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, 1997
-------------------
[ ] 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 January 31, 1998
--------------- ----------------------
Common Stock, $.01 par value 10,011,153 shares *
* Includes 723,816 shares held by employee stock ownership plan (ESOP)
that have not been released, committed to be released, or allocated
to participant accounts; and 320,208 unvested shares held in trust
for management recognition and development plan (MRP).
<PAGE>
<PAGE>
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, 1997 and March 31, 1997............................. 2
Consolidated Statements of Income
for the Quarters and Nine Months ended December 31, 1997 and 1996...... 3
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months ended December 31, 1997 and 1996................... 4
Consolidated Statements of Cash Flows
for the Nine Months ended December 31, 1997 and 1996................... 5
Selected Notes to Consolidated Financial Statements.................... 7
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operation
General................................................................ 9
Recent Developments and Significant Events............................. 9
Comparison of Financial Condition at December 31, 1997 and March
31, 1997...............................................................10
Comparison of Results of Operations for the Quarters and Nine
Months ended December 31, 1997 and 1996................................10
Asset Quality..........................................................14
Liquidity and Capital Resources........................................15
Capital Requirements...................................................15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................16
Item 2. Changes in Securities..........................................16
Item 3. Defaults upon Senior Securities................................16
Item 4. Submission of Matters to a Vote of Stockholders................16
Item 5. Other Information..............................................16
Item 6. Exhibits and Reports on Form 8-K...............................16
SIGNATURES................................................................17
1
<PAGE>
<PAGE>
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands)
December 31, 1997 and March 31, 1997
(Unaudited)
ASSETS December 31 March 31
1997 1997
----------- --------
CASH AND DUE FROM BANKS $ 29,160 $ 24,488
SECURITIES AVAILABLE FOR SALE, cost $290,065
and $288,142 294,133 287,516
SECURITIES HELD TO MATURITY, fair value $590
and $987 590 987
LOANS RECEIVABLE HELD FOR SALE, fair value
$5,488 and $2,940 5,488 2,940
LOANS RECEIVABLE, net of the allowance for
losses of $7,450 and $6,748 755,529 642,941
ACCRUED INTEREST RECEIVABLE 7,358 6,950
REAL ESTATE HELD FOR SALE, net 1,340 1,057
FEDERAL HOME LOAN BANK STOCK 15,674 12,807
PROPERTY AND EQUIPMENT, net 11,104 10,534
COSTS IN EXCESS OF NET ASSETS ACQUIRED 11,232 11,906
DEFERRED INCOME TAX ASSET -- 1,220
OTHER ASSETS 5,085 4,287
----------- ------------
$ 1,136,693 $ 1,007,633
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Interest bearing $ 535,775 $ 498,381
Non-interest bearing 46,534 46,586
----------- ------------
582,309 544,967
ADVANCES FROM FEDERAL HOME LOAN BANK 294,563 231,515
OTHER BORROWINGS 88,727 62,185
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 2,700 4,112
ACCRUED EXPENSES AND OTHER LIABILITIES 11,233 11,086
DEFERRED COMPENSATION 3,836 2,814
DEFERRED INCOME TAXES PAYABLE 529 --
INCOME TAXES PAYABLE 716 2,318
----------- ------------
984,613 858,997
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:
10,156,113 shares and 10,518,982 shares
outstanding at December 31, 1997 and
March 31, 1997, respectively 109 109
Additional paid - in capital 108,937 107,844
Retained earnings 70,224 62,572
Valuation reserve for securities available
for sale 2,678 (401)
Treasury stock, at cost: 754,512 shares at
December 31, 1997 and 391,643 at March
31, 1997 (15,931) (6,954)
Unearned shares of common stock issued to
employee stock ownership plan trust 723,816
and 775,105 shares outstanding but restricted
at December 31, 1997 and March 31, 1997,
respectively (7,238) (7,751)
Shares held in trust for stock-related
compensation plans (6,699) (6,783)
----------- ------------
152,080 148,636
----------- ------------
$ 1,136,693 $ 1,007,633
=========== ============
2
<PAGE>
<PAGE>
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (in thousands except for per share amounts)
Quarters Nine Months
Ended December 31 Ended December 31
1997 1996 1997 1996
---- ---- ---- ----
INTEREST INCOME:
Loans receivable $ 16,685 $ 12,843 $ 47,785 $ 33,091
Mortgage-backed securities 3,180 3,095 9,495 9,426
Securities and deposits 1,972 2,326 5,930 6,180
-------- -------- -------- --------
21,837 18,264 63,210 48,697
INTEREST EXPENSE:
Deposits 6,421 5,825 18,853 15,886
Federal Home Loan Bank
advances 4,328 3,415 12,329 9,222
Other borrowings 1,289 551 3,331 1,256
-------- -------- -------- --------
12,038 9,791 34,513 26,364
-------- -------- -------- --------
Net interest income before
provision for loan losses 9,799 8,473 28,697 22,333
PROVISION FOR LOAN LOSSES 375 231 1,130 1,151
-------- -------- -------- --------
Net interest income 9,424 8,242 27,567 21,182
OTHER OPERATING INCOME:
Loan servicing fees 227 215 614 599
Other fees and service charges 643 510 1,847 1,055
Gain on sale of loans 409 244 912 518
Gain (loss) on sale of
securities -- 208 2 --
Miscellaneous 11 22 43 76
-------- -------- -------- --------
Total other operating income 1,290 1,199 3,418 2,248
OTHER OPERATING EXPENSES:
Salary and employee benefits 3,654 3,123 10,434 7,816
Less capitalized loan
origination costs (485) (339) (1,482) (1,131)
Occupancy 387 447 1,156 1,056
Outside computer services 334 249 838 669
Real estate operations (23) (14) (23) (2)
Advertising 140 154 373 351
Deposit insurance 70 63 209 2,882
Amortization of costs in
excess of net assets
acquired 225 230 674 370
Miscellaneous 1,256 978 3,486 2,625
-------- -------- -------- --------
Total other operating
expenses 5,558 4,891 15,665 14,636
-------- -------- -------- --------
Income before provision
for income taxes 5,156 4,550 15,320 8,794
PROVISION FOR INCOME TAXES 1,951 1,444 5,573 2,492
-------- -------- -------- --------
NET INCOME $ 3,205 $ 3,106 $ 9,747 $ 6,302
======== ======== ======== ========
Net income per common
share, see Note 3:
Basic $ .35 $ .32 $ 1.05 $ .65
Diluted $ .34 $ .32 $ 1.01 $ .64
Cumulative dividends
declared per common share: $ .07 $ .05 $ .21 $ .15
3
<PAGE>
<PAGE>
<TABLE>
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited) (in thousands)
For the Nine Months ended December 31, 1997 and 1996
Valuation
reserve
for Shares
secur- Unearned Treasury held in
Common Stock ities ESOP shares stock trust
--------------- Addi- avail- --------------- --------------- for Total
Number tional able Number Number deferred stock
of At par paid-in Retained for of Carrying of Carrying compen- holders
shares value capital earnings sale shares value shares value sation equity
------ ------ ------- -------- ----- ------ ----- ------ ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, April
1, 1996 10,911 $ 109 $107,370 $ 55,343 $ 774 (833) $(8,331) -- $ -- $(1,123) $154,142
Net income 6,302 6,302
Change in valu-
ation reserve
for securities
available for
sale, net of
income taxes (186) (186)
Cash dividends on
common stock
(.15/share
cumulative) (1,431) (1,431)
Purchase of
treasury stock (746) (11,921) (11,921)
Reissuance of
treasury stock
for deferred
compensation plan 57 404 5,957 (6,014) --
Release of earned
ESOP shares 338 50 497 835
Amortization of
compensation
related to MRP 601 601
Forfeiture or net
change in the
number and/or
carrying amount of
shares held in
trust for compen-
sation plans (5) (471) (476)
------ ----- -------- -------- ----- ----- ------- ---- ------- ------- --------
