<PAGE>
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 JUNE 30, 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 0-26632
-------------
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.)
275 SOUTHEAST 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 July 31, 2000, 15,447,394 shares of common stock were outstanding with no
par value.
<PAGE>
INTERWEST BANCORP, INC
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 1
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 2000 AND 1999 2
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2000
AND 1999 3
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE SIX MONTH PERIODS ENDED
JUNE 30, 2000 AND 1999 4-5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 6-10
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11-26
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 27
SIGNATURES 28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
DOLLARS IN THOUSANDS June 30, 2000 December 31, 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks
Non-interest-bearing $76,936 $104,415
Interest-bearing 30,111 9,647
Federal funds sold 15,500 --
Securities available for sale 690,312 792,329
Securities held to maturity 67,106 68,896
Loans receivable 1,741,703 1,687,497
Allowance for losses on loans (15,538) (15,182)
--------------------------------------
Net loans receivable 1,726,165 1,672,315
Loans held for sale 61,138 22,397
Interest receivable 16,967 16,781
Other real estate 7,817 8,955
Premises and equipment 54,805 53,847
Goodwill and other intangible assets 20,807 21,544
Other assets 25,695 11,442
--------------------------------------
Total assets $2,793,359 $2,782,568
======================================
LIABILITIES
Deposits:
Non-interest-bearing $212,131 $212,880
Interest-bearing 1,371,817 1,385,310
--------------------------------------
Total deposits 1,583,948 1,598,190
FHLB advances 730,200 670,234
Securities sold under agreements to repurchase 247,528 282,655
Guaranteed preferred beneficial interests in
subordinated debt 40,000 40,000
Other borrowings 2,412 4,370
Other liabilities 28,755 15,399
--------------------------------------
Total liabilities 2,632,843 2,610,848
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized shares 30,000,000
Issued and outstanding 15,409,931 and 15,800,377 -- --
Paid-in-capital 25,802 33,297
Retained earnings 157,443 162,043
Accumulated other comprehensive loss (20,405) (20,640)
Debt related to employee stock ownership plan (ESOP) (2,324) (2,980)
--------------------------------------
Total shareholders' equity 160,516 171,720
--------------------------------------
Total liabilities and shareholders' equity $2,793,359 $2,782,568
======================================
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended June 30, Six months ended June 30,
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable and loans held for sale $40,001 $30,190 $78,603 $61,883
Securities available for sale 12,829 11,495 25,822 22,703
Securities held to maturity 1,101 1,247 2,176 2,640
Other 406 771 880 1,139
----------------------------------------------------------
54,337 43,703 107,481 88,365
INTEREST EXPENSE
Deposits 14,685 13,476 28,895 26,978
FHLB advances and other borrowings 11,556 7,705 21,678 15,995
Securities sold under agreements to repurchase 4,418 1,878 8,694 3,748
Guaranteed preferred beneficial interests in
subordinated debt 987 -- 1,975 --
----------------------------------------------------------
31,646 23,059 61,242 46,721
Net interest income before provision
for losses on loans 22,691 20,644 46,239 41,644
Provision for losses on loans 1,400 500 1,950 1,000
----------------------------------------------------------
Net interest income after provision for
losses on loans 21,291 20,144 44,289 40,644
NON-INTEREST INCOME
Gain on sale of loans 57 407 33 3,688
Gain on sale of loan servicing rights -- 2,798 -- 2,798
Service fees 3,012 3,224 5,764 6,063
Investment product fees
and insurance commissions 641 850 1,476 1,575
Other 599 865 1,516 1,376
----------------------------------------------------------
4,309 8,144 8,789 15,500
NON-INTEREST EXPENSE
Compensation and employee benefits 10,063 9,068 19,846 18,596
Loss (gain) on sale of securities available for sale 6,781 -- 6,775 (231)
General and administrative 4,471 3,900 8,793 7,612
Conversion and integration 3,210 -- 3,527 --
Severance and employment agreements 3,205 -- 3,205 --
Occupancy 2,511 2,435 4,993 4,762
Data processing 1,293 1,111 2,507 2,314
Loss from real estate write-downs
and operations 2,119 511 2,347 544
Impairment of goodwill 748 -- 748 --
----------------------------------------------------------
34,401 17,025 52,741 33,597
Income (loss) before income taxes (8,801) 11,263 337 22,547
Income tax expense (benefit) (2,668) 3,929 589 7,850
----------------------------------------------------------
Net income (loss) $(6,133) $ 7,334 $ (252) $14,697
==========================================================
Basic net income (loss) per share $ (0.40) $ 0.47 $ (0.02) $ 0.94
==========================================================
Diluted net income (loss) per share $ (0.40) $ 0.46 $ (0.02) $ 0.92
==========================================================
Dividends declared per share $ 0.14 $ 0.14 $ 0.28 $ 0.28
==========================================================
</TABLE>
2
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED DEBT
OTHER RELATED
COMMON STOCK, PAID-IN RETAINED COMPREHENSIVE TO
NO PAR VALUE CAPITAL EARNINGS LOSS ESOP TOTAL
DOLLARS IN THOUSANDS, EXCEPT SHARES
SHARE DATA
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1999 15,674,457 $36,715 $144,934 $(2,431) $(3,935) $175,283
Dividends, $0.28 per share (4,415) (4,415)
Issuance of common stock:
Stock option plans 247,070 1,209 1,209
Purchase and retirement of
common stock (284,500) (6,489) (6,489)
ESOP loan transaction 6,206 --
Comprehensive income:
Net income 14,697 14,697
Other comprehensive income
(loss) -
Unrealized loss on (3,589) (3,589)
securities available for
sale, net of tax benefit
of $1,933
Reclassification adjustment
for gains included in net
income, net of tax expense
of $81 (150) (150)
-----
Total comprehensive income 10,958
-------------------------------------------------------------------------------------------------------------------
June 30, 1999 15,643,233 $31,435 $155,216 $(6,170) $(3,935) $176,546
===================================================================================================================
January 1, 2000 15,800,377 $33,297 $162,043 $(20,640) $(2,980) $171,720
Dividends, $0.28 per share (4,348) (4,348)
Issuance of common stock:
Stock option plans 52,954 366 366
ESOP loan transaction 24,600 656 656
Purchase and retirement of (468,000) (7,861) (7,861)
common stock
Comprehensive income:
Net loss (252) (252)
Other comprehensive income
(loss) -
Unrealized loss on (4,169) (4,169)
securities available for
sale, net of tax benefit of
$2,245
Reclassification adjustment
for losses included in net
income, net of tax benefit
of $2,371 4,404 4,404
-----
Total comprehensive loss (17)
-------------------------------------------------------------------------------------------------------------------
June 30, 2000 15,409,931 $25,802 $157,443 $(20,405) $(2,324) $160,516
===================================================================================================================
</TABLE>
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
DOLLARS IN THOUSANDS 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(252) $14,697
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,751 2,331
Amortization of intangible assets 966 716
Impairment of goodwill 748
Provision for losses on loans 1,950 1,000
Loss on other real estate 2,168 404
Amortization and accretion of premiums and discounts, net 112 557
Gain on sale of loans (33) (3,688)
Gain on sale of loan servicing rights -- (2,798)
Loss (gain) on sale of securities available for sale 6,775 (231)
Gain on sale of other real estate (100) (303)
Loan fees deferred, net of amortization 311 1,511
FHLB stock dividends (1,426) (1,319)
Changes in operating assets and liabilities:
Interest receivable (186) 762
Other assets (15,822) 1,015
Other liabilities 13,356 (9,043)
------------------------------------
Net cash provided by operating activities $11,318 $5,611
INVESTING ACTIVITIES
Purchases of securities available for sale (46,553) (297,130)
Proceeds from maturing and principal
repayments on securities available for sale 42,756 299,784
Proceeds from sale of securities available for sale 126,337 103,166
Proceeds from maturing and principal
repayments on securities held to maturity 1,761 8,662
Proceeds from sale of loans 92,939 261,498
Net increase in loans receivable (214,983) (264,893)
Proceeds from sale of loan servicing rights -- 2,216
Proceeds from sale of other real estate 2,499 4,427
Purchases of premises and equipment (3,988) (5,256)
Purchases of FHLB stock (770) --
Net increase in federal funds sold (15,500) (3,349)
Cash paid for acquisition -- (300)
Improvements capitalized to other real estate (210) (778)
------------------------------------
Net cash provided by (used in) investing activities $(15,712) $108,047
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(continued)
<TABLE>
<CAPTION>
Six months ended June 30,
DOLLARS IN THOUSANDS 2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Net increase in deposits 14,832 1,124
Net increase (decrease) in certificates of deposit (29,074) 3,580
Proceeds from FHLB advances, securities sold under
agreements to repurchase, and other borrowings 960,016 470,978
Repayment of FHLB advances, securities sold under
agreements to repurchase and other borrowings (936,479) (592,658)
Dividends paid to shareholders (4,421) (4,421)
Purchase and retirement of common stock (7,861) (6,489)
Issuance of common stock from exercise of stock options 366 1,209
---------------------------------
Net cash used in financing activities (2,621) (126,677)
---------------------------------
Net decrease in cash and cash equivalents (7,015) (13,019)
CASH AND CASH EQUIVALENTS
Beginning of period 114,062 86,686
---------------------------------
End of period $107,047 $ 73,667
=================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $55,536 $46,679
Income taxes 9,630 13,086
Non-cash investing and financing activities:
Loans receivable transferred to other real estate 4,223 1,639
Premises and equipment transferred to other real estate 279 --
Loans receivable securitized as securities available for sale 25,021 37,100
ESOP loan repayment 656 --
</TABLE>
5
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of
InterWest Bancorp, Inc. and its wholly owned subsidiaries (collectively
InterWest). As of June 30, 2000, InterWest Bancorp Inc.'s wholly owned
subsidiaries were InterWest Bank, Pacific Northwest Bank, The Bank of Tukwila
and InterWest Capital Trust I. All material inter-company transactions and
balances have been eliminated.
