SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994.
( ) 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: 0-15826
WASHINGTON BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2800126
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
101 WASHINGTON STREET, HOBOKEN , NEW JERSEY 07030
(Address of principal executive offices)(zip code)
(201) 659-0013
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
Number of shares of common stock, par value $.10 per share,outstanding as of
March 31, 1994: 2,307,937.
1
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PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements PAGE
-------------------- ----
Consolidated Financial Statements of Washington Bancorp, Inc.:
Consolidated Balance Sheets - March 31, 1994 (unaudited) and
December 31, 1993 ........................................................ 3
Consolidated Statements of Income - three months ended March
31, 1994 and 1993(unaudited) ............................................. 4
Consolidated Statements of Cash Flows - three months ended
March 31, 1994 and 1993(unaudited) ....................................... 5
Notes to Consolidated Financial Statements(unaudited) ..................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 11
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings ............................................... 18
Item 2. Changes in Securities ........................................... 18
Item 3. Defaults Upon Senior Securities ................................. 18
Item 4. Submission of Matters to a Vote of Security Holders ............. 18
Item 5. Other Information ............................................... 18
Item 6. Exhibits and Reports on Form 8-K ................................ 18
2
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Washington Bancorp, Inc. & Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks .......................................................... $ 6,236,566 $ 4,283,032
Federal funds sold ............................................................... 1,700,000 1,900,000
------------- -------------
Cash and cash equivalents ...................................................... 7,936,566 6,183,032
Investment securities:
Available-for-sale ........................................................... 63,698,819 57,740,195
Held-to-maturity (market value $13,746,000 and $14,128,000) .................. 13,701,453 13,848,830
Mortgage-backed securities:
Available-for-sale ........................................................... 8,014,508 9,516,832
Held-to-maturity (market value $7,701,000 and $9,365,000) .................... 7,903,815 9,447,366
Loans:
Held-for-sale (market value $3,980,800 and $4,872,000) ....................... 3,980,800 4,852,000
In portfolio (net of allowance for losses of $2,787,000 and $2,828,000) ...... 159,364,011 165,332,900
Other real estate owned (net of allowance for losses of $1,757,000 and $1,880,000) 5,943,038 7,078,038
Accrued interest receivable ...................................................... 2,382,586 2,563,176
Premises and equipment, net ...................................................... 2,560,240 2,614,031
Federal Home Loan Bank stock, at cost ............................................ 1,505,000 1,711,300
Deferred income tax asset ........................................................ 1,939,000 1,369,000
Other assets ..................................................................... 592,984 378,636
------------- -------------
TOTAL ASSETS .............................................................. $ 279,522,820 $ 282,635,336
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Interest-bearing deposits ...................................................... $ 233,974,482 $ 237,026,264
Noninterest-bearing deposits ................................................... 9,205,526 9,016,464
------------- -------------
Total deposits ............................................................ 243,180,008 246,042,728
Advances from Federal Home Loan Bank ........................................... 400,000 400,000
Mortgage escrow deposits ....................................................... 1,639,293 1,276,819
Accrued interest payable ....................................................... 168,776 189,154
Other liabilities .............................................................. 1,092,859 1,185,136
------------- -------------
TOTAL LIABILITIES ......................................................... 246,480,936 249,093,837
------------- -------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.10 per share, 3,000,000 shares authorized,
no shares issued and outstanding ............................................. -- --
Common stock, par value $.10 per share, 6,000,000 shares authorized,
shares issued and outstanding-2,307,937 in 1994 and 2,307,687 in 1993 ........ 230,793 230,768
Paid-in capital ................................................................ 22,502,516 22,500,728
Retained earnings .............................................................. 11,135,575 10,744,003
Unrealized gain/(loss) on available-for-sale securities, net of tax ............ (722,000) 186,000
------------- -------------
33,146,884 33,661,499
Deferred compensation-Management Recognition and Retention Plan .................. (105,000) (120,000)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY ................................................ 33,041,884 33,541,499
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................... $ 279,522,820 $ 282,635,336
