U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _______________ TO ________________
COMMISSION FILE NUMBER 0-22435
FIRSTBANK NW CORP.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
WASHINGTON 84-1389562
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
920 MAIN STREET, LEWISTON, ID 83501
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
(208) 746-9610
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
FIRSTBANK CORP.
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
Common Stock 1,739,559 shares outstanding on September 30, 1999
Transitional Small Business Disclosure Format (check one):
[ ] Yes [X] No
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FIRSTBANK NW CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Statements of Financial Condition
As of September 30, 1999 and March 31, 1999 1
Consolidated Statements of Income
For the three months and six months ended
September 30, 1999 and 1998 2
Consolidated Statements of Cash Flows 3
For the six months ended September 30, 1999 and 1998
Consolidated Statements of Comprehensive Income
For the three months and six months ended
September 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
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PART I-FINANCIAL INFORMATION
Item 1-Financial Statements
FirstBank NW Corp. and Subsidiaries
Consolidated Statements of Financial Condition
At September 30, At March 31,
1999 1999
------------- -------------
(Unaudited)
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ASSETS
Cash and cash equivalents:
Non-interest bearing deposits $ 4,418,045 $ 4,724,214
Interest bearing deposits 2,585,945 1,502,672
Federal funds sold 4,066,885 2,308,776
------------- -------------
Total cash and cash equivalents 11,070,875 8,535,662
============= =============
Investment securities:
Held-to-maturity -- 700,000
Available-for-sale 6,666,129 6,535,812
Mortgage-backed securities:
Held-to-maturity 2,573,171 2,738,545
Available-for-sale 12,965,510 10,134,850
Loans receivable, net 176,869,152 165,617,367
Accrued interest receivable 2,415,178 1,610,676
Real estate owned 67,998 298,713
Stock in FHLB, at cost 3,288,975 2,501,975
Premises and equipment, net 5,989,387 5,328,788
Income taxes receivable -- 25,431
Cash surrender value of life insurance policies 1,624,785 1,586,210
Mortgage servicing assets 931,344 900,271
Other assets 158,542 230,786
------------- -------------
TOTAL ASSETS $ 224,621,046 $ 206,745,086
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 149,562,034 $ 133,278,136
Advances from borrowers for taxes and insurance 1,412,855 1,427,915
Advances from FHLB 45,652,106 42,027,106
Income taxes payable 18,704 --
Deferred federal and state income taxes 138,131 421,000
Accrued expenses and other liabilities 1,035,753 1,816,435
------------- -------------
Total Liabilities 197,819,583 178,970,592
------------- -------------
Stockholders' Equity (Note 3):
Preferred stock, $.01 par value, 500,000 shares authorized; 0 shares issued
and outstanding -- --
Common stock, $.01 par value, 5,000,000 shares authorized; 1,983,750
shares issued; 1,739,789 and 1,839,559 shares outstanding, 19,838 19,838
Additional paid-in-capital 18,769,018 18,720,476
Retained earnings, substantially restricted 14,435,062 13,907,562
Unearned ESOP shares (1,279,070) (1,384,070)
Deferred compensation (982,710) (1,108,162)
Treasury stock, at cost; 244,191 and 144,191 shares (3,785,831) (2,333,706)
Accumulated comprehensive income (loss): (374,844) (47,444)
------------- -------------
Total Stockholders' Equity 26,801,463 27,774,494
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 224,621,046 $ 206,745,086
============= =============
See accompanying notes to consolidated financial statements
1
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FirstBank NW Corp. and Subsidiaries
Consolidated Statements of Income
Three-months ended September 30, Six-months ended September 30,
-------------------------------- ------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(Unaudited)
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Interest income:
Loans receivable $ 3,726,323 $ 3,467,800 $ 7,410,227 $ 6,656,442
Mortgage-backed securities 185,037 161,860 337,900 329,938
Investment securities 85,657 71,115 168,791 138,910
Other interest earning assets 132,675 217,301 290,027 378,109
------------ ------------ ------------ -----------
Total interest income 4,129,692 3,918,076 8,206,945 7,503,399
