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 March 31, 2002
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
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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 [ ]
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 504,832 shares outstanding as of May 13, 2002
Transitional Small Business Disclosure Format (check one): Yes[ ] No[X]
1
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
at March 31, 2002 (unaudited) and June 30, 2001
Unaudited Consolidated Statements of Income for the
three months and nine months ended March 31, 2002
and 2001
Unaudited Consolidated Statements of Comprehensive
Income for the three months and nine months ended
March 31, 2002 and 2001
Unaudited Consolidated Statements of Cash Flows
for the nine months ended March 31, 2002 and 2001
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
Part II. Other Information
Items 1 through 6
Signatures
Exhibits
2
Part 1. Financial Information
Item 1. Consolidated Financial Statements
Washington Bancorp and Subsidiaries
Consolidated Statements of Financial Condition
March 31, June 30,
2002 2001 *
------------------------------
ASSETS (unaudited)
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Cash and cash equivalents:
Interest-bearing ................................ $ 1,942,216 $ 2,462,282
Noninterest-bearing ............................. 1,013,032 679,041
Investment securities:
Held to maturity ................................ 1,150,105 1,142,599
Available-for-sale .............................. 14,217,251 22,090,836
Federal funds sold ................................ 10,469,000 3,350,000
Loans receivable, net of allowance for loan
losses $802,534 at March 31, 2002 and $607,833
at June 30, 2001 ................................ 83,444,940 84,095,349
Accrued interest receivable ....................... 1,258,915 1,517,702
Federal Home Loan Bank stock ...................... 1,757,400 1,756,200
Foreclosed real estate ............................ 192,001 145,949
Premises and equipment, net ....................... 1,261,286 986,635
Goodwill .......................................... 1,091,402 1,091,402
Other assets ...................................... 333,420 373,855
-----------------------------
Total assets ........................... $118,130,968 $119,691,850
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing ........................... $ 4,408,105 $ 4,107,003
Interest-bearing .............................. 75,593,934 68,797,275
-----------------------------
Total deposits ......................... 80,002,039 72,904,278
Federal funds purchased ........................... - - 1,500,000
Borrowed funds .................................... 24,966,504 32,334,794
Advances from borrowers for taxes and insurance ... 137,217 244,377
Accrued expenses and other liabilities ............ 690,114 754,975
-----------------------------
Total liabilities ...................... 105,795,874 107,738,424
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Redeemable common stock held by ESOP .............. 459,187 336,980
-----------------------------
Stockholders' Equity
Common Stock:
Common Stock .................................. 6,511 6,511
Additional Paid-in Capital .................... 6,167,602 6,175,332
Retained Earnings ............................... 8,765,148 8,175,145
Accumulated other comprehensive gain (loss) ... (57,435) (29,669)
Cost of common shares acquired for the treasury . (2,282,239) (2,070,600)
Deferred compensation .......................... (22,781) (21,093)
Maximum cash obligation related to ESOP shares .. (459,187) (336,980)
Unearned ESOP shares ............................ (241,712) (282,200)
-----------------------------
Total stockholders' equity .................. 11,875,907 11,616,446
-----------------------------
Total liabilities and stockholders' equity .. $118,130,968 $119,691,850
=============================
*Condensed from audited financial statements
See Notes to Financial Statements.
