FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended. . . . . . . . June 30, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from --------------- to ---------------
Commission File Number 0-26584
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1691604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 S. First Avenue Walla Walla, Washington 99362
(Address of principal executive offices and zip code)
(509) 527-3636
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of class: As of July 31, 1996
Common stock, $.01 par value 10,474,200 shares *
* Includes 824,195 shares held by employee stock ownership plan that
have not been released, committed to be released, or allocated to participant
accounts.
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First Savings Bank of Washington Bancorp, Inc. and Subsidiaries
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements. The Consolidated Financial Statements of First
Savings Bank of Washington Bancorp, Inc. and Subsidiaries filed as a part of
the report are as follows:
Consolidated Statements of Financial Condition
as of June 30, 1996 and March 31, 1996 . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income
for the quarter ended June 30, 1996 and 1995 . . . . . . . . . . . . . 2
Consolidated Statements of Changes in Stockholders Equity
for the quarter ended June 30, 1996 and 1995. . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows
for the quarter ended June 30, 1996 and 1995. . . . . . . . . . . . . 4
Selected Notes to Consolidated Financial Statements. . . . . . . . . . 6
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operation
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Recent Developments and Significant Events . . . . . . . . . . . . . . 8
Comparison of Financial Condition at June 30 and March 31, 1996. . . . 8
Comparison of Operating Results for the Quarter ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 9
Asset Quality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . 12
Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . 14
Item 3. Defaults upon Senior Securities. . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Stockholders. . . . . . . . 14
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBIT 27- FINANCIAL DATA SCHEDULE. . . . . . . . . . . . . . . . . . 16
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FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands except for shares)
June 30, 1996 and March 31, 1996
(Unaudited)
ASSETS June 30 March 31
1996 1996
------- --------
CASH AND DUE FROM BANKS $ 8,406 $ 9,026
SECURITIES AVAILABLE FOR SALE,
cost $283,510 and $290,515 283,603 291,687
SECURITIES HELD TO MATURITY,
fair value $1,966 and $2,059 1,966 2,059
LOANS RECEIVABLE HELD FOR SALE,
fair value $1,196 and $1,558 1,196 1,558
LOANS RECEIVABLE, net of the allowance for
losses of $4,434 and $4,051 443,110 413,737
ACCRUED INTEREST RECEIVABLE 4,557 4,627
REAL ESTATE HELD FOR SALE, net 798 712
FEDERAL HOME LOAN BANK STOCK 10,368 9,030
PROPERTY AND EQUIPMENT, net 6,489 6,582
DEFERRED INCOME TAX ASSET 240 240
OTHER ASSETS 3,952 3,918
------- --------
$ 764,685 $ 743,176
LIABILITIES AND EQUITY
DEPOSITS:
Interest bearing $ 370,673 $ 367,248
Non-interest bearing 4,670 6,816
------- --------
375,343 374,064
ADVANCES FROM FEDERAL HOME LOAN BANK 210,507 179,419
OTHER BORROWINGS 18,644 19,652
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 1,604 3,563
ACCRUED EXPENSES AND OTHER LIABILITIES 7,200 8,319
DEFERRED COMPENSATION 1,851 1,618
FEDERAL INCOME TAXES PAYABLE 696 2,399
------- --------
615,845 589,034
STOCKHOLDERS' EQUITY:
Preferred stock - $0.01 par value, 500,000
shares authorized, no shares issued
Common stock - $0.01 par value, 25,000,000 shares
authorized, 10,910,625 shares issued; 9,650,005
shares and 10,077,498 shares outstanding &
unrestricted at June 30, 1996 and March 31,
1996 respectively 109 109
Additional paid - in capital 107,411 107,370
Retained earnings 57,254 55,343
Unrealized gain on securities held for sale 61 774
Unearned shares of common stock issued to employee
stock ownership plan trust 824,195 and 833,127
shares outstanding but restricted at June 30,
1996 and March 31,1996, respectively (8,242) (8,331)
Treasury stock; 436,425 shares at June 30, 1996
and none at March 31, 1996 (6,430) --
Shares held in trust for deferred compensation plans (1,323) (1,123)
------- --------
148,840 154,142
------- --------
$ 764,685 $ 743,176
======= =======
1
