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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number 0-25076
Washington Bancorp
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Iowa 42-1446740
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 East Main Street, Washington, Iowa 52353
--------------------------------------------------
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (319)653-7256
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date.
Common Stock, $.01 par value 581,034 shares outstanding as of February 10, 2000
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, 1999 (unaudited)
and June 30, 1999
Unaudited Consolidated Statements of Income for the three months ended
December 31, 1999 and 1998 and for the six months ended December 31,
1999 and 1998
Unaudited Consolidated Statements of Comprehensive Income for the three
months ended December 31, 1999 and 1998 and for the six months ended
December 31, 1999 and 1998
Unaudited Consolidated Statements of Cash Flows for the six
months ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Signatures
Exhibits
<PAGE>
Item 1. Financial Information
WASHINGTON BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
December 31,
1999 June 30,
(unaudited) 1999
------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents
Interest-bearing .................................... $ 876,257 $ 901,346
Noninterest-bearing ................................. 2,174,167 1,656,084
Investment securities:
Held to maturity .................................... 919,457 760,520
Available for sale .................................. 21,388,096 20,695,366
Fed funds, sold ....................................... 1,715,000 1,340,000
Loans receivable, net of allowance for loan losses
of $496,377 in December 1999 and $472,187 in
June 1999 ........................................... 77,590,218 72,779,177
Accrued interest receivable ........................... 1,318,202 1,190,600
Federal Home Loan Bank Stock .......................... 1,170,000 860,000
Foreclosed real estate ................................ 214,435 235,914
Premises and equipment, net ........................... 851,485 874,551
Goodwill, net ......................................... 1,233,245 1,280,526
Other assets .......................................... 664,511 409,996
------------------------------
Total assets ............................. $ 110,115,073 $ 102,984,080
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing ................................. $ 3,789,944 $ 2,596,143
Interest -bearing ................................... 71,196,496 73,093,323
------------------------------
Total deposits ........................... 74,986,440 75,689,466
Borrowed funds ........................................ 23,176,720 15,706,290
Advances from borrowers for taxes and insurance ....... 204,615 223,033
Accrued expenses and other liabilities ................ 620,889 464,638
------------------------------
Total liabilities ........................ 98,988,665 92,083,427
------------------------------
Redeemable common stock held by ESOP .................. 230,129 189,972
------------------------------
Stockholders' Equity
Common Stock
Common Stock ........................................ 6,511 6,511
Additional Paid-in Capital .......................... 6,163,870 6,150,310
Retained Earnings ..................................... 6,818,943 6,384,863
Unrealized loss on securities ......................... (451,278) (235,778)
Treasury shares ....................................... (1,020,841) (946,435)
Deferred Compensation ................................. (33,617) (79,098)
Maximum cash obligation ESOP .......................... (230,129) (189,972)
Unearned ESOP shares .................................. (357,180) (379,720)
------------------------------
Total stockholder's equity ............... 10,896,278 10,710,681
------------------------------
Total liabilities and stockholder's equity $ 110,115,073 $ 102,984,080
==============================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
WASHINGTON BANCORP AND SUBISIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
1999 1998 1999 1998
----------------------- -----------------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable:
First mortgage loans ............. $1,069,910 $ 992,927 $2,093,701 $2,010,178
Consumer and other loans ......... 578,617 497,253 1,140,791 976,412
Investment securities:
Taxable .......................... 373,611 377,876 709,830 686,366
Non-taxable ...................... 15,880 21,803 31,068 41,447
-------------------------------------------------
Total interest income ..... 2,038,018 1,889,859 3,975,390 3,714,403
-------------------------------------------------
Interest expense:
Deposits ........................... 839,824 905,353 1,684,540 1,706,485
Borrowed funds ..................... 302,407 226,578 543,805 455,354
-------------------------------------------------
Total interest expense .... 1,142,231 1,131,931 2,228,345 2,161,839
-------------------------------------------------
Net interest income ....... 895,787 757,928 1,747,045 1,552,564
Provision for loan losses ............ 18,000 34,000 39,500 56,000
-------------------------------------------------
Net interest income after
provision for loan losses 877,787 723,928 1,707,545 1,496,564
-------------------------------------------------
Noninterest income:
Securities gains, net .............. 0 11,354 0 11,354
Loan origination and commitment fees 2,166 2,763 4,016 3,363
Service charges and fees ........... 96,939 59,502 184,918 145,024
Insurance commissions .............. 22,457 14,293 37,089 21,772
Other .............................. 19,970 9,239 18,580 10,224
-------------------------------------------------
Total noninterest income .. 141,532 97,151 244,603 191,737
-------------------------------------------------
Noninterest expense:
Compensation and benefits .......... 254,021 289,628 584,246 580,119
Occupancy and equipment ............ 51,905 60,089 112,160 113,553
SAIF/BIF deposit insurance premium . 16,323 14,985 30,506 29,181
Data processing .................... 20,228 19,680 48,294 42,816
Goodwill ........................... 23,640 23,640 47,281 47,281
Other .............................. 180,751 158,253 301,285 285,323
-------------------------------------------------
Total noninterest expense . 546,868 566,275 1,123,772 1,098,273
-------------------------------------------------
Income before income taxes. 472,451 254,804 828,376 590,028