BALANCE, December
31, 1996 10,911 $ 109 $107,765 $ 60,214 $ 588 (783) $(7,834) (342) $(5,969) $(7,007) $147,866
====== ===== ======== ======== ===== ===== ======= ==== ======= ======= ========
BALANCE, April
1, 1997 10,911 $ 109 $107,844 $ 62,572 $(401) (775) $(7,751) (392) $(6,954) $(6,783) $148,636
Net income 9,747 9,747
Change in valu-
ation reserve for
securities avail-
able for sale,
net of income taxes 3,079 3,079
Cash dividends
on stock ($.21/
share cumulative) (2,095)
(2,095)
Purchase of
treasury stock (361) (8,959) (8,959)
Purchase and
sale of stock (3) (64) (64)
for incentive
stock options
exercised (24) 3 64 40
Release of
earned ESOP
shares 886 51 513 1,399
Recognition of
tax benefit due
to vesting of
MRP shares 231
231
Amortization of
compensation
related to MRP 912 912
Forfeiture or
net change in
number and/or
carrying amount
of shares held
in trust for
compensation plans (1) (18) (828) (846)
------ ----- -------- -------- ----- ----- ------- ---- ------- ------- --------
BALANCE, DECEMBER
31, 1997 10,911 $ 109 $108,937 $ 70,224 $2,678 $(724) $(7,238) (754)$(15,931) $(6,699) $152,080
====== ===== ======== ======== ====== ===== ======= ==== ======= ======= ========
</TABLE>
4
<PAGE>
<PAGE>
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
For the Nine Months ended December 31, 1997 and 1996
1997 1996
----- ----
OPERATING ACTIVITIES
Net income $ 9,747 $ 6,302
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred taxes 365 (950)
Depreciation 764 529
Loss (gain) on sale of securities (2) --
Net amortization of (premiums) discounts on
investments 8 (568)
Amortization of costs in excess of net assets acquired 674 370
Amortization of MRP liability 912 601
Loss (gain) on sale of loans (912) (518)
Loss (gain) on disposal of real estate held for sale (17) 57
Net changes in deferred loan fees, premiums and
discounts 511 677
Loss (gain) on disposal of equipment (3) --
Capitalization of mortgage servicing rights from sale
of mortgages with servicing retained (187) --
Amortization of mortgage servicing rights 62 50
Provision for losses on loans and real estate held
for sale 1,130 1,151
FHLB stock dividend (845) (647)
Cash provided (used) in operating assets and
liabilities:
Loans held for sale (2,548) 674
Accrued interest receivable (408) 50
Other assets (651) (33)
Deferred compensation 225 175
Accrued expenses and other liabilities 169 (1,245)
Income taxes payable (1,602) (1,088)
------- -------
Net cash provided by operating activities 7,392 5,587
------- -------
INVESTING ACTIVITIES:
Purchase of securities available for sale (161,678) (434,401)
Principal payments and maturities of securities
available for sale 158,344 477,326
Sales of securities available for sale 1,405 766
Principal payments and maturities of securities held
to maturity 397 794
Loans originated and closed - net (371,906) (231,901)
Purchase of loans and participating interest in loans (48,890) (44,615)
Sales of loans and participating interest in loans 49,907 28,686
Principal repayments on loans 255,480 149,554
Purchase of FHLB stock (2,022) (2,528)
Purchase of property and equipment (1,341) (398)
Proceeds from sale of property and equipment 10 5
Additional capitalized costs-net of insurance proceeds (14) --
Basis of real estate held for sale acquired in
settlement of loans and disposed of during the period 1,840 369
Funds transferred to deferred compensation plan trusts (71) (55)
Acquisition of IEB, net of cash acquired -- (17,289)
------- -------
Net cash used by investing activities (118,539) (73,687)
------- -------
(Continued on next page)
5
<PAGE>
<PAGE>
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
For the Nine Months ended December 31, 1997 and 1996
(Continued from prior page)
1997 1996
----- ----
FINANCING ACTIVITIES
Increase (decrease) in deposits $ 37,342 $ 23,798
Proceeds from FHLB advances 556,120 415,652
Repayment of FHLB advances (493,072) (374,859)
Proceeds from reverse repurchase borrowings 30,035 42,444
Repayments of reverse repurchase borrowings (431) (133)
Decrease-net in other borrowings (3,062) (1,783)
Decrease in borrowers' advances for taxes
and insurance (1,412) (1,065)
Compensation expense recognized for shares released
for allocation to participants of the ESOP:
Original basis of shares 513 497
Excess of fair value of released shares over basis 886 338
Cash dividends paid (2,117) (1,446)
Net cost to exercise stock options (24) --
Purchase of treasury stock (8,959) (11,921)
--------- ---------
Net cash provided by financing activities 115,819 91,522
--------- ---------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 4,672 23,422
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 24,488 9,026
--------- ---------
CASH AND DUE FROM BANKS, END OF PERIOD $ 29,160 $ 32,448
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 34,489 $ 25,975
Taxes paid $ 6,810 $ 4,234
Non-cash transactions:
Loans, net of discounts, specific loss
allowances and unearned income transferred
to real estate owned $ 2,092 $ 546
Net change in accrued dividends payable $ (22) $ 15
Net change in unrealized gain (loss) in deferred
compensation trust and related liability $ 796 $ 440
Treasury stock forfeited by MRP $ 18 $ 5
Treasury stock reissued to MRP $ -- $ 6,014
Recognize tax benefit of vested MRP shares $ 231 $ --
6
<PAGE>
<PAGE>
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and March 31, 1997
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 fairly the
statement of financial position and the results of operations 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) (together, the Banks). The balance sheet data at March 31, 1997, 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 (SEC). 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, 1997 (File No. 0-26584), of the Company. Certain amounts in the prior
period's financial statements and/or schedules have been reclassified to
conform to the current period's presentation.
NOTE 2: Additional Information Regarding Interest-Bearing Deposits and
Securities
The following table sets forth additional detail on the Company's
interest-bearing deposits and securities at the dates indicated (at carrying
value) (in thousands):
December 31 March 31
1997 1997
Interest-bearing deposits included
in cash and due from banks $ 8,301 $ 8,849
-------- --------
Mortgage-backed securities 191,226 174,375
Other securities-taxable 67,703 76,401
Other securities-tax exempt 32,679 33,969
Other stocks with dividends 3,115 3,758
-------- --------
Total securities $294,723 $288,503
-------- --------
Federal Home Loan Bank Stock 15,674 12,807
-------- --------
$318,698 $310,159
======== ========
The following table provides additional detail on income from deposits and
Securities for the periods indicated (in thousands):
Quarters ended Nine Months ended
December 31 December 31
1997 1996 1997 1996
---- ---- ---- ----
Mortgage-backed securities $3,180 $3,095 $ 9,495 $ 9,426
------ ------ ------- -------
Taxable interest and dividends $1,161 $1,560 3,543 4,019
Tax-exempt interest 506 530 1,541 1,514
Federal Home Loan Bank
stock-dividends 305 236 846 647
------ ------ ------- -------
$1,972 $2,326 5,930 6,180
------ ------ ------- -------
$5,152 $5,421 $15,425 $15,606
====== ====== ======= =======
7
<PAGE>
<PAGE>
NOTE 3: Calculation of Weighted Average Shares Outstanding for Earnings Per
Share (EPS) and Calculation of Outstanding Shares.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share. SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share (EPS) for entities with publicly held
common stock or potential common stock such as options, warrants, convertible
securities or contingent stock agreements if those securities trade in a
public market. This standard specifies computation and presentation
requirements for both basic EPS and, for entities with complex capital
structures, diluted EPS. SFAS No. 128 is effective for reporting periods
ending after December 15, 1997.
