
55,032,491 19,314,650 3,068,270 77,415,411
----------- ----------- ---------- -----------
Redeemable Common Stock Held by
Employee Stock Ownership Plan 78,066 --- --- 78,066
----------- ----------- ---------- -----------
Stockholders' Equity
Common Stock 6,575 200,000 (200,000)(3) 6,575
Additional paid-in capital 6,163,563 600,000 (600,000)(3) 6,163,563
Retained earnings 5,524,313 2,425,627 (2,425,627)(3) 5,524,313
Unrealized gains on investment
securities available for sale,
net of income taxes 3,641 20,000 (20,000)(3) 3,641
----------- ----------- ---------- -----------
11,698,092 3,245,627 (3,245,627) 11,698,092
Less:
Cost of common shares acquired
for the treasury (85,827) --- --- (85,827)
Deferred compensation (109,618) --- --- (109,618)
Maximum cash obligation related
to ESOP shares (78,066) --- --- (78,066)
Unearned ESOP shares (444,000) --- --- (444,000)
----------- ----------- ---------- -----------
10,980,581 3,245,627 (3,245,627) 10,980,581
----------- ----------- ---------- -----------
$66,091,138 $22,560,277 $ (177,357) $88,474,058
=========== =========== ========== ===========
(1) To record Federal Home Loan Bank advances used to finance the acquisition of Rubio Savings
Bank of Brighton.
(2) To record the preliminary allocation of the net purchase price to Rubio Savings Bank of
Brighton's assets acquired including goodwill. Net purchase price is $4,668,000 plus an
estimated $129,689 in acquisition costs.
(3) To eliminate Rubio Savings Bank of Brighton's common stock, additional paid-in capital,
retained earnings and unrealized gains on investment securities available for sale, net of
taxes.
/TABLE
WASHINGTON BANCORP AND SUBSIDIARY
PRO FORMA CONDENSED STATEMENT
OF INCOME (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1997
RUBIO
SAVINGS ADJUSTMENTS
WASHINGTON BANK OF FOR
BANCORP BRIGHTON ACQUISITION AS ADJUSTED
---------- ----------- ------------ ------------
Interest income:
Loans receivable:
First mortgage loans 1,781,304 108,517 --- 1,889,821
Consumer and other loans 544,646 278,829 --- 823,475
Investment securities:
Taxable 265,621 342,100 (41,700)(4) 566,021
Nontaxable 10,733 28,713 --- 39,446
----------- ----------- ---------- -----------
Total interest income 2,602,304 758,159 (41,700) 3,318,763
----------- ----------- ---------- -----------
Interest expense:
Deposits 1,100,275 402,231 --- 1,502,506
Borrowed funds 266,332 --- 85,200 (3) 351,532
----------- ----------- ---------- -----------
Total interest expense 1,366,607 402,231 85,200 1,854,038
----------- ----------- ---------- -----------
Net interest income 1,235,697 355,928 (126,900) 1,464,725
Provision for loan losses 53,000 10,000 --- 63,000
----------- ----------- ---------- -----------
Net interest income after
provision for loan losses 1,182,697 345,928 (126,900) 1,401,725
----------- ----------- ---------- -----------
Noninterest income:
Securities gains (losses), net --- --- --- ---
Loan origination and commitment fees 5,304 --- --- 5,304
Service changes and fees 82,098 49,357 --- 131,455
Insurance commissions 45,709 511 --- 46,220
Other 2,315 1,873 --- 4,188
----------- ----------- ---------- -----------
Total noninterest income 135,426 51,741 --- 187,167
----------- ----------- ---------- -----------
Noninterest expense:
Compensation and benefits 408,351 143,006 --- 551,357
Occupancy and equipment 74,936 29,779 3,687 (2) 108,402
SAIF deposit insurance premium 23,882 --- --- 23,882
Data processing 39,211 --- --- 39,211
Goodwill amortization --- --- 47,281(1) 47,281
Other 237,698 77,617 --- 315,315
----------- ----------- ---------- -----------
Total noninterest expense 784,078 250,402 50,968 1,085,448
----------- ----------- ---------- -----------
Income before income taxes 534,045 147,267 (177,868) 503,444
Income tax expense 177,595 47,004 (48,709)(5) 175,890
----------- ----------- ---------- -----------
Net income $ 356,450 $ 100,263 $ (129,159) $ 327,554
=========== =========== ========== ===========
Earnings per common:
Basic $0.59 $0.54
=========== ===========
Diluted $0.57 $0.53
=========== ===========
Weighted average common shares for:
Basic 605,766 605,766
=========== ===========
Diluted 622,604 622,604
=========== ===========
(1) To record amortization of goodwill acquired over 15 years.
