FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 December 31, 1996
- ---------------- -----------------------
Common stock, $.01 par value 10,569,082 shares *
* Includes 783,416 shares held by employee stock ownership plan that have not
been released, committed to be released, or allocated to participant accounts;
and 403,982 unvested shares held in trust for management recognition and
development plan.
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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 December 31, 1996 and March 31, 1996 . . . . . . . . . . . . . . . 1
Consolidated Statements of Income
for the Quarter and Nine months ended December 31, 1996 and 1995 . . . . 2
Consolidated Statements of Changes in Stockholders' Equity
for the Nine months ended December 31, 1996 and 1995 . . . . . . . . . . 3
Consolidated Statements of Cash Flows
for the Nine months ended December 31, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Recent Developments and Significant Events . . . . . . . . . . . . . . . 10
Comparison of Financial Condition at December 31 and March 31, 1996. . . 10
Comparison of Operating Results for the Quarter and Nine months ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 11
Asset Quality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . . 16
Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 17
PART II - OTHER INFORMATION
Item 1.Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 2.Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 18
Item 3.Defaults upon Senior Securities . . . . . . . . . . . . . . . . . 18
Item 4.Submission of Matters to a Vote of Stockholders . . . . . . . . . 18
Item 5.Other Information . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 6.Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
EXHIBIT 27- FINANCIAL DATA SCHEDULE . . . . . . . . . . . . . . . . . . 20
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FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands except for shares)
December 31, 1996 and March 31, 1996
(Unaudited)
ASSETS December 31 March 31
1996 1996
-------- --------
CASH AND DUE FROM BANKS $ 32,448 $ 9,026
SECURITIES AVAILABLE FOR SALE, cost $293,824
and $290,515 294,721 291,687
SECURITIES HELD TO MATURITY, fair value $1,281
and $2,059 1,281 2,059
LOANS RECEIVABLE HELD FOR SALE, fair value $2,932
and $1,558 2,932 1,558
LOANS RECEIVABLE, net of the allowance for losses
of $6,496 and $4,051 598,579 413,737
ACCRUED INTEREST RECEIVABLE 6,565 4,627
REAL ESTATE HELD FOR SALE, net 832 712
FEDERAL HOME LOAN BANK STOCK 12,205 9,030
PROPERTY AND EQUIPMENT, net 9,683 6,582
COSTS IN EXCESS OF NET ASSETS ACQUIRED 12,013 --
DEFERRED INCOME TAX ASSET 1,369 240
OTHER ASSETS 4,447 3,918
-------- --------
$977,075 $743,176
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Interest bearing $492,942 $367,248
Non-interest bearing 39,530 6,816
-------- --------
532,472 374,064
ADVANCES FROM FEDERAL HOME LOAN BANK 220,212 179,419
OTHER BORROWINGS 60,800 19,652
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 2,498 3,563
ACCRUED EXPENSES AND OTHER LIABILITIES 8,613 8,319
DEFERRED COMPENSATION 3,195 1,618
FEDERAL INCOME TAXES PAYABLE 1,419 2,399
-------- --------
829,209 589,034
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; 10,569,082
shares and 10,910,625 shares outstanding & unrestricted
at December 31, 1996 and March 31, 1996 respectively 109 109
Additional paid - in capital 107,765 107,370
Retained earnings 60,214 55,343
Unrealized gain (loss) on securities available for sale 588 774
Treasury stock: 341,543 shares at December 31, 1996 and
none at March 31, 1996 (5,969) --
Unearned shares of common stock issued to employee
stock ownership plan trust 783,416 and 833,127
shares outstanding but restricted at December 31,
1996 and March 31,1996, respectively (7,834) (8,331)
Shares held in trust for deferred compensation plans (7,007) (1,123)
-------- --------
147,866 154,142
-------- --------
$977,075 $743,176
======== ========
1
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FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (in thousands except per share amounts)
Quarter Nine months
Ended December 31 Ended December 31
1996 1995 1996 1995
------- ------- ------- --------
INTEREST INCOME:
Loans receivable $ 12,843 $ 6,907 $ 33,091 $ 19,687
Mortgage-backed obligations 3,095 1,551 9,426 4,540
Securities and deposits 2,326 2,275 6,180 4,986
------- ------- ------- --------
18,264 10,733 48,697 29,213
INTEREST EXPENSE:
Deposits 5,825 5,196 15,886 14,324
Federal Home Loan Bank advances 3,415 313 9,222 2,244
Other borrowings 551 113 1,256 330
------- ------- ------- --------
9,791 5,622 26,364 16,898
Net interest income before provision
for loan losses 8,473 5,111 22,333 12,315
PROVISION FOR LOAN LOSSES 231 156 1,151 268
------- ------- ------- --------
Net interest income 8,242 4,955 21,182 12,047
OTHER OPERATING INCOME:
Loan servicing fees 215 190 599 610
Other fees and service charges 510 109 1,055 321
Gain on sale of loans 244 153 518 501
Gain (loss) on sale of securities 208 (264) -- (230)
Miscellaneous 22 (18) 76 (18)
------- ------- ------- --------
Total other operating income 1,199 170 2,248 1,184
OTHER OPERATING EXPENSES:
Salary and employee benefits 3,123 1,519 7,816 4,531
Less capitalized loan origination costs (339) (347) (1,131) (914)
Occupancy 447 223 1,056 719
Outside computer services 249 178 669 533
Real estate operations (14) (11) (2) (91)
Advertising 154 99 351 255
Deposit insurance 63 209 2,882 623
Miscellaneous 1,208 607 2,995 1,888
------- ------- ------- --------
Total other operating expenses 4,891 2,477 14,636 7,544
------- ------- ------- --------
Income before income taxes 4,550 2,648 8,794 5,687
INCOME TAXES 1,444 830 2,492 1,641
------- ------- ------- --------
NET INCOME $ 3,106 $ 1,818 $ 6,302 $ 4,046
======= ======= ======= ========
Net income per common share:
Primary $ .32 $ N/A $ .65 $ N/A
Fully diluted $ .32 $ N/A $ .64 $ N/A
Weighted average shares outstanding:
Primary 9,642 N/A 9,761 N/A
Fully diluted 9,670 N/A 9,774 N/A
Cumulative dividends declared per
common share: $ .05 $ N/A $ .15 $ N/A
2
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<TABLE>
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited) (in thousands except for shares)
For the Nine months ended December 31, 1996, and 1995
Unrealized Shares held
gain on in Trust
Common Stock Additional securities Unearned ESOP shares Treasury stock for deferred
