<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
October 29, 1999
INTERWEST BANCORP, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON
(State or other jurisdiction of incorporation)
0-26632 91-1691216
---------------------- -------------------------
(Commission File Number) IRS Employer Identification No.
275 S.E. Pioneer Way
Oak Harbor, WA 98227
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (360) 679-4181
<PAGE>
ITEM 5 - OTHER EVENTS
On October 29, 1999, InterWest Bancorp, Inc. announced net income of
$5.8 million for the quarter ended September 30, 1999, compared to net income of
$7.3 million for the quarter ended June 30, 1999 and $7.4 million for the
quarter ended September 30, 1998. This decrease in net income is primarily due
to a decrease in gains on the sale of loans and loan servicing rights, which is
partially offset by an increase in net interest income. Net income was $27.9
million for the year ended September 30, 1999, compared to net income of $27.7
million for the year ended September 30, 1998, excluding merger-related charges.
HIGHLIGHTS QUARTER AND YEAR ENDED SEPTEMBER 30, 1999
- - DILUTED NET INCOME PER SHARE WAS $0.37 AND $1.74 for the quarter and year
ended September 30, 1999 compared to $0.46 and $1.72 for the quarter and
year ended September 30, 1998.
- - RETURN ON AVERAGE SHAREHOLDERS' EQUITY WAS 16.00 PERCENT for the year ended
September 30, 1999 compared to 16.62 percent for the year ended September
30, 1998.
- - NET INTEREST MARGIN WAS 3.74 PERCENT for the quarter ended September 30,
1999 compared to 3.63 percent for the quarter ended June 30, 1999, and 3.51
percent for the quarter ended September 30, 1998. Net interest margin was
3.64 percent for the year ended September 30, 1999 compared to 3.52 percent
for the year ended September 30, 1998.
- - COMMERCIAL LOAN GROWTH. Commercial real estate and commercial loan balances
outstanding increased by $216.3 million, representing 45.5 percent growth
since September 30, 1998. Commercial real estate and commercial loans
represent 43.0 percent of the loan portfolio as of September 30, 1999
compared to 32.3 percent as of September 30, 1998.
- - ACQUISITIONS. InterWest Bancorp completed the acquisition of NBT Northwest
Bancorp of Tukwila, Washington and its subsidiary, National Bank of Tukwila
on October 1, 1999. InterWest Bancorp announced the signing of a definitive
agreement to acquire Liberty Bay Financial Corporation of Poulsbo,
Washington and its subsidiary, North Sound Bank on September 14, 1999.
*Financial information for the year ended September 30, 1998, excludes
nonrecurring merger-related charges of $5.1 million, net of tax.
On September 14, 1999, InterWest Bancorp announced the signing of a
definitive agreement to acquire Liberty Bay Financial Corporation (Liberty) of
Poulsbo, Washington and its subsidiary, North Sound Bank. North Sound Bank
operates eight branch offices located on the Olympic Peninsula in Washington
state. Liberty had total consolidated assets of $187.9 million and shareholders'
equity of $20.2 million as of September 30, 1999. The transaction is structured
such that shareholders of Liberty will receive 11 shares of InterWest Bancorp
common stock for each share of Liberty common stock if the average price of
InterWest Bancorp common stock for a short period of time before closing is more
than $21 per share. If the average price of InterWest Bancorp common stock for a
short period of time before closing is between $20 and $21 per share, the
shareholders of Liberty will receive shares of InterWest Bancorp common stock
with a value of $231 for each share of Liberty common stock. It is anticipated
that the
2
<PAGE>
merger will be completed during the first calendar quarter of 2000, following
the approval of applicable regulatory authorities and the shareholders of
Liberty. The transaction will be accounted for using the purchase method.
On October 1, 1999, InterWest Bancorp completed the acquisition of NBT
Northwest Bancorp (NBT) and its wholly owned subsidiary, National Bank of
Tukwila. Under the terms of this transaction, NBT merged into InterWest Bancorp
and National Bank of Tukwila became a subsidiary of InterWest Bancorp. National
Bank of Tukwila operates one office in south King County. Each share of NBT
common stock was exchanged for 0.88 shares of InterWest Bancorp common stock. At
the merger date NBT had total consolidated assets of $53.0 million and
shareholders' equity of $4.9 million. The transaction has been accounted for
using the purchase method.
As of September 30, 1999, InterWest Bancorp was the holding company for
three wholly owned banking subsidiaries: InterWest Bank, Pacific Northwest Bank,
and Kittitas Valley Bank, N.A. The discussion and analysis included in this
document is presented for the consolidated financial statements of InterWest
Bancorp and subsidiaries, which is collectively defined as InterWest.
NET INTEREST MARGIN
InterWest's net interest margin was 3.64 percent for the year ended
September 30, 1999; an increase from 3.52 percent for the year ended September
30, 1998. Several factors have influenced the increase in net interest margin.
Net interest margin increased primarily as a result of a decrease in
the cost of funds. The cost of funds was reduced due to changes in the mix of
the deposit base, deposit product pricing initiatives and a decrease in the cost
of borrowed funds. The deposit base changed with increases in the balances of
non-interest bearing and interest-bearing transaction deposit accounts and a
decrease in balances of certificates of deposit, which was accomplished through
focused sales efforts. The effect that the decrease in the cost of funds had on
net interest margin was partially offset by a decrease in the yield earned on
loans, securities and other interest-earning assets compared to the prior year.
During the second half of fiscal year 1999 rising interest rates and a
flat yield curve have continued to put pressure on net interest margin
expansion. However, InterWest's net interest margin increased to 3.74 percent
for the quarter ended September 30, 1999, compared to 3.63 percent for the
quarter ended June 30, 1999. This has been accomplished primarily by changing
the composition of the loan portfolio with increased emphasis on higher yielding
commercial lending.
