SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended March 31, 1996
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file number
InterWest Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Chartered by the State of Washington
(State or other jurisdiction of incorporation or organization)
91-1691216
(I.R.S. Employer Identification No.)
1259 West Pioneer Way
Oak Harbor, Washington
(Address of principal executive offices)
98277
(Zip Code)
Registrant's telephone number including area code: (360) 679-4181
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.
YES [x] NO [ ]
As of March 31, 1996 6,433,934 shares of common stock were outstanding with a
par value of $.20.
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INTERWEST BANCORP, INC
INDEX PAGE
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial 1
Condition
Consolidated Statements of Operations 2-3
Consolidated Statements of Stockholder's Equity 4
Consolidated Statements of Cash Flow 5-6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
INTERWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands except share amounts)
March 31, September 30,
1996 1995
(Unaudited)
ASSETS ---------- -----------
Cash and cash equivalents $ 62,473 $ 34,907
Mortgage-backed and related securities
available for sale, at fair value 386,352 114,936
Investment securities held to maturity 1,439 20,902
Mortgage-backed and related securities
held to maturity 88,339 293,356
Loans receivable, net 759,787 737,410
Loans held for sale, fair value 0 9,581
Accrued interest receivable 8,648 7,716
Real estate held for sale and for development 8,795 7,147
Federal Home Loan Bank (FHLB) stock, at cost 19,216 13,600
Premises and equipment, net 27,202 23,543
Intangible assets 2,720 1,517
Other assets 3,577 2,410
---------- ----------
Total Assets $1,368,548 $1,267,025
========== ==========
LIABILITIES
Customer deposits $ 892,722 $ 860,397
Federal Home Loan Bank advances 332,048 267,756
Securities sold under agreements to repurchase 39,110 40,000
Accrued expenses and other liabilities 8,601 6,812
Advance payments by borrowers
for taxes and insurance 926 948
Other borrowings 1,023 1,225
---------- ----------
Total liabilities 1,274,430 1,177,138
STOCKHOLDERS' EQUITY
Common stock, par value $.20 per share
Authorized 20,000,000 shares Issued and
outstanding 6,433,934 and 6,398,398 1,299 1,295
Paid-in-capital 14,686 14,505
Treasury stock <289> <289>
Retained earnings 80,217 74,325
Debt related to ESOP <512> <712>
Net Unrealized gain (loss)
on securities available for sale <1,283> 763
Total stockholders' equity 94,118 89,887
---------- ----------
Total $1,368,548 $1,267,025
========== ==========
Stockholders' equity/total assets 6.88% 7.09%
Book value per share $14.63 $14.05
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INTERWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Quarter Ended Six Months
March 31, Ended March 31,
1996 1995 1996 1995
INTEREST INCOME ------ ------ ------ ------
Loans receivable $17,109 $14,043 $34,128 $27,629
Mortgage-backed and
related securities 7,544 5,403 14,471 10,965
Interest-earning deposits 665 213 1,037 336
Investment securities 324 662 690 1,334
------ ------ ------ ------
25,642 20,321 50,326 40,264
INTEREST EXPENSE
Customer deposits 10,286 9,885 21,200 18,826
FHLB advances and other
borrowings 4,879 2,643 9,268 5,146
------ ------ ------ ------
15,165 12,528 30,468 23,972
Net interest income before
provision for losses on loans 10,477 7,793 19,858 16,292
Provision for losses on loans 300 150 550 300
Net interest income after
provision for losses on loans 10,177 7,643 19,308 15,992
OTHER OPERATING INCOME
Gain on sale of loans 725 291 918 394
Gain on sale of loan servicing 0 1,657 0 1,657
Service fees 1,228 558 1,899 1,163
Insurance commissions 417 459 802 740
Other 528 117 709 274
Gain (loss) on sale of investment
securities and mortgage-backed
and related securities 348 559 0
-------- -------- -------- --------
3,246 3,082 4,887 4,228
OTHER OPERATING EXPENSE
Compensation and employee
benefits 3,878 2,742 6,771 5,339
General and administrative 1,786 1,367 3,096 2,569
Loss (gain) from real estate
write-downs and operations 25 550 <198> 586
