<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):
January 18, 2000
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 January 18, 2000, InterWest Bancorp, Inc. announced net income of
$5.5 million for the quarter ended December 31, 1999, compared to net income of
$5.8 million for the quarter ended September 30, 1999, and $7.4 million for the
quarter ended December 31, 1998. The decrease in net income from the quarter
ended September 30, 1999 was primarily due to expenses for severance contracts
incurred in conjunction with recent acquisitions, declines in investment product
fees and mortgage lending volumes due to seasonal declines and the interest rate
environment, and costs associated with the Year 2000 event. The decrease in net
income from the quarter ended December 31, 1998 was primarily due to a decrease
in the gain on sale of loans of $2.6 million, net of taxes. These decreases from
prior quarters were partially offset by an increase in net interest income.
HIGHLIGHTS QUARTER ENDED DECEMBER 31, 1999
- DILUTED NET INCOME PER SHARE WAS $0.34 for the quarter
December 31, 1999, compared to $0.37 for the quarter ended September 30,
1999, and $0.46 for the quarter ended December 31, 1998.
- RETURN ON AVERAGE SHAREHOLDERS' EQUITY WAS 12.25 PERCENT
for the quarter ended December 31, 1999, compared to 13.33 percent for the
quarter ended September 30, 1999, and 16.89 percent for the quarter ended
December 31, 1998.
- NET INTEREST MARGIN WAS 3.67 PERCENT for the quarter ended
December 31, 1999, compared to 3.74 percent for the quarter ended September
30, 1999, and 3.58 percent for the quarter ended December 31, 1998. The
decrease in net interest margin compared to the quarter ended September 30,
1999 was primarily due to issuance of trust preferred securities and
increases in non-interest-bearing cash in conjunction with the Year 2000
event.
- LOAN GROWTH. During the quarter ended December 31, 1999,
loans receivable increased by $110.7 million. Commercial and commercial real
estate loans increased by $60.1 million and totaled $751.8 million or 43.7
percent of the total loan portfolio as of December 31, 1999.
- CAPITAL MANAGEMENT. On November 15, 1999, $40 million of
trust preferred securities were issued. On November 16, 1999, the Board of
Directors of InterWest Bancorp authorized the purchase of an additional 5
percent of InterWest Bancorp's outstanding shares over the next twelve
months. During the quarter ended December 31, 1999, InterWest Bancorp
repurchased 392,500 shares (2.4 percent of the total common shares
outstanding) at a total price of $7.6 million.
- ACQUISITIONS. InterWest Bancorp completed the acquisition
of NBT Northwest Bancorp of Tukwila, Washington and its subsidiary, National
Bank of Tukwila on October 1, 1999.
2
<PAGE>
On September 14, 1999, InterWest Bancorp entered 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 $179 million and shareholders'
equity of $20.9 million as of December 31, 1999. It is anticipated that the
acquisition will be completed during the quarter ending June 30, 2000,
subject to 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 and resulted in the issuance of 677,109 shares. At the
acquisition date NBT had total consolidated assets of $53.0 million and
shareholders' equity of $4.9 million. The transaction was accounted for using
the purchase method and resulted in the recording of approximately $9.7
million in goodwill by InterWest Bancorp.
As of December 31, 1999, InterWest Bancorp was the holding company
for four wholly owned banking subsidiaries: InterWest Bank, Pacific Northwest
Bank, Kittitas Valley Bank, N.A. and National Bank of Tukwila. On January 3,
2000, Kittitas Valley Bank, N.A. was merged into Pacific Northwest Bank. 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 3.67 percent for the quarter
ended December 31, 1999, compared to 3.74 percent for the quarter ended
September 30, 1999, and 3.58 percent for the quarter ended December 31, 1998.
Several factors have influenced the decrease in net interest margin from the
quarter ended September 30, 1999.
Net interest margin decreased from the quarter ended September 30,
1999 primarily as a result of an increase in the cost of funds and an
increase in non-interest-bearing cash in conjunction with the Year 2000
event. The cost of funds increased as a result of rising interest rates which
increased both cost of deposits and cost of borrowings. The cost of
borrowings also increased due to the issuance of $40 million of trust
preferred securities at a rate of 9.875 percent. The effect that the increase
in the cost of funds had on net interest margin was partially offset by an
increase in the yield earned on loans, securities and other interest-earning
assets compared to the prior quarter due to rising interest rates and loan
growth in higher yielding commercial lending.
