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, 1998
-------------------
[ ] 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 WASHINGTON BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
WASHINGTON 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 29, 1999
--------------- ----------------------
Common stock, $.01 par value 11,807,172 shares*
* Includes 745,918 shares held by employee stock ownership plan
(ESOP) that have not been released, committed to be released, or
allocated to participant accounts.
<PAGE>
<PAGE>
FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements. The Consolidated Financial Statements of
First Washington Bancorp, Inc. and Subsidiaries filed as a part of the report
are as follows:
Consolidated Statements of Financial Condition
as of December 31, 1998 and March 31, 1998........................... 2
Consolidated Statements of Income
for the Quarters and Nine Months Ended December 31, 1998 and 1997.... 3
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months Ended December 31, 1998 and 1997................. 4
Consolidated Statements of Cash Flows
for the Nine Months Ended December 31, 1998 and 1997................. 6
Selected Notes to Consolidated Financial Statements.................. 8
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operation
General..............................................................12
Recent Developments and Significant Events...........................12
Comparison of Financial Condition at December 31, 1998 and March
31, 1998.............................................................14
Comparison of Results of Operations for the Quarters and Nine
Months Ended December 31, 1998 and 1997..............................15
Asset Quality........................................................20
Market Risk and Asset/Liability Management...........................20
Liquidity and Capital Resources......................................24
Capital Requirements.................................................25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................26
Item 2. Changes in Securities........................................26
Item 3. Defaults upon Senior Securities..............................26
Item 4. Submission of Matters to a Vote of Stockholders..............26
Item 5. Other Information............................................26
Item 6. Exhibits and Reports on Form 8-K.............................26
SIGNATURES.............................................................27
1
<PAGE>
<PAGE>
FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS, EXCEPT SHARES)
DECEMBER 31, 1998 AND MARCH 31, 1998
(Unaudited)
December 31 March 31
1998 1998
--------- ---------
ASSETS
Cash and due from banks $ 74,233 $ 42,529
Securities available for sale, cost $332,192 and
$298,346 335,896 302,419
Securities held to maturity, fair value $2,359
and $194 2,291 194
Federal Home Loan Bank stock 21,895 16,050
Loans receivable:
Held for sale, fair value $14,706 and $12,436 14,706 12,436
Held for portfolio 972,143 752,338
Allowances for loan losses (10,718) (7,857)
--------- ---------
976,131 756,917
Accrued interest receivable 8,509 7,569
Real estate held for sale, net 2,241 882
Property and equipment, net 13,285 11,379
Costs in excess of net assets acquired, net 28,538 11,007
Deferred income tax asset, net 387 --
Other assets 6,051 5,126
--------- ---------
$1,469,457 $1,154,072
========= =========
LIABILITIES
Deposits:
Non-interest-bearing $ 88,019 $ 56,691
Interest-bearing 721,502 545,831
--------- ---------
809,521 602,522
Advances from Federal Home Loan Bank 393,856 297,549
Other borrowings 84,372 91,723
Accrued expenses and other liabilities 7,394 5,475
Deferred compensation 2,654 3,798
Deferred income tax liability, net -- 541
Income taxes payable 777 2,280
--------- ---------
1,298,574 1,003,888
STOCKHOLDERS' EQUITY
Preferred stock - $0.01 par value, 500,000 shares
authorized, no shares issued -- --
Common stock - $0.01 par value, 27,500,000 shares
authorized, 12,001,590 shares issued: 11,301,645
shares and 10,948,151 shares outstanding at
December 31, 1998 and March 31, 1998, respectively
and additional paid-in capital 122,049 108,994
Retained earnings 57,273 72,962
Valuation reserve for securities available for sale 2,440 2,680
Treasury stock, at cost: none and 1,053,439 shares
at December 31, 1998, see note 1, and March 31,
1998, respectively -- (20,979)
Unearned shares of common stock issued to employee
stock ownership plan trust (ESOP): 745,918 and
787,897 restricted shares outstanding at December
31, 1998 and March 31, 1998, respectively, at cost (6,781) (7,163)
Carrying value of shares held in trust for stock-
related compensation plans (4,098) (6,310)
--------- ---------
170,883 150,184
--------- ---------
$1,469,457 $1,154,072
========= =========
* Adjusted for stock dividend see note 2:
2
<PAGE>
<PAGE>
FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) (IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
Quarters Ended Nine Months Ended
December 31 December 31
----------------- -----------------
1998 1997 1998 1997
INTEREST INCOME: ------ ------ ------ ------
Loans receivable $22,341 $16,685 $65,254 $47,785
Mortgage-backed securities 3,518 3,180 9,702 9,495
Securities and deposits 2,515 1,972 6,866 5,930
------ ------ ------ ------
28,347 21,837 81,822 63,210
INTEREST EXPENSE:
Deposits 8,353 6,421 24,693 18,861
Federal Home Loan Bank advances 5,820 4,328 15,651 12,329
Other borrowings 1,251 1,289 3,939 3,323
------ ------ ------ ------
15,424 12,038 44,283 34,513
------ ------ ------ ------
Net interest income before
provision for loan losses 12,923 9,799 37,539 28,697
PROVISION FOR LOAN LOSSES 840 375 2,210 1,130
------ ------ ------ ------
Net interest income 12,083 9,424 35,329 27,567
OTHER OPERATING INCOME:
Loan servicing fees 196 201 586 556
Other fees and service charges 880 635 2,543 1,820
Gain on sale of loans 901 394 2,052 873
Gain (loss) on sale of securities -- -- 7 2
Miscellaneous (6) 19 168 67
------ ------ ------ ------
Total other operating income 1,971 1,249 5,356 3,318
OTHER OPERATING EXPENSES:
Salary and employee benefits 4,418 3,433 13,026 9,791
Less capitalized loan origination
costs (680) (485) (1,999) (1,482)
Occupancy and equipment 1,243 729 3,425 2,166
Information/computer data services 389 334 1,130 838
Advertising 145 123 416 331
Deposit insurance 84 70 258 209
Amortization of costs in excess
of net assets acquired 568 225 1,706 674
Miscellaneous 1,667 1,088 4,432 3,038
------ ------ ------ ------
Total other operating expenses 7,834 5,517 22,394 15,565
------ ------ ------ ------
Income before provision for income
taxes 6,220 5,156 18,291 15,320
PROVISION FOR INCOME TAXES 2,324 1,951 6,880 5,573
------ ------ ------ ------
NET INCOME $ 3,896 $ 3,205 $11,411 $ 9,747
======= ======= ======= =======
Net income per common share,
see Notes 2 & 5:
Basic $ .38 $ .32 $ 1.09 $ .96
Diluted $ .36 $ .30 $ 1.04 $ .92
Cumulative dividends declared
per common share: $ .09 $ .06 $ .26 $ .19
3
<PAGE>
<PAGE>
FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
( IN THOUSANDS)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---- ----
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period $ 108,994 $ 107,953
Acquisition of Towne Bank:
Issuance of stock-fair market value in excess
of basis 1,260 --
Assumption of options 2,018 --
Release of earned ESOP shares 543 886
Recognition of tax benefit due to vesting of
MRP shares 276 231
Excess of basis over proceeds of treasury stock
reissued for exercised stock options (285) (24)
Record 10% stock dividend, see note 2 24,371 --
Purchase and retirement of treasury stock
subsequent to reincorporation (4,012) --
Retirement of treasury shares resulting from
reincorporation in state of Washington,
see note 1 (11,116) --
------- -------
Balance, end of period 122,049 109,046
RETAINED EARNINGS:
Balance, beginning of period 72,962 62,572
Net income 11,411 9,747
Record 10% stock dividend (24,371) --
Cash dividends (2,729) (2,095)
------- -------
Balance, end of period 57,273 70,224
VALUATION RESERVE FOR SECURITIES AVAILABLE FOR SALE:
Balance, beginning of period 2,680 (401)
Change in valuation reserve (240) 3,079
------- -------
Balance, end of period 2,440 2,678
TREASURY STOCK:
Balance, beginning of period (20,979) (6,954)
Basis of stock reissued in acquisition of Towne Bank 17,206 --
Purchases of treasury stock (7,340) (8,959)
Purchases of treasury stock for exercised stock
options (409)
Reissuance of treasury stock for MRP and/or
exercised stock options 409 --
Repurchase of forfeited shares from MRP (3) (18)
Retirement of treasury shares resulting from
