U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
[X] Quarterly report Pursuant to section 13 or 15(d) of the
Securities and Exchange act of 1934
For the quarter ended March 31, 1998
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities and Exchange act of 1934
For the transition period from ________ to ________
Commission file number
0-23881
COWLITZ BANCORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-152984
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
927 Commerce Ave., Longview, Washington 98632
(Address of principal executive offices) (Zip Code)
(360) 423-9800
(Registrant's telephone number, including area code)
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.
Yes_____ No__X__
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, no par value on April 30, 1998: 4,000,291
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Part I
Financial Statements
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income -
Three months ended March 31, 1998 and March 31, 1997 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and March 31, 1997 5
Consolidated Statements of Changes in Shareholders' Equity 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition
And Results of Operations 10
Part II
Other
Changes in Securities and Use of Proceeds 16
Signatures 17
</TABLE>
<PAGE>
COWLITZ BANCORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(in thousand of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks........................................... $ 38,291 $ 23,109
Investment securities:
Investments available-for-sale (at fair value, cost of
$6,994 and $3,993 at March 31, 1998 and December 31, 1997,
respectively)................................................ 7,010 4,017
Investments held-to-maturity (at amortized cost, fair value of
$4,983 and $4,486 at March 31, 1998 and December 31, 1997,
respectively)................................................ 4,961 4,464
--------- ---------
Total investment securities.................................. 11,971 8,481
--------- ---------
Loans............................................................. 132,068 131,963
Allowance for loan losses......................................... (1,958) (1,970)
--------- ---------
Loans, net..................................................... 130,110 129,993
--------- ---------
Premises and equipment, net of accumulated depreciation of $1,478
and $1,354 at March 31, 1998 and December 31, 1997,
respectively................................................... 5,651 5,653
Federal Home Loan Bank stock...................................... 2,711 2,658
Intangible asset, net of accumulated amortization of $192 and $123
at March 31, 1998 and December 31, 1997, respectively.......... 1,778 1,847
Other assets...................................................... 1,914 1,552
--------- ---------
Total assets................................................. $ 192,426 $ 173,293
========= =========
LIABILITIES
Deposits:
Demand......................................................... $ 31,743 $ 27,141
Savings and interest-bearing demand............................ 47,432 46,454
Certificates of deposit........................................ 60,583 62,614
--------- ---------
Total deposits............................................... 139,758 136,209
Short-term borrowings............................................. 1,175 725
Long-term borrowings.............................................. 21,386 21,900
Other liabilities................................................. 826 572
--------- ---------
Total liabilities............................................ $ 163,145 $159,406
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, no par value; 5,000,000 and no shares authorized as of March
31, 1998 and December 31, 1997, respectively; no shares issued and
outstanding at March 31, 1998 and
December 31, 1997, respectively................................ $ - $ -
Common stock, no par value; 25,000,000 and 3,937,500 authorized
as of March 31, 1998 and December 31, 1997, respectively;
3,999,796 and 2,604,543 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively............. 18,259 3,262
Additional paid in capital........................................ 1,538 1,538
Retained earnings................................................. 9,474 9,071
Net unrealized gains on investments available-for-sale............ 10 16
--------- ---------
Total shareholders' equity................................... 29,281 13,887
--------- ---------
Total liabilities and shareholders' equity................... $ 192,426 $ 173,293
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COWLITZ BANCORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(in thousand of dollars, except number of shares and per share amounts)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
--------- ---------
(unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans........................................ $ 3,344 $ 3,264
Interest on taxable investment securities......................... 195 145
Interest from other banks......................................... 242 185
--------- ---------
Total interest income.......................................... 3,781 3,594
--------- ---------
INTEREST EXPENSE
Savings and interest-bearing demand............................... 402 266
Certificates of deposit........................................... 899 1,135
Short-term borrowings............................................. 17 11
Long-term borrowings.............................................. 343 349
--------- ---------
Total interest expense......................................... 1,661 1,761
--------- ---------