============= =============
</TABLE>
See notes to consolidated financial statements
3
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Washington Bancorp, Inc. & Subsidiary
Consolidated Statements Of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
----------------------------
1994 1993
----------- -----------
<S> <C> <C>
INTEREST INCOME:
Loans, including fees ............................... $ 3,392,580 $ 3,934,386
U.S. Treasury obligations ........................... 836,520 283,413
Mortgage-backed securities .......................... 171,243 164,446
Dividends ........................................... 32,175 37,058
Federal funds sold .................................. 21,464 45,113
Due from banks ...................................... 11,895 12,407
Other investment securities ......................... 59,033 324,989
----------- -----------
Total interest income ............................... 4,524,910 4,801,812
----------- -----------
INTEREST EXPENSE:
Deposits ............................................ 1,843,898 2,408,969
Borrowed funds ...................................... 4,813 3,102
----------- -----------
Total interest expense .............................. 1,848,711 2,412,071
----------- -----------
Net interest income ............................... 2,676,199 2,389,741
----------- -----------
Provision for losses on loans .......................... 75,000 200,000
----------- -----------
Net interest income after provision
for losses on loans ................................ 2,601,199 2,189,741
----------- -----------
OTHER INCOME:
Service charges on deposit accounts ................. 43,986 43,241
Gain on sale of loans, net .......................... 11,127 --
Security gains, net ................................. -- 29,997
Other ............................................... 56,764 197,590
----------- -----------
Total other income .................................. 111,877 270,828
----------- -----------
OTHER EXPENSES:
Salaries and employee benefits ...................... 827,202 887,180
REO expense, net .................................... 475,810 435,645
Occupancy and equipment expenses, net ............... 201,670 192,997
Federal Deposit Insurance Corporation assessment .... 141,455 182,852
Other ............................................... 456,367 594,764
----------- -----------
Total other expenses ................................ 2,102,504 2,293,438
----------- -----------
Income before income taxes and cumulative effect
of change in accounting principle ................ 610,572 167,131
Income tax (expense)/benefit ........................ (219,000) 695,000
----------- -----------
Income before cumulative effect of change
in accounting principle .......................... 391,572 862,131
Cumulative effect of change in accounting principle -- 300,000
----------- -----------
NET INCOME ...................................... $ 391,572 $ 1,162,131
=========== ===========
Income per share:
Income before cumulative effect of change
in accounting principle .......................... $ 0.17 $ 0.38
Cumulative effect of change in accounting principle -- 0.13
----------- -----------
NET INCOME ...................................... $ 0.17 $ 0.51
=========== ===========
Weighted average number of shares outstanding .......... 2,353,995 2,276,035
=========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
Washington Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
-----------------------------
1994 1993
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received ................................ $ 5,212,225 $ 5,250,132
Loan fees received ............................... 42,825 98,699
Service charges on deposits received ............. 43,986 43,241
Miscellaneous other income received .............. 56,764 61,189
Income tax refund received ....................... -- 1,183,401
Income taxes paid ................................ (371,600) (119,107)
Proceeds from sales of loans originated for resale 863,127 --
Interest paid .................................... (1,869,089) (2,503,365)
Cash paid to employees and for other expenses .... (1,979,478) (1,853,259)
------------ -----------
Net cash provided by operating activities .... 1,998,760 2,160,931
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities
available-for-sale .............................. 21,661 955,323
Proceeds from maturities of securities
available-for-sale .............................. 2,692,100 --
Purchase of securities available-for-sale ........ (10,247,095) --
Principal collected on mortgage-backed
securities available-for-sale ................... 1,259,898 223,396
Purchase of mortgage-backed
securities available-for-sale ................... -- (3,957,275)
Proceeds from sales of investment securities ..... -- 1,958,400
Proceeds from maturities of investment securities 74,332 16,624,805
Purchase of investment securities ................ -- (4,371,672)
Principal collected on mortgage-backed securities 1,421,484 354,972
Purchase of mortgage-backed securities ........... -- (8,368,208)
Net decrease/(increase) in loans ................. 6,419,471 (1,906,855)
Recoveries on loans charged-off .................. 28,566 87,773
Capital expenditures ............................. (1,895) (36,393)
Proceeds from sales of REO, net of financed
sales and closing costs ......................... 378,385 1,450,928
Proceeds from redemption/(purchase) of FHLB stock 206,300 (79,300)
------------ -----------