3
<PAGE>
RESULTS OF OPERATIONS
Net income was $5.5 million for the quarter ended December 31, 1999,
compared to $5.8 million for the quarter ended September 30, 1999, and $7.4
million for the quarter ended December 31, 1998. . The decrease in net income
from the quarter ended September 30, 1999 was primarily due to expenses for
severance contracts in connection with recent acquisitions, declines in
investment product fees and mortgage lending volumes due to seasonal declines
and the interest rate environment, and costs associated with the Year 2000
event. The decrease in net income compared to the quarter ended December 31,
1998 was primarily due to a decrease in the gain on sale of loans of $2.6
million, net of taxes. These decreases in net income were partially offset by
an increase in net interest income as compared to prior periods.
Net interest income before provision for losses on loans was $23.1
million for the quarter ended December 31, 1999, compared to $21.9 million
for the quarter ended September 30, 1999, and $20.6 million for the quarter
ended December 31, 1998. The increase in net interest income was primarily
due to an increase in the average balances of interest-earning assets.
Non-interest income was $4.3 million for the quarter ended December
31, 1999, compared to $4.8 million for the quarter ended September 30, 1999,
and $7.8 million for the quarter ended December 31, 1998. The decrease in
non-interest income from the quarter ended September 30, 1999 was primarily
due to a decrease in the gain on the sale of loans and seasonal declines in
investment product fees. The decrease in non-interest income from the quarter
ended December 31, 1998, was primarily due to a decrease in the gain on sale
of loans.
Non-interest expense was $18.4 million for the quarter ended
December 31, 1999, compared to $17.5 million for the quarter ended September
30, 1999, and $16.8 million for the quarter ended December 31, 1998. The
increase in non-interest expense compared to the quarters ended September 30,
1999 and December 31, 1998 was due to the acquisition of National Bank of
Tukwila which increased non-interest expense by $515,000, including goodwill
amortization, and the accrual of severance contracts in connection with
recent acquisitions totaling $420,000. Excluding National Bank of Tukwila
expenses and severance contracts, non-interest expense is consistent with the
quarter ended September 30, 1999, and has increased by $735,000 or four
percent compared to the quarter ended December 31, 1998.
The efficiency ratio was 67.3 percent for the quarter ended December
31, 1999, compared to 65.5 percent for the quarter ended September 30, 1999,
and 59.0 percent for the quarter ended December 31, 1998.
Income tax expense was $2.9 million for the quarter ended December
31, 1999, compared to $2.9 million for the quarter ended September 30, 1999,
and $3.8 million for the quarter ended December 31, 1998. The effective tax
rate was 34.9 percent for the quarter ended December 31, 1999, compared to
34.0 percent for the quarter ended December 31, 1998. The higher effective
tax rate for 1999 was primarily due to higher goodwill amortization that is
not deductible for federal income tax purposes.
4
<PAGE>
FINANCIAL CONDITION
InterWest's total consolidated assets were $2.78 billion as of
December 31, 1999, compared to $2.58 billion as of September 30, 1999, and
$2.60 billion as of December 31, 1998.
Non-interest bearing cash increased to $104.4 million as of December
31, 1999, compared to $70.6 million as of September 30, 1999 and $70.2
million as of December 31, 1998. This increase was due to the build-up of
cash reserves for the Year 2000 event.
Loans receivable were $1.67 billion as of December 31, 1999,
compared to $1.56 billion as of September 30, 1999, and $1.35 billion as of
December 31, 1998. It is management's intention to increase the loan
portfolio, which should have a positive impact on net interest income. Growth
in the loan portfolio would have been more significant during the quarter
ended December 31, 1999; however, $57.7 million of single-family mortgages
were securitized into securities available for sale during the quarter. It is
currently InterWest's strategy to originate and securitize single-family
mortgage loans rather than purchasing mortgage-backed securities. Management
believes this will increase yields, liquidity and reduce regulatory capital
requirements.
