-----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, PMLSqy9c277/q0MNRU+y7ns7shGRqQFJoMz2Uta6VSocBZJc7OFOnip6YTmJ+Km3 cgotzg8jxh2NyAF1NHyckg== 0000939057-99-000012.txt : 19990217 0000939057-99-000012.hdr.sgml : 19990217 ACCESSION NUMBER: 0000939057-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST WASHINGTON BANCORP INC /WA/ CENTRAL INDEX KEY: 0000946673 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 911632900 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26584 FILM NUMBER: 99542745 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 FORMER COMPANY: FORMER CONFORMED NAME: FIRST SAVINGS BANK OF WASHINGTON BANCORP INC DATE OF NAME CHANGE: 19950614 10-Q 1 FIRST WASHINGTON BANCORP, INC. 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..................... DECEMBER 31, 1998 ------------------- [ ] 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 WASHINGTON BANCORP, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) WASHINGTON 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 January 29, 1999 --------------- ---------------------- Common stock, $.01 par value 11,807,172 shares* * Includes 745,918 shares held by employee stock ownership plan (ESOP) that have not been released, committed to be released, or allocated to participant accounts. FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES Table of Contents PART I - FINANCIAL INFORMATION ITEM 1 - Financial Statements. The Consolidated Financial Statements of First Washington Bancorp, Inc. and Subsidiaries filed as a part of the report are as follows: Consolidated Statements of Financial Condition as of December 31, 1998 and March 31, 1998........................... 2 Consolidated Statements of Income for the Quarters and Nine Months Ended December 31, 1998 and 1997.... 3 Consolidated Statements of Changes in Stockholders' Equity for the Nine Months Ended December 31, 1998 and 1997................. 4 Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 1998 and 1997................. 6 Selected Notes to Consolidated Financial Statements.................. 8 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operation General..............................................................12 Recent Developments and Significant Events...........................12 Comparison of Financial Condition at December 31, 1998 and March 31, 1998.............................................................14 Comparison of Results of Operations for the Quarters and Nine Months Ended December 31, 1998 and 1997..............................15 Asset Quality........................................................20 Market Risk and Asset/Liability Management...........................20 Liquidity and Capital Resources......................................24 Capital Requirements.................................................25 PART II - OTHER INFORMATION Item 1. Legal Proceedings............................................26 Item 2. Changes in Securities........................................26 Item 3. Defaults upon Senior Securities..............................26 Item 4. Submission of Matters to a Vote of Stockholders..............26 Item 5. Other Information............................................26 Item 6. Exhibits and Reports on Form 8-K.............................26 SIGNATURES.............................................................27 1 FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS, EXCEPT SHARES) DECEMBER 31, 1998 AND MARCH 31, 1998 (Unaudited) December 31 March 31 1998 1998 --------- --------- ASSETS Cash and due from banks $ 74,233 $ 42,529 Securities available for sale, cost $332,192 and $298,346 335,896 302,419 Securities held to maturity, fair value $2,359 and $194 2,291 194 Federal Home Loan Bank stock 21,895 16,050 Loans receivable: Held for sale, fair value $14,706 and $12,436 14,706 12,436 Held for portfolio 972,143 752,338 Allowances for loan losses (10,718) (7,857) --------- --------- 976,131 756,917 Accrued interest receivable 8,509 7,569 Real estate held for sale, net 2,241 882 Property and equipment, net 13,285 11,379 Costs in excess of net assets acquired, net 28,538 11,007 Deferred income tax asset, net 387 -- Other assets 6,051 5,126 --------- --------- $1,469,457 $1,154,072 ========= ========= LIABILITIES Deposits: Non-interest-bearing $ 88,019 $ 56,691 Interest-bearing 721,502 545,831 --------- --------- 809,521 602,522 Advances from Federal Home Loan Bank 393,856 297,549 Other borrowings 84,372 91,723 Accrued expenses and other liabilities 7,394 5,475 Deferred compensation 2,654 3,798 Deferred income tax liability, net -- 541 Income taxes payable 777 2,280 --------- --------- 1,298,574 1,003,888 STOCKHOLDERS' EQUITY Preferred stock - $0.01 par value, 500,000 shares authorized, no shares issued -- -- Common stock - $0.01 par value, 27,500,000 shares authorized, 12,001,590 shares issued: 11,301,645 shares and 10,948,151 shares outstanding at December 31, 1998 and March 31, 1998, respectively and additional paid-in capital 122,049 108,994 Retained earnings 57,273 72,962 Valuation reserve for securities available for sale 2,440 2,680 Treasury stock, at cost: none and 1,053,439 shares at December 31, 1998, see note 1, and March 31, 1998, respectively -- (20,979) Unearned shares of common stock issued to employee stock ownership plan trust (ESOP): 745,918 and 787,897 restricted shares outstanding at December 31, 1998 and March 31, 1998, respectively, at cost (6,781) (7,163) Carrying value of shares held in trust for stock- related compensation plans (4,098) (6,310) --------- --------- 170,883 150,184 --------- --------- $1,469,457 $1,154,072 ========= ========= * Adjusted for stock dividend see note 2: 2 FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS) Quarters Ended Nine Months Ended December 31 December 31 ----------------- ----------------- 1998 1997 1998 1997 INTEREST INCOME: ------ ------ ------ ------ Loans receivable $22,341 $16,685 $65,254 $47,785 Mortgage-backed securities 3,518 3,180 9,702 9,495 Securities and deposits 2,515 1,972 6,866 5,930 ------ ------ ------ ------ 28,347 21,837 81,822 63,210 INTEREST EXPENSE: Deposits 8,353 6,421 24,693 18,861 Federal Home Loan Bank advances 5,820 4,328 15,651 12,329 Other borrowings 1,251 1,289 3,939 3,323 ------ ------ ------ ------ 15,424 12,038 44,283 34,513 ------ ------ ------ ------ Net interest income before provision for loan losses 12,923 9,799 37,539 28,697 PROVISION FOR LOAN LOSSES 840 375 2,210 1,130 ------ ------ ------ ------ Net interest income 12,083 9,424 35,329 27,567 OTHER OPERATING INCOME: Loan servicing fees 196 201 586 556 Other fees and service charges 880 635 2,543 1,820 Gain on sale of loans 901 394 2,052 873 Gain (loss) on sale of securities -- -- 7 2 Miscellaneous (6) 19 168 67 ------ ------ ------ ------ Total other operating income 1,971 1,249 5,356 3,318 OTHER OPERATING EXPENSES: Salary and employee benefits 4,418 3,433 13,026 9,791 Less capitalized loan origination costs (680) (485) (1,999) (1,482) Occupancy and equipment 1,243 729 3,425 2,166 Information/computer data services 389 334 1,130 838 Advertising 145 123 416 331 Deposit insurance 84 70 258 209 Amortization of costs in excess of net assets acquired 568 225 1,706 674 Miscellaneous 1,667 1,088 4,432 3,038 ------ ------ ------ ------ Total other operating expenses 7,834 5,517 22,394 15,565 ------ ------ ------ ------ Income before provision for income taxes 6,220 5,156 18,291 15,320 PROVISION FOR INCOME TAXES 2,324 1,951 6,880 5,573 ------ ------ ------ ------ NET INCOME $ 3,896 $ 3,205 $11,411 $ 9,747 ======= ======= ======= ======= Net income per common share, see Notes 2 & 5: Basic $ .38 $ .32 $ 1.09 $ .96 Diluted $ .36 $ .30 $ 1.04 $ .92 Cumulative dividends declared per common share: $ .09 $ .06 $ .26 $ .19 3 FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ( IN THOUSANDS) FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 1998 1997 ---- ---- COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL: Balance, beginning of period $ 108,994 $ 107,953 Acquisition of Towne Bank: Issuance of stock-fair market value in excess of basis 1,260 -- Assumption of options 2,018 -- Release of earned ESOP shares 543 886 Recognition of tax benefit due to vesting of MRP shares 276 231 Excess of basis over proceeds of treasury stock reissued for exercised stock options (285) (24) Record 10% stock dividend, see note 2 24,371 -- Purchase and retirement of treasury stock subsequent to reincorporation (4,012) -- Retirement of treasury shares resulting from reincorporation in state of Washington, see note 1 (11,116) -- ------- ------- Balance, end of period 122,049 109,046 RETAINED EARNINGS: Balance, beginning of period 72,962 62,572 Net income 11,411 9,747 Record 10% stock dividend (24,371) -- Cash dividends (2,729) (2,095) ------- ------- Balance, end of period 57,273 70,224 VALUATION RESERVE FOR SECURITIES AVAILABLE FOR SALE: Balance, beginning of period 2,680 (401) Change in valuation reserve (240) 3,079 ------- ------- Balance, end of period 2,440 2,678 TREASURY STOCK: Balance, beginning of period (20,979) (6,954) Basis of stock reissued in acquisition of Towne Bank 17,206 -- Purchases of treasury