Number of At par paid-in Retained available Number of Carrying Number of Carrying compens- Total
Shares Value capital earnings for sale Shares Value Shares Value ation Equity
------ ------ ------- -------- -------- ------ ------ ------ ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, April 1, 1995 -- $ -- $ -- $ 50,099 $ 152 -- $ -- -- $ -- $ -- $50,251
Net income 4,046 4,046
Change in unrealized gain on
securities available for sale,
net of federal income taxes 676 676
Proceeds from sale of stock
in initial offering:
Proceeds 100 98,533 98,633
Shares 10,037,775
Proceeds from sale of
stock to ESOP:
Proceeds 9 8,719 (8,728) --
Shares 872,850 (872,850)
Cash dividends on common stock
(.05/share cumulative) (504) (504)
Release of earned ESOP shares 80 27,143 271 351
------ ------ ------- -------- ------- ------ ------ ------ ------ --------- -------
BALANCE, December 31,
1995 10,910,625 $ 109 $107,332 $53,641 $ 828 (845,707) $(8,457) -- $ -- $ -- $153,453
BALANCE, April 1, 1996 10,910,625 $ 109 $107,370 $55,343 $ 774 (833,127) $(8,331) -- $ -- $(1,123)$154,142
Net income 6,302 6,302
Change in unrealized gain on
securities available for sale,
net of federal income taxes (186) (186)
Cash dividends on stock
($.15/share cumulative) (1,431) (1,431)
Purchase of treasury stock (745,525) (11,921) (11,921)
Reissuance of treasury stock for deferred
compensation plan 57 404,282 5,956 (6,014) --
Release of earned ESOP shares 338 49,711 497 835
Forfeiture or change in number and/or
carrying amount of shares held in trust
for deferred compensation plans (300) (5) (130) (125)
------ ------ ------- -------- ------- ------ ------ ------ ------ --------- -------
BALANCE, December 31,
1996 10,910,625 $ 109 $107,765 $ 60,214 $ 588 (783,416) $(7,834) (341,543) $(5,969) $(7,007)$147,866
</TABLE>
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FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
For the Nine months ended December 31, 1996 and 1995
1996 1995
OPERATING ACTIVITIES -------- --------
Net income $ 6,302 $ 4,046
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred taxes (950) --
Depreciation 529 335
Loss (gain) on sale of securities -- 230
Amortization of costs in excess of net assets acquired 370 --
Amortization of MRDP liability 601 --
Loss (gain) on sale of loans (518) (501)
Loss (gain) on sale of real estate owned 57 --
Net changes in deferred loan fees, premiums and discounts 677 (72)
Amortization of purchased mortgage servicing rights 50 --
Net amortization of premiums and discounts on investments (568) 50
Provision for loan and real estate owned losses 1,151 378
FHLB stock dividend (647) (193)
Cash provided (used) in operating assets and liabilities:
Loans held for sale 674 18
Accrued interest receivable 50 (272)
Other assets (33) (1,540)
Deferred compensation 175 698
Accrued expenses and other liabilities (1,245) 295
Federal income taxes payable (1,088) 148
-------- --------
Net cash provided by operating activities 5,587 3,620
INVESTING ACTIVITIES:
Purchase of securities available for sale (434,401) (307,420)
Principal payments and maturities of securities
available for sale 477,326 230,400
Sales of securities available for sale 766 18,807
Purchase of securities held to maturity -- (2,215)
Principal payments and maturities of securities held
to maturity 794 4,006
Purchase of FHLB stock (2,528) --
Loans closed and purchase of loans and participating
interest in loans (276,516) (159,512)
Sale of loans and participating interest in loans 28,686 38,524
Principal repayments on loans 149,554 82,872
Purchase of property & equipment (398) (1,204)
Proceeds from sale of property and equipment 5 --
Additional investment in real estate owned (REO) -- (91)
Basis of REO acquired in settlement of loans
and disposed of during the period, net of gain 369 483
Funds transferred to deferred compensation trust (55) --
Acquisition of IEB, net of cash acquired (17,289) --
-------- --------
Net cash used by investing activities (73,687) (95,350)
( Continued on next page)
4
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FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
For the Nine months ended December 31, 1996 and 1995
(Continued from prior page)
1996 1995
FINANCING ACTIVITIES -------- --------
Proceeds from issuance of common stock $ -- $107,361
Funding provided to ESOP for purchase of common stock -- (8,728)
Increase (decrease) in deposits 23,798 7,748
Proceeds from FHLB advances 415,652 278,814
Repayment of FHLB advances (374,859) (286,957)
Proceeds form reverse repurchase borrowings 42,444 --
Repayments of reverse repurchase borrowings (133) --
Decrease in other borrowings (1,783) (160)
Decrease in borrowers' advances for taxes and insurance (1,065) (1092)
Compensation expense recognized for shares released
for allocation to participants of the ESOP:
Original basis of shares 497 271
Excess of fair value of released shares over basis 338 80
Cash dividend paid (1,446) --
Purchase of treasury stock (11,921) --
-------- --------
Net cash provided by financing activities 91,522 97,337
-------- --------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 23,422 5,607
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 9,026 5,497
-------- --------
CASH AND DUE FROM BANKS, END OF PERIOD $ 32,448 $ 11,104
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 25,975 $ 16,974
Taxes paid $ 4,234 $ 2,114
Non-cash transactions:
Securities transferred from held to maturity to
available for sale $ -- $ 1,426
Loans, net of discounts, specific loss allowances
and unearned income transferred to real estate owned $ 546 $ --
Net change in accrued dividends payable $ 15 $ 504
Net change in unrealized gain (loss) in deferred
compensation trust and related liability $ 440 $ --
Treasury stock reissued to MRDP $ 6,014 $ --
Treasury stock forfeited by MRDP $ 5 $ --
5
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FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and March 31, 1996
Note 1: Basis of Presentation
The unaudited consolidated financial statements of First Savings
Bank of Washington Bancorp, Inc. (the Company) 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 consolidated financial
statements include the Company's wholly owned subsidiaries, First Savings Bank
of Washington (FSBW) and Inland Empire Bank (IEB). The balance sheet data at
March 31, 1996, is derived from the Company's audited financial statements.