reincorporation in state of Washington, see note 1 11,116 --
------- -------
Balance, end of period -- (15,931)
UNEARNED, RESTRICTED ESOP SHARES AT COST:
Balance, beginning of period (7,163) (7,751)
Release of earned ESOP shares 382 513
------- -------
Balance, end of period (6,781) (7,238)
CARRYING VALUE OF SHARES HELD IN TRUST FOR
STOCK-RELATED COMPENSATION PLANS:
Balance, beginning of period (6,310) (6,783)
Cumulative effect of change in accounting for
Rabbi Trust, see note 2 1,354 --
Net change in number and/or valuation of shares
held in trust (35) (828)
Amortization of compensation related to MRP 893 912
------- -------
Balance, end of period (4,098) (6,699)
------- -------
TOTAL STOCKHOLDERS' EQUITY $170,883 $152,080
======= =======
4
<PAGE>
<PAGE>
FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(CONTINUED) ( IN THOUSANDS)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---- ----
COMMON STOCK, SHARES ISSUED: *
Number of shares, beginning of period 12,002 12,002
------- -------
Number of shares, end of period 12,002 12,002
------- -------
TREASURY STOCK, SEE NOTE 1: *
Number of shares, beginning of period (1,053) (432)
Purchase of treasury stock (506) (397)
Purchase of treasury stock used for exercised
stock options (18) (3)
Reissuance of treasury stock to deferred
compensation plan and/or exercised stock options 24 3
Shares reissued in acquisition of Towne Bank 853 --
Repurchase of shares forfeited from MRP -- (1)
------- -------
Number of shares retired/repurchased,
end of period (700) (830)
------- -------
Shares issued and outstanding, end of
period 11,302 11,172
======= =======
UNEARNED, RESTRICTED ESOP SHARES: *
Number of shares, beginning of period (788) (852)
Release of earned shares 42 56
------- -------
Number of shares, end of period (746) (796)
======= =======
* Adjusted for stock dividend, see note 2
5
<PAGE>
<PAGE>
FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------- -------
OPERATING ACTIVITIES
Net income $ 11,411 $ 9,747
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred taxes (143) 365
Depreciation 1,296 764
Loss (gain) on sale of securities (7) (2)
Net amortization of premiums and discounts on
investments 687 8
Amortization of costs in excess of net
assets acquired 1,707 674
Amortization of MRP compensation liability 893 912
Loss (gain) on sale of loans (2,052) (912)
Net changes in deferred loan fees, premiums
and discounts 49 511
Loss (gain) on disposal of real estate held
for sale 24 (17)
Loss (gain) on disposal of property and equipment (95) (3)
Capitalization of mortgage servicing rights
from sale of mortgages with servicing retained (739) (187)
Amortization of mortgage servicing rights 196 62
Provision for losses on loans and real estate
held for sale 2,210 1,130
FHLB stock dividend (1,110) (845)
Cash provided (used) in operating assets and
liabilities:
Loans held for sale (144) (2,548)
Accrued interest receivable (220) (408)
Other assets (42) (651)
Deferred compensation 242 225
Accrued expenses and other liabilities 1,083 169
Income taxes payable (1,878) (1,602)
-------- --------
Net cash provided by operating activities 13,368 7,392
-------- --------
INVESTING ACTIVITIES:
Purchase of securities available for sale (282,350) (161,678)
Principal payments and maturities of securities
available for sale 248,149 158,344
Proceeds from sales of securities available
for sale 2,206 1,405
Purchase of securities held to maturity -- --
Principal payments and maturities of securities
held to maturity 510 397
Purchase of FHLB stock (3,825) (2,022)
Loans originated and closed - net (512,138) (371,906)
Purchase of loans and participating interest
in loans (59,100) (48,890)
Proceeds from sales of loans and participating
interest in loans 117,422 49,907
Principal repayments on loans 351,642 255,480
Purchase of property and equipment (2,394) (1,341)
Proceeds from sale of property and equipment 373 10
Additional capitalized costs of real estate held for
sale net of insurance proceeds (85) (14)
Basis of real estate held for sale acquired in
settlement of loans and disposed of during
the period 1,673 1,840
Funds transferred to deferred compensation
plan trusts (104) (71)
Acquisition of Towne Bank, net cash acquired 9,328 --
-------- --------
Net cash used by investing activities (128,713) (118,539)
-------- --------
6
<PAGE>
<PAGE>
FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Continued from prior page)
1998 1997
------- -------
FINANCING ACTIVITIES
Increase (decrease) in deposits $ 73,415 $ 35,930
Proceeds from FHLB advances 244,554 556,120
Repayment of FHLB advances (150,247) (493,072)
Proceeds from reverse repurchase borrowings 268 30,035
Repayments of reverse repurchase borrowings (11,254) (431)
Decrease-net in other borrowings 3,635 (3,062)
Compensation expense recognized for shares released
for allocation to participants of the ESOP:
Original basis of shares 382 513
Excess of fair value of released shares over basis 543 886
Cash dividends paid (2,610) (2,117)
Net cost of exercised stock options (285) (24)
Purchase of treasury stock (11,352) (8,959)
-------- --------
Net cash provided by financing activities 147,049 115,819
-------- --------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 31,704 4,672
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 42,529 24,488
-------- --------
CASH AND DUE FROM BANKS, END OF PERIOD $ 74,233 $ 29,160
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 43,480 $ 34,489
Taxes paid $ 8,880 $ 6,810
Non-cash transactions:
Loans, net of discounts, specific loss
allowances and unearned income transferred
to real estate owned $ 2,971 $ 2,092
Net change in accrued dividends payable $ 119 $ (22)
Net change in unrealized gain (loss) in deferred
compensation trust and related liability $ 1,387 $ (796)
Treasury stock forfeited by MRP $ 3 $ 18
Fair value of stock issued and options assumed in
connection with the acquisition of Towne Bank $ 20,484 $ --
Recognize tax benefit of vested MRP shares $ 276 $ 231
Non-cash portion of 10% stock dividend $ 24,371 $ --
7
<PAGE>
<PAGE>
FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1998
NOTE 1: REINCORPORATION AND BASIS OF PRESENTATION
Reincorporation:
- ---------------
The stockholders of First Savings Bank of Washington Bancorp, Inc., a
Delaware corporation and herein referred to as "FSBWB," approved the
reincorporation of FSBWB from Delaware to Washington on July 24, 1998. The
reincorporation was effected July 24, 1998 by merging FSBWB into a
wholly-owned subsidiary which had been recently formed solely for the purpose
of effecting the reincorporation. The surviving corporation is known as First
Washington Bancorp, Inc., a Washington corporation, and is hereafter referred
to as "FWWB." Upon consummation of the merger, each share of Common Stock of
FSBWB, par value $.01 per share, was automatically converted into one share
of Common Stock of FWWB, par value $.01 per share.
The merger was consummated under the terms and conditions of a Plan of Merger
pursuant to which FSBWB ceased to exist as a Delaware corporation, the
stockholders of FSBWB became shareholders of FWWB, FWWB succeeded to all the
assets, liabilities, subsidiaries and other properties of FSBWB to the full
extent provided by law, and the rights of the shareholders and internal
affairs of FWWB are to be governed by the articles of incorporation and
bylaws of FWWB and the Washington Business Corporation Act, as amended. As a
result of the merger, FWWB has the same business, management, benefit plans,
location, assets, liabilities and net worth as did FSBWB. However, because
the state of Washington treats all treasury stock as retired upon purchase,
all purchases of treasury stock reduce stock issued and the cost of treasury
stock acquired is charged to par value and paid-in capital.
Basis of Presentation:
- ----------------------
The unaudited consolidated financial statements of FWWB 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 FWWB's
wholly owned subsidiaries, First Savings Bank of Washington (FSBW), Inland
Empire Bank (IEB) and Towne Bank (TB) (together, the Banks). The balance
sheet data at March 31, 1998, is derived from FWWB's audited financial
statements. Certain information and note disclosures normally included in
financial statements 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, 1998 (File No. 0-26584), of
FWWB.
Certain amounts in the prior periods' financial statements and/or schedules
have been reclassified to conform to the current period's presentation. These
reclassifications affected certain ratios for the prior periods. The effect
of such reclassifications is immaterial.