On June 20, 2000 the Board of Directors of InterWest approved a change of
InterWest's fiscal year end from September 30 to December 31, retroactively to
January 1, 2000. InterWest filed a report on Form 10-Q for the three-month
transition period ended December 31, 1999. InterWest will file audited financial
statements on Form 10-K for the year ended December 31, 2000, which will include
audited financial statements for the three-month transition period ended
December 31, 1999.
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect amounts reported in the consolidated
financial statements. Changes in these estimates and assumptions are considered
reasonably possible and may have a material impact on the financial statements
and thus actual results could differ from the amounts reported and disclosed
herein.
InterWest is a bank holding company incorporated in Washington state. InterWest
offers a wide range of financial services to businesses and individuals
throughout western and central Washington state. Financial services of InterWest
include the banking activities of accepting deposits from businesses and
individuals and originating commercial and commercial real estate loans,
residential loans, consumer loans, and agricultural loans.
The unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information and with the instructions to 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 necessary
for a fair presentation are reflected in the unaudited interim consolidated
financial statements. The consolidated statements of income for the three and
six month periods ended June 30, 2000 and 1999, are not necessarily indicative
of the operating results for the full year. For further information, refer to
the consolidated financial statements and footnotes for the year ended September
30, 1999.
NOTE B RECLASSIFICATIONS
Certain reclassifications have been made to prior financial statements to
conform to current presentation. The effects of the reclassifications are not
considered material.
NOTE C NET INCOME PER SHARE
Basic net income (loss) per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net income (loss) per share is calculated by dividing net income by diluted
weighted average shares outstanding, which includes common stock equivalent
shares outstanding using the treasury stock method, unless such shares are
anti-dilutive. Common stock equivalents include shares issuable upon exercise of
stock options. Unallocated shares relating to the debt leveraged money purchase
employee stock ownership plan debt obligation are deducted in the calculation of
weighted average shares outstanding.
6
<PAGE>
The following table sets forth the computation of basic and diluted net income
per share for the three and six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three months Six months
DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMERATOR:
Net income (loss) $ (6,133) $7,334 $(252) $14,697
=====================================================
DENOMINATOR:
Denominator for basic net income per share-
Weighted average shares 15,433,527 15,629,830 15,543,303 15,656,978
Effect of dilutive securities:
Stock options 0 295,287 0 318,867
----------------------------------------------------------
Denominator for diluted net income per share-
Weighted average shares and assumed conversion
of dilutive stock options 15,433,527 15,925,117 15,543,303 15,975,845
=======================================================
Basic net income (loss) per share $(0.40) $0.47 $(0.02) $0.94
==========================================================
Diluted net income (loss) per share $(0.40) $0.46 $(0.02) $0.92
==========================================================
</TABLE>
NOTE D SHAREHOLDERS' EQUITY
On January 20, 1999, the Board of Directors approved a stock repurchase plan of
5 percent of InterWest's outstanding shares of common stock. On November 16,
1999, the Board of Directors authorized the purchase of an additional 5 percent
of InterWest's outstanding shares of common stock in the open market for the
following twelve-month period. During the six months ended June 30, 2000,
InterWest Bancorp repurchased 468,000 shares (3 percent of the total common
shares outstanding) at a total price of $7.9 million.
NOTE E CONVERSION AND INTEGRATION EXPENSES
InterWest is currently in the process of converting its subsidiary banks to a
common operating system. Conversion teams have been addressing all of the major
data processing functions for each subsidiary bank with conversion of systems
and data to be completed in several phases. The first two phases of the
five-phase conversion process were successfully completed in May and July 2000.
The remaining three phases of the conversion are scheduled to be completed
during the next nine months. Conversion and integration expenses are expensed as
incurred. Total expenses associated with conversion and integration efforts were
$3.2 million during the quarter ended June 30, 2000. These expenses included the
buyout of previous data processing contracts, outside professional fees,
accelerated depreciation for equipment and other costs incurred in conjunction
with conversion and integration initiatives. Other costs include the preparation
and mailing of customer notifications for the conversion of customer accounts
and training expenses. Of the total conversion and integration expenses, $1.0
million was paid out during the quarter, $0.4 million related to accelerated
depreciation of equipment, and the remaining $1.8 million will be paid out over
the next nine months. The amount remaining to be paid primarily relates to the
buyout of data processing contracts and professional services.
7
<PAGE>
NOTE F SEVERANCE AND EMPLOYMENT AGREEMENTS
In conjunction with executive management changes and elimination of duplicate
administrative functions, InterWest incurred $3.2 million in expenses associated
with severance and employment agreements during the quarter ended June 30, 2000.
There are approximately 50 employees affected by these severance and employment
agreements. Of the total severance and employment agreement payments, $0.5
million has been paid out during the quarter ended June 30, 2000 and $2.7
million will be paid out in subsequent periods in accordance with the terms of
the severance and employment agreements.
NOTE G IMPAIRMENT OF GOODWILL
As part of the transition to a commercial bank, InterWest consolidated and
restructured its mortgage loan origination functions and related processes. This
resulted in the impairment of $0.7 million of goodwill previously recorded for
the acquisition of a mortgage brokerage subsidiary, Cornerstone Northwest
Mortgage, in 1996.
NOTE H BUSINESS SEGMENT INFORMATION
Between the period August 31, 1996, and October 1999, InterWest acquired six
commercial banking institutions. At the time of acquisition, the bank holding
companies were merged into InterWest Bancorp, leaving six banking subsidiaries:
Central Washington Bank (acquired August 31, 1996), First National Bank of Port
Orchard (acquired January 15, 1998), Pacific Northwest Bank (acquired June 15,
1998), Pioneer National Bank (acquired June 16, 1998), Kittitas Valley Bank,
N.A. (acquired August 31, 1998) and National Bank of Tukwila (name subsequently
changed to The Bank of Tukwila) (acquired October 1, 1999). Central Washington
Bank was merged into InterWest Bank on October 14, 1996. First National Bank of
Port Orchard, Pioneer National Bank and Kittitas Valley Bank, N.A. were merged
into Pacific Northwest Bank on October 15, 1998, January 22, 1999 and January 3,
2000, respectively. Since the acquisition of Pacific Northwest Bank, First
National Bank of Port Orchard, Pioneer Bank and Kittitas Valley Bank in 1998,
InterWest has been managed at the subsidiary bank level, not by line of
business. Each subsidiary bank had a board of directors and an executive
management team that was responsible for the operation and performance of the
respective subsidiary bank.
During the quarter ended June 30, 2000, InterWest consolidated its executive
management functions and implemented a new organizational structure that
initiated the process of consolidating the subsidiary banks into a single
commercial bank using a single operating system. Effective June 30, 2000,
InterWest Bank converted its charter to a Washington state commercial bank from
a Washington state savings bank. Effective July 1, 2000, Pacific Northwest Bank
and The Bank of Tukwila were merged into InterWest Bank.
During the period ended June 30, 2000, InterWest was comprised of two reportable
segments: InterWest Bank and Commercial Banks. InterWest Bank provides a wide
range of financial services for individual and business customers. InterWest
Bank conducts its business through financial centers located in the western and
central parts of the state of Washington.
