-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TOxppYE3idtydXhjzMCBJO6KLs4D07PvwHCXoz+VwWKwvr3zXAtkOjiUE/8b/NLx nmf1WdEgci/boQ2kdyso4Q== 0000939057-97-000106.txt : 19970812 0000939057-97-000106.hdr.sgml : 19970812 ACCESSION NUMBER: 0000939057-97-000106 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST SAVINGS BANK OF WASHINGTON BANCORP INC CENTRAL INDEX KEY: 0000946673 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 911632900 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26584 FILM NUMBER: 97655384 BUSINESS ADDRESS: STREET 1: 10 S FIRST AVE CITY: WALLA WALLA STATE: WA ZIP: 99362 BUSINESS PHONE: 5095273636 MAIL ADDRESS: STREET 1: PO BOX 907 CITY: WALLA WALLA STATE: WA ZIP: 99362 10-Q 1 FIRST SAVINGS BANK OF WASHINGTON BANCORP FORM 10-Q FORM 10-Q 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......................... JUNE 30, 1997 --------------- [ ] 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 0-26584 ------- FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. ---------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 91-1691604 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10 S. FIRST AVENUE WALLA WALLA, WASHINGTON 99362 -------------------------------------------------------- (Address of principal executive offices and zip code) (509) 527-3636 --------------- (Registrant's telephone number, including area code) (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. (1) Yes [ X ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title of class: As of JULY 31, 1997 --------------- ------------------- COMMON STOCK, $.01 PAR VALUE 10,491,113 SHARES * * Includes 763,918 shares held by employee stock ownership plan (ESOP) that have not been released, committed to be released, or allocated to participant accounts; and 324,345 unvested shares held in trust for management recognition and development plan (MRP). FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES Table of Contents PART I - FINANCIAL INFORMATION ITEM 1 - Financial Statements. The Consolidated Financial Statements of First Savings Bank of Washington Bancorp, Inc. and Subsidiaries filed as a part of the report are as follows: Consolidated Statements of Financial Condition as of June 30, 1997 and March 31, 1997.................................. 2 Consolidated Statements of Income for the Quarters ended June 30, 1997 and 1996........................... 3 Consolidated Statements of Changes in Stockholders' Equity for the Quarters ended June 30, 1997 and 1996...........................4 Consolidated Statements of Cash Flows for the Quarters ended June 30, 1997 and 1996.......................... 5 Selected Notes to Consolidated Financial Statements...................... 6 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operation General.................................................................. 9 Recent Developments and Significant Events............................... 9 Comparison of Financial Condition at June 30, 1997 and March 31, 1997.... 9 Comparison of Results of Operations for the Quarters ended June 30, 1997 and 1996...................................................... 10 Asset Quality............................................................13 Liquidity and Capital Resources......................................... 13 Capital Requirements.....................................................14 PART II - OTHER INFORMATION Item 1. Legal Proceedings.............................................. 15 Item 2. Changes in Securities.......................................... 15 Item 3. Defaults upon Senior Securities................................ 15 Item 4. Submission of Matters to a Vote of Stockholders................ 15 Item 5. Other Information.............................................. 15 Item 6. Exhibits and Reports on Form 8-K............................... 15 SIGNATURES................................................................ 16 EXHIBIT 27- FINANCIAL DATA SCHEDULE........................................17 1 FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (DOLLARS IN THOUSANDS) JUNE 30, 1997 AND MARCH 31, 1997 (UNAUDITED) ASSETS JUNE 30 March 31 1997 1997 ---------- ---------- CASH AND DUE FROM BANKS $ 15,989 $ 24,488 SECURITIES AVAILABLE FOR SALE, cost $297,780 and $288,142 299,397 287,516 SECURITIES HELD TO MATURITY, fair value $788 and $987 788 987 LOANS RECEIVABLE HELD FOR SALE, fair value $3,224 and $2,940 3,224 2,940 LOANS RECEIVABLE, net of the allowance for losses of $6,955 and $6,748 704,836 642,941 ACCRUED INTEREST RECEIVABLE 7,573 6,950 REAL ESTATE HELD FOR SALE, net 1,192 1,057 FEDERAL HOME LOAN BANK STOCK 13,886 12,807 PROPERTY AND EQUIPMENT, net 10,850 10,534 COSTS IN EXCESS OF NET ASSETS ACQUIRED 11,682 11,906 DEFERRED INCOME TAX ASSET 447 1,220 OTHER ASSETS 4,302 4,287 ---------- ----------- $ 1,074,166 $ 1,007,633 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS: Interest bearing $ 513,738 $ 508,258 Non-interest bearing 37,851 36,709 ---------- ---------- 551,589 544,967 ADVANCES FROM FEDERAL HOME LOAN BANK 279,726 231,515 OTHER BORROWINGS 74,309 62,185 ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 1,890 4,112 ACCRUED EXPENSES AND OTHER LIABILITIES 9,544 11,086 DEFERRED COMPENSATION 3,182 2,814 INCOME TAXES PAYABLE 1,019 2,318 --------- --------- 921,259 858,997 STOCKHOLDERS' EQUITY: Preferred stock - $0.01 par value, 500,000 shares authorized, no shares issued -- -- Common stock - $0.01 par value, 25,000,000 shares authorized, 10,910,625 shares issued: 10,518,682 shares and 10,518,982 