UNITED STATES
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
Exchange Act of 1934
For the quarterly period ended December 31, 2004
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______ to _________
Commission file number 0-22435
FIRSTBANK NW CORP.
(Exact Name of Registrant as Specified in Its Charter)
Washington 84-1389562
- ------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1300 16th Avenue Clarkston, WA 99403
(Address of Principal Executive Offices)
(509) 295-5100
(Registrant's Telephone Number, Including Area Code)
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. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: Common Stock 2,917,313 shares
outstanding on February 8, 2005.
FIRSTBANK NW CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition
December 31, 2004, March 31, 2004, and December 31, 2003 1
Consolidated Statements of Income
For the three months and nine months ended December 31, 2004 and 2003 2
Consolidated Statements of Comprehensive Income
For the three months and nine months ended December 31, 2004 and 2003 3
Consolidated Statements of Cash Flows
For the three months and nine months ended December 31, 2004 and 2003 4 - 5
Notes to Consolidated Financial Statements 6 - 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16 - 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29
Item 4. Controls and Procedures 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
Item 3. Defaults Upon Senior Securities 31
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 5. Other Information 31
Item 6. Exhibits 32
SIGNATURES 33
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FirstBank NW Corp. and Subsidiaries
Consolidated Statements of Financial Condition
(Unaudited)
December 31, March 31, December 31,
2004 2004 2003
------------- ------------- -------------
ASSETS
Cash and cash equivalents:
Non-interest bearing deposits $ 35,224,254 $ 22,328,617 $ 15,694,891
Interest bearing deposits 5,153,612 16,066,608 7,767,778
Federal funds sold -- 1,524 1,521
------------- ------------- -------------
Total cash and cash equivalents 40,377,866 38,396,749 23,464,190
Investment securities:
Held-to-maturity 30,939,854 19,671,109 19,412,008
Available-for-sale 17,577,436 19,115,839 19,093,938
Mortgage-backed securities:
Held-to-maturity 22,501,043 22,899,093 23,206,225
Available-for-sale 42,487,403 54,128,305 58,137,290
Loans receivable, net (Note 4) 530,446,560 459,114,307 452,608,688
Loans held for sale 3,376,535 5,253,377 6,889,692
Accrued interest receivable 3,230,984 3,348,959 3,391,159
Equity securities, at cost 12,810,275 12,505,575 12,384,375
Premises and equipment, net 18,627,162 18,274,192 17,987,659
Cash surrender value of bank owned and other insurance policies 22,991,450 22,192,305 21,958,596
Mortgage servicing assets 662,324 710,258 689,422
Goodwill and other intangible assets 19,769,229 21,049,999 22,785,092
Deferred federal and state income taxes 1,298,606 222,136 632,190
Other assets 2,473,451 3,349,848 2,626,359
------------- ------------- -------------
TOTAL ASSETS $ 769,570,178 $ 700,232,051 $ 685,266,883
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 503,559,027 $ 491,034,638 $ 474,480,326
Advances from borrowers for taxes and insurance 465,989 960,648 539,513
Advances from FHLB and other borrowings (Note 7) 186,576,705 132,055,692 134,055,650
Accrued expenses and other liabilities 7,550,770 6,848,792 7,281,570
------------- ------------- -------------
Total Liabilities 698,152,491 630,899,770 616,357,059
------------- ------------- -------------
Commitments and contingencies
Stockholders' Equity (Note 8):
Preferred stock, $0.01 par value, 500,000 shares authorized;
no shares issued and outstanding -- -- --
Common stock, $0.01 par value, 5,000,000 shares authorized;
2,989,262, 2,940,047, and 2,862,331 shares issued;
2,916,380, 2,860,898 and 2,781,093 shares outstanding 29,929 29,400 28,660
Additional paid-in-capital 45,046,237 45,538,508 46,208,702
Retained earnings, substantially restricted 26,523,442 23,275,834 22,154,545
Unearned ESOP shares (739,660) (802,360) (823,260)
Deferred compensation -- -- --
Accumulated other comprehensive income 557,739 1,290,899 1,341,177
------------- ------------- -------------
Total Stockholders' Equity 71,417,687 69,332,281 68,909,824
------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 769,570,178 $ 700,232,051 $ 685,266,883
============= ============= =============
See accompanying notes to consolidated financial statements
1
FirstBank NW Corp. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine months Ended
December 31, December 31,
--------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Interest income:
Loans receivable $ 8,747,138 $ 6,595,161 $ 24,788,699 $ 15,538,408
Mortgage-backed securities 744,950 661,547 2,396,177 1,009,247
Investment securities, taxable 198,689 50,951 953,047 50,951
Investment securities, tax-exempt 329,002 263,890 521,848 640,945
Other interest earning assets 349,158 439,002 1,130,974 876,437
------------ ------------ ------------ ------------
Total interest income 10,368,937 8,010,551 29,790,745 18,115,988
------------ ------------ ------------ ------------
Interest expense:
Deposits 1,903,545 1,509,110 5,297,904 3,587,340
Advances from FHLB and other borrowings 1,462,413 1,285,662 4,243,612 3,278,525
------------ ------------ ------------ ------------
Total interest expense 3,365,958 2,794,772 9,541,516 6,865,865
------------ ------------ ------------ ------------
Net interest income 7,002,979 5,215,779 20,249,229 11,250,123
Provision for loan losses 470,412 162,459 1,039,548 418,035
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 6,532,567 5,053,320 19,209,681 10,832,088
------------ ------------ ------------ ------------
Non-interest income:
Gain on sale of loans 259,823 285,751 941,550 1,656,095
Service fees and other charges 1,130,246 870,459 3,493,900 1,982,111
Commissions and other 40,915 69,745 141,342 136,291
------------ ------------ ------------ ------------
Total non-interest income 1,430,984 1,225,955 4,576,792 3,774,497
------------ ------------ ------------ ------------
Non-interest expense:
Compensation and employee related benefits 3,679,583 2,853,683 10,521,896 6,729,568
Occupancy 668,312 590,799 2,127,479 1,288,990
Other 1,547,677 1,277,058 4,644,196 2,997,102
------------ ------------ ------------ ------------
Total non-interest expense 5,895,572 4,721,540 17,293,571 11,015,660
------------ ------------ ------------ ------------
Income before income tax expense 2,067,979 1,557,735 6,492,902 3,590,925
Income tax expense 542,006 276,490 1,789,538 836,573
------------ ------------ ------------ ------------
Net income $ 1,525,973 $ 1,281,245 $ 4,703,364 $ 2,754,352
============ ============ ============ ============
Earnings per share (Note 9):
Net income per share - basic $ 0.53 $ 0.56 $ 1.63 $ 1.70
Net income per share - diluted $ 0.51 $ 0.52 $ 1.57 $ 1.59
Cash dividends paid per common share $ 0.17 $ 0.15 $ 0.51 $ 0.47
Weighted average shares outstanding - basic 2,904,719 2,285,027 2,888,281 1,621,314
Weighted average shares outstanding - diluted 2,984,444 2,483,620 2,997,145 1,731,498
See accompanying notes to consolidated financial statements
2
FirstBank NW Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended Nine months Ended
December 31, December 31,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net income $ 1,525,973 $ 1,281,245 $ 4,703,364 $ 2,754,352
------------ ------------ ------------ ------------
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on securities;
available-for-sale, net of tax benefit (expense) of
$120,669, $(66,594), $452,005, and $(21,924) (190,651) 105,848 (709,975) 36,798
Change in unrealized derivative gains on cash flow
hedge, net of tax benefit (expense) of $0, $23,213,
$14,991, and $59,669 -- (35,883) (23,174) (92,236)
------------ ------------ ------------ ------------
Net other comprehensive income (loss) (190,651) 69,965 (733,149) (55,438)
------------ ------------ ------------ ------------
Comprehensive income $ 1,335,322 $ 1,351,210 $ 3,970,215 $ 2,698,914
============ ============ ============ ============
See accompanying notes to consolidated financial statements
3
FirstBank NW Corp. and Subsidiaries,
Consolidated Statements of Cash Flows
(Unaudited)
Nine months Ended December 31,
------------------------------
2004 2003
------------- -------------
Cash flows from operating activities:
Net income $ 4,703,364 $ 2,754,352
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,035,058 648,174
Amortization (accretion) of securities and intangibles, net (447,475) (652,589)
Provision for loan losses 1,039,548 418,035
Gain on sale of loans held for sale (875,033) (2,022,287)
Proceeds from sale of loans held for sale 82,286,671 136,601,823
Originations of loans held for sale (79,468,279) (137,576,701)
Recovery of impairment of mortgage servicing rights (66,517) 170,500
FHLB stock dividends (304,700) (276,100)
ESOP compensation expense 177,482 157,058
Other (gains) losses, net 27,341 4,012
Deferred compensation expense -- 156,660
Deferred income taxes (427,850) (396,244)
Changes in assets and liabilities:
Accrued interest receivable and other assets 681,028 2,501,144
Accrued expenses and other liabilities 701,978 (2,034,141)
Income taxes receivable 804,868 283,177
------------- -------------
Net cash provided by (used in) operating activities 9,867,484 736,873
------------- -------------
Cash flows from investing activities:
Proceeds from maturities of mortgage-backed securities; held-to-maturity 337,865 122,862
Proceeds from maturities of mortgage-backed securities; available-for-sale 13,956,656 5,621,603
Proceeds from maturities of investment securities; held-to-maturity 31,924 --
Proceeds from maturities of investment securities; available-for-sale 213,613 550
Proceeds from sale of mortgage-backed securities; available-for sale -- 22,161,946
Proceeds from sale of investment securities; available-for-sale 730,000 2,931,538
Purchase of mortgage-backed securities; held-to-maturity -- (21,198,069)
Purchase of mortgage-backed securities; available-for-sale (3,028,594) (19,467,813)
Purchase of investment securities; available-for-sale (67,774) (348,502)
Purchase of investment securities; held-to-maturity (11,364,007) (10,057,574)
Net change in loans receivable (72,462,768) (4,784,020)
Net cash in acquisition, net -- 24,780,063
Purchases of premises and equipment (1,482,023) (2,630,109)
Proceeds from sale of premises and equipment 89,439 --
Net increase in cash surrender value of life insurance policies (799,145) (386,270)
Proceeds from sale of real estate owned 200,808 586,169
------------- -------------
Net cash provided by (used in) investing activities (73,644,006) (2,667,626)
------------- -------------
4
FirstBank NW Corp. and Subsidiaries,
Consolidated Statements of Cash Flows (continued)
(Unaudited)
Nine months Ended December 31,
------------------------------
2004 2003
------------- -------------
Cash flows from financing activities:
Cash paid for dividends (1,466,847) (811,793)
Net change in deposits 13,196,098 1,836,739
Advances (repayments) from borrowers for taxes and insurance (494,659) (658,646)
Advances from FHLB and other borrowings 393,602,000 142,693,794
Payments on advances from FHLB and other borrowings (338,440,761) (141,277,554)
Proceeds from stock options 2,009,144 764,237
Purchase of stock (2,647,336) (1,892,609)
------------- -------------
Net cash provided by (used in) financing activities 65,757,639 654,168
------------- -------------
Net increase (decrease) in cash and cash equivalents 1,981,117 (1,276,585)
Cash and cash equivalents, beginning of period 38,396,749 24,740,775
------------- -------------
Cash and cash equivalents, end of period $ 40,377,866 $ 23,464,190
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 10,465,495 $ 6,299,280
Income taxes $ 1,485,049 $ 964,366
Noncash investing and financing activities:
Unrealized gains (losses) on securities; available-for-sale, net of tax $ (709,974) $ 36,798
Unrealized gains (losses) on cash flow hedge derivative, net of tax $ (23,174) $ (92,236)
Loans receivable charged to the allowance for loan losses $ 451,724 $ 128,823
Transfer from loans converted to real estate acquired through foreclosure $ 99,823 $ 1,205,485
See accompanying notes to consolidated financial statements
5
FIRSTBANK NW CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America ("GAAP") for interim financial information and with the instructions
to Form 10-Q. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. These statements
should be read in conjunction with the consolidated financial statements and
related notes included in the Annual Report on Form 10-KSB of FirstBank NW Corp.
