FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): AUGUST 1, 1996
First Savings Bank of Washington Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-26584 91-1691604
State or other jurisdiction Commission (I.R.S.Employer
File Number Identification No.)
10 S. First Avenue, Walla Walla, Washington 99362
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (including area code): (509) 527-3636
Not Applicable
(Former name of former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
Effective August 1, 1996, First Savings Bank of Washington Bancorp, Inc. (the
Company) consummated the previously announced acquisition of Inland Empire
Bank, Hermiston, Oregon (IEB). The acquisition was accomplished by the merger
of IEB into a wholly-owned subsidiary of the Company formed for that purpose,
with IEB as the surviving institution. Each share of IEB common stock was
converted into the right to receive $60.8951. The Company paid $32,500,000
out of cash on hand for all of the outstanding shares of IEB common stock.
The assets of Inland Empire Bank consist primarily of agricultural,
commercial, real estate and consumer loans and U.S. Government and agency
securities.
Additional information concerning the acquisition is contained in the press
release issued by the Company on August 1, 1996, attached hereto as Exhibit 99
and incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
IEB audited Consolidated Statements of Condition as of December 31,1995 and
1994 and audited Consolidated Statements of Income, Changes in Shareholders
Equity and Cash Flows for the years ended December 31, 1995, and 1994 are
attached hereto as Appendix A.
As of the date of filing of this current report on Form 8-K, it is
impracticable for the Registrant to provide IEB's unaudited condensed
Consolidated Statement of Financial Condition as of June 30, 1996 and
condensed Consolidated Statements of Income, Changes in Stockholders Equity
and Cash Flows for the six months ended June 30, 1996 and 1995 as required by
this item 7(a). Such financial statements shall by filed by amendment to this
Form 8-K no later than 60 days after August 16, 1996.
(b) Pro Forma Financial Information
As of the date of filing of this current report on Form 8-K, it is
impracticable for the Registrant to provide the pro forma financial
information required by this item 7(b). Such financial information shall be
filed by amendment to this Form 8-K no later than 60 days after August 16,
1996.
(c) Exhibits
2 Agreement and Plan of Merger dated as of March 11, 1996 by and
among First Savings Bank of Washington Bancorp, Inc. and Inland Empire Bank
(incorporated by reference to Exhibit 2 to the Company's Form 8-K filed March
15, 1996).
99 Press release dated August 1, 1996.
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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, hereunto duly authorized.
FIRST SAVINGS BANK OF WASHINGTON
BANCORP, INC.
DATE: August 16, 1996 By: /s/ Gary L. Sirmon
-------------------
Gary L. Sirmon
President
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APPENDIX A
INLAND EMPIRE BANK'S AUDITED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
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INLAND EMPIRE BANK AND SUBSIDIARIES
_______
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995 and 1994
ZIRKLE, LONG & TRIGUEIRO, L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS
EUGENE, OREGON 97401
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INLAND EMPIRE BANK AND SUBSIDIARIES
_______
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C O N T E N T S
_______
Page
____
Independent Auditors' Report 1
Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Changes in Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-14
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INDEPENDENT AUDITORS' REPORT
___________________________________
To the Board of Directors and
Shareholders of Inland Empire Bank:
We have audited the accompanying consolidated balance sheets of Inland Empire
Bank and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Inland Empire
Bank and Subsidiaries as of December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
ZIRKLE, LONG & TRIGUEIRO, L.L.C.
