SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-26556
OREGON TRAIL FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Oregon 91-1829481
- ------------------------------------------------------------------------------
State or other jurisdiction of (I.R.S. Employer or organization
incorporation Identification Number)
2055 First Street, Baker City, Oregon 97814
- ------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (541) 523-6327
--------------
Securities registered pursuant to Section 12(b) of the Act: None
--------------
Securities registered pursuant to Common Stock. Par value $.01 per share
Section 12(g) of the Act: --------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days. YES [ X ] NO [ ]
As of February 9, 2001 there were issued and outstanding 3,318,551 shares of
the Registrant's Common Stock. The Registrant's voting common stock is traded
and listed on the Nasdaq National Market under the symbol "OTFC".
OREGON TRAIL FINANCIAL CORP.
TABLE OF CONTENTS
Part I. Financial Information
Item I. Financial Statements (Unaudited) Page
Consolidated Balance Sheets 2
as of December 31, 2000 and March 31, 2000
Consolidated Statements of Income; For the Three and Nine 3
Months Ended December 31, 2000 and 1999
Consolidated Statements of Shareholders' Equity
(For the Nine Months Ended December 31, 2000 and for
the Year Ended March 31, 2000). 4
Consolidated Statements of Cash Flows (For the
Nine Months Ended December 31, 2000 and 1999) 5 - 6
Notes to Consolidated Financial Statements 7 - 11
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 -15
Item III. Quantitative and Qualitative Disclosures about
Market Risk 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 and MARCH 31, 2000
(UNAUDITED)
($ in thousands)
December 31 March 31
ASSETS 2000 2000
----------- -----------
Cash and cash equivalents (including interest
earning accounts of $20,270 and $7,588) $ 22,431 $ 9,261
Securities:
Available for sale, at fair value (amortized cost:
$90,279 and $127,373) 90,404 122,051
Loans receivable, net of allowance for loan
losses of $2,057 and $1,396 251,855 220,591
Accrued interest receivable 2,288 2,452
Premises and equipment, net 10,308 9,902
Stock in Federal Home Loan Bank of Seattle, at cost 4,578 3,897
Real estate owned and other repossessed assets - 8
Net deferred tax asset - 1,822
Other assets 704 628
----------- -----------
TOTAL ASSETS $ 382,568 $ 370,612
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Interest-bearing $ 106,816 $ 106,285
Noninterest-bearing 19,324 14,961
Time certificates 129,831 116,489
----------- -----------
Total deposits 255,971 237,735
Advances from Federal Home Loan Bank of Seattle 66,725 76,750
Accrued expenses and other liabilities 3,152 2,333
Net deferred tax liability 293 -
Advances from borrowers for taxes and insurance 14 690
----------- -----------
Total liabilities 326,155 317,508
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock - $.01 par value; 1,000,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.01 par value; 8,000,000 shares
authorized; December 31, 2000, 4,694,875 issued,
3,318,551 outstanding; March 31, 2000, 4,694,875
issued, 3,317,006 outstanding; 35 36
Additional paid-in capital 31,053 31,743
Retained earnings (substantially restricted) 27,795 27,759
Unearned shares issued to the Employee Stock
Ownership Plan (2,012) (2,415)
Unearned shares issued to the Management Recognition
and Development Plan (596) (740)
Accumulated other comprehensive income (loss) 138 (3,279)
----------- -----------
Total shareholders' equity 56,413 53,104
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 382,568 $ 370,612
=========== ===========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
(2)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999
(UNAUDITED)
($ in thousands except per share data)
3 MOS ENDED 3 MOS ENDED 9 MOS ENDED 9 MOS ENDED