(the "Company") for the year ended March 31, 2004. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation have been included. The results of operations and other data
for the nine months ended December 31, 2004 are not necessarily indicative of
results that may be expected for the entire fiscal year ending March 31, 2005.
The Company's unaudited consolidated financial statements include the accounts
of its wholly-owned subsidiary, FirstBank Northwest (the "Bank"), and the Bank's
wholly-owned subsidiaries, TriStar Financial Corporation and Pioneer Development
Corporation. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The following table illustrates the effect on net income if the Company had
applied the fair value recognition provisions of Financial Accounting Standards
Board ("FASB") Statement No. 123, "Accounting for Stock-Based Compensation," to
stock-based compensation.
Three Months Ended Nine months Ended
December 31, December 31,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net income as previously reported $ 1,525,973 $ 1,281,245 $ 4,703,364 $ 2,754,352
Pro forma adjustment for effect of fair value
accounting for stock options (101) (152) (304) (456)
------------ ------------ ------------ ------------
Pro forma net income $ 1,525,872 $ 1,281,093 $ 4,703,060 $ 2,753,896
============ ============ ============ ============
Pro forma basic earnings per share $ 0.53 $ 0.56 $ 1.63 $ 1.70
============ ============ ============ ============
Pro forma diluted earnings per share $ 0.51 $ 0.52 $ 1.57 $ 1.59
============ ============ ============ ============
Critical Accounting Policies. Critical accounting policies are defined as those
that are reflective of significant judgments and uncertainties, and could
potentially result in materially different results under different assumptions
and conditions. Not all of these critical accounting policies require management
to make difficult, subjective or complex judgments or estimates. However,
management believes that the following policies and those disclosed could be
considered critical within the SEC definition. We believe that our most critical
accounting policies upon which our financial condition depends, and which
involve the most complex or subjective decisions or assessments are as follows:
Allowance for Loan Losses. Arriving at an appropriate level of reserve for loan
losses involves a high degree of judgment. The provision for loan losses is
based upon management's ongoing review and evaluation of the loan portfolio and
consideration of economic conditions which may affect the ability of borrowers
to repay their loans on a monthly basis, and by the Board of Directors on a
regular basis. A loan loss grading system assists management in determining the
overall risk in the loan portfolio. Individual loans are reviewed periodically
for classification into six categories: satisfactory, acceptable, special
mention, substandard, doubtful and loss; and are assigned a standard loan loss
percent. The change in loan types per category is multiplied by the assigned
loan loss percent to arrive at the basic monthly adjustment to the provision for
loan loss expense. The second element of the provision for loan losses is based
on management's review and evaluation of the allowance for loan losses based on
an analysis of historical trends, individual loans for which full collectibility
may not be reasonably assured, estimated fair value of the underlying
collateral, industry comparisons, unemployment rate in the Bank's market, and
inherent risks in the Bank's portfolio. The reserve may be affected by changing
economic conditions and various external factors, which may impact the portfolio
in ways currently unforeseen. The reserve is increased by provisions for loan
losses and by recoveries of loans previously charged-off and reduced by loans
charged-off.
6
Mortgage Servicing Rights (MSRs). Determination of the fair value of MSRs
requires the estimation of multiple interdependent variables, the most impactful
of which is mortgage prepayment speeds. Prepayment speeds are estimates of the
pace and magnitude of future mortgage payoff or refinance behavior of customers
whose loans are serviced by the Company. At least quarterly, the Company engages
a qualifies third party to provide an estimate of the fair value of MSRs using a
discounted cash flow model with assumptions and estimates based upon observable
market-based data and methodology common to the mortgage servicing market.
Management believes the model applies reasonable assumptions under the
circumstances, however, because of possible volatility in the market price of
MSRs, and the vagaries of any relatively illiquid market, there can be no
assurance that risk management and existing accounting practices will result in
the avoidance of possible impairment charges in future periods.
The cost of mortgage servicing rights is amortized in proportion to, and over
the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those rights. Fair
values are estimated using prices for similar assets with similar
characteristics, when available, or based upon discounted cash flows using
market-based assumptions. For purposes of measuring impairment, the rights are
stratified by predominant characteristics, such as interest rates and terms. The
amount of impairment recognized is the amount by which the capitalized mortgage
servicing rights for a stratum exceeds their fair value.
Securities. Estimates are used in the presentation of the securities portfolio
and these estimates impact the presentation of the Company's financial condition
and results of operations. Many of the securities included in the securities
portfolio are purchased at a premium or discount. The premiums or discounts are
amortized or accreted over the life of the security. For mortgage-related
securities, including Collateralized Mortgage Obligations (CMOs), the
amortization or accretion is based on estimated lives of the securities. The
lives of the securities can fluctuate based on the amount of prepayments
received on the underlying collateral of the securities. The Company uses
estimates for the lives of these mortgage-related securities based on
information provided by third parties. The Company adjusts the rate of
amortization or accretion regularly to reflect changes in the estimated lives of
these securities.
Goodwill and Other Intangible Assets. Analysis of the fair value of recorded
goodwill for impairment will involve a substantial amount of judgment, as well
as establishing and monitoring estimated lives of other amortizable intangible
assets. The Company had goodwill and other intangible assets as a result of
business combinations. The Company adopted Financial Accounting Standard No.
142, "Goodwill and Other Intangible Assets" effective January 1, 2002. In
accordance with the standard, goodwill and other intangibles with indefinite
lives are no longer being amortized but instead will be tested for impairment on
an annual basis or more frequently if impairment indicators arise. Management
has completed impairment testing for the Company's intangibles with indefinite
lives and determined that there was no impairment.
(2) BUSINESS COMBINATION
On October 31, 2003, the Company completed the acquisition of Oregon Trail
Financial Corp. ("Oregon Trail") and its wholly-owned subsidiary, Pioneer Bank,
a Federal Savings Bank ("Pioneer Bank"), for approximately $36.5 million in cash
and 1,480,064 shares of the Company's common stock in exchange for the 3,108,657
shares of Oregon Trail common stock outstanding. Common stock increased $14,800
and additional paid in capital increased $33,212,637 as a result of the issuance
of common stock for the acquisition. Additional paid in capital increased by
$4,563,100 as a result of the purchase of the fair value of Oregon Trail's
unexercised stock options as of the completion date of the acquisition.
It has been the Company's strategic objective to use capital to support growth.
In addition, growth through merger and acquisition has also been a longer-term
strategy. Oregon Trail was a potential acquisition candidate because its market
area was geographically contiguous to the Company's market area with no
overlapping branches and because of its complementary operations and business
strategies. Oregon Trail was also considered to be a potential candidate because
of its stable deposit markets, sizable asset base, strong asset quality, and its
community banking philosophy. In addition, Oregon Trail and the Company have
common backgrounds as converted thrift institutions, and the Board of Directors
and management of the Company believed that a combination of the two companies
would enhance the Company's competitiveness, and would have a minimal impact on
the staff of Oregon Trail. The acquisition doubled the Company's asset size and
shares of common stock outstanding. The Company is the surviving holding company
with 100% ownership of the Bank, and the Bank is the surviving thrift
subsidiary. Operations have been combined since November 1, 2003. The Company
expects the entire amount of goodwill to be deductible for tax purposes.
7
(3) SUPPLEMENTAL PRO FORMA INFORMATION
The following table sets forth the supplemental unaudited pro forma condensed
combined statement of income for the three months ended December 31, 2004 and
2003, reflecting the acquisition of Oregon Trail by the Company as if it had
occurred at the beginning of the periods presented.
FirstBank NW Corp.
Oregon Trail Financial Corp.
Unaudited Pro Forma Condensed Combined Statements of Income
(In thousands, except share data)
Three Months Ended
December 31,
----------------------------
2004 2003
------------ ------------
Total interest income $ 10,369 $ 9,709
Total interest expense 3,366 3,160
------------ ------------
Net interest income 7,003 6,549
Provision for loan losses 470 906
------------ ------------
Net interest income after provision for loan losses 6,533 5,643
Total non-interest income 1,431 1,454
Total non-interest expense (5,896) (7,408)
------------ ------------
Income before income tax expense 2,068 (311)
Income tax expense (benefit) 542 (354)
------------ ------------
Net income $ 1,526 $ 43
============ ============
Pro Forma earnings per share:
Pro Forma net income per share - basic $ 0.53 $ 0.02
Pro Forma net income per share - diluted $ 0.51 $ 0.01
Pro Forma weighted average shares outstanding - basic 2,904,719 2,783,744
Pro Forma weighted average shares outstanding - diluted 2,984,444 3,039,621
(4) LOANS RECEIVABLE
Loans receivable at December 31, 2004, March 31, 2004, and December 31, 2003
consist of the following:
December 31, March 31, December 31,
2004 2004 2003
------------ ------------ ------------
(Dollars in Thousands)
Real estate loans:
Residential $ 116,026 $ 113,016 $ 112,221
Commercial 155,340 122,132 122,017
Agricultural 19,453 18,567 20,246
Construction 58,518 44,536 37,957
Other loans:
Commercial (non-real estate) 87,943 75,878 66,966
Other consumer 40,027 43,425 51,211
Home equity 36,235 24,530 19,667
Agricultural operating 26,039 24,876 31,030
------------ ------------ ------------
Total loans receivable 539,581 466,960 461,315
Less:
Unearned loan fees and discounts 2,217 1,532 2,109
Allowance for loan losses 6,917 6,314 6,597
------------ ------------ ------------
Loans receivable, net $ 530,447 $ 459,114 $ 452,609
============ ============ ============
Loans held for sale $ 3,377 $ 5,253 $ 6,890
============ ============ ============
8
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the dates indicated. The allocation of the allowance
to each category is not necessarily indicative of future losses and does not
restrict the use of the allowance to absorb losses in any other category.
December 31, March 31, December 31,
2004 2004 2003
------------------- ------------------- -------------------
% of Loans % of Loans % of Loans
in Category in Category in Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
Residential $ 225 21.50% $ 282 24.20% $ 277 24.32%
Construction 1,116 10.85 927 9.54 913 8.23
Agricultural 775 8.43 738 9.30 869 11.12
Commercial 4,356 45.09 3,630 42.41 2,707 40.97
Consumer and other loans 445 14.13 737 14.55 1,831 15.36
-------- -------- -------- -------- -------- --------
Total allowance for loan losses $ 6,917 100.00% $ 6,314 100.00% $ 6,597 100.00%
======== ======== ======== ======== ======== ========
The following table sets forth the changes in the Bank's allowance for loan
losses for the periods indicated.
