FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number 0-25076
Washington Bancorp
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(Exact name of small business issuer as specified in its charter)
Iowa 42-1446740
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 East Main Street, Washington, Iowa 52353
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (319)653-7256
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
The issuer has been subject to such filing requirements since March 11, 1996.
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 651,133 shares outstanding as to February 10, 1998
Transitional Small Business Disclosure Format (check one): Yes[ ] No[X]
<PAGE>
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at December 31,
1997 (unaudited) and June 30, 1997
Unaudited Consolidated Statements of Income for the
three months ended December 31, 1997 and 1996 and
for the six months ended December 31, 1997 and 1996
Unaudited Consolidated Statements of Cash Flows
for the six months ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
Part II. Other Information
Items 1 through 6
Signatures
<PAGE>
Washington Bancorp and Subsidiary
Consolidated Statements of Financial Condition
<TABLE>
December 31, June 30,
1997 1997*
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(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Interest-bearing............................................... $ 2,046,535 $ 574,736
Noninterest-bearing ........................................... 367,647 233,069
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2,414,182 807,805
Investment securities, available for sale .............................. 6,105,677 9,849,991
Loans receivable, net .................................................. 55,827,909 52,530,153
Accrued interest receivable ............................................ 568,778 568,228
Federal Home Loan Bank stock ........................................... 518,800 465,600
Premises and equipment, net ............................................ 543,654 550,231
Foreclosed real estate ................................................. -- --
Other assets ........................................................... 112,138 103,026
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Total assets .................................................. $ 66,091,138 $ 64,875,034
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LIABILITIES
Deposits ............................................................... $ 44,471,416 $ 44,754,328
Borrowed funds ......................................................... 9,844,772 8,651,765
Advance from borrowers for taxes and insurance ......................... 178,620 204,677
Accrued expenses and other liabilities ................................. 537,683 519,441
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Total liabilities ............................................. 55,032,491 54,130,211
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COMMITMENTS AND CONTINGENCIES
Redeemable common stock held by Employee Stock Ownership Plan
(the "ESOP") ......................................................... 78,066 69,392
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STOCKHOLDERS' EQUITY Common stock:
Common stock .................................................. 6,575 6,575
Additional paid-in capital .................................... 6,163,563 6,150,032
Retained earnings ...................................................... 5,524,313 5,292,419
Unrealized gain (loss) on investment securities, available for sale,
net of income taxes .................................................. 3,641 (3,307)
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11,698,092 11,445,719
Less:
Cost of 6,386 common shares acquired for treasury ...................... (85,827) (85,827)
Deferred compensation .................................................. (109,618) (151,739)
Maximum cash obligation related to ESOP shares ......................... (78,066) (69,392)
Unearned ESOP shares ................................................... (444,000) (463,330)
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Total stockholders' equity ..................................... 10,980,581 10,675,431
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Total liabilities and stockholders' equity..................... $ 66,091,138 $ 64,875,034
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</TABLE>
*Condensed from audited financial statements.
See Notes to Consolidated Financial Statements.
<PAGE>
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Income
<TABLE>
Three months ended Six months ended
December 31, December 31,
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Interest income:
Loans receivable:
First mortgage loans ................................ $ 905,277 $ 867,905 $1,781,304 $1,684,667
Consumer and other loans ............................ 281,128 156,382 544,646 294,049
Investment securities:
Taxable ............................................. 125,757 235,065 265,621 467,440
Non-taxable ......................................... 5,420 5,433 10,733 10,867
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Total interest income ........................ 1,317,582 1,264,785 2,602,304 2,457,023
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Interest expense:
Deposits ........................................... 551,598 552,349 1,100,275 1,104,851
Borrowed funds ..................................... 133,502 88,727 266,332 163,201
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Total interest expense ....................... 685,100 641,076 1,366,607 1,268,052
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Net interest income .......................... 632,482 623,710 1,235,697 1,188,971
Provision for loan losses .................................. 28,000 3,000 53,000 6,000
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Net interest income after provision
for loan loss ............................ 604,482 620,710 1,182,697 1,182,971
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Noninterest income:
Security gains (losses), net .......................... -- -- -- 388
Loan originations and commitments ..................... 2,779 2,594 5,304 4,845
Bank service charges .................................. 42,836 26,373 82,098 57,353
Insurance commissions ................................. 36,817 34,116 45,709 47,511
Other ................................................. 861 9,642 2,315 19,207
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Total noninterest income .................... 83,293 72,725 135,426 129,304
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Noninterest expense:
Compensation and benefits .............................. 201,600 199,853 408,351 359,566
Occupancy and equipment ................................ 36,792 36,857 74,936 71,905
SAIF deposit insurance ................................. 11,706 30,435 23,882 357,153
Data processing ........................................ 17,952 23,901 39,211 37,561
Other .................................................. 146,691 97,649 237,698 228,158
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Total noninterest expense ................... 414,741 388,695 784,078 1,054,343