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FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (in thousands)
(Unaudited)
Quarter
Ended June 30
1996 1995
------ ------
INTEREST INCOME:
Loans receivable $ 8,932 $ 6,279
Mortgage-backed obligations 3,112 1,517
Securities and deposits 1,741 1,374
------ ------
13,785 9,170
INTEREST EXPENSE:
Deposits 4,627 4,469
Federal Home Loan Bank advances 2,643 988
Other borrowings 296 109
------ ------
7,566 5,566
Net interest income before
provision for loan losses 6,219 3,604
PROVISION FOR LOAN LOSSES 513 37
------ ------
Net interest income 5,706 3,567
OTHER OPERATING INCOME:
Loan servicing fees 178 211
Other fees and service charges 164 97
Gain on sale of loans 87 205
Gain on sale of securities 4 0
Miscellaneous 22 29
------ ------
Total other operating income 455 542
OTHER OPERATING EXPENSES:
Salary and employee benefits 1,776 1,493
Less capitalized loan origination costs (391) (228)
Occupancy 277 240
Outside computer services 198 178
Real estate operations 17 95
Advertising 50 95
Deposit insurance 214 205
Miscellaneous 743 587
Total other operating expenses 2,884 2,665
------ ------
Income before federal income taxes 3,277 1,444
FEDERAL INCOME TAXES 884 369
------ ------
NET INCOME $ 2,393 $ 1,075
====== ======
Net income per common share:
Primary $ 0.24 $ N/A
Weighted average shares outstanding 9,835 N/A
Cumulative dividends declared per common share: $0.05 $ N/A
2
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FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(in thousands except for shares)
For the Quarter ended June 30, 1996, and 1995
Shares held
Unrealized in trust for
gain on deferred
Common Stock Additional securities Unearned ESOP Shares Treasury stock compen-
Number of At par paid-in Retained available Number of Carrying Number of Carrying sation Total
Shares Value capital earnings for sale shares Value shares Value plans Equity
------ ----- ------- -------- -------- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, April 1, 1995 -- $ -- $ -- $ 50,099 $ 152 -- -- -- -- -- $50,251
Net income 1,075 1,075
Change in unrealized gain on
securities available for sale,
net of federal income taxes 366 366
------ ----- ------- -------- -------- ------ ----- ------ ----- ------ ------
BALANCE, June 30, 1995 -- $ -- $ -- $ 51,174 $ 518 -- $ -- -- -- $ -- $51,692
BALANCE, April 1,
1996 10,910,625 $ 109 $107,370 $ 55,343 $ 774 (833,127) $(8,331) -- $ -- (1,123) $154,142
Net income 2,393 2,393
Change in unrealized gain on
securities available for sale,
net of federal income taxes (713) (713)
Cash dividends on stock
($.05/share cumulative) (482) (482)
Release of earned ESOP shares 41 8,932 89 130
Purchase of Treasury stock 436,425 (6,430) (6,430)
Net change in number and/or
carrying amount of shares
held in trust for deferred
compensation plans (200) (200)
------ ----- ------- -------- -------- ------ ----- ------ ----- ------ ------
BALANCE, June 30,
1996 10,910,625 $ 109 $107,411 $ 57,254 $ 61 (824,195) $(8,242) 436,425 (6,430) (1,323) $148,840
3
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FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the Quarter ended June 30, 1996 and 1995
(Unaudited)
1996 1995
------ ------
OPERATING ACTIVITIES
Net income $ 2,393 $ 1,075
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred taxes -- --
Depreciation 138 143
Loss (gain) on sale of securities (4) --
Loss (gain) on sale of loan (87) (205)
Net changes in deferred loan fees, premiums
and discounts 429 (136)
Amortization of purchased mortgage servicing rights 20 19
Net amortization of premiums and discounts on
investments (463) 15
Provision for loan and real estate owned losses 574 146
FHLB stock dividend (187) (55)
Cash provided (used) in operating assets and
liabilities:
Loans held for sale 362 (996)
Accrued interest receivable 70 (109)
Other assets (57) (601)
Deferred compensation 55 205
Accrued expenses and other liabilities (1,097) 895
Federal income taxes payable (1,337) (319)
------ ------
Net cash provided by operating activities 809 77
INVESTING ACTIVITIES:
Purchase of securities available for sale (192,685) (6,577)
Principal payments and maturities of securities
available for sale 200,151 6,488
Principal payments and maturities of securities
held to maturity 99 1,772
Purchase of FHLB stock (1,151) --
Purchase of mortgage servicing rights -- (176)
Loans closed and purchase of loans and
participating interest in loans (74,730) (40,879)