Net interest income before provision for loan losses........... 2,120 1,833
PROVISION FOR LOAN LOSSES......................................... (106) (91)
--------- ---------
Net interest income after provision for loan losses............ 2,014 1,742
--------- ---------
NONINTEREST INCOME
Service charges on deposit accounts............................ 164 105
Other income................................................... 95 49
Net gains on sales of available-for-sale securities............ 5 -
--------- ---------
Total noninterest income..................................... 264 154
--------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits................................. 938 621
Net occupancy and equipment expense............................ 195 136
Other operating expense........................................ 486 359
--------- ---------
Total noninterest expense.................................... 1,619 1,116
--------- ---------
Income before income tax expense............................. 659 780
INCOME TAX EXPENSE................................................ 224 265
--------- ---------
Net income................................................... $ 435 $ 515
========= =========
BASIC EARNINGS PER SHARE.......................................... $ 0.15 $ 0.20
DILUTED EARNINGS PER SHARE........................................ $ 0.14 $ 0.20
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COWLTIZ BANCORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
--------- ---------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 435 $ 515
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization................................ 125 75
Provisions for loan losses................................... 106 91
Net amortization of investment security premiums and accretion
of discounts............................................... (1) (1)
(Increase) in other assets................................... (293) (676)
Increase in other liabilities................................ 254 101
Federal Home Loan Bank stock dividends....................... (53) (50)
--------- ---------
Net cash provided by operating activities................ 573 55
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities
held-to-maturity............................................. 694 788
Proceeds from sales of investment securities
available-for-sale........................................... 1,000 -
Purchases of investment securities:
Held-to-maturity............................................. (1,190) (987)
Available-for-sale........................................... (3,996) (1,993)
Net (increase) decrease in loans............................... (223) 60
Purchases of premises and equipment............................ (126) (311)
--------- ---------
Net cash (used in) provided by investment activities....... (3,841) (2,443)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand, savings, and interest-bearing
demand deposits.............................................. 5,580 6,517
Net increase (decrease) in certificates of deposit............. (2,031) (2,666)
Dividends paid................................................. (32) (27)
Net increase in short-term borrowings.......................... 450 200
Net proceeds (repayment) of long-term borrowings............... (514) (2,355)
Issuance of common stock for cash, net of amount paid for
fractional shares.......................................... 14,997 39
--------- ---------
Net cash provided by shares financing activities........... 18,450 1,708
--------- ---------
Net increase (decrease) in cash and due from banks......... 15,182 (680)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR...................... 23,109 20,905
--------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD.......................... $ 38,291 $ 20,225
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COWLITZ BANCORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Gains/losses
Additional on invest. Total
Common Stock Paid-in Retained available- Shareholders'
Shares Amount Capital Earnings for-sale Equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 2,590,403 $ 3,195 $ 1,538 $ 7,073 $ 7 $ 11,813
Issuance of common stock for cash.... 14,140 67 - - - 67
Net income........................... - - - 2,124 - 2,124
Cash dividend paid ($.0143 per share) - - - (126) - (126)
Net changes in unrealized gains on
investments available-for-sale, net
of deferred taxes of $5........... - - - - 9 9
---------- -------- -------- -------- ------ ---------
BALANCE AT DECEMBER 31, 1997........... 2,604,543 3,262 1,538 9,071 16 13,887
Issuance of common stock for cash.... 1,395,253 14,998 - - - 14,998
Net income........................... - - - 435 435
Cash dividends paid ($.0125 per share) - - - (32) - (32)
Net changes in unrealized gains on
investments available-for-sale, net
of deferred taxes of $4........... - - - - (6) (6)
Cash paid for fractional shares........ (1) - - - (1)
---------- --------- -------- -------- ------ ----------
BALANCE AT MARCH 31, 1998 3,999,796 $ 18,259 $ 1,538 $ 9,474 $ 10 $ 29,281
========= ======== ======= ========= ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations
Cowlitz Bancorporation (the Company) is a one bank holding company located
in Southwest Washington. The Company's wholly owned subsidiary, Cowlitz Bank
(the Bank), a Washington state-chartered commercial bank, is the only community
bank headquartered in Cowlitz County and offers commercial banking services
primarily to small and medium-sized businesses, professionals, and retail
customers.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiary, the Bank. All significant intercompany
transactions and balances have been eliminated.
The interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, including normal recurring accruals
necessary for fair presentation of results of operations for the interim periods
included herein have been made. The results of operations for the three months
ended March 31, 1998 are not necessarily indicative of results to be anticipated
for the year ending December 31, 1998.
3. Supplemental Cash Flow Information
For purposes of presentation in the statements of cash flows, cash and cash
equivalents are defined as those amounts in the balance sheet caption "Cash and
due from banks" and included cash on hand, amounts due from banks and federal
funds sold. Federal funds sold generally mature the day following purchase.
4. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
<PAGE>
5. Earnings Per Share
The following table reconciles the numerator and denominator of the basic
and diluted earnings per share computations:
<TABLE>
<CAPTION>
Weighted Per Share
Net Income Avg.Shares Amount
For the quarter ended March 31, 1998
<S> <C> <C> <C>
Basic earnings per share $ 435 2,844,440 $ .15
Stock Options 198,041
Diluted earnings per share $ 435 3,042,481 $ .14
</TABLE>
<TABLE>
<CAPTION>
For the quarter ended March 31, 1997
<S> <C> <C> <C>
Basic earnings per share $ 515 2,586,078 $ .20
Stock Options 0
Diluted earnings per share $ 515 2,586,078 $ .20
</TABLE>
For the periods reported the Company had no reconciling items between net
income and income available to common shareholders.
6. Recently Issued Accounting Standards
In February 1998, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 98 on computations of earnings per share. SAB No.
98, which was effective upon issuance, revised the SEC's guidance on the
treatment of stock options issued shortly before an Initial Public Offering
(IPO) in earnings per share calculations. Prior to the issuance of SAB No. 98,
the SEC required that stock options issued within one year of an IPO with
exercise prices below the IPO price be treated as outstanding for all reporting
periods for purposes of calculating earnings per share. The Company followed
this guidance for the stock options granted September 30, 1997 and, accordingly
treated the options as outstanding for all periods in computing both basic and
diluted earnings per share. SAB No. 98 now requires that only "nominal
issuances" of stock or stock options be reflected in all earnings per share
calculations for all periods presented. The Company's September 30, 1997, stock
options do not meet the SEC's definition of a nominal issuance. As required by
SAB No. 98, these stock options are now included in the calculation of diluted
earnings per share only for periods subsequent to their issuance on September
30, 1997, and are not included in the basic earnings per share calculation.
As required by SAB No. 98, the Company has restated its historical basic and
diluted earnings per share to conform with this new guidance. The following is a
summary of the historical and restated earnings per share amounts:
<TABLE>
<CAPTION>
March 31, 1997
Basic Diluted
<S> <C> <C>
Previously reported EPS... $ .17 $ .17
Restated EPS.............. $ .20 $ .20
</TABLE>
<PAGE>
7. Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income," for the quarter ending March 31, 1998. This
statement establishes standards for the reporting and display of comprehensive
income and it's components in the financial statements. For the Company,
comprehensive income includes net income reported on the statements of income
and changes in the fair value of it's available-for-sale investments reported as
a component of shareholders' equity. The following table presents net income
adjusted by the unrealized gains or losses on available-for-sale securities as a
component of comprehensive income:
<TABLE>
<CAPTION>
Three months ended
March 31
1998 1997
<S> <C> <C>
Net income......................... $ 435 $ 515
Net change in unrealized gain/loss
on available for sale securities. (6) 9
------ -----
Comprehensive income............... $ 429 $524
====== ====
</TABLE>
8. Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULT OF OPERATIONS
The following Management's discussion and Analysis of Financial Conditions
and Results of Operations includes a discussion of certain significant business
trends and uncertainties as well as certain forward-looking statements and is
intended to be read in conjunction with and is qualified in its entirety by
reference to the consolidated financial statement of the Company and
accompanying notes include elsewhere herein.