stock (7,340) (8,959) Purchases of treasury stock for exercised stock options (409) Reissuance of treasury stock for MRP and/or exercised stock options 409 -- Repurchase of forfeited shares from MRP (3) (18) Retirement of treasury shares resulting from reincorporation in state of Washington, see note 1 11,116 -- ------- ------- Balance, end of period -- (15,931) UNEARNED, RESTRICTED ESOP SHARES AT COST: Balance, beginning of period (7,163) (7,751) Release of earned ESOP shares 382 513 ------- ------- Balance, end of period (6,781) (7,238) CARRYING VALUE OF SHARES HELD IN TRUST FOR STOCK-RELATED COMPENSATION PLANS: Balance, beginning of period (6,310) (6,783) Cumulative effect of change in accounting for Rabbi Trust, see note 2 1,354 -- Net change in number and/or valuation of shares held in trust (35) (828) Amortization of compensation related to MRP 893 912 ------- ------- Balance, end of period (4,098) (6,699) ------- ------- TOTAL STOCKHOLDERS' EQUITY $170,883 $152,080 ======= ======= 4 FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED) ( IN THOUSANDS) FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 1998 1997 ---- ---- COMMON STOCK, SHARES ISSUED: * Number of shares, beginning of period 12,002 12,002 ------- ------- Number of shares, end of period 12,002 12,002 ------- ------- TREASURY STOCK, SEE NOTE 1: * Number of shares, beginning of period (1,053) (432) Purchase of treasury stock (506) (397) Purchase of treasury stock used for exercised stock options (18) (3) Reissuance of treasury stock to deferred compensation plan and/or exercised stock options 24 3 Shares reissued in acquisition of Towne Bank 853 -- Repurchase of shares forfeited from MRP -- (1) ------- ------- Number of shares retired/repurchased, end of period (700) (830) ------- ------- Shares issued and outstanding, end of period 11,302 11,172 ======= ======= UNEARNED, RESTRICTED ESOP SHARES: * Number of shares, beginning of period (788) (852) Release of earned shares 42 56 ------- ------- Number of shares, end of period (746) (796) ======= ======= * Adjusted for stock dividend, see note 2 5 FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 1998 1997 ------- ------- OPERATING ACTIVITIES Net income $ 11,411 $ 9,747 Adjustments to reconcile net income to net cash provided by operating activities: Deferred taxes (143) 365 Depreciation 1,296 764 Loss (gain) on sale of securities (7) (2) Net amortization of premiums and discounts on investments 687 8 Amortization of costs in excess of net assets acquired 1,707 674 Amortization of MRP compensation liability 893 912 Loss (gain) on sale of loans (2,052) (912) Net changes in deferred loan fees, premiums and discounts 49 511 Loss (gain) on disposal of real estate held for sale 24 (17) Loss (gain) on disposal of property and equipment (95) (3) Capitalization of mortgage servicing rights from sale of mortgages with servicing retained (739) (187) Amortization of mortgage servicing rights 196 62 Provision for losses on loans and real estate held for sale 2,210 1,130 FHLB stock dividend (1,110) (845) Cash provided (used) in operating assets and liabilities: Loans held for sale (144) (2,548) Accrued interest receivable (220) (408) Other assets (42) (651) Deferred compensation 242 225 Accrued expenses and other liabilities 1,083 169 Income taxes payable (1,878) (1,602) -------- -------- Net cash provided by operating activities 13,368 7,392 -------- -------- INVESTING ACTIVITIES: Purchase of securities available for sale (282,350) (161,678) Principal payments and maturities of securities available for sale 248,149 158,344 Proceeds from sales of securities available for sale 2,206 1,405 Purchase of securities held to maturity -- -- Principal payments and maturities of securities held to maturity 510 397 Purchase of FHLB stock (3,825) (2,022) Loans originated and closed - net (512,138) (371,906) Purchase of loans and participating interest in loans (59,100) (48,890) Proceeds from sales of loans and participating interest in loans 117,422 49,907 Principal repayments on loans 351,642 255,480 Purchase of property and equipment (2,394) (1,341) Proceeds from sale of property and equipment 373 10 Additional capitalized costs of real estate held for sale net of insurance proceeds (85) (14) Basis of real estate held for sale acquired in settlement of loans and disposed of during the period 1,673 1,840 Funds transferred to deferred compensation plan trusts (104) (71) Acquisition of Towne Bank, net cash acquired 9,328 -- -------- -------- Net cash used by investing activities (128,713) (118,539) -------- -------- 6 FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (Continued from prior page) 1998 1997 ------- ------- FINANCING ACTIVITIES Increase (decrease) in deposits $ 73,415 $ 35,930 Proceeds from FHLB advances 244,554 556,120 Repayment of FHLB advances (150,247) (493,072) Proceeds from reverse repurchase borrowings 268 30,035 Repayments of reverse repurchase borrowings (11,254) (431) Decrease-net in other borrowings 3,635 (3,062) Compensation expense recognized for shares released for allocation to participants of the ESOP: Original basis of shares 382 513 Excess of fair value of released shares over basis 543 886 Cash dividends paid (2,610) (2,117) Net cost of exercised stock options (285) (24) Purchase of treasury stock (11,352) (8,959) -------- -------- Net cash provided by financing activities 147,049 115,819 -------- -------- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 31,704 4,672 CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 42,529 24,488 -------- -------- CASH AND DUE FROM BANKS, END OF PERIOD $ 74,233 $ 29,160 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 43,480 $ 34,489 Taxes paid $ 8,880 $ 6,810 Non-cash transactions: Loans, net of discounts, specific loss allowances and unearned income transferred to real estate owned $ 2,971 $ 2,092 Net change in accrued dividends payable $ 119 $ (22) Net change in unrealized gain (loss) in deferred compensation trust and related liability $ 1,387 $ (796) Treasury stock forfeited by MRP $ 3 $ 18 Fair value of stock issued and options assumed in connection with the acquisition of Towne Bank $ 20,484 $ -- Recognize tax benefit of vested MRP shares $ 276 $ 231 Non-cash portion of 10% stock dividend $ 24,371 $ -- 7 FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND MARCH 31, 1998 NOTE 1: REINCORPORATION AND BASIS OF PRESENTATION Reincorporation: - --------------- The stockholders of First Savings Bank of Washington Bancorp, Inc., a Delaware corporation and herein referred to as "FSBWB," approved the reincorporation of FSBWB from Delaware to Washington on July 24, 1998. The reincorporation was effected July 24, 1998 by merging FSBWB into a wholly-owned subsidiary which had been recently formed solely for the purpose of effecting the reincorporation. The surviving corporation is known as First Washington Bancorp, Inc., a Washington corporation, and is hereafter referred to as "FWWB." Upon consummation of the merger, each share of Common Stock of FSBWB, par value $.01 per share, was automatically converted into one share of Common Stock of FWWB, par value $.01 per share. The merger was consummated under the terms and conditions of a Plan of Merger pursuant to which FSBWB ceased to exist as a Delaware corporation, the stockholders of FSBWB became shareholders of FWWB, FWWB succeeded to all the assets, liabilities, subsidiaries and other properties of FSBWB to the full extent provided by law, and the rights of the shareholders and internal affairs of FWWB are to be governed by the articles of incorporation and bylaws of FWWB and the Washington Business Corporation Act, as amended. As a result of the merger, FWWB has the same business, management, benefit plans, location, assets, liabilities and net worth as did FSBWB. However, because the state of Washington treats all treasury stock as retired upon purchase, all purchases of treasury stock reduce stock issued and the cost of treasury stock acquired is charged to par value and paid-in capital. Basis of Presentation: - ---------------------- The unaudited consolidated financial statements of FWWB included herein reflect all adjustments which are, in the opinion of management, necessary to present fairly the 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 FWWB's wholly owned subsidiaries, First Savings Bank of Washington (FSBW), Inland Empire Bank (IEB) and Towne Bank (TB) (together, the Banks). The balance sheet data at March 31, 1998, is derived from FWWB's audited financial statements. Certain information and note disclosures normally included in financial statements 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, 1998 (File No. 0-26584), of FWWB. Certain amounts in the prior periods' financial statements and/or schedules have been reclassified to conform to the current period's presentation. These reclassifications affected certain ratios for the prior periods. The effect of such reclassifications is immaterial. NOTE 2: RECENT DEVELOPMENTS Acquisition of Towne Bancorp, Inc.: - ----------------------------------- On April 1, 1998 FWWB completed the acquisition of Towne Bancorp, Inc. FWWB paid $28.2 million in cash and common stock for all of the outstanding common shares and stock options of Towne Bancorp, Inc., which was the holding company for Towne Bank (TB), headquartered in Woodinville, Washington, a Seattle suburb. As a result of the merger of Towne Bancorp, Inc. into FWWB, TB became a wholly-owned subsidiary of FWWB. The acquisition was accounted for as a purchase and resulted in the recording of $19.2 million of costs in excess of the fair value of Towne Bancorp, Inc. net assets acquired (goodwill). Goodwill assets are being amortized over a 14 year period and result in a current charge to earnings of $343,800 per quarter or $1,375,000 per year. Founded in 1991, TB is a community business bank which had, before recording of goodwill, approximately $146 million in total assets, $134 million in deposits, $120 million in loans and $9.3 million in shareholders' equity at March 31, 1998. TB operates five full service branches in the Seattle, Washington metropolitan area--in Woodinville, Redmond, Bellevue, Renton and Bothell. 