Interest expense:
Deposits 1,329,559 1,236,110 2,560,127 2,455,542
Advances from FHLB 708,952 637,004 s 1,380,958 1,162,416
------------ ------------ ------------ -----------
Total interest expense 2,038,511 1,873,114 3,941,085 3,617,958
Net interest income 2,091,181 1,236,110 4,265,860 3,885,441
Provision for loan losses 73,421 65,032 207,548 200,768
------------ ------------ ------------ -----------
Net interest income after provision for loan losses 2,017,760 1,979,930 4,058,312 3,684,673
Non-interest income:
Gain on sale of loans 370,222 394,492 619,007 838,446
Service fees and charges 314,757 253,163 608,760 584,553
Commissions and other 22,430 20,552 46,203 60,189
------------ ------------ ------------ -----------
Total non-interest income 707,409 668,207 1,273,970 1,483,188
Non-interest expense:
Compensation and related benefits 1,149,449 1,032,935 2,361,344 1,982,819
Occupancy 299,241 217,929 528,114 432,950
Other 524,078 610,154 1,236,143 1,266,743
------------ ------------ ------------ -----------
Total non-interest expense 1,972,768 1,861,018 4,125,601 3,682,512
Income before income tax expense 752,401 787,119 1,206,681 1,485,349
Income tax expense 228,791 291,928 391,373 539,579
------------ ------------ ------------ -----------
Net income $ 523,610 $ 495,191 $ 815,308 $ 945,770
============ ============ ============ ==========
Earnings per share (Note 2):
Net income per share -basic $0.33 $0.28 $0.52 $0.52
Net income per share -diluted $0.32 $0.27 $0.49 $0.52
Weighted average shares outstanding -basic 1,565,035 1,776,211 1,582,188 1,807,564
Weighted average shares outstanding -diluted 1,639,900 1,802,217 1,659,270 1,820,495
See accompanying notes to consolidated financial statements
2
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FirstBank NW Corp. and Subsidiaries,
Consolidated Statements of Cash Flows
Six-months ended September 30,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 815,308 $ 945,770
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 709,141 234,587
Provision for loan losses 207,548 200,768
Gain on sale of loans (619,007) (838,446)
FHLB stock dividends (105,100) (83,189)
ESOP compensation expense 153,542 144,539
Other (gains) losses, net 17,167 49,935
Provision for real estate owned 125,452 20,410
Deferred compensation expense 33,960 63,006
Deferred income taxes (53,763) (2,416)
Changes in assets and liabilities:
Accrued interest receivable and other assets (763,330) (999,711)
Accrued expenses and other liabilities (814,643) (597,528)
Income taxes receivable (payable) 44,135 736,710
------------- -------------
Net cash used in operating activities (249,590) (125,565)
Cash flows from investing activities:
Purchase of mortgage-backed securities; available-for-sale (5,000,000) (2,128,941)
Proceeds from maturities of mortgage-backed securities; held-to-maturity 158,306 2,548,505
Proceeds from maturities of mortgage-backed securities; available-for-sale 1,713,399 --
Purchase of investment securities; available for sale (595,000) (2,250,000)
Proceeds from maturities of investment securities; held-to-maturity 700,000 750,000
Decrease in loans receivable from loans sold 52,765,149 24,984,132
Other net change in loans receivable (63,629,597) (34,016,113)
Purchase of FHLB stock (681,900) (215,012)
Purchases of premises and equipment (998,554) (287,956)
Net increase in cash surrender value of life insurance policies (38,575) (148,177)
Proceeds from sale of real estate owned 237,670 728,531
Proceeds from sale of fixed assets -- 336,357
------------- -------------
(15,369,102) (9,698,674)
Net cash used in investing activities
Cash flows from financing activities:
Cash paid for dividends (287,809) (286,907)
Net increase in deposits 16,283,898 8,669,462
Advances from borrowers for taxes and insurance (15,059) 3,456
Advances from FHLB 147,675,168 48,230,000
Payments on advances from FHLB (144,050,168) (36,658,473)
Purchase of treasury stock (1,452,125) (2,024,779)
------------- -------------
Net cash provided by financing activities 18,153,905 17,932,759
------------- -------------
Net increase in cash and cash equivalents 2,535,213 8,108,520
Cash and cash equivalents, beginning of period 8,535,662 8,416,820
------------- -------------
Cash and cash equivalents, end of period $ 11,070,875 $ 16,525,340
============= =============
Supplemental disclosures of cash flow information: Cash paid during the
period for:
Interest $ 2,566,136 $ 2,465,129