RESULTS OF OPERATIONS
Net income was $5.8 million for the quarter ended September 30, 1999,
compared to $7.3 million for the quarter ended June 30, 1999, and $7.4 million
for the quarter ended September 30, 1998. This decrease in net income is
primarily due to a decrease in gains on the sale of loans and loan servicing
rights, which is partially offset by an increase in net interest income. Net
income for the year ended September 30, 1999 was $27.9 million compared to $27.7
million for the year ended September 30, 1998. Net income for the year ended
September 30, 1998, does not
3
<PAGE>
include nonrecurring merger-related charges of $5.1 million, net of tax.
Net interest income before provision for losses on loans was $21.9
million for the quarter ended September 30, 1999, compared to $20.6 million for
the quarter ended June 30, 1999, and $20.2 million for the quarter ended
September 30, 1998. Net interest income before provision for losses on loans was
$84.2 million for the year ended September 30, 1999, compared to $78.8 million
for the year ended September 30, 1998. The increase in net interest income is
due to an increase in interest-earning assets and an increase in net interest
margin.
The provision for losses on loans was $2.0 million for the year ended
September 30, 1999, compared to $2.8 million for the year ended September 30,
1998. The provision for losses on loans for the year ended September 30, 1998
included a $1.1 million merger-related provision for losses on loans.
Non-interest income was $4.8 million for the quarter ended September
30, 1999, compared to $8.1 million for the quarter ended June 30, 1999, and $7.9
million for the quarter ended September 30, 1998. The decrease in non-interest
income from the quarter ended June 30, 1999 was primarily due to the sale of
mortgage servicing rights for $530 million of fixed-rate single family mortgages
that resulted in a gain of $2.8 million during the quarter ended June 30, 1999.
During the six months ended September 30, 1999, long-term interest
rates have increased and single-family lending volumes have decreased, and as a
result sales of single-family mortgage loans have declined as compared to recent
periods. The decrease in single-family mortgage loan sales has caused
non-interest income to decrease compared to the quarter ended September 30,
1998.
Non-interest income was $28.4 million for the year ended September 30,
1999, compared to $26.5 million for the year ended September 30, 1998. The
increase in non-interest income is primarily due to the acquisition of Kittitas
Valley Bank, N.A. (KVB) and increased investment product fees and insurance
commissions earned by InterWest Bank's nonbank subsidiaries: InterWest Financial
Services, Inc. and InterWest Insurance Agency, Inc. Non-interest income from KVB
totaled $0.7 million for the year ended September 30, 1999.
Non-interest expense was $17.5 million for the quarter ended September
30, 1999, compared to $17.0 million for the quarter ended June 30, 1999, and
$16.2 million for the quarter ended September 30, 1998. Non-interest expense was
$68.1 million for the year ended September 30, 1999, compared to $61.5 million
(excluding merger-related charges of $5.5 million) for the year ended September
30, 1998. The increase in non-interest expense for the quarter and year ended
September 30, 1999, compared to the quarter and year ended September 30, 1998,
was primarily due to the acquisition of KVB and higher compensation and employee
benefits expense. Non-interest expenses associated with KVB totaled $2.3 million
(including goodwill amortization) for the year ended September 30, 1999.
Excluding KVB expenses, non-interest expense has increased by seven percent
compared to the prior year.
Compensation and employee benefits were $9.8 million for the quarter
ended September 30, 1999, compared to $9.1 million for the quarter ended June
30, 1999, and $8.9 million for the quarter ended September 30, 1998.
Compensation and employee benefits were $37.5 million for the year ended
September 30, 1999, compared to $32.6 million for the year ended September 30,
4
<PAGE>
1998. The increase from the respective periods one year ago was primarily due to
the focus on commercial banking growth and the acquisition of KVB. Compensation
expense also increased due to higher lending volumes and transaction account
deposit growth, which increased compensation resulting from variable
compensation plans.
The operating efficiency ratio was 65.5 percent for the quarter ended
September 30, 1999, compared to 59.1 percent for the quarter ended June 30,
1999, and 57.5 percent for the quarter ended September 30, 1998. The operating
efficiency ratio was 60.5 percent for the year ended September 30, 1999 compared
to 58.4 percent (excluding merger-related charges) for the year ended September
30, 1998.
Income tax expense was $14.6 million for the year ended September 30,
1999, compared to $12.8 million for the year ended September 30, 1998. The
effective tax rate was 34.4 percent for the year ended September 30, 1999,
compared to 36.2 percent for the year ended September 30, 1998. The higher
effective tax rate for 1998 was primarily due to certain merger-related charges
incurred during 1998 that were not deductible for federal income tax purposes.
FINANCIAL CONDITION
InterWest's total consolidated assets were $2.57 billion as of
September 30, 1999, compared to $2.47 billion as of June 30, 1999, and $2.45
billion as of September 30, 1998.
Loans receivable were $1.56 billion as of September 30, 1999, compared
to $1.39 billion as of June 30, 1999, and $1.36 billion as of September 30,
1998. During the year ended September 30, 1999, the principal balances
outstanding of commercial real estate, real estate construction, commercial and
agricultural loans increased by $286.3 million. These increases were offset by a
decrease in single-family residential mortgage loans outstanding as a result of
loan sales during the first half of the fiscal year. InterWest will continue to
emphasize growth in commercial real estate and business lending.
Commercial real estate mortgage loans outstanding increased $144.7
million from September 30, 1998, representing an annualized growth rate of 56.1
percent. As of September 30, 1999, outstanding commercial real estate loans
represented 25.0 percent of total gross loans compared to 17.5 percent as of
September 30, 1998.