(2) To record increased depreciation related to building acquired.
(3) To record interest on Federal Home Loan Bank advances used to finance acquisition of Rubio
Savings Bank of Brighton.
(4) To eliminate interest income not earned due to cash used to acquire Rubio Savings Bank of
Brighton.
(5) To record income tax effect of proforma adjustments.
/TABLE
WASHINGTON BANCORP AND SUBSIDIARY
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED JUNE 30, 1997
RUBIO SAVINGS ADJUSTMENTS
WASHINGTON BANK OF FOR
BANCORP BRIGHTON ACQUISITION AS ADJUSTED
------------- ------------- ------------- ------------
Interest income:
Loans receivable:
First mortgage loans 3,430,290 213,203 --- 3,643,493
Consumer and other loans 697,384 528,477 --- 1,225,861
Investment securities:
Taxable 840,485 684,188 (83,400)(4) 1,441,273
Nontaxable 21,516 59,369 --- 80,885
--------- --------- -------- ---------
Total interest income 4,989,675 1,485,237 (83,400) 6,391,512
--------- --------- -------- ---------
Interest expense:
Deposits 2,215,768 771,417 --- 2,987,185
Borrowed funds 337,405 --- 170,400 (3) 507,805
--------- --------- -------- ---------
Total interest expense 2,554,173 771,417 170,400 3,494,990
--------- --------- -------- ---------
Net interest income 2,436,502 713,820 (253,800) 2,896,522
Provision for loan losses 40,085 20,000 --- 60,085
--------- --------- -------- ---------
Net interest income after
Provision for loan losses 2,396,417 693,820 (253,800) 2,836,437
Noninterest income:
Securities gains (losses), net 388 --- --- 388
Loan origination and commitment fees 7,724 --- --- 7,724
Service charges and fees 117,241 106,849 --- 224,090
Insurance commissions 77,922 2,309 --- 80,231
Other 27,893 4,653 --- 32,546
--------- --------- -------- ---------
Total noninterest income 231,168 113,811 --- 344,979
--------- --------- -------- ---------
Noninterest expense:
Compensation and benefits 722,087 268,909 --- 990,996
Occupancy and equipment 149,738 46,326 7,373 (2) 203,437
SAIF deposit insurance premium 376,862 --- --- 376,862
Data processing 75,196 --- --- 75,196
Goodwill amortization --- --- 94,562 (1) 94,562
Other 388,258 107,189 --- 495,447
--------- --------- -------- ---------
Total noninterest expense 1,712,141 422,424 101,935 2,236,500
--------- --------- -------- ---------
Income before income taxes 915,444 385,207 (355,735) 944,916
Income tax expense 350,767 118,069 (97,418)(5) 371,418
--------- --------- -------- ---------
Net income $ 564,677 $ 267,138 ($258,317) $ 573,498
========= ========= ======== =========
Earnings per common:
Basic $0.92 $0.94
========= =========
Diluted $0.91 $0.93
========= =========
Weighted average common shares for:
Basic 611,539 611,539
========= =========
Diluted 617,602 617,602
========= =========
(1) To record amortization of goodwill acquired over 15 years.
(2) To record increased depreciation related to building acquired.
(3) To record interest on Federal Home Loan Bank advances used to finance acquisition of
Rubio Savings Bank of Brighton
(4) To eliminate interest income not earned due to cash used to acquire Rubio Savings Bank
of Brighton
(5) To record income tax effect of proforma adjustments.