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 Company's subsidiary banks adopted SFAS No. 122,
Accounting for Mortgage Servicing Rights, which amended SFAS No. 65. SFAS
No. 122 requires the Banks 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 applied prospectively. The adoption of this statement has not
materially impacted the Company's results of operation or financial condition.
Note 2: Securities, Investments; Securities and Deposits Interest Income
The following table sets forth the Company's securities, investments and
interest bearing deposit portfolio at the dates indicated
(at carrying value) (in thousands):
December 31, March 31,
1996 1996
-------- --------
Interest bearing deposits included
in cash and due from bank $ 15,326 $ 7,990
Mortgage-backed obligations 177,426 177,185
Other securities-taxable 80,145 84,080
Other securities-tax exempt 34,647 29,365
Other stocks with dividends 3,784 3,116
-------- --------
Total Securities $296,002 $293,746
-------- --------
Federal Home Loan Bank Stock 12,205 9,030
$323,533 $310,766
======== ========
The following table sets forth income from securities and deposits for the
periods indicated (in thousands):
Quarter ended Nine months ended
December 31 December 31
1996 1995 1996 1995
------ ------ ------ ------
Mortgage-backed obligations $ 3,095 $ 1,551 $ 9,426 $ 4,540
Taxable interest $ 1,513 $ 1,700 $ 3,873 $ 3,277
Tax-exempt interest 530 463 1,514 1,388
Other stock-dividends 47 42 146 128
Federal Home Loan Bank stock-dividends 236 70 647 193
------ ------ ------ ------
$ 2,326 $ 2,275 $ 6,180 $ 4,986
------ ------ ------ ------
$ 5,421 $ 3,826 $15,606 $ 9,526
====== ====== ====== ======
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Note 3: Recent Developments and Significant Events Since March 31, 1996
During the nine months ended December 31, 1996 the US Congress passed
legislation requiring that all financial institutions with deposits insured by
the Savings Association Insurance Fund (SAIF) pay a special assessment to
recapitalize the SAIF. This assessment resulted in the Company's SAIF insured
subsidiary, First Savings Bank of Washington (FSBW), recording a $2.4 million
expense representing FSBW's share of an industry-wide special assessment to
recapitalize the SAIF, which is administered by the Federal Deposit Insurance
Corporation (FDIC). The assessment was calculated at .657% of insured
deposits as of March 31, 1995. The special assessment, charged to every
depository institution in the country with deposits insured by SAIF, was
contained in the US Congressional omnibus appropriations package passed on
September 30, 1996. The legislation empowers the FDIC to lower the insurance
premium from $.23 per $100 of deposits to $.065 per $100 of deposits beginning
January 1997. The $2.4 million assessment ($1.6 million after tax) was
recorded as part of the Company's non-interest expense in the quarter ended
September 30, 1996. Excluding the special assessment, the Company's net
income for the nine months ended December, 1996 would have been approximately
$7.9 million, or $.81 per share compared with net income of $4.0 million for
the comparable period in fiscal 1996. Management estimates that this special
assessment expense will be offset during the next three to four years through
anticipated lower depository insurance costs.
At the Company's annual stockholders meeting held on July 26, 1996, the
shareholders approved adoption of the Management Recognition and Development
Plan (MRDP) and Stock Option Plan (SOP). Under the MRDP 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 404,282 shares with
a total cost of $6.0 million vests over a five year period starting from the
July 26, 1996, MRDP approval date. The consolidated statements of income for
the quarter and nine months ended December 31, 1996, reflect an accrual of
$321,000 and $641,000 respectively of compensation expense for the MRDP
including $20,000 and $40,000, respectively, of expense for dividends on the
allocated, restricted stock. Under the SOP the Company has reserved 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 stock options are set at 100% of the fair market value of the stock
price at date of grant. As of December 31, 1996, approximately 903,000 stock
options with a weighted average exercise price of $15.017 per share have been
granted. Such options will vest over a five year period ending in fiscal 2002
and any unexercised options will expire after ten years.
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 $32.8 million. IEB has five full service branches, a remote drive-up
facility and two loan production offices located in northeast Oregon. The
acquisition of IEB was treated as a purchase for accounting purposes.