Income tax expense ................... 193,940 82,379 327,100 222,440
-------------------------------------------------
Net income ................ $ 278,511 $ 172,425 $ 501,276 $ 367,588
=================================================
Earnings per common share:
Basic .............................. $ 0.50 $ 0.31 $ 0.89 $ 0.65
=================================================
Diluted ............................ $ 0.49 $ 0.30 $ 0.88 $ 0.63
=================================================
Tangible earnings per common share ... $ 0.53 $ 0.34 $ 0.96 $ 0.71
=================================================
Dividends per common share ........... $ 0.00 $ 0.12 $ 0.12 $ 0.24
=================================================
Weighted average common shares for:
Basic earnings per share ........... 560,326 557,258 561,068 565,595
=================================================
Diluted earnings per share ......... 568,062 573,081 570,493 582,112
=================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ----------------------
1999 1998 1999 1998
---------------------- ----------------------
<S> <C> <C> <C> <C>
Net income .......................... $ 278,511 $ 172,425 $ 501,276 $ 367,588
Gross unrealized gains (losses) on
securities available for sale .. (192,180) (75,181) (344,899) 40,772
Less reclassification adjustments for
gains included in net income ... 0 (10,922) 0 (10,922)
Income tax expense related to items
of other comprehensive income .. 72,193 32,039 129,399 (11,443)
------------------------------------------------
Comprehensive income ................ $ 158,524 $ 118,361 $ 285,776 $ 385,995
================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
WASHINGTON BANCORP AND SUBISIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1999 and 1998
<TABLE>
1999 1998
------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income ................................................ $ 501,276 $ 367,588
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of premiums and discounts on debt securities 13,435 (47,490)
Amortization of goodwill ................................ 47,281 47,281
Provision for loan losses ............................... 39,500 56,000
(Gain) on sale of investments ........................... 0 (10,922)
(Gain) on sale of foreclosed real estate ................ (7,606) (9,562)
Depreciaton ............................................ 44,808 35,806
Compensation under stock awards ........................ 16,312 31,813
ESOP contribution expense .............................. 31,738 37,342
(Increase) in accrued interest receivable .............. (127,602) (143,266)
Decrease in other assets ............................... 16,253 14,091
Increase (decrease) in accrued expenses and other
liabilities .......................................... 14,884 (117,595)
------------------------------
Net cash provided by operating activities ... 590,279 261,086
------------------------------
Cash Flows from Investing Activities:
Held to maturity securities:
Purchases ............................................... (160,000) 0
Available for sale securities:
Sales ................................................... 0 1,000,000
Maturities and calls .................................... 850,000 10,450,432
Purchases ............................................... (1,900,000) (14,910,000)
Federal funds sold, net ................................... (375,000) (2,150,765)
Purchase of Federal Home Loan Bank stock .................. (310,000) (47,600)
Loans made to customers, net .............................. (4,821,456) (2,689,555)
Sale of premises and equipment ............................ 16,410 0
Purchase of premises and equipment ........................ (38,153) (102,117)
------------------------------
Net cash (used in) investing activities ..... (6,738,199) (8,449,605)
------------------------------
Cash Flows from Financing Activities:
Net increase in deposits .................................. (703,026) 9,189,654
Proceeds from Federal Home Loan Bank advances ............. 108,950,000 6,250,000
Principal payments on Federal Home Loan Bank advances ..... (101,479,570) (6,891,997)
Net increase (decrease) in advances from borrowers
for taxes and insurance ................................. (18,418) (31,792)
Acquisition of common stock ............................... (40,875) (684,125)
Dividends paid ............................................ (67,197) (137,306)
------------------------------
Net cash provided by financing activities ... 6,640,914 7,694,434
------------------------------
Net increase(decrease) in cash and cash
equivalents ............................... 492,994 (494,085)
Cash and Cash Equivalents:
Beginning ................................................. 2,557,430 3,306,374
------------------------------
Ending .................................................... $ 3,050,424 $ 2,812,289
==============================
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest paid to depositors ............................. $ 1,287,597 $ 1,695,481
Interest paid on other obligations ...................... 534,131 455,354
Income taxes, net of refunds ............................ 286,800 301,100
Supplemental Schedule of Noncash Investing
and Financing Activities:
Transfers from loans to foreclosed real estate ............ $ 59,415 $ 163,967
Contract sales of foreclosed real estate .................. 75,250 129,733
</TABLE>
<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 Federal Savings Bank
("Washington Federal"), WFSB's wholly-owned subsidiary, Washington Financial
Services, Inc., which is a discount brokerage firm, and Rubio Savings Bank of
Brighton, Iowa ("Rubio Savings Bank"). 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, 1999 and for the six month period ended December 31, 1999, are unaudited,
but in the opinion of management include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations. The operating results for the interim
periods are not indicative of the operating results to be expected for a full
year or for other interim periods. Not all disclosures required by generally
accepted accounting principles necessary for a complete presentation have been
included. It is recommended that these consolidated condensed financial
statements be read in conjunction with the Annual Report on Form 10-KSB for the
year ended June 30, 1999 and all related amendments and exhibits (including all
financial statements and notes therein), filed by the Company with the
Securities and Exchange Commission.
