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 December 31, 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)
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 1,633,535 shares
outstanding on February 10, 2000.
Transitional Small Business Disclosure Format (check one):
[ ] Yes [X] No
<PAGE>
FIRSTBANK NW CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Statements of Financial Condition
As of December 31, 1999 and March 31, 1999 1
Consolidated Statements of Income
For the three months and nine months ended
December 31, 1999 and 1998 2
Consolidated Statements of Cash Flows
For the nine months ended December 31, 1999 and 1998 3
Consolidated Statements of Comprehensive Income
For the three months and nine months ended
December 31, 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 - 11
Item 3. Quantitative And Qualitative Disclosures About Market Risk
Market Risk 12
Interest Rate Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
<CAPTION>
FirstBank NW Corp. and Subsidiaries
Consolidated Statements of Financial Condition
At December 31, At March 31,
1999 1999
--------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Non-interest bearing deposits $ 8,404,219 $ 4,724,214
Interest bearing deposits 2,794,497 1,502,672
Federal funds sold 4,088,171 2,308,776
------------- -------------
Total cash and cash equivalents 15,286,887 8,535,662
Investment securities:
Held-to-maturity -- 700,000
Available-for-sale 11,327,231 6,535,812
Mortgage-backed securities:
Held-to-maturity 2,527,897 2,738,545
Available-for-sale 19,161,412 10,134,850
Loans receivable, net 180,999,367 165,617,367
Accrued interest receivable 1,903,605 1,610,676
Real estate owned 49,997 298,713
Stock in FHLB, at cost 3,585,975 2,501,975
Premises and equipment, net 6,268,211 5,328,788
Income taxes receivable 143,630 25,431
Deferred taxes 19,910 --
Cash surrender value of life insurance policies 1,644,221 1,586,210
Mortgage servicing assets 929,087 900,271
Other assets 600,304 230,786
------------- -------------
TOTAL ASSETS $ 244,447,734 $ 206,745,086
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 145,635,776 $ 133,278,136
Advances from borrowers for taxes and insurance 1,129,175 1,427,915
Advances from FHLB 70,427,106 42,027,106
Deferred federal and state income taxes -- 421,000
Accrued expenses and other liabilities 1,489,120 1,816,435
------------- -------------
Total Liabilities 218,681,177 178,970,592
------------- -------------
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; 1,648,535 and
1,839,559 shares outstanding 19,838 19,838
Additional paid-in-capital 18,751,017 18,720,476
Retained earnings, substantially restricted 14,816,552 13,907,562
Unearned ESOP shares (1,279,070) (1,384,070)
Deferred compensation (919,984) (1,108,162)
Treasury stock, at cost; 335,215 and 144,191 shares (4,995,912) (2,333,706)
Accumulated comprehensive loss: (625,884) (47,444)
------------- -------------
Total Stockholders' Equity 25,766,557 27,774,494
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 244,447,734 $ 206,745,086
============= =============
See accompanying notes to consolidated financial statements
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FirstBank NW Corp. and Subsidiaries
Consolidated Statements of Income
Three months ended December 31, Nine months ended December 31,
1999 1998 1999 1998
---------- ----------- ------------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $3,725,092 $ 3,319,508 $ 11,135,319$ $ 9,975,949
Mortgage-backed securities 306,898 143,422 644,798 473,360
Investment securities 108,401 77,144 277,193 216,054
Other interest earning assets 145,420 229,148 435,447 607,257
---------- ----------- ------------- -----------
Total interest income 4,285,811 3,769,222 12,492,757 11,272,620
Interest expense:
Deposits 1,463,252 1,242,906 4,023,378 3,698,448
Advances from FHLB 673,881 609,078 2,054,840 1,771,494
---------- ----------- ------------- -----------
Total interest expense 2,137,133 1,851,984 6,078,218 5,469,942
Net interest income 2,148,678 1,971,238 6,414,539 5,802,678
Provision for loan losses 5,348 64,645 218,896 265,413
---------- ----------- ------------- -----------
Net interest income after provision
for loan losses 2,143,330 1,852,593 6,201,643 5,537,265
Non-interest income:
Gain on sale of loans 259,289 490,273 878,296 1,328,719
Service fees and charges 321,382 340,298 930,143 924,851
Commissions and other 29,515 62,930 75,717 123,119
---------- ----------- ------------- -----------
Total non-interest income 610,186 893,501 1,884,156 2,376,689
Non-interest expense:
Compensation and related benefits 1,184,497 1,101,528 3,545,841 3,084,348