Income taxes $ 367,883 $ 18,934
Noncash investing and financing activities:
Unrealized (gains) losses on securities; available-for-sale, net of tax $ 327,400 $ (32,321)
Loans receivable charged to the allowance for loan losses $ 21,117 $ 23,459
Transfer from loans converted to real estate acquired through foreclosure $ 24,122 $ 355,901
Issuance of common stock out of treasury under Management Recognition and
Development Plan -- $ 1,254,525
See accompanying notes to consolidated financial statements
3
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FirstBank NW Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
Three-months ended September 30, Six-months ended September 30,
1999 1998 1999 1998
------------ ------------ ------------ -----------
(Unaudited)
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Net income $523,610 $495,191 $815,308 $ 945,770
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on securities;
available-for-sale, net of tax (200,847) 53,873 (327,400) 32,321
------------ ------------ ------------ -----------
Net other comprehensive income (loss) (200,847) 53,873 (327,400) 32,321
------------ ------------ ------------ -----------
Comprehensive income $322,763 $549,064 $487,908 $978,091
============ ============ ============ ==========
See accompanying notes to consolidated financial statements
4
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FIRSTBANK NW CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Generally Accepted Accounting Principles (GAAP) for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. These statements
should be read in conjunction with the consolidated financial statements and
related notes included in the Company's Form 10-KSB for the year ended March 31,
1999. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation have been included. The
results of operations and other data for the three and six months ended
September 30, 1999 are not necessarily indicative of results that may be
expected for the entire fiscal year ending March 31, 2000.
The unaudited consolidated financial statements of FirstBank NW Corp. (the
"Company") include the accounts of its wholly-owned subsidiary, FirstBank
Northwest (the "Bank") and it's wholly-owned subsidiary, TriStar Financial
Corporation, for the three and six months ended September 30, 1999. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
(2) EARNINGS PER SHARE
Earnings per share ("EPS") is computed by dividing net income (loss) by the
weighted average number of common shares outstanding in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share".
The following table reconciles the number of common shares used in the basic and
diluted EPS calculations:
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For the Three Months Ended 9/30/99 For the Six Months Ended 9/30/99
------------------------------------------ ------------------------------------------
Weighted- Per-Share Weighted- Per-Share
Net Income Average Shares Amount Net Income Average Shares Amount
----------- -------------- --------- ---------- -------------- ---------
Basic EPS:
Income available to common
<S> <C> <C> <C> <C> <C> <C>
stockholders $523,610 1,565,035 $ 0.33 $815,308 1,582,188 $ 0.52
====== ======
Effect of dilutive securities:
Restricted stock awards -- 74,865 -- 77,082
--------- --------- -------- ---------
Diluted EPS:
Income available to common
stockholders - assumed
conversions $ 523,610 1,639,900 $ 0.32 $815,308 1,659,270 $ 0.49
========= ========= ====== ======== ========= ======
For the Three Months Ended 9/30/98 For the Six Months Ended 9/30/98
------------------------------------------ -----------------------------------------
Weighted- Per-Share Weighted- Per-Share
Net Income Average Shares Amount Net Income Average Shares Amount
----------- -------------- --------- ---------- -------------- ---------
Basic EPS:
Income available to common
stockholders $ 495,191 1,776,211 $ 0.28 $945,770 1,807,564 $ 0.52
====== ======
Effect of dilutive securities:
Restricted stock awards -- 26,006 -- 12,931
--------- --------- -------- ---------
Diluted EPS:
Income available to common
stockholders - assumed
conversions $ 495,191 1,802,217 $ 0.27 $945,770 1,820,495 $ 0.52
========= ========= ====== ======== ========= ======
At September 30, 1999, outstanding options to purchase 171,350 shares of the
Company's common stock were not included in the computation of diluted EPS as
their effect would have been antidilutive.