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Income before income taxes .................. 273,034 304,740 534,045 257,932
Income tax ................................................ 73,804 109,991 177,595 92,545
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Net income .................................. $ 199,230 $ 194,749 $ 356,450 $ 165,387
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Earnings per common share:
Basic .................................................. $ 0.33 $ 0.32 $ 0.59 $ 0.27
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Diluted ................................................ $ 0.32 $ 0.32 $ 0.57 $ 0.27
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Dividends per common share ................................. $ 0.12 $ 0.10 $ 0.22 $ 0.18
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Weighted average common shares for:
Basic earnings per share .............................. 606,249 608,712 605,766 608,170
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Diluted earnings per share ............................ 624,028 610,956 622,604 609,060
=================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Cash Flows
<TABLE>
Six months ended
December 31,
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1997 1996
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<S> <C> <C>
Cash Flows from Operating Activities
Net income ................................................................. $ 356,450 $ 165,387
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of premiums and discounts on debt securities ................. (1,821) 36,392
Provision for loan loss ................................................... 53,000 6,000
(Gain) on sale of investment securities ................................... -- (388)
(Gain) on sale of foreclosed real estate .................................. -- (13,585)
Depreciation .............................................................. 28,015 28,285
Compensation under stock award ............................................ 42,120 --
ESOP contribution expense ................................................. 32,861 29,292
Deferred income taxes ..................................................... (31,383) (16,798)
(Increase) in accrued interest receivable ................................. (550) (59,407)
(Increase) decrease in other assets ....................................... (9,112) 47,216
Increase in accrued expenses and other liabilities ........................ 45,457 55,988
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Net cash provided by operating activities ......... 515,037 278,382
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Cash Flows from Investing Activities Available for sale securities:
Sales ..................................................................... -- 911
Maturities and calls ...................................................... 6,007,252 8,593,648
Purchases ................................................................. (2,250,000) (5,145,000)
Purchase of Federal Home Loan Bank Stock ..................................... (53,200) (64,100)
Loans made to customers, net ................................................. (3,350,756) (4,639,007)
Purchase of premises and equipment ........................................... (21,438) (14,156)
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Net cash (used in) investing activities ........... 331,858 (1,267,704)
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Cash Flows from Financing Activities
Net increase (decrease) in deposits ........................................ (282,912) 1,471,575
Proceeds from Federal Home Loan Bank advances .............................. 35,700,000 41,900,000
Principal payments on Federal Home Loan Bank advances ...................... (34,506,993) (39,750,514)
Net (decrease) in advances from borrowers for payment of taxes
and insurance ........................................................... (26,057) (38,543)
Payment of cash dividends .................................................. (124,556) (96,787)
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Net cash provided by financing activities ......... 759,482 3,485,731
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Net increase in cash and cash equivalents ......... 1,606,377 2,496,409
Cash and cash equivalents:
Beginning .................................................................. 807,805 1,903,352
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Ending ..................................................................... $ 2,414,182 $ 4,399,761
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Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors ............................................. $ 916,770 $ 872,644
Interest paid on other obligations ...................................... 266,332 163,201
Income taxes, net of refunds ............................................ 125,400 78,100
Supplemental Schedule of Noncash Investing and Financing Activities:
Transfer from loans to foreclosed real estate ........................... -- 106,289
Contract sales of foreclosed real estate ................................ -- 90,700
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
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 (the "Bank"), and its wholly-owned subsidiary
Washington Financial Services, Inc., which is a discount brokerage firm. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Basis of presentation. Interim Financial Information (unaudited): The financial
statements and notes related thereto for the three month period ended December
31, 1997 and for the six month period ended December 31, 1997, 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, 1997 and all related amendments and exhibits (including all
financial statements and notes therein), filed by the Company with the
Securities and Exchange Commission.
Recapture of Bad Debt Reserves. Prior to the enactment, on August 20, 1996, of
the Small Business Job Protection Act of 1996 (the "1996 Act"), for federal
income tax purposes, thrift institutions such as the Bank, which met certain
definitional tests primarily relating to their assets and the nature of their
business, were permitted to establish tax reserves for bad debt, and to make
annual additions thereto, which additions could, within specified limitations,
be deducted in arriving at their taxable income. The Bank's deduction with
respect to "qualifying loans," which are generally loans secured by certain
interests in real property, could be computed using an amount based on a
six-year moving average of the Bank's actual loss experience (the "Experience
Method"), or a percentage equal to 8% of the Bank's taxable income ( the "PTI
Method"), computed without regard to this deduction and with additional
modifications and reduced by the amount of any permitted addition to the
non-qualifying reserve.
Under the 1996 Act, the PTI Method was repealed and the Bank will be required to
use the Experience Method of computing additions to its bad debt reserve for
taxable years beginning with the Banks taxable year beginning January 1, 1996.