Occupancy 308,290 208,923 836,404 641,873
Other 559,833 607,009 1,795,977 1,873,751
---------- ----------- ------------- -----------
Total non-interest expense 2,052,620 1,917,460 6,178,222 5,599,972
---------- ----------- ------------- -----------
Income before income tax expense 700,896 828,634 1,907,577 2,313,982
Income tax expense 193,657 284,847 585,030 824,426
---------- ----------- ------------- -----------
Net income $ 507,239 $ 543,787 $ 1,322,547 $ 1,489,556
========== =========== ============= ===========
Earnings per share (Note 2):
Net income per share -basic $ 0.33 $ 0.32 $ 0.85 $ 0.84
Net income per share -diluted $ 0.32 $ 0.30 $ 0.81 $ 0.82
Weighted average shares outstanding -basic 1,528,378 1,712,730 1,564,120 1,777,171
Weighted average shares outstanding -diluted 1,591,858 1,795,194 1,629,801 1,812,500
See accompanying notes to consolidated financial statements
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FirstBank NW Corp. and Subsidiaries,
Consolidated Statements of Cash Flows
Nine months ended December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,322,547 $ 1,489,556
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 647,964 426,430
Provision for loan losses 218,896 265,413
Gain on sale of loans (878,296) (1,328,719)
FHLB stock dividends (165,200) (130,000)
ESOP compensation expense 135,541 205,166
Other losses, net 16,392 51,393
Provision for real estate owned -- 57,533
Deferred compensation expense 386,166 107,005
Deferred income taxes (22,643) 106,185
Changes in assets and liabilities:
Accrued interest receivable and other assets (691,264) (639,260)
Accrued expenses and other liabilities (563,787) (34,086)
Income taxes receivable (payable) (79,715) 387,516
------------- ------------
Net cash provided by operating activities 326,601 964,132
------------- ------------
Cash flows from investing activities:
Purchase of mortgage-backed securities; available-for-sale (11,696,741) (3,707,447)
Proceeds from maturities of mortgage-backed securities; held-to-maturity 901,775 3,841,234
Proceeds from maturities of mortgage-backed securities; available-for-sale 2,120,165 --
Purchase of investment securities; available for sale (5,383,646) (3,207,122)
Proceeds from maturities of investment securities; held-to-maturity -- 1,249,375
Decrease in loans receivable from loans sold 69,763,573 80,159,796
Other net change in loans receivable (84,510,295) (94,895,452)
Purchase of FHLB stock (918,800) (215,100)
Purchases of premises and equipment (1,432,205) (444,637)
Net increase in cash surrender value of life insurance policies (58,011) (167,127)
Proceeds from sale of real estate owned 255,672 898,734
Proceeds from maturities of certificates of deposit -- 991,000
Proceeds from sale of fixed assets -- 279,519
------------- ------------
Net cash used in investing activities (30,958,513) (15,217,227)
------------- ------------
Cash flows from financing activities:
Cash paid for dividends (413,557) (442,079)
Net increase in deposits 12,357,640 14,241,016
Advances from borrowers for taxes and insurance (298,740) (540,747)
Advances from FHLB 312,125,168 70,308,334
Payments on advances from FHLB (283,725,168) (62,161,807)
Purchase of treasury stock (2,662,206) (3,257,301)
------------- ------------
Net cash provided by financing activities 37,383,137 18,147,416
------------- ------------
Net increase in cash and cash equivalents 6,751,225 3,894,321
Cash and cash equivalents, beginning of period 8,535,662 8,416,820
------------- ------------
Cash and cash equivalents, end of period $ 15,286,887 $ 12,311,141
============= ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,022,346 $ 5,501,438
Income taxes $ 666,654 $ 539,861
Noncash investing and financing activities:
Unrealized (gains) losses on securities; available-for-sale, net of tax $ 578,440 $ (4,745)
Loans receivable charged to the allowance for loan losses $ 25,986 $ 29,576
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FirstBank NW Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
Three months ended December 31, Nine months ended December 31,
1999 1998 1999 1998
--------- -------- --------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Net income $ 507,239 $543,787 $1,322,547 $1,489,556
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on securities;
available-for-sale, net of tax (251,040) (27,576) (578,440) 4,745
--------- -------- ---------- ----------
Net other comprehensive income (loss) (251,040) (27,576) (578,440) 4,745
--------- -------- ---------- ----------
Comprehensive income $ 256,199 $516,211 $ 744,107 $1,494,301
========= ======== ========== ==========