Accordingly, under generally accepted accounting principles, the assets and
liabilities of IEB have been recorded on the books of the Company at their
respective fair market values at the effective date the acquisition was
consummated. Goodwill, the excess of the purchase price (cost) over the net
fair value of the assets and liabilities, was recorded at $12.4 million.
Amortization of goodwill over a 14 year period will result in a charge to
earnings of approximately $884,000 per year. Because of the amount of assets
of IEB acquired by the Company, the financial results for December 31, 1996,
are not generally comparable to those of a year ago. The combined
organization at December 31, 1996, is significantly larger than it was a year
ago.
The accompanying financial statements include the operations of the two
institutions from August 1, 1996, to December 31, 1996. The following pro
forma information presents the results of operations for the quarter and nine
months ended December 31, 1996 and 1995, as though the acquisition had
occurred on April 1, 1995. The pro forma results do not necessarily indicate
the actual results that would have been obtained, nor are they necessarily
indicative of the future operations of the combined companies. The unaudited
pro forma results of operations were as follows.
<PAGE>
(in thousands except per share amounts) (Unaudited) (Unaudited)
(pro forma) (pro forma)
Quarter ended Nine months ended
December 31, December 31,
1996 1995 1996 1995
------ ------ ------ ------
Net interest income $ 8,473 $ 7,020 $25,140 $18,207
Net income 3,120 2,286 6,879 5,302
Net income per share $ .32 N/A $ .70 N/A
7
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Note 3: Recent Developments and Significant Events (continued)
A summarized, unaudited, balance sheet of IEB as of August 1, 1996, date of
acquisition, reflecting the allocation of the total purchase price and closing
costs of $32.8 million to IEB's assets and liabilities follows:
(Unaudited)
(in thousands)
August 1, 1996
--------
Cash and due from banks $ 15,543
Securities available for sale 46,068
Loans receivable net of allowance
for losses of $1,416 90,470
Property and equipment, net 3,238*
Costs in excess of net assets acquired 12,383
Deferred tax asset 179*
Other assets 2,514
--------
Total Assets $170,395
========
Deposits ($30,804-non-interest bearing) $134,610
Other borrowing 620
Federal income tax payable 51
Other liabilities 2,516
--------
Total Liabilities $137,797
--------
Common stock and paid in capital 32,832
Unrealized loss on securities available
for sale net of taxes (234)
--------
Total Equity 32,598
--------
Total Liabilities and Equity $170,395
========
* - Includes an allocation of $850,000 to property for fair market value in
excess of book value on August 1, 1996 and a reduction in the deferred tax
asset for the related liability for deferred taxes of $326,000 on the
$850,000 allocation.
8
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Note 4: Calculation of Weighted Average Shares Outstanding for Earnings Per
Share (EPS) and Outstanding Shares at the End of Period.
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 FSBW was a wholly-owned subsidiary of a mutual
holding company.
Calculation of
Weighted Average Shares Outstanding
for Earnings Per Share
(in thousands)
Quarter ended Nine months ended
December 31 December 31
1996 1995 1996 1995
------ ------ ------ ------
Total shares issued 10,911 N/A 10,911 N/A
Less treasury stock (111) (166)
Less unallocated shares
held by the ESOP (810) (820)
Less unvested shares
held by the MRDP (404) (234)
------ ------
9,586 9,691
Adjust MRDP shares for incremental
shares considered outstanding
for Primary EPS calculations 56 70
------ ------
Primary weighted average shares
outstanding 9,642 N/A 9,761 N/A
------ ------ ------ ------
Adjust MRDP shares for incremental
shares considered outstanding
for fully diluted EPS calculations 28 N/A 13 N/A
Fully diluted weighted average ------ ------ ------ ------
shares outstanding 9,670 N/A 9,774 N/A
====== ====== ====== ======
Calculation of
Outstanding Shares
(in thousands)
At At
December 31 March 31
1996 1996
------ ------
Total shares issued 10,911 10,911
Less treasury stock (342) --
------ ------
Outstanding shares 10,569 10,911
====== ======
9
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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 its wholly owned subsidiaries, First
Savings Bank of Washington (FSBW) and Inland Empire Bank (IEB) (together, the
Banks). FSBW is a Washington-chartered savings bank the deposits of which are
insured by the FDIC under the Savings Association Insurance Fund (SAIF). FSBW
conducts business from its main office in Walla Walla, Washington and its 16
branch offices and three loan production offices located in southeast,
central, north central and western Washington. IEB is an Oregon-chartered
commercial bank whose deposits are insured by the Federal Deposit Insurance
Corporation (FDIC) under the Bank Insurance Fund (BIF). IEB conducts business
from its main office in Hermiston, Oregon and its five branch offices and two
loan production offices located in northeast Oregon.
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
Federal Home Loan Bank (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 nine months ended
December 31, 1996, when compared to the same the periods 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 for the quarter and nine months also increased
reflecting the rise in net interest income and a substantial increase in other
operating income which was somewhat offset by increases in operating expenses
and provision for income taxes. Operating results and in, particular,
non-interest operating expenses for the nine months ended December 31, 1996,
were significantly affected by the special assessment to recapitalize SAIF.
Operating results for the most recent quarter and nine month periods were also
significantly affected by the acquisition of IEB.
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.
Recent Developments and Significant Events
On November 19, 1996, the Company completed its stock repurchase program
initiated in April 1996 which authorized the repurchase of 545,525 shares of
its outstanding common stock. On November 20, 1996, the Company's Board of
Directors approved continuance of the stock repurchase program authorizing the
purchase of up to 10% of total shares outstanding over the next 12 months. As
of December 31, 1996, the company has repurchased a total of 745,525 shares
at an average price of $15.990 per share. The Company has set aside 436,425
shares for its Management Recognition and Development Plan (MRDP) of which
403,982 shares were allocated as of December 31, 1996 (see Note 3 to
financial statements) The remaining 32,443 unallocated shares are held as
treasury stock designated for the MRDP.