NOTE 2: RECENT DEVELOPMENTS
Acquisition of Towne Bancorp, Inc.:
- -----------------------------------
On April 1, 1998 FWWB completed the acquisition of Towne Bancorp, Inc. FWWB
paid $28.2 million in cash and common stock for all of the outstanding common
shares and stock options of Towne Bancorp, Inc., which was the holding
company for Towne Bank (TB), headquartered in Woodinville, Washington, a
Seattle suburb. As a result of the merger of Towne Bancorp, Inc. into FWWB,
TB became a wholly-owned subsidiary of FWWB. The acquisition was accounted
for as a purchase and resulted in the recording of $19.2 million of costs in
excess of the fair value of Towne Bancorp, Inc. net assets acquired
(goodwill). Goodwill assets are being amortized over a 14 year period and
result in a current charge to earnings of $343,800 per quarter or $1,375,000
per year. Founded in 1991, TB is a community business bank which had, before
recording of goodwill, approximately $146 million in total assets, $134
million in deposits, $120 million in loans and $9.3 million in shareholders'
equity at March 31, 1998. TB operates five full service branches in the
Seattle, Washington metropolitan area--in Woodinville, Redmond, Bellevue,
Renton and Bothell.
8
<PAGE>
<PAGE>
Acquisition of Whatcom State Bancorp, Inc.:
- --------------------------------------------
On January 1, 1999 FWWB completed the acquisition of Whatcom State Bancorp
Inc. FWWB paid 12.1 million in cash and common stock for all the outstanding
common shares and stock options of Whatcom State Bancorp, Inc., which was the
holding company for Whatcom State Bank (WSB), headquartered in Bellingham,
Washington. As a result of the merger of Whatcom Bancorp, Inc. into FWWB, WSB
became a division of First Savings Bank of Washington. The acquisition will
be accounted for as a purchase and resulted in the recording of approximately
$6.4 million of costs in excess of the fair value of Whatcom State Bancorp,
Inc. net assets acquired (goodwill). Goodwill assets will be amortized over a
14 year period and will result in a current charge to earnings of $114,300
per quarter or $457,000 per year. Founded in 1980, WSB is a community
commercial bank which had, before recording of goodwill, approximately $99
million in total assets, $85 million in deposits, $7.9 million in loans, $5.4
million in shareholders' equity at December 31, 1998. WSB operates five full
service branches in the Bellingham, Washington area - Bellingham, Ferndale,
Lynden, Blaine and Point Roberts.
Agreement to Acquire Seaport Citizens Bank:
- -------------------------------------------
FWWB has signed a definitive agreement to acquire Seaport Citizens Bank
(SCB), in an all cash offer valued at approximately $10.1 million. Seaport
Citizens Bank in Lewiston, Idaho, is not a publicly traded institution. This
valuation represents approximately 2.5 times book value and 16 times earnings
for the twelve months ended September 30, 1998 for SCB. The acquisition,
which has been approved by the Boards of Directors of each company, is
subject to, among other contingencies, approval by regulators and Seaport
Citizens Bank shareholders. The transaction is expected to close in the
second quarter of the 1999 calendar year.
Declaration of 10% Stock Dividend:
- ----------------------------------
On July 24, 1998 FWWB's Board of Directors declared a 10% stock dividend
payable August 17, 1998 to shareholders of record on August 10, 1998. All
earnings per share and share data have been adjusted to reflect the 10% stock
dividend.
New Accounting Pronouncement:
- -----------------------------
In July 1998, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus on the accounting treatment
for deferred compensation arrangements where amounts earned are held in a
Rabbi Trust and invested. The consensus of the EITF was applied as of
September 30, 1998 for all awards granted, and existing plans were required
to be amended prior to September 30, 1998. Application of the consensus is
reflected as a change in accounting principle under which the Company stock
purchased for a Rabbi Trust obligation and the related liability for deferred
compensation is recorded at acquisition cost. Prior to this change the stock
was recorded at fair market value. The effect of this change in accounting
increased equity by $1.35 million and reduced the related liability for
deferred compensation by the same amount.
NOTE 3: ADOPTION OF NEW ACCOUNTING STANDARDS
FWWB adopted Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, effective April 1, 1998. The standard
requires that comprehensive income and its components be disclosed in the
financial statements. FWWB's comprehensive income includes all items which
comprise net income plus the unrealized holding gains, net of related taxes,
on available-for-sale securities. For the quarters and nine months ended
December 31, 1998 and 1997, FWWB's comprehensive income was as follows:
Quarters Ended Nine Months Ended
December 31 December 31
----------------- -----------------
1998 1997 1998 1997
------- ------- -------- -------
Net income $ 3,896 $ 3,205 $ 11,411 $ 9,747
Other comprehensive income (1,086) 806 (243) 3,079
------- ------- -------- -------
Total comprehensive income $ 2,810 $ 4,011 $ 11,168 $12,826
======= ======= ======== =======
9
<PAGE>
<PAGE>
NOTE 4: ADDITIONAL INFORMATION REGARDING INTEREST-BEARING DEPOSITS AND
SECURITIES
The following table sets forth additional detail on the FWWB's interest-
bearing deposits and securities at the dates indicated (at carrying value)
(in thousands):
December 31 March 31
1998 1998
---------- ---------
Interest-bearing deposits included
in cash and due from banks $ 36,797 $ 15,587
-------- --------
Mortgage-backed securities 222,142 197,130
Other securities-taxable 79,069 70,092
Other securities-tax exempt 32,816 32,093
Other stocks with dividends 4,160 3,298
-------- --------
Total securities 338,187 302,613
Federal Home Loan Bank (FHLB) stock 21,895 16,050
-------- --------
$396,879 $334,250
======== ========
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
----------------- -----------------
1998 1997 1998 1997
------- ------- -------- -------
Mortgage-backed securities $ 3,518 $ 3,180 $ 9,702 $ 9,495
------- ------- ------- -------
Taxable interest and dividends 1,573 1,161 4,265 3,543
Tax-exempt interest 525 506 1,491 1,541
Federal Home Loan Bank stock-dividends 417 305 1,110 846
------- ------- ------- -------
2,515 1,972 6,866 5,930
------- ------- ------- -------
$ 6,033 $ 5,152 $16,568 $15,425
======= ======= ======= =======
10
<PAGE>
<PAGE>
NOTE 5: CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING FOR EARNINGS PER
SHARE (EPS) AND CALCULATION OF OUTSTANDING SHARES
Calculation of
Weighted Average Shares Outstanding
for Earnings Per Share
----------------------
(in thousands)
Quarters Ended Nine Months Ended
December 31 December 31
---------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
Total shares originally issued 12,002 12,002 12,002 12,002
Less retired shares and
treasury stock plus unvested
shares allocated to MRP (900) (1,110) (743) (974)
Less unallocated shares held by
the ESOP (775) (821) (780) (834)
------ ------ ------ ------
Basic weighted average shares
outstanding 10,327 10,071 10,479 10,194
Plus unvested MRP and stock
option incremental shares
considered outstanding for diluted
EPS calculations 447 439 481 398
------ ------ ------ ------
Diluted weighted average shares
outstanding 10,774 10,510 10,960 10,592
====== ====== ====== ======
Calculation of
Outstanding Shares at*
----------------------
(in thousands)
December 31 March 31
1998 1998
---- ----
Total shares issued 12,002 12,002
Less retired shares and
treasury stock (700) (1,054)
------ ------
Outstanding shares issued 11,302 10,948
====== ======
* Adjusted for 10% stock dividend granted August 10, 1998
11
<PAGE>
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
First Washington Bancorp, Inc. (FWWB), a Washington 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), Inland Empire Bank (IEB) and Towne Bank (TB) (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 16 branch offices and three loan
production offices located in southeast, central, north central and western
Washington. IEB is an Oregon-chartered commercial bank whose deposits are
insured by the 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. TB is a
Washington-chartered commercial bank whose deposits are insured by the FDIC
under BIF. TB conducts business from five full service branches in the
Seattle, Washington metropolitan area.
The operating results of FWWB 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 FWWB'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, FWWB's net interest income significantly
increased for the quarter and nine months ended December 31, 1998, 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 from the acquisition of TB on April 1, 1998, although
significant asset and liability growth also occurred at FSBW and IEB. FWWB'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. FWWB's
net income also significantly increased when compared to the same periods for
the prior year.