See accompanying notes to consolidated financial statements
4
</TABLE>
<PAGE>
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 nine months ended
December 31, 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 nine months ended December 31, 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 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:
<TABLE>
<CAPTION>
For the Three Months Ended 12/31/99 For the Nine Months Ended 12/31/99
----------------------------------- ----------------------------------
Weighted- Per-Share Weighted- Per-Share
Net Income Average Shares Amount Net Income Average Shares Amount
---------- -------------- --------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to common
stockholders $507,239 1,528,378 $ 0.33 $1,322,547 1,564,120 $0.85
====== =====
Effect of dilutive securities:
Restricted stock awards -- 63,480 -- 65,681
-------- --------- ---------- ---------
Diluted EPS:
Income available to common
stockholders - assumed
conversions $507,239 1,591,858 $ 0.32 $1,322,547 1,629,801 $0.81
======== ========= ====== ========== ========= =====
For the Three Months Ended 12/31/98 For the Nine Months Ended 12/31/98
----------------------------------- ----------------------------------
Weighted- Per-Share Weighted- Per-Share
Net Income Average Shares Amount Net Income Average Shares Amount
---------- -------------- --------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to common
stockholders $543,787 1,712,591 $ 0.32 $1,489,556 1,777,424 $0.84
====== =====
Effect of dilutive securities:
Restricted stock awards -- 82,603 -- 35,076
-------- --------- ---------- ---------
Diluted EPS:
Income available to common
stockholders - assumed
conversions $543,787 1,795,194 $ 0.30 $1,489,556 1,812,500 $0.82
======== ========= ====== ========== =========== =====
</TABLE>
At December 31, 1999, outstanding options to purchase 170,200 shares of the
Company's common stock were not included in the computation of diluted EPS as
their effect would have been antidilutive.
5
<PAGE>
(3) DIVIDEND
On October 21, 1999, the Board of Directors declared a cash dividend of $0.09
per common share to shareholders of record as of November 18, 1999. The dividend
was paid on December 2, 1999. On January 20, 2000, the Board of Directors
declared another cash dividend of $0.09 per common share to shareholders of
record as of February 11, 2000. This dividend will be paid on February 25, 2000.
6
<PAGE>
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 January 1998, the Bank changed its charter to a Washington state
savings bank. The Bank has six offices in Idaho and two in Washington.
On November 18, 1999, the Company opened 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 is the eighth retail branch
for the Company, the second in Washington State, and employs six individuals,
including one loan officer. The annual lease expense for the land is $30,000.
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.
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 seventh 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 DECEMBER 31, 1999 AND MARCH 31, 1999
Assets increased from $206.8 million at March 31, 1999 to $244.4 million at
December 31, 1999. Cash and cash equivalents increased from $8.5 million at
March 31, 1999 to $15.3 million at December 31, 1999 as a result of anticipation
of customer cash withdrawn for the Year 2000 concerns. Loans receivable
increased from $165.6 million at March 31, 1999 to $181.0 million at December
31, 1999 as a result of an increase in commercial loans of $8.2 million,
agricultural operating lending of $4.3 million and home equity loans of $4.2
million. Accrued interest receivable increased from $1.6 million at March 31,
1999 to $1.9 million at December 31, 1999 due to a higher average asset base in
securities and loans. Deposits increased from $133.3 million at March 31, 1999
to $145.6 million at December 31, 1999 as a result of a $6.4 million increase in
money market accounts. Federal Home Loan Bank of Seattle (FHLB) advances
increased from $42.0 million at March 31, 1999 to $70.4 million at December 31,
1999. The increase in FHLB borrowing was used to fund investment growth and
cover increased cash demand due to Year 2000. Accrued expenses and other
liabilities decreased from $1.8 million at March 31, 1999 to $1.5 million at
December 31, 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 $533,000 at December 31, 1999.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
Net income decreased from $544,000 for the three months ended December 31, 1998
to $507,000 for the three months ended December 31, 1999.