3
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Income
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------------------------------
2002 2001 2002 2001
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Interest and dividend income:
Loans, including fees:
First mortgage loans ............................... $1,035,648 $1,148,803 $3,269,292 $3,476,003
Consumer and other loans ........................... 697,446 692,559 2,198,189 2,066,128
Investment securities:
Taxable ............................................ 132,532 331,961 735,289 1,059,100
Nontaxable ........................................ 19,785 15,534 60,285 48,507
Federal Home Loan Bank stock ......................... 12,445 15,039 48,028 74,660
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Total interest income .................. 1,897,856 2,203,896 6,311,083 6,724,398
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Interest expense:
Deposits ............................................. 702,288 876,442 2,306,961 2,612,652
Borrowed funds ....................................... 349,296 413,743 1,175,507 1,409,430
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Total interest expense ................. 1,051,584 1,290,185 3,482,468 4,022,082
-------------------------------------------------
Net interest income .................... 846,272 913,711 2,828,615 2,702,316
Provision for loan losses .............................. 97,500 37,500 255,000 101,500
-------------------------------------------------
Net interest income after provision
for loan losses ....................... 748,772 876,211 2,573,615 2,600,816
-------------------------------------------------
Noninterest income:
Security gains ....................................... - - 14,614 84,639 14,614
Service charges and fees ............................. 139,985 121,426 418,835 347,883
Insurance commissions ................................ 11,684 28,161 45,331 55,405
Investment commissions ............................... 8,640 10,308 30,596 27,613
Other ................................................ 16,148 744 36,248 27,793
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Total noninterest income ............... 176,457 175,253 615,649 473,308
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Noninterest expense:
Compensation and benefits ............................ 371,871 343,179 1,136,399 947,782
Occupancy and equipment .............................. 64,216 62,475 193,597 214,714
FDIC deposit insurance premium ....................... 11,061 8,986 28,916 28,953
Data processing ...................................... 42,449 33,699 103,705 83,774
Goodwill amortization ................................ - - 23,640 - - 70,921
Other ................................................ 131,422 146,806 479,603 432,158
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Total noninterest expense .............. 621,019 618,785 1,942,220 1,778,302
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Income before income taxes ............. 304,210 432,679 1,247,044 1,295,822
Income tax expense ..................................... 98,796 150,871 413,959 510,607
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Net income ............................. $ 205,414 $ 281,808 $ 833,085 $ 785,215
=================================================
Earnings per common share
Basic ................................................ $ 0.43 $ 0.58 $ 1.71 $ 1.58
Diluted .............................................. $ 0.41 $ 0.57 $ 1.66 $ 1.56
Dividends per common share ............................. $ - - $ - - $ 0.50 $ 0.50
Weighted average common shares for:
Basic earnings per share ............................. 483,068 484,780 488,303 497,822
Diluted earnings per share ........................... 496,135 492,953 500,541 504,835
See Notes to Financial Statements
4
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income
Three Months Ended Nine Months Ended
March 31, March 31,
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2002 2001 2002 2001
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Net income ........................................... $205,414 $281,808 $833,085 $ 785,215
Other comprehensive income(loss):
Unrealized holding gains (losses) arising during
the period, net of income taxes .................. (16,276) 224,043 25,302 405,580
Reclassification adjustments for net losses (gains)
realized in net income, net of income taxes ...... - - (8,915) (53,068) (8,915)
---------------------------------------------
Comprehensive income ......................... $189,138 $496,936 $805,319 $1,181,880
=============================================
See Notes to Financial Statements
5
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2002 and 2001
2002 2001
------------------------------
Cash Flows from Operating Activities
Net income ................................................................ $ 833,085 $ 785,215
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of premiums and discounts on debt securities ............... 249,460 39,906
Amortization of goodwill ................................................ - - 70,921
Provision for loan losses ............................................... 255,000 101,500
(Gain) on sale of investment securities ................................. (84,639) (14,614)
Proceeds from loans sold ................................................ 2,705,164 1,018,500
Loans originated for sale ............................................... (2,705,164) (1,018,500)