Net cash provided by investing activities ...... 2,253,207 2,935,894
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in savings and transaction accounts . 2,002,836 2,599,077
Net decrease in certificates of deposit .......... (4,865,556) (4,189,839)
Net increase in mortgage escrow deposits ......... 362,474 705,655
Advances from FHLB ............................... -- 400,000
Exercise of stock options ........................ 1,813 --
------------ ------------
Net cash used in financing activities .......... (2,498,433) (485,107)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........... 1,753,534 4,611,718
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ........ 6,183,032 7,336,433
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............ $ 7,936,566 $11,948,151
============ ===========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited) (continued)
Three Months ended March 31,
----------------------------
1994 1993
----------- -----------
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income ........................................ $ 391,572 $ 1,162,131
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................. 55,686 64,972
Provision for losses on loans and REO ......... 405,000 401,000
Recognition of deferred compensation expense .. 15,000 15,000
Deferred loan fees ............................ (47,863) (24,554)
Deferred taxes ................................ (64,000) (300,000)
Gain on sales of investment and
mortgage-backed securities ................... -- (21,256)
Gain on sales of REO .......................... (88,037) (44,210)
Loss on sales of REO .......................... 28,402 73,950
Premium amortization, net of discount earned .. 597,413 483,651
Changes in operating assets and liabilities:
(Increase)/decrease in loans originated
for resale ............................... 852,000 --
(Increase)/decrease in income tax
refund receivable ........................ -- 320,000
(Increase)/decrease in accrued
interest receivable ...................... 180,590 79,181
(Increase)/decrease in other assets ........ (214,348) (130,259)
Increase/(decrease) in accrued
interest payable ......................... (20,378) (91,294)
Increase/(decrease) in other liabilities ... (92,277) 172,619
----------- -----------
Net cash provided by operating activities ......... $ 1,998,760 $ 2,160,931
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfer of loans to REO ...................... $ 45,000 $ 1,054,556
=========== ===========
Portion of REO sales financed by the Bank ..... $ 531,250 $ 3,238,200
=========== ===========
Lower of cost or market adjustment on
loans held for sale .......................... $ 19,200 $ --
=========== ===========
Change in unrealized loss on
available-for-sale securities, net of tax .... $ 908,000 $ --
=========== ===========
See notes to consolidated financial statements
6
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 1994
Note 1. The interim consolidated financial statements included herein have
been prepared by Washington Bancorp, Inc.(the "Company"), without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission, and should be read in conjunction with the
audited consolidated financial statements of the Company for the
year ended December 31, 1993. Certain information and note
disclosure normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures being made are adequate to
make the information presented not misleading. In the opinion of
management, these consolidated financial statements reflect all
adjustments (all of which are of a normal recurring nature) which are
necessary for a fair statement of results for the interim periods.
The results for the 1994 interim period are not necessarily indicative
of results to be expected for the entire year.
Note 2. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Washington Savings Bank
(the "Bank"). All material intercompany balances and transactions
have been eliminated.
Note 3. Income before cumulative effect of change in accounting principle
per share and net income per share were computed by dividing net
income for each period by the weighted average number of shares
outstanding (which excludes unvested shares of the Management
Recognition and Retention Plan for all periods) and common stock
equivalents. Options granted under the Company's stock option plans
are considered stock equivalents for purposes of earnings per share
data.
7
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Note 4. LOANS AND REO
Loans
The primary market area for lending encompasses Hudson and Bergen Counties,
New Jersey. The following table sets forth the composition of the loan
portfolio:
March 31, December 31,
1994 1993
------------- -------------
(unaudited)
Real estate:
1-4 family ............. $ 104,061,956 $ 109,211,067
Multi-family/commercial 55,308,224 53,860,461
Construction ........... 1,919,724 3,282,555
------------- -------------
Total real estate loans 161,289,904 166,354,083
Commercial/financial ..... 505,150 1,421,985
Consumer and other loans . 1,244,605 1,322,178
------------- -------------
Total loans ........... 163,039,659 169,098,246
Less: Unearned interest .. 78,558 79,393
Deferred loan fees . 810,090 857,953
Allowance for losses 2,787,000 2,828,000
------------- -------------
Loans, net ............. $ 159,364,011 $ 165,332,900
============= =============
Nonperforming loans
Nonperforming loans, which are a component of loans, include loans which are
accounted for on a nonaccrual basis and troubled debt restructurings.