7
<PAGE>
Net interest income increased from $2.0 million for the three months ended
December 31, 1998 to $2.1 million for the three months ended December 31, 1999.
Total interest income increased from $3.8 million for the three months ended
December 31, 1998 to $4.3 million for three months ended December 31, 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 8.53% for the three months ended December 31, 1998 compared to the
weighted average yield for the three months ended December 31, 1999 of 8.46%.
The average balance of loans receivable was $156.9 million in the third quarter
of 1998 compared to $177.0 million in the third quarter of 1999. Interest income
from investment securities increased from $77,000 for the three months ended
December 31, 1998 to $108,000 for the three months ended December 31, 1999. The
increase is primarily due to an increase in the portfolio balance. Interest
income from mortgage-backed securities increased from $143,000 for the three
months ended December 31, 1998 to $307,000 for the three months ended December
31, 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 December
31, 1998 to $2.1 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 an increase in weighted average rates. The weighted
average rate on deposits for the three months ended December 31, 1999 was 3.80%
whereas the weighted average rate on deposits as of December 31, 1998 was 3.92%.
The weighted average rate on FHLB advances for the three months ended December
31, 1999 was 5.73%, whereas the weighted average rate on FHLB advances as of
December 31, 1998 was 5.59%.
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 decreased from $65,000 for the three months ended
December 31, 1998 to $5,000 for the three months ended December 31, 1999.
Non-interest income decreased from $894,000 for the three months ended December
31, 1998 to $610,000 for the three months ended December 31, 1999. The primary
reason for the decrease is the income from gain on said of loans, which
decreased $231,000.
Non-interest expense increased from $1.9 million for the three months ended
December 31, 1998 to $2.1 million for the three months ended December 31, 1999.
The increase in compensation and other related expenses of $82,000 is caused by
additional staff for new branches.
Income taxes decreased from an expense of $285,000 for the three months ended
December 31, 1998 to expense of $194,000 for the same time period in 1999 due to
recognition of an investment tax credit for capital improvements, an increase in
non-taxable income and a decrease in income before income tax expense.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
Net income decreased from $1.5 million for the nine months ended December 31,
1998 to $1.3 million for the nine months ended December 31, 1999.
Net interest income increased from $5.8 million for the nine months ended
December 31, 1998 to $6.4 million for the nine months ended December 31, 1999.
Total interest income increased from $11.3 million for the nine months ended
December 31, 1998 to $12.5 million for nine months ended December 31, 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 8.38% for
the nine months ended December 31, 1998 compared to the weighted average yield
for the nine months ended December 31, 1999 of 8.11%. The average balance for
loans receivable was $153.9 million during the nine months ended December 31,
1998 compared to the nine months ended December 31, 1999 average balance of
$176.0 million. Interest income from investment securities increased from
$216,000 for the nine months ended December 31, 1998 to $277,000 for the nine
months ended December 31, 1999. The increase is primarily due to an increase in
the portfolio balance. Interest income from mortgage-backed securities increased
from 473,000 for the nine months ended December 31, 1998 to $645,000 for the
nine months ended December 31, 1999. The increase is due primarily to a higher
average balance. Interest expense increased from $5.5 million for the nine
months ended December 31, 1998 to $6.1 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 an increase in weighted
average rates. The weighted average rate on deposits for the nine months ended
December 31, 1999 was 3.77%, whereas the weighted average rate on deposits for
the nine months ended December 31, 1998 was 4.09%. The weighted average rate on
FHLB advances for the nine months ended December 31, 1999 was 5.52%, whereas the
weighted average rate on FHLB advances for the nine months ended December 31,
1998 was 5.74%.
Provision for loan losses is based upon management's consideration of economic
conditions which may affect the ability of borrowers to repay the loans.
8
<PAGE>
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 decreased from $265,000 for the nine months ended
December 31, 1998 to 219,000 for the nine months ended December 31, 1999.
Non-interest income decreased from $2.4 million for the nine months ended
December 31, 1998 to $1.9 million for the nine months ended December 31, 1999.
The primary reason for the decrease is the gain on sale of loans decreased
$450,000 due to a decrease in mortgage loan volume.