shares outstanding at June 30, 1997 and March 31, 1997, respectively 109 109 Additional paid - in capital 108,020 107,844 Retained earnings 65,108 62,572 Valuation reserve for securities available for sale 1,069 (401) Treasury stock, at cost: 391,943 shares at June 30, 1997 and 391,643 at March 31, 1997 (6,959) (6,954) Unearned shares of common stock issued to employee stock ownership plan trust 763,918 and 775,105 shares outstanding but restricted at June 30, 1997 and March 31, 1997, respectively (7,639) (7,751) Shares held in trust for stock-related compensation plans (6,801) (6,783) -------- -------- 152,907 148,636 ---------- ---------- $ 1,074,166 $ 1,007,633 =========== ========== 2 FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS) Quarters Ended June 30 1997 1996 ------ ------ INTEREST INCOME: Loans receivable $ 14,922 $ 8,932 Mortgage-backed securities 3,142 3,112 Securities and deposits 1,998 1,741 ------ ------ 20,062 13,785 INTEREST EXPENSE: Deposits 6,059 4,627 Federal Home Loan Bank advances 3,691 2,643 Other borrowings 971 296 ------ ------ 10,721 7,566 ------ ------ Net interest income before provision for loan losses 9,341 6,219 PROVISION FOR LOAN LOSSES 355 513 ------ ------ Net interest income 8,986 5,706 OTHER OPERATING INCOME: Loan servicing fees 198 178 Other fees and service charges 564 164 Gain on sale of loans 202 87 Gain (loss) on sale of securities 1 4 Miscellaneous 18 22 ------ ------ Total other operating income 983 455 OTHER OPERATING EXPENSES: Salary and employee benefits 3,314 1,776 Less capitalized loan origination costs (506) (391) Occupancy 386 277 Outside computer services 248 198 Real estate operations (1) 17 Advertising 122 50 Deposit insurance 70 214 Amortization of costs in excess of net assets acquired 224 -- Miscellaneous 1,082 743 ------ ------ Total other operating expenses 4,939 2,884 ------ ------ Income before provision for income taxes 5,030 3,277 PROVISION FOR INCOME TAXES 1,785 884 ------ ------ NET INCOME $ 3,245 $ 2,393 ====== ====== Net income per common shares: Primary $ .34 $ .24 Fully diluted $ .33 $ .24 Cumulative dividends declared per common share: $ .07 $ .05 3 FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS) FOR THE QUARTER ENDED JUNE 30, 1997, AND 1996 Valuation reserve for Shares held Total Common Stock Additional securities Unearned ESOP shares Treasury stock in trust stock- Number of At par paid-in Retained available Number of Carrying Number of Carrying for deferred holders shares value capital earnings for sale shares value shares value compensation equity ------ ------ ------- -------- -------- ------- ------- ------- ------- ------------ ------- BALANCE, April 1, 1996 10,911 $ 109 $107,370 $ 55,343 $ 774 (833) $(8,331) -- $ -- $ (1,123) $154,142 Net income 2,393 2,393 Change in valuation reserve for securities available for sale, net of income taxes (713) (713) Cash dividends on common stock (.05/share cumulative) (482) (482) Purchase of treasury stock (436) (6,430) (6,430) Release of earned ESOP shares 41 9 89 130 Amortization of compensation related to MRP -- Forfeiture or net change in the number and/or carrying amount of shares held in trust for compensation plans (200) (200) ------ ------ ------- -------- -------- ------- ------- ------- ------- ------------ ------- BALANCE, June 30, 1996 10,911 $ 109 $107,411 $ 57,254 $ 61 (824) $(8,242) (436) $(6,430) $ (1,323) $148,840 ====== ====== ======= ======== ======== ======= ======= ======= ======= ============ ======= BALANCE, April 1, 1997 10,911 $ 109 $107,844 $ 62,572 $ (401) (775) $(7,751) (392) $(6,954) $ (6,783) $148,636 Net income 3,245 3,245 Change in valuation reserve for securities available for sale, net of income taxes 1,470 1,470 Cash dividends on stock ($.07/share cumulative) (709) (709) Purchase of treasury stock -- Release of earned ESOP shares 176 11 112 288 Amortization of compensation related to MRP 301 301 Forfeiture or net change in number and/or carrying amount of shares held in trust for compensation plans (5) (319) (324) ------ ------ ------- -------- -------- ------- ------- ------- ------- ------------ ------- BALANCE, JUNE 30, 1997 10,911 $ 109 $108,020 $ 65,108 $ 1,069 (764) $(7,639) (392) $(6,959) $ (6,801) $152,907 ====== ====== ======= ======== ======== ======= ======= ======= ======= ============ ======= 4
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) FOR THE QUARTERS ENDED JUNE 30, 1997 AND 1996 1997 1996 ------ ------ OPERATING ACTIVITIES Net income $ 3,245 $ 2,393 Adjustments to reconcile net income to net cash provided by operating activities: Deferred taxes -- -- Depreciation 268 138 Loss (gain) on sale of securities (1) (4) Net amortization of premiums and discounts on investments (15) (463) Amortization of costs in excess of net assets acquired 224 -- Amortization of MRP liability 301 -- Loss (gain) on sale of loans (202) (87) Loss (gain) on disposal of real estate held for sale 9 -- Net changes in deferred loan fees, premiums and discounts 252 429 Loss (gain) on disposal of equipment (5) -- Amortization of purchased mortgage servicing rights 17 20 Provision for losses on loans and real estate held for sale 355 574 FHLB stock dividend (246) (187) Cash provided (used) in operating assets and liabilities: Loans held for sale (284) 362 Accrued interest receivable (623) 70 Other assets (34) (57) Deferred compensation 65 55 Accrued expenses and other liabilities (1,543) (1,097) Income taxes payable (1,299) (1,337) ------ ------ Net cash provided by operating activities 484 809 ------ ------ INVESTING ACTIVITIES: Purchase of securities available for sale (56,400) (192,685) Principal payments and maturities of securities available for sale 45,779 200,151 Sales of securities available for sale 999 -- Purchase of securities held to maturity -- -- Principal payments and maturities of securities held to maturity 199 99 Purchase of FHLB stock (833) (1,151) Loans originated and closed - net (120,230) (57,335) Purchase of loans and participating interest in loans (26,982) (17,395) Sales of loans and participating interest in loans 10,156 5,863 Principal repayments on loans 74,116 38,367 Purchase of property and equipment (588) (45) Proceeds from sale of property and equipment 9 -- Insurance proceeds on real estate held for sale-net 103 -- Basis of real estate held for sale acquired in settlement of loans and disposed of during the period 393 125 Funds transferred to deferred compensation plan trusts (19) (19) ------ ------ Net cash used by investing activities (73,298) (24,025) ------ ------ ( CONTINUED ON NEXT PAGE ) 5 FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) FOR THE QUARTERS ENDED JUNE 30, 1997 AND 1996 (CONTINUED FROM PRIOR PAGE) 1997 1996 ------ ------ FINANCING ACTIVITIES Increase (decrease) in deposits $ 6,622 $ 1,279 Proceeds from FHLB advances 267,230 163,657 Repayment of FHLB advances (219,019) (132,569) Proceeds from reverse repurchase borrowings 15,545 -- Repayments of reverse repurchase borrowings (21) (113) Decrease-net in other borrowings (3,400) (895) Decrease in borrowers' advances for taxes and insurance (2,222) (1,959) Compensation expense recognized for shares released for allocation to participants of the ESOP: Original basis of shares 112 89 Excess of fair value of released shares over basis 176 41 Cash dividend paid (708) (504) Purchase of treasury stock -- (6,430) ------ ------ Net cash provided by financing activities 64,315 22,596 ------ ------ NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (8,499) (620) CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 24,488 9,026 ------ ------ CASH AND DUE FROM BANKS, END OF PERIOD $ 15,989 $ 8,406 ====== ====== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 10,820 $ 8,279 Taxes paid $ 3,085 $ 2,220 Non-cash transactions: Loans, net of discounts, specific loss allowances and unearned income transferred to real estate owned $ 640 $ 272 Net change in accrued dividends payable $ 1 $ 22 Net change in unrealized gain (loss) in deferred compensation trust and related liability $ 309 $ 184 Treasury stock forfeited by MRP $ 5 $ -- 6 FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 AND MARCH 31, 1997 NOTE 1: BASIS OF PRESENTATION The unaudited consolidated financial statements of First Savings Bank of Washington Bancorp, Inc. (the Company) included herein reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of financial position and the results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. The consolidated financial statements include the Company's wholly owned subsidiaries, First Savings Bank of Washington (FSBW) and Inland Empire Bank (IEB) (together, the Banks). The balance sheet data at March 31, 1997, is derived from the Company's audited financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended March 31, 1997, (File No. 0-26584) of the Company. Certain amounts in the prior period's financial statements and/or schedules have been reclassified to conform to the current period's presentation. NOTE 2: ADDITIONAL INFORMATION REGARDING INTEREST-BEARING DEPOSITS AND SECURITIES The following table sets forth additional detail on the Company's interest-bearing deposits and securities at the dates indicated (at carrying value) (in thousands): JUNE 30 March 31 1997 1997 Interest-bearing deposits included in cash and due from bank $ 801 $ 8,849 --------- ----------- Mortgage-backed securities 185,402 174,375 Other securities-taxable 76,253 76,401 Other securities-tax exempt 34,330 33,969 Other stocks with dividends 4,200 3,758 --------- ---------- Total securities $ 300,185 $ 288,503 --------- ---------- Federal Home Loan Bank Stock 13,886 12,807 --------- ---------- $ 314,872 $ 310,159 ========= ========== The following table provides additional detail on income from deposits and securities for the periods indicated (in thousands): Quarters ended June 30 1997 1996 ------ ------ Mortgage-backed securities $ 3,142 $ 3,112 ------ ------ Taxable interest and dividends $ 1,233 $ 1,089 Tax-exempt interest 519 465 Federal Home Loan Bank stock-dividends 246 187 ------ ------ $ 1,998 $ 1,741 ------ ------ $ 5,140 $ 4,853 ====== ====== 7 NOTE 3: CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING FOR EARNINGS PER SHARE (EPS) AND CALCULATION OF OUTSTANDING SHARES. Calculation of Weighted Average Shares Outstanding for Earnings Per Share (in thousands) Quarters ended June 30 1997 1996 ---------- ---------- Total shares issued 10,911 10,911 Less purchase of treasury stock including shares allocated to MRP (796) (246) Less unallocated shares held by the ESOP (769) (830) Plus MRP and stock option incremental shares considered outstanding for primary EPS calculations 318 -- ---------- ---------- Primary weighted average shares outstanding 9,664 9,835 Plus MRP and stock option incremental shares considered outstanding for fully diluted EPS calculations 55 -- ---------- ---------- Fully diluted weighted average shares outstanding 9,719 9,835 ========== ========== Calculation of Outstanding Shares at (in thousands) JUNE 30 March 31 1997 1997 --------- ----------- Total