March 31, December 31,
1994 1993
------------ -----------
(unaudited)
Nonaccrual loans:
Real estate loans:
1-4 family .............. $ 2,725,016 $ 2,783,813
Multi-family/commercial . 10,043,911 9,981,691
Construction ............ -- --
------------ -----------
Total real estate loans 12,768,927 12,765,504
Commercial/financial ...... -- --
Consumer and other loans .. 33,348 32,647
------------ -----------
Total nonaccrual loans .. 12,802,275 12,798,151
Troubled debt restructurings:
Commercial/financial ...... 8,872 151,788
------------ -----------
Total nonperforming loans $ 12,811,147 $12,949,939
============ ===========
Included in multi-family/commercial real estate nonaccrual loans is
a loan, collateralized by a first mortgage and an
assignment-of-rents, to a partnership whose general partner filed a
Chapter 11 bankruptcy petition during the first quarter of 1993 (the
"Partnership Loan"). On November 10, 1993, the Court dismissed the
bankruptcy petition. Nevertheless, the Bank did not receive any of
the rental payments from April 1993 through November 1993, as the
payments
8
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were made to a debtor-in-possession account and, pursuant to a Court
Order, were released to the City of Philadelphia (and not to the
Bank) to pay a substantial portion of property tax arrearages.
Rental payments were resumed to the Bank in December 1993. On
January 29, 1994, the Bank paid approximately $450,000 to the City
of Philadelphia to resolve all remaining property tax arrearages and
to pay 1994 property taxes. The amount of such payment was
capitalized into the Partnership Loan balance during 1994,
increasing the loan balance to approximately $9.2 million. The Bank
anticipates that the Partnership Loan will be renegotiated during
1994. Based upon a $12.2 million appraisal, management believes that
the Bank has adequate collateral with respect to the Partnership
Loan and anticipates collection of the outstanding principal
balance.
REO March 31, December 31,
1994 1993
------------ ------------
(unaudited)
Acquired by foreclosure or
deed in lieu of foreclosure $ 2,948,038 $ 3,920,667
Loans foreclosed in-substance ... 4,752,000 5,037,371
Less: Allowance for losses on REO (1,757,000) (1,880,000)
------------ ------------
REO, net ..................... $ 5,943,038 $ 7,078,038
============ ============
Allowance for losses on loans and REO
Loans REO Total
----------- ----------- -----------
Balance, December 31, 1993 ........ $ 2,828,000 $ 1,880,000 $ 4,708,000
Provision for losses .............. 75,000 330,000 405,000
Recoveries ........................ 28,149 -- 28,149
Losses charged off ................ (144,149) (453,000) (597,149)
----------- ----------- -----------
Balance, March 31, 1994 (unaudited) $ 2,787,000 $ 1,757,000 $ 4,544,000
=========== =========== ===========
Note 5. In the normal course of business, the Company is a party to
financial instruments with off-balance-sheet risk which are properly
not recorded in the consolidated financial statements. At March 31,
1994, the Company's exposure to credit loss in the event of
nonperformance by the potential borrowers is represented by the
contractual amount of the financial instruments as follows:
Expiration
Contractual Interest Dates
Amount Rates Through
---------- --------- --------------
Loan commitments-variable ........... $1,197,000 6.1%- 8.5% June 1994
Loan commitments-fixed .............. 2,088,000 7.0 - 9.5 June 1994
Lines of credit-variable ............ 1,854,000 7.5 -11.0 September 1994
Undisbursed construction loans-fixed 725,000 7.0 -10.0 August 1995
Note 6. In October 1991, a complaint was filed by a former officer in New
Jersey Superior Court against the Company, the Bank and certain
directors and officers seeking unspecified damages relating to the
termination of such officer's
9
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employment. The Bank and individual defendants filed an answer and
asserted certain counterclaims. Although this complaint was
dismissed, it was dismissed without prejudice to the plaintiff's
right to refile the complaint by March 31, 1994. The complaint was
refiled by such date. It is anticipated that the Company and
individual defendants will file a comparable answer and
counterclaims. In April 1992, a complaint was filed in the New
Jersey Superior Court against the Company and the Bank seeking
unspecified damages and alleging violations of state securities
laws, certain banking laws and state common law. In February 1994,
the plaintiffs amended their complaint to add claims against nine
individual defendants, including current and former officers and
directors of the Company and the Bank. This lawsuit is in the
discovery stage. Management believes that the defendants have
meritorious defenses in both of these actions and intends to
vigorously defend these actions. Given the uncertainties involved in
judicial proceedings and the preliminary stage of discovery in these
matters, management cannot determine the precise amount of any
potential loss that may arise in these matters. Accordingly, no
provision for loss, if any, that may result upon resolution of these
matters has been recorded in the Company's financial statements.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A. General
Washington Bancorp Inc. (the "Company") reported net income for the
quarter ended March 31, 1994 of $392,000, or $.17 per share, as compared
with net income of $1,162,000, or $.51 per share, for the quarter ended
March 31, 1993. Included in the 1993 net income is an income tax refund
of approximately $747,000 and interest of $136,000 thereon, as well as a
$300,000 benefit upon adoption of SFAS 109-"Accounting for Income Taxes."