During the nine months ended December 31, 1996 the US Congress passed
legislation requiring that all financial institutions with deposits insured by
the Savings Association Insurance Fund (SAIF) pay a special assessment to
recapitalize the SAIF. This assessment resulted in the Company's SAIF insured
subsidiary, First Savings Bank of Washington recording a $2.4 million ($1.6
million after tax) non-interest expense (see Note 3 to financial statements).
The Company completed the acquisition of Inland Empire Bank (IEB) of
Hermiston, Oregon effective August 1, 1996. (see Note 3 to financial
statements).
Comparison of Financial Condition at December 31 and March 31, 1996
Total assets increased $233.9 million, or 31.5%, from $743.2 million at March
31, 1996, to $977.1 million at December 31, 1996. The majority of the growth,
$157.6 million, was from the August, 1996 acquisition of IEB. The balance of
the increase generally reflected growth in net loans receivable and was funded
primarily with advances from the FHLB and other borrowings. This growth
represented a continuation of management's plans to leverage the Company's
strong capital position.
10
<PAGE>
<PAGE>
Loans receivable grew $186.2 million, or 44.8%, from $415.3 million at March
31,1996, to $601.5 million at December 31, 1996. The acquisition of IEB
contributed $90.5 million of the increase and the remaining increase in loans
of $95.7 million was funded primarily by a net increase of $81.9 million, or
41.2%, in FHLB advances and other borrowings under repurchase agreements from
$199.1 million at March 31, 1996, to $281.0 million on December 31, 1996.
Securities available for sale and held to maturity increased $2.3 million to
$296.0 million at December 31, 1996 from $293.7 million at March 31,1996.
Federal Home Loan Bank Stock increased $3.2 million as the Company was
required to purchase more stock as a result of its increased use of FHLB
advances.
Deposits grew $158.4 million or 42.3%, from $374.1 million at March 31, 1996,
to $532.5 million at December 31, 1996. The acquisition of IEB contributed
$134.6 million of the increase.
Comparison of Operating Results for the Quarter and Nine months Ended December
31, 1996 and 1995
General. Net income for the third quarter of fiscal 1997 was $3.1 million,
an increase of $1.3 million from the comparable quarter ended December, 1995.
Net income for the first nine months of fiscal 1997 was $6.3 million, or $.65
per share, compared to net income of $4.0 million recorded in the comparable
period of fiscal 1996. Net income for the nine months ended December 31, 1996
was significantly affected by recording the $2.4 million ($1.6 million after
tax) non-interest expense representing the Company's share of an industry-wide
special assessment in the second quarter to recapitalize SAIF. The special
assessment, charged to every depository institution in the country with
deposits insured by SAIF, was contained in the US Congressional omnibus
appropriations package passed in September, 1996. The legislation empowered
the FDIC to lower the insurance premium from $.23 per $100 of deposits to
$.065 per $100 of deposits beginning January, 1997. The Company's net income,
without the special assessment, would have been approximately $7.9 million for
the nine months of fiscal 1997. In addition, the nine months ended December
31, 1996 included five months of combined operations with Inland Empire Bank
which the Company acquired on August 1, 1996. The acquisition significantly
affected the Company's operating results for both the quarter and the nine
months ended December 31, 1996.
Excluding the special assessment, the Company's improved operating results
reflect the significant growth of assets, liabilities and stockholders'
equity. Compared to year ago levels, total assets increased 64% to $977.1
million at December 31, 1996, total loans rose 78% to $601.5 million and total
deposits climbed 45% to $532.5 million. Assets were 32% higher than at March
31, 1996, total loans rose 45%, and deposits grew 42% in the first three
quarters of fiscal 1997. The substantial increase in these balances resulted
from the deployment and leveraging of the $98.6 million in net proceeds raised
in the Company's conversion from mutual to stock ownership on October 31, 1995
and the second quarter acquisition of IEB.
The Company's return on average equity increased from 5.93% for the quarter
ended December 31, 1995, to 8.41% for the quarter ended December 31, 1996.
Return on equity for the nine months ended December 31, 1996, decreased to
5.67% as compared to 7.13% for the same period in December, 1995, which was
expected due to the large increase in average equity resulting from the
October 31, 1995, stock offering.
Interest Income. Interest income for the quarter ended December 31, 1996, was
$18.2 million compared to $10.7 million for the quarter ended December 31,
1995, an increase of $7.5 million, or 70.2%. The increase in interest income
was a result of a $349.5 million or 61.2% growth in average balances of
interest earning assets combined with a 39 basis point increase in the average
yield on those assets , which rose from 7.48% in the quarter ended December
31, 1995, to 7.87% in 1996. Average loans receivable for the third quarter
of fiscal 1997 increased by $263.8 million, or 81.0% when compared to the same
quarter in fiscal 1996. Interest income on loans increased by $5.9 million or
85.9%, compared to the same quarter a year earlier reflecting the impact of
the increase in average loan balances and a 20 basis point increase in the
yield on those balances primarily resulting from the inclusion of higher
yielding loans held by IEB. Loans yielded 8.64% for the quarter ended
December 31, 1996, compared to 8.44% for the quarter ended December 31, 1995.
The average balance of mortgage-backed obligations and investment securities
for the third quarter fiscal 1997, increased by $85.6 million compared to the
same quarter in fiscal 1996, and the yield on those balances increased 29
basis points primarily reflecting certain purchases of mortgage-backed
obligations. Interest income on loans for the nine months ended December 31,
1996, increased $13.4 million or 68.09% from the comparable period in
December, 1995. The increase reflects a $203.8 million increase in the
average balance of loans receivable combined with a 14 basis point increase in
their yield. The August 1996 acquisition of $90.5 million of loans held by
IEB contributed a significant portion of the increase.