Management's discussion and analysis of results of operations is intended to
assist in understanding the financial condition and results of operations of
FWWB. The information contained in this section should be read in conjunction
with the Consolidated Financial Statements and accompanying Selected Notes to
the Consolidated Financial Statements.
RECENT DEVELOPMENTS AND SIGNIFICANT EVENTS
RECENT DEVELOPMENTS
Reincorporation:
- ----------------
The stockholders of First Savings Bank of Washington Bancorp, Inc., a
Delaware corporation and herein referred to as "FSBWB," approved the
reincorporation of FSBWB from Delaware to Washington on July 24, 1998. The
reincorporation was effected July 24, 1998 by merging FSBWB into a wholly
owned subsidiary which had been recently formed solely for the purpose of
effecting the reincorporation. The surviving corporation is known as First
Washington Bancorp, Inc., a Washington corporation, and is hereafter referred
to as "FWWB." Upon consummation of the merger, each share of Common Stock of
FSBWB, par value $.01 per share, was automatically converted into one share
of common stock of FWWB, par value $.01 per share.
The merger was consummated under the terms and conditions of a Plan of Merger
pursuant to which FSBWB ceased to exist as a Delaware corporation, the
stockholders of FSBWB became shareholders of FWWB, FWWB succeeded to all the
assets, liabilities, subsidiaries and other properties of FSBWB to the full
extent provided by law, and the rights of the shareholders and internal
affairs of FWWB are to be governed by the articles of incorporation and
bylaws of FWWB and the Washington Business Corporation Act, as amended. As a
result of the merger, FWWB has the same business, management, benefit plans,
location, assets, liabilities and net worth as did FSBWB.
12
<PAGE>
<PAGE>
Acquisition of Towne Bancorp, Inc.:
- -----------------------------------
On April 1, 1998 FWWB completed the acquisition of Towne Bancorp, Inc. FWWB
paid $28.2 million in cash and common stock for all of the outstanding common
shares and stock options of Towne Bancorp, Inc., which was the holding
company for Towne Bank (TB), headquartered in Woodinville, Washington, a
Seattle suburb. As a result of the merger of Towne Bancorp, Inc. into FWWB,
TB became a wholly owned subsidiary of FWWB. The acquisition was accounted
for as a purchase and resulted in the recording of $19.2 million of costs in
excess of the fair value of Towne Bank net assets acquired (goodwill).
Goodwill assets are being amortized over a 14 year period and result in a
current charge to earnings of $343,800 per quarter or $1,375,000 per year.
Founded in 1991, TB is a community business bank which had, before recording
of goodwill, approximately $146 million in total assets, $134 million in
deposits, $120 million in loans and $9.3 million in shareholders' equity at
March 31, 1998. TB operates five full service branches in the Seattle,
Washington metropolitan area--in Woodinville, Redmond, Bellevue, Renton and
Bothell.
Acquisition of Whatcom State Bancorp, Inc.:
- --------------------------------------------
On January 1, 1999 FWWB completed the acquisition of Whatcom State Bancorp
Inc. FWWB paid 12.1 million in cash and common stock for all the outstanding
common shares and stock options of Whatcom State Bancorp, Inc., which was the
holding company for Whatcom State Bank (WSB), headquartered in Bellingham,
Washington. As a result of the merger of Whatcom Bancorp, Inc. into FWWB, WSB
became a division of First Savings Bank of Washington. The acquisition will
be accounted for as a purchase and resulted in the recording of approximately
$6.4 million of costs in excess of the fair value of Whatcom State Bancorp,
Inc. net assets acquired (goodwill). Goodwill assets will be amortized over a
14 year period and will result in a current charge to earnings of $114,300
per quarter or $457,000 per year. Founded in 1980, WSB is a community
commercial bank which had, before recording of goodwill, approximately $99
million in total assets, $85 million in deposits, $7.9 million in loans, $5.4
million in shareholders' equity at December 31, 1998. WSB operates five full
service branches in the Bellingham, Washington area - Bellingham, Ferndale,
Lynden, Blaine and Point Roberts.
Agreement to Acquire Seaport Citizens Bank:
- -------------------------------------------
FWWB has signed a definitive agreement to acquire Seaport citizens Bank
(SCB), in an all cash offer valued at approximately $10.1 million. Seaport
Citizens Bank in Lewiston, Idaho, is not a publicly traded institution. This
valuation represents approximately 2.5 times book value and 16 times earnings
for the twelve months ended September 30, 1998 for SCB. The acquisition,
which has been approved by the Boards of Directors of each company, is
subject to, among other contingencies, approval by regulators and Seaport
Citizens Bank shareholders. The transaction is expected to close in the
second quarter of the 1999 calendar year.
Declaration of 10% Stock Dividend:
- ----------------------------------
On July 24, 1998 the Company's Board of Directors declared a 10% stock
dividend payable August 17, 1998 to shareholders of record August 10, 1998.
All earnings per share and share data have been adjusted to reflect the 10%
stock dividend.
New Accounting Pronouncement:
- ------------------------------
In July 1998, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus on the accounting treatment
for deferred compensation arrangements where amounts earned are held in a
Rabbi Trust and invested. The consensus of the EITF was applied as of
December 31, 1998 for all awards granted and existing plans were required to
be amended prior to December 31, 1998. Application of the consensus is
reflected as a change in accounting principle under which the Company stock
purchased for a Rabbi Trust obligation and the related liability for deferred
compensation is recorded at acquisition cost. Prior to this change the stock
was recorded at fair market value. The effect of this change in accounting
increased equity by $1.35 million and reduced the related liability for
deferred compensation by the same amount.
13
<PAGE>
<PAGE>
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, among 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 FWWB and its subsidiary Banks, FWWB presently believes that all
equipment and programs are Y2K compliant. A program for addressing the Y2K
issue through awareness, assessment, renovation and testing has been
developed and implemented. The testing phase has been completed on the
internal operations and only the completion of the review of outside vendors
and costumers remains. The results of internal testing disclosed only
insignificant items that needed to be resolved. The three bank subsidiaries
have budgeted approximately $450,000 to cover soft and hard costs such as
upgrading ATMs, contacting and monitoring vendors, contacting customers and
providing information regarding our preparations and testing the systems we
have identified as critical and non-critical. FWWB and its Bank subsidiaries
have incurred and expensed approximately $233,000 of Y2K related costs in the
current fiscal year to date period ended December 31, 1998. Costs incurred
and expensed in prior fiscal years were not significant. During the second
quarter ended September 30, 1998, as a result of initial testing for Y2K
preparedness and review of the current status of contingency planning,
management expanded the budget to include additional administrative,
personnel and overhead costs which resulted in a $300,000 increase from the
original budget.
FWWB and its subsidiary Banks are continuing to contact and monitor 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 are contacting their large
loan and deposit customers to build Y2K awareness and encourage early
development of contingency plans and solutions in an effort to prevent
potential business disruption due to Y2K processing failures. Loan and
deposit customers are being updated regularly about our preparations and
information is being provided to create a much greater awareness of the issue
with some ideas about how to assess and prepare for their own Y2K
vulnerability. There can be no guarantee that the systems of other companies
on which the Banks' systems rely will be timely converted, or that a failure
to convert by another company, or a conversion that is incompatible with the
Banks' systems would not have a material adverse effect on the Banks.
However, the Banks has tested for the Y2K preparedness of all internal
functions and external functions provided by third parties whenever possible.
In addition, contingency or alternate sources of support have been identified
for each critical function and many non-critical functions.
In the event that the Banks' data processing providers do not make their
systems Y2K compliant and FWWB is not able to switch to an alternative
provider or an in-house system in a timely manner, resulting computer
malfunctions could interrupt the operations of the Banks and have a
significant adverse effect on FWWB's financial condition and results of
operations.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31 AND MARCH 31, 1998
Total assets increased $315.0 million, or 27.3%, from $1.154 billion at March
31, 1998, to $1.469 billion at December 31, 1998. The majority of the
increase, $164.9 million, was from the acquisition of Towne Bank including
goodwill resulting from the use of purchase accounting. The remaining growth
of $150.5 million was spread among all three subsidiary Banks 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 FWWB's capital and reflects the solid economic conditions in the
markets where FWWB operates.