Occupancy 808 627 1,521 1,218
Data Processing 471 422 926 821
FDIC Premium Assessment 490 453 964 874
-------- -------- -------- --------
7,458 6,161 13,080 11,407
Income before federal
income taxes 5,965 4,564 11,115 8,813
FEDERAL INCOME TAX EXPENSE 2,040 1,602 3,795 2,993
-------- -------- -------- --------
NET INCOME $ 3,925 $ 2,962 $ 7,320 $ 5,820
======== ======== ======== ========
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INTERWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended Six Months
March 31, Ended March 31,
1996 1995 1996 1995
------ ------ ------ ------
Net income per share $.60 $.45 $1.12 $.90
Cash Dividend declared $.12 $.075 $.22 $.15
Weighted average shares
outstanding 6,553,134 6,534,137 6,540,266 6,486,044
Return on average equity 16.81% 14.13% 15.86% 14.08%
Return on average assets 1.18% 1.08% 1.13% 1.07%
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<TABLE>
INTERWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except share amounts)
(unaudited)
Unrealized
gain (loss)
Common Stock on securities Debt
# of Shares Amount Paid-in Retained available for Related Treasury
Capital Earnings sale to ESOP Stock Total
----------- ------ ------- -------- ------------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 6,449,639 $1,290 $14,331 $64,588 $<29> ---- ---- $80,180
Net Income 5,820 5,820
Cash Dividends <970> <970>
Proceeds from sale of
Common Stock 18,815 4 132 136
ESOP Loan Transaction
Unrealized loss on securities
available for sale 140 140
----------- ------ ------- -------- ------------- ------- ------- -----
Balance, March 31, 1995 $ 6,468,454 $1,294 $14,463 $69,438 $111 ---- ---- $85,306
=========== ====== ======= ======= ============ ====== ====== =======
Balance, September 30, 1995 6,398,398 $1,295 $14,505 $74,325 $763 $<712> $<289> $89,887
Net Income 7,320 7,320
Cash Dividends <1,428> <1,428>
Proceeds from sale of
Common Stock 19,462 4 181 185
ESOP loan transaction 16,074 200 200
Unrealized loss on
Securities available for sale <2,046> <2,046>
----------- ------ ------- -------- ------------- ------- ------- -----
Balance, March 31, 1996 6,433,934 $1,299 $14,686 $80,217 $<1,283> $<512> $<289> $94,118
=========== ====== ======= ======= ============ ====== ====== =======
</TABLE>
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INTERWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended March 31,
1996 1995
------ ------
OPERATING ACTIVITIES
Net Income $ 7,320 $ 5,820
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 722 619
Provision for losses on loans 550 300
Provision for loss on real estate held for sale (250) 500
Accretion of premiums and discounts, net 1,126 (156)
Gain on sale of loans (918) (394)
Gain on sale of investment securities and
mortgage-backed and related securities (559) --
Gain on sale of real estate held for sale and
for development and premises and equipment (2) --
Amortization of deferred loan fees (1,964) (2,400)
FHLB stock dividends (570) (298)
Cash provided (used) by changes in
operating assets and liabilities:
Accrued interest receivable (932) (538)
Other assets (1,166) (524)
Accrued expenses and other liabilities 2,694 1,569
Advance payments by borrowers for
taxes and insurance (22) (17)
BALANCE, net cash provided by ------- -------
operating activities, carried forward $ 6,029 $ 4,481
======= =======
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INTERWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(unaudited)
Six months ended March 31,
1996 1995
------ ------
BALANCE, net cash provided by
operating activities, brought forward $ 6,029 $ 4,481
INVESTING ACTIVITIES
Proceeds from maturing investment securities 20,300 250
held to maturity
Purchase of investment securities held to
maturity (819) (383)
Principal repayments from mortgage-backed
and related securities available for sale 17,160 2,240
Principal repayments from mortgage-backed
and related securities held to maturity 6,503 5,719
Purchase of mortgage-backed
and related securities held to maturity ----- (2,321)
Purchase of mortgage-backed and related
securities available for sale (232,296) (17,187)
Proceeds from sale of mortgage-backed and