Results of Operations
Net Income
The Company's net income of $435,000 or $.14 per diluted share at March 31,
1998, reflects a decrease of 15.5% compared to net income of $515,000 or $.20
per diluted share at March 31, 1997. This decrease is a result of the Company's
business expansion in the third quarter of 1997, in which it opened a trust
department and acquired three Wells Fargo Bank branches located in Cowlitz
County. As discussed in footnote 6 to the interim financial statements, the
Company has restated earnings per share for the quarter ended March 31, 1997, as
required by the SEC's recently issued SAB No.98. Non-interest expense increased
for the first quarter of 1998, due to increased staff costs and amortization of
the core deposit premium associated with the Wells Fargo branch acquisition.
These increases resulted from the recent expansion of the Company. The diluted
earnings per share also reflects the addition of 1,380,000 shares on March 12,
1998 as a result of the Company's initial public offering.
Net Interest Income
For financial institutions, the primary component of earnings is net
interest income. Net interest income is the difference between interest income,
principally from loans and investment securities portfolios, and interest
expense, principally on customer deposits. Changes in net interest income result
from changes in "volume," "spread," and "margin." Volume refers to the dollar
level of interest-earning assets and interest-bearing liabilities. Spread refers
to the difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities. Net interest margin is the ratio of net interest
income to total interest-earning assets and is influenced by the level and
relative mix of interest-earning assets and interest-bearing liabilities.
Net interest income for the quarter ended March 31, 1998 was $2.1 million,
which was an increase of 15.7% from $1.8 million at March 31, 1997. One
component that contributed to this increase was the increase in average earning
assets, the largest element of which was an increase in the volume of loans. The
overall tax-equivalent earning asset yield of 9.51% at March 31, 1998 compared
to 9.67% at March 31, 1997. The lower yields were primarily attributable to
lower interest rates on loans due to current market conditions and increased
competition for loans in the Company's market area.
The average cost of interest bearing liabilities declined to 5.06% at March
31, 1998 compared to 5.38% at March 31, 1997. The Company has not aggressively
priced certain higher interest rate certificates of deposit since the
acquisition of the three former Wells Fargo branches.
<PAGE>
Analysis of Net Interest Income
The following table presents information regarding yields and interest
earning assets, expense on interest bearing liabilities, and net yields on
interest earning assets for periods indicated on a tax equivalent basis.
<TABLE>
<CAPTION>
Three Months Ended
(unaudited) March 31, Increase
(in thousands of dollars) 1998 1997 (Decrease) Change
------- ------- --------- ------
<S> <C> <C> <C> <C>
Interest income(1)................ $ 3,781 $ 3,594 $ 187 5.2 %
Interest expense................... 1,661 1,761 (100) (5.7)%
-------- --------- ----------
Net interest income................ $ 2,120 $ 1,833 $ 287 15.7 %
======== ========= ==========
Average interest earning assets.... $159,046 $ 148,717 10,329 6.9 %
Average interest bearing liabilities $131,359 $ 130,916 443 0.3 %
Average yields earned (2).......... 9.51% 9.67% (.16)
Average rates paid (2)............. 5.06% 5.38% (.32)
Net interest spread (2)............ 4.45% 4.29% .16
Net interest margin (2)............ 5.33% 4.93% .40
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.
(2) Ratios for the three months ended March 31, 1998 and 1997 have been
annualized.
</TABLE>
Market Risk
Interest rate risk and credit risks are the most significant market risks
impacting the Company's performance. The Company relies on loan reviews, prudent
loan underwriting standards and an adequate allowance for loan losses to
mitigate credit risk. Interest rate risk is managed through the monitoring of
the Company's gap position and sensitivity to interest rate risk by subjecting
the Company's balance sheet to hypothetical interest rate shocks. The Company's
primary objective in managing interest rate risk is to minimize the adverse
impact of changes in interest rates on the Company's net interest income and
capital, while structuring the Company's asset/liability position to obtain the
maximum yield-cost spread on that structure. Management has assessed these risks
and feels that there has been no material changes since December 31, 1997.
