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....................... March 31, 2000
--------------
[ ] 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
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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 April 30, 2000
--------------- --------------------
Common stock, $.01 par value 11,128,942 shares *
* Includes 677,846 shares held by employee stock ownership plan (ESOP)
that have not been released, committed to be released, or allocated to
participant accounts.
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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 March 31, 2000 and December 31, 1999 . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income
for the Quarters Ended March 31, 2000 and 1999 . . . . . . . . . . . . . . 3
Consolidated Statements of Comprehensive Income
for the Quarters ended March 31, 2000 and 1999 . . . . . . . . . . . . . . 4
Consolidated Statements of Changes in Stockholders' Equity
for the Quarters Ended March 31, 2000 and 1999 . . . . . . . . . . . . . . .5
Consolidated Statements of Cash Flows
for the Quarters Ended March 31, 2000 and 1999 . . . . . . . . . . . . . . 7
Selected Notes to Consolidated Financial Statements. . . . . . . . . . . . 9
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operation
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Recent Developments and Significant Events . . . . . . . . . . . . . . . . 15
Comparison of Financial Condition at March 31, 2000 and March 31, 1999 . . 15
Comparison of Results of Operations for the Quarters Ended March 31,
2000 and 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Asset Quality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Market Risk and Asset/Liability Management . . . . . . . . . . . . . . . . 22
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . . . 25
Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . 27
Item 3. Defaults upon Senior Securities. . . . . . . . . . . . . . . . . . 27
Item 4. Submission of Matters to a Vote of Stockholders. . . . . . . . . . 27
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 27
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
1
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FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands, except shares)
March 31, 2000 and December 31, 1999
(Unaudited)
March 31 December 31
ASSETS 2000 1999
---------- -----------
Cash and due from banks $ 62,630 $ 44,769
Securities available for sale, cost $358,744
and $356,617 350,495 348,347
Securities held to maturity, fair value
$17,011 and $13,716 16,915 13,770
Federal Home Loan Bank stock 25,812 24,543
Loans receivable:
Held for sale, fair value $11,892 and $9,519 11,892 9,519
Held for portfolio 1,361,389 1,312,186
Allowance for loan losses (13,951) (13,541)
---------- ----------
1,359,330 1,308,164
Accrued interest receivable 12,136 10,732
Real estate held for sale, net 3,551 3,293
Property and equipment, net 17,025 16,637
Costs in excess of net assets acquired
(goodwill), net 36,941 37,733
Deferred income tax asset, net 5,337 5,338
Other assets 6,179 6,784
---------- ----------
$1,896,351 $1,820,110
========== ==========
LIABILITIES
Deposits:
Non-interest-bearing $ 118,904 $ 114,252
Interest-bearing 1,004,818 963,900
---------- ----------
1,123,722 1,078,152
Advances from Federal Home Loan Bank 496,352 466,524
Other borrowings 73,521 81,655
Accrued expenses and other liabilities 15,374 10,524
Deferred compensation 2,018 1,944
Deferred income tax liability, net -- --
Income taxes payable 4,481 2,138
---------- ----------
1,715,468 1,640,937
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, 12,001,562 shares issued:
11,124,470 shares and 11,215,756 shares
outstanding at March 31, 2000 and December
31, 1999, respectively. 121,707 123,204
Retained earnings 72,066 69,170
Accumulated other comprehensive income:
Unrealized gain (loss) on securities
available for sale (5,311) (5,331)
Unearned shares of common stock issued to
Employee Stock Ownership Plan (ESOP) trust:
677,846 and 677,846 restricted shares
outstanding at March 31, 2000 and December
31, 1999, respectively, at cost (6,162) (6,162)
Carrying value of shares held in trust for stock
related compensation plans (3,835) (4,041)
Liability for common stock issued to deferred,
stock related, compensation plan 2,418 2,333
---------- ----------
(1,417) (1,708)
---------- ----------
180,883 179,173
---------- ----------
$1,896,351 $1,820,110
========== ==========
See notes to consolidated financial statements
2
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FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (in thousands except for per share amounts)
Quarters Ended
March 31
-------------------------
2000 1999
INTEREST INCOME: -------- --------
Loans receivable $ 29,932 $ 24,361
Mortgage-backed securities 3,955 3,323
Securities and deposits 2,743 2,786
-------- --------
36,630 30,470
INTEREST EXPENSE:
Deposits 11,762 9,326
Federal Home Loan Bank advances 7,036 5,779
Other borrowings 1,187 1,054
-------- --------
19,985 16,159
-------- --------
Net interest income before
provision for loan losses 16,645 14,311
PROVISION FOR LOAN LOSSES 545 631
-------- --------
Net interest income 16,100 13,680
OTHER OPERATING INCOME:
Loan servicing fees 232 212
Other fees and service charges 1,157 1,031
Gain on sale of loans 187 832
Gain (loss) on sale of securities -- 4
Miscellaneous 55 18
-------- --------
Total other operating income 1,631 2,097
OTHER OPERATING EXPENSES:
Salary and employee benefits 6,256 5,618
Less capitalized loan origination costs (791) (690)
Occupancy and equipment 1,677 1,391
Information/computer data services 575 473
Advertising 160 174
Deposit insurance 54 80
Amortization of goodwill 792 683
Miscellaneous 2,087 1,622
-------- --------
Total other operating expenses 10,810 9,351
-------- --------
Income before provision for income taxes 6,921 6,426
PROVISION FOR INCOME TAXES 2,496 2,397
-------- --------
NET INCOME $ 4,425 $ 4,029
======== ========
Net income per common share, see Note 5:
Basic $ .43 $ .37
Diluted $ .42 $ .36
Cumulative dividends declared per common share: $ .14 $ .12
3
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FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (in thousands)
Quarters Ended
March 31
-------------------------
2000 1999
-------- --------
NET INCOME: $ 4,425 $ 4,029
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF INCOME TAXES:
Unrealized holding gain (loss) during
the period, net of deferred income tax
(benefit) of $1 and (79); 20 (141)
respectively.