Loss on sale of foreclosed real estate .................................. 2,829 21,387
Depreciation ............................................................ 86,089 67,284
Compensation under stock awards ......................................... 22,500 8,428
ESOP contribution expense ............................................... 73,282 51,560
Decrease in accrued interest receivable ................................. 258,788 180,566
Decrease in other assets ................................................ 42,686 1,846
Increase(decrease) in accrued expenses and other liabilities ............ (50,437) 111,164
------------------------------
Net cash provided by operating activities ........................... 1,688,643 1,425,163
------------------------------
Cash Flows from Investing Activities
Held-to-maturity securities:
Purchases ............................................................... (7,800) (5,105,000)
Available-for-sale securities:
Sales ................................................................. 2,000,000 3,014,614
Maturities and calls .................................................. 15,914,616 9,100,000
Purchases ............................................................. (10,250,000) (5,015,000)
Federal funds sold, net ................................................. (7,119,000) (740,000)
Purchase of Federal Home Loan Bank stock ................................ (1,200) (26,600)
Loans made to customers, net .......................................... 346,528 (861,720)
Purchase of premises and equipment .................................... (360,741) (180,551)
------------------------------
Net cash provided by investing activities ................ 522,403 185,743
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Cash Flows from Financing Activities
Net increase in deposits .................................................. 7,097,761 2,487,040
Proceeds from Federal Home Loan Bank advances ............................. 4,680,000 276,750,000
Principal payments on Federal Home Loan Bank advances ..................... (12,048,290) (280,046,450)
Federal funds purchased, net .............................................. (1,500,000) - -
Net (decrease) in advances from borrowers for taxes
and insurance ........................................................... (107,161) (141,005)
Acquisition of common stock ............................................... (353,412) (465,894)
Stock options exercised ................................................... 77,063 49,320
Dividends paid ............................................................ (243,082) (252,158)
------------------------------
Net cash (used in) financing activities .................. (2,397,121) (1,619,147)
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(Decrease) in cash and cash equivalents ............. (186,075) (8,241)
Cash and cash equivalents:
Beginning ............................................................. 3,141,323 2,849,385
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Ending ................................................................ $ 2,955,248 $ 2,841,144
==============================
6
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Nine months Ended March 31, 2002 and 2001
2002 2001
-----------------------
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors ...................... $1,962,392 $2,060,379
Interest paid on other obligations ............... $1,175,507 $1,409,195
Income taxes, net of refunds ..................... $ 482,815 $ 527,800
Supplemental Schedule of Noncash Investing and
Financing Activities
Transfers from loans to foreclosed real estate ..... $ 225,966 $ 401,636
Contract sales of foreclosed real estate ........... $ 177,085 $ 478,350
See Notes to Financial Statements.
7
Washington Bancorp and Subsidiaries
Notes to 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" ). 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 and nine month periods ended
March 31, 2002, 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 accounting principles generally accepted in the United
States of America 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,
2001 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 was being amortized by the straight-line method over 15 years. Beginning
July 1, 2001 goodwill was no longer amortized, but will be 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.
Redeemable common stock held by ESOP. In accordance with SEC Accounting Series
Release 268, the Company's maximum cash obligation related to these shares is
classified outside of 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. Quantitative measures established by regulation
to ensure capital adequacy require the Company and the Banks to maintain minimum
amounts and ratios (set forth in the following table) of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined) and
of Tier 1 capital (as defined) to average assets (as defined). Management
believes, as of March 31, 2002 and 2001, that the Company and the Banks met all
capital adequacy requirements to which they are subject.
8
As of March 31, 2002, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the following table. There
are no conditions or events since the notification that management believes have
changed the Banks' category. The Company's and the Banks' actual capital amounts
and ratios as of March 31, 2002 and 2001 are also presented in the table.