5
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(3) DIVIDEND
On July 21, 1999, the Board of Directors declared a cash dividend of $0.09 per
common share to shareholders of record as of August 12, 1999. The dividend was
paid on August 26, 1999. On October 21, 1999, the Board of Directors declared
another cash dividend of $0.09 per common share to shareholders of record as of
November 18, 1999. This dividend will be paid on December 2, 1999.
6
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Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements, within the meaning of Section 21E of the Securities
and Exchange Act of 1934, are made throughout this Management's Discussion and
Analysis of Financial Condition and Results of Operations. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects", "estimates" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the results of the Company to
differ materially from those indicated herein. These factors include, but are
not limited to, those set forth in Item 7 entitled Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Company's Form
10-KSB for the year ended March 31, 1999.
GENERAL
On July 1, 1997, FirstBank Northwest converted from mutual to stock form and
became a wholly owned subsidiary of a newly formed Delaware holding company,
FirstBank Corp. The Company sold 1,983,750 shares of common stock at $10.00 per
share in conjunction with a subscription offering to the Savings Bank's Employee
Stock Ownership Plan (ESOP) and eligible account holders. The net proceeds were
approximately $18,921,825. The Company used approximately $9,470,000 of the net
proceeds to purchase all the capital stock of the Savings Bank. In addition,
$1,587,000 was loaned to the ESOP for the purchase of 158,700 shares in the
offering.
The Company's principal business is the business of the Savings Bank. Therefore,
the discussion in the Management's Discussion and Analysis of Financial
Conditions and Results of Operation relates to the Savings Bank and its
operations. In August 1997, the Bank opened a retail branch in Clarkston,
Washington. The Bank now has offices in Idaho and Washington. In January 1998,
the Bank changed its charter to a Washington state savings bank.
As approved by shareholders on August 20, 1999, FirstBank Corp. changed its
state of incorporation from Delaware to Washington and changed its name to
FirstBank NW Corp, which was accomplished by merging the Company with and into a
newly formed Washington subsidiary. The primary purpose of the reincorporation
was to save on the amount of state franchise tax fees paid annually by the
Company.
On September 21, 1998, the Company received FDIC approval to begin construction
of a new branch office in Liberty Lake, Washington. Liberty Lake is a
fast-growing bedroom community midway between Spokane, Washington and Coeur d'
Alene, Idaho. This will be the seventh retail branch for the Company, the second
in Washington State, and will have six employees, including one loan officer.
The branch grand opening will be November 18, 1999. The annual lease expense for
the land is $30,000, and the expected capitalized cost of construction is
$750,000.
In March 1999, the Company opened its first branch office inside a supermarket.
The new branch is located in the Tidyman's Northwest Fresh Market in Post Falls,
Idaho - a fast growing small city between Spokane, Washington and Coeur d'
Alene, Idaho. The branch is the Company's eighth branch and employs a staff of
approximately four people. The annual lease expense is $27,000 and capitalized
costs were $104,000.
FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND MARCH 31, 1999
Assets increased from $206.8 million at March 31, 1999 to $224.6 million at
September 30, 1999. Cash and cash equivalents increased from $8.5 million at
March 31, 1999 to $11.1 million at September 30, 1999 as a result of an increase
in deposits. Loans receivable increased from $165.6 million at March 31, 1999 to
$176.9 million at September 30, 1999 as a result of an increase in agricultural
operating lending of $5.9 million, home equity loans of $3.4 million, commercial
real estate loans of $3.4 million and residential loans of $3.3 million. Accrued
interest receivable increased from $1.6 million at March 31, 1999 to $2.4
million at September 30, 1999 due to a higher average asset base in securities
and loans. Deposits increased from $133.3 million at March 31, 1999 to $149.6
million at September 30, 1999 as a result of a $7.2 million increase in money
market accounts and $6.8 million in brokered certificates of deposit. Federal
Home Loan Bank of Seattle (FHLB) advances increased from $42.0 million at March
31, 1999 to $45.7 million at September 30, 1999. The increase in FHLB borrowing
was used to fund loan growth. Accrued expenses and other liabilities decreased
from $1.8 million at March 31, 1999 to $1.0 million at September 30, 1999. It is
the policy of the Savings Bank to cease accruing interest on loans 90 days or
more past due. Nonaccrual loans decreased from $612,000 at March 31, 1999 to
$390,000 at September 30, 1999.
7
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RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net income increased from $495,000 for the three months ended September 30, 1998
to $524,000 for the three months ended September 30, 1999.
Net interest income increased from $2.0 million for the three months ended
September 30, 1998 to $2.1 million for the three months ended September 30,
1999. Total interest income increased from $3.9 million for the three months
ended September 30, 1998 to $4.1 million for three months ended September 30,
1999. The increase in interest income stemmed from an increase in average
interest earning assets offset by a decrease in the weighted average yield on
the loan portfolio, which was 9.07% for the three months ended September 30,
1998 compared to the weighted average yield for the three months ended September
30, 1999 of 8.38%. The average balance of loans receivable was $155.5 million in
the second quarter of 1998 compared to $179.4 million in the second quarter of
1999. Interest income from investment securities increased from $71,000 for the
three months ended September 30, 1998 to $86,000 for the three months ended
September 30, 1999. The increase is primarily due to an increase in the
portfolio balance. Interest income from mortgage-backed securities increased
from $162,000 for the three months ended September 30, 1998 to $185,000 for the
three months ended September 30, 1999. The increase is due primarily to an
increase in the portfolio balance. Interest expense increased from $1.9 million
for the three months ended September 30, 1998 to $2.0 million for the same
period in 1999. The increase in interest expense is due primarily to higher
average deposit balances, an increase in average FHLB advances and a decrease in
weighted average rates. The weighted average rate on deposits for the three
months ended September 30, 1999 was 3.70% whereas the weighted average rate on
deposits as of September 30, 1998 was 4.15%. The weighted average rate on FHLB
advances for the three months ended September 30, 1999 was 5.57%, whereas the
weighted average rate on FHLB advances as of September 30, 1998 was 5.79%.
Provision for loan losses is based upon management's consideration of economic
conditions which may affect the ability of borrowers to repay the loans.
Management also reviews individual loans for which full collectibility may not
be reasonably assured and considers, among other matters, the risks inherent in
the Savings Bank's portfolio and the estimated fair value of the underlying
collateral. This evaluation is ongoing and results in variations in the Savings
Bank's provision for loan losses. As a result of this evaluation, the Company's
provision for loan losses increased from $65,000 for the three months ended
September 30, 1998 to $73,000 for the three months ended September 30, 1999.
Non-interest income increased from $668,000 for the three months ended September
30, 1998 to $707,000 for the three months ended September 30, 1999. The primary
reason for the increase is the income from service fees and other charges, which
increased $62,000.
Non-interest expense increased from $1.9 million for the three months ended
September 30, 1998 to $2.0 million for the three months ended September 30,
1999. The increase in compensation and other related expenses of $116,000 is
caused by additional staff for new branches and compensation related to the
Management Recognition and Development Plan.