Calculation of
Weighted Average Shares Outstanding
for Earnings Per Share under SFAS 128
-------------------------------------
(in thousands)
Quarters ended Nine Months ended
December 31 December 31
1997 1996 1997 1996
---- ---- ---- ----
Total shares originally issued 10,911 10,911 10,911 10,911
Less treasury stock including
shares allocated to MRP (1,008) (514) (886) (400)
Less unallocated shares held
by the ESOP (747) (810) (758) (820)
------ ------ ------ ------
Basic weighted average shares
outstanding 9,156 9,587 9,267 9,691
Plus MRP and stock option
incremental shares considered
outstanding for diluted
EPS calculations 383 166 348 117
------ ------ ------ ------
Diluted weighted average shares
outstanding 9,539 9,753 9,615 9,808
====== ====== ====== ======
Calculation of
Outstanding Shares at
---------------------
(in thousands)
December 31 March 31
1997 1997
-------- --------
Total shares issued 10,911 10,911
Less treasury stock (755) (392)
------ ------
Outstanding shares 10,156 10,519
====== ======
For comparison purposes the following tables show the Company's pro forma
primary and fully diluted earnings per share if calculated under the
accounting standards used prior to the implementation of SFAS No. 128.
Quarters ended Nine Months ended
December 31 December 31
----------- -----------
1997 1996 1997 1996
---- ---- ---- ----
Primary earnings per share $ .34 $ .32 $ 1.01 $ .65
Fully diluted earnings per share $ .33 $ .32 $ 1.01 $ .64
8
<PAGE>
<PAGE>
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 Federal Deposit Insurance Corporation (FDIC) under the Savings
Association Insurance Fund (SAIF). FSBW conducts business from its main office
in Walla Walla, Washington and its 15 branch offices and three loan production
offices located in southeast, central, north central and western Washington.
IEB is an Oregon-chartered commercial bank whose deposits are insured by the
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, 1997, when compared to the same periods for the prior year. This
increase in net interest income was largely due to the substantial growth in
average asset and liability balances and the acquisition of IEB on August 1,
1996. 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 both the most recent
quarter and nine months increased $99,000 and $3.4 million respectively, from
the comparable periods ended December 31, 1996. After adjusting for the
special SAIF assessment of $2.4 million ($1.6 million after tax) that occurred
in the second quarter of fiscal year 1997 (quarter ended September 30, 1996),
the increase was $1.9 million for the most recent nine months when compared to
the same periods in fiscal 1997. These increases reflected the rise in net
interest income and an increase in other operating income which were partially
offset by increases in operating expenses and the provision for income taxes.
Operating results for the nine months ended December 31, 1997 were
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 24, 1997 the Company announced it had signed a definitive
agreement to acquire Towne Bancorp, Inc. (Towne), and its wholly-owned
subsidiary Towne Bank, Woodinville, Washington. Founded in 1991, Towne Bank is
a community business bank with approximately $135 million in total assets,
$124 million in deposits, $110 million in loans and $8.7 million in
shareholders' equity at December 31, 1997. Towne Bank operates four full
service branches in the Seattle metropolitan area, in Woodinville, Redmond,
Bellevue and Renton. The agreement provides that shareholders of Towne will
receive either 3.85 shares of the Company's common stock, $91.26 in cash or a
combination of stock and cash in exchange for each share of Towne common
stock. Shareholders of Towne will have the opportunity to indicate on a form
of election whether they wish to receive cash or stock for each share of Towne
common stock that they own. Elections will be subject to proration in the
event that shareholders elect to exchange fewer than 51% or more than 70% of
the shares of Towne common stock for the Company's common stock. The Company
will also assume all outstanding Towne stock options. The Company and Towne
are in the process of obtaining the required regulatory and shareholder
approvals. The transaction is expected to close on April 1, 1998.
In June 1997, FASB issued SFAS No. 130, Reporting Comprehensive Income and
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 131 establishes standards of reporting by
publicly-held business enterprises and disclosure of information about
operating segments in annual financial statements and, to a lesser extent, in
interim financial reports issued to shareholders. SFAS Nos. 130 and 131 are
effective for fiscal years beginning after December 15, 1997. As both SFAS
Nos. 130 and 131 deal with financial statement disclosure matters, the Company
does not anticipate the adoption of these new standards will have a material
impact on its financial position or results of operations.
9
<PAGE>
<PAGE>
In October 1997, the Company adopted a dividend reinvestment and stock
purchase plan. Under the terms of the plan all registered stockholders with
100 or more shares of stock may automatically reinvest all or a portion of
their cash dividends in additional shares of the Company's common stock. In
addition qualifying participants may also make optional monthly cash payments
of $50 to $1,500 to purchase additional shares of Company stock.
Year 2000 Compliance
The "Year 2000" (Y2K) issue is the result of older computer programs being
written using two digits rather than four to define the applicable year. A
computer program that has date sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruption of operations, including, amount
other things, a temporary inability to process transactions, send statements,
or engage in similar normal business activities.
Based on an assessment of computer hardware, software and other equipment
operated by the Company and its subsidiary Banks the Company presently
believes that all equipment and programs should be Y2K compliant by December
31, 1998. A program for addressing the Y2K issue through awareness,
assessment, renovation and testing has been developed and implemented. The
costs of implementing and completing the program's phases have not been of a
material nature and should continue to be minimal through program completion.
The Company and its subsidiary Banks have initiated formal communications with
all significant suppliers to determine the extent to which they are vulnerable
to those third parties' failures to remedy their own Y2K impact issues. Third
party responses have indicated satisfactory progress in addressing any needs
for equipment or software renovation. The Banks' large customers are also
being contacted to build Y2K awareness and encourage early solutions regarding
potential business disruption due to processing failures. There can be no
guarantee that the systems of other companies on which the Bank's systems rely
will be timely converted, or that a failure to convert by another company, or
a conversion that is incompatible with the Bank's systems, would not have a
material adverse effect on the Banks. However, the Banks will test for the Y2K
preparedness of all internal functions and external functions provided by
third parties whenever possible.
Comparison of Financial Condition at December 31 and March 31, 1997
Total assets increased $129 million, or 12.8%, from $1.008 billion at March
31, 1997, to $1.137 billion at December 31, 1997. The increase generally
reflected growth in net loans receivable and was funded primarily with deposit
growth, advances from the FHLB and other borrowings. This growth represented a
continuation of management's plans to further leverage the Company's capital
and reflects the solid economic conditions in the markets where the Company
operates.
Loans receivable (gross loans less loans in process, deferred fees and
discounts, and allowance for loan losses) grew $115.1 million, or 17.8%, from
$645.9 million at March 31,1997, to $761.0 million at December 31, 1997. The
increase in gross loans of $116.9 million from $707.8 million at March 31,
1997, to $824.7 million at December 31, 1997, consists of $42.9 million of
mortgages secured by commercial and multi-family real estate, $35.2 million of
residential mortgages, $14.0 million of construction and land loans and $24.8
million of non-mortgage loans such as commercial, agricultural and consumer
loans. A little more than half of the increase in assets was funded by a net
increase of $63.1 million, or 27.2%, in FHLB advances from $231.5 million at
March 31, 1997, to $294.6 million on December 31, 1997. Asset growth was also
funded by increased deposits, other borrowings and net income from operations.