In addition, the Bank will be required to recapture (i.e., take into income)
over a six-year period, beginning with the Bank's taxable year beginning January
1, 1996, the excess of the balance of its bad debt reserves (other than the
supplemental reserve) as of December 31, 1995 over the greater of (a) the
balance of such reserves as of December 31, 1987 (or over a lesser amount if the
Bank's portfolio decreased since December 31, 1987) or (b) an amount that would
have been the balance of such reserves as of December 31, 1995 had the Bank
always computed the additions to its reserves using the six-year moving average
Experience Method. However, under the 1996 Act, such recapture requirements will
be suspended for each of the two successive taxable years beginning January 1,
1996 in which the Bank originates a minimum amount of certain residential loans
during such years that is not less than the average of the principal amounts of
such loans made by the Bank during its six taxable years preceding January 1,
1996. This legislation will result in the Bank's recapture of reserves with an
aggregate tax liability of approximately $156,000. Since the Bank has already
provided a deferred income tax liability of this amount for financial reporting
purposes, there will be no adverse impact to the Bank's financial condition or
results of operations from the enactment of this legislation.
Deposit Insurance Funds Act of 1996. In response to the SAIF/BIF assessment
disparity, the Deposit Insurance Funds Act of 1996 (the "Funds Act") was enacted
into law on September 30, 1996. The Funds Act amended the Federal Deposit
Insurance Act (the "FDIA") in several ways to recapitalize the SAIF and reduce
the disparity in the assessment rates for the BIF and the SAIF. The Funds Act
authorized the FDIC to impose a special assessment on all institutions with
SAIF- assessable deposits in the amount necessary to recapitalize the SAIF. As
implemented by the FDIC, institutions with SAIF-assessable deposits paid a
special assessment of 65.7 basis points on the Savings Association Insurance
Fund (SAIF) deposits held as of March 31, 1995. Washington Federal Savings
Bank's assessment totalled $294,000. As a result of the special assessment, the
Bank's deposit insurance premium was reduced to 6.48 basis points based upon its
current risk classification and the new assessment schedule for SAIF insured
institutions. These premiums are subject to change in future periods.
<PAGE>
Earnings per common share. The FASB issued Statement No. 128, Earnings per
Share, which supersedes APB Opinion No. 15. Statement No. 128 requires the
presentation of earnings per share by all entities that have common stock or
potential common stock, such as options, warrants and convertible securities,
outstanding that trade in a public market. Those entities that have only common
stock outstanding are required to present basic earnings per-share amounts. All
other entities are required to present basic and diluted per-share amounts.
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. Washington
initially applied Statement No. 128 for the period ended December 31, 1997 and,
as required by the Statement, has restated all per share information for the
disclosed prior periods to conform to the Statement.
Because Washington Bancorp has potential common stock outstanding (stock options
to employees), Washington is required to present basic and diluted earnings per
share ("EPS"). Washington has granted options to directors and certain employees
to purchase 65,751 shares of the Company's common stock to expire no later than
October 15, 2006.
ESOP obligations and expense. The receivable from the Company's ESOP has been
treated as a reduction from equity. Any principal repayment of the debt is
treated as an increase in equity. 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.
Regulatory capital requirements. Pursuant to the Financial Information Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), savings institutions must meet
three separate minimum capital-to-asset requirements. The following table
summarizes, as of December 31, 1997 the capital requirements of the Bank under
FIRREA and its actual capital ratios. As of December 31, 1997 the Bank
substantially exceeded all current regulatory capital requirement standards.
At December 31, 1997
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Amount Percent
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(Dollars in thousands)
(unaudited)
Tangible Capital:
Capital Level ....................... $9,105 13.80%
Requirement ......................... 990 1.50%
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Excess .............................. $8,115 12.30%
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Core Capital:
Capital Level ....................... $9,105 13.80%
Requirement ......................... 1,980 3.00%
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Excess .............................. $7,125 10.80%
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Risk-Based Capital:
Capital Level ....................... $9,338 20.57%
Requirement ......................... 3,632 8.00%
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Excess .............................. $5,706 12.57%
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<PAGE>
Part I - 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 "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.
General
Washington Bancorp ("Washington" or the "Company") is an Iowa corporation which
was organized in October 1995 by Washington Federal Savings Bank ("Washington
Federal" or the "Bank") 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, the Bank converted to a
federal savings bank in 1994.
In March 1996, the Bank converted to the stock form of organization through the
sale and issuance of its common stock to the Company. The principal asset of the
Company is the outstanding stock of the Bank, its wholly-owned subsidiary. In
addition, as of January 15, 1998, the Rubio Savings Bank of Brighton, Iowa,
became a wholly-owned subsidiary of Washington Bancorp. Rubio will operate as a
completely separate state chartered financial institution with its own charter
and board of directors. As of December 31, 1997, Rubio Savings Bank reported
assets of $22.6 million compared to $22.3 million as of December 31, 1996.
Deposits of both institutions are insured by the Federal Deposit Insurance
Corporation to the full extent permitted by law and regulation.
Washington attracts deposits from the general public in its local market area
and uses such deposits primarily to invest in one- to four-family residential
loans secured by owner occupied properties and non-residential properties, as
well as construction loans on such properties. Washington also makes commercial
loans, consumer loans, automobile loans, and has occasionally been a purchaser
of fixed-rate mortgage-backed securities.
In anticipation of possible federal legislation that may inhibit future
branching opportunities for savings associations, Washington Federal filed
applications with the Office of Thrift Supervision ("OTS") on October 20, 1995
for three branch offices. These applications were approved and have since
expired. The purpose of the applications was to preserve potential Washington
Federal branching opportunities. If future applications are submitted, no
assurance can be given that the applications will satisfy the legislation nor
that Washington Federal will open any branch offices.