For more information regarding results of operations, refer to "Results
of Operations for the three months ended March 31, 1994 and 1993" below.
During the first quarter of 1994, nonperforming assets decreased to $18.7
million ($9.2 million attributable to the Partnership loan, which is
described in the next paragraph; $3.6 million in other nonperforming
loans and $5.9 million in real estate owned ("REO")) from $20.0 million
($8.8 million attributable to the Partnership loan, $4.1 million in other
nonperforming loans and $7.1 million in REO) at December 31, 1993. The
primary reason for the decrease in nonperforming assets was the sale of
thirteen parcels of REO with a net book value of $850,000 as well as
write-downs of REO totaling $330,000, the largest of which was $100,000
on the largest REO property. At March 31, 1994 and December 31, 1993, the
Company's aggregate amount of allowance for losses on loans and REO of
$4.5 million and $4.7 million, respectively, approximated 40% and 36%,
respectively, of gross nonperforming assets excluding the Partnership
Loan and approximated 22% and 21%, respectively, of gross nonperforming
assets including the Partnership Loan.
The "Partnership Loan" is a loan, collateralized by a first mortgage and
an assignment-of-rents, to a partnership whose general partner filed a
Chapter 11 bankruptcy petition during the first quarter of 1993. On
November 10, 1993, the Court dismissed the bankruptcy petition.
Nevertheless, the wholly-owned subsidiary of the Company-Washington
Savings Bank (the "Bank")-did not receive any of the rental payments from
April 1993 through November 1993, as the payments were made to a
debtor-in-possession account and, pursuant to a Court Order, were
released to the City of Philadelphia (and not to the Bank) to pay a
substantial portion of property tax arrearages. Rental payments were
resumed to the Bank in December 1993. On January 29, 1994, the Bank paid
approximately $450,000 to the City of Philadelphia to resolve all
remaining property tax arrearages and to pay 1994 property taxes. The
amount of such payment was capitalized into the Partnership Loan balance
during 1994. The Bank anticipates that the Partnership Loan will be
renegotiated during 1994. During the first quarter of 1994, the Bank
recognized approximately $219,000 of interest income on the Partnership
Loan.
During the first quarter of 1994, the Company experienced a net decrease in
loans of approximately $6.1 million, or 4%, to $163.0 million at March 31,
1994 from $169.1
11
<PAGE>
million at year-end 1993 and a net decrease in mortgage-backed securities
of approximately $3.1 million, or 16%, to $15.9 million at March 31, 1994
from $19.0 million at year-end 1993 due to mortgage prepayments. A portion
of the funds were used to fund approximately $2.8 million of net deposit
outflows and the remainder of the funds were reinvested in investment
securities. These events occurred while the Federal Reserve Bank ("FRB")
raised interest rates and while the Company did not experience a
significant change in its cost of funds. The Company maintains a relatively
high liquidity ratio of approximately 40% should deposit outflows continue
into the foreseeable future.