Provision for Loan Losses
The amount of the allowance for loan losses is analyzed by management on a
regular basis to ensure that it is sufficient to cover potential and future
losses. When a provision for loan losses is recorded, the amount is based on
past charge-off experience, a careful analysis of the current portfolio, the
level of nonperforming and impaired loans, evaluation of future economic trends
in the Company's market area, and other relevant factors related to the loan
portfolio. The Company's provision for loan losses was $106,000 and $91,000 for
the quarters ended March 31, 1998 and 1997, respectively. Net charge-offs for
the first quarter of 1998 were $118,000, compared to net charge-offs of $299,000
for the same period in 1997. Nonaccrual loans were $1.5 million at March 31,
1998 and $343,000 at March 31, 1997. The increase is the result of loans to four
borrowers with an aggregate principal balance of $1.2 million moved to
non-accrual status in the fourth quarter of 1997 and the first quarter of 1998.
Management continues to closely monitor the loan quality of new and existing
relationships.
<PAGE>
Non-Interest Income
Non-interest income, primarily consisting of service charges and related
fees, was $264,000 at March 31, 1998 and $154,000 in the corresponding period in
1997. As a result of the increase in the amount of deposits, service charges
have increased to $164,000 from $105,000 at March 31, 1998 compared to March 31,
1997. Other income has also increased to $95,000 from $49,000 in the first
quarter of 1998 compared to the first quarter of 1997 due to an increase in
office rental income.
Non-Interest Expense
Non-interest expense consists principally of employees' salaries and
benefits, occupancy costs, data processing and communication expenses, FDIC
(Federal Deposit Insurance Corporation) insurance premium, professional fees,
and other non-interest expenses. Non-interest expenses increased 45.1% to $1.6
million for the quarter ended March 31, 1998 compared to $1.1 million for the
quarter ended March 31, 1997, primarily due to increased staffing costs,
occupancy expense and amortization of the deposit premium from the acquisition
of three branches in July 1997.
Salaries and benefits expense of $938,000 at March 31, 1998 represents an
increase of $317,000 from $621,000 at March 31, 1997. At March 31, 1997 the
Company had 100 full-time equivalent employee compared to 70 at March 31, 1998.
Net occupancy expenses consist of depreciation on premises, lease costs and
equipment, maintenance and repair expenses, utilities and related expenses. The
Company's net occupancy expense at March 31, 1998 was $195,000 or 43.3% higher
than $136,000 at March 31, 1997. The increase in occupancy expense in 1998 was
due primarily to the addition of three branches purchased in the third quarter
of 1997.
Income Taxes
The provision for income taxes amounts to $224,000 and $265,000 at March
31, 1998 and 1997, respectively. The provision resulted in an effective tax rate
of 34% for both periods reported.
Loan Losses and Recoveries
At March 31, 1998 management considered the allowance for loan losses of $2.0
million sufficient to absorb possible losses on loans which may become
uncollectible based on evaluations by management. The amount of the allowance
for loan losses is assessed by management on a regular basis to ensure that it
is sufficient to cover potential losses. Percentages are assigned for each class
of specifically identified problem loans and then combined with an assessment of
the balance of the loan portfolio based upon historical charge-off experience to
arrive at a minimum, midpoint, and maximum range of potential loss in evaluating
the adequacy of the allowance for loan losses. The allowance balance and amount
of provision charged to operations is based primarily on management's evaluation
of the entire portfolio. This analysis includes review of the following factors:
the volume and mix of the existing loan portfolio, including volume and severity
of nonperforming loans and adversely classified credits, as well as analysis of
net charge-offs experienced on previously classified loans; the extent to which
loan renewals and extensions are used to maintain loans on a current basis and
the degree of risk associated with such loans; the nature and value of the
collateral securing the loan; the trend in loan growth, including any rapid
increase in loan volume within a relatively short period of time; general and
local economic conditions affecting the collectibility of the Company's loans;
the relationship and trend over the past several year of recoveries as a
percentage of previous years' charge-offs; and available outside information of
a comparable nature regarding the loan portfolios of other banks, including peer
group banks.