/S/
Eugene, Oregon
January 26, 1996, except for
Note 13, as to which the date
is March 11, 1996
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INLAND EMPIRE BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
_______
December 31
__________________________
1995 1994
___________ ___________
ASSETS
Cash and Due from Banks $ 8,343,084 $ 8,235,155
Federal Funds Sold 13,877,000 5,530,000
___________ ___________
Total Cash and Cash Equivalents 22,220,084 13,765,155
Investment Securities (Note 2):
Available-For-Sale 49,069,388 -
Held-To-Maturity - 50,577,141
Loans, Less Allowance for Loan Losses (Note 3) 82,856,201 77,545,938
Premises and Equipment, Net of Accumulated
Depreciation (Note 4) 2,093,837 1,967,689
Interest Receivable 1,493,575 1,644,600
Other Assets (Note 5) 963,780 1,117,237
___________ ___________
Total Assets $158,696,865 $146,617,760
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-Bearing Demand $ 34,437,464 $ 30,395,542
Savings and Interest-Bearing Demand 71,026,573 66,016,223
Time, $100,000 or more 3,655,030 3,071,536
Other Time 29,863,671 28,873,118
___________ ___________
Total Deposits 138,982,738 128,356,419
Short-Term Borrowings 519,871 1,080,750
Interest Payable 278,182 216,026
Other Liabilities 559,562 317,945
___________ ___________
Total Liabilities 140,340,353 129,971,140
=========== ===========
Shareholders' Equity:
Common Stock, $2.50 Par Value; 533,705 Shares
Authorized and Outstanding 1,334,262 1,334,262
Surplus 12,158,405 12,158,405
Retained Earnings 4,813,845 3,153,953
Unrealized Gains on Investment Securities
Available-For-Sale, Net of Tax (Note 2) 50,000 -
___________ ___________
Total Shareholders' Equity 18,356,512 16,646,620
___________ ___________
Total Liabilities and Shareholders' Equity $158,696,865 $146,617,760
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
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CONSOLIDATED STATEMENTS OF INCOME
_______
Year ended December 31
__________________________
1995 1994
___________ ___________
INTEREST INCOME
Interest and Fees on Loans (Note 6) $ 8,465,408 $ 7,532,767
Interest on Investment Securities:
Taxable 1,974,025 1,836,327
Exempt from Federal Income Tax 480,698 610,653
Interest on Federal Funds Sold 638,079 235,732
___________ ___________
Total Interest Income 11,558,210 10,215,479
INTEREST EXPENSE
Interest on Deposits (Note 7) 3,785,023 2,810,163
Interest on Short-Term Borrowings 21,137 17,612
___________ ___________
Total Interest Expense 3,806,160 2,827,775
NET INTEREST INCOME 7,752,050 7,387,704
Provision for Loan Losses (Note 3) 60,000 216,000
___________ ___________
Net Interest Income after Provision for Loan Losses 7,692,050 7,171,704
OTHER INCOME
Service Charges on Deposit Accounts 753,870 741,534
Mortgage Banking Income 587,283 617,620
Other Income 439,512 406,745
___________ ___________
Total Other Income 1,780,665 1,765,899
OTHER EXPENSES
Salaries 2,696,367 2,528,679
Employee Benefits (Note 8) 955,711 773,953
Occupancy Expense, Net of Rent Income 443,496 446,053
Equipment Expense 425,937 408,510
Deposit Insurance and Regulatory Fees 157,136 290,954
Professional Fees 204,819 276,069
Other Expenses 966,800 915,882
___________ ___________
Total Other Expenses 5,850,266 5,640,100
___________ ___________
Income Before Income Taxes 3,622,449 3,297,503
Provision for Income Taxes (Note 9) 1,162,000 1,057,000
___________ ___________
NET INCOME $ 2,460,449 $ 2,240,503
=========== ===========
Net Income Per Share $ 4.61 $ 4.20
The accompanying notes are an integral part of these consolidated financial
statements.