Sale of loans and participating interest in loans 5,863 24,836
Principal repayments on loans 38,367 13,737
Purchase of property & equipment (45) (877)
Basis of REO acquired in settlement of loans
and disposed of during the period, net of gain 125 --
Funds transferred to deferred compensation trust (19) --
------ ------
Net cash used by investing activities (24,025) (1,676)
( Continued on next page)
4
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FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the Quarter ended June 30, 1996 and 1995
(Unaudited)
(Continued from prior page)
1996 1995
------ ------
FINANCING ACTIVITIES
Increase (decrease) in deposits $ 1,279 $ 967
Proceeds from FHLB advances 163,657 96,232
Repayment of FHLB advances (132,569) (92,000)
Decrease in other borrowings (1,008) (915)
Decrease in borrowers' advances for taxes
and insurance (1,959) (1,875)
Compensation expense recognized for shares
released for allocation to participants
of the ESOP:
Original basis of shares 89 --
Excess of fair value of released shares
over basis 41 --
Cash dividend paid (504) --
Purchase of treasury stock (6,430) --
------ ------
Net cash provided by financing activities 22,596 2,409
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (620) 810
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 9,026 5,497
------ ------
CASH AND DUE FROM BANKS, END OF PERIOD $ 8,406 $ 6,307
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 8,279 $ 5,188
Taxes paid $ 2,220 $ 687
Non-cash transactions:
Loans, net of discounts, specific loss
allowances and unearned income transferred
to real estate owned $ 272 $ --
Net change in accrued dividends payable $ 22 $ --
Net change in unrealized gain (loss) in
deferred compensation trust and related
liability $ 184 $ --
5
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FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
Note 1: Basis of Presentation
The unaudited consolidated financial statements included herein reflect
all adjustments which are, in the opinion of management, necessary to present
a fair statement of the results for the interim periods presented. All such
adjustments are of a normal recurring nature. The balance sheet data at March
31, 1996, is derived from audited financial statements of First Savings Bank
of Washington Bancorp, Inc. (The Company). Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission. It is
suggested that these consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Annual Report on Form 10-K for the year ended March 31, 1996 (File No.
0-26584) of the Company. Certain amounts in the prior period's financial
statements have been reclassified to conform to the current period's
presentation.
Effective April 1, 1996 the Bank adopted SFAS No. 122, Accounting for Mortgage
Servicing Rights, which amended SFAS No. 65. SFAS No. 122 requires the Bank
to allocate the total cost of all mortgage loans sold, whether originated or
purchased, to mortgage servicing rights and the loans (without the mortgage
servicing rights ) based on their relative fair values if it is practicable to
estimate those fair values. If such allocation is not deemed practicable, the
entire cost of acquiring the loans should be allocated to the loans with no
cost allocated to mortgage servicing rights. SFAS No. 122 is to be applied
prospectively. The adoption of this statement is not expected to materially
impact the Bank s results of operation or financial condition.
Note 2: Earnings Per Share
Earnings per share information is not meaningful for any periods prior
to December 31,1995, inclusive, since the Company s stock was issued on
October 31, 1995. Earnings per share are not presented for periods prior to
conversion to stock form, as First Savings Bank of Washington (the Bank ) was
a wholly-owned subsidiary of a mutual holding company.
Note 3: Securities, Investments; Securities and Deposits Interest Income
The following table sets forth the Company s securities portfolio at the dates
indicated (in thousands):
June 30, March 31,
1996 1996
-------- --------
Mortgage backed obligations $ 179,400 $ 177,185
Other securities-taxable interest 73,956 84,080
Other securities-tax exempt interest 28,811 29,365
Other stocks with dividends 3,402 3,116
-------- --------
Total Securities $ 285,569 $ 293,746
Securities classified as available for sale are carried at estimated market
value; securities classified as held to maturity are carried at cost net of
unamortized premiums and discounts.