Minimum To Be Well
Capitalized Under
Minimum Capital Prompt Corrective
Actual Requirement Action Provisions
----------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------
March 31, 2002
Total capital to risk
Weighted assets:
Consolidated ........................... 11,876 15.40% $6,168 8.00% N/A N/A
Washington ............................. 8,271 13.29% 4,980 8.00% 6,225 10.00%
Rubio .................................. 3,683 24.85% 1,185 8.00% 1,482 10.00%
Tier 1 capital to risk
Weighted assets:
Consolidated ........................... 10,842 14.06% 3,084 4.00% N/A N/A
Washington ............................. 8,304 13.34% 2,490 4.00% 3,735 6.00%
Rubio .................................. 2,616 17.65% 593 4.00% 889 6.00%
Tier 1 capital to Average assets:
Consolidated ........................... 10,842 9.28% 4,672 4.00% N/A N/A
Washington ............................. 8,304 8.79% 3,781 4.00% 4,726 5.00%
Rubio .................................. 2,616 11.33% 693 4.00% 1,l54 5.00%
March 31, 2001
Total capital to risk
Weighted assets:
Consolidated ......................... 11,307 14.60% 6,197 8.00% N/A N/A
Washington ........................... 7,782 12.37% 5,035 8.00% 6,293 10.00%
Rubio ................................ 3,624 24.94% 1,163 8.00% 1,453 10.00%
Tier 1 capital to risk
Weighted assets:
Consolidated ........................... 10,244 13.22% 3,099 4.00% N/A N/A
Washington ............................. 7,790 12.38% 2,517 4.00% 3,776 6.00%
Rubio .................................. 2,580 17.75% 581 4.00% 872 6.00%
Tier 1 capital to Average assets:
Consolidated ........................... 10,244 8.83% 4,639 4.00% N/A N/A
Washington ............................. 7,790 8.42% 3,700 4.00% 4,626 5.00%
Rubio .................................. 2,580 11.59% 668 4.00% 1,113 5.00%
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.
9
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 Federal Deposit Insurance Corporation ("FDIC").
In March 1996, simultaneous with the completion of the conversion of Washington
Federal to the stock form of organization through the sale and issuance of its
common stock to the Company, Washington Bancorp completed the initial public
offering of its common stock. On June 24, 1997, Washington 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, Washington Federal opened a branch office, Wellman Federal
Savings, in Wellman, Iowa. In September 2000, Washington Federal opened a branch
office, Richland Federal Savings, in Richland, Iowa. The principal assets of
Washington Bancorp are Washington Federal and Rubio Savings Bank (collectively,
the "Banks"). 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.
In November 2001, Washington Bancorp announced a voluntary odd lot
program to holders of less than 100 shares to sell their common shares back to
the Company for cash. The shares submitted through the program were purchased at
$19.00 per share and the transaction was not subject to commission charges. Odd
lot holders who decided to participate sold all their shares and the decision
was irrevocable. The program was offered to provide shareholders of less than
100 shares an opportunity to realize the value of their investment and reduce
the Company's expense of administering the shares on an ongoing basis. Upon
completion of the transaction, 41 stockholders had tendered 1,421 shares. As a
result, Washington Bancorp may be eligible to deregister its common stock. The
elimination of costs associated with SEC-reporting and other related
requirements would further reduce the expense of administering the common stock.
In January 2002, Mr. Dale Torpey accepted the position of President of
Washington Federal. Mr. Torpey currently serves as Chairman of the Federal Home
Loan Bank Board in Des Moines, Iowa. He serves as Chairman of the Lending
Committee for the Independent Community Bankers of America (the "ICBA") and is a
member of the Washington, Iowa Rotary Club. Mr. Torpey brings to Washington
Federal over 30 years of banking experience and will be working closely with the
Company's loan portfolio. Mr. Stan Carlson, the former President of Washington
Federal, will remain CEO of Washington Federal, President of Rubio, and
President and CEO of Washington Bancorp.
Washington Federal 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. To meet customer
demand for long term fixed rate mortgages, Washington Federal has an agreement
with a third-party mortgage provider. When a long-term fixed rate mortgage is
requested by the customer, the loan is originated by Washington Federal on
behalf of the third-party mortgage provider on an individual loan-by-loan basis.
The third-party mortgage provider funds 100% of the loan and retains the
servicing rights. Washington also invests in United States treasury securities,
mortgage-backed securities, federal agency bonds, corporate bonds, agricultural
loans, commercial loans, consumer loans, and automobile loans.
Rubio attracts deposits from the general public in its local market area and the
businesses in the Brighton area. The deposits are primarily invested in federal
agency bonds, agricultural operating loans, commercial loans, one- to
four-family residential real estate loans, and farm real estate loans. Rubio
also invests in United States treasury securities, 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.