Financial Condition
Total assets. Total consolidated assets increased $1.2 million from $64.9
million at June 30, 1997 to $66.1 million at December 31, 1997. The increase was
primarily due to a $3.3 million increase in loans receivable and a $1.6 million
increase in cash and cash equivalents partially offset by a $3.7 million
decrease in investment securities. The increase was primarily funded by a $1.2
million increase in Federal Home Loan Bank advances and the net proceeds from
the reduction in investment securities.
Loans receivable. Loans receivable, net increased $3.3 million from $52.5
million at June 30, 1997 to $55.8 million at December 31, 1997. This increase is
primarily due to increased loan demand in Washington's market area. Washington's
non-performing assets were $38,000 or .06% of total assets at December 31, 1997
as compared to $229,000 or .35% of total assets at June 30, 1997.
<PAGE>
Investment securities. Available-for-sale securities decreased $3.7 million from
$9.8 million at June 30, 1997 to $6.1 million at December 31, 1997. This
decrease is primarily due to the call of $4.5 million in government agency
securities and the maturity of $1.5 million in U.S. Treasuries, government
agency and corporate securities. The funds were primarily used to fund loan
activity. The portfolio of available-for-sale securities is comprised primarily
of investment securities carrying fixed interest rates. The fair value of these
securities is subject to changes in interest rates. The fair value of these
securities was more on December 31, 1997 than their carrying value due to a
decline in interest rates since the purchase date of the securities. Therefore,
the total balance of available for sale securities includes the gross effect of
the unrealized gain.
Deposits. Deposits decreased $283,000 from $44.8 million at June 30, 1997 to
$44.5 million at December 31, 1997. Interest credited to customer accounts
totalled $887,000, while withdrawals exceeded deposits by $1.2 million.
Transaction and savings deposits increased as a percentage of total deposits
from $14.3 million or 32.0% at June 30, 1997 to $14.3 million or 32.2% at
December 31, 1997. As a result of the increase in transaction and savings
deposits, certificates of deposit decreased as a percentage of total deposits
from $30.4 million or 68.0% at June 30, 1997 to $30.1 million or 67.8% at
December 31, 1997.
FHLB Borrowings. The total principal balance in advances from the Federal Home
Loan Bank of Des Moines (FHLB) increased $1.2 million from $8.6 million at June
30, 1997 to $9.8 million at December 31, 1997. The increase is primarily due to
the increased need to borrow to fund loan activity because of the increased loan
demand as well as the decrease in total 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 $26,000 from $205,000 at June
30, 1997 to $179,000 at December 31, 1997. The decrease is primarily due to the
reimbursement of escrow surplus pursuant to the annual escrow analysis done each
December.
Total stockholders' equity. Total stockholders' equity increased
$305,000 from $10.7 million at June 30, 1997 to $11.0 million at December 31,
1997. The increase is primarily due to net income of $355,000, the amortization
of deferred compensation under the Recognition and Retention Plan of $42,000,
the net unrealized gain in available for sale securities of $7,000 and the
allocation of shares in the Employee Stock Ownership Plan of $24,000 partially
offset by the cash dividend paid to stockholders totalling $124,000.
Results of Operations - Three Months Ended December 31, 1997 As Compared To The
Three Months Ended December 31, 1996
Performance summary. Net earnings increased $4,000 to $199,000 for the three
months ended December 31, 1997 from $195,000 for the three months ended December
31, 1996. The increase is primarily due to an increase in interest income of
$53,000, a decrease in income tax expense of $36,000 and an increase in
noninterest income of $10,000, partially offset by an increase in interest
expense of $44,000, an increase in provision for loan loss of $25,000, and an
increase in noninterest expense of $26,000. For the three months December 31,
1997 the annualized return on average assets was 1.21% compared to 1.22% for the
three months ended December 31, 1996, while the annualized return on average
equity was 7.31% for the three months ended December 31, 1997 compared to 7.36%
for the three months ended December 31, 1996.
Net interest income. Net interest income increased $8,000 to $632,000 for the
three months ended December 31, 1997 from $624,000 for the three months ended
December 31, 1996. The increase is primarily due to the increase of $52,000 in
interest income to $1,317,000 for the three months ended December 31, 1997 from
$1,265,000 for the three months ended December 31, 1996 offset by an increase in
interest expense of $44,000 to $685,000 for the three months ended December 31,
1997 from $641,000 for the three months ended December 31, 1996.
<PAGE>
For the three months ended December 31, 1997 the average yield on
interest-earning assets was 8.20% compared to 8.28% for the three months ended
December 31, 1996. The average cost of interest-bearing liabilities was 5.18%
for the three months ended December 31, 1997 compared to 5.14% for the three
months ended December 31, 1996. The average balance of interest earning assets
increased $3.1 million to $64.2 million for the three months ended December 31,
1997 from $61.1 million for the three months ended December 31, 1996. During
this same period, the average balance of interest-bearing liabilities increased
$3.0 million to $52.9 million for the three months ended December 31, 1997 from
$49.9 million for the three months ended December 31, 1996.