31-Dec-00 31-Dec-99 31-Dec-00 31-Dec-99
INTEREST INCOME:
Interest and fees on
loans receivable $5,231 $4,291 $15,023 $12,292
Securities:
Mortgage-backed and
related securities 1,360 1,422 4,294 3,747
U.S. government and
government agencies 574 586 1,788 1,789
Other interest and dividends 74 61 213 179
----------- ----------- ----------- -----------
Total interest income 7,239 6,360 21,318 18,007
INTEREST EXPENSE:
Deposits 2,811 2,250 7,890 6,184
Federal Home Loan Bank of
Seattle advances 1,167 873 3,753 2,272
----------- ----------- ----------- -----------
Total interest expense 3,978 3,123 11,643 8,456
Net interest income 3,261 3,237 9,675 9,551
Provision for loan losses 117 (12) 723 118
Net interest income after ----------- ----------- ----------- -----------
provision for loan losses 3,144 3,249 8,952 9,433
NONINTEREST INCOME:
Service charges on deposit
accounts 469 290 1,311 817
Loan servicing fees 101 102 299 272
Other Income (expense) (4) 14 (29) 182
----------- ----------- ----------- -----------
Total noninterest income 566 406 1,581 1,271
NONINTEREST EXPENSE:
Employee compensation and
benefits 1,944 1,563 5,083 4,452
Supplies, postage, and
telephone 187 227 641 636
Depreciation 230 173 671 483
Occupancy and equipment 201 176 524 462
FDIC insurance premium 12 32 37 91
Customer accounts 162 102 415 281
Advertising 40 124 175 371
Professional fees 65 53 251 147
Loss on sale of investment
securities 561 - 953 -
Other 140 208 515 555
----------- ----------- ----------- -----------
Total noninterest expense 3,542 2,658 9,265 7,478
Income before income taxes 168 997 1,268 3,226
Provision for income taxes 52 355 423 1,174
----------- ----------- ----------- -----------
NET INCOME $116 $642 $845 $2,052
=========== =========== =========== ===========
Basic Earnings per share $0.03 $0.18 $0.25 $0.57
=========== =========== =========== ===========
Weighted Average Number of
Shares Outstanding 3,339,166 3,486,408 3,333,054 3,593,967
Diluted Earnings per share $0.03 $0.18 $0.25 $0.54
=========== =========== =========== ===========
Weighted Average Number of
Dilutive Shares 3,403,884 3,655,537 3,355,564 3,781,177
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
(3)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 2000 AND THE YEAR ENDED MARCH 31, 2000
(UNAUDITED)
($ in thousands)
Unearned
Shares
Unearned Issued to
Shares Management Accumu-
Issued to Recogni- lated
Employee tion Other
Stock and Compre- Compre-
Additional Owner- Develop- hensive hensive
Common Stock Paid-In Retained ship ment Income Income
Shares Amount Capital Earnings Trust Plan (Loss) (Loss) Total
------ ------ ------- -------- ----- ---- ------ ------ -----
Balance, April 1,
1999 3,763,564 $42 $38,357 $26,206 ($2,951) ($1,453) ($118) $60,083
Net income 2,609 $2,609 2,609
Cash dividends
paid (1,056) (1,056)
Stock repurchased (534,228) (6) (6,350) (6,356)
Earned ESOP shares 53,656 76 536 612
New MRDP shares
granted 71 (71) 0
Earned MRDP shares 34,014 373 373
Forfeiture of MRDP
shares (411) 411 0
Unrealized loss on
securities
available for sale,
net of tax (3,161) (3,161) (3,161)
------
Comprehensive loss ($552)
--------- --- ------- ------- ------- ------- ====== ------- -------
Balance, March 31,
2000 3,317,006 36 31,743 27,759 (2,415) (740) (3,279) 53,104
Net income 845 845 845
Cash dividends
paid (809) (809)
Stock repurchased (64,508) (1) (777) (778)
Earned ESOP shares 40,239 45 403 448
Earned MRDP shares 25,814 144 144
Unearned MRDP shares 42 42
Unrealized gain on
securities
available for sale,
net of tax 3,417 3,417 3,417
------
Comprehensive income $4,262
--------- --- ------- ------- ------- ------- ====== ------- -------
Balance, December
31, 2000 3,318,551 $35 $31,053 $27,795 ($2,012) ($596) $138 $56,413
The accompanying notes are an integral part of these unaudited consolidated financial statements.