Three months Fiscal Year Nine months
Ended Ending Ended
December 31, March 31, December 31,
-------------------- -------- --------------------
2004 2003 2004 2004 2003
-------- -------- -------- -------- --------
(Dollars in Thousands)
Balance at beginning of period $ 6,594 $ 3,616 $ 3,414 $ 6,314 $ 3,414
-------- -------- -------- -------- --------
Addition through acquisition of Oregon Trail -- 2,863 2,863 -- 2,863
Provision for loan losses 470 163 395 1,039 419
-------- -------- -------- -------- --------
Charge-offs:
Residential real estate -- 5 11 7 15
Commercial real estate -- -- 19 -- --
Commercial non-real estate -- 21 225 211 40
Consumer and other loans 158 87 223 316 122
-------- -------- -------- -------- --------
Total charge-offs 158 113 478 534 177
Recoveries 11 68 120 98 78
-------- -------- -------- -------- --------
Net charge-offs 147 45 358 436 99
-------- -------- -------- -------- --------
Balance at end of period $ 6,917 $ 6,597 $ 6,314 $ 6,917 $ 6,597
======== ======== ======== ======== ========
Net charge-offs to average outstanding loans 0.03% 0.01% 0.10% 0.09% 0.03%
9
The following table sets forth information with respect to the Bank's
nonperforming assets and restructured loans within the meaning of GAAP at the
dates indicated. The Bank's policy is to cease accruing interest on loans more
than 90 days past due.
December 31, March 31, December 31,
2004 2004 2003
---------- ---------- ----------
(Dollars in Thousands)
Loans accounted for on a nonaccrual basis:
Real estate loans:
Residential $ 497 $ 701 $ 818
Construction 148 364 --
Agricultural -- 78 --
Commercial 478 -- 197
Commercial non-real estate 1 1,661 328
Consumer and other loans 127 96 115
Agricultural operating -- -- --
---------- ---------- ----------
Total 1,251 2,900 1,458
Accruing loans which are contractually
past due 90 days or more -- -- --
---------- ---------- ----------
Total of nonaccrual and 90 days past
due loans 1,251 2,900 1,458
Real estate owned and repossessed assets 470 604 911
---------- ---------- ----------
Total nonperforming loans 1,721 3,504 2,369
Restructured loans 555 153 228
---------- ---------- ----------
Total nonperforming assets $ 2,276 $ 3,657 $ 2,597
========== ========== ==========
Nonaccrual and 90 days or more past due
loans as a percent of loans receivable, net 0.24% 0.63% 0.32%
Nonaccrual and 90 days or more past
due loans as a percent of total assets 0.16% 0.41% 0.21%
Nonperforming assets as a percent of
total assets 0.30% 0.50% 0.38%
Total nonperforming assets to total loans 0.42% 0.74% 0.53%
10
(5) MORTGAGE SERVICING RIGHTS
At December 31, 2004, mortgage servicing rights were $662,000, net of an
allowance for impairment on mortgage servicing rights of $360,000. At March 31,
2004, mortgage servicing rights were $710,000, net of an allowance for
impairment on mortgage servicing rights of $427,000. At December 31, 2003,
mortgage servicing rights were $689,000, net of an allowance for impairment on
mortgage servicing rights of $171,000. The cost of mortgage servicing rights is
amortized in proportion to, and over the period of, estimated net servicing
revenues. Impairment of mortgage servicing rights is assessed based on the fair
value of those rights. Fair values are estimated using prices for similar assets
with similar characteristics, when available, or based upon discounted cash
flows using market-based assumptions. For purposes of measuring impairment, the
rights are stratified by predominant characteristics, such as interest rates and
terms. The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights for a stratum exceeds their fair value.
The following table is an analysis of the changes in mortgage servicing rights
for the periods indicated:
Three months Fiscal Year Nine months
Ended Ending Ended
December 31, March 31, December 31,
------------------------ ---------- ------------------------
2004 2003 2004 2004 2003
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
Beginning Balance $ 652 $ 883 $ 826 $ 710 $ 826
Additions -- 26 199 20 178
Amortization (34) (49) (194) (135) (144)
Impairment recovered (recognized) 44 (171) (121) 67 (171
---------- ---------- ---------- ---------- ----------
Ending Balance $ 662 $ 689 $ 710 $ 662 $ 689
========== ========== ========== ========== ==========
(6) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill at December 31, 2004 was $16.7 million. No impairment loss on goodwill
was recorded for the three months ended December 31, 2004, because there were no
impairment indicators during the period.
Core deposit intangible at December 31, 2004 was $3.1 million, net of
accumulated amortization of $823,000. Amortization expense for the net carrying
amount of the core deposit intangible at December 31, 2004 is estimated to be as
follows:
(In Thousands)
For the three months ended December 31, 2004 $ 176
=======
For the year ended March 31,
2005 177
2006 705
2007 705
2008 705
After 2008 761
-------
Estimated total core deposit intangible amortization expense $ 3,053
=======
11
(7) ADVANCES FROM FEDERAL HOME LOAN BANK AND OTHER BORROWINGS
The Bank uses advances from the Federal Home Loan Bank of Seattle
("FHLB-Seattle") to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The FHLB-Seattle functions as a central reserve bank
providing credit for savings associations and certain other member financial
institutions. As a member of the FHLB-Seattle, the Bank is required to own
capital stock in the FHLB-Seattle and is authorized to apply for advances on the
security of such stock and certain of its mortgage loans and other assets
(principally securities that are obligations of, or guaranteed by, the U.S.
Government) provided certain creditworthiness standards have been met. Advances
are made pursuant to several different credit programs. Each credit program has
its own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based on the financial condition of
the member institution and the adequacy of collateral pledged to secure the
credit. The Bank is currently authorized to borrow from the FHLB-Seattle up to
an amount equal to 30% of total assets, providing that the Bank holds sufficient
collateral. Advances from the FHLB-Seattle at December 31, 2004 and 2003 were
$184.1 million and $134.1 million, respectively. Advances from US Bank at
December 31, 2004 and 2003 were $2.5 million and $0, respectively.
Scheduled maturities of advances from the FHLB-Seattle were as follows:
One Year to Five Years to
Less than One Less than Five Less than Ten Greater than
At December 31, 2004: Year Years Years Ten Years
----------- ----------- ----------- ----------
Maturities of advances $98,015,966 $41,667,079 $37,666,353 $6,770,307
Range of interest rates 1.96 - 7.01% 3.05 - 7.03% 3.42 - 7.12% 6.66 - 7.10%
Weighted average interest rate 3.14% 4.62% 5.33% 7.03%
Percentage of total advances 53.23% 22.63% 20.46% 3.68%
One Year to Five Years to
Less than One Less than Five Less than Ten Greater than
At March 31,2004: Year Years Years Ten Years
----------- ----------- ----------- ----------
Maturities of advances $36,640,894 $45,537,886 $42,939,774 $6,937,138
Range of interest rates 1.17 - 5.51% 4.42 - 7.03% 3.33 - 7.12% 6.66 - 7.10%
Weighted average interest rate 2.89% 5.81% 5.10% 7.03%
Percentage of total advances 27.75% 34.48% 32.52% 5.25%
One Year to Five Years to
Less than One Less than Five Less than Ten Greater than
At December 31, 2003: Year Years Years Ten Years
----------- ----------- ----------- ----------
Maturities of advances $34,249,664 $49,023,770 $43,786,721 $6,995,495
Range of interest rates 1.10 - 5.34% 4.42 - 7.03% 3.33 - 7.12% 6.66 - 7.10%
Weighted average interest rate 2.92% 5.78% 5.10% 7.03%
Percentage of total advances 25.55% 36.57% 32.66% 5.22%
As of December 31, 2004, there were $45.8 million of advances from the
FHLB-Seattle that were callable, of which $5.0 million of less than one year
advances were callable within one year, $10.8 million of one to less than five
year advances were callable within one year, $25.0 million of five to less than
ten year advances were callable within year and $5.0 million of five to less
than ten year advances were callable within one to less than five years. As of
December 31, 2003, there were $45.8 million of advances from the FHLB-Seattle
that were callable, of which $10.0 million of one to less than five year
advances were callable within one year, $5.8 million of five to less than ten
year advances were callable within one year, $15.0 million of five to less than
ten year advances were callable within one to less than five years, and $15.0
million of greater than ten year advances were callable within one year.
12
(8) DIVIDENDS
On October 26, 2004, the Board of Directors declared a cash dividend of $0.17
per common share to shareholders of record as of November 18, 2004. This
dividend was paid on December 3, 2004. On January 20, 2005, the Board of
Directors declared a cash dividend of $0.17 per common share to shareholders of
record as of February 3, 2005. The dividend will be paid on February 17, 2005.
(9) EARNINGS PER SHARE
Earnings per share ("EPS") is computed by dividing net income by the weighted
average number of common shares outstanding in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Diluted
earnings per share takes into account the potential dilutive impact of such
instruments as stock options and uses average market price for the period in
determining the number of incremental shares to add to the weighted-average
number of shares outstanding.
The following table reconciles the number of common shares used in the basic and
diluted EPS calculations:
For the Three Months Ended December 31, 2004 For the Nine months Ended December 31, 2004
------------------------------------------ ------------------------------------------
Weighted- Per-Share Weighted- Per-Share
Net Income Average Shares Amount Net Income Average Shares Amount
------------ -------------- ------------ ------------ -------------- ------------
Basic EPS:
Income available to common
Stockholders $ 1,525,973 2,904,719 $ 0.53 $ 4,703,364 2,888,281 $ 1.63
============ ============
Effect of dilutive securities:
Stock options -- 79,725 -- 108,864
------------ ------------ ------------ ------------
Diluted EPS:
Income available to common
Stockholders - assumed
Conversions $ 1,525,973 2,984,444 $ 0.51 $ 4,703,364 2,997,145 $ 1.57
============ ============ ============ ============ ============ ============
For the Three Months Ended December 31, 2003 For the Nine months Ended December 31, 2003
------------------------------------------ ------------------------------------------
Weighted- Per-Share Weighted- Per-Share
Net Income Average Shares Amount Net Income Average Shares Amount
------------ -------------- ------------ ------------ -------------- ------------
Basic EPS:
Income available to common
Stockholders $ 1,281,245 2,285,027 $ 0.56 $ 2,754,352 1,621,314 $ 1.70
============ ============
Effect of dilutive securities:
Stock Options -- 198,593 -- 110,184
------------ ------------ ------------ ------------
Diluted EPS:
Income available to common
Stockholders - assumed
Conversions $ 1,281,245 2,483,620 $ 0.52 $ 2,754,352 1,731,498 $ 1.59
============ ============ ============ ============ ============ ============
Outstanding options to purchase 157,459 shares and 479,122 shares of the
Company's common stock were included in the computation of diluted EPS as of
December 31, 2004 and 2003, respectively. There were no outstanding options to
purchase shares of the Company's common stock included in the computation of
diluted EPS as their effect would have been antidilutive.
13
(10) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. Except for certain
long-term guarantees, most guarantees expire in one year. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Collateral supporting those
commitments, for which collateral is deemed necessary, generally amounts to one
hundred percent of the commitment amount at December 31, 2004. The Company
routinely charges a fee for these credit facilities. Such fees are amortized
into income over the life of the agreement, and unamortized amounts are not
significant as of December 31, 2004.
Standby letter of credit and financial guarantees, substantially all of which
are within the scope of Financial Interpretation No. ("FIN") 45, are written
conditional commitments issued by the bank to guarantee the performance of a
customer to a third party. At December 31, 2004 and 2003, these commitments
totaled $8.6 million and $4.5 million, respectively. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. The Company records fee income in accordance with
Financial Accounting Standards Board No. 91, "Accounting for Nonrefundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases," accordingly, a liability related to these guarantees has been
recorded in accordance with FIN 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, including Indirect Guarantees of Indebtedness of
Others."
(11) EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the FASB issued Statement No. 123(R), "Share-Based Payment."
This Statement replaces FASB Statement No. 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Statement No. 123(R) requires that the compensation cost relating to
share-based payment transactions (for example, stock options granted to
employees of the Company) be recognized in financial statements. That cost will
be measured based on the fair value of the equity or liability instruments used.
Statement 123(R) covers a wide range of share-based compensation arrangements
including share options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. Public entities (other
than those filing as small business issuers) will be required to apply Statement
No. 123(R) as of the first interim or annual reporting period that begins after
June 15, 2005. The Company intends to adopt the provisions of FASB Statement No.