<PAGE>
The following table shows the Company's loan loss performance for the
periods indicated:
<TABLE>
<CAPTION>
(unaudited) March 31, December 31,
(in thousands of dollars) 1998 1997
--------- ----
<S> <C> <C>
Loans outstanding at end of period................................ $ 132,068 $ 131,963
Average loans outstanding during the period....................... $ 131,416 $ 130,362
Allowance for loan losses, beginning of period.................... $ 1,970 $ 1,894
Loans charged off:
Commercial..................................................... 124 186
Real Estate.................................................... - 3
Consumer....................................................... 2 23
Credit Cards................................................... 5 112
--------- ---------
Total loans charged-off...................................... 131 324
--------- ---------
Recoveries:
Commercial..................................................... 3 5
Real Estate.................................................... - -
Consumer....................................................... - 20
Credit Cards................................................... 10 -
--------- ---------
Total recoveries............................................. 13 25
--------- ---------
Provision for loan losses......................................... 106 375
--------- ---------
Allowance for loan losses, end of period.......................... $ 1,958 $ 1,970
========= =========
Ratio of net loans charged-off to average loans outstanding....... .09% .23%
Ratio of allowance for loan losses to loans at end of period...... 1.48% 1.49%
</TABLE>
Loans
Total loans outstanding were $132.1 million and $132.0 at March 31, 1998
and December 31, 1997, respectively. Loan commitments were $17.7 million at
March 31, 1998 and $16.6 million at December 31, 1997.
The following table presents the composition of the Company's loan
portfolio at the dates indicated:
<TABLE>
<CAPTION>
(unaudited) March 31, 1998 December 31, 1997
(in thousands of dollars) Amount Percentage Amount Percentage
------------------------- ----------------------
<S> <C> <C> <C> <C>
Commercial ................................. $ 98,328 74.1% $ 93,829 70.8%
Real estate construction.................... 2,766 2.1 3,495 2.6
Real estate commercial...................... 4,542 3.4 5,475 4.1
Real estate mortgage........................ 21,690 16.3 24,167 18.2
Consumer and other.......................... 5,319 4.0 5,571 4.2
Contracts purchased......................... 47 .1 81 .1
---------- -------- --------- -----
132,692 100.0% 132,618 100.0%
======== =====
Deferred loan fees.......................... (624) (655)
---------- ---------
Total loans............................ 132,068 131,963
Allowance for loan losses................... (1,958) (1,970)
---------- ---------
Total loans, net....................... $130,110 $ 129,993
========== =========
</TABLE>
<PAGE>
During its normal loan review procedures, the Company considers a loan to be
impaired when it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan agreement. A loan is
not considered to be impaired during a period of minimal delay (less than 90
days). The Company measures impaired loans based on the present value of
expected future cash flows discounted at the loan's effective interest rate, or
as a practical expedient, at the loan's observable market price or the fair
market value of the collateral if the loan is collateral dependent. Impaired
loans are charged to the allowance for loan losses when management believes
after considering economic and business conditions, collection efforts, and
collateral position, that the borrowers' financial condition is such that
collection of the principal is not probable.
Generally, no interest is accrued on loans when factors indicate collection
of the interest is doubtful or when the principal or interest payment becomes 90
days past due, unless collection of the principal and interest are anticipated
within a reasonable period of time and the loans are well secured. For such
loans, previously accrued but uncollected interest is charged against current
earnings, and income is only recognized to the extent payments are subsequently
received and the collection of the remaining recorded principal balance is
considered probable.