(4)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999
(UNAUDITED)
($ in thousands)
31-Dec-00 31-Dec-99
CASH FLOWS FROM OPERATING ACTIVITIES --------- ---------
Net income $845 $2,052
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 671 483
Compensation expense related to ESOP 448 482
Compensation expense related to MRDP 186 307
Amortization of deferred loan fees, net (57) (146)
Provision for loan losses 723 118
Amortization(accretion) of premiums/discounts 614 143
on investments and loans purchased
Federal Home Loan Bank of Seattle dividends (213) (179)
Gain on sale of real estate owned (16)
(Gain) loss on sale of premises and equipment (3) 9
Changes in assets and liabilities:
Accrued interest receivable 164 (176)
Other assets (373) (305)
Accrued expenses and other liabilities 1,112 (424)
--------- ---------
Net cash provided by operating activities 4,117 2,348
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations (87,417) (106,583)
Loan principal repayments 72,949 84,346
Loans purchased (17,644) (9,520)
Purchase of stock in Federal Home Loan Bank of
Seattle (468) (238)
Purchase of securities available for sale (4,000) (32,865)
Proceeds from sale of securities available
for sale 30,459 -
Proceeds from maturity of securities available
for sale - 5,004
Principal repayments of securities available
for sale 10,300 11,396
Proceeds from sales of real estate owned - 124
Proceeds from sales of premises and equipment - 212
Purchases of premises and equipment (1,074) (2,169)
--------- ---------
Net cash provided by (used) in investing activities 3,105 (50,293)
--------- ---------
(5)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits, net of withdrawals $18,236 $36,469
Change in advances from borrowers for taxes and
insurance (676) (558)
Change in borrowings from Federal Home Loan Bank
of Seattle (10,025) 20,425
Payment of cash dividend (809) (787)
Stock repurchase (778) (5,214)
--------- ---------
Net cash provided by financing activities 5,948 50,335
--------- ---------
Net increase in cash 13,170 2,391
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,261 6,276
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $22,431 $8,667
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and other borrowings $3,964 $8,042
Income taxes 435 1,025
Noncash investing activities:
Transfer of loans to foreclosed real estate - 84
Unrealized gain(loss) on securities available
for sale, net of tax 3,417 (3,049)
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
(6)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary for a fair presentation
of Oregon Trail Financial Corp. and Subsidiary's (the "Company") financial
condition as of December 31, 2000 and March 31, 2000, the results of
operations for the three and nine months ended December 31, 2000 and 1999 and
of cash flows for the nine months ended December 31, 2000 and 1999. All
adjustments are of a normal recurring nature. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report to Shareholders filed as an exhibit to the Company's Form 10-K
for the year ended March 31, 2000. The results of operations for the three
and nine months ended December 31, 2000 are not necessarily indicative of the
results which may be expected for the entire fiscal year.
2. REORGANIZATION
On October 3, 1997, Pioneer Bank, A Federal Savings Bank, (the "Bank")
completed a mutual-to-stock conversion and formation of the Company as its
holding company. In connection with the conversion, the Company sold
4,694,875 shares of its common stock ("Common Stock") at $10 per share, 8% or
375,590 of which shares were purchased by an Employee Stock Ownership Plan
(the "ESOP"). Proceeds from the sale were recorded as $46,949 of Common Stock
at $.01 par value and $45,681,982 of Paid in Capital. The Common Stock and
Paid in Capital at December 31, 2000 are partially offset by the unissued ESOP
shares and unissued Management Recognition and Development Plan ("MRDP")
shares.
The Company purchased all of the stock of the Bank for one-half of the net
investable proceeds of the offering. The retained earnings of the Company
represent all prior earnings of the Bank as a mutual savings bank and all
earnings since the conversion.
The primary business of the Company is overseeing the operations of the Bank.
Accordingly, the information presented herein relates primarily to the Bank.
3. COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" requires all items that are required to be recognized
under accounting standards as components of comprehensive income to be
reported in a financial statement that is displayed in equal prominence with
the other financial statements and to disclose as a part of shareholders'
equity accumulated other comprehensive income. Comprehensive income is
defined as the change in equity during a period from transactions and other
events from nonowner sources. Comprehensive income is the total of net income
and other comprehensive income, which for the Company is comprised entirely of
unrealized gains and losses on securities available for sale, net of tax.
(7)
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows for the
year ended March 31, 2000 and for nine months ended December 31, 2000:
December 31, 2000 March 31, 2000
(in thousands) (in thousands)
-------------- --------------
Balance, beginning of period $ 1,396 $ 1,228
Charge-offs (80) (42)
Recoveries 18 32
Provision for loan losses 723 178
-------------- --------------
Balance, end of period $ 2,057 $ 1,396
============== ==============
5. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at December 31, 2000 consisted of 15 term advances varying in
length from two days to 356 months totaling $66.7 million from the Federal
Home Loan Bank ("FHLB")of Seattle. The advances are collateralized in
aggregate as provided for in the Advances Security and Deposit Agreement with
the FHLB by certain mortgages or deeds of trust, government agency securities
and cash on deposit with the FHLB. Scheduled maturities of advances from the
FHLB were as follows at December 31, 2000:
Due in less than one year:
- --------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
- ---------------------------------------------------------
$22,225,000 4.93% - 6.64% 5.63%
Due within one to five years:
- -----------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
- ----------------------------------------------------------
$29,500,000 5.20% - 7.22% 6.47%
Due in greater than five years:
- -------------------------------
Amount Range of interest Weighted Average
Rates Interest Rate
- ---------------------------------------------------------
$15,000,000 7.03% - 7.12% 7.09%
(8)
6. SHAREHOLDERS' EQUITY
In February 2000, the Company received a non-objection response from the
Office of Thrift Supervision ("OTS") in connection with a request to
repurchase 5% of its outstanding shares of Common Stock, or 179,005 shares.
As of December 31, 2000, all shares had been repurchased under the program at
a weighted average price per share of $10.71. In December 2000, the Company
received an additional non-objection response from the OTS to repurchase 10%
of its outstanding shares of Common Stock or 331,850 shares. Since converting
to a stock company, the Company has repurchased 1,234,941 shares, or 26% of
shares initially outstanding.
7. EARNINGS PER SHARE
Shares held by the Company's ESOP that are committed for release are
considered common stock equivalents and are included in weighted average
shares outstanding (denominator) for the calculation of basic and diluted
Earnings Per Share ("EPS"). Diluted EPS is computed using the treasury stock
method, giving effect to potential additional common shares that were
outstanding during the period. Potential dilutive common shares include
shares awarded but not released under the Company's MRDP and stock options
granted under the Stock Option Plan. Following is a summary of the effect of
dilutive securities on weighted average number of shares (denominator) for the
basic and diluted EPS calculations. There are no resulting adjustments to net
earnings.
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
- ------------------------------------------------------------------------------
2000 1999 2000 1999
- ------------------------------------------------------------------------------
Weighted average common
shares outstanding -
basic 3,339,166 3,486,408 3,333,054 3,593,967
- ------------------------------------------------------------------------------
Effect of Dilutive
Securities on
Number of Shares:
MRDP shares 18,831 119,858 15,070 138,134
Stock Options 45,887 49,271 7,440 49,076
- ------------------------------------------------------------------------------
Total Dilutive
Securities 64,718 169,129 22,510 187,210
- ------------------------------------------------------------------------------
Weighted average common
shares outstanding -
with dilution 3,403,884 3,655,537 3,355,564 3,781,177
- ------------------------------------------------------------------------------
8. REGULATORY CAPITAL
The Company's primary sources of funding include deposits, proceeds from
loan principal and interest payments, interest income on investment
securities, and FHLB advances. The Bank has a borrowing capacity at FHLB
equal to 30 percent of total assets, which on December 31, 2000 permitted
additional advances of $48.0 million. The Bank also has an unsecured line of
credit with Key Bank of $16.0 million, and a $50.0 million reverse repurchase
line of credit with Merrill Lynch which have remained unused. While
maturities and scheduled amortization of loans are predictable sources of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions, and competition.