related securities available for sale 138,501 28,177
Proceeds from sale of loans 56,005 67,239
Loan originations, net of repayments (65,177) (82,966)
Loan fees deferred (1,467) 1,469
Proceeds from sale of real estate held for
sale and for development 597 320
Purchases of premises and equipment (4,291) (2,988)
Purchase of FHLB stock (5,046) (438)
Redemption of FHLB stock ---- 646
Capital additions to real estate held for sale (1,820) (243)
Acquisition of intangible asset (1,291) ----
Net cash used by investing activities (73,141) (466)
FINANCING ACTIVITIES
Net increase (decrease) in customer deposits 14,869 (11,127)
Net increase in certificates of deposit 17,456 65,018
Proceeds from FHLB advances and other
borrowings 314,110 216,050
Repayment of FHLB advances and other
borrowings (250,711) (274,856)
Dividends paid (1,231) (970)
Issuance of common stock 185 136
Net cash provided (used) by
financing activities 94,678 (5,749)
Net increase (decrease) in cash and
cash equivalents 27,566 (1,734)
CASH AND CASH EQUIVALENTS
Beginning of quarter 34,907 30,193
End of quarter $62,473 $28,459
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 10,702 $ 6,528
Income taxes 1,755 3,125
Noncash transactions:
Loans transferred to real estate held
for sale, net 175 154
Transfer of premises to real estate held
for sale ---- 617
Transfer of securities held to maturity
to available for sale 198,523 ----
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INTERWEST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED MARCH 31, 1996
(unaudited)
NOTE A - Basis of Presentation
The unaudited consolidated financial statements have been prepared in
accordance with general accepted accounting principles for interim financial
information and with the instructions to the Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation are reflected in the interim financial statements. The results
of operations for the quarter and six months ended March 31, 1996 and 1995 are
not necessarily indicative of the operating results for the full year. The
September 30, 1995 consolidated statement of financial condition presented
with the interim financial statements was audited and received an unqualified
opinion. For further information, refer to the consolidated financial
statements and footnotes thereto included in the InterWest's annual report for
the year ended September 30, 1995.
NOTE B - Net Income per Share
The weighted average shares outstanding during the quarter and six months
ended March 31, 1996 and 1995 include the effect of shares held by the
Employee Stock Ownership Plan (ESOP) and stock options granted. Earnings per
share for the quarter ended March 31, 1996 and 1995 are calculated on the
basis of 6,553,134 and 6,534,137 weighted average shares outstanding,
respectively. Earnings per share for the six months ended March 31, 1996 and
1995 are calculated on the basis of 6,540,266 and 6,486,044 weighted average
shares outstanding, respectively.
NOTE C - Reclassification
Certain reclassifications have been made to prior financial statements to
conform with current presentation. Such reclassifications have no effect on
net income.
NOTE D- Impaired Loans
On October 1, 1995, Interwest adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan.
It is applicable to all loans except large groups of smaller-balance
homogenous loans that are collectively evaluated for impairment, loans
measured at fair value or at the lower of cost or fair value, leases, and debt
securities (as defined by SFAS No. 115). InterWest considers all single-family
residential (including construction), mobile home and consumer loans to be
smaller balance homogenous loans. SFAS No. 114 also applies to all loans that
are restructured in a troubled debt restructuring. A troubled debt
restructuring is a restructuring in which the creditor grants a concession to
the borrower that it would not otherwise consider. However, such loans
restructured prior to the effective date of SFAS No.114 that are performing in
accordance with their restructured terms are accounted for in accordance with
SFAS No. 15, Accounting by Debtors and Creditors for Troubled Debt
Restructurings.
