- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
or
[ ] 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
-------
FIRST WASHINGTON FINANCIALCORP
(Exact name of Registrant as Specified in Its Charter)
NEW JERSEY
(State or other jurisdiction of incorporation or organization)
52-2150671
(I.R.S. Employer Identification Number)
US ROUTE 130 & MAIN STREET
WINDSOR, NEW JERSEY 08561
(Address of Principal Executive Offices)
(609) 426-1000
(Issuer's Telephone Number, including area code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and 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 No X
------ -------
As of August 1, 2001 there were 2,569,371 shares of common stock, no par value,
outstanding.
FIRST WASHINGTON FINANCIALCORP
FORM 10-QSB
INDEX
Part I. Financial Information Page(s)
Item 1. Financial Statements
Consolidated Balance Sheet (unaudited) - at June 30, 2001 and December 31, 2000 1
Consolidated Income Statement (unaudited) - Six months ended June 30, 2001 and 2000 2
Changes in Stockholder Equity - Six Months ended June 30, 2001 3
Consolidated Statement of Cash Flows (unaudited) - Six months ended June 30, 2001 and 2000 4
Notes to Consolidated Financial Statements (unaudited) 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-12
Part II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
2
FIRST WASHINGTON FINANCIALCORP
Consolidated Balance Sheet
June 30, December 31,
2001 2000
------------ ------------
(unaudited)
ASSETS
Cash and due from banks $ 10,576,019 $ 8,309,870
Federal funds sold 7,380,000 2,400,000
------------ ------------
Total cash and cash equivalents 17,956,019 10,709,870
Interest bearing deposits with banks 382,000 476,000
Investment securities available-for-sale 33,046,372 38,776,008
Investment securities held-to-maturity 18,808,080 13,957,646
Mortgage-backed securities available-for-sale 47,757,380 47,555,701
Loans, net 173,328,766 152,860,409
Premises and equipment, net 6,210,096 6,455,471
Accrued interest receivable 1,846,024 1,798,138
Deferred tax asset, net 471,359 903,722
Other assets 1,318,123 782,232
------------ ------------
Total assets $301,124,219 $274,275,197
============ ============
LIABILITIES
Deposits
Non-interest bearing - demand $ 45,845,878 $ 41,435,236
Interest bearing - demand 27,212,743 23,190,157
Savings and money market 48,147,783 41,416,213
Certificates of deposit, under $100,000 133,017,453 134,946,632
Certificates of deposit, $100,000 and over 8,784,320 5,697,140
------------ ------------
Total deposits 263,008,177 246,685,378
Securities sold under agreements to repurchase 9,320,051 5,755,165
FHLB advances 7,500,000 2,500,000
Accrued interest payable 355,919 435,819
Other liabilities 757,287 767,925
------------ ------------
Total other liabilities 17,933,257 9,458,909
Total liabilities 280,941,434 256,144,287
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - authorized, 10,000,000 shares of no par value;
2,569,371 issued and outstanding at June 30, 2001 and December 31, 2000 16,945,203 16,945,203
Retained Earnings 2,571,265 1,322,348
Accumulated other comprehensive income (loss) 666,317 (136,641)
------------ ------------
Total stockholders' equity 20,182,785 18,130,910
------------ ------------
Total liabilities and stockholders' equity $301,124,219 $274,275,197
============ ============
The accompanying notes are an integral part of these statements.