shares issued 10,911 10,911 Less treasury stock (392) (392) --------- ----------- Outstanding shares 10,519 10,519 ========= =========== In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. SFAS No. 128 specifies the computation, presentation and disclosure requirements for earnings per share (EPS) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. This standard specifies computation and presentation requirements for both basic EPS and, for entities with complex capital structures, diluted EPS. SFAS No. 128 is effective for reporting periods ending after December 15, 1997 and early adoption of the standard is not permitted. The following table shows the Company's proforma, basic and diluted earnings per share, if calculated under SFAS No. 128. Quarters ended June 30 1997 1996 ------ ------ Basic earnings per share $ .35 $ .24 Diluted earnings per share $ .34 $ .24 8 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL First Savings Bank of Washington Bancorp, Inc. (the Company), a Delaware corporation, is primarily engaged in the business of planning, directing and coordinating the business activities of its wholly owned subsidiaries, First Savings Bank of Washington (FSBW) and Inland Empire Bank (IEB) (together, the Banks). FSBW is a Washington-chartered savings bank the deposits of which are insured by the Federal Deposit Insurance Corporation (FDIC) under the Savings Association Insurance Fund (SAIF). FSBW conducts business from its main office in Walla Walla, Washington and its 16 branch offices and three loan production offices located in southeast, central, north central and western Washington. IEB is an Oregon-chartered commercial bank whose deposits are insured by the FDIC under the Bank Insurance Fund (BIF). IEB conducts business from its main office in Hermiston, Oregon and its five branch offices and two loan production offices located in northeast Oregon. The operating results of the Company depend primarily on its net interest income, which is the difference between interest income on interest-earning assets, consisting of loans and investment securities, and interest expense on interest-bearing liabilities, composed primarily of savings deposits and Federal Home Loan Bank (FHLB) advances. Net interest income is primarily a function of the Company's interest rate spread, which is the difference between the yield earned on interest-earning assets and the rate paid on interest- bearing liabilities, as well as a function of the average balance of interest- earning assets as compared to the average balance of interest-bearing liabilities. As more fully explained below, the Company's net interest income significantly increased for the quarter ended June 30, 1997, when compared to the same the period for the prior year. This increase in net interest income was largely due to the substantial growth in average asset and liability balances and the acquisition of IEB on August 1, 1996. The Company's net income also is affected by provisions for loan losses and the level of its other income, including deposit service charges, loan origination and servicing fees, and gains and losses on the sale of loans and securities, as well as its non-interest operating expenses and income tax provisions. As further explained below, net income for the quarter also increased reflecting the rise in net interest income and an increase in other operating income which were somewhat offset by increases in operating expenses and provision for income taxes. Operating results for the quarter ended June 30, 1997, were significantly affected by the acquisition of IEB. Management's discussion and analysis of results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Selected Notes to Consolidated Financial Statements. RECENT DEVELOPMENTS AND SIGNIFICANT EVENTS In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 130 established standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. SFAS No. 131 establishes standards of reporting by publicly-held business enterprises and disclosure of information about operating segments in annual financial statements to a lesser extent, in interim financial reports issued to shareholders. SFAS Nos. 130 and 131 are effective for fiscal years beginning after December 15, 1997. As both SFAS Nos. 130 and 131 deal with financial statement disclosure matters, the Company does not anticipate the adoption of these new standards will have a material impact on its financial position or results of operations. COMPARISON OF FINANCIAL CONDITION AT JUNE 30 AND MARCH 31, 1997 Total assets increased $66.5 million, or 6.6%, from $1.008 billion at March 31, 1997, to $1.074 billion at June 30, 1997. The increase generally reflected growth in net loans receivable and was funded primarily with advances from the FHLB and other borrowings. This growth represented a continuation of management's plans to leverage the Company's capital. Loans receivable (gross loans less loans in process, deferred fees and discounts, and allowance for loan losses) grew $62.2 million, or 9.6%, from $645.9 million at March 31,1997, to $708.1 million at June 30, 1997. The increase in gross loans of $64.5 million from $707.8 million at March 31, 1997, to $772.3 million at June 30, 1997, consists of $31.5 million of mortgages secured by commercial and multi-family real estate, $10.4 million of residential mortgages, $12.5 million of construction and land loans and $10.1 million of non-mortgage loans such as commercial, agriculture and consumer. The increase in loans was funded primarily by a net increase of $48.2 million, or 20.8 %, in FHLB advances from $231.7 million at March 31, 1997, to $279.7 million on June 30, 1997. Loan growth was also funded by increased deposits, net income from operations and a decrease in interest-earning cash deposits. Deposits grew $6.6 million or 1.2%, from $545.0 million at March 31, 1997, to $551.6 million at June 30, 1997. 