A loan is impaired when it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. SFAS No. 114 requires that the valuation of impaired loans be
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 the collateral if the loan is
collateral dependent. The amount of the impairment and any subsequent changes
are recorded through the provision loan losses as an adjustment to the
allowance for loan losses.
Generally, InterWest evaluates a loan for impairment in accordance with SFAS
No. 114 when it is placed on nonaccrual status or if a loan is internally risk
rated as substandard or doubtful. The detailed analysis includes techniques
to estimate the fair value of the loan collateral and the existence of
potential alternative sources of repayment. While an impaired loan will
always be a classified asset, it may or may not be nonaccrual. Adopting SFAS
No. 114 did not affect InterWest's charge-off policy.
InterWest normally recognizes interest income on the accrual basis, however,
if the impaired loan is 90 days delinquent or management doubts the
collectibility of the unpaid interest, then interest income is recorded on the
receipt of cash.
The adoption of SFAS No. 114 had no material impact on the results of
operations or financial condition of InterWest.
The following is a summary of loans considered to be impaired in accordance
with SFAS No. 114 and the related interest income:
March 31, 1996
(In thousands)
--------------
Recorded investment in impaired loans not requiring an
allowance for loan losses in accordance with SFAS No. 114 $4,318
Recorded investment in impaired loans requiring an allowance
for loan losses in accordance with SFAS No. 114 900
------
Total recorded investment in impaired loans $5,218
======
Average recorded investment in impaired loans for the three
months ended $5,231
Interest income recognized for the three months ended 89
Average recorded investment in impaired loans for the six
months ended 5,256
Interest income recognized for the six months ended 179
All impaired loans were evaluated for impairment based on the fair value of
the loan's collateral as all impaired loans are collateral dependent. The
allowance for loan losses on impaired loans as measured in accordance with
SFAS No. 114 was $72,000 at March 31, 1996.
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INTERWEST BANCORP, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On January 10, 1996, InterWest and InterWest Savings Bank entered into an
Agreement and Plan of Mergers ("Agreement") with Central Bancorporation
("Central"), and its two-wholly owned subsidiaries, Central Washington Bank
and North Central Washington Bank, pursuant to which Central will be merged
into InterWest. At December 31, 1995, Central had 10 offices located in
central Washington and assets of $203.4 million, total loans and mortgage
backed securities of $137.9 million, total customer deposits of $179.9
million, and stockholder equity of $15.9 million. The Agreement provides that
Central's common stock will be exchanged for shares of InterWest common stock
pursuant to a specified exchange ratio. The aggregate value of the
consideration is approximately $34.5 million, subject to certain adjustments.
Consummation of the acquisition is subject to several conditions, including
receipt of applicable regulatory approval and approval by InterWest's and
Central's shareholders. It is anticipated that the merger will be completed
during July of 1996 and will be treated as a pooling-of-interests.
Total assets increased $101.5 million from September 30, 1995 to $1.37 billion
at March 31, 1996. This increase was primarily due to an increase in
mortgage-backed and related securities of $66.4 million, an increase in cash
of $27.6 million and an increase in loans of $22.4 million. These increases
were partially offset by a decrease in investment securities of $19.5 million.
During December, 1995, InterWest Bancorp took advantage of the one-time
amnesty provided by the Financial Accounting Standards Board under SFAS 115,
to transfer $198.5 million mortgage-backed and related securities classified
as held to maturity to available for sale. Many of those securities
transferred were fixed rate securities. This transfer allowed InterWest to
sell $89.4 million of securities which had been previously classified as held
to maturity at a net gain of $211,000. At March 31, 1996, InterWest has
$386.4 million or 81% of its mortgage backed securities classified as
available for sale. The available for sale portfolio is required to be
carried at fair value, thus its carrying value fluctuates with changes in
market conditions. At March 31, 1996, InterWest has an unrealized loss on
securities available for sale of $2.0 million as compared to an unrealized
gain of $1.2 million at September 30, 1995. In total, mortgage-backed
securities increased $66.4 million due to purchases of $227.2 million, which
was partially offset by sales of $138.5 million and repayments of $23.7.