1
FIRST WASHINGTON FINANCIALCORP
Consolidated Statements of Income
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---------- ---------- ---------- ----------
INTEREST INCOME
Loans, including fees $3,548,499 $3,045,063 $6,895,875 $5,972,157
Investment and mortgage-backed securities 1,378,945 1,274,024 2,820,865 2,530,239
Federal funds sold 106,445 141,117 216,908 240,174
Deposits with banks 7,495 1,177 15,572 2,800
---------- ---------- ---------- ----------
Total interest income 5,041,383 4,461,381 9,949,220 8,745,371
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 2,397,270 2,128,642 4,962,878 4,128,069
Borrowed funds 127,092 124,072 233,630 206,548
---------- ---------- ---------- ----------
Total interest expense 2,524,362 2,252,714 5,196,508 4,334,617
---------- ---------- ---------- ----------
Net interest income 2,517,022 2,208,668 4,752,712 4,410,754
PROVISION FOR LOAN LOSSES 85,000 60,000 150,000 105,000
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 2,432,022 2,148,668 4,602,712 4,305,754
NON-INTEREST INCOME
Service fees on deposit accounts 287,101 220,388 572,904 443,067
Other service charges and fees 27,068 32,794 56,854 65,792
Net gains on sale of investment and mortgage-backed
securities 0 0 20,178 0
Fee income on sales of mortgages 67,522 47,982 90,567 89,937
Other 23,957 29,604 48,570 68,641
---------- ---------- ---------- ----------
Total non-interest income 405,648 330,768 789,072 667,438
---------- ---------- ---------- ----------
NON-INTEREST EXPENSE
Salaries 915,907 850,374 1,791,713 1,659,670
Employee benefits 194,219 170,727 387,695 349,043
Occupancy expense 238,110 209,993 465,267 450,061
Other 670,934 632,820 1,261,886 1,318,281
---------- ---------- ---------- ----------
Total non-interest expense 2,019,171 1,863,913 3,906,561 3,777,055
---------- ---------- ---------- ----------
Income before income tax expense 818,499 615,523 1,485,224 1,196,137
INCOME TAX EXPENSE 156,000 68,577 236,308 120,185
---------- ---------- ---------- ----------
NET INCOME $ 662,499 $ 546,946 $1,248,916 $1,075,952
========== ========== ========== ==========
PER SHARE DATA
NET INCOME - BASIC $ 0.26 $ 0.21 $ 0.49 $ 0.42
========== ========== ========== ==========
NET INCOME - DILUTED $ 0.25 $ 0.20 $ 0.47 $ 0.40
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
2
FIRST WASHINGTON FINANCIALCORP
Changes in Stockholders' Equity
For Six Months Ended June 30, 2001
(unaudited)
Accumulated
other Total
Common Retained comprehensive Comprehensive Stockholder's
Stock earnings income (loss) Income Equity
------------ ---------- ----------- ------------- -------------
Balance at December 31, 2000 $ 16,945,203 $1,322,348 $(136,641) $ 18,130,910
------------ ---------- --------- ----------- ------------
Net Income 586,418 586,418 586,418
Other comprehensive income, net
of reclassification adjustments/taxes 737,751 737,751 737,751
Total Comprehensive Income $ 1,324,169
------------ ---------- --------- ----------- ------------
Balance at March 31, 2001 $ 16,945,203 $1,908,766 $ 601,110 $ 19,455,079
============ ========== ========= =========== ------------
Net Income 662,499 662,499 662,499
Other comprehensive income, net
of reclassification adjustments/taxes 65,207 65,207 65,207
Total Comprehensive Income $ 727,695
------------ ---------- --------- ----------- ------------
Balance at June 30, 2001 $ 16,945,203 $2,571,265 $ 666,317 $ 20,182,785
============ ========== ========= =========== ============
3
FIRST WASHINGTON FINANCIALCORP
Consolidated Statement of Cash Flows
(unaudited)
Six Months Ended
June 30,
-----------------------------------
2001 2000
----------- -----------
OPERATING ACTIVITIES
Net Income $ 1,248,916 $ 1,075,952
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 279,288 271,010
Provisions for loan losses 150,000 105,000
Gains on sales of investment securities (20,178) -
Amortization of premium on investment securities 34,487 44,213
Amortization of premium on mortgage-backed securities 55,803 70,172
Accretion of discount on investment securities (3,094) (3,527)
Accretion of discount on mortgage-backed securities (84,706) (66,067)
Increase in accrued interest receivable (47,886) (75,700)
Increase (decrease) in other assets (815,373) 168,152
Increase (decrease) in accrued interest payable (79,900) 20,141
Increase (decrease) in other liabilities (10,638) 11,258
----------- -----------
Net cash provided by operating activities 706,719 1,620,605
----------- -----------
INVESTING ACTIVITIES
Maturities (purchases) of interest bearing deposits with banks 94,000 93,000
Purchases of investment securities available-for-sale (400,803) (4,067,900)
Purchases of investment securities held-to-maturity (10,504,451) (2,497,734)
Purchases of mortgage-backed securities available-for-sale (7,296,109) (3,306,532)
Proceeds from sales of investments securities available-for-sale
and held-to-maturity 595,779 -
Proceeds from sales of mortgage-backed securities available-for-sale - -
Proceeds from maturities of investments securities available-for-sale 6,105,380 2,779,165
Proceeds from maturities of investments securities held-to-maturity 5,604,500 310,000
Repayment of principal on investment securities available-for-sale 1,838,914 76,576
Repayment of principal on mortgage-backed securities available-for-sale 5,966,804 4,238,521
Net increase in loans (20,318,357) (3,886,094)
Purchase of premises and equipment (33,913) (1,103,025)
----------- -----------
Net cash used in investing activities (18,348,256) (7,364,023)
----------- -----------
FINANCING ACTIVITIES
Issuance of common stock - -
Payment for fractional shares - -
Net increase in demand deposits and savings accounts 15,164,798 8,043,989
Net increase in certificate of deposits 1,158,001 5,468,623
Net increase (decrease) in borrowed funds 8,564,886 1,212,617
----------- -----------
Net cash used in financing activities 24,887,686 14,725,228
----------- -----------
Net (decrease) increase in cash and cash equivalents 7,246,149 8,981,810
Cash and cash equivalents, beginning of year 10,709,870 11,968,620
----------- -----------
Cash and cash equivalents, end of year $17,956,019 $20,950,430
=========== ===========
The accompanying notes are an integral part of these statements.