9 Securities available for sale and held to maturity increased $11.7 million from $288.5 million at March 31,1997, to $300.2 million at June 30, 1997. Securities growth was funded primarily by a net increase of $12.1 million in other borrowings which are generally securities sold under repurchase agreements. Federal Home Loan Bank Stock increased $1.1 million as the Company was required to purchase more stock as a result of its increased use of FHLB advances. COMPARISON OF OPERATING RESULTS FOR THE QUARTER ENDED JUNE 30, 1997 AND 1996 GENERAL. Net income for the first quarter of fiscal 1998 was $3.2 million, an increase of $852,000 from the comparable quarter in fiscal 1997. The first quarter of fiscal 1998 included $728,000 of net income from the operations of IEB which the Company acquired on August 1, 1996. The Company's improved operating results reflect the significant growth of assets and liabilities. Compared to year ago levels, total assets increased 41% to $1.07 billion at June 30, 1997, total loans rose 59% to $708.1 million and total deposits climbed 47% to $551.6 million. The substantial increase in these balances from June 30, 1996, as compared to the same period in 1997 resulted from the continued deployment and leveraging of the $98.6 million in net proceeds raised in the Company's conversion from mutual to stock ownership on October 31, 1995. This growth helped to increase the Company's return on average equity from 6.34% for the quarter ended June 30, 1996, to 8.66% for the quarter ended June 30, 1997. INTEREST INCOME. Interest income for the quarter ended June 30, 1997, was $20.1 million compared to $13.8 million for the quarter ended June 30, 1996, an increase of $6.3 million, or 45.5%. The increase in interest income was a result of a $257.2 million or 35.3% growth in average balances of interest- earning assets combined with a 58 basis point increase in the average yield on those assets, which rose from 7.58% in the quarter ended June 1996, to 8.16% in June 1997. Average loans receivable for the first quarter of fiscal 1998 increased by $244.9 million, or 56.7%, when compared to the same quarter in fiscal 1997. Interest income on loans increased by $6.0 million or 67.1%, compared to the same quarter a year earlier reflecting the impact of the increase in average loan balances and a 55 basis point increase in the yield on those balances primarily resulting from the inclusion of higher yielding loans held by IEB. The average balance of mortgage-backed and investment securities and FHLB stock for the first quarter of fiscal 1998 increased by $12.3 million compared to the same quarter in fiscal 1997, and the yield on those balances increased 11 basis points. Interest and dividend income from those investments rose by $287,000 for the June 1997, quarter compared to June 1996. INTEREST EXPENSE. Interest expense for the quarter ended June 30, 1997, was $10.7 million compared to $7.6 million for the comparable period in 1996, an increase of $3.2 million, or 41.7%. The increase in interest expense was due to the $278.3 million growth in average interest-bearing liabilities. The increase in average interest-bearing liabilities in the quarter ended June 1997, was largely due to a $105.6 million increase in the average balance of FHLB advances and other borrowings combined with a $172.7 million growth in average deposits derived primarily from the acquisition of IEB. Average FHLB advances totaled $248.0 million during the quarter ended June 30, 1997, as compared to $190.8 million during the quarter ended June 30,1996, resulting in a $1.0 million increase in related interest expense. The average rate paid on those advances increased from 5.56% for the quarter ended June 1996 to 5.97% for the comparable period in 1997 adding to the increase in interest expense. Other borrowings consist of retail repurchase agreements with customers and repurchase agreements with investment banking firms secured by certain investment securities. The average balance for other borrowings increased $48.4 million from $19.3 million for the quarter ended June 30, 1996, to $67.7 million for the same period in 1997, and the related interest expense increased $675,000, from $296,000 to $971,000 for the respective periods. The majority of this growth in other borrowings reflects an increase in repurchase agreements with investment banking firms which totaled $58.9 million at June 30, 1997. Average deposit balances increased from $372.2 million for the quarter ended June 1996, to $545.0 million for the comparable period in 1997 while, at the same time, the average rate paid on deposit balances decreased 53 basis points. The decline in the rate paid on deposits primarily reflects the acquisition of IEB's $32.1 million of non-interest-bearing deposits as well as generally lower rates paid by IEB on certificates of deposit. Deposit interest expense increased $1.4 million for the quarter ended June 30, 1997. 