3
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<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1995 and 1994
_______
Common Stock Unrealized
___________________ Gains on
Number Investment
of Retained Treasury Securities,
Shares Par Value Surplus Earnings Stock Net Total
------ --------- ------- -------- -------- ---------- ----------
BALANCE AT
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1993 464,092 $1,160,229 $10,243,737 $3,001,840 $ -- $ -- $14,405,806
Net Income for 1994 2,240,503 2,240,503
Treasury Stock:
Purchase of 136 Shares (3,663) (3,663)
Sale of 136 Shares 311 3,663 3,974
Stock Dividend
(15 Percent) 69,613 174,033 1,914,357 (2,088,390)
------ --------- ------- -------- -------- ---------- ----------
BALANCE AT
DECEMBER 31, 1994 533,705 1,334,262 12,158,405 3,153,953 -- -- 16,646,620
Net Income for 1995 2,460,449 2,460,449
Cash Dividend
($1.50 Per Share) (800,557) (800,557)
Transfer of Investment
Securities from Held-
To-Maturity to
Available-For-Sale,
Net of Deferred Tax 50,000 50,000
------ --------- ------- -------- -------- ---------- ----------
BALANCE AT
DECEMBER 31, 1995 533,705 $1,334,262 $12,158,405 $4,813,845 $ -- $50,000 $18,356,512
======= ========= ========== ========= ======= ====== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
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CONSOLIDATED STATEMENTS OF CASH FLOWS
_______
Year ended December 31
--------------------------
1995 1994
----------- -----------
Cash Flows from Operating Activities:
Net Income $ 2,460,449 $ 2,240,503
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 256,044 235,187
Amortization, Net 128,837 445,067
Provision for Loan Losses 60,000 216,000
Deferred Income Tax Benefit (74,000) (5,000)
(Gain) Loss on Sale of Premises and Equipment, Net 10,724 (30,549)
Origination of Mortgage Loans for Sale (20,628,179) (19,366,369)
Proceeds from Sales of Mortgage Loans 19,044,399 19,726,250
Change in:
Interest Receivable and Other Assets 126,502 (201,612)
Interest Payable and Other Liabilities 303,773 48,045
Income Tax Deposits 220,792 (324,130)
----------- -----------
Net Cash Provided by Operating Activities 1,909,341 2,983,392
Cash Flows from Investing Activities:
Proceeds from Maturities of Held-to-Maturity
Securities 22,826,039 25,002,948
Purchase of Held-to-Maturity Securities (21,365,935) (20,267,165)
Purchase of Loans -- (1,874,751)
Loans Originated, Net of Principal Collected (3,786,483) (4,591,584)
Purchase of Equipment (404,016) (376,258)
Proceeds from Sale of Equipment 11,100 34,347
----------- -----------
Net Cash Used in Investing Activities (2,719,295) (2,072,463)
Cash Flows from Financing Activities:
Net Increase (Decrease) in Deposits 10,626,319 (609,347)
Increase (Decrease) in Short-Term Borrowings (560,879) 213,461
Payment of Notes Payable -- (170,184)
Sale of Treasury Stock, Net -- 311
Dividends Paid (800,557) --
----------- -----------
Net Cash Provided by (Used in) Financing Activities 9,264,883 (565,759)
----------- -----------
Net Increase in Cash and Cash Equivalents 8,454,929 345,170
Cash and Cash Equivalents, Beginning of Year 13,765,155 13,419,985
----------- -----------
Cash and Cash Equivalents, End of Year $ 22,220,084 $ 13,765,155
========== ==========
SUPPLEMENTAL INFORMATION:
- -------------------------
Income Taxes Paid $ 1,015,208 $ 1,386,130
Interest Paid 3,868,316 2,828,984
The accompanying notes are an integral part of these consolidated financial
statements.
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Inland Empire
Bank (the Bank) and its wholly-owned subsidiaries, Inland Securities
Corporation and Pioneer American Property Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Lines of Business
Inland Empire Bank, opened in March of 1948, is a state-chartered, Federal
Deposit Insurance Corporation (FDIC) insured, commercial bank doing business
in the state of Oregon. Inland Securities Corporation is organized to make
a market in Inland Empire Bank stock. Pioneer American Property Company owns
a building in Pendleton and leases it to Inland Empire Bank.
Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make 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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investment Securities
In 1994 the Bank adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". This Standard requires that investments in securities be
classified at acquisition as held-to-maturity, available-for-sale, or trading
securities.
Held-to-maturity securities are acquired with the intent and ability to hold
to maturity, are stated at cost, and are adjusted for accretion of discounts
and amortization of premiums. Available-for-sale securities are held for
indefinite periods of time, are stated at fair value, and may be sold in
response to movements in market interest rates or cash flow requirements prior
to maturity. Unrealized gains and losses on available-for-sale securities are
excluded from earnings and are reported as a separate component of
shareholders' equity net of deferred taxes. The Bank held no trading
securities during 1995 or 1994.
Interest income on debt securities is included in income using the level yield
method. Gains and losses on sales of securities are recognized by the
specific identification method.