Income taxes decreased from an expense of $292,000 for the three months ended
September 30, 1998 to expense of $229,000 for the same time period in 1999 due
to a decrease in income before income tax expense.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net income decreased from $946,000 for the six months ended September 30, 1998
to $815,000 for the six months ended September 30, 1999.
Net interest income increased from $3.9 million for the six months ended
September 30, 1998 to $4.3 million for the six months ended September 30, 1999.
Total interest income increased from $7.5 million for the six months ended
September 30, 1998 to $8.2 million for six months ended September 30, 1999. The
increase in interest income stemmed from an increase in average interest earning
assets offset by a decrease in the weighted average yield, which was 8.66% for
the six months ended September 30, 1998 compared to the weighted average yield
for the six months ended September 30, 1999 of 8.14%. The average balance for
loans receivable was $152.4 million during the six-months ended September 30,
1998 compared to the six-months ended September 30, 1999 average balance of
$175.6 million. Interest income from investment securities increased from
$139,000 for the six months ended September 30, 1998 to $169,000 for the six
months ended September 30, 1999. The increase is primarily due to an increase in
the portfolio balance while the yield decreased from 8.77% at September 30, 1998
to 7.66% at September 30, 1999. Interest income from mortgage-backed securities
increased from $330,000 for the six months ended September 30, 1998 to $338,000
for the six months ended September 30, 1999. The increase is due primarily to a
higher average balance. Interest expense increased from $3.6 million for the six
months ended September 30, 1998 to $3.9 million for the same time period in
1999. The increase in interest expense is due primarily to higher average
deposit balances, an increase in average FHLB advances and a decrease in
weighted average rates. The weighted average rate on deposits for the six months
ended September 30, 1999 was 3.68%, whereas the weighted average rate on
deposits for the six-months ended September 30, 1998 was 4.17%. The weighted
average rate on FHLB advances for the six months ended September 30, 1999 was
5.60%, whereas the weighted average rate on FHLB advances for the six-months
ended September 30, 1998 was 5.74%.
8
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Provision for loan losses is based upon management's consideration of economic
conditions which may affect the ability of borrowers to repay the loans.
Management also reviews individual loans for which full collectibility may not
be reasonably assured and considers, among other matters, the risks inherent in
the Savings Bank's portfolio and the estimated fair value of the underlying
collateral. This evaluation is ongoing and results in variations in the Savings
Bank's provision for loan losses. As a result of this evaluation, the Company's
provision for loan losses increased from $201,000 for the six months ended
September 30, 1998 to $208,000 for the six months ended September 30, 1999.
Non-interest income decreased from $1.5 million for the six months ended
September 30, 1998 to $1.3 million for the six months ended September 30, 1999.
The primary reason for the decrease is the gain on sale of loans decreased
$219,000 due to a decrease in loan volume.
Non-interest expense increased from $3.7 million for the six months ended
September 30, 1998 to $4.1 million for the six months ended September 30, 1999.
The increase in compensation and other related expenses of $378,000 is caused by
additional staff for new branches and compensation related to the Management
Recognition and Development Plan. Other expenses that increased were data
processing increasing by $63,000, and other start-up expenses associated with
opening new branches.
Income taxes decreased from an expense of $540,000 for the six months ended
September 30, 1998 to an expense of $391,000 for the same time period in 1999
due to a decrease in income before income tax expense.
Liquidity and Capital Resources
The Company's primary recurring sources of funds are customer deposits,
proceeds from principal and interest payments on loans, proceeds from sales of
loans, maturing securities and FHLB advances. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition.
The Company 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. The Company generally maintains sufficient cash and short-term
investments to meet short-term liquidity needs. At September 30, 1999, cash and
cash equivalents totaled $11.1 million, or 4.93% of total assets. In addition,
the Company maintains a credit facility with the FHLB-Seattle, which provides
for immediately available advances. Advances under this credit facility totaled
$45.7 million at September 30, 1999.