Loans receivable increased $22.4 million from September 30, 1995. Loans
originated totaled $97.3 and $189.7 million for the quarter and six months
ended March 31, 1996. Payoffs of existing loans for the quarter and six
months ended March 31, 1996 were $69.7 and $124.6 million. Sales of loans for
the quarter and six months were $52.6 million and $55.1 million,
respectively.
Total liabilities increased a total of $97.3 million for the six month period
ended March 31, 1996. This was primarily due to an increase in customer
deposits of $32.3 million and Federal Home Loan Bank advances of $64.3
million. The increase in customer deposits and Federal Home Loan Bank
advances was principally used to fund growth in mortgage-backed and related
securities and loans receivable.
Stockholders' equity increased by $4.2 million from $89.9 million at September
30, 1995, to $94.1 million at March 31, 1996. The increase in stockholders'
equity resulted from after-tax earnings of $7.3 million for the six month
period, a $200,000 paydown on the Employee Stock Ownership Plan ("ESOP") loan
and $184,000 from the issuance of common stock which was partially offset by
a $2.1 million decrease in the unrealized gain (loss) on securities available
for sale and a decrease of $1.4 million representing $.10 and $.12 per share
cash dividends declared by the Board of Directors for the quarters ended
December 31, 1995 and March 31, 1996, respectively.
<PAGE>
<PAGE>
Loans Receivable, Net and Loans Held For Sale
InterWest originates mortgage loans through its 30 full-service offices and
one loan office. The following table indicates the loan portfolio mix as of
March 31, 1996, and September 30, 1995:
March 31, 1996 September 30, 1995
(in thousands)
Single-family residential $520,095 $506,903
Multi-family residential 51,411 49,275
Commercial 91,881 92,888
Residential construction 132,155 118,401
Mobile home 7,392 6,071
Other 23,038 22,030
-------- --------
825,972 795,568
Less:
Undisbursed loan proceeds 53,724 36,272
Allowance for losses on loans 4,748 4,283
Deferred loan fees and discounts 7,713 8,022
-------- --------
$759,787 $746,991
Residential construction loans consist of single-family custom construction
loans or loans to builders for resale purposes.
The following table compares loan originations, sales and principal repayments
for the: (in thousands)
Quarter Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
------ ------ ------ ------
(in thousands)
Single-family residential $48,713 $25,404 $98,726 $57,522
Multi-family residential/Commercial 14,796 11,286 26,767 30,290
Residential construction 28,167 25,145 55,241 50,192
Consumer 2,380 2,503 4,740 4,751
Equity line of credit 3,245 4,257
------- ------- ------- -------
Total loans originated $97,301 $ 64,338 $189,731 $142,755
Loans sold $52,592 $57,473 $55,087 $66,846
Principal repayments $69,695 $27,587 $124,554 $59,789
InterWest currently has $195.3 million in loans serviced for others.
Interest is accrued on loans receivable until the loan is 90 days delinquent
or management doubts the collectibility of the loan or the unpaid interest, at
which time InterWest establishes a reserve for any accrued interest. All
loans on which interest is not being accrued are referred to as non-accrual
loans. At March 31, 1996, non-accrual loans totaled $2.9 million, up from
$2.1 million at September 30, 1995. Total non-performing assets, including
real estate owned through foreclosure, increased to $8.0 million or .59
percent of assets at March 31, 1996, compared to $6.3 million or .50 percent
of assets at September 30, 1995.
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<PAGE>
Results of Operations
Net Income
The Bank's net income after taxes for the quarter and the six months ended
March 31, 1996 was $3.9 and $7.3 million compared to $3.0 and $5.8 million for
the like periods a year ago.
Interest Income and Expense
Net interest income increased $2.6 million to $10.2 million for the quarter
ended March 31, 1996, compared to $7.6 million for the same period a year ago.