(9)
Regulations require the Bank to maintain a minimum liquidity equal to 4
percent of deposits and short-term borrowings. Liquidity is measured by cash
and readily marketable securities which are not committed, pledged, or
required as collateral for specific liabilities. The Bank had an average
liquidity ratio of 10.46% and 9.40% for the quarters ended December 31, 1999
and 2000, respectively.
The Company is not subject to separate regulatory capital requirements. The
following table illustrates the Bank's compliance with currently applicable
regulatory capital requirements at December 31, 2000 and March 31, 2000.
As of December 31, 2000:
Categorized as
"Well Capitalized"
For Capital Under Prompt
Adequacy Corrective
Actual Purposes Action Provision
(In Thousands) (In Thousands) (In Thousands)
------------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
As of Dec.31,
2000:
Total Capital:
(To Risk Weighted
Assets) $ 49,636 22.7% $ 17,440 8.0% $ 21,800 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 47,579 21.8 N/A N/A 13,080 6.0
Tier I Capital:
(To Tangible
Assets) 47,579 12.5 15,279 4.0 19,099 5.0
Tangible Capital:
(To Tangible
Assets) 47,579 12.5 5,730 1.5 N/A N/A
As of March 31, 2000
Categorized as
"Well Capitalized"
For Capital Under Prompt
Adequacy Corrective
Actual Purposes Action Provision
(In Thousands) (In Thousands) (In Thousands)
------------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
As of March 31,
2000:
Total Capital:
(To Risk Weighted
Assets) $ 53,812 28.5% $ 15,114 8.0% $ 18,892 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 52,416 27.7 N/A N/A 11,335 6.0
Tier I Capital:
(To Tangible
Assets) 52,416 14.0 14,934 4.0 18,667 5.0
Tangible Capital:
(To Tangible
Assets) 52,416 14.0 5,600 1.5 N/A N/A
(10)
9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board issued SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This pronouncement replaces SFAS No. 125,
issued in June 1996. SFAS No. 140 is effective for transfers occurring after
March 31, 2001 and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. The Company does
not expect the adoption of SFAS No. 140 to have a material impact on its
financial statements.
ITEM II.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Safe Harbor Clause. This report contains certain "forward-looking
statements". The Company desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing itself of the
protection of such safe harbor with respect to all such forward-looking
statements. These forward-looking statements, which are included in
Management's Discussion and Analysis, describe future plans or strategies and
include the Company's expectations of future financial results. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements. The Company's ability to
predict results or the effect of future plans or strategies is inherently
uncertain. Factors which could affect actual results include interest rate
trends, the general economic climate in the Company's market area and the
country as a whole, loan delinquency rates, and changes in federal and state
regulation. These factors should be considered in evaluating the
forward-looking statements, and undue reliance should not be placed on such
statements.
General
The Company, an Oregon corporation, was organized on June 9, 1997 for the
purpose of becoming the holding company for the Bank upon the Bank's
conversion from a federal mutual to a federal stock savings bank
("Conversion"). The Conversion was completed on October 3, 1997. At December
31, 2000, the Company had total assets of $382.6 million, total deposits of
$256.0 million and shareholders' equity of $56.4 million. The Company is
currently not engaged in any business activity other than holding the stock of
the Bank. Accordingly, the information set forth in this report, including
financial statements and related data, relates primarily to the Bank. All
references to the Company herein include the Bank where applicable.
The Bank was organized in 1901. It is regulated by the OTS and its deposits
are insured up to applicable limits under the Savings Association Insurance
Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Bank is a member of the FHLB of Seattle, conducting its business through
nine office facilities, with the headquarters located in Baker City, Oregon.
The primary market areas of the Bank are the counties of Wallowa, Union,
Baker, Malheur, Harney, Grant and Umatilla in Eastern Oregon. On May 30, 2000
the Company purchased Western Bank's Pendleton branch located in Umatilla
County to increase the Bank's potential customer base.