6
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Note 3: Securities, Investments; Securities and Deposits Interest Income
(continued)
The following table sets forth income from securities for the periods
indicated (in thousands):
Quarter ended June 30
1996 1995
-------- --------
Taxable interest $ 1,046 $ 811
Tax-exempt interest 465 463
Other stock -dividends 43 45
Federal Home Loan Bank stock-dividends 187 55
-------- --------
$ 1,741 $ 1,374
Note 4: Subsequent Events
The company completed the acquisition of Inland Empire Bank (IEB) of Hermiston
Oregon effective August 1, 1996. The Company paid the former shareholders of
IEB $60.8951 per share, in cash, for a total acquisition price of $32.5
million plus costs. IEB had total assets of $158.7 million and total equity
of $18.4 million at December 31, 1995.
At the Company's annual stockholders meeting held on July 26, 1996 the
shareholders approved adoption of the Management Recognition Plan (MRP) and
Stock Option Plan (SOP). Under the MRP the Company is authorized to grant up
to 436,425 shares of restricted stock to directors, officers and employees of
the Bank. The initial grant of approximately 404,000 shares will vest ratably
over a minimum five year period starting from the July 26, 1996 MRP approval
date. Approval of the SOP authorizes the Company to reserve an aggregate of
1,091,063 shares for issuance pursuant to the exercise of stock options which
may be granted to employees and directors. The exercise price of the option
is set at 100 to 110% of the fair market value of the stock price at date of
grant. The initial grant of approximately 854,000 options will vest over a
five year period following the date of grant and any unexercised options will
expire after ten years.
7
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ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
First Savings Bank of Washington Bancorp, Inc. (the Company), a Delaware
corporation, is primarily engaged in the business of planning, directing and
coordinating the business activities of First Savings Bank of Washington (the
Bank). The Bank is a Washington-chartered savings bank the deposits of which
are insured by the FDIC under the Savings Association Insurance Fund (SAIF).
The Bank conducts business from its main office in Walla Walla , Washington
and its 15 branch offices and three loan production offices located in
southeast, central, north central and western Washington.
The operating results of the Company depend primarily on its net
interest income, which is the difference between interest income on
interest-earning assets, consisting of loans and investment securities, and
interest expense on interest-bearing liabilities, composed primarily of
savings deposits and FHLB advances. Net interest income is primarily a
function of the Company s interest rate spread, which is the difference
between the yield earned on interest-earning assets and the rate paid on
interest-bearing liabilities, as well as a function of the average balance of
interest earning assets as compared to the average balance of interest-bearing
liabilities. As more fully explained below, the Company's net interest income
significantly increased for both the most recent quarter and the comparable
period for the prior year. This increase in net interest income was largely
due to the substantial growth in average asset and liability balances.
The Company s net income also is affected by provisions for loan losses and
the level of its other income, including deposit service charges, loan
origination and servicing fees, and gains and losses on the sale of
loans and securities, as well as its non-interest operating expenses and
income tax provisions. As further explained below, net income also increased
reflecting the rise in net interest income which was somewhat offset by a
slight decline in other operating income and by increases in operating
expenses and provision for income taxes. Provision for income taxes rose due
to increases in taxable income and effective tax rates.
Management's discussion and analysis of results of operations is intended to
assist in understanding the financial condition and results of operations of
the Company. The information contained in this section should be read in
conjunction with the Consolidated Financial Statements and accompanying
Selected Notes to Consolidated Financial Statements.
Significant Events
The Company instituted a stock repurchase program during the quarter ended
June 30, 1996 authorizing the repurchase of approximately 546,000 shares of
its outstanding common stock. At June 30, 1996 the Company had repurchased
436,425 shares at an average price of $14.74 per share.
Recent Developments
The Company completed the acquisition of Inland Empire Bank(IEB) of Hermiston
Oregon effective August 1, 1996. The shareholders of IEB received $60.8951
per share, in cash, for a total acquisition price of $32.5 million plus costs.