123(R) effective June 30, 2005, and is in the process of evaluating the impact
on its consolidated financial position or consolidated results of operations.
In December 2003, the FASB issued Statement No. 132(R), "Employers' Disclosures
about Pensions and Other Postretirement Benefits." Statement No. 132, as
originally issued, is effective until the provisions of Statement No. 132(R) are
fully adopted. All new disclosure requirements for the domestic plans of
publicly traded entities are effective for years ending after December 15, 2003.
Estimated future benefit payments, and all other new disclosure requirements for
foreign plans and nonpublic entities are effective for years ending after June
15, 2004. The Company intends to adopt the provisions of FASB Statement No.
132(R) effective March 31, 2005, and does not expect the initial implementation
to have a significant impact on its consolidated financial position or
consolidated results of operations.
In December 2003, the FASB issued Interpretation Number ("FIN") 46(R),
"Consolidation of Variable Interest Entities." This applies at different dates
to different types of enterprises and entities, and special provisions apply to
enterprises that have fully or partially applies Interpretation 46 prior to
issuance of Interpretation 46(R). Application of Interpretation 46 or 46(R) is
required in financial statements of public entities that have interests in
variable interest entities or potential variable interest entities commonly
referred to as special-purpose entities for periods ending after December 15,
2003. The adoption of FIN 46R did not have a material impact on the Company's
consolidated financial statements.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statements requires financial instruments within its scope to be classified as
liabilities (or assets in some circumstances), and is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise effective
at the beginning of the first interim period beginning after December 15, 2003,
except for certain mandatorily redeemable financial instruments. It is to be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
Restatement is not permitted. The adoption of FASB Statement No. 150 did not
have a material impact on the Company's consolidated financial statements.
14
(12) DERIVATIVE FINANCIAL INSTRUMENT DESIGNATED AS HEDGES
As part of the Company's asset/liability management, it uses a swap agreement to
hedge interest rate risk. The derivative used as part of the asset/liability
management process is linked to specific assets and has a high correlation
between the contract and the underlying item being hedged, both at inception and
throughout the hedge period. These derivatives are designated and qualify as
fair value and cash flow hedges of certain assets and liabilities in accordance
with SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137 and No. 138. SFAS No. 133 establishes
accounting and reporting standards for financial derivatives, including certain
financial derivatives embedded in other contracts, and hedging activities. The
Statement requires the recognition of all financial derivatives as assets or
liabilities in the Company's statement of financial condition at fair value. The
accounting treatment of changes in fair value is dependent upon whether or not a
financial derivative is designated as a hedge and if so, the type of hedge.
In accordance with SFAS No. 133, the Company recognizes all derivatives on the
statement of financial condition at fair value. Fair value is based on dealer
quotes, or quoted prices from instruments with similar characteristics. The
Company uses financial derivatives designated for hedging activities as cash
flow hedges. For derivatives designated as cash flow hedges, changes in fair
value are recognized in other comprehensive income until the hedged item is
recognized in earnings.
The Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk management objective and strategy for
undertaking various hedge transactions. The Company also formally assesses (both
at the hedge's inception and on an ongoing basis) whether the derivatives that
are used in hedging transactions have been highly effective in offsetting
changes in cash flows of hedged items and whether those derivatives may be
expected to remain highly effective in future periods. The Company will
discontinue hedge accounting prospectively when it determines that the
derivative is no longer an effective hedge, the derivative expires or is sold,
or management discontinues the derivative's hedge designation.
The Company had a swap agreement to exchange monthly payments on a notional
amount of $10 million that terminated May 29, 2004. Under this two year
agreement, the Company swapped a variable rate payment equal to the prime rate
for a 6.32% fixed rate payment. Amounts paid or received on the interest rate
swap were included in earnings upon the receipt of interest payments on the
underlying hedged loans, including amounts totaling $38,137 and $167,496 that
were included in earnings during the nine months ended December 31, 2004 and
2003, respectively. There was no comprehensive income during the quarter ended
December 31, 2004 due to the swap agreement terminating prior to this quarter.
During the nine months ended December 31, 2004, the Company recorded a debit of
$23,174, net of $14,991 tax, to other comprehensive income arising from the
change in value of cash flow hedges. During the quarter ended December 31, 2003,
the Company recorded a credit of $35,883, net of $23,231 tax, to other
comprehensive income arising from the change in value of cash flow hedges.
During the nine months ended December 31, 2003, the Company recorded a credit of
$92,236, net of $59,669 tax, to other comprehensive income arising from the
change in value of cash flow hedges.
15
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters in this Quarterly Report on Form 10-Q may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements may relate to,
among other things, expectations of the business environment in which the
Company operates, projections of future performance, including operating
efficiencies, perceived opportunities in the market, potential future credit
experience and statements regarding the Company's mission and vision. These
forward-looking statements are based upon current management expectations, and
may, therefore, involve risks and uncertainties. The Company's actual results,
performance, and achievements may differ materially from those suggested,
expressed or implied by forward-looking statements due to a wide range of
factors including, but not limited to, the general business environment,
interest rates, the real estate market in Washington, Idaho and Oregon, the
demand for mortgage loans, the Company's ability to successfully integrate the
business of Oregon Trail, the realization of expected cost savings or accretion
to earnings because of the acquisition of Oregon Trail, competitive conditions
between banks and non-bank financial service providers, regulatory changes, and
other risks detailed in the Company's reports filed with the Securities and
Exchange Commission ("SEC"), including its Annual Report on Form 10-KSB for the
fiscal year ended March 31, 2004.
GENERAL
On July 1, 1997, FirstBank Northwest converted from mutual to stock form and
became a wholly owned subsidiary of a newly formed Delaware holding company,
FirstBank Corp. The Company sold 1,983,750 shares of common stock at $10.00 per
share in conjunction with a subscription offering to the Bank's Employee Stock
Ownership Plan ("ESOP") and eligible account holders. The net proceeds were
approximately $18.9 million. The Company used approximately $9.5 million of the
net proceeds to purchase all the capital stock of the Bank. In addition, the
Company loaned approximately $1.6 million to the ESOP for the purchase of shares
in the offering. In January 1998, the Bank changed its charter to a Washington
state savings bank.
The Company's principal business is the business of the Bank. Management
believes that the Company operates under a single business segment; therefore,
the discussion in Management's Discussion and Analysis of Financial Conditions
and Results of Operations relates to the Bank and its operations. At December
31, 2004, the Bank had eight depository offices in Idaho, three in Washington,
and nine in Oregon.
On October 31, 2003, the Company completed the acquisition of Oregon Trail
Financial Corp. and its wholly-owned subsidiary, Pioneer Bank, for approximately
$36.5 million in cash and 1,480,064 shares of the Company's common stock. The
acquisition doubled the Company's asset size and shares of common stock
outstanding. The Company is the surviving holding company with 100% ownership of
the Bank, and the Bank is the surviving thrift subsidiary.
In April 2002, the Bank opened a loan production office in Boise, Idaho for
mortgage real estate lending. In August 2002, the Bank opened a loan production
office in Spokane, Washington for commercial lending. In May 2003, the Bank
completed remodeling and expanding its Orchards Branch in Lewiston, Idaho. In
July 2003, the Bank completed the construction of the Clarkston, Washington
building. In November 2003, the Bank opened a commercial loan center in the
current mortgage real estate loan center in Boise, Idaho. In January 2004, the
Bank opened a residential loan center in the current commercial loan center in
Spokane, Washington. In February 2004, the Bank completed construction and
opened a new branch in Hayden, Idaho. In April 2004, the Bank opened a retail
deposit facility in Boise, Idaho. In October 2004, the Bank opened a loan
production office in Nampa, Idaho for mortgage real estate lending.
The Company's core processing system was not combined when the Company acquired
Oregon Trail Financial Corporation. In December 2004, the Company converted the
entire core processing system into one system to increase efficiencies. The
one-time expenses related to the conversion and training increased expenses
during the quarter ended December 31, 2004 by $32,500 and the nine month period
ended December 31, 2004 by $198,000. Capitalized costs related to the conversion
at January 31, 2005 were $537,500.
16
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and could potentially result in
materially different results under different assumptions and conditions. Not all
of these critical accounting policies require management to make difficult,
subjective or complex judgments or estimates. However, management believes that
the following policies and those disclosed could be considered critical within
the SEC definition. We believe that our most critical accounting policies upon
which our financial condition depends, and which involve the most complex or
subjective decisions or assessments are as follows:
Allowance for Loan Losses. Arriving at an appropriate level of reserve for loan
losses involves a high degree of judgment. The provision for loan losses is
based upon management's ongoing review and evaluation of the loan portfolio and
consideration of economic conditions which may affect the ability of borrowers
to repay their loans on a monthly basis, and by the Board of Directors on a
regular basis. A loan loss grading system assists management in determining the
overall risk in the loan portfolio. Individual loans are reviewed periodically
for classification into six categories: satisfactory, acceptable, special
mention, substandard, doubtful and loss; and are assigned a standard loan loss
percent. The change in loan types per category is multiplied by the assigned
loan loss percent to arrive at the basic monthly adjustment to the provision for
loan loss expense. The second element of the provision for loan losses is based
on management's review and evaluation of the allowance for loan losses based on
an analysis of historical trends, individual loans for which full collectibility
may not be reasonably assured, estimated fair value of the underlying
collateral, industry comparisons, unemployment rate in the Bank's market, and
inherent risks in the Bank's portfolio. The reserve may be affected by changing
economic conditions and various external factors, which may impact the portfolio
in ways currently unforeseen. The reserve is increased by provisions for loan
losses and by recoveries of loans previously charged-off and reduced by loans
charged-off.
Mortgage Servicing Rights (MSRs). Determination of the fair value of MSRs
requires the estimation of multiple interdependent variables, the most impactful
of which is mortgage prepayment speeds. Prepayment speeds are estimates of the
pace and magnitude of future mortgage payoff or refinance behavior of customers
whose loans are serviced by the Company. At least quarterly, the Company engages
a qualifies third party to provide an estimate of the fair value of MSRs using a
discounted cash flow model with assumptions and estimates based upon observable
market-based data and methodology common to the mortgage servicing market.
Management believes the model applies reasonable assumptions under the
circumstances, however, because of possible volatility in the market price of
MSRs, and the vagaries of any relatively illiquid market, there can be no
assurance that risk management and existing accounting practices will result in
the avoidance of possible impairment charges in future periods.
The cost of mortgage servicing rights is amortized in proportion to, and over
the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those rights. Fair
values are estimated using prices for similar assets with similar
characteristics, when available, or based upon discounted cash flows using
market-based assumptions. For purposes of measuring impairment, the rights are
stratified by predominant characteristics, such as interest rates and terms. The
amount of impairment recognized is the amount by which the capitalized mortgage
servicing rights for a stratum exceeds their fair value.
Securities. Estimates are used in the presentation of the securities portfolio
and these estimates impact the presentation of the Company's financial condition
and results of operations. Many of the securities included in the securities
portfolio are purchased at a premium or discount. The premiums or discounts are
amortized or accreted over the life of the security. For mortgage-related
securities, including Collateralized Mortgage Obligations (CMOs), the
amortization or accretion is based on estimated lives of the securities. The
lives of the securities can fluctuate based on the amount of prepayments
received on the underlying collateral of the securities. The Company uses
estimates for the lives of these mortgage-related securities based on
information provided by third parties. The Company adjusts the rate of
amortization or accretion regularly to reflect changes in the estimated lives of
these securities.
Goodwill and Other Intangible Assets. Analysis of the fair value of recorded
goodwill for impairment will involve a substantial amount of judgment, as well
as establishing and monitoring estimated lives of other amortizable intangible
assets. The Company had goodwill and other intangible assets as a result of
business combinations. The Company adopted Financial Accounting Standard No.