11
<PAGE>
<PAGE>
The average balance of mortgage-backed securities, investment securities,
daily interest-bearing deposits and FHLB stock increased by $85.7 million in
the quarter ended December 31, 1996, and interest and dividend income from
those investments rose by $1.6 million for the December,1996 quarter compared
to 1995. The average yield on mortgage-backed securities rose from 6.52% for
the quarter ended December,1995 to 6.83% in 1996. The average yield on
investment securities and deposits decreased slightly from 5.97% for the
quarter ended December ,1995 to 5.94% in 1996. Earnings on FHLB stock
increased by $166,000 reflecting an increase of $7.9 million in the average
balance of FHLB stock for the quarter ended December,1996 and a 77 basis point
increase in the dividend yield on that stock.
Interest income on interest bearing securities and deposits and FHLB stock for
the nine months ended December 31, 1996, increased $1.2 million from the
comparable period in December 1995. The increase reflects a $28.9 million
increase in the average balance of securities and deposits, and FHLB stock
combined with a slight, 10 basis point, increase in yield.
Interest Expense. Interest expense for the quarter ended December 31, 1996,
was $9.8 million compared to $5.6 million for the comparable period in 1995,
an increase of $4.2 million, or 74.2%. The increase in interest expense was
due to the $344.6 million growth in average interest-bearing liabilities. The
increase in average interest-bearing liabilities in the quarter ended December
1996 was largely due to a $237.8 million increase in the average balance of
FHLB advances and other borrowings combined with a $106.8 million growth in
average deposits coming primarily from the acquisition of IEB. Average FHLB
advances totaled $228.1 million during the quarter ended December 31, 1996, as
compared to $22.1 million during the quarter ended December 31, 1995,
resulting in a $3.1 million increase in related interest expense. The average
rate paid on those advances increased from 5.64% for the quarter ended
December, 1995 to 5.94% for the comparable period in 1996. Other borrowings
consist of retail repurchase agreements with customers and repurchase
agreements with investment banking firms secured by certain investment
securities. The average balance for other borrowings increased $31.7 million
from $7.3 million for the quarter ended December 31, 1995, to $39.0 million
for the same period in 1996, and the related interest expense increased
$438,000, from $113,000 to $551,000 for the respective periods. The bulk of
this growth in other borrowings reflects an increase in repurchase agreements
with investment banking firms. Average deposit balances increased from $420.7
million for the quarter ended December 1995, to $527.5 million for the
comparable period in 1996 while, at the same time, the average rate paid on
deposit balances decreased 53 basis points. The sharp decline in the rate
paid on deposits primarily reflects the acquisition of IEB's $32.1 million of
non-interest bearing deposits. Deposit interest expense increased a modest
$629,000 for the quarter ended December 31, 1996. A comparison of total
interest expense for the nine months ended December 31, 1996, shows an
increase of $9.5 million or 56.0% from the comparable period in December,
1995. The majority of this increase is due to the $185.0 million growth in
the average balances of FHLB and other borrowings which are being used to
leverage the Company's growth in interest earning assets.
12
<PAGE>
<PAGE>
The following tables provide additional comparative data on the Company's
operating performance (in thousands):
Quarter Nine months
ended December 31, ended December 31,
Average Balances (*) (*)
1996 1995 1996 1995
------ ------ ------ ------
Investment securities and deposits $139,606 $146,990 $123,561 $101,723
Mortgage-backed obligations 179,871 94,663 182,350 91,451
Loans 589,472 325,668 517,430 313,610
FHLB stock 11,720 3,858 10,835 3,795
------ ------ ------ ------
Total average interest-earning asset 920,669 571,179 834,176 510,579
Non-interest earning assets 37,179 30,559 26,545 20,681
------ ------ ------ ------
Total average assets $957,848 $601,738 $860,721 $531,260
======= ======= ======= =======
Deposits $527,485 $420,650 $457,680 $382,309
Advances from FHLB 228,117 22,063 211,560 49,132
Other borrowings 38,973 7,284 29,688 7,165
Total average interest-bearing ------- ------- ------- -------
liabilities 794,575 449,997 698,928 438,606
Non-interest-bearing liabilities 16,824 29,796 14,238 17,080
------ ------ ------ ------
Total average liabilities 811,399 479,793 713,166 455,686
Equity 146,449 121,945 147,555 75,574
------ ------ ------ ------
Total average liabilities and equity $957,848 $601,738 $860,721 $531,260
Interest Rate Yield/Expense [rates are annualized]
Interest Rate Yield:
Investment securities and deposits 5.94% 5.97% 5.94% 6.27%
Mortgage-backed obligations 6.83% 6.52% 6.86% 6.61%
Loans 8.64% 8.44% 8.49% 8.35%
FHLB stock 7.99% 7.22% 7.93% 6.77%
Total interest rate yield on interest- ------ ------ ------ ------
earning assets 7.87% 7.48% 7.75% 7.61%
Interest Rate Expense:
Deposits 4.38% 4.91% 4.61% 4.99%
Advances from FHLB 5.94% 5.64% 5.79% 6.08%
Other borrowings 5.61% 6.17% 5.62% 6.13%
Total interest rate expense on interest- ----- ----- ----- -----
bearing liabilities 4.89% 4.97% 5.01% 5.13%
----- ----- ----- -----
Interest spread 2.98% 2.51% 2.74% 2.48%
===== ===== ===== =====
Net interest margin on interest-
earning assets 3.65% 3.56% 3.55% 3.21%
Additional Key Financial Ratios [ratios are annualized]
Return on average assets 1.29% 1.20% 0.97% 1.01%
Return on average equity 8.41% 5.93% 5.67% 7.13%
Average equity / average assets 15.29% 20.27% 17.14% 14.23%
Average interest-earning assets/
interest-bearing liabilities 115.87% 126.93% 119.35% 116.41%
Non-interest [other operating] expenses/
average assets 2.03% 1.64% 2.26% 1.89%
Efficiency ratio [non-interest
(other operating) expenses / revenues] 50.57% 46.90% 59.54% 55.89%
(*) Some calculations of average balances and related interest rates and
financial ratios have been changed from those reported in December, 1995 to
reflect reclassifications and changes in calculations necessary to be
comparable to the current December, 1996 presentation.