IEB has 5 full service branches plus a remote drive up facility located in
northeast Oregon. At December 31, 1995 IEB had total assets of $158.7 million,
which included net loans of $182.9 million, deposits of $159.0 million and
total shareholder s equity of $18.4 million.
Comparison of Financial Condition at June 30 and March 31, 1996
Total assets increased $21.5 million, or 2.9%, from $743.2 million at March
31, 1996 to $764.7 million at June 30, 1996. The majority of the growth was
in net loans receivable and was funded primarily with advances from the
Federal Home Loan Bank ( FHLB). This growth in assets through the use of
FHLB advances was in line with management s plans to leverage the Company's
strong capital position.
8
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Loans receivable grew $29.0 million, or 7.00%, from $415.3 million at March
31,1996 to $444.3 million at June 30, 1996. The increase in loans was funded
primarily by a net increase of $30.1 million, or 15.1%, in FHLB advances and
other borrowings from $199.1 million at March 31, 1996 to $229.2 million on
June 30, 1996.
Securities available for sale and held to maturity decreased $8.2 million to
$285.6 million at June 30, 1996 from $293.7 million at March 31.1996. The net
proceeds from principal repayments and maturities on securities was used
primarily to repurchase $6.4 million of the Company s common stock. Federal
Home Loan Bank Stock increased $1.3 million as the company was required to
purchase more stock as a result of its increased use of FHLB advances.
Changes in the other remaining June 1996 balance sheet areas as compared to
March 1996 were not significant.
Comparison of Operating Results for the Quarters Ended June 30, 1996 and 1995
General. Net income increased $1.3 million, or 122.6%, from $1.1 million for
the quarter ended June 30, 1995, to $2.4 million for the quarter ended June
30, 1996. The year to year operating results were primarily affected by a
significant increase in net interest income offset slightly by a decrease in
gains from the sale of loans. Net interest income increased $2.1 million from
$3.6 million for the quarter ended June 30, 1995 to $5.7 million for the
quarter ended June 30, 1996, due, in large part, to a $100.0 million
increase in the Company's average balance of net interest-earning assets.
Other operating income declined slightly while other operating expencses
increased a modest amount. The Company's return on average equity decreased
from 8.42% for the quarter ended June 30, 1995, to 6.34% for the quarter ended
June 30, 1996, which was expected due to the large increase in equity from the
October 31, 1995 stock offering.
Interest Income. Interest income for the quarter ended June 30 1996, was
$13.8 million compared to $9.2 million for the quarter ended June 30, 1995, an
increase of $4.6 million, or 50.3%. The increase in interest income was a
result of a $251.1 million growth in average balances of interest earning
assets which was moderated by a 13 basis point decrease in the average yield
on those assets from 7.71% in the quarter ended June 30, 1995 to 7.58% in
1996. Average loans receivable increased by $126.8 million, or 41.5%, in
1996. Interest income on loans increased by $2.7 million or 42.3%, reflecting
the impact of the increase in average loan balances and a slight decrease in
the yield on those balances. Loans yielded 8.29% for the quarter ended
June 30, 1996, compared to 8.27% for the quarter ended June 30, 1995.
The average balance of mortgage-backed securities, investment securities,
daily interest-bearing deposits and FHLB stock increased by $124.3 million in
the quarter ended June 30, 1996, and interest income from those investments
rose by $2.0 million for the June 1996 quarter compared to 1995. The average
yield on mortgage-backed securities rose from 6.76% in June 1995 to 6.89% in
1996. The average yield on other investment securities, on the other hand,
declined from 6.71% in June 1995 to 5.85% in 1996, which reflects the
temporary investment of a portion of the conversion proceeds in lower yielding
short term investments as well as generally lower prevailing market rates.
Earnings on FHLB stock increased by $132,000 reflecting an increase of $5.9
million in the average balance of FHLB stock for the quarter ended June 1996
and a 185 basis point increase in the average yield on that stock.