Deposits grew $37.3 million, or 6.9%, from $545.0 million at March 31, 1997,
to $582.3 million at December 31, 1997. Other borrowings, primarily reverse
repurchase agreements with securities dealers, grew $26.5 million, or 42.7%,
from $62.2 million at March 31, 1997, to $88.7 million at December 31, 1997.
Funds also were used to purchase $9.0 million of treasury stock during this
nine month period. Securities available for sale and held to maturity
increased $6.2 million or 2.2% from $288.5 million at March 31, 1997 to $294.7
million at December 31, 1997. Federal Home Loan Bank Stock increased $2.9
million as the Company was required to purchase more stock as a result of its
increased use of FHLB advances. Real estate held for sale increased $283,000,
primarily as a result of foreclosure actions completed on certain
non-performing loans.
Comparison of Operating Results for the Quarters and Nine Months Ended
December 31, 1997 and 1996
General. Net income for the third quarter of fiscal 1998 was $3.2 million, a
slight increase of $99,000 from the comparable quarter in fiscal 1997. Net
income for the first nine months of fiscal 1998 was $9.7 million, or $1.01 per
share (diluted), compared to net income of $6.3 million, or $.64 per share
(diluted), recorded in the comparable period of fiscal 1997. Net income for
the nine months ended December 31, 1996 was significantly affected by the $2.4
million ($1.6 million after tax) SAIF assessment. In addition, the first nine
months of fiscal 1998 included $2.3 million of net income from a full nine
months of operations at IEB, which the Company acquired on August 1, 1996,
compared to $987,000 for five months in the comparable fiscal 1997 period.
10
<PAGE>
<PAGE>
The Company's improved operating results reflect the significant growth of
assets and liabilities. Compared to year ago levels, total assets increased
16.3% to $1.14 billion at December 31, 1997, total loans rose 26.5% to $761.0
million, deposits grew 9.4% to $582.3 million and borrowings increased 36.4%
to $383.3 million. The substantial increase in these balances during the year
since December 31, 1996, resulted from the continued 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. This growth helped to increase
the Company's return on average equity from 7.09% (excluding the SAIF
assessment of $1.6 million after tax) for the nine months ended December 31,
1996, to 8.56% for the nine months ended December 31, 1997.
Interest Income. Interest income for the quarter ended December 31, 1997, was
$21.8 million compared to $18.3 million for the quarter ended December 31,
1996, an increase of $3.5 million, or 19.1%. The increase in interest income
was a result of a $143.5 million, or 15.6%, growth in the average balance of
interest-earning assets combined with a 27 basis point increase in the average
yield on those assets, which rose from 7.87% in the quarter ended December
1996, to 8.14% in December 1997. Average loans receivable for the third
quarter of fiscal 1998 increased by $160.7 million, or 27.3%, when compared to
the same quarter in fiscal 1997. Interest income on loans increased by $3.8
million, or 29.9%, compared to the same quarter a year earlier, reflecting the
impact of the increase in average loan balances and a 18 basis point increase
in the yield on those balances. The combined average balance of
mortgage-backed and investment securities and FHLB stock for the third quarter
of fiscal 1998 decreased by $17.2 million compared to the third quarter of
fiscal 1997, and interest and dividend income from those investments decreased
by $269,000 for the December 1997 quarter compared to December 1996. The
average balance of investment securities declined by $20.8 million, as
portions of this portfolio was liquidated to fund repurchases of the Company's
stock. The slightly improved yield on this portfolio largely reflects the fact
that generally lower yielding securities were sold. The average balance of
mortgage-backed obligations increased by $10.2 million over the same quarter a
year earlier, although the yield on those securities declined 19 basis points.
The decline in the yield on this portfolio primarily reflects a decline in
market rates which resulted in decreased yields on many adjustable rate
securities which comprise the largest portion of this portfolio. Holdings of
FHLB stock increased commensurate with the growth in FHLB advances while the
yield on that stock was essentially unchanged.
Interest income for the nine months ended December 31, 1997 increased $14.51
million, or 29.89%, from the comparable period in fiscal 1997. Interest income
from loans for the nine months ended December 31, 1997, increased $14.6
million, or 44.4%, from the comparable period in fiscal 1997. The majority of
the increase from loan interest income reflected the impact of a $202.3
million growth in average loans receivable balances combined with a 32 basis
point increase in the yield on the loan balances, largely resulting from the
inclusion of higher yielding loans held by IEB. Interest income from
mortgage-backed and investment securities and FHLB stock for the nine months
ended December 31, 1997, decreased a modest $181,000 from $15.6 million in
fiscal 1997, to $15.4 million in fiscal 1998, reflecting a $5.5 million
decrease in average balances offset by a 4 basis point increase in yield. The
yield on average earning assets increased from 7.75% for the nine months ended
December 31, 1996, to 8.14% for the nine months ended December 31, 1997,
primarily resulting from the increased yield on loan balances and an increased
percentage of loans to total interest earning assets.
Interest Expense. Interest expense for the quarter ended December 31, 1997,
was $12.04 million compared to $9.79 million for the comparable period in
1996, an increase of $2.25 million, or 22.9%. The increase in interest expense
was due to the $146.9 million growth in average interest-bearing liabilities.
The increase in average interest-bearing liabilities in the quarter ended
December 1997 was largely due to a $101.0 million increase in the average
balance of FHLB advances and other borrowings combined with a $45.9 million
growth in average deposits. Average FHLB advances totaled $280.8 million
during the quarter ended December 31, 1997, as compared to $228.1 million
during the quarter ended December 31, 1996, resulting in a $913,000 increase
in related interest expense. The average rate paid on those advances increased
from 5.94% for the quarter ended December 31, 1996, to 6.12% for the
comparable period in 1997, adding to the increase in interest expense. 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
$48.3 million from $39.0 million for the quarter ended December 31, 1996, to
$87.3 million for the same period in 1997, and the related interest expense
increased $738,000, from $551,000 to $1.3 million for the respective periods.
The majority of this growth in other borrowings reflects an increase in
repurchase agreements with investment banking firms which totaled $80.4
million at December 31, 1997. Deposit interest expense increased $596,000 for
the quarter ended December 31, 1997. Average deposit balances increased from
$527.5 million for the quarter ended December 1996, to $573.4 million for the
comparable period in 1997 while, at the same time, the average rate paid on
deposit balances increased 6 basis points.
A comparison of total interest expense for the nine months ended December 31,
1997, shows an increase of $8.2 million, or 30.9%, from the comparable period
ended December 31, 1996. The increased interest expense reflects an increase
in average deposits of $103.2 million combined with a $104.6 million increase
in FHLB advances and other borrowings. The effect on interest expense of the
increase in average interest-bearing liabilities was slightly reduced by a 4
basis point decrease in the interest rate paid on those liabilities. The
decline in the rate paid on deposits primarily reflects the acquisition of
IEB's $32.1 million of non-interest-bearing deposits as well as generally
lower rates paid on interest-bearing accounts of IEB. In addition the average
balances of non-interest and low-interest (savings and NOW) deposits have
grown at both Banks. The percentage of these non or low-interest deposits to
total average deposits increased for the most recent quarter and nine month
period when compared to the same period a year earlier.