10 The following tables provide additional comparative data on the Company's operating performance (in thousands): Quarters ended June 30 AVERAGE BALANCES 1997 1996 ------ ------ Investment securities and deposits $ 114,055 $ 106,525 Mortgage-backed obligations 182,451 181,169 Loans 676,891 432,035 FHLB stock 13,142 9,649 ------ ------ Total average interest-earning asset 986,539 729,378 Non-interest-earning assets 39,592 16,620 ------ ------ Total average assets $ 1,026,131 $ 745,998 ========= ======= Deposits $ 544,974 $ 372,236 Advances from FHLB 247,950 190,790 Other borrowings 67,663 19,273 ------ ------ Total average interest-bearing liabilities 860,587 582,299 Non-interest-bearing liabilities 15,228 12,213 ------ ------ Total average liabilities 875,815 594,512 Equity 150,316 151,486 ------ ------ Total average liabilities and equity $1,026,131 $ 745,998 ========= ======= INTEREST RATE YIELD/EXPENSE [RATES ARE ANNUALIZED] Interest Rate Yield: Investment securities and deposits 6.16% 5.85% Mortgage-backed obligations 6.91% 6.89% Loans 8.84% 8.29% FHLB stock 7.51% 7.77% ------ ------ Total interest rate yield on interest-earning assets 8.16% 7.58% Interest Rate Expense: Deposits 4.46% 4.99% Advances from FHLB 5.97% 5.56% Other borrowings 5.76% 6.16% Total interest rate expense on interest- ------ ------ bearing liabilities 5.00% 5.21% Interest spread 3.16% 2.37% ===== ===== Net interest margin on interest earning assets 3.80% 3.42% ADDITIONAL KEY FINANCIAL RATIOS [RATIOS ARE ANNUALIZED] Return on average assets 1.27% 1.29% Return on average equity 8.66% 6.34% Average equity / average assets 14.65% 20.31% Average interest-earning assets / interest- bearing liabilities 114.64% 125.26% Non-interest [other operating] expenses / average assets 1.93% 1.55% Efficiency ratio [non-interest (other operating) expenses/revenues] 47.84% 43.21% 11 PROVISION FOR LOAN LOSSES. During the quarter ended June 30, 1997, the provision for loan losses was $355,000, compared to $513,000 for the quarter ended June 30, 1996, a decrease of $158,000. The decrease in the provision for loan losses reflects management's current estimate of a reduction of the inherent risk in the Company's loan portfolio due to continuing favorable actual loss experience and the strength and anticipated growth in the Northwest economy. The allowance for loan losses net of charge-offs (recoveries), increased by $207,000, to $7.0 million at June 30, 1997, compared to $6.8 million at March 31, 1997. The allowance for losses on loans is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loan portfolio and upon management's continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, current and anticipated economic conditions, detailed analysis of individual loans for which full collectibility may not be assured, and determination of the existence and realizable value of the collateral and guarantees securing the loans. Additions to these allowances are charged to earnings. Provisions for losses that are related to specific assets are usually applied as a reduction of the carrying value of the assets and charged immediately against the income of the period. The reserve is based upon factors and trends identified by management at the time financial statements are prepared. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks allowance for loan losses. Such agencies may require the Banks to provide additions to the allowance based upon judgments different from management. Although management uses the best information available, future adjustments to the allowance may be necessary due to economic, operating, regulatory and other conditions beyond the Banks' control. The following tables are provided to disclose additional detail on the Company's loans and allowance for loan losses (in thousands): JUNE 30 March 31 1997 1997 ------ ------ Loans [ including loans held for sale]: Gross principal $ 772,269 $ 707,816 Less loans in process 54,227 52,412 Less deferred fees and discounts 3,027 2,775 Less allowance for loan losses 6,955 6,748 ------ ------ Total net loans at end of period $ 708,060 $ 645,881 ======= ======= Allowance for loan losses as a percentage of gross principal of loans outstanding 0.90% 0.95% Quarters ended June 30 1997 1996 ------ ------ Change in allowance for loan losses: Balance at beginning of the period $ 6,748 $ 4,051 Provision for loan losses 355 513 Recoveries 7 0 Charge-offs (155) (130) ------ ------ Balance at end of the period $ 6,955 $ 4,434 ====== ====== Charge-offs as a percentage of average net book value of loans outstanding for the period. 0.02% 0.03% OTHER OPERATING INCOME. Other operating income increased $528,000 from $455,000 for the quarter ended June 30, 1996, to $983,000 for the quarter ended June 30, 1997. The increase resulted primarily from a $400,000 increase in other fees and service charges due largely to IEB operations earning higher fees as a commercial bank, although fee income also increased at FSBW reflecting deposit growth and pricing adjustments. In addition there was a $112,000 increase in net gains on securities and loans sold in the quarter ended June 30, 1997, as compared to the same period in 1996. This increase primarily reflects the inclusion of the IEB's residential mortgage operations which increased the volume of loans sold in the secondary market over the comparable period in the prior year. 12 OTHER OPERATING EXPENSES. Other operating expenses increased $2.0 million from $2.9 million for the quarter ended June 30, 1996, to $4.9 million for the quarter ended June 30, 1997. The increase in non-interest operating expense in 1997 was primarily due to the addition of $1.6 million of IEB operating expenses. Included in the Company's and IEB's operating