8 Acquisition of Whatcom State Bancorp, Inc.: - -------------------------------------------- On January 1, 1999 FWWB completed the acquisition of Whatcom State Bancorp Inc. FWWB paid 12.1 million in cash and common stock for all the outstanding common shares and stock options of Whatcom State Bancorp, Inc., which was the holding company for Whatcom State Bank (WSB), headquartered in Bellingham, Washington. As a result of the merger of Whatcom Bancorp, Inc. into FWWB, WSB became a division of First Savings Bank of Washington. The acquisition will be accounted for as a purchase and resulted in the recording of approximately $6.4 million of costs in excess of the fair value of Whatcom State Bancorp, Inc. net assets acquired (goodwill). Goodwill assets will be amortized over a 14 year period and will result in a current charge to earnings of $114,300 per quarter or $457,000 per year. Founded in 1980, WSB is a community commercial bank which had, before recording of goodwill, approximately $99 million in total assets, $85 million in deposits, $7.9 million in loans, $5.4 million in shareholders' equity at December 31, 1998. WSB operates five full service branches in the Bellingham, Washington area - Bellingham, Ferndale, Lynden, Blaine and Point Roberts. Agreement to Acquire Seaport Citizens Bank: - ------------------------------------------- FWWB has signed a definitive agreement to acquire Seaport Citizens Bank (SCB), in an all cash offer valued at approximately $10.1 million. Seaport Citizens Bank in Lewiston, Idaho, is not a publicly traded institution. This valuation represents approximately 2.5 times book value and 16 times earnings for the twelve months ended September 30, 1998 for SCB. The acquisition, which has been approved by the Boards of Directors of each company, is subject to, among other contingencies, approval by regulators and Seaport Citizens Bank shareholders. The transaction is expected to close in the second quarter of the 1999 calendar year. Declaration of 10% Stock Dividend: - ---------------------------------- On July 24, 1998 FWWB's Board of Directors declared a 10% stock dividend payable August 17, 1998 to shareholders of record on August 10, 1998. All earnings per share and share data have been adjusted to reflect the 10% stock dividend. New Accounting Pronouncement: - ----------------------------- In July 1998, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board reached a consensus on the accounting treatment for deferred compensation arrangements where amounts earned are held in a Rabbi Trust and invested. The consensus of the EITF was applied as of September 30, 1998 for all awards granted, and existing plans were required to be amended prior to September 30, 1998. Application of the consensus is reflected as a change in accounting principle under which the Company stock purchased for a Rabbi Trust obligation and the related liability for deferred compensation is recorded at acquisition cost. Prior to this change the stock was recorded at fair market value. The effect of this change in accounting increased equity by $1.35 million and reduced the related liability for deferred compensation by the same amount. NOTE 3: ADOPTION OF NEW ACCOUNTING STANDARDS FWWB adopted Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, effective April 1, 1998. The standard requires that comprehensive income and its components be disclosed in the financial statements. FWWB's comprehensive income includes all items which comprise net income plus the unrealized holding gains, net of related taxes, on available-for-sale securities. For the quarters and nine months ended December 31, 1998 and 1997, FWWB's comprehensive income was as follows: Quarters Ended Nine Months Ended December 31 December 31 ----------------- ----------------- 1998 1997 1998 1997 ------- ------- -------- ------- Net income $ 3,896 $ 3,205 $ 11,411 $ 9,747 Other comprehensive income (1,086) 806 (243) 3,079 ------- ------- -------- ------- Total comprehensive income $ 2,810 $ 4,011 $ 11,168 $12,826 ======= ======= ======== ======= 9 NOTE 4: ADDITIONAL INFORMATION REGARDING INTEREST-BEARING DEPOSITS AND SECURITIES The following table sets forth additional detail on the FWWB's interest- bearing deposits and securities at the dates indicated (at carrying value) (in thousands): December 31 March 31 1998 1998 ---------- --------- Interest-bearing deposits included in cash and due from banks $ 36,797 $ 15,587 -------- -------- Mortgage-backed securities 222,142 197,130 Other securities-taxable 79,069 70,092 Other securities-tax exempt 32,816 32,093 Other stocks with dividends 4,160 3,298 -------- -------- Total securities 338,187 302,613 Federal Home Loan Bank (FHLB) stock 21,895 16,050 -------- -------- $396,879 $334,250 ======== ======== The following table provides additional detail on income from deposits and securities for the periods indicated (in thousands): Quarters Ended Nine Months Ended December 31 December 31 ----------------- ----------------- 1998 1997 1998 1997 ------- ------- -------- ------- Mortgage-backed securities $ 3,518 $ 3,180 $ 9,702 $ 9,495 ------- ------- ------- ------- Taxable interest and dividends 1,573 1,161 4,265 3,543 Tax-exempt interest 525 506 1,491 1,541 Federal Home Loan Bank stock-dividends 417 305 1,110 846 ------- ------- ------- ------- 2,515 1,972 6,866 5,930 ------- ------- ------- ------- $ 6,033 $ 5,152 $16,568 $15,425 ======= ======= ======= ======= 10 NOTE 5: 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 Nine Months Ended December 31 December 31 ---------------- ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Total shares originally issued 12,002 12,002 12,002 12,002 Less retired shares and treasury stock plus unvested shares allocated to MRP (900) (1,110) (743) (974) Less unallocated shares held by the ESOP (775) (821) (780) (834) ------ ------ ------ ------ Basic weighted average shares outstanding 10,327 10,071 10,479 10,194 Plus unvested MRP and stock option incremental shares considered outstanding for diluted EPS calculations 447 439 481 398 ------ ------ ------ ------ Diluted weighted average shares outstanding 10,774 10,510 10,960 10,592 ====== ====== ====== ====== Calculation of Outstanding Shares at* ---------------------- (in thousands) December 31 March 31 1998 1998 ---- ---- Total shares issued 12,002 12,002 Less retired shares and treasury stock (700) (1,054) ------ ------ Outstanding shares issued 11,302 10,948 ====== ====== * Adjusted for 10% stock dividend granted August 10, 1998 11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL First Washington Bancorp, Inc. (FWWB), a Washington 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), Inland Empire Bank (IEB) and Towne Bank (TB) (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. TB is a Washington-chartered commercial bank whose deposits are insured by the FDIC under BIF. TB conducts business from five full service branches in the Seattle, Washington metropolitan area. The operating results of FWWB 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 FWWB'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, FWWB's net interest income significantly increased for the quarter and nine months ended December 31, 1998, when compared to the same periods for the prior year. This increase in net interest income was largely due to the substantial growth in average asset and liability balances from the acquisition of TB on April 1, 1998, although significant asset and liability growth also occurred at FSBW and IEB. FWWB'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. FWWB's net income also significantly increased when compared to the same periods for the prior year. Management's discussion and analysis of results of operations is intended to assist in understanding the financial condition and results of operations of FWWB. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Selected Notes to the Consolidated Financial Statements. RECENT DEVELOPMENTS AND SIGNIFICANT EVENTS RECENT DEVELOPMENTS Reincorporation: - ---------------- The stockholders of First Savings Bank of Washington Bancorp, Inc., a Delaware corporation and herein referred to as "FSBWB," approved the reincorporation of FSBWB from Delaware to Washington on July 24, 1998. The reincorporation was effected July 24, 1998 by merging FSBWB into a wholly owned subsidiary which had been recently formed solely for the purpose of effecting the reincorporation. The surviving corporation is known as First Washington Bancorp, Inc., a Washington corporation, and is hereafter referred to as "FWWB." Upon consummation of the merger, each share of Common Stock of FSBWB, par value $.01 per share, was automatically converted into one share of common stock of FWWB, par value $.01 per share. The merger was consummated under the terms and conditions of a Plan of Merger pursuant to which FSBWB ceased to exist as a Delaware corporation, the stockholders of FSBWB became shareholders of FWWB, FWWB succeeded to all the assets, liabilities, subsidiaries and other properties of FSBWB to the full extent provided by law, and the rights of the shareholders and internal affairs of FWWB are to be governed by the articles of incorporation and bylaws of FWWB and the Washington Business Corporation Act, as amended. As a result of the merger, FWWB has the same business, management, benefit plans, location, assets, liabilities and net worth as did FSBWB. 12 Acquisition of Towne Bancorp, Inc.: - ----------------------------------- On April 1, 1998 FWWB completed the acquisition of Towne Bancorp, Inc. FWWB paid $28.2 million in cash and common stock for all of the outstanding common shares and stock options of Towne Bancorp, Inc., which was the holding company for Towne Bank (TB), headquartered in Woodinville, Washington, a Seattle suburb. As a result of the merger of Towne Bancorp, Inc. into FWWB, TB became a wholly owned subsidiary of FWWB. The acquisition was accounted for as a purchase and resulted in the recording of $19.2 million of costs in excess of the fair value of Towne Bank net assets acquired (goodwill). Goodwill assets are being amortized over a 14 year period and result in a current charge to earnings of $343,800 per quarter or $1,375,000 per year. Founded in 1991, TB is a community business bank which had, before recording of goodwill, approximately $146 million in total assets, $134 million in deposits, $120 million in loans and $9.3 million in shareholders' equity at March 31, 1998. TB operates five full service branches in the Seattle, Washington metropolitan area--in Woodinville, Redmond, Bellevue, Renton and Bothell. Acquisition of Whatcom State Bancorp, Inc.: - -------------------------------------------- On January 1, 1999 FWWB completed the acquisition of Whatcom State Bancorp Inc. FWWB paid 12.1 million in cash and common stock for all the outstanding common shares and stock options of Whatcom State Bancorp, Inc., which was the holding company for Whatcom State Bank (WSB), headquartered in Bellingham, Washington. As a result of the merger of Whatcom Bancorp, Inc. into FWWB, WSB became a division of First Savings Bank of Washington. The acquisition will be accounted for as a purchase and resulted in the recording of approximately $6.4 million of costs in excess of the fair value of Whatcom State Bancorp, Inc. net assets acquired (goodwill). Goodwill assets will be amortized over a 14 year period and will result in a current charge to earnings of $114,300 per quarter or $457,000 per year. Founded in 1980, WSB is a community commercial bank which had, before recording of goodwill, approximately $99 million in total assets, $85 million in deposits, $7.9 million in loans, $5.4 million in shareholders' equity at December 31, 1998. WSB operates five full service branches in the Bellingham, Washington area - Bellingham, Ferndale, Lynden, Blaine and Point Roberts. Agreement to Acquire Seaport Citizens Bank: - ------------------------------------------- FWWB has signed a definitive agreement to acquire Seaport citizens Bank (SCB), in an all cash offer valued at approximately $10.1 million. Seaport Citizens Bank in Lewiston, Idaho, is not a publicly traded institution. This valuation represents approximately 2.5 times book value and 16 times earnings for the twelve months ended September 30, 1998 for SCB. The acquisition, which has been approved by the Boards of Directors of each company, is subject to, among other contingencies, approval by regulators and Seaport Citizens Bank shareholders. The transaction is expected to close in the second quarter of the 1999 calendar year. Declaration of 10% Stock Dividend: - ---------------------------------- On July 24, 1998 the Company's Board of Directors declared a 10% stock dividend payable August 17, 1998 to shareholders of record August 10, 1998. All earnings per share and share data have been adjusted to reflect the 10% stock dividend. New Accounting Pronouncement: - ------------------------------ In July 1998, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board reached a consensus on the accounting treatment for deferred compensation arrangements where amounts earned are held in a Rabbi Trust and invested. The consensus of the EITF was applied as of December 31, 1998 for all awards granted and existing plans were required to be amended prior to December 31, 1998. Application of the consensus is reflected as a change in accounting principle under which the Company stock purchased for a Rabbi Trust obligation and the related liability for deferred compensation is recorded at acquisition cost. Prior to this change the stock was recorded at fair market value. The effect of this change in accounting increased equity by $1.35 million and reduced the related liability for deferred compensation by the same amount. 13 YEAR 2000 COMPLIANCE The "Year 2000" (Y2K) issue is the result of older computer programs being written using two digits rather than four to define the applicable year. A computer program that has date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruption of operations, including, among other things, a temporary inability to process transactions, send statements, or engage in similar normal business activities. Based on an assessment of computer hardware, software and other equipment operated by FWWB and its subsidiary Banks, FWWB presently believes that all equipment and programs are Y2K compliant. A program for addressing the Y2K issue through awareness, assessment, renovation and testing has been developed and implemented. The testing phase has been completed on the internal operations and only the completion of the review of outside vendors and costumers remains. The results of internal testing disclosed only insignificant items that needed to be resolved. The three bank subsidiaries have budgeted approximately $450,000 to cover soft and hard costs such as upgrading ATMs, contacting and monitoring vendors, contacting customers and providing information regarding our preparations and testing the systems we have identified as critical and non-critical. FWWB and its Bank subsidiaries have incurred and expensed approximately $233,000 of Y2K related costs in the current fiscal year to date period ended December 31, 1998. Costs incurred and expensed in prior fiscal years were not significant. During the second quarter ended September 30, 1998, as a result of initial testing for Y2K preparedness and review of the current status of contingency planning, management expanded the budget to include additional administrative, personnel and overhead costs which resulted in a $300,000 increase from the original budget. FWWB and its subsidiary Banks are continuing to contact and monitor all significant suppliers to determine the extent to which they are vulnerable to those third parties' failures to remedy their own Y2K impact issues. Third party responses have indicated satisfactory progress in addressing any needs for equipment or software renovation. The Banks are contacting their large loan and deposit customers to build Y2K awareness and encourage early development of contingency plans and solutions in an effort to prevent potential business disruption due to Y2K processing failures. Loan and deposit customers are being updated regularly about our preparations and information is being provided to create a much greater awareness of the issue with some ideas about how to assess and prepare for their own Y2K vulnerability. There can be no guarantee that the systems of other companies on which the Banks' systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Banks' systems would not have a material adverse effect on the Banks. However, the Banks has tested for the Y2K preparedness of all internal functions and external functions provided by third parties whenever possible. In addition, contingency or alternate sources of support have been identified for each critical function and many non-critical functions. In the event that the Banks' data processing providers do not make their systems Y2K compliant and FWWB is not able to switch to an alternative provider or an in-house system in a timely manner, resulting computer malfunctions could interrupt the operations of the Banks and have a significant adverse effect on FWWB's financial condition and results of operations. COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31 AND MARCH 31, 1998 Total assets increased $315.0 million, or 27.3%, from $1.154 billion at March 31, 1998, to $1.469 billion at December 31, 1998. The majority of the increase, $164.9 million, was from the acquisition of Towne Bank including goodwill resulting from the use of purchase accounting. The remaining growth of $150.5 million was spread among all three subsidiary Banks and was funded primarily with deposit growth, advances from the FHLB and other borrowings. This growth represented a continuation of management's plans to further leverage FWWB's capital and reflects the solid economic conditions in the markets where FWWB operates. 