Interest Expense. Interest expense for the quarter ended June 30, 1996, was
$7.6 million compared to $5.6 million for the comparable period in 1995, an
increase of $2.0 million, or 35.9%. The increase in interest expense was due
to the $151.1 million growth in average interest-bearing liabilities. The
increase in average interest-bearing liabilities in the quarter ended June
1996 was largely due to a $127.3 million increase in the average balance of
FHLB advances. Average FHLB advances totaled $190.8 million during the
quarter ended June 30, 1996, as compared to $63.5 million during the quarter
ended June 30, 1995, resulting in a $1.5 million increase in related interest
expense. The average rate paid on those advances decreased from 6.2% for the
quarter ended June 1995 to 5.56% for the comparable period in 1996.. Average
deposit balances increased from $360.4 million for the quarter ended June
1995, to $372.2 million for the comparable period in 1996 while at the same
time, the average rate paid on deposit balances stayed at 4.99% for both
periods resulting in a moderate increase in deposit interest expense. Other
borrowings consists of retail repurchase agreements with customers, and
reverse repurchase agreements with investment banking firms secured by certain
investment securities. The average balance for other borrowings, including
other repurchase agreements, increased $12.1 million from $7.2 million for
the quarter ended June 30, 1995, to $19.3 million for the same period in
1996, and the related expense increased $187,000, from $109,000 to $296,000
for the respective periods.
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The following tables provide additional comparative data on the Company's
operating performance (in thousands):
Quarter Quarter
Ended Ended
June 30, June 30,
1996 1995
-------- --------
Average Balances
Investment securities and deposits $ 106,525 $ 79,043
Mortgage-backed obligations 181,169 90,221
Loans 432,035 305,275
FHLB stock 9,649 3,735
-------- --------
Total average interest-earning asset 729,378 478,274
Non-interest earning assets 16,620 14,877
-------- --------
Total average assets $ 745,998 $ 493,151
Deposits 372,236 360,425
Advances from FHLB 190,790 63,517
Other borrowings 19,273 7,222
-------- --------
Total average interest-bearing liabilities 582,299 431,164
Non-interest-bearing liabilities 12,213 10,641
-------- --------
Total average liabilities 594,512 441,805
Equity 151,486 51,346
Total average liabilities and equity $ 745,998 $ 493,151
Interest Rate Yield/Expense [rates are annualized]
Interest Rate Yield:
Investment securities and deposits 5.85% 6.71%
Mortgage-backed obligations 6.89% 6.76%
Loans 8.29% 8.27%
FHLB stock 7.77% 5.92%
Total interest rate yield on interest- ------ ------
earning assets 7.58% 7.71%
Interest Rate Expense:
Deposits 4.99% 4.99%
Advances from FHLB 5.56% 6.26%
Other borrowings 6.16% 6.07%
Total interest rate expense on interest- ------ ------
bearing liabilities 5.21% 5.19%
------ ------
Interest spread 2.37% 2.52%
Net interest margin on interest earing assets 3.42% 3.03%
Additional Key Financial Ratios [ratios are annualized]
Return on average assets 1.29% 0.88%
Return on average equity 6.34% 8.42%
Average equity / average assets 20.31% 10.41%
Average interest-earing assets / interest-
bearing liabilities 125.26% 110.93%
Non-interest [other operating] expenses /
average assets 1.55% 2.17%
Efficiency ratio [non-interest (other operating)
expenses / revenues] 43.21% 64.28%
10
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<PAGE>
Provision for Loan Losses. During the quarter ended June 30, 1996, the
Bank's provision for loan losses was $513,000, compared to $37,000 for the
quarter ended June 30, 1995, an increase of $476,000. The increase in the
provision for estimated loan losses is primarily attributable to the overall
increase in net loans receivable of $29.0 million for the Quarter ended June
30, 1996 versus $3.6 million for the comparable period in 1995. The allowance
for loan losses, net of charge-offs, increased by $383,000 to $4.4 million at
June 30, 1996 compared to $4.1 million at March 31, 1996. The allowance for
losses on loans is maintained at a level sufficient to provide for estimated
losses based on evaluating known and inherent risks in the loan portfolio and
upon management s continuing analysis of the factors underlying the quality of
the loan portfolio. These factors include changes in the size and composition
of the loan portfolio, actual loan loss experience, current and anticipated
economic conditions, detailed analysis of individual loans for which full
collectibility may not be assured, and determination of the existence and
realizable value of the collateral and guarantees securing the loans.