10
Financial Condition
Total assets. Total consolidated assets decreased $1.6 million from $119.7
million at June 30, 2001 to $118.1 million at March 31, 2002. The decrease was
primarily due to a $7.9 million decrease in investment securities, a $650,000
decrease in loans receivable, a $259,000 decrease in accrued interest
receivable, a $186,000 decrease in cash and cash equivalents and a $40,000
decrease in other assets, partially offset by a $7.1 million increase in federal
funds sold, a $275,000 increase in premises and equipment, and a $46,000
increase in foreclosed real estate.
Loans receivable, net. Loans receivable, net decreased $650,000 from $84.1
million at June 30, 2001 to $83.4 million at March 31, 2002. This decrease is
primarily due to an increase in customer demand for long-term fixed rate 1-4
family mortgage loans, which are not currently offered through the Company's
portfolio products. To meet this demand the Company has an arrangement with a
third-party loan provider, through which $2.7 million in 1-4 family long-term
fixed rate loans were originated in the nine months, ended March 31, 2002. None
of these loans are retained in the Company's portfolio.
The Company's non-performing assets were $1.5 million or 1.25% of total assets
at March 31, 2002 as compared to $714,000 or 0.60% of total assets at June 30,
2001 primarily due to an increase in commercial loans past due. The Company is
working closely with the principals of the businesses to restructure debt, to
increase future cash flows, and to reduce levels of inventory. It is the
Company's policy to provide for probable losses in the Company's loan portfolio.
A provision for loan losses is charged to operations based on management's
evaluation of the probable losses that may be incurred in the Company's loan
portfolio. Such evaluation, which includes a review of all loans of which full
collectibility of interest and principal may not be reasonably assured,
considers the Company's past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral, current experience level of
the Company's lending personnel, and current economic conditions.
The Company's reserve for loan loss requirement is calculated by first
evaluating loans for impairment. Loans evaluated for impairment include
borrowers with an excess of $300,000 in total outstanding loan balances, loans
over ninety days past due, loans classified by internal processes or by
examiners, loans on non-accrual status, and other loans that may be adversely
affected by current economic conditions. The required allowance for loan loss on
the non-homogenous loans is established by considering either the present value
of future cash flows or the fair value of collateral less the cost to sell such
collateral in comparison to the current loan balance. The remainder of the loan
portfolio is segmented into groups with similar risk characteristics. Each
segment is assigned a loss measurement based on historical loss ratios adjusted
for current industry and economic conditions. The loss measurement is applied to
the current loan balance of each group to establish the required level of
allowance for loan losses. At March 31, 2002, the allowance for loan losses was
$803,000 or 0.96% of loans receivable, net compared to $664,000 or 0.58% of
loans receivable, net at March 31, 2001. The allowance for loan loss as a
percentage of non-performing assets was 54.37% at March 31, 2002, compared to
98.54% at March 31, 2001. Management feels that the current level of allowance
for loan losses is adequate to cover probable losses.
Investment securities. Investment securities decreased $7.9 million from $23.2
million at June 30, 2001 to $15.4 million at March 31, 2002 primarily due to the
maturity or call of $15.9 million, the sale of $2.0 million, the decrease in
market value of the portfolio of $44,000, and the amortization of premiums and
discounts of $249,000, partially offset by the purchase of $10.3 million. The
portfolio of available- for- sale securities is comprised primarily of
investment securities carrying fixed interest rates. The aggregate fair value of
these securities was less on March 31, 2002 than their carrying value.
Deposits. Deposits increased $7.1 million from $72.9 million at June 30, 2001 to
$80.0 million at March 31, 2002. Transaction and savings deposits increased as a
percentage of total deposits from $25.9 million or 35.5% at June 30, 2001 to
$29.7 million or 37.2% at March 31, 2002. Certificates of deposit decreased as a
percentage of total deposits from $47.0 million or 64.5% at June 30, 2001 to
$50.2 million or 62.8% at March 31, 2002.