The increase in the interest rate environment during the first quarter of
1994 also decreased the carrying value of securities available for sale
by $908,000 (net of tax). Such market value adjustment had no effect on
results of operations; however, stockholders' equity was reduced by
$908,000. The amount of unrealized loss on available-for-sale securities
(net of tax) as of March 31, 1994 was $722,000.
As previously announced, the FRB recently completed an off-site analysis
of the Company. As a result of that analysis, in January 1994, the FRB
rescinded its Memorandum of Understanding, which the Company had
originally signed on August 13, 1991 in connection with the FRB's
examination as of December 31, 1990.
B. Results of Operations for the three months ended March 31, 1994 and 1993
------------------------------------------------------------------------
NET INCOME:
The Company's net income for the quarter ended March 31, 1994 was
$392,000, or $.17 per share, as compared with net income of $1,162,000,
or $.51 per share, for the quarter ended March 31, 1993. Included in the
1993 net income is an income tax refund of approximately $747,000 and
interest of $136,000 thereon, as well as a $300,000 benefit upon adoption
of SFAS 109-"Accounting for Income Taxes."
Excluding the 1993 events referred to above, net income improved
approximately $413,000 due primarily to an improvement in net interest
income of $286,000, or 12%, a decrease in total other expenses of
$191,000, or 8%, and a decrease in the provision for losses on loans of
$125,000, or 63%, which was partially offset by certain factors,
including an increase in income tax expense of $167,000.
NET INTEREST INCOME:
Net interest income increased $286,000, or 12%, for the three months ended
March 31, 1994 as compared with the corresponding period last year. The
increase from 1993 was primarily due to the fact that rates of
interest-bearing liabilities declined more rapidly than yields of
interest-earning assets, as well as to an increase in net interest-earning
12
<PAGE>
assets. The interest rate spread improved to 3.53% for the three months
ended March 31, 1994 from 3.16% for the comparable period of 1993.
Total interest income decreased $277,000, or 6%, due to lower yields
earned on substantially all interest-earning asset categories as well as
a change in the mix of interest-earning assets, partially offset by a
$2.3 million increase in average interest-earning assets. The low yield
earned on mortgage-backed securities was due in part to prepayments which
occurred more rapidly than originally anticipated resulting in increased
premium amortization of $105,000 during the first quarter of 1994. In
addition, lower yields of mortgage loans was a result of adjustable-rate
loans repricing downward in concert with an overall decline in the
interest rate environment from the first quarter of 1993 to the first
quarter of 1994. The mix of interest-earning assets negatively impacted
interest income as excess funds from prepayments of mortgage loans were
reinvested into investment and mortgage-backed securities earning 4.75%
and 3.90%, respectively, on average. The increase in average
interest-earning assets was primarily a result of reductions in REO.
Total interest expense decreased $563,000, or 23%, due to lower rates
paid on all categories of interest-bearing liabilities, a lower average
balance of interest-bearing liabilities and a change in the liability
mix. Average yields for interest-bearing liabilities declined to 3.18%
for the three months ended March 31, 1994 from 4.03% for the three months
ended March 31, 1993. The average balance of total interest-bearing
liabilities declined to $236.0 million from $242.9 million as a result of
net deposit outflows. The change in the mix of interest-bearing
liabilities decreased interest expense as the average balance of savings
accounts increased to 44% of total interest-bearing liabilities for the
three months ended March 31, 1994 from 41% for the quarter ended March
31, 1993, while the average balance of CD's decreased to 51% of total
interest-bearing liabilities for the three months ended March 31, 1994
from 54% for the quarter ended March 31, 1993. Generally, interest rates
paid on savings accounts are lower than interest rates paid on CD's.
(Refer to rate/volume analysis and yield/cost analysis on pages 16 and
17, respectively, for further detail.)
PROVISION FOR LOSSES ON LOANS:
The provision for losses on loans decreased $125,000, or 63%, to $75,000
for the three months ended March 31, 1994 as compared to $200,000 for the
corresponding period last year. The decrease reflects a decrease of
approximately 60% in nonperforming loans (excluding the Partnership Loan,
the principal of which is perceived by management to be adequately
collateralized).