The segment of Commercial Banks is defined as the collective operations of the
banking subsidiaries acquired by InterWest Bancorp since fiscal year 1998:
Pacific Northwest Bank, First National Bank of Port Orchard, Pioneer National
Bank, Kittitas Valley Bank, N.A and The Bank of Tukwila. The commercial banks
engage primarily in commercial banking activities, serving individuals and small
to medium-sized businesses. Pacific Northwest Bank and The Bank of Tukwila were
merged into InterWest Bank on July 1, 2000. Pacific Northwest Bank, Pioneer
Bank, Kittitas Valley Bank and The Bank of Tukwila continue to do business under
those names.
8
<PAGE>
InterWest Bancorp's board of directors and executive management on a monthly
basis reviews the financial performance of each subsidiary bank. The following
table presents financial information for each segment for the three and six
months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Consolidated
InterWest Commercial InterWest
DOLLARS IN THOUSANDS Bank Banks Other* Bancorp
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 2000
Net interest income before provision
for losses on loans $16,323 $7,356 $(988) $22,691
Provision for losses on loans 582 818 -- 1,400
Non-interest income 3,235 1,084 (10) 4,309
Non-interest expense 22,751 4,948 6,702 34,401
----------------------------------------------------
Income (loss) before income taxes (3,775) 2,674 (7,700) (8,801)
Income tax expense (benefit) (1,061) 901 (2,508) (2,668)
----------------------------------------------------
Net income (loss) $(2,714) $1,773 $(5,192) $(6,133)
====================================================
THREE MONTHS ENDED JUNE 30, 1999
Net interest income before provision
for losses on loans $14,806 $5,838 $ -- $20,644
Provision for losses on loans 421 79 -- 500
Non-interest income 6,955 1,184 5 8,144
Non-interest expense 12,062 4,452 511 17,025
----------------------------------------------------
Income (loss) before income taxes 9,278 2,491 (506) 11,263
Income tax expense (benefit) 3,253 846 (170) 3,929
----------------------------------------------------
Net income (loss) $6,025 $1,645 $(336) $7,334
====================================================
SIX MONTHS ENDED JUNE 30, 2000
Net interest income before provision
for losses on loans $33,640 $14,574 $(1,975) $46,239
Provision for losses on loans 1,028 922 -- 1,950
Non-interest income 6,657 2,127 5 8,789
Non-interest expense 34,921 9,851 7,969 52,741
----------------------------------------------------
Income (loss) before income taxes 4,348 5,928 (9,939) 337
Income tax expense (benefit) 1,783 2,011 (3,205) 589
----------------------------------------------------
Net income (loss) $2,565 $3,917 $(6,734) $(252)
====================================================
</TABLE>
* Other includes intercompany eliminations, InterWest Capital Trust I and
holding company amounts
9
<PAGE>
<TABLE>
<CAPTION>
Consolidated
InterWest Commercial InterWest
DOLLARS IN THOUSANDS Bank Banks Other* Bancorp
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Net interest income before provision
for losses on loans $30,150 $11,494 $ -- $41,644
Provision for losses on loans 866 134 -- 1,000
Non-interest income 13,222 2,278 -- 15,500
Non-interest expense 23,542 8,978 1,077 33,597
--------------------------------------------------
Income (loss) before income taxes 18,964 4,660 (1,077) 22,547
Income tax expense (benefit) 6,633 1,590 (373) 7,850
--------------------------------------------------
Net income (loss) $12,331 $3,070 $(704 $14,697
==================================================
Total assets as of June 30, 2000 $2,205,695 $562,447 $25,217 $2,793,359
</TABLE>
* Other includes intercompany eliminations, InterWest Capital Trust I and
holding company amounts
10
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion is provided for the unaudited consolidated financial
condition and results of operations of InterWest Bancorp, Inc. including its
wholly owned subsidiaries (collectively InterWest). As of June 30, 2000,
InterWest Bancorp Inc.'s wholly owned subsidiaries were InterWest Bank, Pacific
Northwest Bank, The Bank of Tukwila and InterWest Capital Trust I. On July 1,
2000 Pacific Northwest Bank and The Bank of Tukwila were merged into InterWest
Bank. Immediately prior to this consolidation process, InterWest Bank converted
its charter to a Washington state commercial bank from a Washington state
savings bank.
On June 20, 2000 the Board of Directors of InterWest Bancorp approved a change
of InterWest's fiscal year end from September 30 to December 31, retroactively
to January 1, 2000. InterWest filed a report on Form 10-Q for the three-month
transition period ended December 31, 1999. InterWest will file audited financial
statements on Form 10-K for the year ended December 31, 2000, which will include
audited financial statements for the three-month transition period ended
December 31, 1999.
The purpose of this discussion is to focus on significant factors concerning
InterWest's financial condition and results of operations. This discussion
should be read along with the consolidated financial statements for an
understanding of the following discussion and analysis.
InterWest is a financial services company that provides a variety of products
and services for both business and individual customers. InterWest will continue
to change the composition of the loan portfolio and the deposit base as part of
the change to a commercial bank. These changes are designed to have a positive
impact on net interest income and service fee revenue while meeting the needs of
InterWest's customers.
InterWest completed the acquisition of six commercial banking institutions since
1996, which added a total of $668 million in assets as measured at the
respective acquisition dates.
The following table summarizes pertinent information related to the completed
acquisitions:
<TABLE>
<CAPTION>
Acquisition Total Assets At Acquisition Date Common Shares
Date Institution (Dollars in Thousands) Issued
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
August 31, 1996 Central Bancorporation(1) $206,093 2,147,391
January 15, 1998 Puget Sound Bancorp, Inc.(1) 53,109 586,420
June 15, 1998 Pacific Northwest Bank (1) 200,219 2,346,081
June 16, 1998 Pioneer Bancorp, Inc.(1) 108,399 692,846
August 31, 1998 Kittitas Valley Bancorp, Inc.(2) 47,441 229,831*
October 1, 1999 NBT Northwest Bancorp(2) 53,018 677,109
</TABLE>
(1) Pooling-of-interests method of accounting
(2) Purchase method of accounting
* Additionally, $6.4 million in cash was paid to Kittitas shareholders.
A source of future growth may be through mergers and acquisitions. InterWest
believes that many other financial institutions are considering selling their
institutions for a variety of reasons, including lack of shareholder liquidity,
management succession issues, technology challenges, increasing competition and
pending changes with respect to the method of accounting used for mergers and
acquisitions. InterWest actively reviews proposals for various acquisition
opportunities. InterWest has a due diligence review process to evaluate
potential acquisitions and has established parameters for potential acquisitions
relating to market factors, financial performance and certain non-financial
factors. Successful completion of acquisitions by InterWest depends on several
factors such as the availability of suitable acquisition
11
<PAGE>
candidates, necessary regulatory and shareholder approval and compliance with
applicable capital requirements. No assurance can be made that acquisition
activity will continue in the future.
Currently, InterWest conducts its business through 55 financial centers in
western and central Washington state. Investments are available through
InterWest Financial Services, Inc. and insurance products are available through
InterWest Insurance Agency, Inc., wholly owned subsidiaries of InterWest Bank.
RESULTS OF OPERATIONS
Due to losses incurred on the sale of securities available for sale, expenses
associated with severance and employment agreements, conversion and integration
activities, and asset write-downs, InterWest had a net loss of $(6.1) million
for the three months ended June 30, 2000. The total of these expenses incurred
during the three months ended June 30, 2000 was $10.8 million, net of income
taxes. Net income was $7.3 million for the three months ended June 30, 1999.
Diluted net loss per share was $(0.40) for the three months ended June 30, 2000,
compared to diluted net income per share of $0.46 for the three months ended
June 30, 1999. InterWest's return on average shareholders' equity was (14.96)
percent for the three months ended June 30, 2000, compared to 16.81 percent for
the three months ended June 30, 1999. InterWest's return on average assets was
(0.87) percent for the three months ending June 30, 2000, compared to 1.20
percent for the three months ended June 30, 1999.
The net loss was $(0.3) million for the six months ended June 30, 2000, compared
to net income of $14.7 million for the six months ended June 30, 1999. Diluted
net loss per share was $(0.02) for the six months ended June 30, 2000, compared
to diluted net income per share of $0.92 for the six months ended June 30, 1999.
Return on average shareholders' equity was (0.30) percent for the six months
ended June 30, 2000, compared to 16.85 percent for the six months ended June 30,
1999. Return on average assets was (0.02) percent for the six months ended June
30, 2000, compared to 1.19 percent for the six months ended June 30, 1999.
In addition to the expenses referred to previously, financial performance
declined from the three month and six month periods ended June 30, 1999, due to
a decrease in the gain on sale of loans and loan servicing rights, and an
increase in non-interest expense. This decline was partially offset by an
increase in net interest income and the impact of the acquisition of The Bank of
Tukwila.