The Company manages the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in prudent
lending activities. The following table presents information with respect to
nonperforming assets:
<TABLE>
<CAPTION>
(unadited) March 31, December 31,
(in thousands of dollars) 1998 1997
--------- -----------
<S> <C> <C>
Loans on nonaccrual status 1,508 1,897
Loans past due greater than 90 days but not on nonaccrual status 478 432
Other real estate owned 321 88
Troubled debt restructuring - -
--------- ---------
Total nonperforming assets 2,307 2,417
========= =========
Percentage of nonperforming assets to total assets 1.20% 1.39%
</TABLE>
At March 31,1998 nonperforming assets loans were $2.3 million or 1.2% of
total assets. This reflects the nonaccrual status of four borrowers with a
aggregate balance of $1.2 million . Each of these loans is secured primarily by
real estate and management believes that in each case the value of the
collateral exceeds the principal balance of the loan. Management does not
believe that the company will incur any loss with respect to any of these four
borrowers.
Liquidity
Liquidity represents the ability to meet deposit withdrawals and fund loan
demand, while retaining the flexibility to take advantage of business
opportunities. The Company's primary sources of funds are customers deposits,
loan payments, sales of assets, advances from the FHLB (Federal Home Loan Bank)
and the use of the federal funds market. As of March 31, 1998, approximately
$1.0 million of the securities portfolio matures within one year.
On March 12, 1998, the Company completed an initial public offering issuing
a total of 1,380,000 shares of common stock at $12.00 per share. After
underwriting discounts of $1.2 million and other offering expenses of $483,000
net proceeds were $14.9 million. Of these proceeds $146,000 has been used to
repay long-term debt and on April 27, 1998 $1.0 million was used to repay a
subordinated note. The remainder of the proceeds will be used for acquisitions
and other business opportunities.
<PAGE>
Historically the Company has utilized borrowings from the FHLB as an
important source of funding for its growth. The Company has an established
borrowing line with the FHLB that permits it to borrow up to 25% of assets.
Advances from the FHLB have terms ranging from 1 through 15 years and at March
31, 1998 bear interest at rates from 4.48% to 8.62%. At March 31, 1998, $20.3
million in advances were outstanding from the FHLB and the Company had
additional borrowing capacity for cash advances of $27.8 million. Due to the
acquisition of three branches and the cash on deposit with the bank from the
initial public offering in March 1998 the need for FHLB borrowings has
decreased. The Company may increase its percentage of borrowings from the FHLB
in the future if circumstances warrant.
Capital
The Company is required to maintain minimum amounts of capital to "risk
weighted" assets, as defined by banking regulators. The Company is required to
have Tier 1 and Total Capital ratios of 4.0% and 8.0%, respectively. At March
31, 1998, the Company's ratios were 21.73% and 23.30%, respectively. At December
31, 1997, the company's ratios were 9.6% and 11.34%, respectively. The ratio of
average shareholders' equity to average assets was 15.90% and 7.69% at March 31,
1998 and December 31, 1997, respectively. March 31, 1998 ratios are
significantly higher than those at December 31, 1997 due to the initial public
offering on March 12, 1998 in which $14.9 million was raised in additional
capital.
<PAGE>
Part II. Other Information
Item 2
Changes in Securities and Use of Proceeds
On March 12, 1998, the Company completed an initial public offering issuing
a total of 1,380,000 shares of common stock at $12.00 per share. After
underwriting discounts of $1.2 million and other offering expenses of $483,000
net proceeds were $14.9 million. The managing underwriters were Black & Company,
Inc. and Pacific Crest Securities, Inc. Of these proceeds $146,000 has been used
to repay long-term debt. On March 24, 1998 the company called $1.0 million in
subordinated notes which bear interest at 8.5% per annum, which was paid on
April 27,1998. The remainder of the proceeds has been invested in an interest
bearing account at FHLB, Seattle.
<PAGE>
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cowlitz Bancorporation
(Registrant)
/s/ Charles W. Jarrett
Dated: May 13, 1998 ______________________________________
Charles W. Jarrett
President and Chief Operating Officer
/s/ Donna P. Gardner
Dated: May 13, 1998 _______________________________________
Donna P. Gardner
Vice-President/Secretary-Treasurer