It is management's intention to continue to emphasize growth in
commercial lending. During the quarter ended December 31, 1999, outstanding
principal balances of commercial and commercial real estate loans increased a
total of $60.1 million to $751.8 million or 43.7 percent of the total loan
portfolio. This increase was due to the acquisition of National Bank of
Tukwila and 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.
Total liabilities were $2.61 billion as of December 31, 1999,
compared to $2.41 billion as of September 30, 1999, and $2.43 billion as of
December 31, 1998.
Non-interest-bearing deposits were $212.9 million as of December 31,
1999, compared to $197.7 million as of September 30, 1999 and $188.6 million
as of December 31, 1998. The increase from September 30, 1999 was primarily
due to the acquisition of National Bank of Tukwila. Non-interest bearing
deposits represented 13.3 percent of total deposits as of December 31, 1999,
compared to 12.5 percent of total deposits as of September 30, 1999, and 12.3
percent as of December 31, 1998.
Interest-bearing transaction accounts (which includes
interest-bearing checking, money market and savings accounts) were $571.1
million as of December 31, 1999, compared to $548.4 million as of September
30, 1999, and $554.4 million as of December 31, 1998. Interest-bearing
transaction accounts represented 35.8 percent of total deposits as of
December 31, 1999, compared to 34.8 percent of total deposits as of September
30, 1999, and 35.9 percent as of December 31, 1998.
Certificates of deposit totaled $814.3 million as of December 31,
1999, compared to $832.8 million as of September 30, 1999, and $797.0 million
as of December 31, 1998. Certificates of deposit represented 50.9 percent of
total deposits as of December 31, 1999, compared to 52.7 percent of total
deposits as of September 31, 1999, and 51.8 percent as of December 31, 1998.
5
<PAGE>
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.
On November 15, 1999, InterWest issued $40 million of 9.875 percent
trust preferred securities. The securities will not mature before November
15, 2009, and not later than November 15, 2029. InterWest intends to use the
net proceeds for general corporate purposes including stock repurchases and
investments in the subsidiary banks. The securities will qualify as Tier 1
capital for InterWest Bancorp under the capital guidelines of the Federal
Reserve Board.
SHAREHOLDERS' EQUITY
On November 16, 1999, the Board of Directors of InterWest Bancorp
authorized the repurchase of an additional 5 percent of InterWest Bancorp's
outstanding shares of common stock in the open market over the next twelve
months. The Board of Directors previously approved a stock repurchase plan of
5 percent on January 20, 1999. During the quarter ended December 31, 1999,
392,500 shares, or 2.4 percent of the shares outstanding, were repurchased at
a total price of $7.6 million. InterWest's total shareholders' equity was
$171.7 million as of December 31, 1999, compared to $165.3 million as of
September 30, 1999. For the quarter ended December 31, 1999, InterWest
declared dividends of $0.14 per share, consistent with the previous five
quarters.
ASSET QUALITY
Total non-performing assets were $15.3 million or 0.55 percent of
total assets as of December 31, 1999, compared to $14.5 million or 0.56
percent of total assets as of September 30, 1999, and $19.8 million or 0.76
percent as of December 31, 1998. Non-accrual loans were $11.0 million as of
December 31, 1999, compared to $10.9 million as of September 30, 1999, and
$12.4 million as of December 31, 1998. Real estate owned through foreclosure
was $4.3 million as of December 31, 1999, compared to $3.6 million as of
September 30, 1999, and $7.4 million as of December 31, 1998.
InterWest's allowance for losses on loans was $15.2 million or 0.90
percent of loans receivable as of December 31, 1999, compared to $14.1
million or 0.90 percent of loans receivable as of September 30, 1999, and
$13.5 million or 0.99 percent of loans receivable as of December 31, 1998.
The change in the allowance for losses on loans from September 30, 1999 was
due to addition of the allowance acquired from National Bank of Tukwila of
$778,000, a provision for losses on loans of $550,000 and net loan
charge-offs of $269,000. The allowance for losses on loans was 138.7 percent
of non-accrual loans as of December 31, 1999, as compared to 129.6 percent as
of September 30, 1999, and 109.2 percent as of December 31, 1998. 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 55 offices of its banking subsidiaries:
InterWest Bank, Pacific Northwest Bank and National
6
<PAGE>
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.
7
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements - not applicable.
(b) Pro forma financial information - not applicable.