Due to the decrease in yield on the interest-earning assets and the increase in
rates paid on the interest-bearing liabilities, the average interest rate spread
was 3.03% for the three months ended December 31, 1997 compared to 3.14% for the
three months ended December 31, 1996. The average net interest margin was 3.94%
for the three months ended December 31, 1997 compared to 4.08% for the three
months ended December 31, 1996.
Provision for loan loss. Provision for loan loss increased $25,000 to $28,000
for the three months ended December 31, 1997 from $3,000 for the three months
ended December 31, 1996. The increase is primarily due to an increase in the
size of the loan portfolio. Washington's loan portfolio consists primarily of
residential mortgage loans and it has experienced a minimal amount of
charge-offs in the past three years. The allowance for loan losses of $254,000
or .46% of loans receivable, net at December 31, 1997 compares to $217,000 or
.46% of loans receivable, net at December 31, 1996. The allowance for loan loss
as a percentage of non-performing assets was 668.62% at December 31, 1997,
compared to 1354.93% at December 31, 1996.
Noninterest income. Noninterest income increased $10,000 to $83,000 for the
three months ended December 31, 1997 from $73,000 for the three months ended
December 31, 1996. The increase is primarily due to an increase in bank service
fees of $17,000 and an increase in insurance commissions of $3,000, partially
offset by a decrease in other noninterest income of $9,000.
Bank service charges and fees increased $17,000 to $43,000 for the three months
ended December 31, 1997 from $26,000 for the three months ended December 31,
1996. The increase is primarily due to an increase in overdraft fee income of
$11,000 to $30,000 for the three months ended December 31, 1997 from $19,000 for
the three months ended December 31, 1996, an increase in checking account fees
of $3,000 to $5,000 for the three months ended December 31, 1997 from $2,000 for
the three months ended December 31, 1996 and an increase in late fees collected
of $1,000 to $4,000 for the three months ended December 31, 1997 from $3,000 for
the three months ended December 31, 1996.
Insurance commission income increased $3,000 to $37,000 for the three months
ended December 31, 1997 from $34,000 for the three months ended December 31,
1996 primarily due to an increase in the volume of the sales of credit life and
disability products.
Other noninterest income decreased $9,000 to $1,000 for the three months ended
December 31, 1997 from $10,000 for the three months ended December 31, 1996
primarily due to a decrease in the gains realized on foreclosed properties in
1997 when compared to the gains realized on foreclosed properties in 1996.
Noninterest expense. Noninterest expense increased $26,000 to $415,000 for the
three months ended December 31, 1997 from $389,000 for the three months ended
December 31, 1996. The increase is primarily due to an increase in other
noninterest expense of $49,000 and an increase in compensation and benefits of
$2,000, offset by a decrease in SAIF deposit premiums of $18,000 and an decrease
in data processing of $6,000.
<PAGE>
Other noninterest expense increased $49,000 to $147,000 for the three months
ended December 31, 1997 from $98,000 for the three months ended December 31,
1996 primarily due to an increase in auditing and accounting fees of $12,000 to
$21,000 for the three months ended December 31, 1997 from $9,000 for the three
months ended December 31, 1996 due to the timing of bill payments and an
increase in checking account expense of $8,000 to $10,000 for the three months
ended December 31, 1997 from $2,000 for the three months ended December 31, 1996
due to a new checking account program. There was also an increase in supplies of
$7,000 to $14,000 for the three months ended December 31, 1997 from $7,000 for
the three months ended December 31, 1996, an increase in postage of $2,000 to
$13,000 for the three months ended December 31, 1997 from $11,000 for the three
months ended December 31, 1996 and an increase in advertising of $2,000 to
$19,000 for the three months ended December 31, 1997 from $17,00 for the three
months ended December 31, 1996 due to the promotion of a new checking account
and other bank products. An increase in other professional fees of $5,000 to
$9,000 for the three months ended December 31, 1997 from $4,000 for the three
months ended December 31, 1996 was due to the printing of the annual report and
fees incurred as a result of being a public company. There was also an increase
in fees paid to Federal Home Loan Bank of $4,000 to $10,000 for the three months
ended December 31, 1997 from $6,000 for the three months ended December 31, 1996
and an increase in appraisal expenses for loans retained in the Bank's portfolio
of $3,000 to $3,000 for the three months ended December 31, 1997 due to the
timing of bill payments.