Goodwill. Goodwill resulting from the Company's acquisition of Rubio Savings
Bank is being amortized by the straight-line method over 15 years. Goodwill is
periodically reviewed for impairment based upon an assessment of future
operations to ensure that it is appropriately valued.
Foreclosed real estate. Real estate properties acquired through loan foreclosure
are initially recorded at the lower of cost or fair value less estimated selling
expenses at the date of foreclosure. Costs relating to development and
improvement of property are capitalized, whereas costs relating to holding
property are expensed.
Earnings per common share. Basic per share amounts are computed by dividing net
income by the weighted-average number of common shares outstanding. Diluted per
share amounts assume the conversion, exercise or issuance of all potential
common stock instruments unless the effect is to reduce a loss or increase the
income per common share from continuing operations. In accordance with Statement
of Position 93-6, shares owned by the Company's Employee Stock Ownership Plan
(the "ESOP") that have not been committed to be released are not considered
outstanding for the purpose of computing earnings per share.
In addition to the earnings per share ("EPS") information typically disclosed,
the Company provided "tangible" EPS as an alternative measure for evaluating the
Company's ability to grow its tangible capital. The Company's tangible EPS is
calculated by dividing the total of goodwill expense plus net income by the
weighted average number of diluted common shares outstanding.
Unearned ESOP shares and expense. The receivable from the Company's ESOP has
been treated as a reduction of equity. This amount is reduced as the ESOP shares
are allocated. Compensation expense for the ESOP is based upon the fair value of
shares allocated to participants.
Stock awards. Expense for common stock to be issued under the Company's
recognition and retention plan is based upon the fair value of the shares at the
date of grant, allocated over the period of vesting. The Company adopted the
recognition and retention plan in October 1996 whereby 26,300 shares of common
stock have been reserved for issuance to certain executive officers and
directors. During the years ended June 30, 1999, 1998 and 1997, awards were
granted for 2,192 shares, 2,127 shares and 19,914 shares, respectively, with a
fair value of $16.63, $18.94 and $11.25 per share at the date of the grant,
respectively. In November 1999, 1,754 shares were forfeited.
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.
<PAGE>
Comprehensive Income. In 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income." Statement No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. The Company initially applied Statement
No. 130 for the three months ended September 30, 1998 and the statement of
comprehensive income has been added to the accompanying financial statements.
Regulatory capital requirements. Pursuant to the Financial Information Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), savings institutions must meet
three separate minimum capital-to-asset requirements. The following table
summarizes, as of December 31, 1999 the capital requirements of Washington
Federal under FIRREA and its actual capital ratios. As of December 31, 1999
Washington Federal exceeded all current regulatory capital requirement
standards.
At December 31, 1999
-----------------------
Amount Percent
-----------------------
(Dollars in thousands)
(unaudited)
Tangible Capital:
Capital Level ............................... $7,089 8.26%
Requirement ................................. 1,287 1.50%
-----------------------
Excess ...................................... $5,802 6.76%
=======================
Core Capital:
Capital Level ............................... $7,089 8.26%
Requirement ................................. 3,432 4.00%
-----------------------
Excess ...................................... $3,657 4.26%
=======================
Risk-Based Capital:
Capital Level ............................... $7,447 12.45%
Requirement ................................. 4,785 8.00%
-----------------------
Excess ...................................... $2,662 4.45%
=======================
The following table summarizes the capital requirements of Rubio Savings Bank of
Brighton. As of December 31, 1999 Rubio Savings Bank substantially exceeded all
current regulatory capital requirement standards.