11
Total stockholders' equity. Total stockholders' equity increased $259,000 from
$11.6 million at June 30, 2001 to $11.9 million at March 31, 2002. The increase
is primarily due to net income of $833,000, proceeds from the exercise of stock
options of $77,000, the allocation of ESOP shares of $73,000, and the
amortization of deferred compensation of $22,000, partially offset by $353,000
for the repurchase of 18,489 shares of the Company's common stock, dividends
paid to shareholders of $243,000, the increase in the maximum cash obligation on
allocated ESOP shares of $122,000, and the increase in net unrealized loss in
the available for sale securities of $28,000.
Results of Operations - Three Months Ended March 31, 2002 As Compared To The
Three Months Ended March 31, 2001
Performance summary. Net income decreased $77,000 to $205,000 for the three
months ended March 31, 2002 from $282,000 for the three months ended March 31,
2001. The decrease is primarily due to a decrease in net interest income of
$68,000, an increase in provision for loan loss of $60,000, and an increase in
non-interest expense of $2,000, partially offset by an increase in non-interest
income of $1,000. For the three months ended March 31, 2002 the annualized
return on average assets was 0.71% compared to 0.98% for the three months ended
March 31, 2001, while the annualized return on average equity was 6.91% for the
three months ended March 31, 2002 compared to 10.44% for the three months ended
March 31, 2001.
Net interest income. Net interest income decreased $68,000 to $846,000 for the
three months ended March 31, 2002 from $914,000 for the three months ended March
31, 2001. The decrease is primarily due to the decrease of $306,000 in interest
income to $1.9 million for the three months ended March 31, 2002 from $2.2
million for the three months ended March 31, 2001 partially offset by a decrease
in interest expense of $239,000 to $1.1 million for the three months ended March
31, 2002 from $1.3 million for the three months ended March 31, 2001. The
decrease in interest income was primarily due to the acceleration of the
amortization of premiums on federal agency bonds which were called.
For the three months ended March 31, 2002, the average yield on interest-earning
assets was 6.95% compared to 7.97% for the three months ended March 31, 2001.
The average cost of interest-bearing liabilities was 4.30% for the three months
ended March 31, 2002 compared to 5.22% for the three months ended March 31,
2001. The average balance of interest earning assets decreased $1.4 million to
$109.2 million for the three months ended March 31, 2002 from $110.6 million for
the three months ended March 31, 2001. During this same period, the average
balance of interest-bearing liabilities decreased $1.0 million to $97.9 million
for the three months ended March 31, 2002 from $98.9 million for the three
months ended March 31, 2001.
Due to the decrease in the average rate of return on the interest earning assets
partially offset by the decrease in the average cost of interest-bearing
liabilities, the average interest rate spread was 2.65% for the three months
ended March 31, 2002 compared to 2.76% for the three months ended March 31,
2001. The average net interest margin was 3.10% for the three months ended March
31, 2002 compared to 3.31% for the three months ended March 31, 2001.
Provision for loan loss. Provision for loan loss increased $60,000 to $98,000
for the three months ended March 31, 2002 from $38,000 for the three months
ended March 31, 2001. The primary reason for the increase in the provision was
an increase in loans past due and an increase in loans with more risk
characteristics such as nonresidential real estate, commercial and agriculture
loans. Despite this increase, the Company's loan portfolio remains primarily
residential mortgage loans and the Company has experienced a minimal amount of
charge-offs in the past three years.
Noninterest income. Noninterest income increased $1,000 to $176,000 for the
three months ended March 31, 2002 from $175,000 for the three months ended March
31, 2001. The increase is primarily due an increase in service charges and fees
of $19,000, and an increase in other fee income of $15,000 partially offset by a
decrease in insurance commissions of $16,000, a decrease in security gains of
$15,000, and a decrease in investment commissions of $2,000.
Service charges and fees increased primarily due to an increase in loan fees and
charges resulting from mortgage loans refinancing into secondary market loan
products, an increase in fee income related to a new check printing service, and
an increase in overdraft fee income. Other noninterest income increased
primarily due to gains on the sale of real estate owned. Insurance commissions
decreased primarily due to a decrease in the level of credit life and disability
sales on loan products. Security gains decreased primarily due to no bonds being
sold during the three months ended March 31, 2002 and the gain realized from the
sale of corporate bonds during the three months ended March 31, 2001. Investment
commissions decreased primarily due to the decrease in sales.