The following table summarizes net income (loss), net income (loss) per share
and key financial ratios:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $(6,133) $7,334 $(252) $14,697
==========================================================
Basic net income (loss) per share $(0.40) $0.47 $(0.02) $0.94
=========================================================
Diluted net income (loss) per share $(0.40) $0.46 $(0.02) $0.92
=========================================================
Return on average shareholders' equity (14.96)% 16.81% (0.30)% 16.85%
Return on average assets (0.87)% 1.20% (0.02)% 1.19%
Net interest margin 3.46% 3.63% 3.54% 3.62%
Efficiency ratio 127.41% 59.14% 95.84% 58.96%
</TABLE>
NET INTEREST INCOME | InterWest's net income is significantly affected by
changes in net interest income, which is the difference between interest income
received on loans receivable and other interest-earning assets and
12
<PAGE>
interest paid on deposits and borrowings. InterWest's operations are sensitive
to changes in interest rates and the resulting impact on net interest income.
Net interest income before provision for losses on loans increased to $22.7
million for the three months ended June 30, 2000, compared to $20.6 million for
the three months ended June 30, 1999. Net interest income before provision for
losses on loans increased to $46.2 million for the six months ended June 30,
2000, compared to $41.6 million for the six months ended June 30, 1999. The
increase in net interest income was due to an increase in interest-earning
assets and the impact of the acquisition of The Bank of Tukwila, which was
partially offset by increased funding costs.
Interest income was $54.3 million for the three months ended June 30, 2000,
compared to $43.7 million for the three months ended June 30, 1999. Interest
income was $107.5 million for the six months ended June 30, 2000, compared to
$88.4 million for the six months ended June 30, 1999. The increase was due to an
increase in the yields earned and growth in interest-earning assets. The yield
on interest-earning assets increased to 8.29 percent for the three months ended
June 30, 2000, compared to 7.69 percent for the three months ended June 30,
1999. The yield on interest earning assets increased to 8.23 percent for the six
months ended June 30, 2000, compared to 7.67 percent for the six months ended
June 30, 1999. This increase was primarily due to a change in the composition of
average interest-earning assets with a greater percentage comprised of loans
receivable and higher yielding loans. The yields on interest-earning assets also
increased due to an overall increase in interest rates and the resulting impact
on adjustable rate loans and securities.
Interest expense was $31.6 million for the three months ended June 30, 2000,
compared to $23.1 million for the three months ended June 30, 1999. Interest
expense was $61.2 million for the six months ended June 30, 2000, compared to
$46.7 million for the six months ended June 30, 1999. This increase was due to
an increase in interest-bearing liabilities to fund asset growth and an increase
in the cost of funds. The cost of funds was 5.23 percent for the three months
ended June 30, 2000, compared to 4.48 percent for the three months ended June
30, 1999. The cost of funds was 5.09 percent for the six months ended June 30,
2000, compared to 4.47 percent for the six months ended June 30, 1999. The
increase in the cost of funds was primarily due to an increase in the cost of
borrowings and a greater percentage of interest-bearing liabilities being
comprised of borrowings. The cost of borrowings increased due to the issuance of
$40 million of trust preferred securities with interest payable at 9.875 percent
on November 15, 1999, and an increase in interest rates on other borrowing
sources.
Net interest margin, which is net interest income divided by average
interest-earning assets, was 3.46 percent for the three months ended June 30,
2000, compared to 3.63 percent for the three months ended June 30, 1999. Net
interest margin was 3.54 percent for the six months ended June 30, 2000,
compared to 3.62 percent for the six months ended June 30, 1999. The decrease in
net interest margin was primarily the result of an increase in the cost of
funds, which was partially offset by an increase in the yield earned on loans,
securities and other interest-earning assets.
During the six months ended June 30, 2000, overall interest rates increased. In
periods of rising interest rates, InterWest's net interest income and net
interest margin may decrease as a greater amount of interest-bearing liabilities
are subject to more rapid repricing than interest-earning assets.
13
<PAGE>
AVERAGE RATES AND BALANCES -- The following table indicates the average balance
and average interest rates earned or paid, interest rate spread and net interest
margin for the three months ended June 30:
<TABLE>
<CAPTION>
2000 1999
-----------------------------------------------------------------
Average Average
DOLLARS IN THOUSANDS Balance Rate Balance Rate
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans receivable and loans
held for sale $1,764,630 9.07% $1,378,507 8.76%
Securities available for sale,
securities held to maturity and
other interest-earning assets 856,369 6.70% 895,517 6.04%
------------------------------------------------------------------
Total interest-earnings assets 2,620,999 8.29% 2,274,024 7.69%
------------------------------------------------------------------
Interest-bearing deposits 1,335,619 4.40% 1,352,051 3.99%
FHLB advances, securities
sold under agreements
to repurchase and 1,084,324 6.26% 707,047 5.42%
other borrowings
------------------------------------------------------------------
Total interest-bearing liabilities 2,419,943 5.23% 2,059,098 4.48%
------------------------------------------------------------------
Net interest spread 3.06% 3.21%
===== =====
Net interest margin 3.46% 3.63%
===== =====
</TABLE>
The following table indicates the average balance and average interest rates
earned or paid, interest spread and net interest margin for the six months ended
June 30:
<TABLE>
<CAPTION>
2000 1999
------------------------------------------------------------------
Average Average
DOLLARS IN THOUSANDS Balance Rate Balance Rate
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans receivable and loans
held for sale $1,749,797 8.98% $1,410,464 8.77%
Securities available for sale,
securities held to maturity and
other interest-earning assets 862,774 6.69% 893,178 5.93%
------------------------------------------------------------------
Total interest-earnings assets 2,612,571 8.23% 2,303,642 7.67%
------------------------------------------------------------------
Interest-bearing deposits 1,348,233 4.29% 1,352,412 3.99%
FHLB advances, securities
sold under agreements
to repurchase and 1,059,373 6.11% 736,358 5.36%
other borrowings
------------------------------------------------------------------
Total interest-bearing liabilities 2,407,606 5.09% 2,088,770 4.47%
------------------------------------------------------------------
Net interest spread 3.14% 3.20%
===== =====
Net interest margin 3.54% 3.62%
===== =====
</TABLE>
14
<PAGE>
The following table provides information on changes in net interest income for
the periods that are attributable to changes in interest rates and changes in
volume:
<TABLE>
<CAPTION>
Three months June 30, 2000 Vs 1999 Six months June 30, 2000 Vs 1999
Increase (Decrease) Increase (Decrease)
Due to changes in Due to changes in
DOLLARS IN THOUSANDS Rate Volume Total Rate Volume Total
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans receivable and
loans held for sale $ 1,091 $ 8,720 $ 9,811 $ 1,509 $15,211 $16,720
Securities available for
sale, securities held
to maturity and other
interest-earning assets 1,432 (609) 823 3,322 (926) 2,396
---------------------------------------------------------------------------------------
Total net change in income
on interest-earning assets 2,523 8,111 10,634 4,831 14,285 19,116
---------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits 1,374 (165) 1,209 2,001 (84) 1,917
FHLB advances, securities
sold under agreement to
repurchase and other
borrowings 1,653 5,725 7,378 3,030 9,574 12,604
---------------------------------------------------------------------------------------
Total net change in expense
on interest-bearing
liabilities 3,027 5,560 8,587 5,031 9,490 14,521
---------------------------------------------------------------------------------------
Net change in net
interest income $ (504) $2,551 $2,047 $ (200) $4,795 $4,595
========================================================================================
</TABLE>
PROVISION FOR LOSSES ON LOANS | The provision for losses on loans was $1.4
million for the three months ended June 30, 2000, compared to $0.5 million for
the three months ended June 30, 1999. The provision for losses on loans was $2.0
million for the six months ended June 30, 2000, compared to $1.0 million for the
six months ended June 30, 1999. Management increased the provision for losses on
loans as a result of the current assessment of known and inherent risk
characteristics in the loan portfolio. These risk characteristics include
changes in the size and composition of the loan portfolio, delinquency levels,
actual loan loss experience, current economic conditions, and detailed analysis
of individual loans for which full collectibility may not be assured. Based on
current trends in the loan portfolio, it is anticipated that the provision for
losses on loans will remain at higher levels compared to prior periods.
NON-INTEREST INCOME | Non-interest income was $4.3 million for the three months
ended June 30, 2000, compared to $8.1 million for the three months ended June
30, 1999. Non-interest income was $8.8 million for the six months ended June 30,
2000, compared to $15.5 million for the six months ended June 30, 1999. The
decrease in non-interest income from the three and six months ended June 30,
1999 was primarily due to a decrease in the gain on sale of loan servicing
rights and a decrease in the gain on sale of loans.