/TABLE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
WASHINGTON BANCORP
Date: March 31, 1998 By: /s/ Stan Carlson
-----------------------------------
Stan Carlson
President and Chief
Executive Officer
RUBIO SAVINGS BANK OF BRIGHTON
FINANCIAL REPORT
DECEMBER 31, 1997
CONTENTS
INDEPENDENT AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS
Balance sheet F-2
Statement of income F-3
Statement of stockholders' equity F-4
Statement of cash flows F-5 - 6
Notes to financial statements F-7 - 13
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Rubio Savings Bank of Brighton
Brighton, Iowa
We have audited the accompanying balance sheet of Rubio Savings Bank of
Brighton as of December 31, 1997, and the related statements of income,
stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Bank's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rubio Savings Bank of
Brighton as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ McGladrey & Pullen, LLP
Cedar Rapids, Iowa
February 2, 1998
F-1
Rubio Savings Bank of Brighton
Balance Sheet
December 31, 1997
ASSETS
- --------------------------------------------------------------------------------
Cash and due from banks 457,129
Investment securities (Note 2):
Held to maturity (fair value $1,221,286) 1,221,286
Available for sale (amortized cost $10,895,807) 10,930,807
Federal funds sold 1,552,496
Loans, net (Note 3) 8,030,505
Bank premises and equipment, net (Note 4) 43,735
Accrued interest receivable 324,319
----------
22,560,277
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Liabilities
Deposits (Note 5):
Interest-bearing 17,497,138
Noninterest-bearing 1,579,739
----------
19,076,877
Accrued interest and other liabilities (Notes 6 and 8) 237,773
----------
19,314,650
Commitments and Contingencies (Notes 9 and 10)
Stockholders' Equity
Common stock, $100 par value; authorized 2,000 shares;
issued and outstanding 2,000 shares 200,000
Surplus 600,000
Undivided profits (Notes 7 and 10) 2,425,627
Unrealized gains on debt securities available
for sale, net 20,000 3,245,627
---------- ----------
22,560,277
==========
See Notes to Financial Statements.
F-2
Rubio Savings Bank of Brighton
Statement of Income
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 757,219
Interest on investment securities:
U.S. Treasury 512,622
U.S. Government agencies 103,214
States and political subdivisions 58,437
Interest on federal funds sold 64,971
----------
Total interest income 1,496,463
Interest expense on deposits 786,233
----------
Net interest income 710,230
Provision for loan losses (Note 3) 20,000
----------
Net interest income after provision for loan losses 690,230
----------
Other income:
Fees from other services to customers 105,030
Other 4,547
----------
Total other income 109,577
----------
Other expenses:
Salaries and employee benefits (Note 8) 273,561
Net occupancy expense of premises 27,262
Equipment rentals, depreciation and maintenance 17,608
Other 121,494
----------
Total other expenses 439,925
----------
Income before income taxes 359,882
Provision for income taxes (Note 6) 114,604
----------
Net income $ 245,278
==========
Earnings per common share, basic and diluted $ 122.64
==========
See Notes to Financial Statements.
F-3
Rubio Savings Bank of Brighton
Statement of Stockholders' Equity
Year Ended December 31, 1997
Unrealized
Gains
(Losses)
On Debt
Undivided Securities
Common Profits Available
Stock Surplus (Note 8) For Sale, Net Total
- -----------------------------------------------------------------------------------------------
Balance, December 31, 1996 $200,000 $600,000 $2,220,349 $ (2,000) $3,018,349
Net income --- --- 245,278 --- 245,278
Cash dividends declared
($20.00 per share) --- --- (40,000) --- (40,000)
Unrealized appreciation
on debt securities
available for sale, net --- --- --- 22,000 22,000
----------------------------------------------------------------
Balance, December 31, 1997 $200,000 $600,000 $2,425,627 $20,000 $3,245,627
================================================================
See Notes to Financial Statements.