At December 31, 1999
-----------------------
Amount Percent
-----------------------
(Dollars in thousands)
(unaudited)
Tier 1 or Leverage Capital:
Capital Level ................................ $2,792 11.85%
Requirement .................................. 707 3.00%
----------------------
Excess ....................................... $2,085 8.85%
======================
Tier 1 Risk-based Capital:
Capital Level ................................ $2,792 20.39%
Requirement .................................. 548 4.00%
----------------------
Excess ....................................... $2,244 16.39%
======================
Risk-Based Capital:
Capital Level ................................ $2,910 21.25%
Requirement .................................. 1,096 8.00%
----------------------
Excess ....................................... $1,814 13.25%
======================
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking Statements
When used in this Form 10-QSB or future filings by Washington Bancorp
with the Securities and Exchange Commission, in Washington Bancorp'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. Washington Bancorp 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 Washington Bancorp's financial performance
and could cause Washington Bancorp's actual results for future periods to differ
materially from those anticipated or projected.
Washington Bancorp 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 is an Iowa corporation which was organized in
October 1995 by Washington Federal Savings 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,
Washington Federal converted to a federal savings bank in 1994. Its deposits are
insured up to the applicable limits by the FDIC.
In March 1996, Washington Federal converted to the stock form of
organization through the sale and issuance of its common stock to Washington
Bancorp. On June 24, 1997, Washington Bancorp entered into a merger agreement to
acquire Rubio Savings Bank of Brighton, Iowa. Rubio Savings Bank is held as a
separate subsidiary of Washington Bancorp. In January 1998, Washington Bancorp
became a bank holding company upon the completion of its acquisition of Rubio
Savings Bank. In December 1998, Wellman Federal Savings, a full-service branch
of Washington Federal was opened in Wellman, Iowa. In July 1999, Washington
Federal formed a collaborative relationship with Eagle One Financial Services,
LLC, to provide financial planning services and the sale of annuities, mutual
funds, stocks and bonds. The principal assets of Washington Bancorp are
Washington Federal and Rubio Savings Bank. Washington Bancorp presently has no
separate operations and its business consists primarily of the business of the
Banks. All references to Washington Bancorp, unless otherwise indicated at or
before March 11, 1996 refer to Washington Federal.
Washington Federal attracts deposits from the general public in its
local market area and uses such deposits primarily to invest in owner occupied
one- to -four family residential loans secured by owner occupied properties and
non-residential properties, as well as construction loans on such properties.
Washington Federal also invests in federal agency bonds, corporate bonds,
agricultural loans, commercial loans, consumer loans, and automobile loans.
Washington Federal filed an application with the Office of Thrift
Supervision (the "OTS") on August 19, 1998 to branch into Richland, Iowa, a
small rural community of 500, which currently has a branch of a large regional
bank. The branch application approval has been extended by the OTS until October
1, 2000. Washington Federal plans to open the branch office before that date.
Rubio Savings Bank attracts deposits from the general public in its
local market area and the businesses in the Brighton area. The deposits are
primarily invested in federal agency bonds, corporate bonds, agricultural
operating loans, commercial loans, one- to- four family residential real estate
loans, and farm real estate loans. Rubio Savings Bank also makes commercial real
estate loans, automobile loans and consumer loans.
The executive office of the Company is located at 102 East Main Street,
Washington, Iowa 52353, telephone (319)653-7256.
<PAGE>
Financial Condition
Total assets. Total consolidated assets increased $7.1 million from $103.0
million at June 30, 1999 to $110.1 million at December 31, 1999. The increase
was primarily due to a $4.8 million increase in loans receivable, a $852,000
increase in investment securities, a $493,000 increase in cash and cash
equivalents, a $375,000 increase in federal funds sold, a $310,000 increase in
Federal Home Loan Bank stock, a $255,000 increase in other assets, and a
$128,000 increase in accrued interest receivable partially offset by a $47,000
decrease in goodwill, net, a $23,000 decrease in premises and equipment and a
$21,000 decrease in foreclosed real estate. The increase was primarily funded by
a $7.5 million increase in borrowed funds partially offset by a $703,000
decrease in deposits.
Loans receivable. Loans receivable, net, increased $4.8 million from $72.8
million at June 30, 1999 to $77.6 million at December 31, 1999. This increase is
primarily due to increased loan demand in Washington Bancorp's market area.