Less adjustment for gains included in net
income net of income tax of $0 and $1; -- (3)
-------- --------
Other comprehensive income (loss) 20 (144)
-------- --------
COMPREHENSIVE INCOME $ 4,445 $ 3,885
======== ========
4
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FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited) (in thousands)
For the Quarters Ended March 31, 2000 and 1999
2000 1999
--------- ---------
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period $ 123,204 $ 122,049
Issuance of stock in connection with
acquisitions -- 11,516
Assumption of options in connection with
acquisitions -- 527
Release of earned ESOP shares -- --
Recognition of tax benefit due to vesting of
MRP shares -- --
Issuance of shares to MRP -- --
Repurchase of forfeited shares from MRP (11) (29)
Net proceeds (cost) of treasury stock reissued
for exercised stock options 113 20
Purchase and retirement of treasury stock (1,599) (3,914)
Net issuance of stock throughout employees'
stock plan -- 601
--------- ---------
Balance, end of period 121,707 130,770
RETAINED EARNINGS:
Balance, beginning of period 69,170 57,273
Net income 4,425 4,029
Cash dividends (1,529) (1,344)
--------- ---------
Balance, end of period 72,066 59,958
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance, beginning of period (5,331) 2,440
Other comprehensive income (loss), net of
related income taxes 20 (144)
--------- ---------
Balance, end of period (5,311) 2,296
UNEARNED, RESTRICTED ESOP SHARES AT COST:
Balance, beginning of period (6,162) (6,781)
Release of earned ESOP shares -- --
--------- ---------
Balance, end of period (6,162) (6,781)
CARRYING VALUE OF SHARES HELD IN TRUST FOR
STOCK-RELATED COMPENSATION PLANS:
Balance, beginning of period (1,708) (4,098)
Cumulative effect of change in accounting
for Rabbi Trust, see Note 2 -- 1,095
Net change in number and/or valuation of
shares held in trust 11 17
Amortization of compensation related to MRP 280 301
--------- ---------
Balance, end of period (1,417) (2,635)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY $ 180,883 $ 183,608
========= =========
5
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FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited) (continued) (in thousands)
For the Quarter Ended March 31, 2000 and 1999
2000 1999
--------- ---------
COMMON STOCK, SHARES ISSUED:
Number of shares, beginning of period 12,002 12,002
--------- ---------
Number of shares, end of period 12,002 12,002
--------- ---------
LESS TREASURY STOCK RETIRED/REPURCHASED:
Number of shares, beginning of period (786) (700)
Purchase of treasury stock (113) (170)
Purchase of treasury stock used for exercised
stock options -- --
Reissuance of treasury stock to deferred
compensation plan and/or exercised stock
options 22 10
Shares reissued in acquisition of Towne Bank -- 508
Repurchase of shares forfeited from MRP (1) (2)
Number of shares retired/repurchased, end of --------- ---------
period (878) (354)
--------- ---------
Shares issued and outstanding, end of period 11,124 11,648
========= =========
Unearned, restricted ESOP shares:
Number of shares, beginning of period (678) (746)
Release of earned shares -- --
--------- ---------
Number of shares, end of period (678) (746)
========= =========
6
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FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
For the Quarters Ended March 31, 2000 and 1999
2000 1999
--------- ---------
OPERATING ACTIVITIES
Net income $ 4,425 $ 4,029
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred taxes -- (1)
Depreciation 628 605
Loss (gain) on sale of securities -- (4)
Net amortization of premiums and discounts
on investments 37 330
Amortization of costs in excess of net assets
acquired 792 682
Amortization of MRP compensation liability 280 301
Loss (gain) on sale of loans (173) (590)
Net changes in deferred loan fees, premiums
and discounts 245 (3)
Loss (gain) on disposal of real estate held for sale 2 11
Loss (gain) on disposal of property and equipment 8 --
Capitalization of mortgage servicing rights from
sale of mortgages with servicing retained (14) (242)
Amortization of mortgage servicing rights 68 81
Provision for losses on loans and real estate
held for sale 554 631
FHLB stock dividend (403) (435)
Cash provided (used) in operating assets and
liabilities:
Loans held for sale (2,373) 3,450
Accrued interest receivable (1,404) (891)
Other assets 545 907
Deferred compensation 141 138
Accrued expenses and other liabilities 4,644 (913)
Income taxes payable 2,343 169
--------- ---------
Net cash provided (used) by operating
activities 10,345 8,255
--------- ---------
INVESTING ACTIVITIES:
Purchase of securities available for sale (10,751) (71,004)
Principal payments and maturities of securities
available for sale 8,577 53,264
Proceeds from sales of securities available for sale -- 431
Purchase of securities held to maturity (3,249) --
Principal payments and maturities of securities
held to maturity 114 137
(Sale) purchase of FHLB stock (866) 388
Loans originated and closed - net (193,230) (204,814)
Purchase of loans and participating interest in
loans (4,665) (27,065)
Proceeds from sales of loans and participating
interest in loans 15,896 44,483
Principal repayments on loans 131,984 136,602
Purchase of property and equipment (1,034) (673)
Proceeds from sale of property and equipment 10 --
Additional capitalized costs of real estate
held for sale net of insurance proceeds (33) (80)
Proceeds from sale of real estate held for sale 369 988
Funds transferred to deferred compensation plan
trusts (61) (390)
Acquisitions, net cash (used) acquired -- 4,549
--------- ---------
Net cash used by investing activities (56,939) (63,184)
--------- ---------
(Continued on next page)
7
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FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
For the Quarters Ended March 31, 2000 and 1999
(Continued from prior page)
2000 1999
--------- ---------
FINANCING ACTIVITIES
Increase (decrease) in deposits $ 45,570 $ 56,583
Proceeds from FHLB advances 236,000 56,253
Repayment of FHLB advances (206,172) (48,852)
Proceeds from reverse repurchase borrowings -- --
Repayments of reverse repurchase borrowings (1,561) (1,754)
Increase (decrease) in other borrowings (6,573) (4,151)
Compensation expense recognized for shares
released for allocation to participants of
the ESOP:
Original basis of shares -- --
Excess of fair value of released shares over basis -- (1)
Cash dividends paid (1,323) (985)
Net (cost) proceeds of exercised stock options 113 20
Purchase of treasury stock (1,599) (3,914)
--------- ---------
Net cash provided by financing activities 64,455 53,199
--------- ---------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 17,861 (1,730)
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 44,769 74,233
--------- ---------
CASH AND DUE FROM BANKS, END OF PERIOD $ 62,630 $ 72,503
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 19,251 $ 15,927
Taxes paid $ 150 $ 1,739
Non-cash transactions:
Loans, net of discounts, specific loss
allowances and unearned income transferred
to real estate owned $ 605 $ 36
Net change in accrued dividends payable $ 206 $ 358
Net change in unrealized gain (loss) in deferred
compensation trust and related liability $ 59 $ 2,111
Treasury stock forfeited by MRP $ 11 $ 29
Treasury stock issued to MRP $ -- $ 601
Fair value of stock issued and options
assumed in connection with acquisitions $ -- $ 12,043
8
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FIRST WASHINGTON BANCORP, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
Basis of Presentation:
- ----------------------
The unaudited consolidated financial statements of First Washington Bancorp,
Inc. (FWWB or 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 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 December 31, 1999,
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 FWWB's Annual Report on Form 10-K for the nine
months ended December 31, 1999 (File No. 0-26584).
Changes in Fiscal Year End:
- ---------------------------
During May of 1999, the Company announced its decision to change its fiscal
year from April 1 through March 31 to January 1 through December 31. For
discussion and analysis purposes, the quarter ended March 31, 2000 is compared
to the unaudited quarter ended March 31, 1999.
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 and Significant Events
New Mortgage Lending Subsidiary:
- --------------------------------
On April 1, 2000 FSBW opened a new mortgage lending subsidiary, Community
Financial Corporation (CFC), located in the Lake Oswego area of Portland,
Oregon, with John Satterberg as President. Primary lending activities for CFC
will be in the area of construction and permanent financing for one-to -four
single family residential dwellings. CFC, an Oregon corporation, will
function as a wholly owned subsidiary of First Savings Bank of Washington.
FSBW has capitalized CFC with $2 million of equity capital and will provide
funding support for CFC's lending operations.