14
<PAGE>
<PAGE>
Loans receivable (gross loans less loans in process, deferred fees and
discounts, and allowance for loan losses) grew $219.2 million, or 29.0%, from
$756.9 million at March 31, 1998, to $976.1 million at December 31, 1998. The
increase in gross loans of $229.8 million from $822.6 million at March 31,
1998, to $1.052 billion at December 31, 1998, consists of $95.3 million of
mortgages secured by commercial and multi-family real estate, $54.4 million
of construction and land loans and $96.9 million of non-mortgage loans such
as commercial, agricultural and consumer loans. This was offset by a $16.8
million decrease in residential mortgages resulting from repayments and sales
of residential mortgages which were in excess of originations of new loans.
The acquisition of TB on April 1, 1998 provided $121.7 million of gross loans
consisting of $24.3 million of commercial and multi-family mortgages, $19.4
million of construction and land loans, $6.4 million of residential mortgages
and $71.6 million of commercial and consumer loans. Slightly more than three
quarters of the increase in assets, excluding the TB acquisition, was funded
by a net increase of $94.4 million, or 32.4%, in FHLB advances from $297.5
million at March 31, 1998, to $393.9 million on December 31, 1998. Asset
growth was also funded by increased deposits and net income from operations.
Deposits grew $207.0 million, or 34.4%, from $602.5 million at March 31,
1998, to $809.5 million at December 31, 1998. Other borrowings, primarily
reverse repurchase agreements with securities dealers, decreased $7.3
million, from $91.7 million at March 31, 1998, to $84.4 million at December
31, 1998. The TB acquisition provided $133.6 million of deposits and $2.0
million of FHLB advances. Securities available for sale and held to maturity
increased $35.6 million, or 11.8%, from $302.6 million at March 31, 1998, to
$338.2 million at December 31, 1998. Federal Home Loan Bank Stock increased
$5.8 million ($1.0 million from the TB acquisition), as FWWB was required to
purchase more stock as a result of its increased use of FHLB advances. Real
estate held for sale increased $1.4 million, primarily as a result of
completed foreclosures on a contractor.
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS AND NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1997
GENERAL. Net income for the third quarter of fiscal 1999 was $3.9 million, an
increase of $691,000 from the comparable quarter in fiscal 1998. Net income
for the first nine months of fiscal 1999 was $11.4 million, an increase of
$1.7 million from the comparable period in fiscal 1998. FWWB's improved
operating results reflect the significant growth of assets and liabilities as
well as improvements in net interest margin and non-interest revenues which
were offset somewhat by increased operating expenses. Compared to year ago
levels, total assets increased 29.3% to $1.47 billion at December 31, 1998,
total loans rose 28.3% to $976.1 million, deposits grew 36.8% to $809.5
million and borrowings increased 24.8% to $478.2 million. Net interest margin
improved, despite the adverse effects of a flattening yield curve and
declining market rates and loan pricing spreads, reflecting the acquisition
of TB and continuing changes in the asset and liability mix.
INTEREST INCOME. Interest income for the quarter ended December 31, 1998, was
$28.3 million compared to $21.8 million for the quarter ended December 31,
1997, an increase of $6.5 million, or 29.8%. The increase in interest income
was a result of a $313.8 million, or 29.5%, growth in the average balance of
interest-earning assets combined with a modest 2 basis point increase in the
average yield on those assets, which rose from 8.14% in the quarter ended
December 1997, to 8.16% in December 1998. Average loans receivable for the
third quarter of fiscal 1999 increased by $233.6 million, or 31.1%, when
compared to the same quarter in fiscal 1998. Interest income on loans
increased by $5.6 million, or 29.8%, 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. Much of the increased
yield on the loan portfolio is attributable to the addition of the TB loans
which generally carry higher rates of interest than many of the loans held by
FSBW and IEB. Average loans receivable represented 71.4% of average earning
assets for the quarter ended December 31, 1998, compared to 70.5% for the
same period a year earlier. The combined average balance of mortgage-backed
and investment securities and FHLB stock for the third quarter of fiscal 1999
increased $80.2 million compared to the third quarter of fiscal 1998,
although interest and dividend income from those investments increased by
only $881,000 for the December 1998 quarter compared to December 1997. The
nominal increase of interest income on this portfolio largely reflects that,
while the average balance of mortgage-backed obligations increased by $41.9
million over the same quarter a year earlier, the yield on those securities
declined 62 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 and from accelerated amortization of net premiums as a
result of increased prepayments on the mortgage loans underlying the mortgage
backed securities. Average balances for other investment securities and
deposits increased $32.1 million, although the yield on those balances
declined 17 basis points also reflecting declining market rates. Holdings of
FHLB stock (excluding the TB acquisition) increased commensurate with the
growth in FHLB advances and the yield on that stock decreased 26 basis
points.
15
<PAGE>
<PAGE>
Interest income for the nine months ended December 31, 1998 increased $18.6
million, or 29.4%, from the comparable period in fiscal 1998. Interest income
from loans increased $17.5 million, or 36.6%, from the comparable period in
fiscal 1998. The majority of the increase for loan interest income reflected
the impact of a $226.8 million growth in average loans receivable balances
combined with a 34 basis point increase in the yield on the loan balances.
Interest income from mortgage-backed and investment securities and FHLB stock
for the nine months ended December 31, 1998, increased $1.2 million, from
$15.4 million in fiscal 1998, to $16.6 million in fiscal 1998, reflecting a
$49.4 million increase in average balances offset by a 48 basis point
decrease in yield. The yield on average earning assets increased from 8.14%
for the nine months ended December 31, 1997, to 8.31% for the nine months
ended December 31, 1998.
INTEREST EXPENSE. Interest expense for the quarter ended December 31, 1998,
was $15.4 million compared to $12.0 million for the comparable period in
1997, an increase of $3.4 million, or 28.1%. The increase in interest expense
was due to the $329.7 million growth in average interest-bearing liabilities.
The increase in average interest-bearing liabilities in the quarter ended
December 1998 was largely due to a $213.2 million increase in the average
balance of deposits combined with an $116.5 million growth in average FHLB
advances and other borrowings. The acquisition of TB on April 1, 1998
increased deposits $133.6 million. This acquisition plus $84.3 million of
additional non-acquisition deposit growth as compared to December 1997
resulted in a $1.9 million increase in deposit related interest expense. The
average rate on those deposits decreased from 4.41% for the quarter ended
December 31, 1997, to 4.19% for the quarter ended December 31, 1998. Average
FHLB advances totaled $395.6 million during the quarter ended December 31,
1998, as compared to $280.8 million during the quarter ended December 31,
1997, resulting in a $1.5 million increase in related interest expense. The
average rate paid on those advances decreased from 6.12% for the quarter
ended December 31, 1997, to 5.84% for the comparable period in 1998. 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
$1.7 million from $87.3 million for the quarter ended December 31, 1997, to
$89.0 million for the same period in 1998, and the related interest expense
decreased $38,000, from $1.29 million to $1.25 million for the respective
periods. The cost of other borrowings decreased 28 basis points from 5.86%
for the quarter ended December 31, 1997 to 5.58% for the December 1998
quarter.
A comparison of total interest expense for the nine months ended December 31,
1998, shows an increase of $9.8 million, or 28.3%, from the comparable period
in December 1997. The increase in interest expense reflects an increase in
average deposits of $193.8 million combined with an $94.9 million increase in
FHLB advances and other borrowings. The effect on interest expense of the
$288.7 million increase in average interest-bearing liabilities was slightly
offset by a 13 basis point decrease in the interest rate paid on those
liabilities.