Real estate construction loans outstanding increased $63.7 million from
September 30, 1998, representing an annualized growth rate of 35.0 percent. As
of September 30, 1999, outstanding real estate construction loans represented
15.3 percent of total gross loans compared to 12.3 percent as of September 30,
1998.
Commercial loans balances outstanding increased $71.6 million from
September 30, 1998, representing an annualized growth rate of 32.9 percent. As
of September 30, 1999, outstanding commercial loans represented 18.0 percent of
total gross loans compared to 14.8 percent as of September 30, 1998.
Single-family residential mortgage loans decreased $179.1 million from
September 30, 1998. As of September 30, 1999, single-family residential mortgage
loans represented 27.9 percent of total gross loans compared to 42.5 percent as
of September 30, 1998. This decrease was due to an increase in loan sales during
the first half of fiscal year 1999 and increased
5
<PAGE>
emphasis on commercial lending. Due primarily to rising interest rates, loan
sales have declined during the second half of fiscal year 1999.
Total liabilities were $2.41 billion as of September 30, 1999, compared
to $2.30 billion as of June 30, 1999, and $2.28 billion as of September 30,
1998.
Non-interest bearing deposits were $197.7 million as of September 30,
1999, compared to $188.3 million as of June 30, 1999 and $178.6 million as of
September 30, 1998. Non-interest bearing deposits represented 12.6 percent of
total deposits as of September 30, 1999, compared to 12.2 percent of total
deposits as of June 30, 1999, and 11.4 percent as of September 30, 1998.
Interest-bearing transaction accounts (which includes interest-bearing
checking, money market and savings accounts) were $548.4 million as of September
30, 1999, compared to $555.8 million as of June 30, 1999, and $539.2 million as
of September 30, 1998. Interest bearing transaction accounts represented 34.7
percent of total deposits as of September 30, 1999, compared to 36.0 percent of
total deposits as of June 30, 1999, and 34.5 percent as of September 30, 1998.
Certificates of deposit totaled $832.8 million as of September 30,
1999, compared to $800.6 million as of June 30, 1999, and $847.0 million as of
September 30, 1998. Certificates of deposit represented 52.7 percent of total
deposits as of September 30, 1999, compared to 51.8 percent of total deposits as
of June 30, 1999, and 54.1 percent as of September 30, 1998.
Management is continuing to pursue initiatives to increase the
percentage of non-interest bearing deposits and interest bearing transaction
deposits relative to certificates of deposit. This activity should increase net
interest income and service fee revenue while building customer relationships.
As of September 30, 1999, 47.3 percent of InterWest's deposits were transaction
accounts, compared to 48.2 percent as of June 30, 1999, and 45.9 percent as of
September 30, 1998.
SHAREHOLDERS' EQUITY
On January 20, 1999, the Board of Directors of InterWest Bancorp
authorized the repurchase of up to 5 percent of InterWest Bancorp's outstanding
shares of common stock in the open market over the next twelve months. During
the year ended September 30, 1999, InterWest Bancorp repurchased 521,500 shares,
or 3.3 percent of the total number of shares outstanding, at a total price of
$11.9 million. InterWest's total shareholders' equity was $165.3 million as of
September 30, 1999, a decrease from $171.7 million as of September 30, 1998.
Book value per share also decreased to $10.71 as of September 30, 1999 compared
to $10.97 as of September 30, 1998. The decrease in shareholders' equity and
book value per share was due to an increase in the unrealized loss on securities
available for sale of $15.3 million, net of tax, due to rising interest rates,
common stock repurchases and dividends paid to shareholders. The decrease in
shareholders' equity was partially offset by net income and proceeds received
from the exercise of common stock options. For the quarter ended September 30,
1999, InterWest declared dividends of $0.14 per share, consistent with the
previous four quarters.
ASSET QUALITY
Total non-performing assets were $14.5 million or 0.56 percent of total
assets as of
6
<PAGE>
September 30, 1999, compared to $16.2 million or 0.65 percent of total assets as
of June 30, 1999, and $15.8 million or 0.64 percent as of September 30, 1998.
Non-accrual loans were $10.9 million as of September 30, 1999, compared to $10.5
million as of June 30, 1999, and $8.2 million as of September 30, 1998. Real
estate owned through foreclosure was $3.6 million as of September 30, 1999,
compared to $5.6 million as of June 30, 1999, and $7.6 million as of September
30, 1998. The decrease in real estate owned through foreclosure is due to sales
activity during the fiscal year in excess of new foreclosures on real estate
mortgage loans.
InterWest's allowance for losses on loans was $14.1 million or 0.90
percent of loans receivable as of September 30, 1999, compared to $13.8 million
or 0.99 percent of loans receivable as of June 30, 1999, and $13.2 million or
0.96 percent of loans receivable as of September 30, 1998. The allowance for
losses on loans was 129.6 percent of non-accrual loans as of September 30, 1999,
as compared to 131.2 percent as of June 30, 1999, and 161.1 percent as of
September 30, 1998. Net loan charge-offs were $1.1 million or 0.08 percent of
the average balance of loans outstanding for the year ended September 30, 1999.
The allowance for losses on loans is maintained at a level sufficient to provide
for estimated losses based on the evaluation of known and inherent risks in the
loan portfolio and upon management's continuing analysis of the factors
underlying the quality of the loan portfolio.
As of the current date, InterWest Bancorp conducts its financial
service business through the 56 branch offices of its banking subsidiaries:
InterWest Bank, Pacific Northwest Bank, Kittitas Valley Bank, N.A. and National
Bank of Tukwila. A full range of non-traditional financial products are
available through InterWest Financial Services Inc. and insurance products are
provided through InterWest Insurance Agency, Inc., which are subsidiaries of
InterWest Bank.