4
FIRST WASHINGTON FINANCIALCORP
Notes to Consolidated Financial Statements
Six months ended June 30, 2001 and 2000 (unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Washington FinancialCorp (the Company) was formed to operate as a bank
holding company. Concurrently with its formation in 1998, the Company issued
one share of its common stock in exchange for one share of common stock of
First Washington State Bank (the Bank). The formation of the holding company
called for a conversion of par value from $5.00 to no par value.
The Bank is a New Jersey-chartered commercial bank. The Bank provides
banking services to individual and corporate customers through its eleven
branches in Mercer, Ocean, and Monmouth Counties, New Jersey.
1. Basis of Financial Statement Presentation
The financial statements as of June 30, 2001, and for the six months ended
June 30, 2001 and 2000 are unaudited. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of financial position and results of operations have been
included. The results of operations for the six months ended June 30, 2001
and 2000 are not necessarily indicative of the results that may be attained
for an entire fiscal year.
2. Recent Accounting Pronouncements
On June 29, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Intangible Assets. These
statements are expected to result in significant modifications in accounting
for goodwill and other intangible assets. SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 must be accounted for
under the purchase method of accounting. SFAS No. 141 was effective upon
issuance. SFAS No. 142 modifies the accounting for all existing goodwill and
intangible assets. SFAS No. 142 includes requirements to test goodwill and
indefinite lived intangible assets for impairment rather than amortize them.
In the event of impairment, the value of goodwill or intangible assets will
be written down to its then fair value. SFAS No. 142 will be effective for
fiscal years beginning after December 31, 2001 and early adoption is not
permitted except for business combinations entered into after June 30, 2001.
The Company is currently evaluating the provisions of SFAS No. 142, but its
preliminary assessment is that these Statements will not have a material
impact on the Company's financial position or results of operations.
On July 6, 2001, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 102, Selected Loan Loss Allowance Methodology
and Documentation Issues. SAB No. 102 provides guidance on the development,
documentation, and application of a systematic methodology for determining
the allowance for loans and leases in accordance with US GAAP. The adoption
of SAB No. 102 is not expected to have a material impact on the Company's
financial position or results of operation.
5
3. Comprehensive Income
The Company follows SFAS No. 130, "Reporting Comprehensive Income." This
standard established new standards for reporting comprehensive income, which
includes net income as well as certain other items, which result in a change
to equity during the period.