(c) Exhibits:
99.1 Press Release issued by InterWest, dated January 18, 2000 announcing
unaudited first quarter operating results
8
<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: January 27, 2000
INTERWEST BANCORP, INC.
By /s/ H. Glenn Mouw
----------------------------
H. Glenn Mouw
Executive Vice President
9
<PAGE>
EXHIBIT 99.1
FOR RELEASE JANUARY 18, 2000
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 - JANUARY 18, 2000 - InterWest Bancorp, Inc. (Nasdaq:
IWBK) (InterWest Bancorp) today announced net income of $5.5 million for the
quarter ended December 31, 1999, compared to net income of $5.8 million for the
quarter ended September 30, 1999, and $7.4 million for the quarter ended
December 31, 1998. The decrease in net income from the quarter ended September
30, 1999 was primarily due to expenses for severance contracts incurred in
conjunction with recent acquisitions, declines in investment product fees and
mortgage lending volumes due to seasonal declines and the interest rate
environment, and costs associated with the Year 2000 event. The decrease in net
income from the quarter ended December 31, 1998 was primarily due to a decrease
in the gain on sale of loans of $2.6 million, net of taxes. These decreases from
prior quarters were partially offset by an increase in net interest income.
HIGHLIGHTS QUARTER ENDED DECEMBER 31, 1999
- DILUTED NET INCOME PER SHARE WAS $0.34 for the quarter
December 31, 1999, compared to $0.37 for the quarter ended September 30,
1999, and $0.46 for the quarter ended December 31, 1998.
- RETURN ON AVERAGE SHAREHOLDERS' EQUITY WAS 12.25 PERCENT
for the quarter ended December 31, 1999, compared to 13.33 percent for the
quarter ended September 30, 1999, and 16.89 percent for the quarter ended
December 31, 1998.
- NET INTEREST MARGIN WAS 3.67 PERCENT for the quarter ended
December 31, 1999, compared to 3.74 percent for the quarter ended September
30, 1999, and 3.58 percent for the quarter ended December 31, 1998. The
decrease in net interest margin compared to the quarter ended September 30,
1999 was primarily due to issuance of trust preferred securities and
increases in non-interest-bearing cash in conjunction with the Year 2000
event.
- LOAN GROWTH. During the quarter ended December 31, 1999,
loans receivable increased by $110.7 million. Commercial and commercial real
estate loans increased by $60.1 million and totaled $751.8 million or 43.7
percent of the total loan portfolio as of December 31, 1999.
- CAPITAL MANAGEMENT. On November 15, 1999, $40 million of
trust preferred securities were issued. On November 16, 1999, the Board of
Directors of InterWest Bancorp authorized the purchase of an additional 5
percent of InterWest Bancorp's outstanding shares over the next twelve
months. During the quarter ended December 31, 1999, InterWest Bancorp
repurchased 392,500 shares (2.4 percent of the total common shares
outstanding) at a total price of $7.6 million.
- ACQUISITIONS. InterWest Bancorp completed the acquisition
of NBT Northwest Bancorp of Tukwila, Washington and its subsidiary, National
Bank of Tukwila on October 1, 1999.
"We are pleased with the growth in our loan portfolio and the
corresponding increase in net interest income. However, our net income and
other financial performance ratios have declined compared to the quarter
ended September 30, 1999 due to severance contracts, seasonal declines in
investment product fees, and reduced opportunities to originate and sell
loans," said Stephen M. Walden, President and Chief Executive Officer.
10
<PAGE>
On September 14, 1999, InterWest Bancorp entered 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 $179 million and shareholders'
equity of $20.9 million as of December 31, 1999. It is anticipated that the
acquisition will be completed during the quarter ending June 30, 2000,
subject to 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 and resulted in the issuance of 677,109 shares. At the
acquisition date NBT had total consolidated assets of $53.0 million and
shareholders' equity of $4.9 million. The transaction was accounted for using
the purchase method and resulted in the recording of approximately $9.7
million in goodwill by InterWest Bancorp.
As of December 31, 1999, InterWest Bancorp was the holding company
for four wholly owned banking subsidiaries: InterWest Bank, Pacific Northwest
Bank, Kittitas Valley Bank, N.A. and National Bank of Tukwila. On January 3,
2000, Kittitas Valley Bank, N.A. was merged into Pacific Northwest Bank. 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 3.67 percent for the quarter
ended December 31, 1999, compared to 3.74 percent for the quarter ended
September 30, 1999, and 3.58 percent for the quarter ended December 31, 1998.