13
<PAGE>
OTHER INCOME:
Total other income decreased $159,000, or 59%, due primarily to the
receipt of interest of $136,000 in 1993 on the aforementioned income tax
refund and a decrease in net security gains of $30,000.
OTHER EXPENSES:
Total other expenses decreased $191,000, or 8%, for the three months
ended March 31, 1994 as compared with the corresponding period last year.
The decrease was primarily due to a decrease of $76,000 in costs
associated with nonperforming assets and other matters, a $63,000
decrease in various insurance premiums (the largest of which was $41,000
in reduced FDIC assessments) due to the Company's improved financial
status, a $60,000 decrease in salaries and benefits due to less full-time
equivalent employees and a $32,000 net decrease in miscellaneous other
expense categories, partially offset by a $40,000 increase in REO expense
(net) as described in the following table.
The components of REO expense (net) are as follows:
Three months ended March 31,
----------------------------
1994 1993
---------- ----------
Carrying costs .................... $ 206,000 $ 205,000
Provision for losses .............. 330,000 201,000
(Gain)/loss on sale, net .......... (60,000) 30,000
---------- ----------
Total REO expense, net ........... $ 476,000 $ 436,000
========== ==========
The increase in the provision for losses on REO was due to an additional
market value writedown of $100,000 on the largest REO property, reducing
its carrying value to $1.4 million.
INCOME TAXES AND CHANGE IN ACCOUNTING PRINCIPLE:
The Company recorded an income tax expense of $219,000 for the three
months ended March 31, 1994 as compared to an income tax benefit of
$695,000 for the corresponding period last year. The income tax benefit
in 1993 was comprised of the aforementioned $747,000 income tax refund,
offset by a current provision of $52,000.
On January 1, 1993, The Company adopted Statement of Financial Accounting
Standards No. 109: "Accounting for Income Taxes", which resulted (during
the first quarter of 1993) in a cumulative benefit of a change in
accounting principle of $300,000, or $.13 per share.
14
<PAGE>
C. Liquidity and Capital Resources
Liquidity is the ability to meet current cash needs in order to fund
loans and deposit withdrawals, make debt payments, and cover operating
expenses. The Bank's liquidity ratio at March 31, 1994 and December 31,
1993, as calculated according to the FDIC definition, was 39.5% and
38.8%, respectively, while the amount of assets used in the liquidity
ratio calculation was $97.1 million and $96.4 million, respectively. The
increase in the liquidity ratio was primarily due to cash received on
prepayments of loans and mortgage-backed securities, sales of REO and
non-payment of first quarter taxes due to a delay in the transmission of
first quarter tax bills from municipalities in the Company's primary
lending area, partially offset by an increase in unrealized losses in the
securities portfolio.
Cash and cash equivalents increased $1.8 million during the first quarter
of 1994, as operating activities provided $2.0 million and investing
activities provided $2.3 million, offset by financing activities using
$2.5 million. The $2.0 million of cash provided by operating activities
was primarily derived from net interest income and proceeds from sales of
loans originated for resale, partially offset by cash expenditures for
employees, taxes and other expenses. The $2.3 million of cash provided by
investing activities was primarily derived from loan and mortgage-backed
securities prepayments as well as maturities of investment securities,
partially offset by reinvestment of proceeds into investment securities.
The $2.5 million used in financing activities relected net deposit
outflows.
As of March 31, 1994, the Company's and the Bank's capital ratios were as
follows:
Capital ratios: Required* Company Bank
--------------- --------- ------- -----
Leverage ................... 5.00% 11.82% 11.50%
Core risk-based ............ 6.00 24.85 24.16
Total risk-based ........... 10.00 26.10 25.41
* For qualification as a well-capitalized institution.
15
<PAGE>
Washington Bancorp, Inc. & Subsidiary
Rate/Volume Analysis (unaudited)
The Rate/Volume Analysis reflects the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Changes attributable to both volume and rate have
been allocated proportionately.