In this document, InterWest has included certain "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. This statement is for the express purpose of availing InterWest of the
protections of such safe harbor with respect to all "forward looking
statements". InterWest has used "forward looking statements" to describe future
plans and strategies including expectations of InterWest's future financial
results. Management's ability to predict results or the effect of future plans
and strategy is inherently uncertain. Factors that could effect results include
interest rate trends, the general economic climate in Washington state and the
country as a whole, 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.
ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements - not applicable.
(b) Pro forma financial information - not applicable.
(c) Exhibits:
99 Press Release issued by InterWest, dated October 29,
1999
7
<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 hereunto duly authorized.
Dated: November 2, 1999
INTERWEST BANCORP, INC.
By /s/ H. Glenn Mouw
----------------------------------
H. Glenn Mouw
Executive Vice President
8
<PAGE>
FOR RELEASE OCTOBER 29, 1999
FOR MORE INFORMATION CONTACT:
John Wilcox, Financial Reporting - (360) 679-4181
Joe Sexton, Corporate Relations - (360) 679-4181
INTERWEST BANCORP, INC. QUARTERLY FINANCIAL RESULTS
OAK HARBOR, WA - OCTOBER 29, 1999 - InterWest Bancorp, Inc. (Nasdaq:
IWBK) (InterWest Bancorp) today announced net income of $5.8 million for the
quarter ended September 30, 1999, compared to net income of $7.3 million for the
quarter ended June 30, 1999 and $7.4 million for the quarter ended September 30,
1998. This decrease in net income is primarily due to a decrease in gains on the
sale of loans and loan servicing rights, which is partially offset by an
increase in net interest income. Net income was $27.9 million for the year ended
September 30, 1999, compared to net income of $27.7 million for the year ended
September 30, 1998, excluding merger-related charges.
HIGHLIGHTS QUARTER AND YEAR ENDED SEPTEMBER 30, 1999
- - DILUTED NET INCOME PER SHARE WAS $0.37 AND $1.74 for the quarter and year
ended September 30, 1999 compared to $0.46 and $1.72 for the quarter and
year ended September 30, 1998.
- - RETURN ON AVERAGE SHAREHOLDERS' EQUITY WAS 16.00 PERCENT for the year ended
September 30, 1999 compared to 16.62 percent for the year ended September
30, 1998.
- - NET INTEREST MARGIN WAS 3.74 PERCENT for the quarter ended September 30,
1999 compared to 3.63 percent for the quarter ended June 30, 1999, and 3.51
percent for the quarter ended September 30, 1998. Net interest margin was
3.64 percent for the year ended September 30, 1999 compared to 3.52 percent
for the year ended September 30, 1998.
- - COMMERCIAL LOAN GROWTH. Commercial real estate and commercial loan balances
outstanding increased by $216.3 million, representing 45.5 percent growth
since September 30, 1998. Commercial real estate and commercial loans
represent 43.0 percent of the loan portfolio as of September 30, 1999
compared to 32.3 percent as of September 30, 1998.
- - ACQUISITIONS. InterWest Bancorp completed the acquisition of NBT Northwest
Bancorp of Tukwila, Washington and its subsidiary, National Bank of Tukwila
on October 1, 1999. InterWest Bancorp
<PAGE>
announced the signing of a definitive agreement to acquire Liberty Bay
Financial Corporation of Poulsbo, Washington and its subsidiary, North
Sound Bank on September 14, 1999.
*Financial information for the year ended September 30, 1998, excludes
nonrecurring merger-related charges of $5.1 million, net of tax.
"Our net income has decreased due to rising interest rates which has
reduced opportunities to originate and sell single-family mortgage loans.
However, we have partially compensated for the decrease in gains on the sale of
loans through growth in commercial lending which has enabled us to increase our
net interest income," said Stephen M. Walden, President and Chief Executive
Officer. "The recently completed acquisition of National Bank of Tukwila, the
proposed acquisition of North Sound Bank and the opening of a branch office in
Olympia further reflect our commitment to commercial banking and growth within
the state of Washington" Walden added.
On September 14, 1999, InterWest Bancorp announced the signing of a
definitive agreement to acquire Liberty Bay Financial Corporation (Liberty) of
Poulsbo, Washington and its subsidiary, North Sound Bank. North Sound Bank
operates eight branch offices located on the Olympic Peninsula in Washington
state. Liberty had total consolidated assets of $187.9 million and shareholders'
equity of $20.2 million as of September 30, 1999. The transaction is structured
such that shareholders of Liberty will receive 11 shares of InterWest Bancorp
common stock for each share of Liberty common stock if the average price of
InterWest Bancorp common stock for a short period of time before closing is more
than $21 per share. If the average price of InterWest Bancorp common stock for a
short period of time before closing is between $20 and $21 per share, the
shareholders of Liberty will receive shares of InterWest Bancorp common stock
with a value of $231 for each share of Liberty common stock. It is anticipated
that the merger will be completed during the first calendar quarter of 2000,
following the approval of applicable regulatory authorities and the shareholders
of Liberty. The transaction will be accounted for using the purchase method.
On October 1, 1999, InterWest Bancorp completed the acquisition of NBT
Northwest Bancorp (NBT) and its wholly owned subsidiary, National Bank of
Tukwila. Under the terms of this transaction,
<PAGE>
NBT merged into InterWest Bancorp and National Bank of Tukwila became a
subsidiary of InterWest Bancorp. National Bank of Tukwila operates one office in
south King County. Each share of NBT common stock was exchanged for 0.88 shares
of InterWest Bancorp common stock. At the merger date NBT had total consolidated
assets of $53.0 million and shareholders' equity of $4.9 million. The
transaction has been accounted for using the purchase method.