12
Noninterest expense. Noninterest expense increased $2,000 to $621,000 for the
three months ended March 31, 2002 from $619,000 for the three months ended March
31, 2001. The increase is primarily due to a $29,000 increase in compensation
and benefits, a $9,000 increase in data procesing, a $2,000 increase in deposit
insurance premium, and a $2,000 increase in occupancy and equipment, partially
offset by a $23,000 decrease in the amortization of goodwill, and an $15,000
other noninterest expense.
Compensation and benefits increased primarily due to the increase in salaries
and benefits due to regular salary adjustments. Data processing increased
primarily due to an increase in the usage of services offered by Washington
Federal's main data processing provider. Other noninterest expense decreased
primarily due the costs associated with the disposition of real estate owned and
In accordance with the Financial Accounting Standards Board Statement No. 142,
the Company re-evaluated the goodwill that resulted from the purchase of Rubio
Savings Bank of Brighton in 1998. As a result of the re-evaluation, management
had determined that the goodwill is not impaired. The goodwill will be tested
for impairment on an annual basis at December 31.
Income tax expense. Income tax expense decreased $52,000 to $99,000 for the
three months ended March 31, 2002 from $151,000 for the three months ended March
31, 2001. The decrease is primarily due the decrease in taxable income, the
decrease in non-deductible expenses and the increase in non-taxable income.
Results of Operations - Nine Months Ended March 31, 2002 As Compared To The Nine
Months Ended March 31, 2001
Performance summary. Net income increased $48,000 to $833,000 for the nine
months ended March 31, 2002 from $785,000 for the nine months ended March 31,
2001. The increase is primarily due to an increase in net interest income of
$126,000, an increase in noninterest income of $142,000, and a decrease in
income tax expense of $97,000 partially offset by an increase in noninterest
expense of $164,000, and an increase in provision for loan loss of $154,000. For
the nine months ended March 31, 2002 the annualized return on average assets was
0.95% compared to 0.90% for the nine months ended March 31, 2001, while the
annualized return on average equity was 9.48% for the nine months ended March
31, 2002 compared to 9.63% for the nine months ended March 31, 2001.
Net interest income. Net interest income increased $126,000 to $2.8 million for
the nine months ended March 31, 2002 from $2.7 million for the nine months ended
March 31, 2001. The increase is primarily due to the decrease of $540,000 in
interest expense to $3.5 million for the nine months ended March 31, 2002 from
$4.0 million for the nine months ended March 31, 2001, partially offset by a
decrease in interest income of $413,000 to $6.3 million for the nine months
ended March 31, 2002 from $6.7 million for the nine months ended March 31, 2001.
For the nine months ended March 31, 2002, the average yield on interest-earning
assets was 7.57% compared to 8.09% for the nine months ended March 31, 2001. The
average cost of interest-bearing liabilities was 4.67% for the nine months ended
March 31, 2002 compared to 5.36% for the nine months ended March 31, 2001. The
average balance of interest-earning assets increased $400,000 to $111.2 million
for the nine months ended March 31, 2002 from $110.8 million for the nine months
ended March 31, 2001. During this same period, the average balance of
interest-bearing liabilities decreased $700,000 to $99.3 million for the nine
months ended March 31, 2002 from $100.0 million for the nine months ended March
31, 2001.
Due to the decrease in the average cost of interest-bearing liabilities,
partially offset by the decrease in the average rate of return on the
interest-earning assets, the average interest rate spread was 2.89% for the nine
months ended March 31, 2002 compared to 2.73% for the nine months ended March
31, 2001. The average net interest margin was 3.39% for the nine months ended
March 31, 2002 compared to 3.25% for the nine months ended March 31, 2001.