16
<PAGE>
<PAGE>
The following tables provide additional comparative data on the Company's
operating performance:
Quarters Ended Nine Months Ended
Average Balances December 31 December 31
---------------- ---------------- -----------------
(in thousands) 1998 1997 1998 1997
---- ---- ---- ----
Investment securities and
deposits $ 140,885 $ 108,801 $ 126,717 $ 110,203
Mortgage-backed obligations 231,947 190,047 214,774 186,787
Loans 983,821 750,217 946,592 719,775
FHLB stock 21,375 15,123 19,172 14,302
---------- ---------- ---------- ----------
Total average interest-
earning asset 1,378,028 1,064,188 1,307,255 1,031,067
Non-interest-earning assets 79,049 42,522 76,220 42,063
---------- ---------- ---------- ----------
Total average assets $1,457,077 $1,106,710 $1,383,475 $1,073,130
========== ========== ========== ==========
Deposits $ 791,084 $ 573,405 $ 761,243 $ 560,928
Advances from FHLB 395,558 280,793 348,803 269,592
Other borrowings 88,955 87,263 91,914 76,228
---------- ---------- ---------- ----------
Total average interest-
bearing liabilities 1,275,597 941,461 1,201,960 906,748
Non-interest-bearing
liabilities 11,579 14,248 10,658 15,232
---------- ---------- ---------- ----------
Total average liabilities 1,287,176 955,709 1,212,618 921,980
---------- ---------- ---------- ----------
Equity 169,901 151,001 170,857 151,150
---------- ---------- ---------- ----------
Total average liabilities
and equity $1,457,077 $1,106,710 $1,383,475 $1,073,130
========== ========== ========== ==========
Interest Rate Yield/Expense (rates are annualized)
--------------------------------------------------
Interest Rate Yield:
Investment securities
and deposits 5.91% 6.08% 6.03% 6.12%
Mortgage-backed obligations 6.02% 6.64% 6.00% 6.75%
Loans 9.00% 8.82% 9.15% 8.81%
FHLB stock 7.74% 8.00% 7.68% 7.85%
------ ------ ----- -----
Total interest rate yield on
interest-earning assets 8.16% 8.14% 8.31% 8.14%
------ ------ ----- -----
Interest Rate Expense:
Deposits 4.19% 4.44% 4.31% 4.46%
Advances from FHLB 5.84% 6.12% 5.96% 6.07%
Other borrowings 5.58% 5.86% 5.69% 5.79%
------ ------ ----- -----
Total interest rate expense
on interest-bearing
liabilities 4.80% 5.07% 4.89% 5.05%
------ ------ ----- -----
Interest spread 3.36% 3.07% 3.42% 3.09%
====== ====== ===== =====
Net interest margin on
interest earning assets 3.72% 3.65% 3.81% 3.69%
------ ------ ----- -----
Additional Key Financial Ratios (ratios are annualized)
------------------------------------------------------
Return on average assets 1.06% 1.15% 1.09% 1.21%
Return on average equity 9.10% 8.42% 8.86% 8.56%
Average equity/average assets 11.66% 13.64% 12.35% 14.08%
Average interest-earning assets/
interest-bearing liabilities 108.03% 113.04% 108.76% 113.71%
Non-interest [other operating]
expenses/average assets
Excluding amortization of
costs in excess of net
assets acquired (goodwill) 1.98% 1.90% 1.98% 1.84%
Including amortization of
costs in excess of net
assets acquired (goodwill) 2.13% 1.98% 2.15% 1.93%
Efficiency ratio [non-interest
(other operating) expenses/
revenues]
Excluding amortization of
costs in excess of net
assets acquired (goodwill) 48.78% 47.90% 48.23% 46.51%
Including amortization of
costs in excess of net
assets acquired (goodwill) 52.60% 49.94% 52.21% 48.62%
17
<PAGE>
<PAGE>
PROVISION FOR LOAN LOSSES. During the quarter ended December 31, 1998, the
provision for loan losses was $840,000, compared to $375,000 for the quarter
ended December 31, 1997, an increase of $465,000. A comparison of the
provision for loan losses for the nine month periods ended December 31, 1998
and 1997 shows an increase of $1.1 million from $1.1 million in fiscal 1998
to $2.2 million in fiscal 1999. This increase in the provision for losses
reflects more significant growth and a higher level of net charge-offs for
the nine month period as well as changes in the portfolio composition. The
allowance for loan losses net of charge-offs (recoveries) increased by $2.8
million, to $10.7 million at December 31, 1998, compared to $7.9 million at
March 31, 1998. 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 allowance for loan loss reserve. 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 Banks'
loans and allowance for loan losses (in thousands):
December 31 March 31
1998 1998
---- ----
Loans (including loans held for sale):
Secured by real estate
One to four single family dwellings (SFD) $ 407,015 $ 423,850
Commercial and multifamily 263,174 167,859
Construction and land-secured 186,853 132,409
Commercial and agribusiness 155,935 67,611
Consumer, including credit cards 39,431 30,842
---------- -----------
$1,052,408 $ 822,571
Less loans in process 62,029 54,500
Less deferred fees and discounts 3,530 3,297
Less allowance for loan losses 10,718 7,857
---------- -----------
Total net loans at end of period $ 976,131 $ 756,917
========== ===========
Allowance for loan losses as a percentage of
gross principal of loans outstanding 1.02% 0.96%
Quarters Ended Nine Months Ended
December 31 December 31
-------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
Change in allowance for loan losses:
Balance at beginning of the period $ 10,418 $ 7,187 $ 7,857 $ 6,748
Acquisition of TB -- -- 1,616 --
Provision for loan losses 840 375 2,210 1,130
Recoveries 25 39 206 49
Charge-offs (565) (151) (1,171) (477)
-------- ------- ------- -------
Balance at end of the period $ 10,718 $ 7,450 $10,718 $ 7,450
======== ======= ======= =======
Charge-offs as a percentage of average
net book value of loans outstanding
for the period. 0.06% 0.02% 0.12% 0.07%
18
<PAGE>
<PAGE>
OTHER OPERATING INCOME. Other operating income increased $722,000 from $1.3
million for the quarter ended December 31, 1997, to $2.0 million for the
quarter ended December 31, 1998. The increase included a $245,000 increase in
other fees and service charges due largely to the addition of TB operations,
combined with increases in fee income at FSBW and IEB reflecting deposit
growth and pricing adjustments. There also was a $507,000 increase in net
gains on loans sold in the quarter ended December 31, 1998, as compared to
the same period in 1997. This increase primarily reflects increases in IEB's
residential mortgage banking operations, and increased sales of loans, with
servicing retained, by FSBW which increased the volume of loans sold in the
secondary market over the comparable period in the prior year. The volume of
loan sales and related net gain on sale of loans increased from $22.6 million
and $394,000, respectively, for the quarter ended December 31, 1997, to $45.9
million and $901,000, respectively, for the quarter ended December 31, 1998.
Increased sales of loans at FSBW were designed to curtail the rate of growth
in relatively low yielding fixed rate residential mortgages during this
period of low market rates and to reduce the Bank's exposure to the risk of
rising interest rates.
Other operating income for the nine months ended December 31, 1998, increased
$2.0 million from the comparable period in 1997. The $733,000 increase in fee
income was due largely to the addition of nine months of TB's operations in
the current fiscal 1999 period. The $1.2 million increase in gains from the
sale of loans and securities for the nine months ended December 31, 1998 also
reflects the inclusion of TB's operations as well as the previously noted
increased sales of residential mortgage loans by FSBW and IEB. The $101,000
increase in miscellaneous other income reflects a gain on the sale of IEB
real property in the second quarter of fiscal 1999.
OTHER OPERATING EXPENSES. Other operating expenses increased $2.3 million
from $5.5 million for the quarter ended December 31, 1997, to $7.8 million
for the quarter ended December 31, 1998. The increase in expenses was largely
due to the inclusion of $1.8 million of TB's operating expenses in the third
quarter of fiscal 1999 that were not present in fiscal 1998. The increase in
other operating expenses was partially offset by a $195,000 increase in
capitalized loan origination costs resulting from an increased volume in loan
origination. In addition to the acquisition of TB, increases in other
operating expenses reflect the overall growth in assets and liabilities,
customer relationships and complexity of operations as FWWB continues to
expand. Despite the high operating expenses associated with transitioning
FWWB to more of a commercial bank profile, FWWB's efficiency ratio, excluding
the amortization of goodwill, increased only 0.88 percentage points, to
48.78%, for the third quarter of fiscal 1999, from 47.90% for the same period
in fiscal 1998. Other operating expenses as a percentage of average assets
were 2.13% (1.98% excluding the amortization of goodwill) for the quarter
ended December 31, 1998, compared to 1.98% (1.90% excluding the amortization
of goodwill) for the quarter ended December 31, 1997.
Other operating expenses for the nine months ended December 31, 1998
increased $6.8 million from $15.6 million for the first nine months of fiscal
1998 to $22.4 million in fiscal 1999. As explained earlier, the increase is
largely due to the inclusion of $5.2 million of TB's operating expenses for
the nine month fiscal 1999 period. The balance of the increase reflects the
previously noted overall growth in FWWB's operations.