11
<PAGE>
<PAGE>
The following tables provide additional comparative data on the Company's
operating performance (in thousands):
Quarters ended Nine Months ended
December 31 December 31
Average balances 1997 1996 1997 1996
---------------- ---- ---- ---- ----
Investment securities and
deposits $ 108,801 $ 139,606 $ 110,203 $ 123,561
Mortgage-backed obligations 190,047 179,871 186,787 182,350
Loans 750,217 589,472 719,775 517,430
FHLB stock 15,123 11,720 14,302 10,835
---------- ---------- ---------- ----------
Total average interest-
earning asset 1,064,188 920,669 1,031,067 834,176
Non-interest-earning assets 42,522 37,179 42,063 26,545
---------- ---------- ---------- ----------
Total average assets $1,106,710 $ 957,848 $1,073,130 $ 860,721
========== ========== ========== ==========
Deposits $ 573,405 $ 527,485 $ 560,928 $ 457,680
Advances from FHLB 280,793 228,117 269,592 211,560
Other borrowings 87,263 38,973 76,228 29,688
---------- ---------- ---------- ----------
Total average interest-
bearing liabilities 941,461 794,575 906,748 698,928
Non-interest-bearing
liabilities 14,248 16,824 15,232 14,238
---------- ---------- ---------- ----------
Total average liabilities 955,709 811,399 921,980 713,166
Equity 151,001 146,449 151,150 147,555
---------- ---------- ---------- ----------
Total average liabilities
and equity $1,106,710 $ 957,848 $1,073,130 $ 860,721
========== ========== ========== ==========
Interest Rate Yield/Expense
(rates are annualized)
---------------------------
Interest Rate Yield:
Investment securities and
deposits 6.08% 5.94% 6.12% 5.94%
Mortgage-backed obligations 6.64% 6.83% 6.75% 6.86%
Loans 8.82% 8.64% 8.81% 8.49%
FHLB stock 8.00% 7.99% 7.85% 7.93%
--------- --------- --------- ---------
Total interest rate yield on
interest-earning assets 8.14% 7.87% 8.14% 7.75%
--------- --------- --------- ---------
Interest Rate Expense:
Deposits 4.44% 4.38% 4.46% 4.61%
Advances from FHLB 6.12% 5.94% 6.07% 5.79%
Other borrowings 5.86% 5.61% 5.80% 5.62%
--------- --------- --------- ---------
Total interest rate
expense on interest-
bearing liabilities 5.07% 4.89% 5.05% 5.01%
--------- --------- --------- ---------
Interest spread 3.07% 2.98% 3.09% 2.74%
========= ========= ========= =========
Net interest margin on
interest earning assets 3.65% 3.65% 3.69% 3.55%
--------- --------- --------- ---------
Additional Key Financial Ratios
(ratios are annualized)
-------------------------------
Return on average assets 1.15% 1.29% 1.21% 0.97%
Return on average equity 8.42% 8.41% 8.56% 5.67%
Average equity/average assets 13.64% 15.29% 14.08% 17.14%
Average interest-earning
assets/interest-bearing
liabilities 113.04% 115.87% 113.71% 119.35%
Non-interest [other
operating] expenses/
average assets 1.99% 2.03% 1.94% 2.26%
Efficiency ratio [non-interest
(other operating) expenses/
revenues]
Excluding amortization
of costs in excess of
net assets acquired
(goodwill) 48.09% 48.19% 46.68% 58.04%
Including amortization
of costs in excess of
net assets acquired
(goodwill) 50.12% 50.57% 48.78% 59.54%
12
<PAGE>
<PAGE>
Provision for Loan Losses. During the quarter ended December 31, 1997, the
provision for loan losses was $375,000, compared to $231,000 for the quarter
ended December 31, 1996, an increase of $144,000. A comparison of the
provision for loan losses for the nine month period shows a decrease of
$21,000 to $1.13 million for the nine months ended December 31, 1997, from
$1.15 million for the comparable period in fiscal 1996. The allowance for loan
losses net of charge-offs (recoveries) increased by $702,000, to $7.5 million
at December 31, 1997, compared to $6.8 million at March 31, 1997. 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 (in thousands):
December 31 March 31
1997 1997
----------- -----------
Loans (including loans held for sale):
Gross principal $824,656 $707,816
Less loans in process 52,888 52,412
Less deferred fees and discounts 3,301 2,775
Less allowance for loan losses 7,450 6,748
-------- --------
Total net loans at end of period $761,017 $645,881
======== ========
Allowance for loan losses as a percentage
of gross principal of loans outstanding 0.90% 0.95%
Quarters ended Nine Months ended
December 31 December 31
1997 1996 1997 1996
---- ---- ---- ----
Change in allowance for loan losses:
Balance at beginning of the period $7,187 $6,270 $6,748 $4,051
Acquisition of IEB -- -- -- 1,416
Provision for loan losses 375 231 1,130 1,151
Recoveries 39 13 49 45
Charge-offs (151) (18) (477) (167)
------ ------ ------ ------
Balance at end of the period $7,450 $6,496 $7,450 $6,496
====== ====== ====== ======
Charge-offs as a percentage of
average net book value of loans
outstanding for the period. 0.02% 0.00% 0.07% 0.03%
Other Operating Income. Other operating income increased $91,000 from $1.2
million for the quarter ended December 31, 1996, to $1.3 million for the
quarter ended December 31, 1997. The increase resulted primarily from a
$133,000 increase in other fees and service charges due largely to IEB
operations earning higher fees as a commercial bank, combined with an increase
in fee income at FSBW reflecting deposit growth and pricing adjustments. There
also was a $165,000 increase in net gains on loans sold in the quarter ended
December 31, 1997, as compared to the same period in 1996. This increase
primarily reflects increases in IEB's residential mortgage banking operations,
and increased sales of loans, with servicing retained, by First Savings Bank
which increased the volume of loans sold in the secondary market over the
comparable period in the prior year. Other operating income was also reduced
in the 1997 quarter as compared to the year earlier period as no net gains
(losses) on the sale of securities were realized as compared to a $208,000 net
gain recorded in the quarters ended December 31, 1996 which resulted from the
recovery of a previous quarter's write-off of a security.
13
<PAGE>
<PAGE>
Other operating income for the nine months ended December 31, 1997, increased
$1.2 million from the comparable period in 1996. The $792,000 increase in fee
income was due largely to the addition of nine months of IEB's operations in
the current fiscal 1997 period compared to only five months in 1996. The
$396,000 increase in gains from the sale of loans and securities for the nine
months ended December 31, 1997 also reflects the inclusion of IEB's operations
as well as the previously noted net increase in loan sales.
Other Operating Expenses. Other operating expenses increased $667,000 from
$4.9 million for the quarter ended December 31, 1996, to $5.6 million for the
quarter ended December 31, 1997. The increase in expenses was due in part to a
$531,000 increase in salary and employee benefits reflecting a modest growth
in personnel combined with an increase in the value of the company's shares
released to its employee stock option plan (ESOP). The increase in
compensation was somewhat offset by a $146,000 increase in capitalized loan
origination costs resulting from increased volume in loan origination. While
there was a slight increase in other operating expenses reflecting growth in
assets and liabilities, the Company's efficiency ratio, excluding the
amortization of goodwill, improved to 48.09% for the third quarter of 1997
from 48.19% for the same period in 1996. Other operating expenses as a
percentage of average assets were 1.99% (1.91% excluding the amortization of
goodwill) for the quarter ended December 31, 1997, compared to 1.93% (2.03%
excluding the amortization of goodwill) for the quarter ended December 31,
1996.
Other operating expenses for the nine months ended December 31, 1997 increased
$1.03 million from the comparable period in 1996. The majority of the $2.7
million decrease in deposit insurance for the nine months ended December 31,
1997 was due to the $2.4 million special SAIF assessment in September 1996.