F-4
Rubio Savings Bank of Brighton
Statement of Cash Flows
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 245,278
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 17,108
Provision for loan losses 20,000
Deferred income taxes (15,000)
Amortization of bond premium and discounts 17,555
Decrease in accrued interest receivable 3,144
(Decrease) in accrued interest and other liabilities 66,995
----------
Net cash provided by operating activities 221,090
----------
Cash Flows from Investing Activities
Held-to-maturity securities:
Maturities 87,000
Purchases (160,000)
Available-for-sale securities:
Maturities 4,030,000
Purchases (3,979,910)
Federal funds sold, net (952,496)
Net increase in loans outstanding (176,612)
----------
Net cash (used in) investing activities (1,152,018)
----------
Cash Flows from Financing Activities
Net increase in interest-bearing deposits 225,290
Net increase (decrease) in noninterest-bearing deposits 74,341
Dividends paid (40,000)
----------
Net cash provided by financing activities 259,631
----------
(Decrease) in cash and due from banks (671,297)
Cash and due from banks:
Beginning 1,128,426
----------
Ending $ 457,129
==========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors $ 784,110
Income taxes 82,173
See Notes to Financial Statements.
F-5
RUBIO SAVINGS BANK OF BRIGHTON
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
Note 1. Nature of Banking Activities and Significant Accounting Policies
Nature of banking activities: Rubio Savings Bank of Brighton (the "Bank")
is a commercial bank primarily engaged in granting commercial, agricultural,
real estate and consumer loans and accepting deposits in Washington County,
Iowa and the surrounding area.
Accounting estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Presentation of cash flows: For purposes of reporting cash flows, cash and
due from banks includes cash on hand and amounts due from banks (including
cash items in process of clearing). Cash flows from loans originated by the
Bank, deposits, and federal funds purchased and sold are reported net.
Investment securities: Debt securities classified as held to maturity are
those for which the Bank has the ability and intent to hold to maturity.
Securities meeting such criteria at the date of purchase and as of the
balance sheet date are carried at cost, adjusted for amortization of premiums
and discounts.
Investment securities available for sale are accounted for at fair value and
the unrealized holding gains or losses are presented as a separate component
of stockholders' equity, net of their deferred income tax effect. Gains and
losses on sales of available-for-sale securities are based upon the adjusted
book value of the specific securities sold. Realized gains and losses are
included in earnings.
There were no investments held for trading purposes as of December 31, 1997.
Loans: Loans are stated at the amount of unpaid principal reduced by an
allowance for possible loan losses. Loan fees and origination costs are
reflected in the statement of income as collected or incurred. This practice
had no significant effect from the deferral method.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance when
management believes the collectibility or principal is unlikely.
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated. The allowance is
increased by provisions charged to operating expense and reduced by net
charge-offs. The Bank makes continuous credit reviews of the loan portfolios
and considers current economic conditions, historical loss experience, review
of specific problem loans and other factors in determining the adequacy of
the allowance balance.
F-6
RUBIO SAVINGS BANK OF BRIGHTON
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
Note 1. Nature of Banking Activities and Significant Accounting Policies
(Continued)
Loans are considered impaired when, based on all current information and
events, it is probable the Bank will not be able to collect all amounts due.
If applicable, the portion of the allowance for loan losses related to
impaired loans is computed based on the present value of the estimated future
cash flows of interest and principal discounted at the loan's effective
interest rate or on the fair value of the collateral for collateral dependent
loans. The entire change in present value of expected cash flows for
impaired loans is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the amount of bad
debt expense that otherwise would be reported. Interest income on impaired
loans is recognized on the cash basis.
Interest on loans is accrued daily on the outstanding balances. Accrual of
interest is discontinued on a loan when management believes, after
considering collection efforts and other factors, that the borrower's
financial condition is such that collection of interest is doubtful.
Bank premises and equipment: Bank premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed principally by the
straight-line and declining-balance methods.
Income taxes: Deferred taxes are provided under the liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Earnings per share: The FASB has issued Statement No. 128, "Earnings Per
Share," which supersedes APB Opinion No. 15. Statement No. 128 requires the
presentation of basic earnings per share which is computed by dividing net
income by the weighted-average number of common shares outstanding and
diluted earnings per share. Diluted per-share amounts assume the conversion
or exercise of all potential common stock instruments unless the effect is to
reduce the loss or increase the income per common share. The Company
initially applied Statement No. 128 for the year ended December 31, 1997.
Recently issued accounting standards: The Bank believes that the adoption of
recently issued accounting standards will not have a material or significant
effect on the financial statements.