142, "Goodwill and Other Intangible Assets" effective January 1, 2002. In
accordance with the standard, goodwill and other intangibles with indefinite
lives are no longer being amortized but instead will be tested for impairment on
an annual basis or more frequently if impairment indicators arise. Management
has completed impairment testing for the Company's intangibles with indefinite
lives and determined that there was no impairment.
17
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2004 AND MARCH 31, 2004
Assets. Total assets increased by 9.9% to $769.6 million at December 31, 2004
from $700.2 million at March 31, 2004. This increase is mainly due to loan
growth and purchases of securities.
Cash and cash equivalents increased to $40.4 million at December 31, 2004 from
$38.4 million at March 31, 2004 as a result of an increase in non-interest
bearing deposits of $12.9 million, offset by a decrease in interest bearing
deposits of $10.9 million. Held-to-maturity investment securities increased to
$30.9 million at December 31, 2004 from $19.7 million at March 31, 2004 due to
purchases of securities in the first quarter. Available-for-sale investment
securities decreased $1.5 million. Available-for-sale mortgage-backed securities
decreased $11.6 million as a result of $14.0 million in principal pay downs,
$0.6 million in amortization, and $3.0 in purchases. Net loans receivable,
including loans held for sale, increased to $533.8 million at December 31, 2004
from $464.4 million at March 31, 2004. Total loans receivable increased to
$539.6 million at December 31, 2004 from $467.0 million at March 31, 2004. This
change in total loans receivable resulted from increases in residential real
estate loans of $3.0 million, commercial real estate loans of $33.2 million,
agricultural real estate loans of $0.9 million, construction real estate loans
of $14.0 million, commercial business loans of $12.1 million, consumer loans of
$8.3 million, and agricultural operating loans of $1.1 million. Loans held for
sale decreased to $3.4 million at December 31, 2004 from $5.3 million at March
31, 2004. Accrued interest receivable decreased to $3.2 million at December 31,
2004 from $3.3 million at March 31, 2004. The decrease in accrued interest
receivable is a result of the change in the mix of our loan portfolio. The loan
portfolio has increased, but the run off of the higher interest rate loans that
existed last period has caused the accrued interest receivable at December 31,
2004 to be less than March 31, 2004.
Equity securities, including FHLB stock, increased to $12.8 million at December
31, 2004 from $12.5 million at March 31, 2004. Net premises and equipment
increased to $18.6 million at December 31, 2004 from $18.3 million at March 31,
2004. FHLB of Seattle has lowered its dividend payout and has changed its method
of calculating the dividend payout based on earnings from the prior quarter,
subject to certain limitations. For additional information see `News' under `Our
Company' on the fhlbsea.com website. The dividend declared and paid for the
quarter ended March 31, 2004 was 4.0% on class B(1) stock and 0.641% on class
B(2) stock. The dividend declared and paid for the quarter ended June 30, 2004
was 4.0% on class B(1) stock and 0.771% on class B(2) stock. The dividend
declared and paid for the quarter ended September 30, 2004 was 3.5% on class
B(1) stock and 1.104% on class B(2) stock. FHLB elected not to declared or pay
dividends for the quarter ended December 30, 2004 on class B(1) or class B(2)
stock. The dividend declared and paid for the quarter ended March 31, 2005 is
1.63% on class B(1) stock and 1.50% on class B(2) stock. The Company will
recognize this lower return on equity securities on its statement of financial
condition and results of operations. Cash surrender value of bank owned and
other insurance policies increased to $23.0 million at December 31, 2004 from
$22.2 million at March 31, 2004. Mortgage servicing assets decreased to $662,000
at December 31, 2004 from $710,000 at March 31, 2004 due to capitalization of
$20,000, amortization of $134,000 and impairment recovery of $66,000. Goodwill
and other intangible assets decreased to $19.8 million at December 31, 2004 from
$21.0 million at March 31, 2004 primarily due to a $536,000 decrease in core
deposit intangible from amortization and a decrease of $744,000 in goodwill from
tax benefits on exercises of stock options purchased in the acquisition of
Oregon Trail. Deferred income taxes increased to $1.3 million at December 31,
2004 from $222,000 at March 31, 2004 due to the change in the mark to market
value on available for sale securities and deferred tax liability on allowance
for loan losses. Other assets decreased to $2.5 million at December 31, 2004
from $3.3 million at March 31, 2004.
Liabilities. Deposits increased to $503.6 million at December 31, 2004 from
$491.0 million at March 31, 2004, as a result of increases in savings deposits
of $1.8 million, money market accounts of $2.2 million, non-interest checking
accounts of $18.2 million, and certificates of deposit ("CDs") of $4.0 million,
partially offset by a decrease in interest checking accounts of $13.6 million.
Advances from borrowers for taxes and insurance decreased to $466,000 at
December 31, 2004 from $961,000 at March 31, 2004 due to a $11.0 million
decrease in the loan servicing portfolio. FHLB advances and other borrowings
increased to $186.6 million at December 31, 2004 from $132.1 million at March
31, 2004 to fund loan growth. Accrued expenses and other liabilities increased
to $7.6 million at December 31, 2004 from $6.8 million at March 31, 2004.
Stockholders' Equity. Additional paid-in-capital decreased $492,000 to $45.0
million at December 31, 2004 from $45.5 million at March 31, 2004 due to $2.6
million in repurchase of common stock, $2.0 million in stock issued from the
exercise of stock options, and $115,000 in ESOP shares released. Retained
earnings increased $3.2 million to $26.5 million at December 31, 2004 from $23.3
million at March 31, 2004 as a result of $4.7 million net income offset by $1.5
million in dividends paid. Accumulated other comprehensive income decreased
$733,000 to $558,000 at December 31, 2004 from $1.3 million at March 31, 2004 as
a result of changes in unrealized losses on available-for-sale securities, net
of tax benefit.
18
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2004 AND DECEMBER 31, 2003
Assets. Assets increased to $769.6 million at December 31, 2004 from $685.3
million at December 31, 2003. On October 31, 2003, assets increased by $371.1
million in connection with the acquisition of Oregon Trail. This increase is
mainly due to increases in cash and cash equivalents, loan growth, and purchases
of securities.
Cash and cash equivalents increased to $40.4 million at December 31, 2004 from
$23.5 million at December 31, 2003 as a result of an increase in non-interest
bearing deposits of $19.5 million, and a decrease in interest bearing deposits
of $2.6 million. Investment securities increased $10.0 million, which is due to
purchases of securities of $11.6 million, sales and maturities of $1.1 million
and a $507,000 net decrease in amortization and market value. Mortgage-backed
securities decreased $16.4 million due to purchases of $3.0 million, payments
from maturities of $18.8 million and a $634,000 net decrease in amortization and
market value changes. Net loans receivable, including loans held for sale,
increased to $533.8 million at December 31, 2004 from $459.5 million at December
31, 2003. Total loans receivable increased to $539.6 million at December 31,
2004 from $461.3 million at December 31, 2003. This change resulted from
increases in residential real estate loans of $3.8 million, commercial real
estate loans of $33.3 million, construction real estate loans of $20.5 million,
commercial business loans of $21.0 million, consumer loans of $5.3 million, and
decreases in agricultural real estate loans of $0.8 million and agricultural
operating loans of $5.0 million. Loans held for sale decreased to $3.4 million
at December 31, 2004 from $6.9 million at December 31, 2003 due to the timing of
loans sold at December 31, 2003. The mix of loans has changed reflecting the
Company's community banking strategy. Accrued interest receivable decreased to
$3.2 million at December 31, 2004 from $3.4 million at December 31, 2003. The
decrease in accrued interest receivable is a result of the change in the mix of
our loan portfolio. The loan portfolio has increased, but the run off of the
higher interest rate loans that existed last period has caused the accrued
interest receivable at December 31, 2004 to be less than December 31, 2003.
Equity securities, including FHLB stock, increased to $12.8 million at December
31, 2004 from $12.4 million at December 31, 2003. FHLB of Seattle has lowered
its dividend payout and has changed its method of calculating the dividend
payout based on earnings from the prior quarter, subject to certain limitations.
For additional information see `News' under `Our Company' on the fhlbsea.com
website. The dividend declared and paid for the quarter ended March 31, 2004 was
4.0% on class B(1) stock and 0.641% on class B(2) stock. The dividend declared
and paid for the quarter ended June 30, 2004 was 4.0% on class B(1) stock and
0.771% on class B(2) stock. The dividend declared and paid for the quarter ended
September 30, 2004 was 3.5% on class B(1) stock and 1.104% on class B(2) stock.
FHLB elected not to declared or pay dividends for the quarter ended December 30,
2004 on class B(1) or class B(2) stock. The dividend declared and paid for the
quarter ended March 31, 2005 is 1.63% on class B(1) stock and 1.50% on class
B(2) stock. The Company will recognize this lower return on equity securities on
its statement of financial condition and results of operations. Net premises and
equipment increased to $18.6 million at December 31, 2004 from $18.0 million at
December 31, 2003. Cash surrender value of bank owned and other insurance
policies increased to $23.0 million at December 31, 2004 from $22.0 million at
December 31, 2003. Mortgage servicing assets decreased to $662,000 at December
31, 2004 from $689,000 at December 31, 2003 due to capitalization of $41,000,
amortization of $184,000 and impairment recovery of $116,000 for the period
ending December 31, 2004. Goodwill and other intangible assets decreased to
$19.8 million at December 31, 2004 from $22.8 million at December 31, 2003
primarily due to a decrease in core deposit intangible from amortization and a
decrease in goodwill from tax benefits on exercises of stock options purchased
in the acquisition of Oregon Trail. Other assets decreased to $2.5 million at
December 31, 2004 from $2.6 million at December 31, 2003.
Liabilities. Deposits increased to $503.6 million at December 31, 2004 from
$474.5 million at December 31, 2003 as a result of a change in the mix of
deposits, with increases of $4.0 million in savings deposits, $6.9 million in
money market accounts, $37.7 million in non-interest bearing checking accounts,
$6.0 million in brokered CDs, and decreases of $21.3 million in interest bearing
checking accounts and $4.2 million in CDs. FHLB advances and other borrowings
increased to $186.6 million at December 31, 2004 from $134.1 million at December
31, 2003 due to funding loan growth. Accrued expenses and other liabilities
increased to $7.6 million at December 31, 2004 from $7.3 million at December 31,
2003.
Stockholders' Equity. Additional paid-in-capital decreased $1.2 million to $45.0
million at December 31, 2004 from $46.2 million at December 31, 2003 due to $5.9
million in repurchase of common stock, and $4.2 million in stock issued from the
exercise of stock options. Retained earnings increased $4.3 million to $26.5
million at December 31, 2004 from $22.2 million at December 31, 2003 as a result
of $6.3 million net income and $2.0 million in dividends paid. Accumulated other
comprehensive income decreased $783,000 to $558,000 at December 31, 2004 from
$1.3 million at December 31, 2003 as a result of changes in unrealized losses on
available-for-sale securities, net of tax benefit.
19
COMPARISON OF RESULTS OF OPERATIONS FOR THREE MONTHS ENDED DECEMBER 31, 2004 AND
2003
General. The Company acquired Oregon Trail Financial Corporation (OTFC) on
October 31, 2003 causing the results of operations to increase for the three
months ended December 31, 2004 from the three months ended December 31, 2003.
For the three months ended December 31, 2003 the results of operations exclude
October 2003 OTFC operations and the three months ended December 31, 2004
include a full period of combined operations. Net income increased to $1.5
million for the three months ended December 31, 2004 from $1.3 million for the
three months ended December 31, 2003, mainly as a result of the acquisition of
Oregon Trail, the purchase of securities, and increases in loan and deposit
balances.