Additions to these allowances are charged to earnings. Provisions for losses
that are related to specific assets are usually applied as a reduction of the
carrying value of the assets and charged immediately against the income of the
period. The reserve is based upon factors and trends identified by management
at the time financial statements are prepared. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to provide additions to the allowance based upon judgements
different from management. Although management uses the best information
available, future adjustments to the allowance may be necessary due to
economic, operating, regulatory and other conditions beyond the Bank's
control.
The following tables are provided to disclose additional detail on the
Company's loans and allowance for loan losses (dollars in thousands):
At At
June 30, March 31,
1996 1996
Loans [ including loans held for sale]: -------- ---------
Gross principal $ 497,943 $ 456,466
Less loans in process 46,898 35,244
Less deferred fees and discounts 2,305 1,876
Less allowance for loan losses 4,434 4,051
-------- ---------
Total net loans at end of period $ 444,306 $ 415,295
Allowance for loan losses as a percentage of
gross principal of loans outstanding 0.89% 0.89%
Quarter
Ended
June 30,
Change in allowance for loan losses: 1996
--------
Balance at beginning of the period $ 4,051
Provision for loan losses 513
Recoveries 0
Charge-offs (130)
--------
Balance at end of the period $ 4,434
Net charge-offs as a percentage of average net
book value of loans outstanding for the period 0.03%
Other Operating Income. Other operating income decreased from $542,000 for
the quarter ended June 30, 1995 to $455,000 for the quarter ended June 30,
1996. The decrease was primarily due to a $118,000 reduction in net gains
from sale of loans which is a result of the reduction in loan sales as
management is currently retaining loan production for asset growth.
Other Operating Expenses. Other operating expenses increased $219,000 from
$2.7 million for the quarter ended June 30, 1995, to $2.9 million for the
quarter ended June 30, 1996. The increase in non-interest operating expense
for the quarter ended June 1996, reflects increases resulting from growth of
the Bank, including increased personnel costs and increases in legal,
accounting and insurance expenses relating to operating as a public company.
These increases were somewhat offset by a $163,000 increase in capitalized
loan origination costs reflecting a $29.3 million increase in loan
origination volume compared to the same quarter in 1995.
11
<PAGE>
<PAGE>
Income Taxes. Income tax expense was $884,000 for the quarter ended June 30,
1996, compared to $369,000 for the quarter ended June 30, 1995. The increased
provision for income taxes reflects the greater level of taxable income and
a slight increase in the Company s effective tax rate. This increase in
effective tax rate reflects the Bank s reduction in the relationship of
tax-exempt interest to taxable income. The Company's effective tax rates for
the quarters ended June 30, 1996 and 1995 was 26.98% and 25.55%, respectively.
Asset Quality
The following tables are provided to disclose additional details on asset
quality (dollars in thousands).
At At
June 30, March 31,
1996 1996
Non-performing assets at end of the period: -------- --------
Non-performing loans:
Delinquent loans on non-accrual status $ 672 $ 526
Delinquent loans on accrual status 9 12
-------- --------
Total non-performing loans 681 538
REO 798 712
-------- --------
Total non-performing assets at end of
the period $1,479 $1,250
Non-performing loans as a percentage of total
net loans at end of the period 0.15% 0.13%
Ratio of allowance for loan losses to non-
performing loans at end of the period 651.10% 752.97%
Non-performing assets as a percentage of total
assets at end of the period. 0.19% 0.17%
Troubled debt restructuring [TDR's]
at end of the period (all are performing) $ 154 $ 156
Troubled debt restructuring as a percentage of:
total gross principal of loans outstanding
at end of the period 0.03% 0.03%
total assets at end of the period 0.02% 0.02%
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, proceeds from loan
principal and interest payments and sales of loans, the maturity of and
interest income on mortgage-backed and investment securities, and FHLB
advances. While maturities and scheduled amortization of loans and
mortgage-backed securities are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions and competition.