For the six months ended March 31, 1996 net interest income increased $3.3
million to $19.3 million, compared to $16.0 million for the six months ended
March 31, 1995. During fiscal 1995, InterWest experienced a decrease in its
net interest margin which was a result of rising short-term rates and falling
long-term rates. During the last half of 1995 and the first part of 1996,
InterWest's focus on originating adjustable rate mortgages and investing in
adjustable rate securities began to have an positive impact on earnings and
net interest margin as those adjustable rate assets began to reprice. The net
interest margin for the quarter and six months ended March 31, 1996 was 3.33%
and 3.21% as compared to 2.98% and 3.16% for the quarter and six months ended
March 31, 1995.
Interest income for the quarter and six months ended March 31,1996 was $25.6
and $50.3 million compared to $20.3 and $40.3 million for the same periods a
year ago. The increase in interest income was after mortgage-backed and
related security premium amortization of $880,000 and $1.1 million for the
quarter and six months ended March 31, 1996, respectively. Premium
amortization was $66,000 for the quarter ended March 31, 1995 and discount
amortization was $155,000 for the six month period ended March 31, 1995.
Premium and discount amortization are affected by prepayments of mortgages.
The yield on earning assets increased 37 basis points for the quarter ended
March 31, 1996 to 8.14% as compared to 7.77% for the quarter ended March 31,
1995. For the six months ended March 31, 1996 the yield on earning assets
increased 33 basis points to 8.14% as compared to 7.81% for the six months
ended March 31, 1995. These increases were primarily due to an increase in
the loan yield from 8.29% to 9.07% for the quarter and from 8.30% to 9.04% for
the six months as adjustable rate loans began to reprice upwards.
Interest expense increased 21 percent or $2.7 million from $12.5 million a
year ago to $15.2 million for the current quarter. For the six months ended
March 31, 1996 interest expense was $30.5 million , a $6.5 million increase
from $24.0 million for the six months ended March 31, 1995. The cost of funds
was 4.95% for the quarter ended March 31, 1996 which was consistent with cost
of funds of 4.96% for the quarter ended March 31, 1995. InterWest's cost of
funds increased 27 basis points from 4.81% for the six months ended March 31,
1995 compared to 5.08% for the six months ended March 31, 1996. This increase
resulted from increasing rates and higher rates paid as a result of increasing
competitive pressures.
<PAGE>
Average Rates and Balances
The following tables indicate the average balance and average interest rates
earned or paid, interest rate spread, net interest margin and the ratio of
average interest earning assets to average interest bearing liabilities for
the quarter and six months ended March 31, 1996 and 1995
Quarter Ended
March 31
1996 1995
--------------- ------------------
Average Average
Balance Rate Balance Rate
Weighted average yield: (in thousands, except percentages)
Loans receivable $ 754,584 9.07% $677,583 8.29%
Mortgage-backed and 444,416 6.79 319,558 6.76
related securities
Interest-earning deposits 42,428 6.26 8,361 10.19
Investment securities 18,432 7.03 40,194 6.59
------- ---- ------- ----
Total Interest Earning
Assets $1,259,860 8.14% $1,045,696 7.77%
Weighted average cost:
Customer deposits $ 869,869 4.59% $ 817,589 4.84%
FHLB advances and other 355,526 5.49 192,129 5.50
borrowings
---------- ---- ---------- ----
Total Interest-Bearing
Liabilities $1,225,395 4.95% $1,009,718 4.96%
Net Interest Spread $ 34,465 3.19% $ 35,978 2.81%
========== ==== ========== ====
Net Interest Margin 3.33% 2.98%
Ratio of Average Interest- 102.81% 103.56%
Earnings Assets to Average
Interest-Bearing Liabilities
<PAGE>
<PAGE>
Six Months Ended
March 31
1996 1995
--------------- ------------------
Average Average
Balance Rate Balance Rate
Weighted average yield: (in thousands, except percentages)
Loans receivable $ 755,392 9.04% $665,833 8.30%
Mortgage-backed and 429,832 6.73 318,985 6.87
related securities
Interest-earning deposits 29,769 6.97 6,826 9.84
Investment securities 21,102 6.54 40,113 6.65
--------- ---- --------- ----
Total Interest Earnings
Assets $1,236,095 8.14% $1,031,757 7.81%
Weighted average cost:
Customer deposits $ 865,556 4.90% $ 804,425 4.68%
FHLB advances and other 334,456 5.54 192,050 5.36
borrowings
---------- ---- ---------- ----
Total Interest-Bearing $1,200,012 5.08% $ 996,475 4.81%
Liabilities
Net Interest Spread $ 36,083 3.06% $ 35,282 2.98%
========== ==== ========== ====
Net Interest Margin 3.21% 3.16%
Ratio of Average Interest- 103.01% 103.54%
Earnings Assets to Average
Interest-Bearing Liabilities
<PAGE>
<PAGE>
Net interest income is influenced by changes in both interest income rates and
changes in interest-earning assets and interest-bearing liabilities. The
table presented below is an analysis of these changes for the quarter and six
month periods ended March 31, 1996 as compared to the same periods a year ago.