Washington Bancorp's non-performing assets were $420,000 or 0.38% of total
assets at December 31, 1999 as compared to $326,000 or 0.32% of total assets at
June 30, 1999.
Investment securities. Investment securities available-for-sale increased
$693,000 from $20.7 million at June 30, 1999 to $21.4 million at December 31,
1999. Securities classified as held to maturity increased $158,000 from $761,000
at June 30, 1999 to $919,000 at December 31, 1999. The portfolio of
available-for-sale securities is comprised primarily of investment securities
carrying fixed interest rates. The fair value of these securities is subject to
changes in interest rates. The fair value of these securities was less on
December 31, 1999 than their carrying value due to an increase in market rates
of interest since the purchase date of the securities. Therefore, the total
balance of available for sale securities includes the gross effect of the
unrealized loss.
Accrued interest receivable. Accrued interest receivable increased $128,000 from
$1.2 million at June 30, 1999 to $1.3 million at December 31, 1999. The increase
is primarily due to the increase in loans receivable with annual payments and
the level of accrued interest on available-for-sale securities with semi-annual
interest payments.
Deposits. Deposits decreased $703,000 from $75.7 million at June 30, 1999 to
$75.0 million at December 31, 1999. This decrease is primarily due to the
competitive pricing of certificate of deposit products and other investment
products available in our market area. Transaction and savings deposits
increased as a percentage of total deposits from $25.7 million or 34.0% at June
30, 1999 to $26.1 million or 34.8% at December 31, 1999. Certificates of deposit
decreased as a percentage of total deposits from $50.0 million or 66.0% at June
30, 1999 to $48.9 million or 65.2% at December 31, 1999.
FHLB Borrowings. The total principal balance of advances from the Federal Home
Loan Bank of Des Moines (FHLB) increased $7.5 million from $15.7 million at June
30, 1999 to $23.2 million at December 31, 1999. The increase is primarily due to
the increased need to borrow to fund loan growth activity and investment
activity. Washington Federal has utilized the FHLB advances for this growth in
an effort to control cost of funds and interest rate risk. The portfolio of
borrowings contains both long and short term borrowings.
Advances from borrowers for taxes and insurance. The total balance in advances
from borrowers for taxes and insurance decreased $18,000 from $223,000 at June
30, 1999 to $205,000 at December 31, 1999 primarily due to the payment of
semi-annual credit life and disability insurance premiums and the annual escrow
analysis performed each December. Escrow overages in excess of $50.00 are sent
directly to the customer. Escrow shortages are spread out over a twelve-month
period and added to the regular monthly escrow payment.
Total stockholders' equity. Total stockholders' equity increased $186,000 from
$10.7 million at June 30, 1999 to $10.9 million at December 31, 1999. The
increase is primarily due to net income of $501,000, the allocation of shares in
the ESOP of $32,000, and the amortization of deferred compensation under the
Recognition and Retention Plan of $16,000, partially offset by the net
unrealized loss in available- for- sale securities of $216,000, dividends paid
of $67,000, the purchase of 3,000 shares of the Company's common stock at a
total cost of $41,000, and the change in redeemable common stock held by the
ESOP of $40,000,
<PAGE>
Results of Operations - Three Months Ended December 31, 1999 As Compared To The
Three Months Ended December 31, 1998
Performance summary. Net earnings increased $106,000 to $278,000 for the three
months ended December 31, 1999 from $172,000 for the three months ended December
31, 1998. The increase is primarily due to an increase in interest income of
$148,000, an increase in noninterest income of $44,000, a decrease in
noninterest expense of $19,000, and a decrease in provision for loan losses of
$16,000 which was partially offset by an increase in interest expense of
$10,000, and increase in income tax expense of $111,000. For the three months
ended December 31, 1999, the annualized return on average assets was 1.02% as
compared to 0.68% for the three months ended December 31, 1998. The annualized
return on average equity was 10.28% for the three months ended December 31,
1999, as compared to 6.53% for the three months ended December 31, 1998.
Net interest income. Net interest income increased $138,000 to $896,000 for the
three months ended December 31, 1999 from $758,000 for the three months ended
December 31, 1998. The increase is primarily due to the increase of $148,000 in
interest income to $2.0 million for the three months ended December 31, 1999
from $1.9 million for the three months ended December 31, 1998, which was
partially offset by an increase in interest expense of $10,000.