Loans and Income Recognition
Loans are stated at the amount of unpaid principal, adjusted for deferred loan
origination fees and costs and an allowance for loan loss. Interest on loans
is calculated using the simple interest method on daily balances of the
principal amount outstanding. Loan origination fees, net of origination
costs, are amortized over the life of the related loan as an adjustment to
yield.
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
In 1995 the Bank adopted the provisions of SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan", as amended by SFAS 118, which prescribes
a valuation methodology for impaired loans. Generally, a loan is considered
impaired if management believes that it is probable that all amounts due will
not be collected according to the contractual terms.
Adoption did not have a material effect on financial position or results of
operations.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management considers adequate to
absorb possible losses on existing loans that may become uncollectible, based
on evaluations of the collectibility of loans and prior loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of
specific problem loans, and current economic conditions.
Premises and Equipment
Premises and equipment is stated at cost, net of accumulated depreciation.
Additions, betterments and replacements of major units are capitalized.
Expenditures for normal maintenance, repairs and replacements of
minor units are charged to expense as incurred. Gains or losses realized from
sales or retirements are reflected in operations currently. Unrecovered cost
of assets traded is added to the cost of assets acquired in the trade.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized on the
straight-line method over the shorter of the lease term or the estimated
useful life.
Income Taxes
Deferred tax assets and liabilities are recognized based on the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax assets and liabilities are calculated
on differences between financial statement and tax bases of assets and
liabilities using tax rates in effect for the year in which the differences
are expected to reverse.
Net Income Per Share
The net income per share computations are based on the weighted average number
of shares outstanding during each year, after giving retroactive effect to
stock dividends, if applicable.
Mortgage Banking Activities
The Bank originates conventional and federally insured residential mortgage
loans for sale in the secondary market. Mortgage loans are sold without
recourse and, generally, with no servicing rights retained. Mortgage loans
held for sale are carried at the lower of cost or market. Gains on the sale
of mortgage loans are recognized at the time funds are received in closing
from the third-party investor.
7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities at
December 31 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Available-For-Sale Cost Gains Losses Value
------------------ --------- ---------- ---------- ----------
1995
---------------------------------------------
U.S. Government and Agency
Securities $34,038,520 $ 129,552 $ 87,697 $34,080,375
State and Municipal Securities 8,788,782 115,325 80,916 8,823,191
Corporate Securities 4,544,287 7,829 1,829 4,550,287
Bankers' Acceptances 1,594,611 -- 1,340 1,593,271
Certificates of Deposit with
Other Financial Institutions 22,000 264 -- 22,264
--------- ---------- ---------- ----------
$48,988,200 $ 252,970 $ 171,782 $49,069,388
========== ========= ======= ==========
Held-To-Maturity 1994
---------------------------------------------
U.S. Government and Agency
Securities $34,760,271 $ -- $ 920,196 $33,840,075
State and Municipal Securities 11,681,376 61,915 194,456 11,548,835
Corporate Securities 4,113,494 -- 72,904 4,040,590
Certificates of Deposit with
Other Financial Institutions 22,000 -- -- 22,000
--------- ---------- ---------- ----------
$50,577,141 $ 61,915 $1,187,556 $49,451,500
========== ========= ========= ==========
The amortized cost and estimated fair value of debt securities at December 31
by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
1995 1994
---------------------- ---------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ---------
Due in One Year or Less $23,429,064 $23,462,929 $20,166,242 $20,035,999
Due After One Year
Through Five Years 24,648,646 24,741,841 28,928,911 28,026,409
Due After Five Years
Through Ten Years 910,490 864,618 1,481,988 1,389,092
--------- --------- --------- ---------
$48,988,200 $49,069,388 $50,577,141 $49,451,500
========== ========== ========== ==========
On December 29, 1995 investment securities with amortized cost of $48,988,200
and estimated fair value of $49,069,388 were transferred from Held-To-Maturity
designation to Available-For-Sale. Such transfer resulted from management's
one-time reassess-ment of the appropriate classification of the investment
portfolio based on guidance issued in 1995 by the Financial Accounting
Standards Board.