Three months ended March 31,
1994 compared to 1993
---------------------------
Increase (Decrease)
Due to
----------------
Volume Rate Net
------ ------- -------
(Dollars in thousands)
Interest Income:
Loans (1):
Mortgage ............................. $ (441) $ (51) $ (492)
Commercial and consumer .............. (46) (3) (49)
------- ------- -------
Total loans .......................... (487) (54) (541)
Investment securities ..................... 280 7 287
Mortgage-backed securities ................ 100 (94) 6
Federal funds sold ........................ (25) 1 (24)
Federal Home Loan Bank stock, at cost ..... (1) (4) (5)
Deposits due from banks ................... (2) 2 --
------- ------- -------
Total interest income ..................... (135) (142) (277)
------- ------- -------
Interest Expense:
Regular savings ........................... 24 (168) (144)
Market rate certificates .................. (118) (276) (394)
Checking and money market accounts ........ (1) (26) (27)
Advances from FHLB and ESOP debt .......... 2 -- 2
------- ------- -------
Total interest expense .................... (93) (470) (563)
------- ------- -------
Changes in net interest income ................ $ (42) $ 328 $ 286
======= ======= =======
(1) Includes nonperforming loans and loans held for sale, and excludes
REO(in-substance and by-deed). Also, loan fees are included in interest
income.
16
<PAGE>
Washington Bancorp, Inc. & Subsidiary
Yield/Cost Analysis (unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------
1994 1993
------------------------------ ------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
-------- ------- ---- -------- ------- ----
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (1):
<S> <C> <C> <C> <C> <C> <C>
Mortgage ............................................... $168,167 $ 3,347 7.96% $189,992 $ 3,839 8.08%
Commercial and consumer ................................ 2,565 46 7.15 4,961 95 7.68
-------- ------- -------- -------
Total loans ............................................ 170,732 3,393 7.95 194,953 3,934 8.07
Investment securities ................................... 75,446 896 4.75 51,662 609 4.71
Mortgage-backed securities .............................. 17,571 171 3.90 10,909 165 6.03
Federal funds sold ...................................... 2,895 21 2.97 6,337 45 2.85
Federal Home Loan Bank stock, at cost ................... 1,633 32 7.88 1,674 37 8.85
Deposits due from banks ................................. 1,613 12 2.95 2,097 12 2.37
-------- ------- -------- -------
Total interest-earning assets ........................... 269,890 4,525 6.71 267,632 4,802 7.19
------- ---- ------- ----
Noninterest-earning assets ............................... 11,177 17,827
-------- --------
Total assets ............................................ $281,067 $285,459
======== ========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Regular savings ......................................... $103,462 640 2.47 $100,465 784 3.12
Market-rate certificates ................................ 120,630 1,144 3.79 130,645 1,538 4.71
Checking and money market accounts ...................... 11,465 60 2.11 11,549 87 3.01
Advances from FHLB and ESOP debt ........................ 400 5 4.81 249 3 4.99
-------- ------- -------- -------
Total interest-bearing liabilities ..................... 235,957 1,849 3.18 242,908 2,412 4.03
------- ---- ------- ----
Noninterest-bearing liabilities: ......................... 12,851 12,516
Stockholders' equity ..................................... 32,259 30,035
-------- --------
Total liabilities and stockholders' equity .............. $281,067 $285,459
======== ========
Net interest income/interest rate spread ................. $ 2,676 3.53% $ 2,390 3.16%
======= ==== ======= ====
Net interest-earning assets/net yield on
interest-earning assets ................................. $ 33,933 3.97% $ 24,724 3.56%
======== ==== ======== ====
Ratio of interest-earning assets to
interest-bearing liabilities ............................ 1.14x 1.10x
==== ====
<FN>
(1)Includes nonperforming loans and loans held for sale, and excludes
REO(in-substance and by deed). Also, loan fees are included in interest
income.
</FN>
</TABLE>
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding a complaint filed in September 1991 against
the Company and the Bank and a complaint served upon the Company and
the Bank in April 1992, see footnote 6 of the notes to consolidated
financial statements of this 10-Q filing and see the Company's 1993
Annual Report on Form 10-K.
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
1. Exhibits
None
2. Reports on Form 8-K
None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON BANCORP, INC.
Date: May 16, 1994 By: /s/ Theodore J. Doll
------------ ---------------------
Theodore J. Doll
President and Chief
Operating Officer
Date: May 16, 1994 By: /s/ Thomas S. Bingham
------------ ----------------------
Thomas S. Bingham
Chief Financial and
Accounting Officer
19