The income tax effects allocated to comprehensive income (loss) is as
follows for the following periods ended:
June 30, 2001 June 30, 2000
--------------------------------------- ------------------------------------
Before tax Tax Net of tax Before tax Tax Net of tax
amount Expense amount amount Expense amount
------------ -------------- ----------- ------------ -----------------------
(unaudited) (unaudited)
Unrealized gain on securities
Unrealized holding gains (losses)
arising during period $1,255,575 $(439,451) $ 816,124 $ (217,368) $ 76,079 $(141,289)
Less reclassification adjustment for gains
realized in net income (20,178) 7,062 (13,116) - - -
---------- --------- --------- ---------- -------- ---------
Other comprehensive income (loss), net $1,235,397 $(432,389) $ 802,958 $ (217,368) $ 76,079 $(141,289)
========== ========= ========= =========== ======== =========
NOTE B - EARNINGS PER SHARE
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
EPS computations:
For the six months ended June 30, 2001
------------------------------------------
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- ---------
Basic EPS
Income available to common stockholders $ 1,248,916 2,569,371 $ 0.49
Effect of dilutive securities
Options - 102,483 (0.02)
----------- --------- ------
Diluted EPS
Income available to common stockholders
plus assumed conversions $ 1,248,916 2,671,854 $ 0.47
=========== ========= ======
For the six months ended June 30, 2000
---------------------------------------------
Income Shares Per share
(numerator) (denominator) amount
--------------- -------------- -----------
Basic EPS
Income available to common stockholders $ 1,075,952 2,566,965 $ 0.42
Effect of dilutive securities
Options - 97,193 (0.02)
----------- --------- ------
Diluted EPS
Income available to common stockholders
plus assumed conversions $ 1,075,952 2,664,158 $ 0.40
=========== ========= ======
6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Six Months ended June 30, 2001 and June 30,
2000.
OVERVIEW
For the six months ended June 30, 2001, the Company recognized net income of
$1.25 million or $0.49 per basic share, compared to $1.08 million or $0.42 for
the same period the prior year. At June 30, 2001, our total assets were $301.1
million, an increase of $26.8 million over total assets at year-end 2000. The
Company's net loans totaled $173.3 million at June 30, 2001, an increase of
$20.4 million over net loans at December 31, 2000. Total deposits for the
company at June 30, 2001 were $263.0 million, an increase of $16.3 over total
deposits at December 31, 2000.
RESULTS OF OPERATIONS
Interest Income. Total interest income increased $1.20 million, or 13.8%, to
$9.95 million for the six months ended June 30, 2001 from $8.75 million for the
same period in 2000. This increase in interest income reflects an increase in
our average balance of earning assets of $35.8 million, offset by a decrease in
rates earned of sixteen (16) basis points. A substantial portion of the increase
in earning assets was due to an increase of $23.3 million in net loans, with a
ten (10) basis point decrease in yield on the loan portfolio. This decrease in
rates is a reflection of the decline in market rates over the past year.
Interest Expense. The Company's interest expense for the first six months of
2001 increased $862 thousand to $5.2 million from $4.3 million. The increase in
interest expense reflects an increase in our average balance of interest-bearing
liabilities of $32.6 million, coupled with an eleven (11) basis point increase
in overall rates. The increases in dollar volume and interest rate were
primarily in the time deposit portfolio of interest-bearing liabilities. The
increase in average time deposits was $18.7 million to $145.2 million at June
30, 2001 from $126.5 million for the same period in 2000. This was further
impacted by a twenty-four (24) basis point increase in rates paid on those
certificates. The increase in rates paid is a reflection of increased
competition for deposits, as well as the residual effect of higher term deposit
rates in the last quarter of 2000.
7
Net-Interest Income. Net interest income for the six months ended June 30, 2001
was $4.75 million, an increase of $342 thousand, from $4.41 million for the same
period the prior year. The net interest margin for the quarter ended June 30,
2001 was 3.93%, compared to 4.23% for the quarter ended June 30, 2000.
The following table presents, on a tax equivalent basis, a summary of the
Company's interest-earning assets and their average yields, and interest-bearing
liabilities and their average costs and stockholders' equity for the six months
ended June 30, 2001 and 2000. The average balance of loans includes non-accrual
loans, and associated yields include loan fees, which are considered an
adjustment to yields.