As of September 30, 1999, InterWest Bancorp was the holding company for
three wholly owned banking subsidiaries: InterWest Bank, Pacific Northwest Bank,
and Kittitas Valley Bank, N.A. The discussion and analysis included in this
document is presented for the consolidated financial statements of InterWest
Bancorp and subsidiaries, which is collectively defined as InterWest.
NET INTEREST MARGIN
InterWest's net interest margin was 3.64 percent for the year ended
September 30, 1999; an increase from 3.52 percent for the year ended September
30, 1998. Several factors have influenced the increase in net interest margin.
Net interest margin increased primarily as a result of a decrease in
the cost of funds. The cost of funds was reduced due to changes in the mix of
the deposit base, deposit product pricing initiatives and a decrease in the cost
of borrowed funds. The deposit base changed with increases in the balances of
non-interest bearing and interest-bearing transaction deposit accounts and a
decrease in balances of certificates of deposit, which was accomplished through
focused sales efforts. The effect that the decrease in the cost of funds had on
net interest margin was partially offset by a decrease in the yield earned on
loans, securities and other interest-earning assets compared to the prior year.
During the second half of fiscal year 1999 rising interest rates and a
flat yield curve have continued to put pressure on net interest margin
expansion. However, InterWest's net interest margin increased to 3.74 percent
for the quarter ended September 30, 1999, compared to 3.63 percent for the
quarter ended June 30, 1999. This has been accomplished primarily by changing
the composition of the loan portfolio with increased emphasis on higher yielding
commercial lending.
<PAGE>
RESULTS OF OPERATIONS
Net income was $5.8 million for the quarter ended September 30, 1999,
compared to $7.3 million for the quarter ended June 30, 1999, and $7.4 million
for the quarter ended September 30, 1998. This decrease in net income is
primarily due to a decrease in gains on the sale of loans and loan servicing
rights, which is partially offset by an increase in net interest income. Net
income for the year ended September 30, 1999 was $27.9 million compared to $27.7
million for the year ended September 30, 1998. Net income for the year ended
September 30, 1998, does not include nonrecurring merger-related charges of $5.1
million, net of tax.
Net interest income before provision for losses on loans was $21.9
million for the quarter ended September 30, 1999, compared to $20.6 million for
the quarter ended June 30, 1999, and $20.2 million for the quarter ended
September 30, 1998. Net interest income before provision for losses on loans was
$84.2 million for the year ended September 30, 1999, compared to $78.8 million
for the year ended September 30, 1998. The increase in net interest income is
due to an increase in interest-earning assets and an increase in net interest
margin.
The provision for losses on loans was $2.0 million for the year ended
September 30, 1999, compared to $2.8 million for the year ended September 30,
1998. The provision for losses on loans for the year ended September 30, 1998
included a $1.1 million merger-related provision for losses on loans.
Non-interest income was $4.8 million for the quarter ended September
30, 1999, compared to $8.1 million for the quarter ended June 30, 1999, and $7.9
million for the quarter ended September 30, 1998. The decrease in non-interest
income from the quarter ended June 30, 1999 was primarily due to the sale of
mortgage servicing rights for $530 million of fixed-rate single family mortgages
that resulted in a gain of $2.8 million during the quarter ended June 30, 1999.
During the six months ended September 30, 1999, long-term interest
rates have increased and single-family lending volumes have decreased, and as a
result sales of single-family mortgage loans have declined as compared to recent
periods. The decrease in single-family mortgage loan sales has caused
non-interest income to decrease compared to the quarter ended September 30,
1998.
<PAGE>
Non-interest income was $28.4 million for the year ended September 30,
1999, compared to $26.5 million for the year ended September 30, 1998. The
increase in non-interest income is primarily due to the acquisition of Kittitas
Valley Bank, N.A. (KVB) and increased investment product fees and insurance
commissions earned by InterWest Bank's nonbank subsidiaries: InterWest Financial
Services, Inc. and InterWest Insurance Agency, Inc. Non-interest income from KVB
totaled $0.7 million for the year ended September 30, 1999.
Non-interest expense was $17.5 million for the quarter ended September
30, 1999, compared to $17.0 million for the quarter ended June 30, 1999, and
$16.2 million for the quarter ended September 30, 1998. Non-interest expense was
$68.1 million for the year ended September 30, 1999, compared to $61.5 million
(excluding merger-related charges of $5.5 million) for the year ended September
30, 1998. The increase in non-interest expense for the quarter and year ended
September 30, 1999, compared to the quarter and year ended September 30, 1998,
was primarily due to the acquisition of KVB and higher compensation and employee
benefits expense. Non-interest expenses associated with KVB totaled $2.3 million
(including goodwill amortization) for the year ended September 30, 1999.
Excluding KVB expenses, non-interest expense has increased by seven percent
compared to the prior year.
Compensation and employee benefits were $9.8 million for the quarter
ended September 30, 1999, compared to $9.1 million for the quarter ended June
30, 1999, and $8.9 million for the quarter ended September 30, 1998.
Compensation and employee benefits were $37.5 million for the year ended
September 30, 1999, compared to $32.6 million for the year ended September 30,
1998. The increase from the respective periods one year ago was primarily due to
the focus on commercial banking growth and the acquisition of KVB. Compensation
expense also increased due to higher lending volumes and transaction account
deposit growth, which increased compensation resulting from variable
compensation plans.
The operating efficiency ratio was 65.5 percent for the quarter ended
September 30, 1999, compared to 59.1 percent for the quarter ended June 30,
1999, and 57.5 percent for the quarter ended September 30, 1998. The operating
efficiency ratio was 60.5 percent for the year ended September 30,
<PAGE>
1999 compared to 58.4 percent (excluding merger-related charges) for the year
ended September 30, 1998.