The decrease in deposit insurance was more than offset by a $3.7 million
increase in other operating expenses from a full nine months of IEB's
operations in the December 1997 period compared to five months in the
comparable period ended December 1996. The Company's efficiency ratio,
excluding the amortization of goodwill and the $2.4 million SAIF assessment,
improved to 46.68% for the nine months ended December 31, 1997, from 48.33%
for the comparable period in 1996. Other operating expenses as a percentage of
average assets was 1.94% (1.85% excluding the amortization of goodwill) for
the nine months ended December 31, 1997, compared to 2.26% (2.20% excluding
the amortization of goodwill) for the quarter ended December 31, 1996.
Income Taxes. Income tax expense was $1.95 million for the quarter ended
December 31, 1997, compared to $1.44 million for the comparable quarter in
1996. The $507,000 increase in the provision for income taxes reflects the
higher level of income being taxed at higher effective rates due to the phase
out of the 34% surtax exemption; the net effect of IEB paying Oregon state
income taxes; and the fact that the expenses from the amortization of costs in
excess of net assets acquired in purchasing IEB and part of the expense
recorded in the release of ESOP shares are not deductible for tax purposes.
The Company's effective tax rates for the quarters ended December 31, 1997 and
1996, were 38% and 32%, respectively. Income tax expense for the nine months
ended December 31, 1997, increased $3.1 million from $2.5 million for the nine
months ended December 31, 1996, to $5.6 million for the comparable period in
1997. The Company's effective tax rate increased to 36% for the nine months
ended December 31, 1997, from 28% for the comparable period in 1996. This
increase was due to the same reasons the income tax provision for the quarter
increased.
Asset Quality
The following tables are provided to disclose additional details on asset
quality (in thousands):
December 31 March 31
1997 1997
-------- --------
Non-performing assets at end of the period:
Non-performing loans:
Delinquent loans on non-accrual status $ 449 $ 2,082
Delinquent loans on accrual status 672 30
------- --------
Total non-performing loans 1,121 2,112
REO 1,340 1,057
------- --------
Total non-performing assets at end of
the period $ 2,461 $ 3,169
======= ========
Non-performing loans as a percentage of total
net loans at end of the period 0.15% 0.33%
Ratio of allowance for loan losses to non-
performing loans at end of the period 665% 320%
Non-performing assets as a percentage of total
assets at end of the period. 0.22% 0.31%
Troubled debt restructuring [TDR's]
at end of the period $ 366 $ 238
-------- --------
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%
14
<PAGE>
<PAGE>
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 and
investment 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, 1997, the Banks closed or
purchased loans in the amount of $420.8 million. In addition, during this nine
month period, funds were used to purchase $9.0 million of treasury stock.
These activities were 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, 1997, principal repayments on loans
totaled $255.4 million and the Banks' proceeds from the sale of mortgage loans
totaled $49.9 million. FHLB advances and other borrowings increased $67.2
million and $12.1 million, respectively, for the same period, and net deposit
growth was $37.3 million.
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, 1997, 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 45% of FSBW's total
assets, which as of December 31, 1997, would give FSBW a total credit line of
$422.0 million. Advances under this credit facility totaled $294.6 million, or
31.4% of FSBW's assets at December 31, 1997. IEB also maintains credit
facilities with various financial institutions, including the FHLB of Seattle,
that would allow it to borrow up to $7.9 million.
At December 31, 1997, savings certificates amounted to $359.2 million, or 62%,
of the Banks' total deposits, including $224.0 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, other borrowings 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, 1997, 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 actual regulatory capital ratios calculated for the Company along with the
minimum capital amounts and ratios for capital adequacy purposes were as
follows (dollars in thousands):
Minimum for capital
Actual adequacy purposes
-------------------- -------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
December 31, 1997:
The Company-consolidated
Total capital to risk-
weighted assets $145,572 23.03% $50,578 8.00%
Tier 1 capital to risk-
weighted assets 138,122 21.85 25,289 4.00
Tier 1 leverage capital to
average assets 138,122 12.63 43,730 4.00
15
<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 is 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 3 - Bylaws of First Savings Bank of Washington Bancorp, Inc.,
as amended, effective December 18, 1997.
Exhibit 27 - Financial data schedule
Report (s) on Form 8-K filed during the nine months ended December 31, 1997,
are as follows:
Date Filed Purpose
---------- -------
November 24, 1997 Announcement of entering into an
agreement and plan of merger with
Towne Bank, Inc.
16
<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 12, 1998 /s/ Gary Sirmon
---------------------------------
Gary Sirmon
President and Chief Executive Officer
February 12, 1998 /s/ D. Allan Roth
---------------------------------
D. Allan Roth
Secretary and Treasurer
17
<PAGE>
<PAGE>
EXHIBIT 3
BYLAWS
OF
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC.
ARTICLE I
Home Office
The home office of First Savings Bank of Washington Bancorp, Inc. (herein
the "Corporation") shall be at 10 S. First Street, Walla Walla, Washington.
The Corporation may also have offices at such other places within or without
the State of Washington as the board of directors shall from time to time
determine.
ARTICLE II
Stockholders
SECTION 1. Place of Meetings. All annual and special meetings of
stockholders shall be held at the home office of the Corporation or at such
other place within or without the State in which the home office of the
Corporation is located as the board of directors may determine and as
designated in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as
the board of directors may determine.
SECTION 3. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called at any time by the majority of the board
of directors, by a committee of the board of directors in accordance with the
provisions of the Corporation's Certificate of Incorporation.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the rules and procedures established by the board
of directors. The board of directors shall designate, when present, either
the chairman of the board or president to preside at such meetings.
SECTION 5. Notice of Meetings. Written notice stating the place, day
and hour of the meeting and the purpose or purposes for which the meeting is
called shall be mailed by the secretary or the officer performing his duties,
not less than ten days nor more than sixty days before the meeting to each
stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States
mail, addressed to the stockholder at his address as it appears on the stock
transfer books or records of the Corporation as of the record date prescribed
in Section 6 of this Article II, with postage thereon prepaid. If a
stockholder be present at a meeting, or in writing waive notice thereof before
or after the meeting, notice of the meeting to such stockholder shall be
unnecessary. When any stockholders' meeting, either annual or special, is
adjourned for thirty days, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any
notice of the time and place of any meeting adjourned for less than thirty
days or of the business to be transacted at such adjourned meeting, other than
an announcement at the meeting at which such adjournment is taken.
SECTION 6. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders,
or any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the board of directors shall fix in advance a date as the
record date for any such determination of stockholders. Such date in any case
shall be not more than sixty days, and in case of a meeting of stockholders,
not less than ten days prior to the date on which the particular action,
requiring such determination of stockholders, is to be taken. When a
<PAGE>
<PAGE>
determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this section, such determination shall apply to
any adjournment thereof.
SECTION 7. Voting Lists. The officer or agent, having charge of the
stock transfer books for shares of the Corporation shall make, at least ten
days before each meeting of shareholders, a complete record of the
stockholders entitled to vote at such meeting or any adjournment thereof, with
the address of and the number of shares held by each. The record, for a
period of ten days before such meeting, shall be kept on file at the principal
office of the Corporation, and shall be subject to inspection by any
shareholder for any purpose germane to the meeting at any time during usual
business hours. Such record shall also be produced and kept open at the time
and place of the meeting and shall be subject to the inspection of any
stockholder for any purpose germane to the meeting during the whole time of
the meeting. The original stock transfer books shall be prima facie evidence
as to who are the stockholders entitled to examine such record or transfer
books or to vote at any meeting of stockholders.
SECTION 8. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally notified. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 9. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be
voted as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after eleven months from the date of its execution unless otherwise provided
in the proxy.