expenses for the quarter ended June 30, 1997, was $224,000 for amortization of costs in excess of net assets acquired resulting from the purchase of IEB. The increase also reflects growth of the Company including increased personnel costs and increases in legal, accounting and insurance costs relating to operating as a public company. The cost of deposit insurance declined despite a significant increase in deposits as a result of reduced premium levels subsequent to the special SAIF assessment incurred in September 1996. INCOME TAXES. Income tax expense was $1.8 million for the quarter ended June 30, 1997, compared to $884,000 for the comparable quarter in 1996. The increase in the provision for income taxes reflects the higher level of income being taxed at higher effective rates due to the phase out of the 34% surtax exemption; the net effect of IEB paying Oregon state income taxes and that the expense from amortization of costs in excess of net assets in purchasing IEB is not deductible for tax purposes. The Company's effective tax rates for the quarters ended June 30, 1997 and 1996, were 35% and 27%, respectively. ASSET QUALITY The following tables are provided to disclose additional details on asset quality (in thousands): JUNE 30 March 31 1997 1997 ------- -------- Non-performing assets at end of the period: Non-performing loans: Delinquent loans on non-accrual status $ 1,523 $ 2,082 Delinquent loans on accrual status 141 30 ------- -------- Total non-performing loans 1,664 2,112 REO 1,192 1,057 ------- -------- Total non-performing assets at end of the period $ 2,856 $ 3,169 ======= ======== Non-performing loans as a percentage of total net loans at end of the period 0.24% 0.33% Ratio of allowance for loan losses to non-performing loans at end of the period 418% 320% Non-performing assets as a percentage of total assets at end of the period. 0.27% 0.31% Troubled debt restructuring [TDR's] at end of the period $ 373 $ 238 ------- -------- Troubled debt restructuring as a percentage of: Total gross principal of loans outstanding at end of the period 0.05% 0.03% Total assets at end of the period 0.03% 0.02% LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds are deposits, FHLB advances, proceeds from loan principal and interest payments and sales of loans, and the maturity of, and interest income on mortgage-backed and investment securities. While maturities and scheduled amortization of loans and mortgage-backed and investment securities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, general economic conditions and competition. The primary investing activity of the Company is the origination and purchase of mortgage, consumer, and commercial loans through its subsidiary Banks, IEB and FSBW. During the quarter ended June 30, 1997, the Banks closed or purchased loans in the amount of $147.2 million. This activity was funded primarily by principal repayments on loans and securities, sales of loans, increases in FHLB advances, and deposit growth. For the quarter ended June 30, 1997, principal repayments on loans totaled $74.1 million and the Banks' proceeds from the sale of mortgage loans totaled $10.2 million. FHLB advances and other borrowings increased $48.2 million and $12.1 million, respectively, for the same period, and net deposit growth was $6.6 million. 13 The Banks must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. At June 30, 1997, the Banks had undisbursed loans in process totaling $54.2 million. The Banks generally maintain sufficient cash and readily marketable securities to meet short term liquidity needs. FSBW also maintains a credit facility with the FHLB of Seattle, which provides for advances which in aggregate may equal up to 40% of FSBW's total assets, which as of June 30, 1997, would give FSBW a total credit line of $351.5 million. Advances under this credit facility totaled $277.2 million, or 31.6% of FSBW's assets at June 30, 1997. IEB also maintains credit facilities with various financial institutions that would allow it to borrow up to $6.4 million. At June 30, 1997, savings certificates amounted to $340.9 million, or 62%, of the Banks' total deposits, including $191.3 million which were scheduled to mature within one year. Historically, the Banks have been able to retain a significant amount of their deposits as they mature. Management believes it has adequate ability to fund all loan commitments by using deposits, FHLB of Seattle advances and the sale of mortgage loans or securities, and that it can adjust the offering rates of savings certificates to retain deposits in changing interest rate environments. CAPITAL REQUIREMENTS Federally-insured state-chartered banks are required to maintain minimum levels of regulatory capital. Under current FDIC regulations, insured state-chartered banks generally must maintain (i) a ratio of Tier 1 leverage capital to total assets of at least 3.0% (4.0% to 5.0% for all but the most highly rated banks), (ii) a ratio of Tier 1 capital to risk weighted assets of at least 4.0% and (iii) a ratio of total capital to risk weighted assets of at least 8.0%. At June 30, 1997, the Company's banking subsidiaries exceeded all current regulatory capital requirements to be classified as well capitalized institutions, the highest regulatory standard. In order to be categorized as a well capitalized institution, the FDIC requires banks it regulates to maintain a leverage ratio, defined as Tier 1 capital divided by total regulatory assets, of at least 5.00%; Tier 1 (or core) capital of at least 