Income tax expense was $14.6 million for the year ended September 30,
1999, compared to $12.8 million for the year ended September 30, 1998. The
effective tax rate was 34.4 percent for the year ended September 30, 1999,
compared to 36.2 percent for the year ended September 30, 1998. The higher
effective tax rate for 1998 was primarily due to certain merger-related charges
incurred during 1998 that were not deductible for federal income tax purposes.
FINANCIAL CONDITION
InterWest's total consolidated assets were $2.57 billion as of
September 30, 1999, compared to $2.47 billion as of June 30, 1999, and $2.45
billion as of September 30, 1998.
Loans receivable were $1.56 billion as of September 30, 1999, compared
to $1.39 billion as of June 30, 1999, and $1.36 billion as of September 30,
1998. During the year ended September 30, 1999, the principal balances
outstanding of commercial real estate, real estate construction, commercial and
agricultural loans increased by $286.3 million. These increases were offset by a
decrease in single-family residential mortgage loans outstanding as a result of
loan sales during the first half of the fiscal year. InterWest will continue to
emphasize growth in commercial real estate and business lending.
Commercial real estate mortgage loans outstanding increased $144.7
million from September 30, 1998, representing an annualized growth rate of 56.1
percent. As of September 30, 1999, outstanding commercial real estate loans
represented 25.0 percent of total gross loans compared to 17.5 percent as of
September 30, 1998.
Real estate construction loans outstanding increased $63.7 million from
September 30, 1998, representing an annualized growth rate of 35.0 percent. As
of September 30, 1999, outstanding real estate construction loans represented
15.3 percent of total gross loans compared to 12.3 percent as of September 30,
1998.
Commercial loans balances outstanding increased $71.6 million from
September 30, 1998, representing an annualized growth rate of 32.9 percent. As
of September 30, 1999, outstanding
<PAGE>
commercial loans represented 18.0 percent of total gross loans compared to 14.8
percent as of September 30, 1998.
Single-family residential mortgage loans decreased $179.1 million from
September 30, 1998. As of September 30, 1999, single-family residential mortgage
loans represented 27.9 percent of total gross loans compared to 42.5 percent as
of September 30, 1998. This decrease was due to an increase in loan sales during
the first half of fiscal year 1999 and increased emphasis on commercial lending.
Due primarily to rising interest rates, loan sales have declined during the
second half of fiscal year 1999.
Total liabilities were $2.41 billion as of September 30, 1999, compared
to $2.30 billion as of June 30, 1999, and $2.28 billion as of September 30,
1998.
Non-interest bearing deposits were $197.7 million as of September 30,
1999, compared to $188.3 million as of June 30, 1999 and $178.6 million as of
September 30, 1998. Non-interest bearing deposits represented 12.6 percent of
total deposits as of September 30, 1999, compared to 12.2 percent of total
deposits as of June 30, 1999, and 11.4 percent as of September 30, 1998.
Interest-bearing transaction accounts (which includes interest-bearing
checking, money market and savings accounts) were $548.4 million as of September
30, 1999, compared to $555.8 million as of June 30, 1999, and $539.2 million as
of September 30, 1998. Interest bearing transaction accounts represented 34.7
percent of total deposits as of September 30, 1999, compared to 36.0 percent of
total deposits as of June 30, 1999, and 34.5 percent as of September 30, 1998.
Certificates of deposit totaled $832.8 million as of September 30,
1999, compared to $800.6 million as of June 30, 1999, and $847.0 million as of
September 30, 1998. Certificates of deposit represented 52.7 percent of total
deposits as of September 30, 1999, compared to 51.8 percent of total deposits as
of June 30, 1999, and 54.1 percent as of September 30, 1998.
Management is continuing to pursue initiatives to increase the
percentage of non-interest bearing deposits and interest bearing transaction
deposits relative to certificates of deposit. This activity should increase net
interest income and service fee revenue while building customer relationships.
As of September 30, 1999, 47.3 percent of InterWest's deposits were transaction
accounts, compared to 48.2 percent as of June 30, 1999, and 45.9 percent as of
September 30, 1998.
<PAGE>
SHAREHOLDERS' EQUITY
On January 20, 1999, the Board of Directors of InterWest Bancorp
authorized the repurchase of up to 5 percent of InterWest Bancorp's outstanding
shares of common stock in the open market over the next twelve months. During
the year ended September 30, 1999, InterWest Bancorp repurchased 521,500 shares,
or 3.3 percent of the total number of shares outstanding, at a total price of
$11.9 million. InterWest's total shareholders' equity was $165.3 million as of
September 30, 1999, a decrease from $171.7 million as of September 30, 1998.
Book value per share also decreased to $10.71 as of September 30, 1999 compared
to $10.97 as of September 30, 1998. The decrease in shareholders' equity and
book value per share was due to an increase in the unrealized loss on securities
available for sale of $15.3 million, net of tax, due to rising interest rates,
common stock repurchases and dividends paid to shareholders. The decrease in
shareholders' equity was partially offset by net income and proceeds received
from the exercise of common stock options. For the quarter ended September 30,
1999, InterWest declared dividends of $0.14 per share, consistent with the
previous four quarters.
ASSET QUALITY
Total non-performing assets were $14.5 million or 0.56 percent of total
assets as of September 30, 1999, compared to $16.2 million or 0.65 percent of
total assets as of June 30, 1999, and $15.8 million or 0.64 percent as of
September 30, 1998. Non-accrual loans were $10.9 million as of September 30,
1999, compared to $10.5 million as of June 30, 1999, and $8.2 million as of
September 30, 1998. Real estate owned through foreclosure was $3.6 million as of
September 30, 1999, compared to $5.6 million as of June 30, 1999, and $7.6
million as of September 30, 1998. The decrease in real estate owned through
foreclosure is due to sales activity during the fiscal year in excess of new
foreclosures on real estate mortgage loans.