Non-interest expense increased from $5.6 million for the nine months ended
December 31, 1998 to $6.2 million for the nine months ended December 31, 1999.
The increase in compensation and other related expenses of $462,000 is caused by
additional staff for new branches. Other expenses that increased were occupancy
expenses, increasing by $194,000 associated with opening new facilities.
Income taxes decreased from an expense of $824,000 for the nine months ended
December 31, 1998 to an expense of $585,000 for the same time period in 1999 due
to a decrease in income before income tax expense and investments in tax free
assets.
9
<PAGE>
Average Balances, Interest and Average Yields/Costs
The following table sets forth certain information for the years indicated
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities and average tax effected yields
and costs. Such yields and costs for the years indicated are derived by dividing
tax effected income or expense by the average monthly balance of assets or
liabilities, respectively, for the years presented. Average balances are derived
from month-end balances. Management does not believe that the use of month-end
balances instead of daily balances has caused any material difference in the
information presented.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1999
-------------- -----------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ------- ------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $155,860 $13,315 8.64% $176,030 $11,135 8.48%
Mortgage-backed securities 11,111 623 5.61 14,080 645 6.11
Investment securities 6,816 302 6.22 7,529 277 6.78
Other earning assets 9,972 721 7.23 10,646 435 5.45
-------- ------- -------- -------
Total interest-earning assets 183,759 14,961 8.29 208,285 12,492 8.11
Non-interest-earning assets 13,067 14,040
-------- --------
Total assets $196,826 $222,325
======== ========
Interest-earning liabilities:
Passbook, NOW and money
market accounts 46,749 877 1.88 61,904 928 2.00
Certificates of deposit 76,107 3,993 5.25 80,341 3,095 5.14
-------- ------- -------- -------
Total deposits 122,856 4,870 3.96 142,245 4,023 3.77
Advances from FHLB 41,107 2,353 5.72 49,655 2,055 5.52
-------- ------- -------- -------
Total interest-bearing
Liabilities 163,963 7,223 4.41 191,900 6,078 4.22
------- -------
Non-interest-bearing
Liabilities 3,574 3,298
-------- --------
Total liabilities 167,537 195,198
-------- --------
Total stockholders' equity 29,289 27,127
-------- --------
Total liabilities and
total stockholders' equity $196,826 $222,325
======== ========
Net interest income $ 7,738 $ 6,414
======= =======
Interest rate spread 3.88% 3.89%
======= =======
Net interest margin 4.36% 4.22%
======= =======
Ratio of average interest-
earning assets to average
interest- bearing liabilities 112.07% 108.54%
======= =======
10
</TABLE>
<PAGE>
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 December 31, 1999, cash and
cash equivalents totaled $15.3 million, or 6.26% 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
$70.4 million at December 31, 1999. The Company also maintains a credit facility
with the Portland Federal Reserve and a Fed Funds Line of Credit with First
Security Bank.
The primary investing activity of the Company is the origination of loans.
During the quarters ended December 31, 1998 and 1999, the Company originated
loans in the amounts of $136.8 million and $104.3 million, respectively. At
December 31, 1999, the Company had loan commitments totaling $12.3 million,
undisbursed lines of credit totaling $15.5 million, and undisbursed loans in
process totaling $3.0 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
December 31, 1999 totaled $62.0 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 December 31, 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 10.14%, 13.81%
and 14.73%, respectively.
Year 2000 Issues
The Year 2000 issue has posed business risks to most business organizations,
including the Company. In response, the Company formed a Year 2000 project team,
consisting of senior officers within the Company's operations, information
systems, financial and management areas, to ensure that the Company attained
Year 2000 compliance. All data sensitive systems were evaluated for Year 2000
compliance, with complete upgrading and testing of systems completed well in
advance of the Year 2000 date change. The Company also developed contingency
plans for its computer processes, including the use of alternative systems and
the manual processing of certain critical operations. In addition, the Company
had undertaken extensive efforts to ensure that significant vendor and customer
relationships are Year 2000 compliant. The Company's management is pleased, but
not surprised, that business continued as normal without adverse impact to the
Company during the critical date change, however at this time, management cannot
provide assurances that the Year 2000 issue will not have an impact on the
Company's operations. The Company estimates that its total Year 2000 compliance
costs have aggregated approximately $70,000. In addition to the estimated costs
of its Year 2000 compliance, the Company routinely makes annual investments in
technology in its efforts to improve customer service and to efficiently manage
its product and service delivery systems.