SECTION 10. Voting. At each election for directors every stockholder
entitled to vote at such election shall be entitled to one vote for each share
of stock held by him. Unless otherwise provided in the Certificate of
Incorporation, by Statute, or by these Bylaws, a majority of those votes cast
by stockholders at a lawful meeting shall be sufficient to pass on a
transaction or matter.
SECTION 11. Voting of Shares in the Name of Two or More Persons. When
ownership of stock stands in the name of two or more persons, in the absence
of written directions to the Corporation to the contrary, at any meeting of
the stockholders of the Corporation any one or more of such stockholders may
cast, in person or by proxy, all votes to which such ownership is entitled.
In the event an attempt is made to cast conflicting votes, in person or by
proxy, by the several persons in whose name shares of stock stand, the vote or
votes to which these persons are entitled shall be cast as directed by a
majority of those holding such stock and present in person or by proxy at such
meeting, but no votes shall be cast for such stock if a majority cannot agree.
SECTION 12. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name. Shares standing
in the name of a receiver may be voted by such receiver, and shares held by or
under the control of a receiver may be voted by such receiver without the
transfer thereof into his name if authority to do so is contained in an
appropriate order of the court or other public authority by which such
receiver was appointed.
2
<PAGE>
<PAGE>
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
SECTION 13. Inspectors of Election. In advance of any meeting of
stockholders, the board of directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three.
If the board of directors so appoints either one or three inspectors, that
appointment shall not be altered at the meeting. If inspectors of election
are not so appointed, the chairman of the board or the president may make such
appointment at the meeting. In case any person appointed as inspector fails
to appear or fails or refuses to act, the vacancy may be filled by appointment
by the board of directors in advance of the meeting or at the meeting by the
chairman of the board or the president.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting,
the existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges
and questions in any way arising in connection with the right to vote;
counting and tabulating all votes or consents; determining the result; and
such acts as may be proper to conduct the election or vote with fairness to
all stockholders.
SECTION 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the
death or other incapacity of a management nominee, the nominating committee
shall deliver written nominations to the secretary at least twenty days prior
to the date of the annual meeting. Provided such committee makes such
nominations, no nominations for directors except those made by the nominating
committee shall be voted upon at the annual meeting unless other nominations
by stockholders are made in writing and delivered to the secretary of the
Corporation in accordance with the provisions of the Corporation's Certificate
of Incorporation.
SECTION 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the
Corporation in accordance with the provisions of the Corporation's Certificate
of Incorporation. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers,
directors and committees, but in connection with such reports no new business
shall be acted upon at such annual meeting unless stated and filed as provided
in the Corporation's Certificate of Incorporation.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation
shall be under the direction of its board of directors. The board of
directors shall annually elect a president from among its members and may also
elect a chairman of the board from among its members. The board of directors
shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
SECTION 2. Number, Term and Election. The board of directors shall
initially consist of eight (8) members and shall be divided into three classes
as nearly equal in number as possible. The members of each class shall be
elected for a term of three years and until their successors are elected or
qualified. One class shall
3
<PAGE>
<PAGE>
be elected by ballot annually. The board of directors shall be classified in
accordance with the provisions of the Corporation's Certificate of
Incorporation.
SECTION 3. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the
Corporation. No person 75 years of age or more shall be eligible for
election, reelection, appointment, or reappointment to the Board of Directors.
No director shall serve as such beyond his or her 75th birthday, except that
directors serving as such as of the date of the adoption of this bylaw may
serve the remainder of their terms.
SECTION 4. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this Bylaw immediately
after, and at the same place as, the annual meeting of stockholders. The
board of directors may provide, by resolution, the time and place for the
holding of additional regular meetings without other notice than such
resolution.
SECTION 5. Special Meetings. Special meetings of the board of
directors may be called by or at the request of the chairman of the board or
the president, or by one-third of the directors. The persons authorized to
call special meetings of the board of directors may fix any place in the State
of Washington as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person but directors will not receive any
compensation for participation in meetings by conference telephone.
SECTION 6. Notice. Written notice of any special meeting shall be
given to each director at least two days previous thereto delivered personally
or by telegram or at least five days previous thereto delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid if mailed or when delivered to the
telegraph company if sent by telegram. Any director may waive notice of any
meeting by a writing filed with the secretary. The attendance of a director
at a meeting shall constitute a waiver of notice of such meeting, except where
a director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall
be given in the same manner as prescribed by Section 6 of this Article III.
SECTION 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the
board of directors, unless a greater number is prescribed by these Bylaws, the
Certificate of Incorporation, or the laws of Delaware.
SECTION 9. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
SECTION 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office or the administrative
office of the Corporation addressed to the chairman of the board or the
president. Unless otherwise specified herein such resignation shall take
effect upon receipt thereof by the chairman of the board or the president.
4
<PAGE>
<PAGE>
SECTION 11. Vacancies. Any vacancy occurring in the board of directors
shall be filled in accordance with the provisions of the Corporation's
Certificate of Incorporation. Any directorship to be filled by reason of an
increase in the number of directors may be filled by the affirmative vote of
two-thirds of the directors then in office. The term of such director shall
be in accordance with the provisions of the Corporation's Certificate of
Incorporation.
SECTION 12. Removal of Directors. Any director or the entire board of
directors may be removed only in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 13. Compensation. Directors, as such, may receive a stated fee
for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of
directors. Members of either standing or special committees may be allowed
such compensation for actual attendance at committee meetings as the board of
directors may determine. Nothing herein shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
remuneration therefor.
SECTION 14. Presumption of Assent. A director of the Corporation who is
present at a meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who votes in favor of such action.
SECTION 15. Advisory Directors. The board of directors may by
resolution appoint advisory directors to the board, and shall have such
authority and receive such compensation and reimbursement as the board of
directors shall provide. Advisory director or directors emeriti shall not
have the authority to participate by vote in the transaction of business.
ARTICLE IV
Committees of the Board of Directors
SECTION 1. Appointment. The Board of Directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the Board of Directors, or any
director, of any responsibility imposed by law or regulation.
SECTION 2. Authority. The executive committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority
of the Board of Directors except to the extent, if any, that such authority
shall be limited by the resolution appointing the executive committee; and
except also that the executive committee shall not have the authority of the
Board of Directors with reference to: the declaration of dividends; the
amendment of the charter or bylaws of the Corporation, or recommending to the
shareholders a plan of merger, consolidation, or conversion; the sale, lease,
or other disposition of all or substantially all of the property and assets of
the Corporation otherwise than in the usual and regular course of its
business; a voluntary dissolution of the Corporation; a revocation of any of
the foregoing; or the approval of a transaction in which any member of the
executive committee, directly or indirectly, has any material beneficial
interest.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the Board of Directors following his or her
designation and until a successor is designated as a member of the executive
committee.
5
<PAGE>
<PAGE>
SECTION 4. Meetings. Regular meetings of the executive committee may
be held without notice at such times and places as the executive committee may
fix from time to time by resolution. Special meetings of the executive
committee may be called by any member thereof upon not less than one day's
notice stating the place, date, and hour of the meeting, which notice may be
written or oral. Any member of the executive committee may waive notice of
any meeting and no notice of any meeting need be given to any member thereof
who attends in person. The notice of a meeting of the executive committee
need not state the business proposed to be transacted at the meeting.
SECTION 5. Quorum. A majority of the members of the executive
committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the executive committee must be authorized by
the affirmative vote of a majority of the members present at a meeting at
which a quorum is present.
SECTION 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
SECTION 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full Board of Directors.
SECTION 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution
adopted by a majority of the full Board of Directors. Any member of the
executive committee may resign from the executive committee at any time by
giving written notice to the president or secretary of the Corporation.