Consolidation of Banking Operations:
- ------------------------------------
On July 22, 1999 the Company announced its plans to combine its three separate
banking subsidiaries into a single community banking franchise. The
combination was designed to strengthen the Company's commitment to community
banking by more effectively sharing the resources of the existing
subsidiaries, improving operating efficiency and developing a broader regional
brand identity. The consolidation was intended to be done in stages. The
first phase, which was expected to be completed by January 1, 2000, included
the merger of TB and FSBW and the selection of a single name and charter to be
used by TB, FSBW and its Division, Whatcom State Bank (WSB) and Seaport
Citizens Bank (SCB). Final integration of all data processing into a common
system and the merger of Inland Empire Bank was scheduled for completion by
December 31, 2000.
On December 23, 1999, the Company announced its decision to temporarily
postpone the previously announced consolidation of its subsidiaries, TB and
IEB, into FSBW in light of the new Gramm-Leach-Bliley financial modernization
legislation. The recent legislation enacts Federal Home Loan Bank System
reforms that impact community financial institutions. A community financial
institution (CFI) is defined as a "member of the Federal Home Loan Bank
System, the deposits of which are insured by the FDIC and that has average
total assets (over the preceding 3 years) of less than $500 million." One
provision of the reforms provides community financial institutions with the
ability to obtain long-term FHLB advances to fund small business, small farm
and small agribusiness loans. In addition, community financial institutions
will be able to offer these loans as collateral for such borrowings. This
provision, which represents a change in policy from the previous requirement
that these funds be securitized primarily by residential mortgage loans, will
be available only to community financial institutions. As independent
subsidiaries, TB and IEB currently qualify as community financial
institutions. Merging either of these two subsidiaries into FSBW could
disqualify them and remove this favorable status. Based on the information
available at this time, the Company believes that TB and IEB could derive
significant benefits from this legislation. Rather than complete the proposed
bank mergers as previously announced, the Company has chosen to allow adequate
time for an in-depth review and interpretation of the regulations as they
pertain to future plans. Consolidation of support operations continues on
schedule and budget and First Washington expects to receive long-term
9
<PAGE>
benefits from the proposed efficiencies. Postponement of the mergers will have
minimal impact on the operational changes. The previously announced name and
charter changes scheduled for spring 2000 are expected to proceed for FSBW,
including its WSB and SCB divisions.
Stock Compensation Plan:
- ------------------------
In July 1998, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (FASB) reached a consensus on the accounting
treatment for deferred compensation arrangements where amounts earned are held
in a Rabbi Trust and invested. The consensus position (EITF 97-14) 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 are 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 $1.1 million and reduced the related
liability for deferred compensation by the same amount.
Seaport Citizens Bank
- ---------------------
On April 1, 1999, FWWB and FSBW completed the acquisition of Seaport Citizens
Bank (SCB). FSBW paid $10.1 million in cash for all the outstanding common
shares of SCB, which was headquartered in Lewiston, Idaho. As a result of the
merger of SCB into FSBW, SCB became a division of FSBW. The acquisition was
accounted for as a purchase in the current period and resulted in the
recording of $6.1 million of costs in excess of the fair value of SCB's net
assets acquired (goodwill). Goodwill assets are being amortized over a 14-
year period and resulted in a current charge to earnings of $108,100 per
quarter, beginning in the first quarter of the current period, or $433,000 per
year. Founded in 1979, SCB is a commercial bank which had, before recording of
purchase accounting adjustments, approximately $45 million in total assets,
$41 million in deposits, $27 million in loans, and $4.1 million in
shareholders' equity at March 31, 1999. SCB operates two full service
branches in Lewiston, Idaho. SCB's results of operations are included in the
Company's consolidated results of operations (or financial statements) for the
quarter ended March 31, 2000.
Note 3: BUSINESS SEGMENTS
The Company presently is managed by legal entity or Bank, not by lines of
business. Each Bank is managed by its executive management team that is
responsible for its own lending, deposit operations, information systems and
administration. Marketing support, sales training assistance, credit card
administration and human resources services are provided from a central source
at FSBW, and costs are allocated to the individual Banks using appropriate
methods based on usage. In addition, corporate overhead and centralized
administrative costs are allocated to each Bank.
FSBW is a community oriented savings bank which has traditionally offered a
wide variety of deposit products to its retail customers while concentrating
its lending activities on real estate loans. Lending activities have been
focused primarily on the origination of loans secured by one- to four-family
residential dwellings, including an emphasis on loans for construction of
residential dwellings. To a lesser extent, lending activities also have
included the origination of multi-family, commercial real estate and consumer
loans. More recently, FSBW has increased its non-residential lending, has
begun making non-mortgage commercial and agribusiness loans to small
businesses and farmers and has expanded its consumer lending activities.
FSBW's primary business is originating loans for portfolio in its primary
market areas, which consists of southeast, central, north central, and western
Washington state and northwest Idaho and providing deposit services to
customers in the areas of eastern Washington and western Idaho where it has
full service branch offices. FSBW's wholly owned subsidiary, Northwest
Financial Corporation, provides trustee services for FSBW, is engaged in real
estate sales and receives commissions from the sale of annuities.
IEB is a community oriented commercial bank chartered in the State of Oregon
which historically has offered a wide variety of deposits and loan products to
its consumer and commercial customers. Lending activities have included
origination of consumer, commercial, agribusiness and real estate loans. IEB
also has engaged in mortgage banking activity with respect to residential
lending within its local markets, originating loans for sale generally on a
servicing released basis. IEB operates a division, Inland Financial Services,
which offers insurance and brokerage services to its customers.
TB is a community oriented commercial bank chartered in the State of
Washington. TB's lending activities consist of granting commercial loans,
including commercial real estate, land development and construction loans, and
consumer loans to customers throughout King and Snohomish counties in western
Washington. TB is a "Preferred Lender" with the Small Business Administration
(SBA) and generates SBA guaranteed loans for portfolio and for resale.
The performance of each Bank is reviewed by the Company's executive management
team and the Board of Directors on a monthly basis.
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Financial highlights by legal entity were as follows:
Quarter Ended March 31, 2000
--------------------------------------------------------
(dollars in thousands)
Condensed Income
Statement
FSBW IEB TB Other* Total
---------- -------- --------- -------- ----------
Net interest income
(loss) $ 9,983 $ 2,605 $ 4,040 $ 17 $ 16,645
Provision for loan
losses 275 70 200 -- 545
Other income 816 436 393 (14) 1,631
Other expenses 5,910 1,765 2,675 460 10,810
Income (loss) ---------- -------- --------- -------- ----------
before income
taxes 4,614 1,206 1,558 (457) 6,921
Income taxes (benefit) 1,429 558 669 (160) 2,496
---------- -------- --------- -------- ----------
Net income (loss) $ 3,185 $ 648 $ 889 $ (297) $ 4,425
========== ======== ========= ======== ==========
March 31, 2000
--------------------------------------------------------
Total Assets $1,350,352 $221,412 $ 324,113 $ 474 $1,896,351
========== ======== ========= ======== ==========
Quarter Ended March 31, 1999
--------------------------------------------------------
(dollars in thousands)
Condensed Income
Statement
FSBW IEB TB Other* Total
---------- -------- --------- -------- ----------
Net interest income
(loss) $ 8,926 $ 2,494 $ 2,839 $ 52 $ 14,311
Provision for loan
losses 317 34 280 -- 631
Other income 1,241 584 293 (21) 2,097
Other expenses 5,015 1,854 2,084 398 9,351
Income (loss) ---------- -------- --------- -------- ----------
before income
taxes 4,835 1,190 768 (367) 6,426
Income taxes (benefit) 1,593 542 390 (128) 2,397
---------- -------- --------- -------- ----------
Net income (loss) $ 3,242 $ 648 $ 378 $ (239) $ 4,029
========== ======== ========= ======== ==========
March 31, 1999
--------------------------------------------------------
Total Assets $1,193,269 $204,539 $ 233,485 $ 607 $1,631,900
========== ======== ========= ======== ==========
* Includes intercompany eliminations and holding company amounts.