Comparative Average Balance Sheet
Six Months Ended
(unaudited)
June 30, June 30,
-------------------------------------- ------------------------------------------
2001 2000
-------------------------------------- ------------------------------------------
Average Average
Interest Rates Interest Rates
Average Income / Earned / Average Income / Earned /
Balance Expense Paid Balance Expense Paid
------------- ------------ -------------- ------------ ------------ ------------
Assets:
Interest earning assets:
Deposits with other banks $ 459,901 $ 15,572 6.77% $ 92,489 $ 2,800 6.06%
Loans 161,346,786 6,895,875 8.55% 138,078,490 5,972,157 8.65%
Taxable Securities 65,312,119 2,057,770 6.30% 55,931,951 1,797,099 6.43%
Tax Exempt Securities 34,508,760 1,322,541 7.66% 32,699,388 1,292,140 7.90%
Fed Funds Sold 8,992,714 216,908 4.82% 8,003,368 240,174 6.00%
------------ ----------- ------- ------------ ----------- -------
Total Interest Earning Assets 270,620,280 10,508,666 7.77% 234,805,686 9,304,371 7.93%
Non-Interest Earning Assets 18,444,107 15,852,563
Allowance for possible loan losses (1,837,443) (1,673,734)
------------ ------------
Total Assets $287,226,944 $248,984,515
============ ============
Liabilities and Stockholder's Equity:
Interest-bearing liabilities:
NOW accounts $ 23,697,856 $ 246,927 2.08% $ 17,514,820 $ 163,431 1.87%
Savings 31,766,972 396,479 2.50% 27,352,489 360,530 2.64%
Money Market deposits 13,547,123 179,690 2.65% 12,770,045 153,035 2.40%
Time deposits 145,153,362 4,139,783 5.70% 126,464,816 3,451,073 5.46%
FHLB advances 3,649,171 105,605 5.79% 3,956,044 123,507 6.24%
Other borrowed money 6,276,366 128,024 4.08% 3,438,481 83,040 4.83%
------------ ----------- ------- ------------ ----------- -------
Total Interest-Bearing Liabilities 224,090,850 5,196,508 4.64% 191,496,695 4,334,617 4.53%
Non-Interest Bearing Liabilities:
Demand deposits 42,342,155 40,567,290
Other liabilities 1,657,779 1,579,930
------------ ------------
Total Non-Interest Bearing Liabilities 43,999,934 42,147,220
Stockholders' equity 19,136,160 15,340,600
------------ ------------
Total Liabilities and Stockholders' Equity $287,226,945 $248,984,515
============ ============
Net Interest Differential 3.13% 3.40%
Net Yield on Interest-Earning Assets 3.93% 4.23%
Net interest income $ 5,312,158 $ 4,969,754
=========== ===========
8
Provision for Loan Losses. The provision for possible loan losses for the
six months ended June 30, 2001, was $150 thousand compared to the $105 thousand
provision for the same period last year. The increase in the provision for loan
losses over the six-month period reflects management's judgment concerning the
risks inherent in the Company's existing loan portfolio and the size of the
allowance necessary to absorb the risks, as well as in the average balance of
the portfolio over both periods. Management reviews the adequacy of its
allowance on an ongoing basis and will provide for additional provision in
future periods, as management may deem necessary.
Non-Interest Income. Total non-interest income increased $122 thousand to $789
thousand for the first six months of 2001, from $667 thousand for the first six
months of 2000. The increase was primarily in service fee income.
Non-Interest Expense. Total non-interest expense increased $130 thousand or 3.4%
for the first six months of 2001, from the same period last year, primarily as a
result of an increase in salaries and employee benefits of $132 thousand.
Income Taxes. Our effective income tax rate for the second quarter of 2001 was
15.9% as compared to 13.1% for the year ended December 31, 2001.
9
FINANCIAL CONDITION
June 30, 2001 as compared to December 31, 2000
Total assets increased to $301.1 million at June 30, 2001, a $26.8 million
increase from total assets of $274.3 million at December 31, 2000. Increases
through the first six months of 2001 compared to year-end 2000 included
increases of a $20.5 million in net loans and $6.8 million in cash and cash
equivalents. These increases in assets were funded by increases in total
deposits of $16.3 million and $8.5 million in borrowed funds.
Total loans at June 30, 2001 increased $20.5 million from year-end 2000 to
$173.3 million. The components of the increase in total loans were an increase
of $14.6 million in commercial real estate loans, a $2.7 million increase in
commercial and industrial loans and a $2.5 million increase in residential real
estate loans.
The following schedule presents the components of loans for each period
presented:
June 30, 2001 December 31, 2000
-------------------------- ---------------------------
Amount Pct Amount Pct
------------ --------- ------------ ----------
Commercial $ 27,780,459 15.9% $ 25,118,315 16.3%
RE Coml Properties 91,055,515 52.0% 76,493,496 49.5%
RE Resi Properties 15,176,985 8.7% 12,664,559 8.2%
Consumer 2,578,910 1.5% 2,450,945 1.6%
Installment 19,513,269 11.2% 19,966,714 12.9%
Home Equity 18,860,734 10.8% 17,829,552 11.5%
------------ --------- ------------ ---------
174,965,872 100.0% 154,523,581 100.0%
Deferred loan fees 202,616 202,033
Allowance for possible loan losses (1,839,722) (1,865,205)
------------ ------------
Loans, net $173,328,766 $152,860,409
============ ============
Federal funds sold increased by $5 million to $7.4 million at June 30, 2001 from
$2.4 million at December 31, 2000. The increase is due in part to a significant
growth in deposits, coupled with less desirable longer-term investments.