The primary investing activity of the Company is the origination of
loans. During the quarters ended September 30, 1998 and 1999, the Company
originated loans in the amounts of $84.0 million and $73.0 million,
respectively. At September 30, 1999, the Company had loan commitments totaling
$25.9 million, undisbursed lines of credit totaling $15.4 million, and
undisbursed loans in process totaling $3.9 million. The Company anticipates that
it will have sufficient funds available to meet its current loan origination
commitments. Certificates of deposit that are scheduled to mature in less than
one year from September 30, 1999 totaled $66.9 million. Historically, the
Company has been able to retain a significant amount of its deposits as they
mature. In addition, management of the Company believes that it can adjust the
offering rates of savings certificates to retain deposits in changing interest
rate environments.
The Bank is required to maintain specific amounts of capital pursuant
to the FDIC and the State of Washington requirements. As of September 30, 1999,
the Bank was in compliance with all regulatory capital requirements which were
effective as of such date with Tier 1 Capital to average assets, Tier 1 Capital
to risk-weighted assets and Total capital to risk-weighted assets of 10.21%,
14.41% and 15.38%, respectively.
Year 2000 Issues
The Year 2000 issue exists because many computer systems and
applications use two-digit date fields to designate a year. As the century date
change occurs, date-sensitive systems may recognize the Year 2000 as 1900, or
not at all. This inability to recognize or properly treat the Year 2000 may
cause systems to process financial and operational information incorrectly. The
Company has developed a plan and created a committee of the Board of Directors
to analyze how the Year 2000 will impact its operations and to monitor the
status of its vendors. The following guidelines identify the five steps provided
by The Federal Financial Institutions Examination Council ("FFIEC"):
Awareness Phase - Define the Year 2000 problem and establish a Year
2000 program team and overall strategy. The Company as of September 30, 1997 had
completed this step.
9
<PAGE>
Assessment Phase - Assess the size and complexity of the problem and
detail the magnitude of effort necessary to address Year 2000 issues, including
hardware, software, networks, automated teller machines, etc. This step was
completed by September 30, 1999.
Renovation Phase - This phase includes hardware and software upgrades
and system replacements. This step was 100% complete for in-house systems at
December 31, 1998. This phase also encompasses ongoing discussions with and
monitoring of outside servicers and third- party software providers.
Validation/Testing Phase - This process includes testing of hardware
and software components. Testing is completed by performing extensive tests with
the computer dates changed to January 1, 2, and 3, 2000. Such testing was
completed by June 30, 1999, with the most critical functions tested first. This
allows time to correct any discovered deficiencies before the end of 1999.
In-house systems and third party service bureaus were 100% tested as of March
31, 1999. The Company is either testing or reviewing test documents of
additional third party vendors that are deemed critical to the operations of the
Company. The validation phase was approximately 99% complete as of September 30,
1999 and will be ongoing until the Year 2000.
Implementation Phase - Systems successfully tested will be certified as
Year 2000 compliant. For any system failing validation testing, the business
impact must be assessed and a contingency plan implemented. This phase was
completed by June 30, 1999.
Critical data processing applications have been identified. These
include applications such as electronic processing through the Federal Reserve
Bank and ATM processing. Testing with Federal Reserve has been successfully
completed. All ATM machines have been upgraded and are now ready for Year 2000.
Contingency plans are also being developed by the committee. The contingency
plans address actions to be taken to continue operations in the event of system
failure due to areas that cannot be tested in advance, such as power service,
which are vital to business continuation. Contingency planning was completed by
June 30, 1999.
All new commercial and agricultural loans over $100,000 are assessed
for Year 2000 risk. Loans are then rated low, medium or high risk. A higher
reserve level will be maintained for medium and high-risk loans. All existing
commercial and agriculture loans over $100,000 have been rated: 1 loan rated at
the highest risk and 12 at medium risk.