14 Loans receivable (gross loans less loans in process, deferred fees and discounts, and allowance for loan losses) grew $219.2 million, or 29.0%, from $756.9 million at March 31, 1998, to $976.1 million at December 31, 1998. The increase in gross loans of $229.8 million from $822.6 million at March 31, 1998, to $1.052 billion at December 31, 1998, consists of $95.3 million of mortgages secured by commercial and multi-family real estate, $54.4 million of construction and land loans and $96.9 million of non-mortgage loans such as commercial, agricultural and consumer loans. This was offset by a $16.8 million decrease in residential mortgages resulting from repayments and sales of residential mortgages which were in excess of originations of new loans. The acquisition of TB on April 1, 1998 provided $121.7 million of gross loans consisting of $24.3 million of commercial and multi-family mortgages, $19.4 million of construction and land loans, $6.4 million of residential mortgages and $71.6 million of commercial and consumer loans. Slightly more than three quarters of the increase in assets, excluding the TB acquisition, was funded by a net increase of $94.4 million, or 32.4%, in FHLB advances from $297.5 million at March 31, 1998, to $393.9 million on December 31, 1998. Asset growth was also funded by increased deposits and net income from operations. Deposits grew $207.0 million, or 34.4%, from $602.5 million at March 31, 1998, to $809.5 million at December 31, 1998. Other borrowings, primarily reverse repurchase agreements with securities dealers, decreased $7.3 million, from $91.7 million at March 31, 1998, to $84.4 million at December 31, 1998. The TB acquisition provided $133.6 million of deposits and $2.0 million of FHLB advances. Securities available for sale and held to maturity increased $35.6 million, or 11.8%, from $302.6 million at March 31, 1998, to $338.2 million at December 31, 1998. Federal Home Loan Bank Stock increased $5.8 million ($1.0 million from the TB acquisition), as FWWB was required to purchase more stock as a result of its increased use of FHLB advances. Real estate held for sale increased $1.4 million, primarily as a result of completed foreclosures on a contractor. COMPARISON OF OPERATING RESULTS FOR THE QUARTERS AND NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 GENERAL. Net income for the third quarter of fiscal 1999 was $3.9 million, an increase of $691,000 from the comparable quarter in fiscal 1998. Net income for the first nine months of fiscal 1999 was $11.4 million, an increase of $1.7 million from the comparable period in fiscal 1998. FWWB's improved operating results reflect the significant growth of assets and liabilities as well as improvements in net interest margin and non-interest revenues which were offset somewhat by increased operating expenses. Compared to year ago levels, total assets increased 29.3% to $1.47 billion at December 31, 1998, total loans rose 28.3% to $976.1 million, deposits grew 36.8% to $809.5 million and borrowings increased 24.8% to $478.2 million. Net interest margin improved, despite the adverse effects of a flattening yield curve and declining market rates and loan pricing spreads, reflecting the acquisition of TB and continuing changes in the asset and liability mix. INTEREST INCOME. Interest income for the quarter ended December 31, 1998, was $28.3 million compared to $21.8 million for the quarter ended December 31, 1997, an increase of $6.5 million, or 29.8%. The increase in interest income was a result of a $313.8 million, or 29.5%, growth in the average balance of interest-earning assets combined with a modest 2 basis point increase in the average yield on those assets, which rose from 8.14% in the quarter ended December 1997, to 8.16% in December 1998. Average loans receivable for the third quarter of fiscal 1999 increased by $233.6 million, or 31.1%, when compared to the same quarter in fiscal 1998. Interest income on loans increased by $5.6 million, or 29.8%, compared to the same quarter a year earlier, reflecting the impact of the increase in average loan balances and a 18 basis point increase in the yield on those balances. Much of the increased yield on the loan portfolio is attributable to the addition of the TB loans which generally carry higher rates of interest than many of the loans held by FSBW and IEB. Average loans receivable represented 71.4% of average earning assets for the quarter ended December 31, 1998, compared to 70.5% for the same period a year earlier. The combined average balance of mortgage-backed and investment securities and FHLB stock for the third quarter of fiscal 1999 increased $80.2 million compared to the third quarter of fiscal 1998, although interest and dividend income from those investments increased by only $881,000 for the December 1998 quarter compared to December 1997. The nominal increase of interest income on this portfolio largely reflects that, while the average balance of mortgage-backed obligations increased by $41.9 million over the same quarter a year earlier, the yield on those securities declined 62 basis points. The decline in the yield on this portfolio primarily reflects a decline in market rates which resulted in decreased yields on many adjustable rate securities which comprise the largest portion of this portfolio and from accelerated amortization of net premiums as a result of increased prepayments on the mortgage loans underlying the mortgage backed securities. Average balances for other investment securities and deposits increased $32.1 million, although the yield on those balances declined 17 basis points also reflecting declining market rates. Holdings of FHLB stock (excluding the TB acquisition) increased commensurate with the growth in FHLB advances and the yield on that stock decreased 26 basis points. 15 Interest income for the nine months ended December 31, 1998 increased $18.6 million, or 29.4%, from the comparable period in fiscal 1998. Interest income from loans increased $17.5 million, or 36.6%, from the comparable period in fiscal 1998. The majority of the increase for loan interest income reflected the impact of a $226.8 million growth in average loans receivable balances combined with a 34 basis point increase in the yield on the loan balances. Interest income from mortgage-backed and investment securities and FHLB stock for the nine months ended December 31, 1998, increased $1.2 million, from $15.4 million in fiscal 1998, to $16.6 million in fiscal 1998, reflecting a $49.4 million increase in average balances offset by a 48 basis point decrease in yield. The yield on average earning assets increased from 8.14% for the nine months ended December 31, 1997, to 8.31% for the nine months ended December 31, 1998. INTEREST EXPENSE. Interest expense for the quarter ended December 31, 1998, was $15.4 million compared to $12.0 million for the comparable period in 1997, an increase of $3.4 million, or 28.1%. The increase in interest expense was due to the $329.7 million growth in average interest-bearing liabilities. The increase in average interest-bearing liabilities in the quarter ended December 1998 was largely due to a $213.2 million increase in the average balance of deposits combined with an $116.5 million growth in average FHLB advances and other borrowings. The acquisition of TB on April 1, 1998 increased deposits $133.6 million. This acquisition plus $84.3 million of additional non-acquisition deposit growth as compared to December 1997 resulted in a $1.9 million increase in deposit related interest expense. The average rate on those deposits decreased from 4.41% for the quarter ended December 31, 1997, to 4.19% for the quarter ended December 31, 1998. Average FHLB advances totaled $395.6 million during the quarter ended December 31, 1998, as compared to $280.8 million during the quarter ended December 31, 1997, resulting in a $1.5 million increase in related interest expense. The average rate paid on those advances decreased from 6.12% for the quarter ended December 31, 1997, to 5.84% for the comparable period in 1998. 