Total year to date average deposits increased $28.0 million to $256.5 million,
or 11.1% through the second quarter of 2001 from the twelve-month average of
$228.5 million at December 31, 2000. Average time deposits increased by $14.3
million, NOW deposits increased by $4.1 million, savings deposits increased by
$3.3 million, demand deposits increased by $5.5 million and money market
deposits increased by $0.8 million. These increases are a result of the addition
of the two new branches in 2000, with the latest of those opening in the last
quarter of 2000. The increase in certificates of deposits is a reflection of
management's decision to fund loan growth with longer-term deposit products.
Management continues to monitor the shift in deposits through its
Asset/Liability Committee.
The following schedule presents the components of deposits, for each period
presented.
June 30, 2001 December 31, 2000
------------------------ -----------------------
Average Average Average Average
Amount Yield Amount Yield
------------ --------- ------------ --------
NOW Deposits $ 23,697,856 2.08% $ 19,566,069 2.02%
Savings Deposits 31,766,972 2.50% 28,520,095 2.86%
Money Market Deposits 13,547,123 2.65% 12,763,849 2.48%
Time Deposits 145,153,362 5.70% 130,886,034 5.78%
Non-interest Bearing Deposits 42,342,155 - 36,775,326 -
------------ ------------
Total Deposits $256,507,468 $228,511,373
============ ============
10
ASSET QUALITY
At June 30, 2001, non-performing assets increased $48 thousand to $314 thousand
from $266 thousand at June 30, 2000. Management believes these loans are
adequately reserved for and continues to monitor asset quality through its loan
review process.
The following table provides information regarding risk elements in the loan
portfolio:
June 30, December 31,
2001 2000
--------- ------------
Non-accrual loans (1) $ 313,536 $ 266,452
Non-accrual loans to total loans 0.18% 0.17%
Non-performing loans to total assets 0.30% 0.10%
Allowance for possible loan losses as
a percentage of non-performing loans NM NM
Allowance for possible loan losses to total loans 1.05% 1.21%
(1) Excludes loans past due 90 days or more and still accruing interest of
approximately $160 thousand at June 30, 2001 and $124 thousand at December 31,
2000. NM - Not meaningful
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is maintained at a level considered
adequate to provide for potential loan losses. The level of the allowance is
based on management's evaluation of potential losses in the portfolio, after
consideration of risk characteristics of the loans and prevailing and
anticipated economic conditions. The allowance is increased by provisions
charged to expense and reduced by charge-offs, net of recoveries. Although
management strives to maintain an allowance it deems adequate, future economic
changes, deterioration of borrowers' credit worthiness, and the impact of
examinations by regulatory agencies all could cause changes to the Company's
allowance for possible loan losses.
Our allowance for loan losses increased $116 thousand to $1.840 million at June
30, 2001 from $1.724 million at June 30 2000. The allowance for possible loan
losses as a percentage of total loans was 1.05% at June 30, 2001 compared to
1.12% at June 30, 2000.
The following is a summary of the reconciliation of the allowance for loan
losses for the six months ended June 30, 2001 and June 30, 2000.
Six months ended
----------------------------------
June 30, 2001 June 30, 2000
------------- -------------
Balance at beginning of period $ 1,865,205 $ 1,636,991
Provision for loan losses 150,000 105,000
Charge-offs 197,901 17,708
Recoveries 22,417 -
----------- -----------
Ending Balance $ 1,839,722 $ 1,724,283
=========== ===========
Ratio of net charge-offs to average loans outstanding 1.14% 1.25%
Balance of allowances as a % of total loans at period end 1.05% 1.12%
11
LIQUIDITY MANAGEMENT
Our liquidity is a measure of our ability to fund loans, withdrawals or
maturities of deposits, and other cash outflows in a cost effective manner. Our
principal sources of funds are deposits, scheduled amortization and repayments
of loan principal, sales and maturities of investment securities and funds
provided by operations. While scheduled loan payments and maturing investments
are relatively predictable sources of funds, deposit flows and loan prepayments
are greatly influenced by general interest rates, economic conditions and
competition.