The Bank has assessed its liquidity needs and believes there will be
adequate funds available from FHLB or the Portland Federal Reserve.
In June 1999, the Bank converted from a service bureau to an in-house
computer system. This system is a client/server system that was developed from
1992 to 1996 with Year 2000 compliance as a priority. Part of the conversion
process was to test the interfaces to outside vendors. The Bank has a complete
separate system set up solely for the purpose of Year 2000 testing. Test scripts
were run in June after the conversion. There were no problems with changing to
the Year 2000 test dates.
There can be no guarantee that the systems of other companies on which
the Bank's systems rely will be fully functional, or 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 Bank. However,
the Bank has tested for the Y2K preparedness of all internal functions and
external functions provided by third parties whenever possible and do not expect
to experience any significant failures. 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 Bank's data processing providers'
systems prove not to be Y2K compliant and the Bank is not able to switch to an
alternative provider in a timely manner, resulting computer malfunctions could
interrupt the operations of the Bank and have a significant adverse effect on
the Bank's financial condition and results of operations.
10
<PAGE>
FIRSTBANK NW CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceeding
There are no material legal proceedings to which the Company or the Savings
Bank is a party or of which any of their property is subject. From time to
time, the Savings Bank is a party to various legal proceedings incident to
its business.
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company ("Meeting") was held on
July 21, 1999. The results of the vote on the matters presented at the Meeting
is as follows:
1. The following individuals were elected as directors, each for a
three-year term:
Voted For Vote Withheld
James N. Marker 1,643,960 17,587
Robert S. Coleman, Sr. 1,643,960 17,587
The terms of Directors Steve R. Cox, Larry K. Moxley, William J.
Larson, W. Dean Jurgens, and Clyde E. Conklin continued after the
meeting.
2. The FirstBank Corp. resolution to change the Company's state of
incorporation from Delaware to Washington through the merger of the
Company with a newly formed wholly owned Washington subsidiary was
approved by stockholders by the following vote:
For 1,246,607; Against 14,341; Abstain 4,457
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Articles of Incorporation of the Registrant (1)
3.2 Bylaws of the Registrant (2)
10.1 Employment Agreement between FirstBank Northwest,
FirstBank Corp. and Clyde E. Conklin (3)
10.2 Employment Agreement between FirstBank Northwest,
FirstBank Corp. and Larry K. Moxley (4)
10.3 Salary Continuation Agreement between First Federal
Bank of Idaho, F.S.B. and Clyde E. Conklin (4)
10.4 Salary Continuation Agreement between First Federal
Bank of Idaho, F.S.B. and Larry K. Moxley (4)
10.5 1998 Stock Option Plan (5)
10.6 Management Recognition and Development Plan (5)
27 Financial Data Schedule
(1) Current report on form 8-K filed on September 2, 1999.
(2) Incorporated by reference to the Registrant's Annual Meeting
Proxy Statement dated June 15, 1999.
(3) Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended March 31, 1997.
11
<PAGE>
(4) Incorporated by reference to the Registrant's Registration
Statement on Form SB-2, (File No. 333-23395).
(5) Incorporated by reference to the Registrant's Annual Meeting
Proxy Statement dated June 15, 1998.
(b) Reports on Form 8-K
On September 2, 1999, the Company filed a Form 8-K
relating to changing its state of incorporation from Delaware
to Washington and changing its name to FirstBank NW Corp.
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.
FIRSTBANK NW CORP.
DATED: November 12, 1999 BY: /s/ CLYDE E. CONKLIN
------------------------------------------
Clyde E. Conklin
President and Chief Executive Officer
BY: /s/ LARRY K. MOXLEY
------------------------------------------
Larry K. Moxley
Secretary and Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Exhibit 27
Financial Data Schedule (in thousands)
This schedule contains financial information extracted from the consolidated
financial statements of FirstBank NW Corp. for the six months ended September
30, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
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<NAME> FirstBank Corp.
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