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 $1.7 million from $87.3 million for the quarter ended December 31, 1997, to $89.0 million for the same period in 1998, and the related interest expense decreased $38,000, from $1.29 million to $1.25 million for the respective periods. The cost of other borrowings decreased 28 basis points from 5.86% for the quarter ended December 31, 1997 to 5.58% for the December 1998 quarter. A comparison of total interest expense for the nine months ended December 31, 1998, shows an increase of $9.8 million, or 28.3%, from the comparable period in December 1997. The increase in interest expense reflects an increase in average deposits of $193.8 million combined with an $94.9 million increase in FHLB advances and other borrowings. The effect on interest expense of the $288.7 million increase in average interest-bearing liabilities was slightly offset by a 13 basis point decrease in the interest rate paid on those liabilities. 16 The following tables provide additional comparative data on the Company's operating performance: Quarters Ended Nine Months Ended Average Balances December 31 December 31 ---------------- ---------------- ----------------- (in thousands) 1998 1997 1998 1997 ---- ---- ---- ---- Investment securities and deposits $ 140,885 $ 108,801 $ 126,717 $ 110,203 Mortgage-backed obligations 231,947 190,047 214,774 186,787 Loans 983,821 750,217 946,592 719,775 FHLB stock 21,375 15,123 19,172 14,302 ---------- ---------- ---------- ---------- Total average interest- earning asset 1,378,028 1,064,188 1,307,255 1,031,067 Non-interest-earning assets 79,049 42,522 76,220 42,063 ---------- ---------- ---------- ---------- Total average assets $1,457,077 $1,106,710 $1,383,475 $1,073,130 ========== ========== ========== ========== Deposits $ 791,084 $ 573,405 $ 761,243 $ 560,928 Advances from FHLB 395,558 280,793 348,803 269,592 Other borrowings 88,955 87,263 91,914 76,228 ---------- ---------- ---------- ---------- Total average interest- bearing liabilities 1,275,597 941,461 1,201,960 906,748 Non-interest-bearing liabilities 11,579 14,248 10,658 15,232 ---------- ---------- ---------- ---------- Total average liabilities 1,287,176 955,709 1,212,618 921,980 ---------- ---------- ---------- ---------- Equity 169,901 151,001 170,857 151,150 ---------- ---------- ---------- ---------- Total average liabilities and equity $1,457,077 $1,106,710 $1,383,475 $1,073,130 ========== ========== ========== ========== Interest Rate Yield/Expense (rates are annualized) -------------------------------------------------- Interest Rate Yield: Investment securities and deposits 5.91% 6.08% 6.03% 6.12% Mortgage-backed obligations 6.02% 6.64% 6.00% 6.75% Loans 9.00% 8.82% 9.15% 8.81% FHLB stock 7.74% 8.00% 7.68% 7.85% ------ ------ ----- ----- Total interest rate yield on interest-earning assets 8.16% 8.14% 8.31% 8.14% ------ ------ ----- ----- Interest Rate Expense: Deposits 4.19% 4.44% 4.31% 4.46% Advances from FHLB 5.84% 6.12% 5.96% 6.07% Other borrowings 5.58% 5.86% 5.69% 5.79% ------ ------ ----- ----- Total interest rate expense on interest-bearing liabilities 4.80% 5.07% 4.89% 5.05% ------ ------ ----- ----- Interest spread 3.36% 3.07% 3.42% 3.09% ====== ====== ===== ===== Net interest margin on interest earning assets 3.72% 3.65% 3.81% 3.69% ------ ------ ----- ----- Additional Key Financial Ratios (ratios are annualized) ------------------------------------------------------ Return on average assets 1.06% 1.15% 1.09% 1.21% Return on average equity 9.10% 8.42% 8.86% 8.56% Average equity/average assets 11.66% 13.64% 12.35% 14.08% Average interest-earning assets/ interest-bearing liabilities 108.03% 113.04% 108.76% 113.71% Non-interest [other operating] expenses/average assets Excluding amortization of costs in excess of net assets acquired (goodwill) 1.98% 1.90% 1.98% 1.84% Including amortization of costs in excess of net assets acquired (goodwill) 2.13% 1.98% 2.15% 1.93% Efficiency ratio [non-interest (other operating) expenses/ revenues] Excluding amortization of costs in excess of net assets acquired (goodwill) 48.78% 47.90% 48.23% 46.51% Including amortization of costs in excess of net assets acquired (goodwill) 52.60% 49.94% 52.21% 48.62% 17 PROVISION FOR LOAN LOSSES. During the quarter ended December 31, 1998, the provision for loan losses was $840,000, compared to $375,000 for the quarter ended December 31, 1997, an increase of $465,000. A comparison of the provision for loan losses for the nine month periods ended December 31, 1998 and 1997 shows an increase of $1.1 million from $1.1 million in fiscal 1998 to $2.2 million in fiscal 1999. This increase in the provision for losses reflects more significant growth and a higher level of net charge-offs for the nine month period as well as changes in the portfolio composition. The allowance for loan losses net of charge-offs (recoveries) increased by $2.8 million, to $10.7 million at December 31, 1998, compared to $7.9 million at March 31, 1998. 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 allowance for loan loss reserve. 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 Banks' loans and allowance for loan losses (in thousands): December 31 March 31 1998 1998 ---- ---- Loans (including loans held for sale): Secured by real estate One to four single family dwellings (SFD) $ 407,015 $ 423,850 Commercial and multifamily 263,174 167,859 Construction and land-secured 186,853 132,409 Commercial and agribusiness 155,935 67,611 Consumer, including credit cards 39,431 30,842 ---------- ----------- $1,052,408 $ 822,571 Less loans in process 62,029 54,500 Less deferred fees and discounts 3,530 3,297 Less allowance for loan losses 10,718 7,857 ---------- ----------- Total net loans at end of period $ 976,131 $ 756,917 ========== =========== Allowance for loan losses as a percentage of gross principal of loans outstanding 1.02% 0.96% Quarters Ended Nine Months Ended December 31 December 31 -------------- ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Change in allowance for loan losses: Balance at beginning of the period $ 10,418 $ 7,187 $ 7,857 $ 6,748 Acquisition of TB -- -- 1,616 -- Provision for loan losses 840 375 2,210 1,130 Recoveries 25 39 206 49 Charge-offs (565) (151) (1,171) (477) -------- ------- ------- ------- Balance at end of the period $ 10,718 $ 7,450 $10,718 $ 7,450 ======== ======= ======= ======= Charge-offs as a percentage of average net book value of loans outstanding for the period. 0.06% 0.02% 0.12% 0.07% 18 OTHER OPERATING INCOME. Other operating income increased $722,000 from $1.3 million for the quarter ended December 31, 1997, to $2.0 million for the quarter ended December 31, 1998. The increase included a $245,000 increase in other fees and service charges due largely to the addition of TB operations, combined with increases in fee income at FSBW and IEB reflecting deposit growth and pricing adjustments. There also was a $507,000 increase in net gains on loans sold in the quarter ended December 31, 1998, as compared to the same period in 1997. This increase primarily reflects increases in IEB's residential mortgage banking operations, and increased sales of loans, with servicing retained, by FSBW which increased the volume of loans sold in the secondary market over the comparable period in the prior year. The volume of loan sales and related net gain on sale of loans increased from $22.6 million and $394,000, respectively, for the quarter ended December 31, 1997, to $45.9 million and $901,000, respectively, for the quarter ended December 31, 1998. Increased sales of loans at FSBW were designed to curtail the rate of growth in relatively low yielding fixed rate residential mortgages during this period of low market rates and to reduce the Bank's exposure to the risk of rising interest rates. Other operating income for the nine months ended December 31, 1998, increased $2.0 million from the comparable period in 1997. The $733,000 increase in fee income was due largely to the addition of nine months of TB's operations in the current fiscal 1999 period. The $1.2 million increase in gains from the sale of loans and securities for the nine months ended December 31, 1998 also reflects the inclusion of TB's operations as well as the previously noted increased sales of residential mortgage loans by FSBW and IEB. The $101,000 increase in miscellaneous other income reflects a gain on the sale of IEB real property in the second quarter of fiscal 1999. OTHER OPERATING EXPENSES. Other operating expenses increased $2.3 million from $5.5 million for the quarter ended December 31, 1997, to $7.8 million for the quarter ended December 31, 1998. The increase in expenses was largely due to the inclusion of $1.8 million of TB's operating expenses in the third quarter of fiscal 1999 that were not present in fiscal 1998. The increase in other operating expenses was partially offset by a $195,000 increase in capitalized loan origination costs resulting from an increased volume in loan origination. In addition to the acquisition of TB, increases in other operating expenses reflect the overall growth in assets and liabilities, customer relationships and complexity of operations as FWWB continues to expand. Despite the high operating expenses associated with transitioning FWWB to more of a commercial bank profile, FWWB's efficiency ratio, excluding the amortization of goodwill, increased only 0.88 percentage points, to 48.78%, for the third quarter of fiscal 1999, from 47.90% for the same period in fiscal 1998. Other operating expenses as a percentage of