11
<PAGE>
Note 4: Additional Information Regarding Interest-Bearing Deposits and
Securities
The following table sets forth additional detail on FWWB's interest-bearing
deposits and securities at the dates indicated (at carrying value) (in
thousands):
March 31 December 31
2000 1999
--------- -----------
Interest-bearing deposits included
in cash and due from banks $ 17,020 $ 2,960
--------- -----------
Mortgage-backed securities 225,852 230,006
Other securities-taxable 106,116 95,992
Other securities-tax exempt 31,895 32,350
Other stocks with dividends 3,547 3,769
--------- -----------
Total securities 367,410 362,117
Federal Home Loan Bank (FHLB) stock 25,812 24,543
--------- -----------
$ 410,242 $ 389,620
========= ===========
The following table provides additional detail on income from deposits and
securities for the periods indicated (in thousands):
Quarters Ended
March 31
2000 1999
--------- -----------
Mortgage-backed securities $ 3,955 $ 3,323
--------- -----------
Taxable interest and dividends 1,865 1,852
Tax-exempt interest 476 499
Federal Home Loan Bank stock-dividends 402 435
--------- -----------
2,743 2,786
--------- -----------
$ 6,698 $ 6,109
========= ===========
12
<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
March 31
-----------------
2000 1999
------- -------
Total shares originally issued 12,002 12,002
Less retired shares and treasury stock plus
unvested shares allocated to MRP (975) (493)
Less unallocated shares held by the ESOP (678) (746)
------- -------
Basic weighted average shares outstanding 10,349 10,763
Plus unvested MRP and stock option incremental
shares considered outstanding for diluted
EPS calculations 175 464
------- -------
Diluted weighted average shares outstanding 10,524 11,227
======= =======
Calculation of
Outstanding Shares at
---------------------
(in thousands)
March 31 December 31
2000 1999
-------- -----------
Total shares issued 12,002 12,002
Less retired shares and treasury stock (878) (786)
-------- -----------
Outstanding shares issued 11,124 11,216
======== ===========
13
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Special Note Regarding Forward-Looking Statements
Management's Discussion and Analysis (MD&A) and other portions of this report
contain certain "forward-looking statements" concerning the future operations
of First Washington Bancorp, Inc. Management desires to take advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 and is including this statement for the express purpose of availing the
Company of the protections of such safe harbor with respect to all "forward-
looking statements" contained in our Annual Report. We have used "forward-
looking statements" to describe future plans and strategies, including our
expectations of the Company's future financial results. Management's ability
to predict results or the effect of future plans or strategies is inherently
uncertain. Factors which could affect actual results include interest rate
trends, the general economic climate in the Company's market area and the
country as a whole, the ability of the Company to control costs and expenses,
the ability of the Company to efficiently incorporate acquisitions into its
operations, competitive products and pricing, loan delinquency rates, and
changes in federal and state regulation. These factors should be considered
in evaluating the "forward-looking statements," and undue reliance should not
be placed on such statements.
General
First Washington Bancorp, Inc. (the Company or 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 23 branch
offices and four loan production offices located in Washington and Idaho.
Effective April 1, 1999 FSBW completed the acquisition of Seaport Citizens
Bank (SCB). SCB was merged with FSBW and its two branches in Lewiston, Idaho,
together with FSBW's Clarkston, Washington, branch operate as a division of
FSBW. Effective January 1, 1999, FWWB completed the acquisition of Whatcom
State Bancorp whose wholly-owned subsidiary, Whatcom State Bank (WSB), was
merged with FSBW and operates as Whatcom State Bank, a Division of First
Savings Bank of Washington. WSB, which is based in Bellingham, operates five
full service branches and a loan office in northwest 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 six 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
seven full service branches in the Seattle, Washington, metropolitan area.
During May 1999, the Company announced its decision to change its fiscal year
from April 1 through March 31 to January 1 through December 31. For
discussion and analysis purposes, the quarter ended March 31, 2000 is compared
to the unaudited quarter ended March 31, 1999.
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 ended March 31, 2000, when compared to the same period for the
prior year. This increase in net interest income was due in part to the
growth in average asset and liability balances from the acquisition of SCB on
April 1, 1999, although significant asset and liability growth also occurred
at FSBW, IEB and TB. The increase in net interest income also reflects a
small 1 basis point, expansion of the interest rate spread resulting from
changes in the mix of assets and liabilities and changes in the levels of
various market interest rates. The net interest margin, on the other hand,
declined 3 basis points reflecting the increased use of interest-bearing
liabilities relative to interest-earnings assets as the Company continued to
leverage its equity capital. 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.
14
<PAGE>
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
See Note 2 to Financial Statements
Comparison of Financial Condition at March 31, 2000 and December 31, 1999
Total assets increased $76.0 million, or 4.2%, from $1.820 billion at December
31, 1999, to $1.896 billion at March 31, 2000. The growth of $76.0 million was
spread among all three subsidiary Banks and was funded primarily with deposit
growth and advances from the FHLB. 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. Loans receivable
(gross loans less loans in process, deferred fees and discounts, and allowance
for loan losses) grew $51.2 million, or 3.9%, from $1.308 billion at December
31, 1999, to $1.359 billion at March 31, 2000. The increase in gross loans of
$65.2 million from $1.412 billion at December 31, 1999, to $1.477 billion at
March 31, 2000, consisted of $5.8 million of residential mortgages, $27.0
million of mortgages secured by commercial and multifamily real estate, $19.3
million of construction and land loans and $12.9 million of non-mortgage loans
such as commercial, agricultural and consumer loans. These balances reflect
the Company's continuing effort to increase the portion of its assets invested
in loans and more specifically the portion of loans invested in commercial
real estate and non-mortgage loans. The majority of the increase in assets
was funded by a net increase of $75.4 million in deposits and FHLB advances.