13
<PAGE>
<PAGE>
Provision for Loan Losses. During the quarter ended December 31, 1996, the
provision for loan losses was $231,000, compared to $156,000 for the quarter
ended December 31, 1995, an increase of $75,000. The increase in the
provision for estimated loan losses is primarily attributable to the overall
increase in net loans receivable. Net loans increased $29.6 million, for the
quarter ended December 31, 1996 versus $26.8 million for the comparable period
in 1995. The allowance for loan losses, net of charge-offs (recoveries),
increased by $2.4 million, to $6.5 million at December 31, 1996, compared to
$4.1 million at March 31, 1996. A comparison of the provision for loan losses
for the nine months ended December 31, 1996, shows an increase of $883,000 to
$1.2 million for the nine months ended December 31, 1996, from $268,000 for
the comparable period in 1995. This increase is primarily due to the $95.7
million growth in loans receivable for the 1996 nine month period (excluding
the acquisition of IEB's $90.5 million loan portfolio) as compared to the
$38.4 million growth in loans receivable for the same period in 1995. 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 Banks allowance for loan losses. Such agencies may
require the Banks' to provide additions to the allowance based upon judgments
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 Banks'
control.
The following tables are provided to disclose additional detail on the
Company's loans and allowance for loan losses (dollars in thousands):
December 31, March 31,
1996 1996
------ ------
Loans [ including loans held for sale]:
Gross principal $663,537 $456,466
Less loans in process 52,876 35,244
Less deferred fees and discounts 2,654 1,876
Less allowance for loan losses 6,496 4,051
------ ------
Total net loans at end of period $601,511 $415,295
======= =======
Allowance for loan losses as a percentage of
gross principal of loans outstanding 0.98% 0.89%
Loans serviced for others $213,000 $221,201
======= =======
Quarter ended Nine months ended
December 31, December 31,
1996 1995 1996 1995
------ ------ ------ ------
Change in allowance for loan losses:
Balance at beginning of the period $6,270 $3,661 $4,051 $3,549
Acquisition of IEB -- -- 1,416 --
Provision for loan losses 231 156 1,151 268
Recoveries 13 5 45 5
Charge-offs (18) -- (167) --
------ ------ ------ ------
Balance at end of the period $6,496 $3,822 $6,496 $3,822
====== ====== ====== ======
Charge-offs as a percentage of average
net book value of loans outstanding
for the period. 0.00% 0.00% 0.03% 0.00%
14
PAGE
<PAGE>
Other Operating Income. Other operating income increased from $170,000 for
the quarter ended December 31, 1995, to $1.2 million for the quarter ended
December 31, 1996. The increase was primarily due to a $401,000 increase in
other fees and service charges due largely to IEB operations earning higher
fees as a commercial bank although fee income also increased at FSBW
reflecting deposit growth and pricing adjustments. In addition there was
$563,000 increase in net gains on securities and loans sold in the quarter
ended December 31, 1996, as compared to 1995. Other operating income for the
nine months ended December 31, 1996, increased $1.1 million from the
comparable period in 1995. The $734,000 increase in fee income during the
nine month period ended September, 1996 was due largely from IEB operations
and, when combined with the $247,000 increase in net gains on the sale of
loans and securities, accounted for the majority of the increase.
Other Operating Expenses. Other operating expenses increased $2.4 million
from $2.5 million for the quarter ended December 31, 1995, to $4.9 million for
the quarter ended December 31, 1996. The increase in non-interest operating
expense for the quarter ended December, 1996 was primarily due to the
increase of $1.7 million of IEB operating expenses for a full quarter. The
increase also reflects growth of the Company including increased personnel
costs and increases in legal, accounting and insurance costs relating to
operating as a public company. Other operating expenses for the nine months
ended December 31, 1996, increased $7.1 million from the comparable period in
1995. The majority of the increase was related to the prior quarter's SAIF
assessment of $2.4 million, the acquisition of IEB and Company growth as
discussed above. This increase was offset by a $217,000 increase in
capitalized loan origination costs reflecting a $46.6 million increase in loan
origination volume compared to the same period in 1995.
Income Taxes. Income tax expense was $1.4 million for the quarter ended
December 31, 1996, compared to $830,000 for the quarter ended December 31,
1995. The increase in the provision for income taxes reflects the higher
level of income. The Company's effective tax rates for the quarters ended
December 31, 1996 and 1995 were 31.74% and 31.34%, respectively. Income tax
expense for the nine months ended December 31, 1996, increased $851,000 from
the comparable period in 1995. The Company's effective tax rate decreased
slightly to 28.34% for the nine months ended December 31, 1996, from 28.86%
for the comparable period in 1995. The expected increase in income taxes was
due to the $3.1 million increase in before-tax income during the fiscal 1997
nine month period as compared to fiscal 1996.