InterWest's allowance for losses on loans was $14.1 million or 0.90
percent of loans receivable as of September 30, 1999, compared to $13.8 million
or 0.99 percent of loans receivable as of June 30, 1999, and $13.2 million or
0.96 percent of loans receivable as of September 30, 1998. The allowance for
losses on loans was 129.6 percent of non-accrual loans as of September 30, 1999,
as compared to 131.2 percent as of June 30, 1999, and 161.1 percent as of
September 30, 1998. Net loan charge-offs
<PAGE>
were $1.1 million or 0.08 percent of the average balance of loans outstanding
for the year ended September 30, 1999. The allowance for losses on loans is
maintained at a level sufficient to provide for estimated losses based on the
evaluation of known and inherent risks in the loan portfolio and upon
management's continuing analysis of the factors underlying the quality of the
loan portfolio.
As of the current date, InterWest Bancorp conducts its financial
service business through the 56 branch offices of its banking subsidiaries:
InterWest Bank, Pacific Northwest Bank, Kittitas Valley Bank, N.A. and National
Bank of Tukwila. A full range of non-traditional financial products are
available through InterWest Financial Services Inc. and insurance products are
provided through InterWest Insurance Agency, Inc., which are subsidiaries of
InterWest Bank.
In this document, InterWest has included certain "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. This statement is for the express purpose of availing InterWest of the
protections of such safe harbor with respect to all "forward looking
statements". InterWest has used "forward looking statements" to describe future
plans and strategies including expectations of InterWest's future financial
results. Management's ability to predict results or the effect of future plans
and strategy is inherently uncertain. Factors that could effect results include
interest rate trends, the general economic climate in Washington state and the
country as a whole, 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.
<PAGE>
INTERWEST BANCORP AND SUBSIDIARIES
Financial Data (unaudited)
(Dollars in thousands except per share and share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
------------- ----------
SEPT. 30, 1999 JUNE 30, 1999 SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 1998
-------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS:
BEFORE NONRECURRING
EXPENSES:
Return on average assets 0.92% 1.20% 1.21% 1.12% 1.16%
Return on average equity 13.33% 16.81% 17.42% 16.00% 16.62%
Efficiency ratio 65.52% 59.14% 57.49% 60.53% 58.40%
AFTER NONRECURRING
EXPENSES:
Return on average assets 0.92% 1.20% 1.21% 1.12% 0.95%
Return on average equity 13.33% 16.81% 17.42% 16.00% 13.58%
Efficiency ratio 65.52% 59.14% 57.49% 60.53% 63.62%
NET INTEREST MARGIN
Total yield on earnings assets 7.89% 7.69% 7.97% 7.76% 8.05%
Total cost of funds 4.18% 4.11% 4.54% 4.18% 4.62%
Net interest spread 3.71% 3.58% 3.43% 3.58% 3.43%
Net interest margin 3.74% 3.63% 3.51% 3.64% 3.52%
ALLOWANCE FOR LOSSES
ON LOANS
Balance at beginning of period $13,803 $13,506 $12,750 $13,224 $11,104
Provision for losses on loans 502 500 441 2,000 1,707
Provision pursuant to merger -- -- -- -- 1,100
Provision acquired -- -- 295 -- 295
Pooling adjustment -- -- -- -- (76)
Loans charged off, net of (182) (203) (262) (1,101) (906)
recoveries ------- ------- ------- ------- -------
Balance at end of period $14,123 $13,803 $13,224 $14,123 $13,224
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEPT. 30, 1999 JUNE 30, 1999 SEPT. 30, 1998
-------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Book value per share $10.71 $ 11.29 $ 10.97
Equity to assets 6.42% 7.14% 7.01%
DEPOSITS % % %
Non-interest bearing $ 197,732 12.6 $ 188,329 12.2 $ 178,625 11.4
Interest-bearing checking 171,578 10.9 163,985 10.6 162,051 10.4
Money market 273,537 17.3 288,716 18.7 267,953 17.1
Savings 103,306 6.5 103,131 6.7 109,148 7.0
Certificates of deposit 832,796 52.7 800,626 51.8 847,048 54.1
------- ---- ------- ---- ------- ----
Total $1,578,949 $1,544,787 $1,564,825
LOAN PORTFOLIO
Real estate mortgage loans
Single-family residential $ 448,068 27.9 $ 425,623 29.5 $ 627,191 42.5
Multi-family residential 74,223 4.6 60,371 4.2 62,948 4.3
Commercial 402,580 25.0 341,077 23.7 257,906 17.5
Real estate construction 245,690 15.3 203,293 14.1 182,020 12.3
Consumer loans 97,153 6.0 89,592 6.2 81,386 5.5
Commercial loans 289,185 18.0 267,249 18.6 217,546 14.8
Agricultural loans 51,961 3.2 53,302 3.7 45,637 3.1
------ --- ------ --- ------ ---
1,608,860 1,440,507 1,474,634
Less:
Loans held for sale 23,138 33,177 93,125
Allowance for losses on
loans 14,123 13,803 13,224
Deferred loan fees and
discounts 10,015 8,425 9,235
------ ----- -----
Total loans receivable $1,561,584 $1,385,102 $1,359,050
Allowance for losses on
loans as a percentage of:
Total loans receivable 0.90% 0.99% 0.96%
Non-accrual loans 129.58% 131.18% 161.07%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEPT. 30, 1999 JUNE 30, 1999 SEPT. 30, 1998
-------------- ------------- --------------