For the three months ended December 31, 1999, the average yield on interest
earning assets was 7.85% compared to 7.82% for the three months ended December
31, 1998. The average cost of interest-bearing liabilities was 4.84% for the
three months ended December 31, 1999 compared to 5.18% for the three months
ended December 31, 1998. The average balance of interest earning assets
increased $6.3 million to $103.0 million for the three months ended December 31,
1999 from $96.7 million for the three months ended December 31, 1998. During
this same period, the average balance of interest-bearing liabilities increased
$6.2 million to $93.7 million for the three months ended December 31, 1999 from
$87.5 million for the three months ended December 31, 1998.
Due to the increase in yield on the interest-earning assets and the decrease in
rates paid on the interest-bearing liabilities, the average interest rate spread
was 3.01% for the three months ended December 31, 1999 compared to 2.64% for the
three months ended December 31, 1998. The average net interest margin was 3.45%
for the three months ended December 31, 1999 compared to 3.14% for the three
months ended December 31, 1998.
Provision for loan loss. Provision for loan loss decreased for the three months
ended December 31, 1999 compared to the three months ended December 31, 1998.
Washington Bancorp's loan portfolio consists primarily of residential mortgage
loans and it has experienced a minimal amount of charge-offs in the past three
years. The allowance for loan losses was $496,000 or .64% of loans receivable,
net at December 31, 1999 compared to $440,000 or .64% of loans receivable, net
at December 31, 1998. The allowance for loan loss as a percentage of
non-performing assets was 118.07% at December 31, 1999, as compared to 94.99% at
December 31, 1998.
Noninterest income. Noninterest income increased $44,000 to $141,000 for the
three months ended December 31, 1999 from $97,000 for the three months ended
December 31, 1998. The increase is primarily due to an increase in bank service
charges and fees of $37,000, an increase in other fee income of $11,000, and an
increase in insurance commissions of $8,000 which was partially offset by a
decrease in security gains, net of $11,000 and a decrease in loan origination
and commitment fees of $1,000.
Bank service charges and fees increased $37,000 to $97,000 for the three months
ended December 31, 1999 from $60,000 for the three months ended December 31,
1998 primarily due to an increase in overdraft fee income and to continued
efforts in restructuring fee schedules. Other fee income increased $11,000 to
$20,000 for the three months ended December 31, 1999 from $9,000 for the three
months ended December 31, 1998 primarily due to an increase in the gain on real
estate property sold and an increase in the penalty for early withdrawal on
certificates of deposit. Insurance commissions increased $8,000 to $22,000 for
the three months ended December 31, 1999 from $14,000 for the three months ended
December 31, 1998 primarily due to fluctuations in the volume of sales of credit
life and disability products.
Noninterest expense. Noninterest expense decreased $19,000 to $547,000 for the
three months ended December 31, 1999 from $566,000 for the three months ended
December 31, 1998. The decrease is primarily due to a $36,000 decrease in
compensation and benefits, and an $8,000 decrease in occupancy and equipment
expense which was partially offset by a $22,000 increase in other noninterest
expense, a $1,000 increase in deposit insurance premiums and a $1,000 increase
in data processing expense.
<PAGE>
The $36,000 decrease in compensation and benefits to $254,000 for the three
months ended December 31, 1999 from $290,000 was primarily due to a short-term
reduction of fulltime-equivalent employees and an adjustment for the capitalized
cost of closing loans. The $8,000 decrease in occupancy and equipment to $52,000
for the three months ended December 31, 1999 from $60,000 for the three months
ended December 31, 1998 was primarily due to the timing of payment on a primary
maintenance contract at Rubio Savings Bank. The increase in other noninterest
expense was primarily due to an increase in advertising and postage expense
associated with the promotion of the investment brokerage service and the
increase in expenses incurred on bad debt.
Results of Operations - Six Months Ended December 31, 1999 As Compared To The
Six Months Ended December 31, 1998
Performance summary. Net earnings increased $134,000 to $501,000 for the six
months ended December 31, 1999 from $367,000 for the six months ended December
31, 1998. The increase is primarily due to an increase in interest income of
$261,000, an increase in noninterest income of $53,000, and a decrease in
provision for loan losses of $17,000 which was partially offset by an increase
in interest expense of $66,000, an increase in income tax expense of $105,000
and an increase in noninterest expense of $26,000. For the six months ended
December 31, 1999, the annualized return on average assets was 0.94% as compared
to 0.75% for the six months ended December 31, 1998. The annualized return on
average equity was 9.32% for the six months ended December 31, 1999, as compared
to 6.87% for the six months ended December 31, 1998.
Net interest income. Net interest income increased $194,000 to $1.7 million for
the six months ended December 31, 1999 from $1.5 million for the six months
ended December 31, 1998. The increase is primarily due to the increase of
$261,000 in interest income to $4.0 million for the six months ended December
31, 1999 from $3.7 million for the six months ended December 31, 1998, which was
partially offset by an increase in interest expense of $67,000.