Asset growth was also funded by net income from operations. Deposits grew
$45.6 million, or 4.2%, from $1.078 billion at December 31, 1999, to $1.124
billion at March 31, 2000. FHLB advances increased $29.8 million from $466.5
million at December 31, 1999, to $496.4 million at March 31, 2000. Other
borrowings, primarily reverse repurchase agreements with securities dealers,
decreased $8.1 million, from $81.7 million at December 31, 1999, to $73.5
million at March 31, 2000. Securities available for sale and held to maturity
increased $5.3 million, or 1.5%, from $362.1 million at December 31, 1999, to
$367.4 million at March 31, 2000. FHLB stock increased $1.3 million, as FWWB
was required to purchase more stock as a result of its increased use of FHLB
advances.
Comparison of Results of Operations for the Quarters Ended March 31, 2000 and
1999
General. Net income for the quarter ended March 31, 2000 was $4.4 million, or
$.42 per share (diluted), compared to net income of $4.0 million, or $.36 per
share (diluted), for the quarter ended March 31, 1999. Net income for the
quarter ended March 31, 2000 increased $400,000 from the comparable quarter
ended March 31, 1999. FWWB's improved operating results reflect the
significant growth of assets and liabilities which was offset somewhat by the
3 basis point decline in net interest margin, decreased non-interest revenues,
and increased operating expenses and amortization of goodwill. Compared to
levels a year ago, total assets increased 16.2% to $1.896 billion at March 31,
2000, total loans rose 23.3% to $1.359 billion, deposits grew 18.2% to $1.124
billion and borrowings increased 17.1% to $569.9 million. Net interest margin
declined, despite a 1 basis point increase in net interest spread, reflecting
the increased use of interest-bearing liabilities relative to interest-earning
assets as the Company continued to leverage its equity capital. Average
equity was 9.80% of average assets for the quarter ended March 31, 2000,
compared to 11.35% of average assets for the quarter ended March 31, 1999.
The modest changes in net interest spread and net interest margin are notable
in light of the significant changes in the level of market interest rates over
the past twelve months.
Interest Income. Interest income for the quarter ended March 31, 2000 was
$36.6 million compared to $30.5 million for the quarter ended March 31, 1999,
an increase of $6.1 million, or 20.2%. The increase in interest income was a
result of a $243.9 million, or 16.3%, growth in average balances of
interest-earning assets, and a 21 basis point increase in the average yield on
those assets. The yield on average assets increased to 8.45% for the quarter
ended March 31, 2000 compared to 8.24% for the same period a year earlier.
Average loans receivable for the quarter ended March 31, 2000 increased by
$250.5 million, or 23.0%, when compared to the quarter ended March 31, 1999,
reflecting the acquisition of SCB and significant internal growth. Interest
income on loans increased by $5.6 million, or 22.9%, compared to the prior
year, reflecting the impact of the increase in average loan balances and
despite 8 basis point decrease in the average yield. The decline in average
loan yield largely resulted from the significant decline in market interest
rates, including a 75 basis point decline in the prime rate, in the third and
fourth calendar quarters of 1998, and the subsequent prepayment and
refinancing of many higher yielding loans in the lower interest rate
environment that prevailed in the first two calendar quarters of 1999. In
particular the higher level of loan prepayments in the quarter ended March 31,
1999, led to accelerated recognition of previously deferred loan fees as
interest income when the underlying loans prepaid. This accelerated
recognition of fee income reflecting the shorter than anticipated average life
of the underlying loans increased the yield on those loans in the March 31,
1999 quarter and to the extent that those loans were replaced
15
<PAGE>
by lower yielding loans, particularly lower yielding fixed rate loans, yields
in subsequent periods including the March 31, 2000 quarter were adversely
impacted. Counterbalancing this effect were changes in the mix of the loan
portfolio and the impact on adjustable and floating rate loans and new loan
origination's of significantly rising levels of market interest rates over the
past twelve months. Loans yielded 8.97% for the quarter ended March 31, 2000
compared to 9.05% for the quarter ended March 31, 1999. The average balance
of mortgage-backed securities, investment securities, daily interest-bearing
deposits and FHLB stock increased by $6.6 million for the quarter ended March
31, 2000, while the interest and dividend income from those investments
increased $589,000 for the quarter ended March 31, 2000 compared to the
quarter ended March 31, 1999. The average yield on mortgage-backed securities
increased from 5.85% for the quarter ended March 31, 1999, to 6.74% for the
comparable period in 2000. Yields on mortgage-backed securities were
particularly low in the 1999 period reflecting the adverse impact of
accelerated prepayments on the amortization of purchase premiums on those
securities as well as the impact of low market rates on the interest rates
paid on the significant portion of those securities that have adjustable
interest rates. In the quarter ended March 31, 2000 the accelerated
prepayments had diminished and market rates had increased reversing both of
those effects on mortgage-backed securities yields. The average yield on
investment securities and short term cash investments increased from 6.12% for
the quarter ended March 31, 1999 to 6.65% for the comparable quarter in 2000,
also reflecting the rise in interest rates during 1999 and 2000. Earnings on
FHLB stock decreased by $33,000, this resulted despite an increase of $2.1
million in the average balance of FHLB stock for the quarter ended March 31,
2000, because of a 126 basis point decrease in the dividend yield on that
stock. Dividends on FHLB stock are established on a quarterly basis by vote
of the Directors of the FHLB.
Interest Expense. Interest expense for the quarter ended March 31, 2000 was
$20.0 million compared to $16.2 million for the comparable period in 1999, an
increase of $3.8 million, or 23.7%. The increase in interest expense was due
to the $247.8 million growth in average interest-bearing liabilities and the
increase in the average cost of all interest-bearing liabilities increasing to
4.88% from 4.68%. The $179.8 million increase in average interest-bearing
deposits for the quarter ended March 31, 2000 reflects the acquisition of SCB
which had $41 million of deposit at the time of acquisition and the solid
deposit growth throughout the Company over the past twelve months. Deposit
interest expense increased $2.4 million for the quarter ended March 31, 2000.
Average deposit balances increased from $913.7 million for the quarter ended
March 31, 1999, to $1.093 billion for the quarter ended March 31, 2000, while,
at the same time, the average rate paid on deposit balances increased 19 basis
points. The increase in the rate paid on deposits reflects the significant
increase in market interest rates over the level that prevailed a year
earlier. Average FHLB advances totaled $476.4 million during the quarter
ended March 31, 2000, as compared to $406.7 million during the quarter ended
March 31, 1999, an increase of $69.7 million that resulted in a $2.4 million
increase in related interest expense. The average rate paid on those advances
increased to 5.94% for the quarter ended March 31, 2000 from 5.76% for the
quarter ended March 31, 1999. 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 decreased $1.7 million from $80.1 million for the quarter ended
March 31, 1999, to $78.4 million for the same period in 2000, while the
related interest expense increased $133,000 from $1.1 million to $1.2 million
for the respective periods. The average rate paid on other borrowings was
6.09% in the quarter ended March 31, 2000 compared to 5.33% for the same
quarter in 1999 also reflecting the increase in market interest rates.