Compensation and benefits increased $2,000 to $202,000 for the three months
ended December 31, 1997 from $200,000 for the three months ended December 31,
1996 due to an increase in employee compensation of $11,000 to $102,000 for the
three months ended December 31, 1997 from $91,000 for the three months ended
December 31, 1996 due to normal salary increases and an increase in the number
of full time equivalent employees. There was also an increase in incentives of
$3,000 to $4,000 for the three months ended December 31,1997 from $1,000 for the
three months ended December 31, 1996 due to incentives paid for product
promotions, an increase in payroll taxes of $3,000 to $10,000 for the three
months ended December 31, 1997 from $7,000 for the three months ended December
31, 1996 and an increase in insurance premiums of $1,000 to $10,000 for the
three months ended December 31, 1997 from $9,000 for the three months ended
December 31, 1996. The increases were partially offset by a decrease in the
expense for the Recognition and Retention Plan of $9,000 to $16,000 for the
three months ended December 31, 1997 from $25,000 for the three months ended
December 31, 1996 primarily due to the amortization of the expense based upon
the fair value of the shares on the date of the grant allocated over a five-year
term of vesting, a decrease in the ESOP expense of $5,000 to $16,000 for the
three months ended December 31, 1997 from $21,000 for the three months ended
December 31, 1996 and a decrease in directors' compensation of $2,000 to $15,000
for the three months ended December 31, 1997 from $17,000 for the three months
ended December 31, 1996.
SAIF deposit insurance premiums decreased $18,000 to $12,000 for the three
months ended December 31, 1997 from $30,000 for the three months ended December
31, 1996 primarily due to the decrease in the annual assessment rate to 6.48
basis points from 23 basis points charged for the protection of FDIC insurance.
Data processing decreased $6,000 to $18,000 for the three months ended December
31, 1997 from $24,000 for the three months ended December 31, 1996 primarily due
to the timing of bill payments.
Income tax expense. Income tax expense decreased $36,000 to $74,000 for the
three months ended December 31, 1997 from $110,000 for the three months ended
December 31, 1996 primarily due to the treatment of the Recognition and
Retention Plan market value deductibility for income tax purposes.
Results of Operations - Six Months Ended December 31, 1997 As Compared To The
Six Months Ended December 31, 1996
Performance summary. Net earnings increased $191,000 to $356,000 for the six
months ended December 31, 1997 from $165,000 for the six months ended December
31, 1996. The increase is primarily due to a decrease in noninterest expense of
$270,000 primarily due to the one-time SAIF assessment in September 1996, an
increase in interest income of $145,000 and an increase in noninterest income of
$6,000, partially offset by an increase in interest expense of $98,000, an
increase in provision for loan loss of $47,000, and an increase in income tax
expense of $85,000. For the six months ended December 31, 1997 the annualized
return on average assets was 1.09% compared to 0.53% for the six months ended
December 31, 1996, while the annualized return on average equity was 6.59% for
the six months ended December 31, 1997 compared to 3.13% for the six months
ended December 31, 1996.
Net interest income. Net interest income increased $47,000 to $1,236,000 for the
six months ended December 31, 1997 from $1,189,000 for the six months ended
December 31, 1996. The increase is primarily due to the increase of $145,000 in
interest income to $2,602,000 for the six months ended December 31, 1997 from
$2,457,000 for the six months ended December 31, 1996 offset by an increase in
interest expense of $98,000 to $1,367,000 for the six months ended December 31,
1997 from $1,268,000 for the six months ended December 31, 1996.
<PAGE>
For the six months ended December 31, 1997 the average yield on interest-earning
assets was 8.14% compared to 8.22% for the six months ended December 31, 1996.
The average cost of interest-bearing liabilities was 5.19% for the six months
ended December 31, 1997 compared to 5.21% for the six months ended December 31,
1996. The average balance of interest-earning assets increased $4.2 million to
$63.9 million for the six months ended December 31, 1997 from $59.7 million for
the six months ended December 31, 1996. During this same period, the average
balance of interest-bearing liabilities increased $4.2 million to $52.9 million
for the six months ended December 31, 1997 from $48.7 million for the six months
ended December 31, 1996.
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 2.95% for the six months ended December 31, 1997 compared to 3.01% for the
six months ended December 31, 1996. The average net interest margin was 3.87%
for the six months ended December 31, 1997 compared to 3.97% for the six months
ended December 31, 1996.
Provision for loan loss. Provision for loan loss increased $47,000 to $53,000
for the six months ended December 31, 1997 from $6,000 for the six months ended
December 31, 1996. The increase is primarily due to an increase in the size of
the loan portfolio. Washington's loan portfolio consists primarily of
residential mortgage loans and it has experienced a minimal amount of
charge-offs in the past three years. The allowance for loan losses of $254,000
or .46% of loans receivable, net at December 31, 1997 compares to $217,000 or
.46% of loans receivable, net at December 31, 1996. The allowance for loan loss
as a percentage of non-performing assets was 668.62% at December 31, 1997,
compared to 1354.93% at December 31, 1996.
Noninterest income. Noninterest income increased $6,000 to $135,000 for the six
months ended December 31, 1997 from $129,000 for the six months ended December
31, 1996. The increase is primarily due an increase in bank service fees of
$25,000, partially offset by a decrease in other noninterest income of $17,000
and a decrease in insurance commissions of $2,000.
Bank service charges and fees increased $25,000 to $82,000 for the six months
ended December 31, 1997 from $57,000 for the six months ended December 31, 1996
primarily from an increase in overdraft fee income of $14,000 to $54,000 for the
six months ended December 31, 1997 from $40,000 for the six months ended
December 31, 1996 due to more stringent enforcement of the fee schedule. There
was also an increase in checking account fee income of $4,000 to $7,000 for the
six months ended December 31, 1997 from $3,000 for the three months ended
December 31, 1996 due to a new checking account program and an increase in late
payment charges of $4,000 to $9,000 for the six months ended December 31, 1997
from $5,000 for the six months ended December 31, 1996.