For the six months ended December 31, 1999, the average yield on interest
earning assets was 7.92% compared to 7.92% for the six months ended December 31,
1998. The average cost of interest-bearing liabilities was 4.90% for the six
months ended December 31, 1999 compared to 4.97% for the six months ended
December 31, 1998. The average balance of interest earning assets increased $6.9
million to $100.6 million for the six months ended December 31, 1999 from $93.7
million for the six months ended December 31, 1998. During this same period, the
average balance of interest-bearing liabilities increased $4.2 million to $91.3
million for the six months ended December 31, 1999 from $87.1 million for the
six months ended December 31, 1998.
Due to the decrease in rates paid on the interest-bearing liabilities, the
average interest rate spread was 3.02% for the six months ended December 31,
1999 compared to 2.95% for the six months ended December 31, 1998. The average
net interest margin was 3.48% for the six months ended December 31, 1999
compared to 3.31% for the six months ended December 31, 1998.
Provision for loan loss. Provision for loan loss decreased for the six months
ended December 31, 1999 compared to the six months ended December 31, 1998.
Washington Bancorp's loan portfolio consists primarily of residential mortgage
loans and it has experienced a minimal amount of charge-offs in the past three
years. The allowance for loan losses was $496,000 or .64% of loans receivable,
net at December 31, 1999 compared to $440,000 or .64% of loans receivable, net
at December 31, 1998. The allowance for loan loss as a percentage of
non-performing assets was 118.07% at December 31, 1999, as compared to 94.99% at
December 31, 1998.
Noninterest income. Noninterest income increased $53,000 to $245,000 for the six
months ended December 31, 1999 from $192,000 for the six months ended December
31, 1998. The increase is primarily due to an increase in bank service charges
and fees of $40,000, an increase in insurance commissions of $15,000, an
increase in other fee income of $8,000, and an increase in loan origination and
commitment fees of $1,000 which was partially offset by a decrease in security
gains, net of $11,000.
Bank service charges and fees increased $40,000 to $185,000 for the six months
ended December 31, 1999 from $145,000 for the six months ended December 31, 1998
primarily due to an increase in overdraft fee income and to continued efforts to
restructure fee schedules. Insurance commissions increased $15,000 to $37,000
for the six months ended December 31, 1999 from $22,000 for the six months ended
December 31, 1998 primarily due to the fluctuations in the volume of sales of
credit life and disability products, Other fee income increased $8,000 to
$18,000 for the six months ended December 31, 1999 from $10,000 for the six
months ended December 31, 1998 primarily due to an increase in the gain and
income on real estate property and an increase in the penalty for early
withdrawal on certificates of deposit.
<PAGE>
Noninterest expense. Noninterest expense increased $26,000 to $1.1 million for
the six months ended December 31, 1999 from $1.1 million for the six months
ended December 31, 1998. The increase is primarily due to a $16,000 increase in
other noninterest expense, a $5,000 increase in data processing, a $4,000
increase in compensation and benefits, and a $1,000 increase in deposit
insurance premiums which was partially offset by a $1,000 decrease in occupancy
and equipment expense.
Other noninterest expense increased $15,000 to $301,000 for the six months ended
December 31, 1999 from $285,000 for the six months ended December 31, 1998
primarily due to an increase in advertising and postage expense associated with
the promotion of the investment brokerage service and the increase in expenses
incurred on real estate owned. Data processing increased $5,000 to $48,000 for
the six months ended December 31, 1999 from $43,000 for the six months ended
December 31, 1998 primarily due to a change in communication technology to frame
relay from satellite. Compensation and benefits increase $4,000 to $584,000 for
the six months ended December 31, 1999 from $580,000 for the six months ended
December 31, 1998 primarily due to the expansion of Washington Federal's service
area through the opening of a branch in Wellman, Iowa which was partially offset
by a short-term reduction of fulltime-equivalent employees and an adjustment for
the capitalized cost of closing loans.
Liquidity and capital resources. The Banks' principal sources of funds are
deposits, amortization and prepayment of loan principal, borrowings, and the
sale and maturity of investment securities. While scheduled loan repayments and
maturing investments are relatively predictable, deposit flows and early loan
repayments are more influenced by interest rates, general economic conditions,
and competition, and, most recently, the restructuring of the thrift industry.
The Banks generally manage the pricing of the deposits to maintain a steady
deposit balance, but have from time to time decided not to pay deposit rates
that are as high as those of the competition, and when necessary, to supplement
deposits with alternative sources of funds.