Quarter Ended
March 31, 1996
(in thousands)
Interest Interest Net Interest
Income Expense Income
------- ------- -------
Rate $1,338 $(460) $1,798
Volume 3,983 3,097 886
------- ------- -------
Total $5,321 $2,637 $2,684
Six Months Ended
March 31, 1996
(in thousands)
Interest Interest Net Interest
Income Expense Income
------- ------- -------
Rate $2,293 $1,083 $1,210
Volume 7,769 5,413 2,356
------- ------- -------
Total $10,062 $6,496 $3,566
<PAGE>
<PAGE>
Provision and Allowance for Losses on Loans
The allowance for losses on loans totaled $4.7 million (0.63 percent of loans)
at March 31, 1996 compared to $4.3 million (0.54 percent of loans) at
September 30, 1995. The provision for losses on loans increased to $300,000
for the current quarter as compared to $150,000 for the like quarter a year
ago. The provision for loan losses also increased for the six months ended
March 31, 1996 to $550,000 as compared to $300,000 for the six months ended
March 31, 1995. The increased provision reflect's InterWest's anticipated
entrance into commercial banking. Interwest plans to increase the loan loss
allowance to 1 percent of loans before the end of the decade. The provision
for loan losses reflects management's quarterly evaluation of the adequacy of
the allowance for losses on loans. In determining adequacy, management
considers changes in the size and composition of the loan portfolio, actual
loan loss experience, current and anticipated economic conditions and other
factors. The provision for loan losses on impaired loans is measured in
accordance with SFAS No. 114. The allowance for loan losses on impaired loans
was $72,000 at March 31, 1996.
The following tables summarize the activity in allowance for losses on loans
during the periods presented: (in thousands)
Quarter ended Six months ended
March 31, 1996 March 31, 1996
-------------- --------------
(in thousands)
Balance at beginning of period $4,478 $4,283
Provisions $300 $550
Charge-offs, net <30> <85>
------- -------
Balance at end of period $4,748 $4,748
Other Income
Other income increased 5.3 percent or $164,000 from $3.1 million for the
quarter ended March 31, 1995, to $3.2 million for the quarter ended March 31,
1996. Other income also increased for the six months ended March 31, 1996 to
$4.9 million as compared to $4.2 million for the six months ended March 31,
1995. The quarter increase was primarily due to increases to increases in
gain on sale of securities of $348,000, an increase in service fees of
$670,000, an increase in discount and rebate income of $282,000 and an
increase in gain on sale of loans of $434,000. The six month period increase
was primarily due to increases on the sale of securities of $559,000, an
increase in service fees of $737,000, an increase in discount and rebate
income of $282,000 and an increase in the gain on sale of loans of $524,000.
These quarterly and six month increases were offset by a decrease in the gain
on the sale of servicing of $1.7 million from the similar periods of 1995.