11
<PAGE>
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market rates/prices such as interest rates, foreign currency exchange
rates, commodity prices, and equity prices. The Company's primary market risk
exposure is interest rate risk. The on-going monitoring and management of the
risk is an important component of the Company's asset/liability management
process, which is governed by policies established by its Board of Directors
that are reviewed and approved annually. The Board of Directors delegates
responsibility for carrying out the asset/liability management policies to the
Asset/Liability Committee ("ALCO"). In this capacity ALCO develops guidelines
and strategies impacting the Company's asset/liability management related
activities based upon estimated market risk sensitivity, policy limits and
overall market interest rate levels/trends.
Interest Rate Risk
Interest rate risk represents the sensitivity of earnings to changes in market
interest rates. As interest rates change the interest income and expense streams
associated with the Company's financial instruments also change thereby
impacting net interest income ("NII"), the primary component of the Company's
earnings. ALCO utilizes the results of a detailed and dynamic simulation model
to quantify the estimated exposure of NII to sustained interest rate changes.
While ALCO routinely monitors simulated NII sensitivity over a rolling two-year
horizon, it also utilizes additional tools to monitor potential longer-term
interest rate risk.
The simulation model captures the impact of changing interest rates on the
interest income received and interest expense paid on all assets and liabilities
reflected on the Company's balance sheet as well as for off balance sheet
derivative financial instruments, if any. This sensitivity analysis is compared
to ALCO policy limits which specify a maximum tolerance level for NII exposure
over a one year horizon, assuming no balance sheet growth, given both a 200
basis point (bp) upward and downward shift in interest rates. A parallel and pro
rata shift in rates over a 12 month period is assumed. The following reflects
the Company's NII sensitivity analysis as of December 31, 1999 as compared to
the 10.00% Board approved policy limit.
-200 BP Flat +200 BP
------- ---- -------
(Dollars in Thousands)
Year 1 NII $9,399 $9,246 $ 8,914
NII $ Change $ 153 -- $ (332)
NII % Change 1.65% -- -3.59%
The preceding sensitivity analysis does not represent a Company
forecast and should not be relied upon as being indicative of expected future
operating results. These hypothetical estimates are based upon numerous
assumptions including: the nature and timing of interest rate levels including
yield curve shape, prepayments on loans and securities, deposit decay rates,
pricing decisions on loans and deposits, reinvestment/replacement of asset and
liability cash flows, and others. While assumptions are developed based upon
current economic and local market conditions, the Company cannot make any
assurances as to the predictive nature of these assumptions including how
customer preferences or competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity
analysis, actual results will also differ due to: prepayment/refinancing levels
likely deviating from those assumed, the varying impact of interest rate change
caps or floors on adjustable rate assets, the potential effect of changing debt
service levels on customers with adjustable rate loans, depositor early
withdrawals and product preference changes, and other internal/external
variables. Furthermore, the sensitivity analysis does not reflect actions that
ALCO might take in responding to or anticipating changes in interest rates.
12
<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
None
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.
(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; No reports on Form 8-K have been filed during
the quarter for which this report is filed.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRSTBANK NW CORP.
DATED: February 10, 2000 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
14
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the consolidated
financial statements of FirstBank NW Corp. for the nine months ended December
31, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001035513
<NAME> FirstBank Corp.
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<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
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<CASH> 15,287
<INT-BEARING-DEPOSITS> 4,088
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<TRADING-ASSETS> 0
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<LOANS> 180,999
<ALLOWANCE> 1,548
<TOTAL-ASSETS> 244,448
<DEPOSITS> 145,636
<SHORT-TERM> 48,526
<LIABILITIES-OTHER> 2,618
<LONG-TERM> 21,901
0
0
<COMMON> 20
<OTHER-SE> 25,747
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<EXTRAORDINARY> 0
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<NET-INCOME> 1,323
<EPS-BASIC> 0.85
<EPS-DILUTED> 0.81
<YIELD-ACTUAL> 2.84
<LOANS-NON> 533
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</TABLE>