16
<PAGE>
The following tables provide additional comparative data on the Company's
operating performance:
Quarters Ended
Average Balances March 31
---------------- --------------------------
(in thousands) 2000 1999
----------- -----------
Investment securities and deposits $ 141,498 $ 155,902
Mortgage-backed obligations 235,986 230,271
Loans 1,341,942 1,091,451
FHLB stock 24,873 22,745
----------- -----------
Total average interest-earning asset 1,744,299 1,500,369
Non-interest-earning assets 94,054 91,493
----------- -----------
Total average assets $ 1,838,353 $ 1,591,862
=========== ===========
Deposits $ 1,093,444 $ 913,670
Advances from FHLB 476,415 406,707
Other borrowings 78,411 80,127
Total average interest-bearing ----------- -----------
liabilities 1,648,270 1,400,504
Non-interest-bearing liabilities 9,858 10,750
----------- -----------
Total average liabilities 1,658,128 1,411,254
Equity 180,225 180,608
----------- -----------
Total average liabilities and
equity $ 1,838,353 $ 1,591,862
=========== ===========
Interest Rate Yield/Expense (rates are annualized)
--------------------------------------------------
Interest Rate Yield:
Investment securities and deposits 6.65% 6.12%
Mortgage-backed obligations 6.74% 5.85%
Loans 8.97% 9.05%
FHLB stock 6.50% 7.76%
----------- -----------
Total interest rate yield on interest-earning
assets 8.45% 8.24%
Interest Rate Expense: ----------- -----------
Deposits 4.33% 4.14%
Advances from FHLB 5.94% 5.76%
Other borrowings 6.09% 5.33%
----------- -----------
Total interest rate expense on interest-
bearing liabilities 4.88% 4.68%
Interest spread 3.57% 3.56%
=========== ===========
Net interest margin on interest earning assets 3.84% 3.87%
----------- -----------
Additional Key Financial Ratios (ratios are annualized)
- -------------------------------------------------------
Return on average assets 0.97% 1.03%
Return on average equity 9.88% 9.05%
Average equity / average assets 9.80% 11.35%
Average interest-earning assets / interest-
bearing liabilities 105.83% 107.13%
Non-interest [other operating] expenses /
average assets
Excluding amortization of costs in excess
of net assets acquired (goodwill) 2.19% 2.21%
Including amortization of costs in excess
of net assets acquired (goodwill) 2.37% 2.38%
Efficiency ratio [non-interest (other
operating) expenses / revenues]
Excluding amortization of costs in excess
of net assets acquired (goodwill) 54.82% 52.83%
Including amortization of costs in excess
of net assets acquired (goodwill) 59.15% 56.99%
17
<PAGE>
Provision for Loan Losses. During the quarter ended March 31, 2000, the
provision for loan losses was $545,000, compared to $631,000 for the quarter
ended March 31, 1999, a decrease of $86,000. The decrease in the provision
for losses reflects the amount required to maintain the allowance for losses
at an appropriate level based upon management's evaluation of the adequacy of
general and specific loss reserves as more fully explained in the following
paragraphs. The higher provision in the prior quarter reflected more
significant changes in the portfolio mix and non-performing loans and a higher
level of net charge-offs during that period than occurred in the most recent
quarter. A comparison of the allowance for loan losses at March 31, 2000 and
1999 shows an increase of $1.7 million from $12.3 million at March 31, 1999 to
$14.0 million at March 31, 2000. The allowance for loan losses increased by
$410,000, to $14.0 million at March 31, 2000, compared to $13.5 million at
December 31, 1999. The allowance for loan losses as a percentage of net loans
(loans receivable excluding allowance for losses) was 1.02% and 1.10% at March
31, 2000 and March 31, 1999, respectively. The allowance for loan losses
equaled 259% of non-performing loans at March 31, 2000 compared to 160% of
non-performing loans at March 31, 1999.
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. Recoveries on
previously charged off loans are credited to the allowance. 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 adequacy of general and
specific reserves is based on management's continuing evaluation of the
pertinent factors underlying the quality of the loan portfolio, including
changes in the size and composition of the loan portfolio, delinquency rates,
actual loan loss experience and current economic conditions. Large groups of
smaller-balance homogeneous loans are collectively evaluated for impairment.
Loans that are collectively evaluated for impairment by the Banks include
residential real estate and consumer loans. Smaller balance non-homogeneous
loans also may be evaluated collectively for impairment. Larger balance
non-homogeneous residential construction and land, commercial real estate,
commercial business loans and unsecured loans are individually evaluated for
impairment. Loans are considered impaired when, based on current information
and events, management determines that it is probable that the Bank will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. Factors involved in determining impairment include, but are
not limited to, the financial condition of the borrower, value of the
underlying collateral and current status of the economy. Impaired loans are
measured based on the present value of expected future cash flows discounted
at the loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of collateral if the loan is
collateral dependent. Subsequent changes in the value of impaired loans are
included within the provision for loan losses in the same manner in which
impairment initially was recognized or as a reduction in the provision that
would otherwise be reported.
The Company's methodology for assessing the appropriateness of the allowance
consists of several key elements, which include specific allowances, an
allocated formula allowance, and an unallocated allowance. Losses on specific
loans are provided for when the losses are probable and estimable. General
loan loss reserves are established to provide for inherent loan portfolio
risks not specifically provided for. The level of general reserves is based
on analysis of potential exposures existing in the Banks' loan portfolios
including evaluation of historical trends, current market conditions and other
relevant factors identified by management at the time the financial statements
are prepared. The formula allowance is calculated by applying loss factors to
outstanding loans, excluding loans with specific allowances. Loss factors are
based on the Company's historical loss experience adjusted for significant
factors including the experience of other banking organizations that, in
management's judgment, affect the collectibility of the portfolio as of the
evaluation date. The unallocated allowance is based upon management's
evaluation of various factors that are not directly measured in the
determination of the formula and specific allowances. This methodology may
result in losses or recoveries differing significantly from those provided in
the financial statements.