Unless otherwise specified, such resignation shall take effect upon its
receipt; the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall
not be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information
at the meeting held next after the proceedings shall have occurred.
SECTION 10. Other Committees. The Board of Directors may by resolution
passed by a majority of the whole board establish an audit, loan, or other
committee composed of directors as they may determine to be necessary or
appropriate for the conduct of the business of the Corporation and may
prescribe the duties, constitution, and procedures thereof. Each committee
shall consist of one or more directors of the Corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
The board of directors shall have power, by the affirmative vote of a majority
of the authorized number of directors, at any time to change the members of,
to fill vacancies in, and to discharge any committee of the board. Any member
of any such committee may resign at any time by giving notice to the
Corporation provided, however, that notice to the board, the chairman of the
board, the chief executive officer, the chairman of such committee, or the
secretary shall be deemed to constitute notice to the Corporation. Such
resignation shall take effect upon receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective. Any member of any
such committee may be removed at any time, either with or without cause, by
the affirmative vote of a majority of the authorized number of directors at
any meeting of the board called for that purpose.
ARTICLE V
Officers
SECTION 1. Positions. The officers of the Corporation shall be a
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of
6
<PAGE>
<PAGE>
directors may also designate the chairman of the board as an officer. The
president shall be the chief executive officer unless the board of directors
designates the chairman of the board as chief executive officer. The
president shall be a director of the Corporation. The offices of the
secretary and treasurer may be held by the same person and a vice president
may also be either the secretary or the treasurer. The board of directors may
designate one or more vice presidents as executive vice president or senior
vice president. The board of directors may also elect or authorize the
appointment of such other officers as the business of the Corporation may
require. The officers shall have such authority and perform such duties as
the board of directors may from time to time authorize or determine. In the
absence of action by the board of directors, the officers shall have such
powers and duties as generally pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers of the
Corporation shall be elected annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of the
shareholders. If the election of officers is not held at such meeting, such
election shall be held as soon thereafter as possible. Each officer shall
hold office until his successor shall have been duly elected and qualified or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided. Election or appointment of an officer, employee
or agent shall not of itself create contract rights. The board of directors
may authorize the Corporation to enter into an employment contract with any
officer in accordance with state law; but no such contract shall impair the
right of the board of directors to remove any officer at any time in
accordance with Section 3 of this Article V.
SECTION 3. Removal. Any officer may be removed by vote of two-thirds
of the board of directors whenever, in its judgment, the best interests of the
Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
ARTICLE VI
Contracts, Loans, Checks and Deposits
SECTION 1. Contracts. To the extent permitted by applicable law, and
except as otherwise prescribed by the Corporation's Certificate of
Incorporation or these Bylaws with respect to certificates for shares, the
board of directors may authorize any officer, employee, or agent of the
Corporation to enter into any contract or execute and deliver any instrument
in the name of and on behalf of the Corporation. Such authority may be
general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or
confined to specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees or
agents of the Corporation in such manner as shall from time to time be
determined by resolution of the board of directors.
7
<PAGE>
<PAGE>
SECTION 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the board of directors may
select.
ARTICLE VII
Certificates for Shares and Their Transfer
SECTION 1. Certificates for Shares. The shares of the Corporation
shall be represented by certificates signed by the chairman of the board of
directors or by the president or a vice president and by the treasurer or by
the secretary of the Corporation, and may be sealed with the seal of the
Corporation or a facsimile thereof. Any or all of the signatures upon a
certificate may be facsimiles if the certificate is countersigned by a
transfer agent, or registered by a registrar, other than the Corporation
itself or an employee of the Corporation. If any officer who has signed or
whose facsimile signature has been placed upon such certificate shall have
ceased to be such officer before the certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer at the date
of its issue.
SECTION 2. Form of Share Certificates. All certificates representing
shares issued by the Corporation shall set forth upon the face or back that
the Corporation will furnish to any shareholder upon request and without
charge a full statement of the designations, preferences, limitations, and
relative rights of the shares of each class authorized to be issued, the
variations in the relative rights and preferences between the shares of each
such series so far as the same have been fixed and determined, and the
authority of the board of directors to fix and determine the relative rights
and preferences of subsequent series.
Each certificate representing shares shall state upon the face thereof:
that the Corporation is organized under the laws of the State of Delaware; the
name of the person to whom issued; the number and class of shares; the date of
issue; the designation of the series, if any, which such certificate
represents; the par value of each share represented by such certificate, or a
statement that the shares are without par value. Other matters in regard to
the form of the certificates shall be determined by the board of directors.
SECTION 3. Payment for Shares. No certificate shall be issued for any
shares until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the
issuance of shares shall be paid in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 5. Transfer of Shares. Transfer of shares of capital stock of
the Corporation shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of such authority, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Corporation. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name
shares of capital stock stand on the books of the Corporation shall be deemed
by the Corporation to be the owner thereof for all purposes.
SECTION 6. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 7. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock
to be lost, stolen, or destroyed. When authorizing such issue of a new
certificate, the board of directors may, in its discretion and as a condition
8
<PAGE>
<PAGE>
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate, or his legal representative, to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen, or destroyed.
SECTION 8. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such shares
on the part of any other person, whether or not the Corporation shall have
express or other notice thereof, except as otherwise provided by law.
ARTICLE VIII
Fiscal Year; Annual Audit
The fiscal year of the Corporation shall end on the 31st day of March of
each year. The Corporation shall be subject to an annual audit as of the end
of its fiscal year by independent public accountants appointed by and
responsible to the board of directors.
ARTICLE IX
Dividends
Subject to the provisions of the Certificate of Incorporation and
applicable law, the board of directors may, at any regular or special meeting,
declare dividends on the Corporation's outstanding capital stock. Dividends
may be paid in cash, in property or in the Corporation's own stock.
ARTICLE X
Corporate Seal
The corporate seal of the Corporation shall be in such form as the board
of directors shall prescribe.
ARTICLE XI
Amendments
In accordance with the Corporation's Certificate of Incorporation, these
Bylaws may be repealed, altered, amended or rescinded by the stockholders of
the Corporation only by vote of not less than 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting). In addition, the board of directors may repeal, alter, amend or
rescind these Bylaws by vote of two-thirds of the board of directors at a
legal meeting held in accordance with the provisions of these Bylaws.
Effective: December 18, 1997
9
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 29160
<INT-BEARING-DEPOSITS> 1701
<FED-FUNDS-SOLD> 6600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 294133
<INVESTMENTS-CARRYING> 589
<INVESTMENTS-MARKET> 589
<LOANS> 761017
<ALLOWANCE> 7450
<TOTAL-ASSETS> 1136693
<DEPOSITS> 582309
<SHORT-TERM> 88727
<LIABILITIES-OTHER> 19014
<LONG-TERM> 294563
0
0
<COMMON> 109
<OTHER-SE> 151971
<TOTAL-LIABILITIES-AND-EQUITY> 1136693
<INTEREST-LOAN> 47785
<INTEREST-INVEST> 15167
<INTEREST-OTHER> 258
<INTEREST-TOTAL> 63210
<INTEREST-DEPOSIT> 18853
<INTEREST-EXPENSE> 34513
<INTEREST-INCOME-NET> 28697
<LOAN-LOSSES> 1130
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 15665
<INCOME-PRETAX> 15320
<INCOME-PRE-EXTRAORDINARY> 9747
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9747
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 3.69
<LOANS-NON> 449
<LOANS-PAST> 672
<LOANS-TROUBLED> 366
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6748
<CHARGE-OFFS> 477
<RECOVERIES> 49
<ALLOWANCE-CLOSE> 7450
<ALLOWANCE-DOMESTIC> 3566
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3884
</TABLE>