average assets were 2.13% (1.98% excluding the amortization of goodwill) for the quarter ended December 31, 1998, compared to 1.98% (1.90% excluding the amortization of goodwill) for the quarter ended December 31, 1997. Other operating expenses for the nine months ended December 31, 1998 increased $6.8 million from $15.6 million for the first nine months of fiscal 1998 to $22.4 million in fiscal 1999. As explained earlier, the increase is largely due to the inclusion of $5.2 million of TB's operating expenses for the nine month fiscal 1999 period. The balance of the increase reflects the previously noted overall growth in FWWB's operations. INCOME TAXES. Income tax expense was $2.3 million for the quarter ended December 31, 1998, compared to $1.9 million for the comparable quarter in 1997. The $373,000 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 the fact that the expenses from the amortization of costs in excess of net assets acquired in purchasing IEB and TB and part of the expense recorded in the release of ESOP shares are not deductible for tax purposes. The Company's effective tax rates for the quarters ended December 31, 1998 and 1997, were 37% and 38%, respectively. Income tax expense for the nine months ended December 31, 1998 increased $1.3 million from $5.6 million for the nine months ended December 31, 1997, to $6.9 million for the comparable period in 1998. The Company's effective tax rate increased to 38% for the nine months ended December 31, 1998, from 36% for the comparable period in 1997. This increase was due to the same reasons the income tax provision for the quarter increased. 19 ASSET QUALITY The following tables are provided to disclose additional details on asset quality (in thousands): December 31 March 31 1998 1998 -------- -------- Non-performing assets at end of the period: Non-performing loans: Delinquent loans on non-accrual status $ 2,862 $ 1,270 Delinquent loans on accrual status 390 150 ------- ------- Total non-performing loans 3,252 1,420 Real estate owned ( REO) 2,241 882 ------- ------- Total non-performing assets at end of the period $ 5,493 $ 2,302 ======= ======= Non-performing loans as a percentage of total net loans at end of the period 0.33% 0.19% Ratio of allowance for loan losses to non-performing loans at end of the period 330% 553% Non-performing assets as a percentage of total assets at end of the period. 0.37% 0.20% Troubled debt restructuring [TDR's] at end of the period $ 404 $ 305 ------- ------- Troubled debt restructuring as a percentage of: Total gross principal of loans outstanding at end of the period 0.04% 0.04% Total assets at end of the period 0.03% 0.03% MARKET RISK AND ASSET/LIABILITY MANAGEMENT The financial condition and operation of the Company are influenced significantly by general economic conditions, including the absolute level of interest rates as well as changes in interest rates and the slope of the yield curve. The Company's profitability is dependent to a large extent on its net interest income, which is the difference between the interest received from its interest-earning assets and the interest expense incurred on its interest-bearing liabilities. The activities of the Company, like all financial institutions, inherently involve the assumption of interest rate risk. Interest rate risk is the risk that changes in market interest rates will have an adverse impact on the institution's earnings and underlying economic value. Interest rate risk is determined by the maturity and repricing characteristics of an institution's assets, liabilities, and off-balance-sheet contracts. Interest rate risk is measured by the variability of financial performance and economic value resulting from changes in interest rates. Interest rate risk is the primary market risk impacting the Company's financial performance. The greatest source of interest rate risk to the Company results from the mismatch of maturities or repricing intervals for rate sensitive assets, liabilities and off-balance-sheet contracts. This mismatch or gap is generally characterized by a substantially shorter maturity structure for interest-bearing liabilities than interest-earning assets. Additional interest rate risk results from mismatched repricing indices and formulae (basis risk and yield curve risk), and product caps and floors and early repayment or withdrawal provisions (option risk), which may be contractual or market driven, that are generally more favorable to customers than to the Company. The principal objectives of asset/liability management are to evaluate the interest-rate risk exposure of the Company; to determine the level of risk appropriate given the Company's operating environment, business plan strategies, performance objectives, capital and liquidity constraints, and asset and liability allocation alternatives; and to manage the Company's interest rate risk consistent with regulatory guidelines and approved policies of the Board of Directors. Through such management the Company seeks to reduce the vulnerability of its earnings and capital position to changes in the level of interest rates. The Company's actions in this regard are taken under the guidance of the Asset/Liability Management Committee, which is comprised of members of the Company's senior management. The committee closely monitors the Company's interest sensitivity exposure, asset and liability allocation decisions, liquidity and capital positions, and local and national economic conditions and attempts to structure the loan and investment portfolios and funding sources of the Company to maximize earnings within acceptable risk tolerances. 20 The Company's primary monitoring tool for assessing interest rate risk is asset/liability simulation modeling which is designed to capture the dynamics of balance sheet, interest rate and spread movements and to quantify variations in net interest income resulting from those movements under different rate environments. The sensitivity of net interest income to changes in the modeled interest rate environments provides a measurement of interest rate risk. The Company also utilizes market value analysis, which addresses changes in estimated net market value of equity arising from changes in the level of interest rates. The net market value of equity is estimated by separately valuing the Company's assets and liabilities under varying interest rate environments. The extent to which assets gain or lose value in relation to the gains or losses of liability values under the various interest rate assumptions determines the sensitivity of net equity value to changes in interest rates and provides an additional measure of interest rate risk. The interest rate sensitivity analysis performed by the Company incorporates beginning of the period rate, balance and maturity data, using various levels of aggregation of that data, as well as certain assumptions concerning the maturity, repricing, amortization and prepayment characteristics of loans and other interest-earning assets and the repricing and withdrawal of deposits and other interest-bearing liabilities into an asset/liability computer simulation model. The Company updates and prepares simulation modeling at least quarterly for review by senior management and the directors. The Company believes the data and assumptions are realistic representations of its portfolio and possible outcomes under the various interest rate scenarios. Nonetheless, the interest rate sensitivity of the Company's net interest income and net market value of equity could vary substantially if different assumptions were used or if actual experience differs from the assumptions used. SENSITIVITY ANALYSIS The table of Interest Rate Risk Indicators sets forth, as of December 31, 1998, the estimated changes in the Company's net interest income over a one year time horizon and the estimated changes in market value of equity based on the indicated interest rate environments. Table of Interest Rate Risk Indicators Estimated Change in --------------------------------------- Change (In Basis Points) Net Interest Income in Interest Rates (1) Next 12 Months Net Market Value ------------------------ --------------------------------------- (Dollars in thousands) +400 $ 271 0.5% $ (59,682) (31.6%) +300 987 2.0% (43,216) (22.9%) +200 1,043 2.1% (23,947) (12.7%) +100 745 1.5% (6,757) (3.6%) 0 0 0 0 0 -100 (1,784) (3.6%) (1,467) (0.8%) -200 (4,211) (8.5%) (10,417) (5.5%) -300 (7,527) (15.1%) (24,522) (13.0%) -400 (10,484) (21.1%) (35,073) (18.5%) - ---------- (1) Assumes an instantaneous and sustained uniform change in market interest rates at all maturities. Another although less reliable monitoring tool for assessing interest rate risk is "gap analysis." The matching of the repricing characteristics of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are "interest sensitive" and by monitoring an institution's interest sensitivity "gap." An asset or liability is said to be interest sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets anticipated, based upon certain assumptions, to mature or reprice within a specific time period and the amount of interest-bearing liabilities anticipated to mature or reprice, based upon certain assumptions, within that same time period. A gap is considered positive when the amount of interest sensitive assets exceeds the amount of interest sensitive liabilities. A gap is considered negative when the amount of interest sensitive liabilities exceeds the amount of interest sensitive assets. Generally, during a period of rising rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income. 