<S> <C> <C> <C>
NON-PERFORMING ASSETS
Non-accrual loans $ 10,899 $ 10,522 $ 8,210
Real estate owned through 3,560 5,647 7,553
foreclosure ---------- ---------- ----------
Total non-performing assets $ 14,459 $ 16,169 $ 15,763
Percent of total assets 0.56% 0.65% 0.64%
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION
ASSETS
Cash and cash equivalents:
Non-interest bearing $ 70,623 $ 67,588 $ 74,018
Interest bearing 10,471 6,079 107,404
Federal funds sold -- 17,800 19,863
Securities available for sale, at fair 700,550 751,937 574,346
value
Securities held to maturity 70,692 72,869 87,262
Loans receivable, net 1,561,584 1,385,102 1,359,050
Loans held for sale 23,138 33,177 93,125
Interest receivable 15,962 15,034 14,991
Real estate held for sale and for 8,260 9,663 11,996
development
FHLB stock, at cost 42,536 41,773 37,496
Premises and equipment, net 54,132 54,516 50,314
Intangible assets 11,999 12,138 14,026
Other assets 4,999 6,482 3,957
---------- ---------- ----------
Total assets $2,574,946 $2,474,158 $2,447,848
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEPT. 30, 1999 JUNE 30, 1999 SEPT. 30, 1998
-------------- ------------- --------------
<S> <C> <C> <C>
LIABILITIES
Non-interest bearing deposits $ 197,732 $ 188,329 $ 178,625
Interest-bearing deposits 1,381,217 1,356,458 1,386,200
----------- ----------- -----------
Total deposits 1,578,949 1,544,787 1,564,825
FHLB advances 682,238 581,554 546,033
Securities sold under
agreements to repurchase 131,972 131,472 128,613
Other borrowings 3,700 22,349 7,744
Other liabilities 12,781 17,450 28,981
----------- ----------- -----------
Total liabilities 2,409,640 2,297,612 2,276,196
SHAREHOLDERS' EQUITY
Common stock, no par value -- -- --
Paid in capital 26,127 31,435 36,512
Retained earnings 158,828 155,216 139,781
Debt related to ESOP (3,608) (3,935) (3,935)
Net unrealized loss on securities
available for sale (16,041) (6,170) (706)
----------- ----------- -----------
Total shareholders' equity 165,306 176,546 171,652
----------- ----------- -----------
Total liabilities and shareholders' $ 2,574,946 $ 2,474,158 $ 2,447,848
equity
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
------------- ----------
SEPT. 30, 1999 JUNE 30, 1999 SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 1998
-------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS
INTEREST INCOME
Loans receivable $32,826 $30,190 $32,879 $126,482 $127,472
Securities available for sale 12,237 11,495 10,825 45,403 43,996
Securities held to maturity 1,096 1,247 1,037 4,995 5,595
Other 58 771 1,193 2,779 3,216
-- --- ----- ----- -----
Total interest income 46,217 43,703 45,934 179,659 180,279
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEPT. 30, 1999 JUNE 30, 1999 SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 1998
-------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INTEREST EXPENSE
Deposits 13,773 13,476 15,375 55,416 60,841
FHLB advances and other
borrowings 8,582 7,705 8,435 32,467 31,468
Securities sold under
agreements to repurchase 1,919 1,878 1,888 7,597 9,174
------- ------- ------- ------- -------
Total interest expense 24,274 23,059 25,698 95,480 101,483
Net interest income before
provision for losses on
loans 21,943 20,644 20,236 84,179 78,796
Provision for losses on loans 502 500 441 2,000 2,807
------- ------- ------- ------- -------
Net interest income after
provision for losses on
loans 21,441 20,144 19,795 82,179 75,989
NON-INTEREST INCOME
Gain on sale on loans 338 407 3,780 8,095 10,421
Gain on sale of loan
servicing rights -- 2,798 -- 2,798 --
Service fees 2,851 3,224 2,904 11,575 10,987
Investment product fees and
insurance commissions 959 850 557 3,125 2,130
Gain (loss) on sale of
securities available for sale -- (2) 163 72 813
Other 688 867 502 2,743 2,122
------- ------- ------- ------- -------
Total non-interest income 4,836 8,144 7,906 28,408 26,473
NON-INTEREST
EXPENSE
Compensation and 9,759 9,068 8,878 37,486 32,636
employee benefits
General and administrative 4,014 3,900 3,399 15,580 14,225
Occupancy 2,530 2,435 2,250 9,595 8,893
Data processing 1,200 1,111 915 4,599 3,766
Loss from real estate write-
downs and operations 43 511 737 887 1,957
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEPT. 30, 1999 JUNE 30, 1999 SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 1998
-------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Merger related charges -- -- -- -- 5,495
------- ------- ------- ------- -------
Total non-interest expense 17,546 17,025 16,179 68,147 66,972
Income before federal
income taxes $ 8,731 $11,263 $11,522 $42,440 $35,490
FEDERAL INCOME TAX
EXPENSES 2,941 3,929 4,115 14,585 12,848
------- ------- ------- ------- -------
NET INCOME $ 5,790 $ 7,334 $ 7,407 $27,855 $22,642
BASIC NET INCOME PER $ 0.37 $ 0.47 $ 0.47 $ 1.78 $ 1.45
SHARE
DILUTED NET INCOME $ 0.37 $ 0.46 $ 0.46 $ 1.74 $ 1.40
PER SHARE
BEFORE MERGER
RELATED CHARGES:
NET INCOME $ 5,790 $ 7,334 $ 7,407 $27,855 $27,719
BASIC NET INCOME PER $ 0.37 $ 0.47 $ 0.47 $ 1.78 $ 1.77
SHARE
DILUTED NET INCOME $ 0.37 $ 0.46 $ 0.46 $ 1.74 $ 1.72
PER SHARE
</TABLE>
# # # # #