There were no sales of investments in 1995 or 1994. At December 31, 1995
securities with amortized cost of approximately $9,113,000, and estimated fair
value of $9,151,000, were pledged to secure public and other deposits as
required by law.
8
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio at December 31 is as follows:
1995 1994
---------- ----------
Agricultural Loans $20,455,271 $20,376,803
Commercial Loans 18,992,282 18,188,548
Real Estate Loans 26,139,443 24,372,832
Mortgage Loans Held for Sale 2,883,803 1,300,023
Consumer Loans 15,811,458 14,733,498
---------- ----------
84,282,257 78,971,704
Allowance for Loan Losses 1,426,056 1,425,766
---------- ----------
$82,856,201 $77,545,938
========== ==========
The activity in the allowance for loan losses for the years ended December 31
is as follows:
1995 1994
---------- ----------
Balance, Beginning of Year $ 1,425,766 $ 1,234,333
Provision Charged to Income 60,000 216,000
Recoveries Credited to Allowance 29,771 56,657
Loans Charged Off (89,481) (81,224)
---------- ----------
Balance, End of Year $ 1,426,056 $ 1,425,766
========== ==========
Loans which were impaired and not accruing interest were approximately
$163,000 and $223,000 at December 31, 1995 and 1994, respectively. Interest
income which would have been recognized on such nonaccrual loans if they had
remained current was approximately $8,000 and $16,000 during 1995 and 1994,
respectively. Loans contractually past due 90 days or more on which the Bank
continued to accrue interest was approximately $33,000 and $184,000 at
December 31, 1995 and 1994, respectively.
Loans serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid principal balances of serviced loans were
approximately $13,451,000 and $11,719,000 at December 31, 1995 and 1994,
respectively.
Concentration of Credit Risk
The Bank grants agribusiness, commercial, residential and consumer loans to
customers throughout the Northeastern Oregon region. Although the Bank has a
diversified loan portfolio, a substantial portion of its debtors' ability to
honor their contracts is dependent upon the agribusiness economic sector.
The Bank's agricultural loans totaled approximately $20,455,000 or 24 percent
of its loan portfolio at December 31, 1995 and approximately $20,377,000 or 26
percent at December 31, 1994. The Bank's policy for requiring collateral
on agricultural loans does not differ substantially from collateral
requirements in its other lending.
9
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
NOTE 4 - PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
1995 1994
---------- ----------
Land $ 620,821 $ 619,616
Building and Leasehold Improvements 1,577,812 1,577,812
Furniture and Equipment 2,054,021 2,418,122
---------- ----------
4,252,654 4,615,550
Accumulated Depreciation 2,158,817 2,647,861
---------- ----------
$2,093,837 $1,967,689
========= =========
Depreciation of $256,044 and $235,187 in 1995 and 1994, respectively, is
included in occupancy and equipment expense.
NOTE 5 - OTHER ASSETS
Other assets at December 31 are as follows:
1995 1994
---------- ----------
Net Deferred Tax Asset (Note 9) $ 473,612 $ 430,800
Cash Value of Life Insurance 348,101 315,343
Income Tax Deposits 3,399 224,191
Prepaid Expenses and Other 138,668 146,903
---------- ----------
$ 963,780 $1,117,237
========== ==========
NOTE 6 - INTEREST AND FEES ON LOANS
Interest and fees on loans for the years ended December 31 consist of the
following:
1995 1994
---------- ----------
Agricultural Loans $2,056,479 $2,052,869
Commercial Loans 1,891,942 1,527,292
Real Estate Loans 2,709,239 2,317,936
Consumer Installment Loans 1,506,221 1,337,928
Loan Fees 301,527 296,742
---------- ----------
$8,465,408 $7,532,767
========== ==========
10
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
NOTE 7 - INTEREST EXPENSE ON DEPOSITS
Interest expense on deposits for the years ended December 31 consist of the
following:
1995 1994
---------- ----------
Savings and Interest-Bearing Demand $2,128,318 $1,462,330
Time Certificates 1,656,705 1,347,833
---------- ----------
$3,785,023 $2,810,163
========== ==========
NOTE 8 - RETIREMENT PLANS
The Bank has a profit sharing plan and an employee stock ownership plan which
cover substantially all employees. Employer contributions to the plans are
determined annually by the Board of Directors. Contributions to the plans
totaled $250,000 in 1995 and 1994.