Federal regulations historically have required Washington Federal to maintain
minimum levels of liquid assets. The required percentage has varied from time to
time based upon economic conditions and savings flows and is currently 4% of net
withdrawable savings deposits and borrowings payable upon demand or in one year
or less during the proceeding calendar month. Liquid assets for the purpose of
this ratio include cash, certain time deposits, U.S. Government, other
governmental agency, and corporate securities and other obligations generally
having remaining maturities of less than five years. Washington Federal has
historically maintained its liquidity ratio at levels in excess of those
required. At December 31, 1999, Washington Federal's liquidity ratio was 18.39%.
Liquidity management is both a daily and long-term responsibility of management.
The Banks adjust their investments in liquid assets based upon management's
assessment of (i) expected loan demand, (ii) expected deposit flows, (iii)
yields available on interest-bearing deposits, and (iv) the objective of its
asset/liability management program. Excess liquidity is invested generally in
interest-bearing overnight deposits and other short-term government and agency
obligations. If Washington Federal requires funds beyond its ability to generate
them internally, it has additional borrowing capacity with the FHLB of Des
Moines and collateral eligible for reverse repurchase agreements.
The Banks anticipate that they will have sufficient funds available to meet
current loan commitments. At December 31, 1999, Washington Federal had
outstanding commitments to extend credit which amounted to $3.2 million and
Rubio Savings Bank had outstanding commitments to extend credit which amounted
to $830,000.
<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.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports in Form 8-K have been filed during the quarter ended
December 31, 1999
<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, 2000 /s/ Stan Carlson
-------------------------------------
Stan Carlson, President and Chief
Executive Officer
Date February 10, 2000 /s/ Leisha A. Linge
-------------------------------------
Leisha A. Linge, Vice President and
Treasurer
Washington Bancorp
Computation of Earnings per Common Share
Exhibit 11
<TABLE>
For the three months ended December 31, For the six months ended December 31,
---------------------------------------- ------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
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 ....... 651,133 651,133 651,133 651,133 651,133 651,133 651,133 651,133
Unreleased common shares held by the
Employee Stock Ownership
Plan (ESOP) at the beginning
of the period ........................ (36,845) (41,270) (36,845) (41,270) (37,972) (42,313) (37,972) (42,313)
Weighted average common shares
released by the ESOP during
the period ........................... 564 522 564 522 1,127 1,044 1,127 1,044
Weighted average common shares
outstanding - Stock Option Plan ...... 0 0 7,736 15,823 0 0 9,425 16,517
Weighted average common shares
into treasury ........................ (54,526) (53,127) (54,526) (53,127) (53,220) (44,269) (53,220) (44,269)
----------------------------------------------------------------------------------------
Total average shares outstanding ....... 560,326 557,258 568,062 573,081 561,068 565,595 570,493 582,112
========================================================================================
Net income ............................. $ 278,511 $ 172,425 $ 278,511 $ 172,425 $ 501,276 $ 367,588 $ 501,276 $ 367,588
=========================================================================================
Net income per share ................... $ 0.50 $ 0.31 $ 0.49 $ 0.30 $ 0.89 $ 0.65 $ 0.88 $ 0.63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE DECEMBER
31, 1999 FORM 10-QSB OF 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-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 2,174
<INT-BEARING-DEPOSITS> 876
<FED-FUNDS-SOLD> 1,715
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,388
<INVESTMENTS-CARRYING> 919
<INVESTMENTS-MARKET> 919
<LOANS> 77,590
<ALLOWANCE> 496
<TOTAL-ASSETS> 110,115
<DEPOSITS> 74,986
<SHORT-TERM> 17,677
<LIABILITIES-OTHER> 825
<LONG-TERM> 5,500
230
0
<COMMON> 7
<OTHER-SE> 10,889
<TOTAL-LIABILITIES-AND-EQUITY> 110,115
<INTEREST-LOAN> 3,234
<INTEREST-INVEST> 741
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,975
<INTEREST-DEPOSIT> 1,685
<INTEREST-EXPENSE> 2,228
<INTEREST-INCOME-NET> 1,747
<LOAN-LOSSES> 40
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,124
<INCOME-PRETAX> 828
<INCOME-PRE-EXTRAORDINARY> 501
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 501
<EPS-BASIC> .89
<EPS-DILUTED> .88
<YIELD-ACTUAL> 3.48
<LOANS-NON> 0
<LOANS-PAST> 420
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 472
<CHARGE-OFFS> 22
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 496
<ALLOWANCE-DOMESTIC> 496
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