21 Certain shortcomings are inherent in gap analysis. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as ARM loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of some borrowers to service their debt may decrease in the event of a severe interest rate increase. The table of Interest Sensitivity Gap, presents the Company's interest sensitivity gap between interest-earning assets and interest-bearing liabilities at December 31, 1998. The table sets forth the amounts of interest-earning assets and interest-bearing liabilities which are anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future periods shown. At December 31, 1998, total interest-earning assets maturing or repricing within one year exceeded total interest-bearing liabilities maturing or repricing in the same time period by $65.6 million, representing a one-year gap to total assets ratio of 4.47%. 22 Table of Interest Sensitivity Gap 6 Months Within to One 1-3 3-5 5-10 Over 10 6 Months Year Years Years Years Years Total -------- ---- ----- ----- ----- ----- ----- (dollars in thousands) Interest-earning assets(1): Construction loans $ 82,970 $ 31,251 $ 806 $ 577 $ -- $ -- $ 115,604 Fixed-rate mortgage loans 53,228 46,612 154,490 115,600 91,160 38,590 499,680 Adjustable-rate mortgage loans 98,727 49,779 17,037 14,596 -- -- 180,139 Fixed-rate mortgage-backed securities 11,273 14,486 40,572 14,202 7,462 1,236 89,231 Adjustable-rate mortgage- backed securities 130,242 1,789 102 -- -- -- 132,133 Fixed-rate agriculture/ commercial loans 8,878 5,060 11,351 14,412 8,016 1,255 48,972 Adjustable-rate agriculture/ commercial loans 105,930 -- -- -- -- -- 105,930 Consumer and other loans 11,287 2,637 8,373 5,985 2,200 8,898 39,380 Investment securities and interest-bearing deposits 83,254 13,455 23,444 10,885 13,972 29,245 174,255 -------- -------- -------- -------- -------- -------- --------- Total rate-sensitive assets 585,789 165,069 256,175 176,257 122,810 79,224 1,385,324 -------- -------- -------- -------- -------- -------- --------- Interest-bearing liabilities(2): Regular savings and NOW accounts 17,939 17,939 41,857 41,857 -- -- 119,590 Money market deposit accounts 57,589 34,553 23,035 -- -- -- 115,177 Certificates of deposit 246,410 120,598 78,209 32,507 8,991 20 486,735 FHLB advances 86,650 46,597 122,570 97,690 39,500 849 393,856 Other borrowings 49,444 -- -- 25,000 -- -- 74,444 Retail repurchase agreements 7,184 304 1,348 1,101 -- -- 9,937 -------- -------- -------- -------- -------- -------- --------- Total rate-sensitive liabilities 465,215 219,991 267,019 198,155 48,491 869 1,199,739 -------- -------- -------- -------- -------- -------- --------- Excess (deficiency) of interest- sensitive assets over interest- sensitive liabilities $ 120,574 $(54,922) $(10,844) $(21,898) $ 74,319 $ 78,355 $ 185,585 ========= ======== ======== ======== ======== ======== ========== Cumulative excess (deficiency) of interest-sensitive assets $ 120,574 $ 65,652 $ 54,809 $ 32,911 $107,230 $185,585 $ 185,585 ========= ======== ======== ======== ======== ======== ========== Cumulative ratio of interest- earning assets to interest- bearing liabilities 125.92% 109.58% 105.76% 102.86% 108.94% 115.47% 115.47% ========= ======== ======== ======== ======== ======== ========== Interest sensitivity gap to total assets 8.21% (3.74%) (0.74%) (1.49%) 5.06% 5.33% 12.63% ========= ======== ======== ======== ======== ======== ========== Ratio of cumulative gap to total assets 8.21% 4.47% 3.73% 2.24% 7.30% 12.63% 12.63% ========= ======== ======== ======== ======== ======== ========== (footnotes on following page)
23 Footnotes for Table of Interest Sensitivity Gap - ----------------------------------------------- (1) Adjustable-rate assets are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due to mature, and fixed-rate assets are included in the periods in which they are scheduled to be repaid based upon scheduled amortization, in each case adjusted to take into account estimated prepayments. Mortgage loans and other loans are not reduced for allowances for loan losses and non-performing loans. Mortgage loans, mortgage-backed securities, other loans, and investment securities are not adjusted for deferred fees and unamortized acquisition premiums and discounts. (2) Adjustable- and variable-rate liabilities are included in the period in which interest rates are next scheduled to adjust rather than in the period they are due to mature. Although the Banks' regular savings, demand, NOW, and money market deposit accounts are subject to immediate withdrawal, management considers a substantial amount of such accounts to be core deposits having significantly longer maturities. For the purpose of the gap analysis, these accounts have been assigned decay rates to reflect their longer effective maturities. If all of these accounts had been assumed to be short-term, the one year cumulative gap of interest-sensitive assets would have been negative $41.1 million or (2.80%) of total assets. Interest-bearing liabilities for this table exclude certain non-interest bearing deposits which are included in the average balance calculations in the earlier Table I, Analysis of Net Interest Spread. LIQUIDITY AND CAPITAL RESOURCES FWWB'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 FWWB is the origination and purchase of mortgage, consumer, and commercial loans through its subsidiary Banks, FSBW, IEB and TB. During the nine months ended December 31, 1998, the Banks originated $512.1 million of loans and purchased $59.1 million of loans. In addition, during this nine month period, funds were used to purchase $11.3 million of treasury stock and pay out $7.7 million for the acquisition of Towne Bancorp, Inc. These activities were funded primarily by principal repayments on loans and securities, sales of loans, increases in FHLB advances, and deposit growth. For the nine months ended December 31, 1998, principal repayments on loans totaled $351.6 million and the Banks' proceeds from the sale of mortgage loans totaled $117.4 million. FHLB advances and other borrowings increased $94.3 million (net of the TB acquisition) for the same period, and net deposit growth was $43.8 million (net of the TB acquisition). 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 December 31, 1998, the Banks had undisbursed loans in process totaling $62.0 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 45% of FSBW's total assets, which as of December 31, 1998, would give FSBW a total credit line of $482.4 million. Advances under this credit facility totaled $388.3 million, or 36.2% of FSBW's assets at December 31, 1998. IEB and TB also maintain credit facilities with various financial institutions, including the FHLB of Seattle, that would allow them to borrow up to $24.8 million. At December 31, 1998, savings certificates amounted to $486.7 million, or 60%, of the Banks' total deposits, including $405.4 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, other borrowings 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. 24 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 December 31, 1998, FWWB'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. FWWB, 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. FWWB'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 FWWB along with the minimum capital amounts and ratios for capital adequacy purposes were as follows (dollars in thousands): Minimum for capital Actual adequacy purposes ------------------ ------------------- Amount Ratio Amount Ratio ------ ----- ------ ----- December 31, 1998: FWWB-consolidated Total capital to risk- weighted assets $ 150,498 16.42% $ 73,345 8.00% Tier 1 capital to risk- weighted assets 139,781 15.25 36,673 4.00 Tier 1 leverage capital to average assets 139,781 9.82 52,990 4.00 25 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time FWWB 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 FWWB'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 Report (s) on Form 8-K filed during the quarter ended December 31, 1998, are as follows: Date Filed Purpose ---------- ------- Not Applicable 26 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 Washington Bancorp, Inc. February 12, 1999 /s/ Gary Sirmon ------------------------------- Gary Sirmon President and Chief Executive Officer February 12, 1999 /s/ D. Allan Roth ------------------------------- D. Allan Roth Secretary and Treasurer 27 EX-27 2
9 9-MOS MAR-31-1999 DEC-31-1998 74233 9597 27200 0 335896 2291 2359 976131 10718 1469457 809521 84372 10825 393856 0 0 115 170768 1469457 65254 15764 804 81822 24693 44283 37539 2210 7 22394 18291 6880 0 0 11411 1.09 1.04 3.81 2862 390 404 0 7857 1171 206 10718 3968 0 6750
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