F-7
RUBIO SAVINGS BANK OF BRIGHTON
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
Note 2. Investment Securities
Carrying amounts and fair values of investment securities as of December 31,
1997 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---------------------------------------------------
Held to maturity:
State and political subdivisions $ 1,221,286 $ --- $ --- $1,221,286
---------------------------------------------------
Available for sale:
U.S. Treasury securities 9,225,846 27,000 3,601 9,249,245
U.S. Government agencies and
corporations 1,669,961 11,601 --- 1,681,562
---------------------------------------------------
10,895,807 38,601 (3,601) 10,930,807
---------------------------------------------------
Totals $12,117,093 38,601 (3,601) $12,152,093
===================================================
The amortized cost and fair value of debt securities as of December 31, 1997
by contractual maturity are shown below:
Amortized Fair
Cost Value
-------------------------
Held to maturity:
Due in one year or less $ 100,185 $ 100,185
Due after one year through five years 961,101 96,110
Due after five years through ten years 160,000 160,000
-------------------------
1,221,286 1,221,286
-------------------------
Available for sale:
Due in one year or less 3,495,741 3,491,092
Due after one year through five years 7,400,066 7,439,715
-------------------------
10,895,807 10,930,807
-------------------------
$12,117,093 $12,152,093
=========================
There were no realized gains or losses for the year ended December 31, 1997.
Investment securities with a carrying amount of $302,602 at December 31,
1997 were pledged as collateral on public deposits and for other purposes as
required or permitted by law. The carrying amount at December 31, 1997
includes available for sale securities at fair value.
F-8
RUBIO SAVINGS BANK OF BRIGHTON
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
Note 3. Loans
The composition of the net loans as of December 31, 1997 is as follows:
Commercial $1,489,569
Agricultural 2,700,909
Real estate 2,385,625
Consumer 1,411,740
Other 147,686
----------
8,135,529
Allowance for loan losses 105,024
----------
$8,030,505
==========
Changes in the allowance for loan losses at December 31, 1997 are as
follows:
Balance, beginning $ 100,208
Provision charged to operating expenses 20,000
Recoveries of charged off loans 7,493
Loans charged off (22,677)
----------
Balance, ending $ 105,024
==========
Directors and related entities, officers and employees of the Bank were
indebted to the Bank in the amount of approximately $259,000 at December 31,
1997.
The Bank has no impaired loans at December 31, 1997.
Note 4. Bank Premises and Equipment
The major classes of bank premises and equipment and the total accumulated
depreciation at December 31, 1997 are as follows:
Bank premises $ 329,030
Furniture and equipment 284,731
----------
613,761
Less accumulated depreciation 570,026
----------
$ 43,735
==========
F-9
RUBIO SAVINGS BANK OF BRIGHTON
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
Note 4. Deposits
The composition of deposits as of December 31, 1997 is as follows:
Demand $ 1,579,739
NOW 1,311,656
Super NOW 1,820,302
Hi-Fi 1,371,948
Savings 3,457,593
Time certificates, $100,000 or more $578,102 9,535,639
-----------
$19,076,877
===========
Note 6. Income Tax Matters
Net deferred tax liabilities arose from the following temporary differences
as of December 31, 1997:
Cash basis of accounting $ (55,000)
Discount accretion (10,000)
Allowance for loan losses (23,000)
Unrealized (gain) loss on debt securities available for sale (15,000)
-----------
Net included in other liabilities $ (57,000)
===========
The net change in the deferred income taxes is reflected in the financial
statements for the year ended as follows:
Statement of income $ (15,000)
Statement of stockholders' equity 15,000
-----------
$ ---
===========
The provision for income taxes for the year ended December 31, 1997 consists
of the following:
Current $ 129,604
Deferred (15,000)
-----------
114,604
===========
F-10
RUBIO SAVINGS BANK OF BRIGHTON
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
Note 6. Income Tax Matters (Continued)
The income tax provision differs from the amount of income tax determined by
applying the U. S. Federal income tax rate of 34% to pretax income for the
year ended December 31, 1997 due to the following:
Computed "expected" tax expense $122,360
Increase (decrease) in income taxes resulting from:
Tax-exempt interest 17,862
State income taxes, net of federal benefit 13,014
Other (2,908)
-----------
$114,604
===========
Note 7. Regulatory Capital Requirements
Federal regulatory agencies have adopted various capital standards for
financial institutions, including risk-based capital standards. Risk-based
capital standards have requirements for a minimum Tier 1 capital to assets
ratio (leverage ratio). In addition, regulatory agencies consider the
published capital levels as minimum levels and may require a financial
institution to maintain capital at higher levels.