Several factors have influenced the decrease in net interest margin from the
quarter ended September 30, 1999.
Net interest margin decreased from the quarter ended September 30,
1999 primarily as a result of an increase in the cost of funds and an
increase in non-interest-bearing cash in conjunction with the Year 2000
event. The cost of funds increased as a result of rising interest rates which
increased both cost of deposits and cost of borrowings. The cost of
borrowings also increased due to the issuance of $40 million of trust
preferred securities at a rate of 9.875 percent. The effect that the increase
in the cost of funds had on net interest margin was partially offset by an
increase in the yield earned on loans, securities and other interest-earning
assets compared to the prior quarter due to rising interest rates and loan
growth in higher yielding commercial lending.
RESULTS OF OPERATIONS
Net income was $5.5 million for the quarter ended December 31, 1999,
compared to $5.8 million for the quarter ended September 30, 1999, and $7.4
million for the quarter ended December 31, 1998. . The decrease in net income
from the quarter ended September 30, 1999 was primarily due to expenses for
severance contracts in connection with recent acquisitions, declines in
investment product fees and mortgage lending volumes due to seasonal declines
and the interest rate environment, and costs associated with the Year 2000
event. The decrease in net income compared to the quarter ended December 31,
1998 was primarily due to a decrease in the gain on sale of loans of $2.6
million, net of taxes. These decreases in net income were partially offset by
an increase in net interest income as compared to prior periods.
11
<PAGE>
Net interest income before provision for losses on loans was $23.1
million for the quarter ended December 31, 1999, compared to $21.9 million
for the quarter ended September 30, 1999, and $20.6 million for the quarter
ended December 31, 1998. The increase in net interest income was primarily
due to an increase in the average balances of interest-earning assets.
Non-interest income was $4.3 million for the quarter ended December
31, 1999, compared to $4.8 million for the quarter ended September 30, 1999,
and $7.8 million for the quarter ended December 31, 1998. The decrease in
non-interest income from the quarter ended September 30, 1999 was primarily
due to a decrease in the gain on the sale of loans and seasonal declines in
investment product fees. The decrease in non-interest income from the quarter
ended December 31, 1998, was primarily due to a decrease in the gain on sale
of loans.
Non-interest expense was $18.4 million for the quarter ended
December 31, 1999, compared to $17.5 million for the quarter ended September
30, 1999, and $16.8 million for the quarter ended December 31, 1998. The
increase in non-interest expense compared to the quarters ended September 30,
1999 and December 31, 1998 was due to the acquisition of National Bank of
Tukwila which increased non-interest expense by $515,000, including goodwill
amortization, and the accrual of severance contracts in connection with
recent acquisitions totaling $420,000. Excluding National Bank of Tukwila
expenses and severance contracts, non-interest expense is consistent with the
quarter ended September 30, 1999, and has increased by $735,000 or four
percent compared to the quarter ended December 31, 1998.
The efficiency ratio was 67.3 percent for the quarter ended December
31, 1999, compared to 65.5 percent for the quarter ended September 30, 1999,
and 59.0 percent for the quarter ended December 31, 1998.
Income tax expense was $2.9 million for the quarter ended December
31, 1999, compared to $2.9 million for the quarter ended September 30, 1999,
and $3.8 million for the quarter ended December 31, 1998. The effective tax
rate was 34.9 percent for the quarter ended December 31, 1999, compared to
34.0 percent for the quarter ended December 31, 1998. The higher effective
tax rate for 1999 was primarily due to higher goodwill amortization that is
not deductible for federal income tax purposes.
FINANCIAL CONDITION
InterWest's total consolidated assets were $2.78 billion as of
December 31, 1999, compared to $2.58 billion as of September 30, 1999, and
$2.60 billion as of December 31, 1998.
Non-interest bearing cash increased to $104.4 million as of December
31, 1999, compared to $70.6 million as of September 30, 1999 and $70.2
million as of December 31, 1998. This increase was due to the build-up of
cash reserves for the Year 2000 event.