18
<PAGE>
The following tables are provided to disclose additional detail on the Banks'
loans and allowance for loan losses (in thousands):
March 31 December 31
2000 1999
----------- -----------
Loans (including loans held for sale):
Secured by real estate
One to four single family dwellings
(SFD) $ 442,497 $ 436,679
Commercial and multifamily 426,970 399,992
Construction and land-secured 282,440 263,093
Commercial 206,322 195,566
Agribusiness 53,468 55,000
Consumer, including credit cards 65,375 61,580
----------- -----------
$ 1,477,072 $ 1,411,910
Less loans in process 98,220 84,894
Less deferred fees and discounts 5,571 5,311
Net loans outstanding before ----------- -----------
allowance for loan losses $ 1,373,281 $ 1,321,705
Less allowance for loan losses 13,951 13,541
----------- -----------
Total net loans at end of period $ 1,359,330 $ 1,308,164
=========== ===========
Allowance for loan losses as a
percentage of net loans outstanding 1.02% 1.02%
Quarters Ended
March 31
-------------------------------
2000 1999
----------- -----------
Balance, beginning of the year $ 13,541 $ 10,718
Allowances added through business
combinations -- 1,077
Provision 545 631
Recoveries of loans previously charged off:
Residential real estate -- --
Commercial/multifamily real estate 1 --
Construction/land 4 --
Commercial business 11 9
Agribusiness -- --
Consumer finance 1 8
Credit cards 2 2
----------- -----------
19 19
Residential real estate (6) --
Commercial/multifamily real estate -- (30)
Construction/land -- (9)
Commercial business (59) (14)
Agribusiness -- --
Consumer finance (6) (76)
Credit cards (83) (55)
----------- -----------
(154) (184)
----------- -----------
Net charge offs (135) (165)
----------- -----------
Balance, end of period $ 13,951 $ 12,261
=========== ===========
Net charge-offs as a percentage of
average net book value of loans
outstanding for the period 0.01% 0.06%
----------- -----------
19
<PAGE>
The following is a schedule of the Company's allocation of the allowance for
loan losses:
March 31 December 31
2000 1999
----------- -----------
Specific or allocated loss allowances:
Secured by real estate:
One- to four-family real estate loans $ 2,435 $ 2,334
Multifamily and commercial 4,512 4,273
Construction 1,769 1,638
Commercial/agricultural 2,957 2,830
Consumer, credit card and other 968 1,023
----------- -----------
Total allocated 12,641 12,098
Unallocated 1,310 1,443
----------- -----------
Total allowance for loan losses $ 13,951 $ 13,541
=========== ===========
Ratio of allowance for loan losses to
non-performing loans 2.59 2.67
Allowance for loan losses as a percent
of net loans (loans receivable
excluding allowance for losses) 1.02% 1.02%
Other Operating Income. Other operating income decreased $466,000 from $2.1
million for the quarter ended March 31, 1999, to $1.6 million for the quarter
ended March 31, 2000. The decrease included a $645,000 decrease in the gain
on sale of loans. This decrease primarily reflected decreased sales of loans
by FSBW and IEB and the adverse impact of rising interest rates on the
profitability of loan sales when compared to the comparable period in the
prior year. The volume of loan sales and related net gain on sale of loans
decreased from $44.5 million and $832,000, respectively, for the quarter ended
March 31, 1999, to $15.9 million and $187,000, respectively, for the quarter
ended March 31, 2000. Other fee and service charge income increased at FSBW,
TB and IEB, reflecting deposit growth and pricing adjustments.
Other Operating Expenses. Other operating expenses increased $1.5 million
from $9.4 million for the quarter ended March 31, 1999, compared to $10.8
million for the quarter ended March 31, 2000. The increase in expenses was
largely due to the inclusion of SCB's operating expenses in the quarter ended
March 31, 2000 that were not present in the quarter ended March 31, 1999 and
the additional expenses of two new branches opened subsequent to March 31,
1999. The increase in other operating expenses was partially offset by a
$101,000 increase in capitalized loan origination costs. In addition to the
acquisition of SCB, increases in other operating expenses reflect the overall
growth in assets and liabilities, customer relationships and complexity of
operations as FWWB continues to expand. The higher operating expenses
associated with FWWB's transition to more of a commercial bank profile caused
FWWB's efficiency ratio, excluding the amortization of goodwill, to increase
to 54.82% (59.15% including goodwill), for the quarter ended March 31, 2000,
from 52.83% (56.99% including goodwill) for the comparable period ended March
31, 1999. Other operating expenses as a percentage of average assets were
2.37% (2.19% excluding the amortization of goodwill) for the quarter ended
March 31, 2000, compared to 2.38% (2.21% excluding the amortization of
goodwill) for the quarter ended March 31, 1999.
Income Taxes. Income tax expense was $2.5 million for the quarter ended March
31, 2000, compared to $2.4 million for the comparable period in 1999. The
$99,000 increase in the provision for income taxes reflects the higher level
of income being taxed at slightly lower effective rates due to the declining
relative contribution of IEB which is subject to Oregon state income taxes;
and the fact that declining relative portion of the expense recorded in the
release of the Employee Stock Ownership Plan (ESOP) shares is not deductible
for tax purposes. The Company's effective tax rates for the quarter ended
March 31, 2000 and 1999, were 36% and 37%, respectively.
20
<PAGE>
Asset Quality
The following tables are provided to disclose additional details on asset
quality (in thousands):
March 31 December 31
2000 1999
----------- -----------
Non-performing assets at end of the period:
Nonaccrual Loans:
One- to four-family real estate loans $ 1,108 $ 623
Multifamily real estate -- --
Commercial real estate 4 129
Construction/land 2,436 2,514
Commercial business 933 1,203
Agricultural business 320 --
Consumer, credit card and other 49 9
----------- -----------
4,850 4,478
Loans more than 90 days delinquent,
still on accrual:
One- to four-family real estate loans -- 155
Multifamily real estate -- --
Commercial real estate 44 --
Construction 296 --
Commercial business 31 25
Agricultural business 50 334
Consumer, credit card and other 109 79
----------- -----------
530 593
----------- -----------
Total non-performing loans 5,380 5,071
Real estate owned (REO) 3,755 3,576
----------- -----------
Total non-performing assets at the
end of the period $ 9,135 $ 8,647
=========== ===========
Non-performing loans as a percentage
of total net loans before allowance
for loan losses at end of the period 0.39% 0.38%
Ratio of allowance for loan losses to
non-performing loans at end of the period 259% 267%
Non-performing assets as a percentage
of total assets at end of the period. 0.48% 0.48%
Troubled debt restructuring [TDR's]
at end of the period $ 350 $ 369
----------- -----------
Troubled debt restructuring as a
percentage of:
Total gross principal of loans
outstanding at end of the period 0.02% 0.03%
Total assets at end of the period 0.02% 0.02%
21
<PAGE>
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.
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.
22
<PAGE>
Sensitivity Analysis
The table of Interest Rate Risk Indicators sets forth, as of March 31, 2000,
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 $ (3,373 ) (5.1%) $ (89,576 ) (50.7%)
+300 (2,306 ) (3.5%) (70,859 ) (40.1%)
+200 (1,250 ) (1.9%) (49,163 ) (27.8%)
+100 (524 ) (0.8%) (25,461 ) (14.4%)
0 0 0 0 0
-100 (129 ) (0.2%) 20,609 11.7%
-200 (1,129 ) (1.7%) 30,020 17.0%
-300 (2,998 ) (4.5%) 28,292 16.0%
-400 (5,648 ) (8.5%) 18,704 10.6%
- ------------------
(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.
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 March 31, 2000. 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 March 31, 2000, total interest-bearing
liabilities maturing or repricing within one year exceeded total
interest-earning assets maturing or repricing in the same time period by
$188.6 million, representing a one-year gap to total assets ratio of (9.95%).