13
Provision for loan loss. Provision for loan loss increased $154,000 to $255,000
for the nine months ended March 31, 2002 from $101,000 for the nine months ended
March 31, 2001. The primary reason for the increase in the provision was due to
an increase in loans past due and an increase in loans with more risk
characteristics such as nonresidential real estate, commercial and agriculture
loans. Despite this increase, the Company's loan portfolio remains primarily
residential mortgage loans and the Company has experienced a minimal amount of
charge-offs in the past three years.
Noninterest income. Noninterest income increased $142,000 to $615,000 for the
nine months ended March 31, 2002 from $473,000 for the nine months ended March
31, 2001. The increase is primarily due an increase in security gains of
$70,000, an increase in service charges and fees of $71,000, an increase in
other noninterest income of $8,000, and an increase in investment commissions of
$3,000, partially offset by a decrease in insurance commissions of $10,000.
Security gains increased primarily due to the gain realized from the sale of
investment securities during the period of declining interest rates. Service
charges and fees increased primarily due to an increase in loan fees and charges
resulting from mortgage loans refinancing into secondary market loan products,
an increase in overdraft fee income, and income from a new check and coupon book
printing service. Other noninterest income increased primarily due to the farm
subsidy payments received by the Company on agricultural real estate which was
held for a short period and has since been sold. Investment commissions
increased primarily due to the increase in sales. Insurance commissions
decreased primarily due to a decrease in the level of credit life and disability
sales on loan products.
Noninterest expense. Noninterest expense increased $164,000 to $1.9 million for
the nine months ended March 31, 2002 from $1.8 million for the nine months ended
March 31, 2001. The increase is primarily due to a $189,000 increase in
compensation and benefits, a $47,000 increase in other noninterest expense, and
a $20,000 increase in data processing, partially offset by a $71,000 decrease in
the amortization of goodwill, and a $21,000 decrease in occupancy and equipment.
Compensation and benefits increased primarily due to the increase in salaries
and benefits due to regular salary adjustments, an increase in full-time
equivalent employees, and an increase in the cost of retirement benefits. Other
noninterest expense increased primarily due to costs associated with the
Company's advertising campaign, an increase in processing fees with
correspondent bank due to a lower earnings credit because of the current
interest rate environment, and the cost of supplies for the new check printing
services. Data processing increased primarily due to an increase in the usage of
services offered by Washington Federal's main data processing provider.
In accordance with the Financial Accounting Standards Board Statement No. 142,
the Company re-evaluated the goodwill that resulted from the purchase of Rubio
Savings Bank of Brighton in 1998. As a result of the re-evaluation, management
had determined that the goodwill is not impaired. The goodwill will be tested
for impairment on an annual basis at December 31. Occupancy and equipment
decreased primarily due to a decrease in equipment maintenance expense.
Income tax expense. Income tax expense decreased $97,000 to $414,000 for the
nine months ended March 31, 2002 from $511,000 for the nine months ended March
31, 2001. The decrease is primarily due to the decrease in non-deductible
expenses and the increase in non-taxable income.
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. The Banks generally manage the pricing of the 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 the competition, and when necessary,
to supplement deposits with alternative sources of funds.
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 the Banks require funds beyond their ability to generate them
internally, they have additional borrowing capacity with the FHLB of Des Moines
and collateral eligible for reverse repurchase agreements.
14
The Banks anticipate that they will have sufficient funds available to meet
current loan commitments. At March 31, 2002, Washington Federal had outstanding
commitments to extend credit which amounted to $6.0 million and Rubio Savings
Bank had outstanding commitments to extend credit which amounted to $692,000.
Part II - Other Information
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds.
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 (listed by numbers corresponding to
the Exhibit Table of Item 601 on Regulation S-B)
11 Computation of Earnings Per Common Share
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report was filed.
15
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 May 13, 2002 /s/ Stan Carlson
------------ ---------------------------------
Stan Carlson, President and Chief
Executive Officer
Date May 13, 2002 /s/ Leisha A. Linge
------------ ---------------------------------
Leisha A. Linge, Executive Vice
President
16