Loans receivable were $1.67 billion as of December 31, 1999,
compared to $1.56 billion as of September 30, 1999, and $1.35 billion as of
December 31, 1998. It is management's intention to increase the loan
portfolio, which should have a positive impact on net interest income. Growth
in the loan portfolio would have been more significant during the quarter
ended December 31, 1999; however, $57.7 million of single-family mortgages
were securitized into securities available for sale during the quarter. It is
currently InterWest's strategy to originate and securitize single-family
mortgage loans rather than purchasing mortgage-backed securities. Management
believes this will increase yields, liquidity and reduce regulatory capital
requirements.
It is management's intention to continue to emphasize growth in
commercial lending. During the quarter ended December 31, 1999, outstanding
principal balances of commercial and commercial real
12
<PAGE>
estate loans increased a total of $60.1 million to $751.8 million or 43.7
percent of the total loan portfolio. This increase was due to the acquisition
of National Bank of Tukwila and 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.
Total liabilities were $2.61 billion as of December 31, 1999,
compared to $2.41 billion as of September 30, 1999, and $2.43 billion as of
December 31, 1998.
Non-interest-bearing deposits were $212.9 million as of December 31,
1999, compared to $197.7 million as of September 30, 1999 and $188.6 million
as of December 31, 1998. The increase from September 30, 1999 was primarily
due to the acquisition of National Bank of Tukwila. Non-interest bearing
deposits represented 13.3 percent of total deposits as of December 31, 1999,
compared to 12.5 percent of total deposits as of September 30, 1999, and 12.3
percent as of December 31, 1998.
Interest-bearing transaction accounts (which includes
interest-bearing checking, money market and savings accounts) were $571.1
million as of December 31, 1999, compared to $548.4 million as of September
30, 1999, and $554.4 million as of December 31, 1998. Interest-bearing
transaction accounts represented 35.8 percent of total deposits as of
December 31, 1999, compared to 34.8 percent of total deposits as of September
30, 1999, and 35.9 percent as of December 31, 1998.
Certificates of deposit totaled $814.3 million as of December 31,
1999, compared to $832.8 million as of September 30, 1999, and $797.0 million
as of December 31, 1998. Certificates of deposit represented 50.9 percent of
total deposits as of December 31, 1999, compared to 52.7 percent of total
deposits as of September 31, 1999, and 51.8 percent as of December 31, 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.
On November 15, 1999, InterWest issued $40 million of 9.875 percent
trust preferred securities. The securities will not mature before November
15, 2009, and not later than November 15, 2029. InterWest intends to use the
net proceeds for general corporate purposes including stock repurchases and
investments in the subsidiary banks. The securities will qualify as Tier 1
capital for InterWest Bancorp under the capital guidelines of the Federal
Reserve Board.
SHAREHOLDERS' EQUITY
On November 16, 1999, the Board of Directors of InterWest Bancorp
authorized the repurchase of an additional 5 percent of InterWest Bancorp's
outstanding shares of common stock in the open market over the next twelve
months. The Board of Directors previously approved a stock repurchase plan of
5 percent on January 20, 1999. During the quarter ended December 31, 1999,
392,500 shares, or 2.4 percent of the shares outstanding, were repurchased at
a total price of $7.6 million. InterWest's total shareholders' equity was
$171.7 million as of December 31, 1999, compared to $165.3 million as of
September 30, 1999. For the quarter ended December 31, 1999, InterWest
declared dividends of $0.14 per share, consistent with the previous five
quarters.
ASSET QUALITY
Total non-performing assets were $15.3 million or 0.55 percent of
total assets as of December 31, 1999, compared to $14.5 million or 0.56
percent of total assets as of September 30, 1999, and $19.8 million or 0.76
percent as of December 31, 1998. Non-accrual loans were $11.0 million as of
December 31, 1999, compared to $10.9 million as of September 30, 1999, and
$12.4 million as of December 31,
13
<PAGE>
1998. Real estate owned through foreclosure was $4.3 million as of December
31, 1999, compared to $3.6 million as of September 30, 1999, and $7.4 million
as of December 31, 1998.
InterWest's allowance for losses on loans was $15.2 million or 0.90
percent of loans receivable as of December 31, 1999, compared to $14.1
million or 0.90 percent of loans receivable as of September 30, 1999, and
$13.5 million or 0.99 percent of loans receivable as of December 31, 1998.