Other noninterest income decreased $17,000 to $2,000 for the six months ended
December 31, 1997 from $19,000 for the six months ended December 31, 1996
primarily due to a decrease in the gains realized on foreclosed properties in
1997 when compared to the gains realized on foreclosed properties in 1996.
Insurance commission income decreased $2,000 to $46,000 for the six months ended
December 31, 1997 from $48,000 for the six months ended December 31, 1996
primarily due to a decrease in the volume of the sales of credit life and
disability products in the first three months..
Noninterest expense. Noninterest expense decreased $270,000 to $784,000 for the
six months ended December 31, 1997 from $1,054,000 for the six months ended
December 31, 1996. The decrease is primarily due to the decrease in SAIF deposit
premiums of $333,000, partially offset by an increase in compensation and
benefits of $48,000, an increase in other noninterest expense of $10,000, and
increase in occupancy and equipment expense of $3,000 and an increase in data
processing of $1,000.
<PAGE>
SAIF deposit insurance premiums decreased $333,000 to $24,000 for the six months
ended December 31, 1997 from $357,000 for the six months ended December 31, 1996
primarily due to the $294,000 one-time SAIF assessment and the decrease in the
annual assessment rate to 6.48 basis points from 23 basis points charged for the
protection of FDIC insurance.
Compensation and benefits increased $48,000 to $408,000 for the six months ended
December 31, 1997 from $360,000 for the six months ended December 31, 1996
primarily due to an increase in the Recognition and Retention Plan expense of
$17,000 to $42,000 for the six months ended December 31, 1997 from $25,000 for
the six months ended December 31, 1996, and an increase in employee compensation
of $14,000 to $214,000 for the six months ended December 31, 1997 from $200,000
for the six months ended December 31, 1996 due to regular salary increases and
an increase in full-time equivalent employees. There was also an increase in
employee incentives of $5,000 to $10,000 for the six months ended December 31,
1997 from $5,000 for the six months ended December 31, 1996 due to incentives
paid for product promotions, an increase in employment taxes of $4,000 to
$20,000 for the six months ended December 31, 1997 from $16,000 for the six
months ended December 31, 1996, an increase in employee insurance benefits of
$3,000 to $20,000 for the six months ended December 31, 1997 from $17,000 for
the six months ended December 31, 1996, and an increase in ESOP expense of
$2,000 to $32,000 for the six montsh ended December 31, 1997 from $30,000 for
the six months ended December 31, 1996.
Other noninterest expense increased $10,000 to $238,000 for the six months ended
December 31, 1997 from $228,000 for the six months ended December 31, 1996
primarily due to an increase in checking account expense of $8,000 to $10,000
for the six months ended December 31, 1997 from $2,000 for the six months ended
December 31, 1996 due to a new checking account program. There was also an
increase in supplies of $8,000 to $24,000 for the six months ended December 31,
1997 from $16,000 for the six months ended December 31, 1996, an increase in
advertising of $6,000 to $39,000 for the six months ended December 31, 1997 from
$33,000 for the six months ended December 31, 1996 and an increase in postage
and delivery of $4,000 to $24,000 for the six months ended December 31, 1997
from $20,000 for the six months ended December 31, 1996 due to the promotion of
a new checking account and other bank products. The increases were partially
offset by a decrease in auditing and account of $8,000 to $29,000 for the six
months ended December 31, 1997 from $37,000 for the six months ended December
31, 1996, a decrease in other miscellaneous professional services incurred as a
result of being a public company of $9,000 to $5,000 for the six months ended
December 31, 1997 from $14,000 for the six months ended December 31, 1996, and a
decrease in legal fees of $1,000 to $9,000 for the six months ended December 31,
1997 from $10,000 for the six months ended December 31, 1996.
Occupancy and equipment expense increased $3,000 to $75,000 for the six months
ended December 31, 1997 from $72,000 for the six months ended December 31, 1996
primarily due to an increase in real estate tax expense. Data processing
increased $1,000 to $39,000 for the six months ended December 31, 1997 from
$38,000 for the six months ended December 31, 1996.
Income tax expense. Income tax expense increased $85,000 to $178,000 for the six
months ended December 31, 1997 from $93,000 for the six months ended December
31, 1996 primarily due to the increase in income before income taxes.
Liquidity and capital resources. The Bank's principal sources of funds are
deposits, amortization and prepayment of loan principal, borrowings, and the
sale and maturities 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 Bank generally manages the pricing of its deposits to maintain a
steady deposit balance, but has from time to time decided not to pay deposit
rates that are as high as those of its competition, and when necessary, to
supplement deposits with alternative sources of funds.
<PAGE>
Federal regulations historically have required the Bank 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. The Bank has historically
maintained its liquidity ratio at levels in excess of those required. At
December 31, 1997, the Bank's liquidity ratio was 13.48%.
Liquidity management is both a daily and long-term responsibility of management.