Interest income. Net interest income increased to $7.0 million for the three
months ended December 31, 2004 from $5.2 million for the three months ended
December 31, 2003. Total interest income increased to $10.4 million for the
three months ended December 31, 2004 from $8.0 million for the three months
ended December 31, 2003. The yield on interest earning assets decreased to 6.34%
for the three months ended December 31, 2004 from 6.36% for the three months
ended December 31, 2003. The average interest earning assets increased to $668.8
million for the three months ended December 31, 2004 from $517.1 for the three
months ended December 31, 2003. Interest income on loans receivable increased to
$8.7 million for the three months ended December 31, 2004 from $6.6 million for
the three months ended December 31, 2003. The average balance of loans
receivable, including loans held for sale, was $514.7 million in the third
quarter of fiscal 2005 compared to $389.2 million in the third quarter of fiscal
2004. The yield on loans receivable, excluding loans held for sale, increased to
6.85% for the three months ended December 31, 2004 from 6.84% for the three
months ended December 31, 2003. Interest income from mortgage-backed securities
increased to $745,000 for the three months ended December 31, 2004 from $662,000
for the three months ended December 31, 2003. The increase is due to additional
income on the purchases of mortgage-backed securities. In December 2003, the
Company engaged in a $25.0 million leveraged transaction, purchasing
mortgage-backed securities funded by cash and short term FHLB advances. This
generated net interest income, helping defray the costs of depository branches
in Hayden and Boise, Idaho. Interest income from investment securities increased
to $528,000 for the three months ended December 31, 2004 from $315,000 for the
three months ended December 31, 2003. Interest income from FHLB dividends in
other interest earning assets for the three months ended December 31, 2004 and
2003 is $73,000 and $125,000, respectively. FHLB of Seattle has lowered its
dividend payout and has changed its method of calculating the dividend payout
based on earnings from the prior quarter, subject to certain limitations. For
additional information see `News' under `Our Company' on the fhlbsea.com
website. The dividend declared and paid for the quarter ended March 31, 2004 was
4.0% on class B(1) stock and 0.641% on class B(2) stock. The dividend declared
and paid for the quarter ended June 30, 2004 was 4.0% on class B(1) stock and
0.771% on class B(2) stock. The dividend declared and paid for the quarter ended
September 30, 2004 was 3.5% on class B(1) stock and 1.104% on class B(2) stock.
FHLB elected not to declared or pay dividends for the quarter ended December 30,
2004 on class B(1) or class B(2) stock. The dividend declared and paid for the
quarter ended March 31, 2005 is 1.63% on class B(1) stock and 1.50% on class
B(2) stock. The Company will recognize this lower return on equity securities on
its statement of financial condition and results of operations.
Interest expense. Interest expense increased to $3.4 million for the three
months ended December 31, 2004 from $2.8 million for the same period in 2003.
The average deposit balance for the three months ended December 31, 2004 was
$443.4 million, whereas the average deposit balance for the three months ended
December 31, 2003 was $347.0 million. The weighted average rate on deposits
decreased to 1.72% for the three months ended December 31, 2004 from 1.82% for
the three months ended December 31, 2003. The average balance of FHLB and other
advances for the three months ended December 31, 2004 was $153.1 million,
whereas the average balance of FHLB and other advances as of December 31, 2003
was $108.1 million. The weighted average rate on FHLB and other advances for the
three months ended December 31, 2004 was 3.82%, whereas the weighted average
rate on FHLB advances for the three months ended December 31, 2003 was 4.76%.
Provision for loan losses. As a result of the Company's evaluation of allowance
for loan losses discussed in the critical accounting policies, the Bank's
provision for loan losses increased to $470,000 for the three months ended
December 31, 2004 from $162,000 for the three months ended December 31, 2003.
The Company acquired Oregon Trail Financial Corporation (OTFC) on October 31,
2003 causing the results of operations to increase for the three months ended
December 31, 2004 from the three months ended December 31, 2003. For the three
months ended December 31, 2003 the results of operations exclude October 2003
OTFC operations and the three months ended December 31, 2004 include a full
period of combined operations.
Non-interest income. Non-interest income increased to $1.4 million for the three
months ended December 31, 2004 from $1.2 million for the three months ended
December 31, 2003. Gain on sale of loans decreased to $260,000 for the three
months ended December 31, 2004 from $286,000 for the three months ended December
31, 2003. Impairment allowance recovery recognized on mortgage servicing assets
for the three months ended December 31, 2004 was $44,000. Impairment recognized
on mortgage servicing rights for the three months ended December 31, 2003 was
$171,000. Service fees and charges increased to $1.1 million for the three
months ended December 31, 2004 from $870,000 for the three months ended December
31, 2003. Commissions and other income decreased to $41,000 for the three months
ended December 31, 2004 from $70,000 for the three months ended December 31,
2003.
20
Non-interest expense. Non-interest expense increased to $5.9 million for the
three months ended December 31, 2004 from $4.7 million for the three months
ended December 31, 2003. Compensation and employee related benefits expense
increased to $3.7 million for the three months ended December 31, 2004 from $2.9
million for the three months ended December 31, 2003. Occupancy expense
increased to $668,000 for the three months ended December 31, 2004 from $591,000
for the three months ended December 31, 2003. The primary reason for the $77,000
increase in occupancy expense is due to additional building depreciation of
$36,000 from construction of new branches in Hayden, Idaho, and additional
building rent of $16,000 on loan production centers in Boise, Idaho, Spokane,
Washington and Nampa, Idaho. Other non-interest expense increased to $1.5
million for the three months ended December 31, 2004 from $1.3 million for the
three months ended December 31, 2003. This $271,000 increase in other
non-interest expense is due to increases in data processing, postage, insurance,
professional services and merchant bank card expenses.
Income tax expense. Income tax expense increased to $542,000 for the three
months ended December 31, 2004 from $276,000 for the same time period in 2003.
The effective tax rates for the quarters ended December 31, 2004 and 2003 were
26.21% and 17.75% respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR NINE MONTHS ENDED DECEMBER 31, 2004 AND
2003
General. The Company acquired Oregon Trail Financial Corporation (OTFC) on
October 31, 2003 causing the results of operations to increase for the nine
months ended December 31, 2004 from the nine months ended December 31, 2003. For
the nine months ended December 31, 2003 the results of operations exclude seven
months ending October 2003 of OTFC operations and the nine months ended December
31, 2004 include a full period of combined operations. Net income increased to
$4.7 million for the nine months ended December 31, 2004 from $2.8 million for
the nine months ended December 31, 2003, mainly as a result of the acquisition
of Oregon Trail, the purchase of securities, and increases in loan and deposit
balances.
Interest income. Net interest income increased to $20.2 million for the nine
months ended December 31, 2004 from $11.3 million for the nine months ended
December 31, 2003. Total interest income increased to $29.8 million for the nine
months ended December 31, 2004 from $18.1 million for the nine months ended
December 31, 2003. The yield on interest earning assets decreased to 6.24% for
the nine months ended December 31, 2004 from 6.53% for the nine months ended
December 31, 2003, which offsets the return on the $273.6 million increase in
average interest earning assets. Interest income on loans receivable increased
to $24.8 million for the nine months ended December 31, 2004 from $15.5 million
for the nine months ended December 31, 2003. The average balance of loans
receivable, including loans held for sale, was $498.1 million in the first nine
months of fiscal 2005 compared to $305.0 million in the first nine months of
fiscal 2004. The yield on loans receivable, excluding loans held for sale,
decreased to 6.68% for the nine months ended December 31, 2004 from 6.80% for
the nine months ended December 31, 2003. Interest income from mortgage-backed
securities increased to $2.4 million for the nine months ended December 31, 2004
from $1.0 million for the nine months ended December 31, 2003. The increase is
due to interest income from mortgage-backed securities attributable to Oregon
Trail and additional income on the purchases of mortgage-backed securities.
Interest income from investment securities increased to $1.5 million for the
nine months ended December 31, 2004 from $692,000 for the nine months ended
December 31, 2003. Interest income from FHLB dividends in other interest earning
assets for the nine months ended December 31, 2004 and 2003 is $305,000 and
$276,000, respectively. FHLB of Seattle has lowered its dividend payout and has
changed its method of calculating the dividend payout based on earnings from the
prior quarter, subject to certain limitations. For additional information see
`News' under `Our Company' on the fhlbsea.com website. The dividend declared and
paid for the quarter ended March 31, 2004 was 4.0% on class B(1) stock and
0.641% on class B(2) stock. The dividend declared and paid for the quarter ended
June 30, 2004 was 4.0% on class B(1) stock and 0.771% on class B(2) stock. The
dividend declared and paid for the quarter ended September 30, 2004 was 3.5% on
class B(1) stock and 1.104% on class B(2) stock. FHLB elected not to declared or
pay dividends for the quarter ended December 30, 2004 on class B(1) or class
B(2) stock. The dividend declared and paid for the quarter ended March 31, 2005
is 1.63% on class B(1) stock and 1.50% on class B(2) stock. The Company will
recognize this lower return on equity securities on its statement of financial
condition and results of operations.
Interest expense. Interest expense increased to $9.5 million for the nine months
ended December 31, 2004 from $6.9 million for the same period in 2003. The
average deposit balance for the nine months ended December 31, 2004 was $431.7
million, whereas the average deposit balance for the nine months ended December
31, 2003 was $240.8 million. The weighted average rate on deposits decreased to
1.64% for the nine months ended December 31, 2004 from 2.02% for the nine months
ended December 31, 2003. The average balance of FHLB and other advances for the
nine months ended December 31, 2004 was $147.7 million, whereas the average
balance of FHLB and other advances for the nine months ended December 31, 2003
was $89.8 million. The weighted average rate on FHLB and other advances for the
nine months ended December 31, 2004 was 3.83%, whereas the weighted average rate
on FHLB and other advances for the nine months ended December 31, 2003 was
5.08%.
21
Provision for loan losses. As a result of the Company's evaluation of allowance
for loan losses discussed in the critical accounting policies, the Bank's
provision for loan losses increased to $1.0 million for the nine months ended
December 31, 2004 from $418,000 for the nine months ended December 31, 2003. The
Company acquired Oregon Trail Financial Corporation (OTFC) on October 31, 2003
causing the results of operations to increase for the nine months ended December
31, 2004 from the nine months ended December 31, 2003. For the nine months ended
December 31, 2003 the results of operations exclude seven months ending October
2003 of OTFC operations and the nine months ended December 31, 2004 include a
full period of combined operations.
Non-interest income. Non-interest income increased to $4.6 million for the nine
months ended December 31, 2004 from $3.8 million for the nine months ended
December 31, 2003. Gain on sale of loans decreased to $942,000 for the nine
months ended December 31, 2004 from $1.7 million for the nine months ended
December 31, 2003. Loans sold decreased 39.8% from $136.6 million for the nine
months ended December 31, 2003 to $82.3 million for the nine months ended
December 31, 2004. Service fees and charges increased to $3.5 million for the
nine months ended December 31, 2004 from $2.0 million for the nine months ended
December 31, 2003. Commissions and other income increased to $141,000 for the
nine months ended December 31, 2004 from $136,000 for the nine months ended
December 31, 2003.