A comparison of the Bank's capital as of December 31, 1997 with the minimum
requirements is presented below:
Minimum
Actual Requirements
---------------------
Tier 1 risk-based capital 36.3% 8.0%
Total risk-based capital 37.5 4.0
Leverage ratio 14.4 4.0
According to FDIC capital guidelines, the Bank is considered to be "well
capitalized."
Banking laws and regulations limit the amount of dividends that may be paid
without prior approval of the Bank's regulatory agency. Under these
restrictions, the Bank may not pay dividends that would result in its
capital levels being reduced below the minimum requirements shown above.
Note 8. Defined Contribution Retirement Plan
The Bank has a defined contribution retirement plan covering substantially
all its employees. Contributions, which are 10% of each covered employee's
compensation, totaled $20,460 for the year ended December 31, 1997.
F-11
RUBIO SAVINGS BANK OF BRIGHTON
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
Note 9. Commitments and Contingencies
Financial instruments with off-balance-sheet risk: The Bank is party to
financial instruments with off-balance- sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of
credit. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments. A
summary of the Bank's commitments at December 31, 1997 is as follows:
Commitments to extend credit $542,000
Standby letters of credit 150,000
--------
$692,000
========
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Bank upon extension of credit, is based on management's credit
evaluation of the party. Collateral held varies, but may include accounts
receivable, crops, livestock, inventory, property and equipment, residential
real estate and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. Collateral
held varies as specified above and is required in instances which the Bank
deems necessary.
Concentrations of credit risk: All of the Bank's loans, commitments to
extend credit, and standby letters of credit have been granted to customers
in the Bank's market area. Investments in securities issued by state and
political subdivisions (see Note 2) also involve governmental entities
within the Bank's market area. Investment securities of Iowa political
subdivisions totaled approximately $1,221,300 as of December 31, 1997. No
individual municipality exceeded $300,000. The concentrations of credit by
type of loan are set forth in Note 3. The distribution of commitments to
extend credit approximates the distribution of loans outstanding. Standby
letters of credit were granted primarily to commercial borrowers. The Bank,
as a matter of policy, does not extend credit to any single borrower or
group of related borrowers in excess of $160,000 without the approval of the
Board of Directors. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon the agricultural economic sector and upon economic conditions
in Washington County, Iowa.
F-12
RUBIO SAVINGS BANK OF BRIGHTON
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
Note 9. Commitments and Contingencies (Continued)
Contingencies: In the normal course of business, the Bank is involved in
various legal proceedings. In the opinion of management, any liability
resulting from such proceedings would not have a material adverse effect on
the Bank's financial statements.
Year 2000 plans: Information technology experts believe that many data
processing application systems could fail or improperly perform as a result
of erroneous calculation or data integrity problems if they are unable to
process date information beyond December 31, 1999, an issue known as Year
2000. The Bank is heavily dependent upon computer processing and has not
completed an identification and assessments of critical applications. The
Bank's plan is to identify, assess and test its critical processing
functions within the next year and obtain validation and certification for
the more critical functions.
Note 10.Reorganization of Bank and Subsequent Events
On January 15, 1998, 100% of the common stock of the Bank was acquired by
Washington Bancorp ("Washington") pursuant to an Agreement and Plan of
Reorganization. Under the agreement, the Bank was merged into an
Iowa-chartered interim bank, with the Bank being the surviving corporation
and becoming a wholly-owned subsidiary of Washington. Immediately after the
merger, each share of the Bank was converted into the right to receive
$2,334 in cash. The acquisition resulted in a total purchase price of
approximately $4.7 million. On January 28, 1998, the Bank paid a $1,000,000
dividend to Washington.
F-13