INCOME TAXES. Income tax expense was $2.3 million for the quarter ended
December 31, 1998, compared to $1.9 million for the comparable quarter in
1997. The $373,000 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 TB 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, 1998 and 1997, were 37% and 38%, respectively. Income tax expense for the
nine months ended December 31, 1998 increased $1.3 million from $5.6 million
for the nine months ended December 31, 1997, to $6.9 million for the
comparable period in 1998. The Company's effective tax rate increased to 38%
for the nine months ended December 31, 1998, from 36% for the comparable
period in 1997. This increase was due to the same reasons the income tax
provision for the quarter increased.
19
<PAGE>
<PAGE>
ASSET QUALITY
The following tables are provided to disclose additional details on asset
quality (in thousands):
December 31 March 31
1998 1998
-------- --------
Non-performing assets at end of the period:
Non-performing loans:
Delinquent loans on non-accrual status $ 2,862 $ 1,270
Delinquent loans on accrual status 390 150
------- -------
Total non-performing loans 3,252 1,420
Real estate owned ( REO) 2,241 882
------- -------
Total non-performing assets at end
of the period $ 5,493 $ 2,302
======= =======
Non-performing loans as a percentage of total
net loans at end of the period 0.33% 0.19%
Ratio of allowance for loan losses to non-performing
loans at end of the period 330% 553%
Non-performing assets as a percentage of total
assets at end of the period. 0.37% 0.20%
Troubled debt restructuring [TDR's]
at end of the period $ 404 $ 305
------- -------
Troubled debt restructuring as a percentage of:
Total gross principal of loans outstanding
at end of the period 0.04% 0.04%
Total assets at end of the period 0.03% 0.03%
MARKET RISK AND ASSET/LIABILITY MANAGEMENT
The financial condition and operation of the Company are influenced
significantly by general economic conditions, including the absolute level of
interest rates as well as changes in interest rates and the slope of the
yield curve. The Company's profitability is dependent to a large extent on
its net interest income, which is the difference between the interest
received from its interest-earning assets and the interest expense incurred
on its interest-bearing liabilities.
The activities of the Company, like all financial institutions, inherently
involve the assumption of interest rate risk. Interest rate risk is the risk
that changes in market interest rates will have an adverse impact on the
institution's earnings and underlying economic value. Interest rate risk is
determined by the maturity and repricing characteristics of an institution's
assets, liabilities, and off-balance-sheet contracts. Interest rate risk is
measured by the variability of financial performance and economic value
resulting from changes in interest rates. Interest rate risk is the primary
market risk impacting the Company's financial performance.
The greatest source of interest rate risk to the Company results from the
mismatch of maturities or repricing intervals for rate sensitive assets,
liabilities and off-balance-sheet contracts. This mismatch or gap is
generally characterized by a substantially shorter maturity structure for
interest-bearing liabilities than interest-earning assets. Additional
interest rate risk results from mismatched repricing indices and formulae
(basis risk and yield curve risk), and product caps and floors and early
repayment or withdrawal provisions (option risk), which may be contractual or
market driven, that are generally more favorable to customers than to the
Company.
The principal objectives of asset/liability management are to evaluate the
interest-rate risk exposure of the Company; to determine the level of risk
appropriate given the Company's operating environment, business plan
strategies, performance objectives, capital and liquidity constraints, and
asset and liability allocation alternatives; and to manage the Company's
interest rate risk consistent with regulatory guidelines and approved
policies of the Board of Directors. Through such management the Company seeks
to reduce the vulnerability of its earnings and capital position to changes
in the level of interest rates. The Company's actions in this regard are
taken under the guidance of the Asset/Liability Management Committee, which
is comprised of members of the Company's senior management. The committee
closely monitors the Company's interest sensitivity exposure, asset and
liability allocation decisions, liquidity and capital positions, and local
and national economic conditions and attempts to structure the loan and
investment portfolios and funding sources of the Company to maximize earnings
within acceptable risk tolerances.
20
<PAGE>
<PAGE>
The Company's primary monitoring tool for assessing interest rate risk is
asset/liability simulation modeling which is designed to capture the dynamics
of balance sheet, interest rate and spread movements and to quantify
variations in net interest income resulting from those movements under
different rate environments. The sensitivity of net interest income to
changes in the modeled interest rate environments provides a measurement of
interest rate risk. The Company also utilizes market value analysis, which
addresses changes in estimated net market value of equity arising from
changes in the level of interest rates. The net market value of equity is
estimated by separately valuing the Company's assets and liabilities under
varying interest rate environments. The extent to which assets gain or lose
value in relation to the gains or losses of liability values under the
various interest rate assumptions determines the sensitivity of net equity
value to changes in interest rates and provides an additional measure of
interest rate risk.
The interest rate sensitivity analysis performed by the Company incorporates
beginning of the period rate, balance and maturity data, using various levels
of aggregation of that data, as well as certain assumptions concerning the
maturity, repricing, amortization and prepayment characteristics of loans and
other interest-earning assets and the repricing and withdrawal of deposits
and other interest-bearing liabilities into an asset/liability computer
simulation model. The Company updates and prepares simulation modeling at
least quarterly for review by senior management and the directors. The
Company believes the data and assumptions are realistic representations of
its portfolio and possible outcomes under the various interest rate
scenarios. Nonetheless, the interest rate sensitivity of the Company's net
interest income and net market value of equity could vary substantially if
different assumptions were used or if actual experience differs from the
assumptions used.
SENSITIVITY ANALYSIS
The table of Interest Rate Risk Indicators sets forth, as of December 31,
1998, the estimated changes in the Company's net interest income over a one
year time horizon and the estimated changes in market value of equity based
on the indicated interest rate environments.
Table of Interest Rate Risk Indicators
Estimated Change in
---------------------------------------
Change (In Basis Points) Net Interest Income
in Interest Rates (1) Next 12 Months Net Market Value
------------------------ ---------------------------------------
(Dollars in thousands)
+400 $ 271 0.5% $ (59,682) (31.6%)
+300 987 2.0% (43,216) (22.9%)
+200 1,043 2.1% (23,947) (12.7%)
+100 745 1.5% (6,757) (3.6%)
0 0 0 0 0
-100 (1,784) (3.6%) (1,467) (0.8%)
-200 (4,211) (8.5%) (10,417) (5.5%)
-300 (7,527) (15.1%) (24,522) (13.0%)
-400 (10,484) (21.1%) (35,073) (18.5%)
- ----------
(1) Assumes an instantaneous and sustained uniform change in market interest
rates at all maturities.
Another although less reliable monitoring tool for assessing interest rate
risk is "gap analysis." The matching of the repricing characteristics of
assets and liabilities may be analyzed by examining the extent to which such
assets and liabilities are "interest sensitive" and by monitoring an
institution's interest sensitivity "gap." An asset or liability is said to be
interest sensitive within a specific time period if it will mature or reprice
within that time period. The interest rate sensitivity gap is defined as the
difference between the amount of interest-earning assets anticipated, based
upon certain assumptions, to mature or reprice within a specific time period
and the amount of interest-bearing liabilities anticipated to mature or
reprice, based upon certain assumptions, within that same time period. A gap
is considered positive when the amount of interest sensitive assets exceeds
the amount of interest sensitive liabilities. A gap is considered negative
when the amount of interest sensitive liabilities exceeds the amount of
interest sensitive assets. Generally, during a period of rising rates, a
negative gap would tend to adversely affect net interest income while a
positive gap would tend to result in an increase in net interest income.
During a period of falling interest rates, a negative gap would tend to
result in an increase in net interest income while a positive gap would tend
to adversely affect net interest income.
21
<PAGE>
<PAGE>
Certain shortcomings are inherent in gap analysis. For example, although
certain assets and liabilities may have similar maturities or periods of
repricing, they may react in different degrees to changes in market rates.
Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market rates, while interest rates on
other types may lag behind changes in market rates. Additionally, certain
assets, such as ARM loans, have features that restrict changes in interest
rates on a short-term basis and over the life of the asset. Further, in the
event of a change in interest rates, prepayment and early withdrawal levels
would likely deviate significantly from those assumed in calculating the
table. Finally, the ability of some borrowers to service their debt may
decrease in the event of a severe interest rate increase.
The table of Interest Sensitivity Gap, presents the Company's interest
sensitivity gap between interest-earning assets and interest-bearing
liabilities at December 31, 1998. The table sets forth the amounts of
interest-earning assets and interest-bearing liabilities which are
anticipated by the Company, based upon certain assumptions, to reprice or
mature in each of the future periods shown. At December 31, 1998, total
interest-earning assets maturing or repricing within one year exceeded total
interest-bearing liabilities maturing or repricing in the same time period by
$65.6 million, representing a one-year gap to total assets ratio of 4.47%.