Other Expense
Other expense increased 21 percent to $7.5 million for the quarter ended March
31, 1996, from $6.2 million for the same quarter last year. For the six
months ended March 31, 1996, other expense increased to $13.1 million from
$11.4 million a year ago. These increase are largely attributable to the
acquisition of Cornerstone Northwest Mortgage. Cornerstone has approximately
70 employees and had expenses of $843,000, all incurred during the second
quarter. The remaining increase is primarily due to the addition of two
branch offices and $211,000 in expenses associated with the proposed
acquisition of Central Bancorporation.
InterWest has consistently endeavored to become more efficient in its
operation. One commonly accepted measure of a bank's operating efficiency is
the ratio of total operating expenses to total revenue(net interest income and
other income). For the quarter ended March 31, 1996, this ratio was 55.6% as
compared to 57.5% for the quarter a year ago. For the six months ended March
31, 1996, this ratio was 54.1% as compared to 56.4% for the six months ended
March 31, 1995.
<PAGE>
<PAGE>
Federal Income Tax
The federal income tax expense for the quarter and six months ended March 31,
1996, was $2.0 million and $3.8 million, compared to $1.6 million and $3.0
million for the same periods last year. The effective tax rates for the three
and six months ended March 31, 1996 were 34.2% and 34.1% compared to 35.1%
and 34.0% for the three and six months ended March 31, 1995.
Liquidity and Capital Resources
InterWest must maintain adequate liquidity to meet demands for deposits
outflow, loan originations, and normal operating costs. The primary sources of
liquidity are deposit generations, loan principal and interest payments, sales
of mortgage loans, principal payments on loans and mortgage-backed and related
securities, Federal Home Loan Bank advances and reverse repurchase agreements.
InterWest has a credit line available with the Federal Home Loan Bank of 30
percent of total assets. Prepayments on loans and mortgage-backed and related
securities, deposit inflows and outflows are affected significantly by
interest rates, general economic conditions and other factors.
At December 31, 1995, InterWest had commitments to originate mortgage loans
totaling $51.0 million and undisbursed funds on mortgage loans totaling $53.7
million. It is expected that these commitments and undisbursed funds will be
funded and disbursed in the normal course of operations from InterWest's
regular sources of funds and liquidity as of March 31, 1996.
InterWest Bancorp, Inc's wholly-owned subsidiary, InterWest Savings Bank is a
state chartered savings bank. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) placed additional emphasis on the importance
of a financial institution's capital levels. During 1992, the FDIC
implemented new regulations that establish the amount of capital for each of
the FDICIA-established categories of institutions. Depending on the Bank's
FDICIA category classification, the FDIC may restrict certain activities of
the Bank, including acceptance of brokered deposits or offering interest rates
on deposits that are significantly higher than the prevailing rates.
Management believes that the Bank will continue to maintain its minimum
capital requirements in the foreseeable future. However, events beyond the
control of the Bank, such as a downturn in the economy in areas were the Bank
has most of its loans, could adversely affect future earnings and,
consequently, the ability of the bank to meet its future minimum capital
requirements. The capital requirements under FDICIA are defined as follows:
Total Tier I
Risk-Based Risk-Based
Capital Capital Leverage
FDICIA Category Ratio Ratio Ratio
----- ----- -----
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized Below 8% Below 4% Below 4%
Significantly undercapitalized Below 6% Below 3% Below 3%
Critically undercapitalized 2% or less
At March 31, 1996, the Bank was in compliance with the well-capitalized
requirements as follows:
Required Actual
-------- ------
Tier I capital to risk-based assets 6% 13.05%
Total capital to risk-based assets 10% 13.72%
Leverage ratio 5% 6.92%
The above ratios do not include unrealized gains and losses on securities
available for sale which are excluded from the ratios by the federal
regulatory agencies.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
InterWest Bancorp, Inc. or its subsidiaries are also involved as
parties to certain legal proceedings incidental to their businesses.
InterWest believes that the outcome of such proceedings will not
have a material effect upon InterWest Bancorp's business or
financial condition.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
<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.
INTERWEST BANCORP, INC.
By: /s/ H. Glenn Mouw
-------------------
H. Glenn Mouw
Executive Vice President and
Chief Financial Officer
Date: May 13, 1996
<PAGE>
<PAGE>
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