Through our investment portfolio we generally have sought to obtain a safe yet
slightly higher yield than would have been available to us as a net seller of
overnight Federal Funds, while still maintaining liquidity. Through our
investment portfolio we also attempt to manage our maturity gap by seeking
maturities of investments, which coincide as closely as possible with maturities
of deposits.
Net cash provided by our operating activities was $.7 million for the six months
ended June 30, 2001 compared to $1.6 million for the six months ended June 30,
2000, primarily due to an increase in other assets.
Net cash used in investing activities was $18.3 million for the six months ended
June 30, 2001 compared to $7.4 million for the six months ended June 30, 2000.
Funding for loan growth increased to $20.3 million for the six months ended June
30, 2001 from $3.9 million for the same period in 2000, offset by a decrease in
cash used for investing in securities of $2.0 million for the six month ended
June 30, 2001 versus $2.4 million for the six months ended June 30, 2000.
Net cash provided by our financing activities was $24.9 million for the six
months ended June 30, 2001 compared to $14.7 million for the same period in
2000.
CAPITAL RESOURCES
Total stockholders' equity increased $2.1 million to $20.2 million at June 30,
2001 from $18.1 million at year-end 2000. The increase was due to an increase in
net income of $1.25 million and an increase in the net unrealized gain on
securities available for sale of $803 thousand. As of July 17, 2001, the Company
began a stock offering in order to raise a minimum of $1.5 million to a maximum
of $5.0 million. This offering is expected to end on October 15, 2001, but may
be extended to December 31, 2001 at management's discretion.
At June 30, 2001, the Company and Bank exceeded each of the regulatory capital
requirements applicable to it. The tables below present the capital ratios at
June 30, 2001 for the Company and Bank as well as the minimum regulatory
requirements.
For capital adequacy
Company Actual purposes To be well capitalized
-------------------- ------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total Capital (to risk weighted assets) $ 22,022,507 10.89% $ 16,177,309 8.00% $ 20,221,636 10.00%
Tier 1 capital (to risk weighted assets) 20,182,785 9.98% 8,088,654 4.00% 12,132,981 6.00%
Tier 1 capital (to average assets) $ 20,182,785 7.03% $ 11,489,078 4.00% $ 14,361,347 5.00%
For capital adequacy
Bank Actual purposes To be well capitalized
-------------------- ------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total Capital (to risk weighted assets) $ 21,356,179 10.58% $ 16,151,812 8.00% $ 20,189,765 10.00%
Tier 1 capital (to risk weighted assets) 19,516,457 9.67% 8,075,906 4.00% 12,113,859 6.00%
Tier 1 capital (to average assets) $ 19,516,457 6.80% $ 11,473,283 4.00% $ 14,341,604 5.00%
12
Part II Other Information
Item 1. Legal Proceedings
The Company and the Bank are periodically involved in various legal
proceedings as a normal incident to their businesses. In the opinion of
management, no material loss is expected from any such pending lawsuit.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Served Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of First Washington FinancialCorp was
held on April 25, 2001. The following is a description of the matters voted on
at the meeting:
Proposal 1 Election of Directors
Harry Horowitz, James R. Johnson, Jr. and Jerry Kokes were nominated for
election to the Board of Directors for a three year term.
SHARES
FOR WITHHELD
Harry Horowitz 2,311,150 6,312
James R. Johnson, Jr. 2,312,410 5,052
Jerry Kokes 2,312,410 2,052
Item 5. Other Information
The Company commenced an offering of its common stock on July 17, 2001 in
order to raise a minimum amount of $1.5 million to a maximum $5.0 million. The
stock offering terminates on October 15, 2001, but may be extended at
management's discretion until December 31, 2001.
Item 6. Exhibits and Report on form 8-K
(a). Exhibits
None
(b). Reports on Form 8-K
None
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST WASHINGTON FINANCIALCORP
Date: August 14, 2001 By:/s/ C. Herbert Schneider
-----------------------------
C. HERBERT SCHNEIDER
President & CEO
By:/s/ Lewis H. Foulke
-----------------------------
LEWIS H. FOULKE
Vice President, Finance/MIS
(Principal Financial Officer)
14