15
<PAGE>
During the quarter ended June 30, 1999, InterWest sold the mortgage servicing
rights for $530 million of fixed-rate single family mortgages and recognized a
gain of $2.8 million. This sale was initiated as a result of rising interest
rates and decreasing prepayment rates, which increased the value of the
servicing portfolio. During the first half of 1999, the long-term interest rate
environment resulted in increased fixed-rate single-family residential mortgage
loan refinances and opportunities to sell these loans on the secondary market
for a premium. During the second half of 1999, long-term interest rates
increased and single-family residential mortgage loan originations decreased,
and as a result, sales of single-family mortgage loans declined as compared to
the first half of 1999.
InterWest is currently in the process of consolidating its mortgage brokerage
function into its wholesale lending function and is changing its strategy with
regards to the origination and retention of single-family mortgage loans.
Management intends to retain less single-family mortgages in the loan portfolio
and the majority of InterWest's single-family mortgage loan production will be
channeled to the secondary market.
NON-INTEREST EXPENSE | Non-interest expense was $34.4 million for the three
months ended June 30, 2000, compared to $17.0 million for the three months ended
June 30, 1999. Non-interest expense was $52.7 million for the six months ended
June 30, 2000, compared to $33.6 million for the six months ended June 30, 1999.
The increase in non-interest expense for the three and six months ended June 30,
2000, compared to the three and six months ended June 30, 1999, was primarily
due to losses incurred on the sale of securities available for sale, expenses
associated with severance and employment agreements, conversion and integration
activities, and asset write-downs. The total of these expenses incurred during
the three months ended June 30, 2000 was $16.1 million.
As part of the overall plans and intentions associated with managing interest
rate risk for commercial banking activities, InterWest partially restructured
its investment portfolio by selling approximately $129 million of securities
available for sale which resulted in a $6.8 million loss. The proceeds will be
reinvested in securities that have higher yields and shorter terms as compared
to the previous securities. It is planned that upon maturity of the short-term
securities, the proceeds will be deployed in commercial loans.
In conjunction with executive management changes and elimination of duplicate
administrative functions, InterWest incurred $3.2 million in expenses associated
with severance and employment agreements during the three months ended June 30,
2000. There are approximately 40 employees affected by these severance and
employment agreements.
As discussed previously, InterWest completed acquisitions of four commercial
banks during fiscal year 1998 and one during the transition period ended
December 31, 1999. However, the efficiencies available from eliminating
duplication of administrative and operational functions have not been
realized from the acquisitions. InterWest is currently in the process of
converting its subsidiary banks to a common operating system. InterWest has
contracted with Marshall & Ilsley Corporation to provide data services and
processing for the new operating system. The contract term expires on
December 31, 2006. The initial monthly base fee under the contract is
$61,000. Conversion teams have been addressing all of the major data
processing functions for each subsidiary bank with conversion of systems and
data to be completed in several phases. The first two phases of the
five-phase conversion were successfully completed in May and July 2000. The
remaining three phases of the conversion are scheduled to be completed during
the next nine months. Conversion and integration expenses are expensed as
incurred. Total expenses associated with conversion and integration efforts
were $3.2 million during the quarter ended June 30, 2000. These expenses
included the buyout of previous data processing contracts, outside consultant
fees, accelerated depreciation of equipment and other costs incurred in
conjunction with conversion and integration initiatives. Other costs include
the preparation and mailing of customer notifications for the conversion of
customer accounts and employee travel and training expenses. Additional
conversion and integration expenses will continue to be incurred throughout
the year 2000 and into early 2001.
InterWest recorded write-downs of approximately $2.1 million related to real
estate held for sale and development during the three months ended June 30,
2000. These write-downs relate primarily to one land development project and new
management's intent with regard to the development and sale of the project as
well as changing economic conditions.
16
<PAGE>
As part of the transition to a commercial bank, InterWest consolidated and
restructured its mortgage loan origination functions and related processes. This
resulted in the impairment of $0.7 million of goodwill previously recorded for
the acquisition of a mortgage brokerage subsidiary, Cornerstone Northwest
Mortgage, in 1996. InterWest consolidated its mortgage brokerage function into
its wholesale lending function and changed its strategy with regards to the
origination and retention of single-family mortgage loans. Management intends to
retain less single-family mortgages in the loan portfolio and the majority of
InterWest's single-family mortgage loan production will be channeled to the
secondary market.
Compensation and employee benefits were $10.1 million for the three months ended
June 30, 2000, compared to $9.1 million for the three months ended June 30,
1999. This increase was partially due to the acquisition of The Bank of Tukwila.
Compensation and employee benefits were $19.8 million for the six months ended
June 30, 2000, compared to $18.6 million for the six months ended June 30, 1999.
Excluding The Bank of Tukwila compensation, compensation and employee benefits
increased $0.8 million or 4.5 percent compared to the prior year.
INCOME TAX EXPENSE (BENEFIT) | Income tax benefit was $2.7 million for the three
months ended June 30, 2000, compared to income tax expense of $3.9 million for
the three months ended June 30, 1999. Income tax expense was $0.6 million for
the six months ended June 30, 2000, compared to $7.9 million for the six months
ended June 30, 1999. Income tax expense is greater than income before taxes due
primarily to impairment of goodwill and amortization of goodwill that is not
deductible for federal income tax purposes.
REVIEW OF FINANCIAL CONDITION
InterWest's consolidated assets were $2.79 billion as of March 31, 2000,
compared to $2.78 billion as of December 31, 1999.
SECURITIES | As of June 30, 2000, InterWest had $690.3 million of securities
available for sale, compared to $792.3 million as of December 31, 1999.
Securities held to maturity decreased to $67.1 million as of June 30, 2000
compared to $68.9 million as of December 31, 1999, as a result of maturities and
principal repayments on mortgage-backed securities. As of June 30, 2000, 91
percent of InterWest securities were classified as available for sale.
Management believes that a high percentage of securities classified as available
for sale provides greater flexibility to respond to interest rate changes and
liquidity needs to fund loan growth.
InterWest maintains liquidity in accordance with an internal liquidity policy.
Liquidity levels may be increased or decreased depending upon the yields on
investment alternatives, management's judgment as to the attractiveness of the
yields then available in relation to other opportunities, and management's
expectation of the level of yield that will be available in the future.
Management's projections as to the short-term demand for funds to be used for
loan originations and other activities can also affect liquidity levels.
Securities are categorized as held to maturity or available for sale, based upon
management's intent as to the ultimate disposition of each security acquired.
InterWest does not have securities classified as trading securities. Securities
classified as held to maturity are stated at amortized cost. Securities
classified as available for sale are reported at estimated fair value, with
unrealized gains and losses (net of income taxes) reported in accumulated other
comprehensive income (loss), a separate component of shareholders' equity.
LOANS RECEIVABLE AND LOANS HELD FOR SALE | Loans receivable were $1.73 billion
as of June 30, 2000, compared to $1.67 billion as of December 31, 1999. Growth
in the loan portfolio would have been more significant during the six months
ended June 30, 2000; however, $86.3 million of loans were sold and $25.4 million
of single-family mortgages were securitized into securities available for sale
during the period.
17
<PAGE>
The commercial bank acquisitions increased InterWest's ability to originate
commercial loans. These acquisitions, as well as the development of commercial
lending at InterWest Bank, have changed the InterWest loan portfolio with
emphasis on commercial real estate and commercial lending. Growth in commercial
lending should shorten duration risk, increase net interest margin, create
better protection from interest rate volatility and ultimately meet the needs of
InterWest's customers.
Single-family residential mortgage loans outstanding increased $54.9 million
from December 31, 1999. As of June 30, 2000, single-family residential mortgage
loans totaled $517.7 million, or 28.6 percent of total gross loans, compared to
$462.9 million, or 26.9 percent of total gross loans, as of December 31, 1999.
As part of the change to a commercial bank, InterWest consolidated and
restructured its mortgage loan origination functions and related processes.
InterWest consolidated its mortgage brokerage function into its wholesale
lending function and changed its strategy with regards to the origination and
retention of single-family mortgage loans. Management intends to retain less
single-family mortgages in the loan portfolio and the majority of InterWest's
single-family mortgage loan production will be channeled to the secondary
market.
The commercial loan portfolio was $356.6 million as of June 30, 2000, an
increase of $46.6 million from December 31, 1999. Commercial real estate
mortgage loans were $451.2 million as of June 30, 2000, an increase of $9.4
million from December 31, 1999. Commercial and commercial real estate loans
outstanding represented 44.6 percent of total gross loans as of June 30, 2000,
an increase from 43.7 percent of total gross loans as of December 31, 1999. This
increase was due to loan growth at InterWest Bank and Pacific Northwest Bank.
Increases in commercial lending increased the yield earned on the loan portfolio
and net interest income.