6.00% of risk-weighted assets; and total capital of at least 10.00% of risk-weighted assets. The Company, as a bank holding company, is regulated by the Federal Reserve Board (FRB). The FRB has established capital requirements for bank holding companies that generally parallel the capital requirements of the FDIC for banks with $150 million or more in total consolidated assets. The Company's total regulatory capital must equal 8% of risk-weighted assets and one half of the 8% (4%) must consist of Tier 1 (core) capital. The actual regulatory capital ratios calculated for the Company along with the minimum capital amounts and ratios for capital adequacy purposes were as follows (dollars in thousands): Minimum for capital adequacy Actual purposes Amount Ratio Amount Ratio ------ ----- ------ ----- JUNE 30, 1997: The Company-consolidated Total capital to risk-weighted assets $140,050 24.77% $47,510 8.00% Tier 1 capital to risk-weighted assets 140,022 23.59 23,755 4.00 Tier 1 leverage capital to average assets 147,077 13.65 41,052 4.00 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time the Company or its subsidiaries are engaged in legal proceedings in the ordinary course of business, none of which is considered to have a material impact on the Company's financial position or results of operations. ITEM 2. CHANGES IN SECURITIES Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit 27 - Financial data schedule - see page 17 Report (s) on Form 8-K filed during the quarter ended June 30, 1997, are as follows: Date Filed Purpose ---------- ------- Not Applicable 15 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. First Savings Bank of Washington Bancorp, Inc. August 11, 1997 /s/ Gary Sirmon ----------------- Gary Sirmon President and Chief Executive Officer August 11, 1997 /s/ D. Allan Roth ------------------ D. Allan Roth Secretary and Treasurer 16 EXHIBIT 27 FINANCIAL DATA SCHEDULE (IN THOUSANDS EXCEPT PER SHARE DATA) This schedule contains summary financial information extracted from the consolidated financial statements of First Savings Bank of Washington Bancorp, Inc. for the quarter ended June 30, 1997 and is qualified in its entirety by reference to such financial statements. Financial Data as of or for the quarter Item Number ended June 30, 1997 Item Description - ------------- ------------------- - ---------------- 9-03 (1) $ 15,989............ Cash and Due from Banks 9-03 (2) 801................Interest-bearing deposits 9-03 (3) -0-...............Federal funds sold - purchased 9-03 (4) ................-0- Trading account assets 9-03 (6) 299,397................Investment and mortgage backed securities held for sale 9-03 (6) 788................Investment and mortgage backed securities held to maturity - carrying value 9-03 (6) 788................Investment and mortgage backed securities held to maturity - market value 9-03 (7) 708,060................Loans 9-03 (7) (2) 6,955................Allowance for loan losses 9-03 (11) 1,074,166................Total assets 9-03 (12) 551,589................Deposits 9-03 (13) 74,309................Short-term borrowings 9-03 (15) 15,635................Other liabilities 9-03 (16) 279,726................Long-term debt 9-03 (19) -0-...............Preferred stock - mandatory redemption 9-03 (20) -0-...............Preferred stock - no mandatory redemption 9-03 (21) 109................Common stocks 9-03 (22) 152,798................Other stockholders' equity 9-03 (23) 1,074,166................Total liabilities and stockholders' equity 9-04 (1) 14,922................Interest and fees on loans 9-04 (2) 5,056................Interest and dividends on investments 9-04 (4) 84................Other interest income 9-04 (5) 20,062................Total interest income 9-04 (6) 6,059................Interest on deposits 9-04 (9) 10,721................Total interest expense 9-04 (10) 9,341................Net interest income 9-04 (11) 355................Provision for loan losses 9-04 (13) (h) 1................Investment securities gains/(losses) 9-04 (14) 4,939................Other expenses 9-04 (15) 5,030................Income/loss before income tax 9-04 (17) 3,245................Income/loss before extraordinary items 9-04 (18) -0-...............Extraordinary items, less tax 9-04 (19) -0-...............Cumulative change in accounting principles 9-04 (20) $ 3,245................Net income or loss 9-04 (21) $ 0.34 Earnings per share - primary 9-04 (21) $ 0.33........... Earnings per share - fully diluted I.B. 5 3.80%.............Net yield - interest earnings - - actual III.C.1. (a) $ 1,523........... Loans on non-accrual III.C.1. (b) 141................Accruing loans past due 90 days or more III.C.1. (c) 373................Troubled debt restructuring III.C.2 -0-...............Potential problem loans IV.A.1 6,748................Allowance for loan loss - beginning of period IV.A.2 155................Total charge offs IV.A.3 7................Total recoveries IV.A.4 6,955................Allowance for loan loss - end of period IV.B. 1 3,237................Loan loss allowance allocated to domestic loans IV.B.2 -0-...............Loan loss allowance allocated to foreign loans IV.B.3 $ 3,718..........Loan loss allowance - unallocated EX-27 2
9 1000 3-MOS MAR-31-1998 JUN-30-1997 15989 801 0 0 299397 788 788 708060 6955 1074166 551589 74309 15635 279726 0 0 109 152798 1074166 14922 5056 84 20062 6059 10721 9341 355 1 4939 5030 3245 0 0 3245 0.34 0.33 3.80 1523 141 373 0 6748 155 7 6955 3237 0 3718
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