Non-interest expense. Non-interest expense increased to $17.3 million for the
nine months ended December 31, 2004 from $11.0 million for the nine months ended
December 31, 2003. Compensation and employee related benefits expense increased
to $10.5 million for the nine months ended December 31, 2004 from $6.7 million
for the nine months ended December 31, 2003. Occupancy expense increased to $2.1
million for the nine months ended December 31, 2004 from $1.3 million for the
nine months ended December 31, 2003. The primary reason for the $838,000
increase in occupancy expense is due to additional property expenses from the
purchase of Oregon Trail and an increase in expenses from the expansion of
facilities in Spokane, Washington, Boise and Nampa, Idaho, remodel and expansion
of the Orchards branch in Lewiston, Idaho, construction of the Clarkston,
Washington building, and new branches in Hayden and Boise, Idaho. Other
non-interest expense increased to $4.6 million for the nine months ended
December 31, 2004 from $3.0 million for the nine months ended December 31, 2003.
This $1.6 million increase in other non-interest expense is due to additional
expenses from the purchase of Oregon Trail and increases in data processing,
postage, insurance, consulting and merchant bank card expenses.
Income tax expense. Income tax expense increased to $1.8 million for the nine
months ended December 31, 2004 from $837,000 for the same time period in 2003.
The effective tax rates for the nine months ended December 31, 2004 and 2003
were 27.56% and 23.30% respectively. The decrease in the effective tax rate is
due to the recognition of tax benefits from moving the administrative offices to
the state of Washington which does not impose a state income tax.
22
Asset Classification
The State of Washington has adopted various regulations regarding problem assets
of savings institutions. The regulations require that each insured institution
review and classify its assets on a regular basis. In addition, in connection
with examinations of insured institutions, State of Washington examiners have
the authority to identify problem assets and, if appropriate, require them to be
classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution charges off the full amount of the portion of the asset classified
as loss. All or a portion of general loan loss allowances established to cover
possible losses related to assets classified substandard or doubtful may be
included in determining an institution's regulatory capital, while specific
valuation allowances for loan losses generally do not qualify as regulatory
capital. Assets that do not currently expose the insured institution to
sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are classified as special mention and are
monitored by the Company.
At December 31, 2004, classified assets of the Company totaled $4.2 million.
There were no assets classified as doubtful. Assets classified as substandard
totaled $4.2 million, and consisted of $2.9 million of commercial loans,
$259,000 of consumer loans, $987,000 of residential loans, and $470,000 of real
estate owned and other repossessed assets. The substandard commercial loans
include 22 loans with 15 borrowers, of which $2.3 million have specific reserve
allocations. The substandard consumer loans include 29 loans with 26 borrowers.
The substandard residential loans include 12 loans to 10 borrowers. At December
31, 2004, real estate owned consists of one property, and other repossessed
assets include seven automobiles. The aggregate amounts of the Bank's classified
assets at the dates indicated were as follows:
At December 31,
-----------------------
2004 2003
---------- ----------
(In Thousands)
Doubtful -- 144
Substandard 4,168 4,298
---------- ----------
Total classified assets $ 4,168 $ 4,442
========== ==========
23
Average Balances, Interest and Average Yields/Costs
The following table sets forth certain information for the periods indicated
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities and average tax effected yields
and costs. Such yields and costs for the years indicated are derived by dividing
tax effected income or expense by the average daily balance of assets or
liabilities, respectively, for the periods presented.
Three months Ending Three months Ending
December 31, 2004 December 31, 2003
----------------------------------------- -----------------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Cost (1) Balance Dividends Cost (2)
----------- ----------- ----------- ----------- ----------- -----------
(Dollars in Thousands)
Interest-earning assets (3):
Loans receivable:
Mortgage loans $ 116,264 $ 1,814 6.24% $ 91,482 $ 1,549 6.77%
Commercial loans 227,170 3,749 6.67 163,955 2,532 6.26
Construction loans 53,452 1,140 8.53 35,980 699 7.77
Consumer loans 75,156 1,246 6.63 54,210 1,016 7.50
Agricultural loans 46,667 742 6.36 43,436 697 6.42
Unearned loan fees and
discounts and allowance
for loan losses (8,787) -- -- (7,187) -- --
----------- ----------- ----------- ----------- ----------- -----------
Loans receivable, net 509,922 8,691 6.85 381,876 6,493 6.84
Loans held for sale 4,811 56 4.66 7,345 102 5.55
Mortgage-backed securities 66,831 745 4.46 46,500 662 5.69
Investment securities 48,876 528 5.07 26,671 315 6.07
Other earning assets 38,357 349 4.73 54,676 439 3.86
----------- ----------- ----------- ----------- ----------- -----------
Total interest-earning assets 668,797 10,369 6.35 517,068 8,011 6.36
----------- ----------- ----------- -----------
Non-interest-earning assets 81,031 55,311
----------- -----------
Total assets $ 749,828 $ 572,379
=========== ===========
Interest-earning liabilities:
Passbook, NOW and money
market accounts $ 239,724 $ 415 0.69 $ 174,430 $ 291 0.67
Certificates of deposit 203,696 1,489 2.92 172,611 1,218 2.82
----------- ----------- ----------- ----------- ----------- -----------
Total deposits 443,420 1,904 1.72 347,041 1,509 1.74
Advances from FHLB & other 153,079 1,462 3.82 108,067 1,286 4.76
----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing
liabilities 596,499 3,366 2.26 455,108 2,795 2.46
----------- -----------
Total non-interest-bearing
deposits 74,926 0.00 52,399 0.00
----------- ----------- ----------- -----------
Total deposits and
borrowed funds 671,425 2.01 507,507 2.20
----------- -----------
Non-interest-bearing
liabilities 7,207 7,946
----------- -----------
Total liabilities 678,632 515,453
Total stockholders' equity 71,196 56,926
----------- -----------
Total liabilities and
total stockholders' equity $ 749,828 $ 572,379
=========== ===========
Net interest income $ 7,003 $ 5,216
=========== ===========
Interest rate spread 4.34% 4.16%
=========== ===========
Net interest margin 4.33% 4.25%
=========== ===========
Ratio of average interest-
earning assets to average
interest- bearing liabilities 99.61% 101.88%
=========== ===========
24
Nine months Ending Nine months Ending
December 31, 2004 December 31, 2003
----------------------------------------- -----------------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Cost (4) Balance Dividends Cost (5)
----------- ----------- ----------- ----------- ----------- -----------
(Dollars in Thousands)
Interest-earning assets (3):
Loans receivable:
Mortgage loans $ 116,354 $ 5,574 6.39% $ 62,030 $ 3,238 6.96%
Commercial loans 213,192 9,980 6.31 136,578 6,316 6.21
Construction loans 50,461 3,094 8.18 34,359 2,027 7.87
Consumer loans 73,740 3,720 6.73 34,366 2,011 7.80
Agricultural loans 47,401 2,204 6.20 35,046 1,627 6.19
Unearned loan fees and
discounts and allowance
for loan losses (8,395) -- -- (5,598) -- --
----------- ----------- ----------- ----------- ----------- -----------
Loans receivable, net 492,753 24,572 6.68 296,781 15,219 6.86
Loans held for sale 5,334 216 5.40 8,185 319 5.20
Mortgage-backed securities 70,428 2,396 4.54 21,374 1,010 6.30
Investment securities 45,764 1,476 5.28 20,321 692 6.10
Other earning assets 38,462 1,131 5.01 32,486 877 4.35
----------- ----------- ----------- ----------- ----------- -----------
Total interest-earning assets 652,741 29,791 6.24 379,147 18,117 6.53
----------- ----------- ----------- -----------
Non-interest-earning assets 76,400 36,783
----------- -----------
Total assets $ 729,141 $ 415,930
=========== ===========
Interest-earning liabilities:
Passbook, NOW and money
market accounts $ 231,657 $ 1,123 0.65 $ 107,912 $ 528 0.65
Certificates of deposit 200,050 4,176 2.78 132,855 3,126 3.14
----------- ----------- ----------- ----------- ----------- -----------
Total deposits 431,707 5,299 1.64 240,767 3,654 2.02
Advances from FHLB & other 147,729 4,243 3.83 89,842 3,424 5.08
----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing
liabilities 579,436 9,542 2.20 330,609 7,078 2.85
----------- -----------
Total non-interest-bearing
deposits 72,089 0.00 39,422 0.00
----------- -----------
Total deposits and
borrowed funds 651,525 1.95 370,031 2.55
----------- -----------
Non-interest-bearing
liabilities 7,179 6,253
----------- -----------
Total liabilities 658,704 376,284
Total stockholders' equity 70,437 39,646
----------- -----------
Total liabilities and
total stockholders' equity $ 729,141 $ 415,930
=========== ===========
Net interest income $ 20,249 $ 11,039
=========== ===========
Interest rate spread 4.29% 3.68%
=========== ===========
Net interest margin 4.29% 4.07%
=========== ===========
Ratio of average interest-
earning assets to average
interest- bearing liabilities 100.19% 114.68%
=========== ===========
25
(1) Interest on tax-exempt securities and loans are presented on a tax
equivalent basis. The tax benefit on interest income for the nine months
ended December 31, 2004 is $250,000. Excluding this tax effect, average
yields on commercial loans would have been 6.60%, net loans receivable
would have been 6.80%, investment securities would have been 4.32%, and
other earning assets would have been 3.64%. Total interest-earning assets
would have been 6.20%, interest rate spread would have been 4.20%, and net
interest margin would have been 4.19%.
(2) Interest on tax-exempt securities and loans are presented on a tax
equivalent basis. The tax benefit on interest income for the year ended
March 31, 2004 is $200,000. Excluding this tax effect, average yields on
commercial loans would have been 6.18%, net loans receivable would have
been 6.78%, investment securities would have been 4.72%, and other earning
assets would have been 3.21%. Total interest-earning assets would have been
6.20%, interest rate spread would have been 3.99%, and net interest margin
would have been 4.04%.
(3) Does not include interest on loans 90 days or more past due.
(4) Interest on tax-exempt securities and loans are presented on a tax
equivalent basis. The tax benefit on interest income for the nine months
ended December 31, 2004 is $1.0 million. Excluding this tax effect, average
yields on commercial loans would have been 6.24%, net loans receivable
would have been 6.64%, investment securities would have been 4.30%, and
other earning assets would have been 3.92%. Total interest-earning assets
would have been 6.09%, interest rate spread would have been 4.13%, and net
interest margin would have been 4.14%.
(5) Interest on tax-exempt securities and loans are presented on a tax
equivalent basis. The tax benefit on interest income for the nine months
ended December 31, 2004 is $500,000. Excluding this tax effect, average
yields on commercial loans would have been 6.17%, net loans receivable
would have been 6.79%, investment securities would have been 4.54%, and
other earning assets would have been 3.60%. Total interest-earning assets
would have been 6.37%, interest rate spread would have been 3.90%, and net
interest margin would have been 3.96%.
LIQUIDITY AND CAPITAL RESOURCES
The primary function of asset/liability management is to ensure adequate
liquidity and to maintain an appropriate balance between interest sensitive
earning assets and liabilities. Management actively analyzes and manages the
Company's liquidity position. The objective of liquidity management is to ensure
the availability of sufficient cash flows to support loan growth and deposit
withdrawals, to satisfy financial commitments, and to take advantage of
investment opportunities.
The Company's primary recurring sources of funds are customer deposits, proceeds
from principal and interest payments on loans, proceeds from sales of loans,
maturing securities, FHLB advances, and borrowings from the Portland Branch
Office of the Federal Reserve Bank of San Francisco. While maturities and
scheduled amortization of loans are a predictable source of funds, deposit flows
and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition. See the Company's Consolidated Statement of
Cash Flows to assist in analyzing our liquidity position.
The primary investing activity of the Company is the origination of loans.
During the nine months ended December 31, 2004, the Company originated loans
based upon new production in the amounts of $368.2 million. The Company
maintains a ladder of securities that provides prepayments and payments at
maturity and a portfolio of available-for-sale securities that could be
converted to cash quickly. Proceeds from maturity and sale of securities
provided $15.3 million and $5.7 million for the nine months ended December 31,
2004 and 2003, respectively. Proceeds from the sale of loans provided $82.3
million for the nine months ended December 31, 2004 and $136.6 million for the
nine months ended December 31, 2003.