Real estate construction loans outstanding totaled $248.7 million as of June 30,
2000, a decrease of $19.8 million from $268.5 million as of December 31, 1999.
Loans held for sale were $61.1 million as of June 30, 2000 compared to $22.4
million as of December 31, 1999. Loans held for sale are generally mortgage
loans and loans originated under a Small Business Administration program. Loans
are typically sold to FHLMC and other financial institutions.
The following table sets forth the composition of InterWest's loan portfolio by
type as of the dates indicated:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS JUNE 30, 2000 DECEMBER 31, 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate mortgage loans
Single-family residential $517,731 $462,853
Multi-family residential 66,219 78,340
Commercial 451,224 441,782
Real estate construction 248,714 268,483
Consumer loans 115,993 104,446
Commercial loans 356,622 310,059
Agricultural loans 56,314 54,071
--------------------------------------
1,812,817 1,720,034
Less:
Loans held for sale 61,138 22,397
Allowance for losses on loans 15,538 15,182
Deferred loan fees and discounts 9,976 10,140
---------- ----------
$1,726,165 $1,672,315
========== ==========
</TABLE>
NON-PERFORMING ASSETS | Loans are generally placed on non-accrual when they
become past due over 90 days or when the collection of interest or principal is
considered unlikely. InterWest does not return a loan to accrual status until it
is brought current with respect to both principal and interest and future
principal payments
18
<PAGE>
are no longer in doubt. When a loan is placed on non-accrual status, any
previously accrued and uncollected interest is reversed from interest income.
Non-accrual loans totaled $11.4 million as of June 30, 2000 compared to $11.0
million as of December 31, 1999. Other real estate owned was $7.8 million as of
June 30, 2000, compared to $4.3 million as of December 31, 1999. Total
non-performing assets, including non-accrual loans and other real estate,
totaled $19.2 million or 0.69 percent of consolidated assets as of June 30,
2000, compared to $15.3 million or 0.55 percent of consolidated assets as of
December 31, 1999. The increase in non-performing assets is primarily due to the
foreclosure on one commercial real estate property and certain reclassifications
for amounts previously classified as real estate held for development.
Management's intent with respect to real estate held for development changed
during the quarter, which resulted in reclassification of $2.6 million to
non-performing assets during the period ended June 30, 2000.
The following table summarizes non-performing assets as of June 30, 2000, and
December 31, 1999:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS JUNE 30, 2000 DECEMBER 31, 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
NON-ACCRUAL LOANS
Real estate mortgage loans
Single-family residential $3,957 $3,207
Multi-family residential 159 --
Commercial 1,027 1,371
Real estate construction 1,489 880
Consumer loans 237 366
Commercial loans 3,339 5,038
Agricultural loans 1,221 88
------------------------------------
Total non-accrual loans 11,429 10,950
Other real estate 7,817 4,313
------------------------------------
Total non-performing assets $19,246 $15,263
====================================
</TABLE>
ALLOWANCE FOR LOSSES ON LOANS | The allowance for losses on loans was $15.5
million or 0.89 percent of loans receivable as of June 30, 2000, compared to
$15.2 million or 0.90 percent of loans receivable as of December 31, 1999. Net
loan charge-offs were $1.6 million or 0.18 percent of the average balance of
loans outstanding for the six months ended June 30, 2000. The increase in net
charge-offs was primarily due to charge-offs on four specific commercial and
commercial real estate loans.
InterWest's allowance for losses on loans is maintained at an amount to
sufficiently provide for estimated losses based on evaluating known and inherent
risks in the loan portfolio. Management analyzes the factors underlying the
quality of the loan portfolio. These factors include changes in the size and
composition of the loan portfolio, delinquency levels, actual loan loss
experience, current economic conditions, and detailed analysis of individual
loans for which full collectibility may not be assured. The appropriate amount
of the allowance for losses on loans is estimated based upon factors and trends
identified by management.
When available information confirms that specific loans or portions thereof, are
uncollectible, these amounts are charged off against the allowance for losses on
loans. The existence of some or all of the following criteria will generally
confirm that a loss has been incurred: the loan is significantly delinquent and
the borrower has not evidenced the ability or intent to bring the loan current;
there is no recourse to the borrower, or if there is recourse, the borrower has
insufficient assets to pay the debt; the fair value of the loan collateral is
significantly below the current loan balance, and there is little or no
near-term prospect for improvement. A provision for losses on loans, which is a
charge against operations, is added to the allowance for losses on loans based
on ongoing assessments of credit risk in the loan portfolio.
19
<PAGE>
InterWest believes it has established its allowance for losses on loans in
accordance with generally accepted accounting principles. However, there can be
no assurance that in the future, regulators, when reviewing InterWest's loan
portfolio, will not request InterWest to increase its allowance for losses on
loans, thereby affecting InterWest's financial condition and results of
operations. In addition, because future events affecting borrowers and
collateral cannot be predicted with certainty, there can be no assurance that
the existing allowance for losses on loans is adequate. Substantial increases
may be necessary should the quality of any loans deteriorate as a result of the
factors discussed above.
The following tables summarize the activity in allowance for losses on loans
during the three and six months ended June 30:
<TABLE>
<CAPTION>
Three months Six months
DOLLARS IN THOUSANDS 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance as of beginning of period $15,369 $13,506 $15,182 $13,527
Provision for losses on loans 1,400 500 1,950 1,000
Recoveries 96 66 179 206
Charge-offs (1,327) (269) (1,773) (930)
----------------------------------------------------------
Allowance as of end of period $15,538 $13,803 $15,538 $13,803
==========================================================
</TABLE>
GOODWILL AND OTHER INTANGIBLE ASSETS | Goodwill arising from acquisitions
represent the excess of the purchase price over the estimated fair value of net
assets acquired. InterWest periodically evaluates goodwill for impairment. As
part of the change to a commercial bank, InterWest has consolidated and
restructured its mortgage loan origination functions and related processes. This
has resulted in the impairment of $0.7 million of goodwill previously recorded
for the acquisition of a mortgage brokerage subsidiary, Cornerstone Northwest
Mortgage, in 1996.
Other intangible assets consist of core deposit intangible and loan servicing
rights. Loan servicing rights are capitalized when acquired either through the
purchase or origination of loans that are subsequently sold or securitized with
the servicing rights retained. InterWest evaluates loan servicing rights for
impairment based on the estimated fair value of those rights on a periodic
basis, using a valuation model that incorporates estimated future servicing
income, discount rates, prepayment speeds and default rates. Loan servicing
rights are included in intangible assets and are amortized as an offset to
service fees in proportion to and over the period of estimated net servicing
income.
Goodwill and other intangible assets are amortized using the straight-line and
accelerated methods over periods not exceeding twenty years.
Goodwill and other intangible assets consisted of the following as of June 30,
2000 and December 31, 1999:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS JUNE 30, 2000 DECEMBER 31, 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $17,796 $18,784
Core deposit intangible 685 773
Loan servicing intangibles 2,326 1,987
-------------------------------------
$20,807 $21,544
======= =======
</TABLE>
DEPOSITS | InterWest offers various types of deposit accounts, including
savings, checking accounts, money market accounts and a variety of certificate
of deposit accounts. Deposit accounts vary as to terms, with the
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<PAGE>
principal differences being the minimum balance required, the time period the
funds must remain on deposit, the interest rate, and the deposit or withdrawal
option. InterWest relies on generating deposits through a marketing strategy
that employs a sales staff responsible for establishing new customer
relationships. As part of initiatives to improve liquidity, InterWest will begin
to use brokered and wholesale certificates of deposit. Brokered and wholesale
certificates of deposit should also reduce overall funding costs and borrowings.
Non-interest-bearing deposits were $212.1 million as of June 30, 2000, compared
to $212.9 million as of December 31, 1999. Non-interest-bearing deposits
represented 13.4 percent of total deposits as of June 30, 2000, compared to 13.3
percent as of December 31, 1999. Interest-bearing transaction accounts (which
includes interest-bearing checking, money market and savings accounts) totaled
$586.6 million as of June 30, 2000 compared to $571.1 million as of December 31,
1999. Interest-bearing transaction accounts represented 37.0 percent of total
deposits as of June 30, 2000, an increase from 35.7 percent as of December 31,
1999.
Certificates of deposit totaled $785.2 million as of June 30, 2000, compared to
$814.3 million as of December 31, 1999. Certificates of deposit represented 49.6
percent of total deposits as of June 30, 2000, a decrease from 51.0 percent as
of December 31, 1999.