The Bank has a deferred compensation plan covering certain key officers.
Benefits are based on defined participant compensation. Costs are accrued
based on the present value of expected benefits. Such costs, which are not
funded, totaled $211,030 and $76,429 in 1995 and 1994, respectively.
NOTE 9 - INCOME TAXES
The provision for income tax expense (benefit) for the years ended December 31
consist of the following:
1995 1994
---------- ----------
Currently Payable:
Federal $1,127,000 $ 859,000
State 109,000 203,000
---------- ----------
1,236,000 1,062,000
Deferred:
Federal (61,000) (4,000)
State (13,000) (1,000)
---------- ----------
(74,000) (5,000)
---------- ----------
Total Provision for Income Taxes $1,162,000 $1,057,000
========== ==========
11
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
The provision for income taxes results in effective tax rates less than the
federal income tax statutory rate for the following reasons:
1995 1994
-------------------- -------------------
Amount Rate Amount Rate
------ ---- ------ ----
Tax on Income at Federal
Statutory Rate $1,232,000 34 % $1,121,000 34 %
Oregon Income Tax, Net of
Federal Effect 75,000 2 143,900 4
Federal Tax-Exempt Interest Income,
Net of Allocable Interest Expense (150,000) (4) (194,400) (6)
Other 5,000 - (13,500) -
------ ---- ------ ----
Total Provision for Income Taxes $1,162,000 32 % $1,057,000 32 %
The Provision for deferred income taxes results from temporary differences in
recognition of transactions for tax and financial statement purposes as
follows:
1995 1994
---------- ----------
Deferred Compensation Expense $ (80,900) $ (29,700)
Provision for Loan Losses - (72,900)
Interest Income on Nonaccrual Loans - 75,700
Other, Net 6,900 21,900
---------- ----------
Deferred Income Taxes Benefit $ (74,000) $ (5,000)
========== ==========
The components of the Bank's net deferred tax asset at December 31 are as
follows:
1995 1994
---------- ----------
Deferred Tax Asset:
Allowance for Loan Loss $ 414,800 $ 414,800
Deferred Compensation 173,500 92,600
Other 33,700 17,000
---------- ----------
622,000 524,400
========== ==========
Deferred Tax Liability:
Accumulated Depreciation (117,200) (93,600)
Unrealized Gains on Investment Securities (31,188) --
---------- ----------
(148,388) (93,600)
---------- ----------
Net Deferred Tax Asset $ 473,612 $ 430,800
========== ==========
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
NOTE 10 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank makes loans to its officers,
present and former directors, principal shareholders and firms in which they
have an interest, and expects to continue making such loans in the future.
These loans are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions
with unrelated parties. The total of such related party loans was
approximately $1,092,000 and $1,305,000 in 1995 and 1994, respectively. The
Bank has commitments to lend $1,899,000 to related parties at December 31,
1995. These commitments are included in the total of commitments presented in
Note 11.
The Bank leases three of its facilities from principal shareholders,
directors, and officers under noncancelable operating lease agreements that
expire through 2005.
Future minimum payments required under these leases are as follows:
1996 $191,027
1997 41,580
1998 41,580
1999 41,580
2000 41,580
Thereafter 187,219
-------
$544,566
=======
The amounts charged to occupancy expense under these leases were $229,266 and
$224,754 in 1995 and 1994, respectively.
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In order to meet the financing needs of its customers, the Bank commits to
extensions of credit and issues standby letters of credit.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Financial Instruments with Off-Balance-Sheet Risk at December 31 are as
Follows: 1995 1994
---------- ----------
Commitments to Extend Credit $21,889,000 $19,456,000
Standby Letters of Credit 67,500 127,500
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any contractual condition. Commitments generally
have fixed expiration dates or other termination clauses and may require
payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit written are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
NOTE 12 - FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The following disclosures are made in accordance with provisions of SFAS No.
107, "Disclosures About Fair Value of Financial Instruments". The use of
different assumptions and estimation methods could have a significant effect
on the fair value amounts. Accordingly, the estimates of fair value herein
are not necessarily indicative of the amounts that might be realized in a
current market.