22
<PAGE>
<PAGE>
<TABLE>
Table of Interest Sensitivity Gap
6 Months
Within to One 1-3 3-5 5-10 Over 10
6 Months Year Years Years Years Years Total
-------- ---- ----- ----- ----- ----- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Construction loans $ 82,970 $ 31,251 $ 806 $ 577 $ -- $ -- $ 115,604
Fixed-rate mortgage loans 53,228 46,612 154,490 115,600 91,160 38,590 499,680
Adjustable-rate mortgage loans 98,727 49,779 17,037 14,596 -- -- 180,139
Fixed-rate mortgage-backed
securities 11,273 14,486 40,572 14,202 7,462 1,236 89,231
Adjustable-rate mortgage-
backed securities 130,242 1,789 102 -- -- -- 132,133
Fixed-rate agriculture/
commercial loans 8,878 5,060 11,351 14,412 8,016 1,255 48,972
Adjustable-rate agriculture/
commercial loans 105,930 -- -- -- -- -- 105,930
Consumer and other loans 11,287 2,637 8,373 5,985 2,200 8,898 39,380
Investment securities and
interest-bearing deposits 83,254 13,455 23,444 10,885 13,972 29,245 174,255
-------- -------- -------- -------- -------- -------- ---------
Total rate-sensitive assets 585,789 165,069 256,175 176,257 122,810 79,224 1,385,324
-------- -------- -------- -------- -------- -------- ---------
Interest-bearing liabilities(2):
Regular savings and NOW
accounts 17,939 17,939 41,857 41,857 -- -- 119,590
Money market deposit accounts 57,589 34,553 23,035 -- -- -- 115,177
Certificates of deposit 246,410 120,598 78,209 32,507 8,991 20 486,735
FHLB advances 86,650 46,597 122,570 97,690 39,500 849 393,856
Other borrowings 49,444 -- -- 25,000 -- -- 74,444
Retail repurchase agreements 7,184 304 1,348 1,101 -- -- 9,937
-------- -------- -------- -------- -------- -------- ---------
Total rate-sensitive
liabilities 465,215 219,991 267,019 198,155 48,491 869 1,199,739
-------- -------- -------- -------- -------- -------- ---------
Excess (deficiency) of interest-
sensitive assets over interest-
sensitive liabilities $ 120,574 $(54,922) $(10,844) $(21,898) $ 74,319 $ 78,355 $ 185,585
========= ======== ======== ======== ======== ======== ==========
Cumulative excess (deficiency) of
interest-sensitive assets $ 120,574 $ 65,652 $ 54,809 $ 32,911 $107,230 $185,585 $ 185,585
========= ======== ======== ======== ======== ======== ==========
Cumulative ratio of interest-
earning assets to interest-
bearing liabilities 125.92% 109.58% 105.76% 102.86% 108.94% 115.47% 115.47%
========= ======== ======== ======== ======== ======== ==========
Interest sensitivity gap to
total assets 8.21% (3.74%) (0.74%) (1.49%) 5.06% 5.33% 12.63%
========= ======== ======== ======== ======== ======== ==========
Ratio of cumulative gap to
total assets 8.21% 4.47% 3.73% 2.24% 7.30% 12.63% 12.63%
========= ======== ======== ======== ======== ======== ==========
(footnotes on following page)
</TABLE>
23
<PAGE>
<PAGE>
Footnotes for Table of Interest Sensitivity Gap
- -----------------------------------------------
(1) Adjustable-rate assets are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are due
to mature, and fixed-rate assets are included in the periods in which they
are scheduled to be repaid based upon scheduled amortization, in each case
adjusted to take into account estimated prepayments. Mortgage loans and other
loans are not reduced for allowances for loan losses and non-performing
loans. Mortgage loans, mortgage-backed securities, other loans, and
investment securities are not adjusted for deferred fees and unamortized
acquisition premiums and discounts.
(2) Adjustable- and variable-rate liabilities are included in the period in
which interest rates are next scheduled to adjust rather than in the period
they are due to mature. Although the Banks' regular savings, demand, NOW, and
money market deposit accounts are subject to immediate withdrawal, management
considers a substantial amount of such accounts to be core deposits having
significantly longer maturities. For the purpose of the gap analysis, these
accounts have been assigned decay rates to reflect their longer effective
maturities. If all of these accounts had been assumed to be short-term, the
one year cumulative gap of interest-sensitive assets would have been negative
$41.1 million or (2.80%) of total assets. Interest-bearing liabilities for
this table exclude certain non-interest bearing deposits which are included
in the average balance calculations in the earlier Table I, Analysis of Net
Interest Spread.
LIQUIDITY AND CAPITAL RESOURCES
FWWB'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 FWWB is the origination and purchase of
mortgage, consumer, and commercial loans through its subsidiary Banks, FSBW,
IEB and TB. During the nine months ended December 31, 1998, the Banks
originated $512.1 million of loans and purchased $59.1 million of loans. In
addition, during this nine month period, funds were used to purchase $11.3
million of treasury stock and pay out $7.7 million for the acquisition of
Towne Bancorp, Inc. 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, 1998,
principal repayments on loans totaled $351.6 million and the Banks' proceeds
from the sale of mortgage loans totaled $117.4 million. FHLB advances and
other borrowings increased $94.3 million (net of the TB acquisition) for the
same period, and net deposit growth was $43.8 million (net of the TB
acquisition).
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, 1998, the Banks had undisbursed
loans in process totaling $62.0 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, 1998, would give FSBW a
total credit line of $482.4 million. Advances under this credit facility
totaled $388.3 million, or 36.2% of FSBW's assets at December 31, 1998. IEB
and TB also maintain credit facilities with various financial institutions,
including the FHLB of Seattle, that would allow them to borrow up to $24.8
million.
At December 31, 1998, savings certificates amounted to $486.7 million, or
60%, of the Banks' total deposits, including $405.4 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.
24
<PAGE>
<PAGE>
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, 1998, FWWB'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.
FWWB, 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. FWWB'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 FWWB 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, 1998:
FWWB-consolidated
Total capital to risk-
weighted assets $ 150,498 16.42% $ 73,345 8.00%
Tier 1 capital to risk-
weighted assets 139,781 15.25 36,673 4.00
Tier 1 leverage capital to
average assets 139,781 9.82 52,990 4.00
25
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time FWWB 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 FWWB'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
Report (s) on Form 8-K filed during the quarter ended December 31, 1998,
are as follows:
Date Filed Purpose
---------- -------
Not Applicable
26
<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 Washington Bancorp, Inc.
February 12, 1999 /s/ Gary Sirmon
-------------------------------
Gary Sirmon
President and Chief Executive Officer
February 12, 1999 /s/ D. Allan Roth
-------------------------------
D. Allan Roth
Secretary and Treasurer
27
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 74233
<INT-BEARING-DEPOSITS> 9597
<FED-FUNDS-SOLD> 27200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 335896
<INVESTMENTS-CARRYING> 2291
<INVESTMENTS-MARKET> 2359
<LOANS> 976131
<ALLOWANCE> 10718
<TOTAL-ASSETS> 1469457
<DEPOSITS> 809521
<SHORT-TERM> 84372
<LIABILITIES-OTHER> 10825
<LONG-TERM> 393856
0
0
<COMMON> 115
<OTHER-SE> 170768
<TOTAL-LIABILITIES-AND-EQUITY> 1469457
<INTEREST-LOAN> 65254
<INTEREST-INVEST> 15764
<INTEREST-OTHER> 804
<INTEREST-TOTAL> 81822
<INTEREST-DEPOSIT> 24693
<INTEREST-EXPENSE> 44283
<INTEREST-INCOME-NET> 37539
<LOAN-LOSSES> 2210
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 22394
<INCOME-PRETAX> 18291
<INCOME-PRE-EXTRAORDINARY> 6880
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11411
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 3.81
<LOANS-NON> 2862
<LOANS-PAST> 390
<LOANS-TROUBLED> 404
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7857
<CHARGE-OFFS> 1171
<RECOVERIES> 206
<ALLOWANCE-CLOSE> 10718
<ALLOWANCE-DOMESTIC> 3968
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6750
</TABLE>