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 June 30,
2000, 50.4 percent of InterWest's deposits were transaction accounts, compared
to 49.0 percent as of December 31, 1999. The following table sets forth the
balances of deposits by account type as of June 30, 2000, and December 31, 1999:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS JUNE 30, 2000 DECEMBER 31, 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
Non-interest-bearing deposits $212,131 $212,880
Interest-bearing checking accounts 201,309 173,751
Money market accounts 283,863 300,267
Savings accounts 101,462 97,035
Certificates of deposit 785,183 814,257
---------- ----------
Total $1,583,948 $1,598,190
========== ==========
</TABLE>
FHLB ADVANCES, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER
BORROWINGS | InterWest borrows through advances from the Federal Home Loan Bank
(FHLB) and securities sold under agreements to repurchase with third parties.
Overall, borrowings increased to $980.1 million as of June 30, 2000 compared to
$957.3 million as of December 31, 1999. The increase in borrowings was used to
fund loan growth. The increase in borrowings increased the cost of funds and
decreased net interest margin. It is management's intention to increase deposits
and reduce borrowings in the future.
InterWest had $730.2 million outstanding in FHLB advances as of June 30, 2000,
compared to $670.2 million as of December 31, 1999. The FHLB provides credit for
member financial institutions. As members, financial institutions are required
to own capital stock in the FHLB, and are authorized to apply for advances on
the security of such stock, certain home mortgages and other assets (principally
securities that are obligations of, or guaranteed by, the United States).
Advances are made to member financial institutions pursuant to several different
programs. These programs are generally designed to meet the financial
institution's need while still reflecting market terms and conditions. The
subsidiary banks rely upon advances from the FHLB to supplement funds available
to lend and to meet liquidity guidelines. Interest rates on these advances vary
in response to general economic conditions. The contractual maturities of
InterWest's FHLB advances are generally greater than one year; however,
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<PAGE>
many of these advances have options whereby the FHLB can call the borrowing due
prior to the contractual maturity.
InterWest uses the securities market for borrowings by utilizing its securities
available for sale and securities held to maturity as collateral. These
borrowings are collateralized by securities with an estimated fair value
exceeding the face value of the borrowings. As of June 30, 2000, InterWest had
$247.5 million outstanding in securities sold under agreements to repurchase,
compared to $282.7 million as of December 31, 1999. This decrease reflects
changing economic conditions and interest rates and the corresponding affect on
borrowing source decisions by management.
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN SUBORDINATED DEBT | On November 15,
1999, $40 million of 9.875 percent Capital Securities were issued by InterWest
Capital Trust I (the Trust). The Trust is a business trust organized in November
1999, and InterWest Bancorp owns 100 percent of the common equity of the Trust.
The proceeds of the offering were invested by the Trust in junior subordinated
debentures of InterWest Bancorp. The debentures held by the Trust are the sole
assets of the Trust. Distributions on the capital securities issued by the Trust
are payable semiannually at 9.875 percent per annum, which is equal to the
interest rate being earned by the Trust on the debentures held by the Trust. The
capital securities are subject to mandatory redemption, in whole or in part,
upon repayment of the debentures. The debentures will not mature earlier than
November 15, 2009, and not later than November 15, 2029. InterWest Bancorp
entered into agreements which, taken collectively, fully and unconditionally
guarantee the capital securities subject to the terms of each of the guarantees.
InterWest used the proceeds for general corporate purposes including stock
repurchases and investment in the subsidiary banks. The capital securities
qualify as Tier I capital under the capital guidelines of the Federal Reserve
Board.
SHAREHOLDERS' EQUITY | InterWest Bancorp is committed to managing capital for
maximum shareholder benefit and maintaining strong protection for depositors and
creditors. InterWest manages various capital levels at both the holding company
and subsidiary bank level to maintain adequate capital ratios and levels in
accordance with external regulations and capital guidelines established by the
Board of Directors of each institution.
On November 16, 1999, the Board of Directors authorized the purchase of an
additional 5 percent of InterWest Bancorp's outstanding shares of common stock
in the open market for the following twelve-month period. The Board of Directors
previously approved a stock repurchase plan of 5 percent on January 20, 1999.
During the six months ended June 30, 2000, InterWest Bancorp repurchased 468,000
shares (3 percent of the total common shares outstanding) at a total price of
$7.9 million.
InterWest's total shareholders' equity was $160.5 million as of June 30, 2000, a
decrease of $11.2 million from $171.7 million as of December 31, 1999. The
decrease in shareholders' equity was due to common stock repurchases, dividends
to shareholders and a net loss, offset by the issuance of common stock under
stock option plans and repayments on the ESOP loan. Book value per share was
$10.42 as of June 30, 2000, compared to $10.87 as of December 31, 1999. During
the six months ended June 30, 2000, InterWest Bancorp declared cash dividends
totaling $0.28 per share.
SUPERVISION AND REGULATION
InterWest Bancorp is a registered bank holding company under the Bank Holding
Company Act of 1956 (BHCA) and is subject to the supervision of, and regulation
by, the Board of Governors of the Federal Reserve System (FRB). Under the BHCA,
InterWest Bancorp files with the FRB annual reports of operations and such
additional information as the FRB may require. Under the BHCA, a bank holding
company may engage
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<PAGE>
in banking, managing or controlling banks, furnishing or performing services for
banks it controls, and conducting activities that the FRB has determined to be
closely related to banking.
The subsidiary banks are members of the Federal Deposit Insurance Corporation
(FDIC), and as such, are subject to examination thereby. InterWest Bank and
Pacific Northwest Bank are state-chartered commercial banks, both of which are
subject to regulation and supervision by the Washington Department of Financial
Institutions Division of Banks. The Bank of Tukwila is a national banking
association that is subject to regulation and supervision by the Office of the
Comptroller of Currency. In practice, the primary regulator makes regular
examinations of each subsidiary bank subject to its regulatory review or
participates in joint examinations with other regulators. Areas subject to
regulation by federal or state authorities include the allowance for losses on
loans, investments, loans, mergers, issuance of securities, payment of
dividends, establishment of branches and other aspects of operations.
The enforcement powers available to banking regulators are substantial and
include, among other things, the ability to assess civil monetary penalties, to
issue cease-and-desist or removal orders and to initiate injunctive actions
against banking organizations and institution-affiliated parties, as defined. In
general, enforcement actions must be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions, or inactions, may
provide the basis for enforcement action, including misleading or untimely
reports filed with regulatory authorities. Applicable law also requires public
disclosure of final enforcement actions.
InterWest Bancorp and its banking subsidiaries are subject to risk-based capital
guidelines requiring minimum capital levels based on the credit risk of assets.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary, actions by regulators that, if undertaken,
could have a material effect on InterWest's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
InterWest Bancorp and its banking subsidiaries must meet specific capital
guidelines that involve quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Capital classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors. The regulations
define the relevant capital levels for the five categories. In general terms,
the capital definitions are as follows:
<TABLE>
<CAPTION>
Total Capital Tier 1 Tier 1
(to Risk (to Risk (to Average
Weighted Assets) Weighted Assets) Assets)
---------------- ----------------- -----------
<S> <C> <C> <C>
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
</TABLE>
InterWest Bancorp is subject to risk-based capital guidelines issued by the FRB,
which establish a risk-adjusted ratio relating capital to different categories
of assets. InterWest Bancorp's Tier I capital consists of shareholders' equity
and guaranteed preferred beneficial interests in subordinated debt less certain
intangibles, and excludes the equity impact of adjusting securities available
for sale to estimated fair value. Total capital is Tier I capital and the
allowance for losses on loans. The FRB's risk-based capital rules have been
supplemented by a leverage capital ratio, defined as Tier I capital to adjusted
quarterly average total assets. As of June 30, 2000, under the FRB's capital
guidelines, InterWest Bancorp's levels of consolidated regulatory capital
exceeded the FRB's well-capitalized requirements.
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<PAGE>
The capital amounts and ratios for InterWest Bancorp, InterWest Bank and Pacific
Northwest Bank as of June 30, 2000, are presented in the following table:
<TABLE>
<CAPTION>
To Be Well
CAPITAL RATIOS Capitalized Under
For Capital Prompt Corrective
Amount Adequacy Purposes Action Provisions
------------------ ------------------ ---------------------
DOLLARS IN THOUSANDS Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTERWEST BANCORP:
Total capital (to risk-weighted assets) $217,745 11.36% $153,314 8.0% $191,642 10.0%
Tier I capital (to risk-weighted assets) 202,207 10.55% 76,657 4.0% 114,985 6.0%
Tier I capital (to average assets) 202,207 7.22% 112,059 4.0% 140,074 5.0%
INTERWEST BANK:
Total capital (to risk-weighted assets) $158,147 11.26% $112,320 8.0% $140,400 10.0%
Tier I capital (to risk-weighted assets) 147,844 10.53% 56,160 4.0% 84,240 6.0%
Tier I capital (to average assets) 147,844 6.50% 90,953 4.0% 113,691 5.0%
PACIFIC NORTHWEST BANK:
Total capital (to risk-weighted assets) $54,117 11.33% $38,226 8.0% $47,783 10.0%
Tier I capital (to risk-weighted assets) 49,709 10.40% 19,113 4.0% 28,670 6.0%
Tier I capital (to average assets) 49,709 9.82% 20,255 4.0% 25,319 5.0%
</TABLE>
As of June 30, 2000, all subsidiary banks were in compliance with the
well-capitalized capital requirements. Management believes that under the
current regulations the subsidiary banks will continue to meet well-capitalized
capital requirements in the foreseeable future. However, events beyond the
control of the subsidiary banks, such as a downturn in the economy in areas
where the subsidiary banks have most of their loans, could adversely affect
future earnings and, consequently, the ability of the subsidiary banks to meet
future well-capitalized capital requirements.