The estimated fair values of the Bank's financial instruments at December 31,
1995 are as follows:
Carrying Estimated
Amount Fair Value
---------- ----------
Financial Assets:
Cash and Cash Equivalents $22,220,084 $22,220,084
Investment Securities Available-For-Sale 49,069,388 49,069,388
Loans, Net of Allowance for Loan Losses 82,856,201 83,416,058
Interest Receivable 1,493,575 1,493,575
Financial Liabilities:
Deposits (138,982,738) (139,070,451)
Short-Term Borrowings (519,871) (519,871)
Interest Payable (278,182) (278,182)
Cash and Cash Equivalents--The carrying amount approximates fair value.
Investment Securities--Fair value is based on quoted market prices. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.
Loans--Fair value of fixed-rate loans is estimated by discounting the
contractual cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities. For variable rate loans, carrying amount approximates fair value.
Deposits--Fair value of demand, interest-bearing demand and savings deposits
is the amount payable on demand at the reporting date. Fair value of time
deposits is estimated by discounting the contractual cash flows using the
interest rates currently offered for deposits of similar remaining maturities.
The estimated fair values of deposits do not take into account the benefit
that results from low-cost funding such deposits provide.
Short-Term Borrowings--The carrying amount approximates fair value.
Interest Receivable and Payable--The carrying amount approximates fair value.
Off-Balance-Sheet Financial Instruments--Consist primarily of commitments to
extend credit and standby letters of credit. The fair value of these
commitments, based on fees currently charged for similar commitments, is not
material.
NOTE 13 - SUBSEQUENT EVENT
On March 11, 1996 the Bank's Board of Directors entered into a cash merger
agreement with First Savings Bank of Washington Bancorp, Inc. wherein the
Bank's shareholders will receive $60.24 per share subject to certain
adjustments and conditions. The agreement will require the approval of at
least two-thirds (355,804) of the shares of the Bank. In addition, the
transaction is subject to applicable state and federal regulatory approval.
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EXHIBIT 99
AUGUST 1, 1996 PRESS RELEASE
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FIRST SAVINGS BANK OF WASHINGTON BANCORP INC. COMPLETES ACQUISITION OF INLAND
EMPIRE BANK
Walla Walla WA--August 1, 1996--First Savings Bank of Washington Bancorp,
Inc. (NASDAQ:FWWB), the parent company for First Savings Bank of Washington,
today announced it closed its acquisition of Inland Empire Bank (IEB) of
Hermiston, Oregon. The Bancorp paid a total of $32.5 million in cash for all
the outstanding shares of IEB.
Founded in 1948, Inland Empire Bank had approximately $155 million in
total assets, $135 million in deposits, $89 million in net loans and $19
million in shareholders equity at June 30, 1996. IEB operates full service
offices in Hermiston, Pendleton, Boardman, Stanfield and Umatilla, Oregon.
The combined institutions will have 21 full service offices in nine counties
in Washington and Oregon.
Inland Empire Bank, with its specialization in agricultural, commercial
and consumer lending and its geographic proximity, is a superb addition to our
franchise, said Gary Sirmon, President and CEO of
First Savings Bank. We believe the acquisition of IEB will contribute to the
Bancorp s earnings in fiscal
1997.
Both IEB and First Savings Bank will operate as wholly-owned subsidiaries
of the Bancorp. We believe this combination will be mutually beneficial to
the customers, communities and employees of both institutions. IEB is a solid
institution with a history of community involvement in an attractive market.
By building on the special areas of expertise of each bank, the combined
institutions will provide an enhanced range of community banking services in
their respective markets, Sirmon added.
Founded in 1890, First Savings Bank of Washington operates 16 branches in
communities throughout central and eastern Washington. In addition, First
Savings Bank operates lending offices in Bellevue, Puyallup and Spokane,
Washington. The core of First Savings Bank s lending business is residential
loans for the purchase of homes and for home construction. At June 30, 1996
the Bancorp had total assets of $765 million and total shareholders equity of
$149 million. On Wednesday, July31, 1996, Bancorp s stock closed at $15.44
per share.
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