The change in the allowance for losses on loans from September 30, 1999 was
due to addition of the allowance acquired from National Bank of Tukwila of
$778,000, a provision for losses on loans of $550,000 and net loan
charge-offs of $269,000. The allowance for losses on loans was 138.7 percent
of non-accrual loans as of December 31, 1999, as compared to 129.6 percent as
of September 30, 1999, and 109.2 percent as of December 31, 1998. 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 55 offices of its banking subsidiaries:
InterWest Bank, Pacific Northwest Bank 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.
14
<PAGE>
INTERWEST BANCORP AND SUBSIDIARIES
Financial Data (unaudited)
(Dollars in thousands except per share and share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------
DEC. 31, 1999 SEPT. 30, 1999 DEC. 31, 1998
------------- -------------- -------------
<S> <C> <C> <C>
FINANCIAL RATIOS:
Return on average assets 0.81% 0.92% 1.20%
Return on average equity 12.25% 13.33% 16.89%
Efficiency ratio 67.34% 65.52% 58.99%
NET INTEREST MARGIN
Total yield on earnings assets 8.01% 7.89% 7.83%
Total cost of funds 4.35% 4.18% 4.33%
Net interest spread 3.66% 3.71% 3.50%
Net interest margin 3.67% 3.74% 3.58%
ALLOWANCE FOR LOSSES ON LOANS
Balance at beginning of period $14,123 $13,803 $13,224
Provision for losses on loans 550 502 498
Allowance acquired 778 -- --
Loans charged off, net of
recoveries (269) (182) (195)
-------- -------- --------
Balance at end of period $15,182 $14,123 $13,527
Allowance for losses on loans as
a percentage of:
Total loans receivable 0.90% 0.90% 0.99%
Non-accrual loans 138.65% 129.58% 109.16%
SHAREHOLDERS' EQUITY
Book value per share $10.87 $10.71 $11.18
Equity to assets 6.17% 6.41% 6.74%
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
DEC. 31, 1999 SEPT. 30, 1999 DEC. 31, 1998
------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
DEPOSITS % % %
Non-interest-bearing $212,880 13.3 $197,732 12.5 $188,631 12.3
Interest-bearing checking 173,751 10.9 171,578 10.9 177,442 11.5
Money market 300,267 18.8 273,537 17.3 270,221 17.5
Savings 97,035 6.1 103,306 6.6 106,750 6.9
Certificates of deposit 814,257 50.9 832,796 52.7 797,046 51.8
------- ---- ------- ---- ------- ----
Total $1,598,190 $1,578,949 $1,540,090
LOAN PORTFOLIO
Real estate mortgage loans
Single-family residential $462,853 26.9 $448,068 27.9 $580,418 39.3
Multi-family residential 78,340 4.6 74,223 4.6 61,190 4.1
Commercial 441,782 25.7 402,580 25.0 278,991 18.9
Real estate construction 268,483 15.6 245,690 15.3 195,810 13.3
Consumer loans 104,446 6.1 97,153 6.0 80,832 5.5
Commercial loans 310,059 18.0 289,185 18.0 229,350 15.5
Agricultural loans 54,071 3.1 51,961 3.2 50,023 3.4
------ --- ------ --- ------ ---
1,720,034 1,608,860 1,476,614
Less:
Loans held for sale 22,397 23,138 101,782
Allowance for losses on loans 5,182 14,123 13,527
Deferred loan fees and discounts 10,140 10,015 8,693
------ ------ -----
Total loans receivable $1,672,315 $1,561,584 $1,352,612
NON-PERFORMING ASSETS
Non-accrual loans $10,950 $10,899 $12,392
Real estate owned through 4,313 3,560 7,421
foreclosure ----- ----- -----
16
<PAGE>
Total non-performing assets $15,263 $14,459 $19,813
Percent of total assets 0.55% 0.56% 0.76%
</TABLE>
<TABLE>
<CAPTION>
DEC. 31, 1999 SEPT. 30, 1999 DEC. 31, 1998
------------- -------------- -------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION
ASSETS
Cash and cash equivalents:
Non-interest-bearing $104,415 $70,623 $70,245
Interest bearing 9,647 10,471 16,441
Federal funds sold -- -- 14,451