The Bank adjusts its investments in liquid assets based upon management's
assessment of (i) expected loan demand, (ii) expected deposit flows, (iii)
yields available on interest-bearing deposits, and (iv) the objective of its
asset/liability management program. Excess liquidity is invested generally in
interest-bearing overnight deposits and other short-term government and agency
obligations. If the Bank requires funds beyond its ability to generate them
internally, it has additional borrowing capacity with the FHLB of Des Moines and
collateral eligible for reverse repurchase agreements.
The Bank anticipates that it will have sufficient funds available to meet
current loan commitments. At December 31, 1997, the Bank had outstanding
commitments to extend credit which amounted to $1.5 million.
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
Employee Benefit Plans. In conjunction with the Bank's conversion to stock
ownership, the Company established an Employee Stock Ownership Plan (ESOP) for
eligible employees. The plan was established by amending the Savings Bank's
existing profit sharing plan. Employees of the Bank are eligible to participate
after they attain age 21 and complete one year of service during which they work
at least 1,000 hours. The Company issued 52,602 shares of common stock to the
ESOP on the date of the conversion and reorganization.
At December 31, 1997 the ESOP held 52,602 shares of the Company's common stock,
4,337 of which were allocated, 3,864 of which were released for allocation and
the remaining 44,401 were unreleased (unearned) shares. The 44,401 unreleased
(unearned) shares had a fair market value of approximately $799,000 at December
31, 1997.
Year 2000 Compliance. The "Year 2000" issue is one that has received much
publicity and addresses the ability of computer systems to recognize the year
2000 and thereafter. The Bank outsources its primary data processing functions
and has received verification from its vendors that plans have been developed by
them to address and correct the problems associated with the issue. Washington
has established a technology team to determine the status of the Bank's
equipment and software as it relates to "Year 2000" readiness. The Company does
not anticipate that the "Year 2000" issue will pose any significant operational
problems. However, no assurance can be given that the "Year 2000" issue will not
have an adverse impact on the Company's earnings.
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
Form 8-K was filed on January 30, 1998 for the Acquisition of
Rubio Savings Bank of Brighton, Iowa.
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Washington Bancorp
------------------
(Registrant)
Date February 10, 1998 /s/ Stan Carlson
----------------- ---------------------------------
Stan Carlson, President and Chief
Executive Officer
Date February 10, 1998 /s/ Leisha A. Linge
----------------- ---------------------------------
Leisha A. Linge,Controller
Washington Bancorp
Computation of Earnings per Common Share
Exhibit 11
<TABLE>
For three months ended December 31, For six months ended December 31,
----------------------------------------- --------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
Basic Basic Diluted Diluted Basic Basic Diluted Diluted
EPS EPS EPS EPS EPS EPS EPS EPS
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computation of weighted average
number of common shares outstanding:
Common shares outstanding at the
beginning of the period ............ 651,133 657,519 651,133 657,519 651,133 657,519 651,133 657,519
Unreleased common shares held by
the Employee Stock Ownership
Plan (the "ESOP') at the beginning
of the period ...................... (45,367) (49,349) (45,367) (49,349) (46,333) (50,433) (46,333) (50,433)
Weighted average common shares
released by the ESOP during
the period ......................... 483 542 483 542 966 1,084 966 1,084
Weighted average common shares
equivalent of dilutive effect of
stock options ...................... -- -- 17,779 2,244 -- -- 16,838 890
-----------------------------------------------------------------------------------------
Weighted average number of common
shares ............................. 606,249 608,712 624,028 610,956 605,766 608,170 622,604 609,060
=========================================================================================
Net income ........................... $ 199,230 $ 194,749 $ 199,230 $ 194,749 $ 356,450 $ 165,387 $ 356,450 $ 165,387
=========================================================================================
Net income per common share .......... $ 0.33 $ 0.32 $ 0.32 $ 0.32 $ 0.59 $ 0.27 $ 0.57 $ 0.27
=========================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1997 FORM 10-QSB FOR WASHINGTON BANCORP AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 368
<INT-BEARING-DEPOSITS> 2,047
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,106
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 55,828
<ALLOWANCE> 254
<TOTAL-ASSETS> 66,091
<DEPOSITS> 44,471
<SHORT-TERM> 0
<LIABILITIES-OTHER> 538
<LONG-TERM> 9,845
0
0
<COMMON> 7
<OTHER-SE> 10,973
<TOTAL-LIABILITIES-AND-EQUITY> 66,091
<INTEREST-LOAN> 2,326
<INTEREST-INVEST> 276
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,602
<INTEREST-DEPOSIT> 1,100
<INTEREST-EXPENSE> 1,367
<INTEREST-INCOME-NET> 1,236
<LOAN-LOSSES> 53
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 784
<INCOME-PRETAX> 534
<INCOME-PRE-EXTRAORDINARY> 356
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 356
<EPS-PRIMARY> .59
<EPS-DILUTED> .57
<YIELD-ACTUAL> 3.94
<LOANS-NON> 0
<LOANS-PAST> 38
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 226
<CHARGE-OFFS> 32
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 254
<ALLOWANCE-DOMESTIC> 254
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