The primary investing activity of the Company is the origination and purchase
of mortgage loans through the Bank. During the quarter ended June 30, 1996,
the Bank closed or purchased loans in the amounts of $74.7 million. This
growth was funded primarily by principal repayments on loans and securities,
sales of loans, increases in FHLB advances, and deposit growth. For the
quarter ended June 30, 1996, principal repayments on loans totaled $38.4
million and the Bank sold $5.7 million of mortgage loans. FHLB advances
increased $31.1 million, for the same quarter and net deposit growth
was $1.3 million.
The Bank 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. During fiscal years 1996, 1995 and 1994, the Bank
used its sources of funds primarily to fund loan commitments, to purchase
securities, and to pay maturing savings certificates and deposit withdrawals.
At June 30, 1996, the Bank had undisbursed loans in process totaling $46.9
million. The Bank generally maintains sufficient cash and readily marketable
securities to meet short term liquidity needs. In addition, the Bank
maintains a credit facility with the FHLB of Seattle, which provides for
advances which in aggregate may equal up to 40% of total Bank assets, which as
of June 30, 1996, could give a total credit line of $287.8 million. Advances
under this credit facility totaled $210.5 million, or 29.3% of total Bank
assets at June 30, 1996.
12
<PAGE>
<PAGE>
At June 30, 1996, savings certificates amounted to $274.5 million, or 73.1%,
of the Bank's total deposits, including $180.4 million which were scheduled to
mature within one year. Historically, the Bank has been able to retain a
significant amount of its deposits as they mature. Management of the Bank
believes it has adequate resources to fund all loan commitments by using
savings deposits, FHLB of Seattle advances and the sale of mortgage loans and
that it can adjust the offering rates of savings certificates to retain
deposits in changing interest rate environments.
Capital Requirements
Federally-insured state-chartered banks are required to maintain minimum
levels of regulatory capital. Under current FDIC regulations, insured
state-chartered banks generally must maintain (i) a ratio of Tier 1 leverage
capital to total assets of at least 3.0% (4.0% to 5.0% for all but the most
highly rated banks), (ii) a ratio of Tier 1 capital to risk weighted assets
of at least 4.0% and (iii) a ratio of total capital to risk weighted assets of
at least 8.0%. At June 30, 1996, the Bank was in compliance with all
applicable capital requirements.
The following table reflects the Bank's applicable regulatory requirements
and the actual levels of regulatory capital at June 30, 1996.
Required Actual
Percent Amount Percent Amount
(dollars in thousands)
------- ------ ------- ------
Tier 1 leverage capital ratio 4.00% $ 28,769 13.04% $ 93,783
Risk-based capital ratios
Tier 1 4.00 14,743 25.44 93,783
Total 8.00 29,487 26.65 98,217
The Company, as a bank holding company is regulated by the Federal Reserve
Board (FRB). The FRB has established capital requirements that generally
parallel the capital requirements of the FDIC for the Bank that are applied to
bank holdingcompanys with $150 million or more in total consolidated assets.
The Company's total regulatory capital must equal 8% of risk-weighted assets
and one half of the 8% (4%) must consist of Tier 1 (core) capital.
The following table reflects the Company s applicable regulatory requirements
and the actual level of regulatory capital at June 30, 1996.
Required Actual
Percent Amount Percent Amount
(dollars in thousands)
------- ------ ------- ------
Risk-based capital ratios
Tier 1 4.00% $ 15,079 39.46% $148,738
Total 8.00 30,158 40.63% $153,172
13
<PAGE>
<PAGE>
PART II - FINANCIAL INFORMATION
Item 1. Legal Proceedings
From time to time the Company or its subsidiaries are engaged in legal
proceedings in the ordinary course of business, none of which are considered
to have a material impact on the Company's financial position or results of
operations.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Stockholders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial data schedule - see page 16
Reports on form 8-k Not Applicable
14
<PAGE>
<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.
First Savings Bank of Washington
Bancorp, Inc.
August 15, 1996 /s/ Gary L. Sirmon
------------------
Gary L. Sirmon
President and Chief Executive Officer
August 15, 1996 /s/ D. Allan Roth
-----------------
D. Allan Roth
Secretary and Treasurer
<PAGE>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 8406
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<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 283603
<INVESTMENTS-CARRYING> 1966
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<TOTAL-ASSETS> 764685
<DEPOSITS> 375343
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0
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<COMMON> 109
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