LIQUIDITY RESOURCES
Liquidity management focuses on the need to meet both short-term funding
requirements and InterWest's long-term strategies and goals. Specifically, the
objective of liquidity management is to ensure the continuous availability of
funds to meet the demands of depositors, creditors and borrowers. Management
structures the balance sheet to meet these needs. InterWest desires to attract
and retain consumer and business customer relationships with a focus on
transaction accounts and commercial and consumer lending. InterWest also uses
wholesale funds through advances from the FHLB and the sale of securities under
agreements to repurchase to fund asset growth. InterWest is currently beginning
to use wholesale and brokered certificates of deposit to supplement wholesale
borrowings. Other sources of funds for liquidity include loan repayments, loan
sales, security sales and mortgage-backed and related security repayments.
Repayments on loans and mortgage-backed and related securities and deposit
inflows and outflows are affected by changes in interest rates.
InterWest has the capacity to borrow funds from the FHLB through pre-approved
credit lines. These credit lines have pledge requirements whereby InterWest must
maintain unencumbered collateral with a value at least equal to the outstanding
balance. InterWest uses the securities market as a vehicle for borrowing by
utilizing its securities available for sale and securities held to maturity as
collateral. These borrowings are collateralized by securities with an estimated
fair value exceeding the face value of the borrowings. If the estimated fair
value of the securities were to decline as a result of an increase
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<PAGE>
in interest rates or other factors, InterWest would be required to pledge
additional securities or cash as collateral.
The analysis of liquidity also includes a review of InterWest's consolidated
statement of cash flows for the six months ended June 30, 2000. The consolidated
statement of cash flows details InterWest's operating, investing and financing
activities during the period. The most significant item under operating
activities was net loss of $0.3 million for the six months ended June 30, 2000
and the add back of non-cash depreciation, amortization of intangible assets,
impairment of goodwill, and provisions for losses of loans totaling $6.4
million. Net cash provided by operating activities is also adjusted for the loss
on sale of securities available for sale of $6.8 million. Investing activities
included proceeds from the maturing and principal repayments on securities
available for sale of $42.8 million, purchases of securities available for sale
of $46.6 million and proceeds from the sale of securities available for sale of
$126.3 million. Investing activities also included a $215.0 million increase in
loans receivable and $92.9 million of proceeds from the sale of loans. During
the period, financing activities included $23.5 million in borrowing proceeds,
net of borrowing repayments, $29.1 million decrease in certificates of deposit,
a $14.8 million increase in deposits, $7.9 million in common stock repurchases
and a total of $4.4 million paid in cash dividends to shareholders.
MARKET RISK
InterWest's results of operations are largely dependent upon its ability to
manage interest rate risk. Management considers interest rate risk to be a
significant market risk that could have a material effect on InterWest's
financial condition and results of operations.
InterWest is sensitive to the potential change in interest rates and the
resulting impact on net interest income. It has been an objective of management
to reduce this sensitivity through the use of adjustable rate loans and
short-term commercial and consumer loans. This enables InterWest to better match
the duration of its deposit base with these types of assets.
In addition to adjustable rate loans, InterWest uses a number of additional
strategies to minimize the impact on net income during significant changes in
interest rates. The strategies utilized by InterWest include sales of long-term,
fixed-rate mortgage loans, emphasis on growth in non-interest-bearing deposits
and adjustable rate commercial lending.
During the six months ended June 30, 2000, overall interest rates increased. In
periods of rising interest rates, InterWest's net interest income and net
interest margin may decrease as a greater amount of interest-bearing liabilities
are subject to more rapid repricing than interest-earning assets.
Management uses simulation analysis to measure InterWest's interest sensitivity
position. This simulation analysis is used to evaluate the effects of potential
interest rate movements on net interest income. The simulation analysis model is
dynamic in nature, and incorporates management's current balance sheet strategy.
Management develops assumptions regarding interest rate spreads, projected
balances, expected maturities, cash flows and prepayment assumptions under
different interest rate scenarios.
FORWARD LOOKING STATEMENTS | In this quarterly report on Form 10-Q, InterWest
has included certain "forward-looking statements" concerning its future
operations. It is InterWest's desire to take advantage of the "safe harbor"
provisions 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 contained in
this quarterly report on Form 10-Q. Sentences containing words such as "may,"
"will," "expect," "anticipate," "believe," "estimate," "should," "projected," or
similar words may constitute forward-looking statements. Although InterWest
believes that the expectations expressed in these forward-looking statements are
based on reasonable assumptions within the bounds of its knowledge of its
business and operations, it is possible that actual results may differ
materially from these expectations. InterWest has used these statements to
describe expectations and estimates in various areas, including, but
25
<PAGE>
not limited to: changes in the economy of the markets in which it operates;
interest rate movements; future acquisition and growth strategies; data
conversions for acquired institutions; the impact of competitive products,
services and pricing; and legislative, regulatory and accounting changes
affecting the banking and financial services industry. Actual results could vary
materially from the future results covered in forward-looking statements.
Factors such as interest rate trends and loan delinquency rates, as well as the
general state of the economy in Washington state and the United States as a
whole, could also cause actual results to vary materially from the future
results anticipated in such forward-looking statements. These factors should be
considered in evaluating the forward-looking statements and undue reliance
should not be placed on such statements.
26
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
InterWest faces ordinary routine litigation arising in the
normal course of business. In the opinion of management,
liabilities (if any) arising from such claims will not have a
material effect upon the business, results of operations or
financial condition of InterWest.
ITEMS 2,3,4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS
QUARTERLY REPORT ON FORM 10-Q
(2) Articles of Conversion of InterWest Bank from a
Washington State Savings Bank to a Washington State Commercial
Bank
(3.1) Amended and Restated Articles of Incorporation of
InterWest Bancorp, Inc.
(3.2) Amended and Restated Bylaws of InterWest Bancorp,
Inc.
(10.1) Employment Agreement entered into between InterWest
Bancorp, Inc. and Stephen M. Walden
(10.2) Data Services Contract (P)
(27) Financial Data Schedule
(b) REPORTS ON FORM 8-K
InterWest Bancorp filed a Form 8-K dated April 17, 2000 to
announce that Patrick M. Fahey was appointed to the positions
of President and Chief Executive Officer of InterWest Bancorp
and Chairman, President and Chief Executive Officer of
InterWest Bank. In addition, Barney R. Beeksma stepped down
from his positions as Chairman of InterWest Bancorp and
InterWest Bank, but will continue to serve as a director of
each. Stephen M. Walden, who served as President and Chief
Executive Officer of InterWest Bancorp and InterWest Bank was
appointed Chairman of InterWest Bancorp and will continue as a
director of InterWest Bank.
InterWest Bancorp filed a Form 8-K dated June 20, 2000 to
announce a change in the company's year end from September 30
to December 31, effective retroactively to January 1, 2000.
InterWest Bancorp filed a Form 8-K dated June 21, 2000, to
announce non-recurring expenses incurred during the quarter
ended June 30, 2000.
InterWest Bancorp filed a Form 8-K dated June 28, 2000 to
announce the appointment of Bette J. Floray as Executive Vice
President and Chief Financial Officer and the resignation of
H. Glenn Mouw, Executive Vice President and Chief Financial
Officer.
InterWest Bancorp filed a Form 8-K dated July 1, 2000
announcing the merger of its banking affiliates, InterWest
Bank, Pacific Northwest Bank and The Bank of Tukwila. In
conjunction
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<PAGE>
with this merger, InterWest Bank converted its
charter from a Washington state savings bank to a Washington
state commercial bank.
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/ Patrick M. Fahey
--------------------
Patrick M. Fahey,
President and Chief Executive Officer
/s/ Bette J. Floray
-------------------
Bette J. Floray
Executive Vice President and Chief Financial
Officer
Dated: August 11 , 2000
---------------------------
28