In connection with the acquisition of Oregon Trail, the Company issued 1.48
million shares of common stock and paid approximately $36.5 million in cash. The
Company had a $42.5 million bridge loan available to provide for the $36.5
million in cash to purchase shares of Oregon Trail common stock. The Company
used $36.5 million of the bridge loan from an independent party for four days.
The merger was completed after the close of business on October 31, 2003.
26
The primary financing activities of the Company are customer deposits, brokered
deposits and advances from the FHLB-Seattle. As indicated on the Company's
Consolidated Statement of Cash Flows, deposits provided $13.2 million for the
nine months ended December 31, 2004, which were branch deposits. Deposits
increased $12.5 million for the nine months ended December 31, 2004 from March
31, 2004. In addition, the Company maintains a credit facility with the
FHLB-Seattle, which provides for immediately available advances. FHLB advances
totaled $184.1 million at December 31, 2004 and $134.1 million at December 31,
2003, with $51.0 million of the increase attributable to the acquisition of
Oregon Trail. The Company also maintains additional credit facilities with US
Bank and the Federal Reserve Bank of San Francisco. The Company had $2.5 million
of its $23.5 million line of credit outstanding at US Bank as of December 31,
2004. The Company did not have any amounts outstanding under the Federal Reserve
Bank of San Francisco as of December 31, 2004 and 2003. The Bank also has used
other sources of funding when the need arises, including brokered CDs (up to 15%
of assets under current Board policy) and the national CD markets. Cash provided
by advances from the FHLB-Seattle and other borrowing facilities was $393.6
million for the nine months ended December 31, 2004 and $106.2 million for the
nine months ended December 31, 2003. Cash used for payments on these advances
was $338.4 million for the nine months ended December 31, 2004 and $104.8
million for the nine months ended December 31, 2003.
At December 31, 2004, the Company held cash and cash equivalents of $40.4
million. In addition, at December 31, 2004, $17.6 million of the Company's
investment securities were classified as available for sale.
The Company has commitments that have a future impact on its liquidity position.
Because some commitments are expected to expire without being drawn upon, the
total commitment amounts do not represent future cash requirements. At December
31, 2004, the Company had loan commitments totaling $61.9 million, and
undisbursed lines of credit totaling $87.6 million. The Company anticipates that
it will have sufficient funds available to meet its current loan origination
commitments. Certificates of deposit that are scheduled to mature in less than
one year from December 31, 2004 totaled $112.3 million. Historically, the
Company has been able to retain a significant amount of its deposits as they
mature. In addition, management believes that it can adjust the offering rates
of CDs to retain deposits in changing interest rate environments.
The Bank is required to maintain specific amounts of capital pursuant to Federal
Deposit Insurance Corporation and State of Washington requirements. As of
December 31, 2004, the Bank was in compliance with all regulatory capital
requirements effective as of that date with Tier 1 Capital to average assets,
Tier 1 Capital to risk-weighted assets and Total Capital to risk-weighted assets
of 6.75%, 9.15% and 10.40%, respectively.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
Contractual obligations at December 31, 2004 consisted of the following:
One Year to Three Years to
Less than One Less than Three Less than Five Five Years and
Total Year Years Years Greater
------------ ------------ ------------ ------------ ------------
(In Thousands)
Maturities of advances from FHLB
and other borrowings $ 186,577 $ 100,473 $ 33,489 $ 8,178 $ 44,437
Operating leases future minimum
rental payments $ 598 $ 203 $ 322 $ 73 $ --
Other commitments at December 31, 2004 consisted of the following:
One Year to Three Years to
Less than One Less than Three Less than Five Five Years and
Total Year Years Years Greater
------------ ------------ ------------ ------------ ------------
(In Thousands)
Loan commitments $ 61,917 $ 38,086 $ 15,523 $ 216 $ 8,092
Lines of credit $ 87,614 $ 61,784 $ 4,075 $ 3,304 $ 18,451
Standby letters of credit $ 8,610 $ 8,093 $ 517 $ -- $ --
27
The Company has signed several contracts with vendors for its data processing
operations. The terms of the contracts expire in one year or less. The annual
fees are paid at the beginning of the terms or are paid monthly based upon
usage, transactions or number of customers. The data processing, automated
teller machine, merchant bank card and visa credit card expense, which include
these contracts, was $1.4 million for the nine months ended December 31, 2004.
In addition, the Company has a contract with Wausau Financial Systems for the
proof and imaging system.
Standby letter of credit and financial guarantees, substantially all of which
are within the scope of Financial Interpretation No. ("FIN") 45, are written
conditional commitments issued by the bank to guarantee the performance of a
customer to a third party. At December 31, 2004 and 2003, these commitments
totaled $8.6 million and $4.5 million, respectively. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. The Company records fee income in accordance with
Financial Accounting Standards Board No. 91, "Accounting for Nonrefundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases," accordingly, a liability related to these guarantees has been
recorded in accordance with FIN 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, including Indirect Guarantees of Indebtedness of
Others."
28
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
INTEREST RATE RISK
Interest rate risk represents the sensitivity of earnings to changes in market
interest rates. As interest rates change, the interest income and expense
streams associated with the Company's financial instruments also change, thereby
impacting net interest income ("NII") which is the primary component of the
Company's earnings. The asset/liability management committee ("ALCO") utilizes
the results of a detailed and dynamic simulation model to quantify the estimated
exposure of NII to sustained interest rate changes. While ALCO routinely
monitors simulated NII sensitivity over a rolling two-year horizon, it also
utilizes additional tools to monitor potential longer-term interest rate risk.
The simulation model captures the impact of changing interest rates on the
interest income received and interest expense paid on all assets and liabilities
reflected on the Company's balance sheet as well as for off balance sheet
derivative financial instruments, if any. This sensitivity analysis is compared
to ALCO policy limits which specify a maximum tolerance level for NII exposure
over a one year horizon, assuming no balance sheet growth, given both a 200
basis point (bp) upward and 100 or 200 bp downward shift in interest rates. A
parallel and pro rata shift in rates over a 12 month period is assumed. Based on
the asset sensitivity of the balance sheet at December 31, 2004, the Bank
expects to be well positioned to benefit from rising rates and minimize negative
impact of declining rates. If rates were to sustain an immediate 200 bp
increase, net interest income would be expected to rise by 1.49%, all else being
equal. If rates were to sustain an immediate 100 bp decrease, net interest
income would be expected to decline by 2.18%, all else being equal. The
following reflects the Company's NII sensitivity analysis as of December 31,
2004, March 31, 2004 and December 31, 2003, as compared to the 10.00% Board
approved policy limit.
December 31, 2004: -100 BP Flat +200 BP
-------- -------- --------
(Dollars in Thousands)
Year 1 NII $ 26,092 $ 26,674 $ 27,072
NII $ Change ($ 582) -- $ 398
NII % Change -2.18% -- 1.49%
March 31, 2004: -100 BP Flat +200 BP
-------- -------- --------
(Dollars in Thousands)
Year 1 NII $ 25,187 $ 25,593 $ 25,995
NII $ Change ($ 406) -- $ 402
NII % Change -1.59% -- 1.57%
December 31, 2003: -100 BP Flat +200 BP
-------- -------- --------
(Dollars in Thousands)
Year 1 NII $ 25,053 $ 25,712 $ 26,448
NII $ Change ($ 659) -- $ 736
NII % Change -2.56% -- 2.86%
The preceding sensitivity analysis does not represent a Company forecast and
should not be relied upon as being indicative of expected future operating
results. These hypothetical estimates are based upon numerous assumptions
including the nature and timing of interest rate levels including yield curve
shape, prepayments on loans and securities, deposit decay rates, pricing
decisions on loans and deposits, reinvestment/replacement of asset and liability
cash flows, and others. While assumptions are developed based upon current
economic and local market conditions, the Company cannot make any assurances as
to the predictive nature of these assumptions including how customer preferences
or competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis,
actual results will also differ due to prepayment/refinancing levels likely
deviating from those assumed, the varying impact of interest rate change caps or
floors on adjustable rate assets, the potential effect of changing debt service
levels on customers with adjustable rate loans, depositor early withdrawals and
product preference changes, and other variables. Furthermore, the sensitivity
analysis does not reflect actions that ALCO might take in responding to or
anticipating changes in interest rates.
29
Item 4 - Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the
Company's disclosure controls and procedures (as defined in Section
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) was carried
out under the supervision and with the participation of the Company's Chief
Executive Officer, Chief Financial Officer and several other members of the
Company's senior management as of the end of the period covered by this
report. The Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures as
currently in effect are effective in ensuring that the information required
to be disclosed by the Company in the reports it files or submits under the
Securities Exchange Act of 1934 is (i) accumulated and communicated to the
Company's management (including the Chief Executive Officer and Chief
Financial Officer) in a timely manner, and (ii) recorded, processed,
summarized and reported within the time periods specified in the SEC's
rules and forms.
(b) Changes in Internal Controls: There was no change in the Company's internal
control over financial reporting during the Company's most recently
completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
30
FIRSTBANK NW CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
From time to time, the Company or its subsidiaries are engaged in legal
proceedings in the ordinary course of business, none of which are currently
considered to have a material impact on the Company's financial position,
results of operations, or cash flows.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Maximum
Number of
Shares
Total Number of that May
Shares Purchased yet be
Total Number Average as Part of Purchased
of Shares Price Paid Publicly Under the
Period Purchased per Share Announced Plan Plan
- --------------------------------------------- --------- --------- ---------------- ---------
October 1, 2004 to October 31, 2004 -- -- -- 95,366(1)
November 1, 2004 to November 30, 2004
December 1, 2004 to December 31, 2004 -- -- -- --
--------- --------- --------- ---------
Total -- -- -- 95,366
========= ========= ========= =========
(1) On August 27, 2004, the Company's Board of Directors authorized a 5% stock
repurchase plan, or 147,866 shares of the Company's outstanding common
stock. As of December 31, 2004, 52,500 shares had been repurchased under
this program.
Item 3 - Defaults Upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
31
Item 6 - Exhibits
Exhibits:
3.1 Articles of Incorporation of the Registrant (1)
3.2 (a) Bylaws of the Registrant (1)
3.2 (b) Bylaws Amendment adopted by the Board of Directors on May
23, 2002 (2)
10.1 Employment Agreement between FirstBank Northwest, FirstBank
Corp. and Clyde E. Conklin (3)
10.2 Employment Agreement between FirstBank Northwest, FirstBank
Corp. and Larry K. Moxley (3)
10.3 Salary Continuation Agreement between First Federal Bank of
Idaho, F.S.B. and Clyde E. Conklin (3)
10.4 Salary Continuation Agreement between First Federal Bank of
Idaho, F.S.B. and Larry K. Moxley (3)
31.1 Certification of Chief Executive Officer of FirstBank NW Corp.
31.2 Certification of Chief Financial Officer of FirstBank NW Corp.
32.1 Certification of Chief Executive Officer of FirstBank NW Corp.
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer of FirstBank NW Corp.
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the year ended March 31, 2000.
(2) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the year ended March 31, 2002.
(3) Incorporated by reference to the Registrant's Registration Statement
on Form SB-2, (File No. 333-23395).
32
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.
FIRSTBANK NW CORP.
DATED: February 8, 2005 BY: /s/ CLYDE E. CONKLIN
-------------------------------------
Clyde E. Conklin
President and Chief Executive Officer
BY: /s/ LARRY K. MOXLEY
-------------------------------------
Larry K. Moxley
Secretary and Chief Financial Officer
33