23
<PAGE>
<TABLE>
Table of Interest Sensitivity Gap
6 Months
As of March 31 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 $112,514 $ 39,216 $ 1,882 $ 709 $ -- $ -- $ 154,321
Fixed-rate mortgage loans 41,894 35,396 124,863 113,115 176,179 142,755 634,202
Adjustable-rate mortgage
loans 121,463 45,633 60,168 38,211 -- -- 265,475
Fixed-rate mortgage-backed
securities 10,127 9,936 40,555 38,406 38,388 4,910 142,322
Adjustable-rate mortgage-
backed securities 95,775 1,114 -- -- -- -- 96,889
Fixed-rate commercial/
agriculture loans 11,294 5,776 14,960 25,227 10,784 3,824 71,865
Adjustable-rate commercial/
agriculture loans 189,239 -- -- -- -- -- 189,239
Consumer and other loans 17,940 4,037 15,060 13,544 1,231 9,949 61,761
Investment securities and
interest-bearing deposits 32,558 4,155 24,435 43,677 12,400 60,702 177,927
-------- --------- --------- --------- -------- -------- ----------
Total rate-sensitive
assets 632,804 145,263 281,923 272,889 238,982 222,140 1,794,001
-------- --------- --------- --------- -------- -------- ----------
Interest-bearing liabilities(2):
Regular savings and NOW
accounts 20,006 20,007 46,683 46,683 -- -- 133,379
Money market deposit accounts 70,899 42,540 28,360 -- -- -- 141,799
Certificates of deposit 389,971 148,492 161,096 20,682 9,552 21 729,814
FHLB advances 164,333 38,280 208,790 40,500 43,600 849 496,352
Other borrowings 65,137 -- -- -- -- -- 65,137
Retail repurchase agreements 6,597 442 1,326 -- 20 -- 8,385
-------- --------- --------- --------- -------- -------- ----------
Total rate-sensitive
liabilities 716,943 249,761 446,255 107,865 53,172 870 1,574,866
-------- --------- --------- --------- -------- -------- ----------
Excess (deficiency) of
interest-sensitive assets
over interest-sensitive
liabilities $(84,139) $(104,498) $(164,332) $ 165,024 $185,810 $221,270 $ 219,135
======== ========= ========= ========= ======== ======== ==========
Cumulative excess (deficiency)
of interest-sensitive assets $(84,139) $(188,637) $(352,969) $(187,945) $ (2,135) $219,135 $ 219,135
======== ========= ========= ========= ======== ======== ==========
Cumulative ratio of interest-
earning assets to interest-
bearing liabilities 88.26% 80.49% 75.02% 87.64% 99.86% 113.91% 113.91%
======== ========= ========= ========= ======== ======== ==========
Interest sensitivity gap to
total assets (4.44%) (5.51%) (8.67%) 8.70% 9.80% 11.67% 11.56%
======== ========= ========= ========= ======== ======== ==========
Ratio of cumulative gap to
total assets (4.44%) (9.95%) (18.61%) (9.91%) (0.11%) 11.56% 11.56%
======== ========= ========= ========= ======== ======== ==========
(footnotes on following page)
24
</TABLE>
<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
$310.4 million or (16.37%) 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
The Company's primary sources of funds are deposits, borrowings, proceeds from
loan principal and interest payments and sales of loans, and the maturity of
and interest income on mortgage-backed and investment securities. While
maturities and scheduled amortization of loans and mortgage-backed securities
are a predictable source of funds, deposit flows and mortgage prepayments are
greatly influenced by market interest rates, economic conditions and
competition.
The primary investing activity of the Company, through its subsidiaries, is
the origination and purchase of loans. During the quarter ended March 31,
2000, the Company closed or purchased loans in the amount of $197.9 million.
This activity was funded primarily by principal repayments on loans and
securities, sales of loans, increases in FHLB advances, other borrowings, and
deposit growth. For the quarter ended March 31, 2000, principal repayments on
loans totaled $132.0 million. During the quarter ended March 31, 2000, the
Company sold $15.9 million of loans. FHLB advances increased $29.8 million
for the quarter ended March 31, 2000. Other borrowings decreased $8.1 million
for the quarter ended March 31, 2000. Net deposit growth was $45.6 million
for the quarter ended March 31, 2000.
The Banks must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to accommodate deposit withdrawals, to
support loan growth, to satisfy financial commitments and to take advantage of
investment opportunities. During the quarter ended March 31, 2000, the Banks
used their sources of funds primarily to fund loan commitments, to purchase
securities, and to pay maturing savings certificates and deposit withdrawals.
At March 31, 2000, the Banks had outstanding loan commitments totaling $161.2
million and undisbursed loans in process totaling $98.2 million. The Banks
generally maintain sufficient cash and readily marketable securities to meet
short-term liquidity needs. FSBW maintains a credit facility with the
FHLB-Seattle, which provides for advances which, in aggregate, may equal the
lesser of 45% of FSBW's assets or unencumbered qualifying collateral, which as
of March 31, 2000 could give a total credit line of $521.4 million. Advances
under this credit facility totaled $477.3 million, or 35.0% of FSBW's assets
at March 31, 2000. IEB and TB also maintain credit lines with various
institutions, including the FHLB-Seattle, that would allow them to borrow up
to $23.0 million.
At March 31, 2000, savings certificates amounted to $729.8 million, or 65.0%,
of the Banks' total deposits, including $536.7 million which were scheduled to
mature by March 31, 2001. Historically, the Banks have been able to retain a
significant amount of their deposits as they mature. Management believes it
has adequate resources to fund all loan commitments from savings deposits and
FHLB-Seattle advances and sale of mortgage loans and that it can adjust the
offering rates of savings certificates to retain deposits in changing interest
rate environments.
25
<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 March 31, 2000, 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
March 31, 2000: ------ ----- ------ -----
FWWB-consolidated
Total capital to risk-
weighted assets $163,051 12.47% $104,612 8.00%
Tier 1 capital to risk-
weighted assets 149,101 11.40 52,306 4.00
Tier 1 leverage capital
average assets 149,101 8.25 72,271 4.00
26
<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
None
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8K
Report (s) on Form 8-K filed during the quarter ended March 31, 2000, are as
follows:
Date Filed Purpose
- ---------- -------
NONE
27
<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.
May 12, 2000 /s/ Gary Sirmon
-------------------------------------
Gary Sirmon
President and Chief Executive Officer
May 12, 2000 /s/ D. Allan Roth
-------------------------------------
D. Allan Roth
Secretary and Treasurer and Executive
Vice President
28
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 62630
<INT-BEARING-DEPOSITS> 4075
<FED-FUNDS-SOLD> 12945
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 350495
<INVESTMENTS-CARRYING> 16915
<INVESTMENTS-MARKET> 17011
<LOANS> 1359330
<ALLOWANCE> 13951
<TOTAL-ASSETS> 1896351
<DEPOSITS> 1123722
<SHORT-TERM> 73521
<LIABILITIES-OTHER> 21873
<LONG-TERM> 496352
0
0
<COMMON> 121707
<OTHER-SE> 59176
<TOTAL-LIABILITIES-AND-EQUITY> 1896351
<INTEREST-LOAN> 29932
<INTEREST-INVEST> 6628
<INTEREST-OTHER> 70
<INTEREST-TOTAL> 36630
<INTEREST-DEPOSIT> 11762
<INTEREST-EXPENSE> 19985
<INTEREST-INCOME-NET> 16645
<LOAN-LOSSES> 545
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10810
<INCOME-PRETAX> 6921
<INCOME-PRE-EXTRAORDINARY> 6921
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4425
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.42
<YIELD-ACTUAL> 3.84
<LOANS-NON> 4850
<LOANS-PAST> 530
<LOANS-TROUBLED> 350
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13541
<CHARGE-OFFS> 154
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 13951
<ALLOWANCE-DOMESTIC> 12641
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1310
</TABLE>