15
<PAGE>
<PAGE>
Asset Quality
The following tables are provided to disclose additional details on asset
quality (dollars in thousands).
At At
December 31, March 31,
1996 1996
-------- --------
Non-performing assets at end of the period:
Non-performing loans:
Delinquent loans on non-accrual status $ 1,073 $ 526
Delinquent loans on accrual status 331 12
-------- --------
Total non-performing loans 1,404 538
REO 832 712
-------- --------
Total non-performing assets at end of the period $ 2,236 $ 1,250
Non-performing loans as a percentage of total
net loans at end of the period 0.23% 0.13%
Ratio of allowance for loan losses to non-performing
loans at end of the period 462.68% 752.97%
Non-performing assets as a percentage of total
assets at end of the period. 0.23% 0.17%
Troubled debt restructuring [TDR's]
at end of the period $ 246 $ 156
Troubled debt restructuring as a percentage of:
total gross principal of loans outstanding
at end of the period 0.04% 0.03%
total assets at end of the period 0.03% 0.02%
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, FHLB advances, proceeds
from loan principal and interest payments and sales of loans, and the maturity
of, and interest income on mortgage-backed and investment securities. 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 market interest rates, general economic conditions and
competition.
The primary investing activity of the Company is the origination and purchase
of mortgage, consumer, and commercial loans through its subsidiary Banks, IEB
and FSBW. During the nine months ended December 31, 1996, the subsidiary
Banks closed or purchased loans in the amount of $276.5 million. This activity
was funded primarily by principal repayments on loans and securities, sales of
loans, increases in FHLB advances, and deposit growth. For the nine months
ended December 31, 1996, principal repayments on loans totaled $149.6 million
and the Banks' proceeds from the sale of mortgage loans totaled $28.7 million.
FHLB advances and other borrowings increased $41.1 million and $40.5 million,
respectively, for the same period , and net deposit growth was $23.8 million
excluding $134.6 million of deposits acquired with IEB.
The Banks 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. At December 31, 1996, the Banks had undisbursed
loans in process totaling $52.9 million. The Banks generally maintain
sufficient cash and readily marketable securities to meet short term liquidity
needs. FSBW also maintains a credit facility with the FHLB of Seattle, which
provides for advances which in aggregate may equal up to 40% of FSBW's total
assets, which as of December 31, 1996, would give FSBW a total credit line of
$312.9 million. Advances under this credit facility totaled $220.2 million,
or 28% of FSBW's assets at December 31, 1996. IEB also maintains credit
lines with various institutions that would allow it to borrow up to $6.0
million.
16
<PAGE>
<PAGE>
At December 31, 1996, savings certificates amounted to $318.1 million, or 60%,
of the Banks' total deposits, including $207,449 million which were scheduled
to mature within one year. Historically, the Banks have been able to retain a
significant amount of their deposits as they mature. Management believes it
has adequate ability to fund all loan commitments by using deposits, FHLB of
Seattle advances and the sale of mortgage loans or securities, 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 December 31, 1996, the Company's banking subsidiaries exceeded
all current regulatory capital requirements to be classified as well
capitalized institutions, the highest regulatory standard. In order to be
categorized as a well capitalized institution, the FDIC requires banks it
regulates to maintain a leverage ratio, defined as Tier 1 capital divided by
total regulatory assets, of at least 5.00%,Tier 1 (or core) capital of at
least 6.00% of risk-weighted assets; and total capital of at least 10.00% of
risk-weighted assets.
The Company, as a bank holding company, is regulated by the Federal Reserve
Board (FRB). The FRB has established capital requirements for bank holding
companies that generally parallel the capital requirements of the FDIC for
banks 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 December 31, 1996.
Required Actual
Percent Amount Percent Amount
------- ------ ------- ------
(dollars in thousands)
Risk-based capital ratios
Tier 1 4.00% $21,215 26.50% $135,228
Total 8.00 42,431 26.72 $141,724
17
<PAGE>
<PAGE>
PART II - OTHER 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 20
Report (s) on Form 8-K filed during the quarter ended December 31, 1996,
are as follows:
Date Filed Purpose
---------- --------
Not Applicable
18
<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.
February 10, 1997 /s/ Gary L. Sirmon
-------------------
Gary L. Sirmon
President and Chief Executive Officer
February 10, 1997 /s/ D. Allan Roth
------------------
D. Allan Roth
Secretary and Treasurer
19
PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 32448
<INT-BEARING-DEPOSITS> 551
<FED-FUNDS-SOLD> 14775
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 294721
<INVESTMENTS-CARRYING> 1281
<INVESTMENTS-MARKET> 1281
<LOANS> 601511
<ALLOWANCE> 6496
<TOTAL-ASSETS> 977075
<DEPOSITS> 532472
<SHORT-TERM> 60800
<LIABILITIES-OTHER> 15725
<LONG-TERM> 220212
0
0
<COMMON> 109
<OTHER-SE> 147757
<TOTAL-LIABILITIES-AND-EQUITY> 977075
<INTEREST-LOAN> 33091
<INTEREST-INVEST> 15031
<INTEREST-OTHER> 575
<INTEREST-TOTAL> 48697
<INTEREST-DEPOSIT> 15886
<INTEREST-EXPENSE> 26364
<INTEREST-INCOME-NET> 22333
<LOAN-LOSSES> 1151
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 14636
<INCOME-PRETAX> 8794
<INCOME-PRE-EXTRAORDINARY> 6302
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6302
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.64
<YIELD-ACTUAL> 3.55
<LOANS-NON> 1073
<LOANS-PAST> 331
<LOANS-TROUBLED> 246
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4051
<CHARGE-OFFS> 167
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 6496
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6496
</TABLE>