Securities available for sale, at 747,982 700,550 825,646
estimated fair value
Securities held to maturity 68,896 70,692 81,654
Loans receivable, net 1,672,315 1,561,584 1,352,612
Loans held for sale 22,397 23,138 101,782
Interest receivable 16,781 15,962 15,796
Real estate held for sale and for 8,955 8,260 11,812
development
FHLB stock, at cost 44,347 42,536 40,232
Premises and equipment, net 53,847 54,132 51,397
Intangible assets 21,544 11,999 14,088
Other assets 11,442 9,592 5,405
------ ----- -----
Total assets $2,782,568 $2,579,539 $2,601,561
LIABILITIES
Non-interest-bearing deposits $212,880 $197,732 $188,631
Interest-bearing deposits 1,385,310 1,381,217 1,351,459
--------- --------- ---------
Total deposits 1,598,190 1,578,949 1,540,090
FHLB advances 670,234 682,238 718,709
Securities sold under 282,655 131,972 133,992
agreements to repurchase
Trust preferred securities 40,000 -- --
17
<PAGE>
Other borrowings 4,370 3,700 4,034
Other liabilities 15,399 17,374 29,453
------ ------ ------
Total liabilities 2,610,848 2,414,233 2,426,278
</TABLE>
<TABLE>
<CAPTION>
DEC. 31, 1999 SEPT. 30, 1999 DEC. 31, 1998
------------- -------------- -------------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY
Common stock, no par value -- -- --
Paid in capital 33,297 26,127 36,715
Retained earnings 162,043 158,828 144,934
Debt related to ESOP (2,980) (3,608) (3,935)
Accumulated other comprehensive loss:
Net unrealized loss on securities
available for sale (20,640) (16,041) (2,431)
-------- -------- -------
Total shareholders' equity 171,720 165,306 175,283
------- ------- -------
Total liabilities and shareholders' equity $2,782,568 $2,579,539 $2,601,561
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------
DEC. 31, 1999 SEPT. 30, 1999 DEC. 31, 1998
------------- -------------- -------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
INTEREST INCOME
Loans receivable $36,297 $32,826 $31,773
Securities available for sale 12,264 12,237 10,462
Securities held to maturity 1,096 1,096 1,259
Other 724 58 1,582
--- -- -----
Total interest income 50,381 46,217 45,076
INTEREST EXPENSE
Deposits 14,791 13,773 14,664
FHLB advances and other
borrowings 9,553 8,582 7,890
Securities sold under
agreements to repurchase 2,445 1,919 1,930
18
<PAGE>
Trust preferred securities 494 -- --
--- -- --
Total interest expense 27,283 24,274 24,484
Net interest income before
provision for losses on loans 23,098 21,943 20,592
Provision for losses on loans 550 502 498
--- --- ---
</TABLE>
<TABLE>
<CAPTION>
DEC. 31, 1999 SEPT. 30, 1999 DEC. 31, 1998
------------- -------------- -------------
<S> <C> <C> <C>
Net interest income after
provision for losses on
loans 22,548 21,441 20,094
NON-INTEREST INCOME
Gain on sale on loans 71 338 4,070
Service fees 2,744 2,851 2,661
Investment product fees and 634 959 590
insurance commissions
Gain (loss) on sale of securities -- -- (160)
available for sale
Other 841 688 680
--- --- ---
Total non-interest income 4,290 4,836 7,841
NON-INTEREST EXPENSE
Compensation and employee benefits 10,219 9,759 9,131
General and administrative 4,387 4,014 3,954
Occupancy 2,516 2,530 2,303
Data processing 1,258 1,200 1,084
Loss from real estate write-downs
and operations 63 43 301
-- -- ---
Total non-interest expense 18,443 17,546 16,773
Income before federal income taxes $8,395 $8,731 $11,162
FEDERAL INCOME TAX EXPENSES
2,933 2,941 3,794
----- ----- -----
NET INCOME $5,462 $5,790 $7,368
BASIC NET INCOME PER SHARE $0.34 $0.37 $0.47
19
<PAGE>
DILUTED NET INCOME PER SHARE $0.34 $0.37 $0.46
</TABLE>
# # # # #
20