(11)
The Bank is a community oriented financial institution whose principal
business is attracting retail deposits from the general public and using these
funds to originate one-to-four family residential mortgage loans and consumer
loans within its primary market area. The Bank also actively originates home
equity and second mortgage loans. At December 31, 2000, one-to-four family
residential mortgage loans totaled $136.7 million, or 53.8% of total loans
receivable. Beginning in 1996, the Bank began supplementing its traditional
lending activities with commercial business loans, agricultural loans and the
purchase of dealer-originated automobile contracts. As a result of these
activities at December 31, 2000 the Company had agricultural loans of $17.2
million, commercial business loans of $21.5 million, commercial real estate
loans of $20.0 million, agricultural real estate loans of $3.2 million, and
automobile loans of $27.3 million (including $22.3 million of purchased
dealer-originated contracts).
Net interest income, which is the difference between interest and dividend
income on interest-earning assets, primarily loans and investment securities,
and interest expense on interest-bearing deposits and borrowings, is the major
source of income for the Company. Because the Company depends primarily on
net interest income for its earnings, the focus of management is to create and
implement strategies that will provide stable, positive spreads between the
yield on interest-earning assets and the cost of interest-bearing liabilities.
Such strategies include increasing the origination of commercial and
agricultural loans with rates that are adjustable based upon The Wall Street
Journal prime rate or the current five-year Treasury Note yield. Commercial
(including both commercial real estate and commercial business) and
agricultural loans outstanding totaled $30.9 million and $15.7 million,
respectively, at March 31, 2000 and increased to $41.5 million and $20.4
million respectively at December 31, 2000. The Company has also increased the
origination of shorter-term consumer loans, increasing automobile loans from
$21.6 million at March 31, 2000 to $27.3 million at December 31, 2000.
To a lesser degree, the net earnings of the Company rely on the level of its
non-interest income. The Company is focusing on improvements in its fee
structure for income generation, and to control its non-interest expense,
which includes employee compensation and benefits, and occupancy and equipment
expense.
Changes in Financial Condition
At December 31, 2000, the consolidated assets of the Company totaled $382.6
million, an increase of $12.0 million, or 3.2%, compared to $370.6 million at
March 31, 2000. The primary reason for the increase was a $31.3 million
increase in net loans receivable and a $13.2 million increase in cash, offset
by $31.6 million decrease in securities. The increase in assets was funded by
an $18.2 million increase in deposits offset by a $10.0 million decrease in
FHLB borrowings.
Net loans receivable increased by $31.3 million, or 14.2%, to $251.9 million
at December 31, 2000 compared to $220.6 million at March 31, 2000. The
increase was primarily the result of continued new loan demand for all types
of loans exceeding loan repayments, as well as the purchase of $2.9 million in
loans through the Pendleton branch acquisition in May 2000.
(12)
Non-performing assets, consisting of non-accruing loans, real estate owned and
other repossessed assets, decreased $90,000 from $163,000 at March 31, 2000 to
$73,000 at December 31, 2000. Non-performing assets were .02% of total assets
at December 31, 2000 and .04% of total assets at March 31, 2000. The
allowance for loan losses was 2818% of non-performing loans at December 31,
2000, compared to 901% at March 31, 2000.
Deposits increased $18.3 million or 7.67%, from $237.7 million at March 31,
2000 to $256.0 million at December 31, 2000. This includes the purchase of
$3.4 million in deposits through the Pendleton branch acquisition in May 2000.
Advances from borrowers for taxes and insurance decreased $676,000 from
$690,000 at March 31, 2000 to $14,000 at December 31, 2000 due to the payment
of annual property taxes in November. The Company had $66.7 million in
advances from the FHLB at December 31, 2000 compared to $76.8 million at March
31, 2000. Proceeds from the sale of securities available for sale attributed
to the decrease in borrowings.
Results of Operations
Comparison of Nine Months Ended December 31, 2000 and 1999
General. The decrease in net income of $1.2 million was primarily due to an
increase in the provision for loan losses, a loss on the sale of investment
securities, and the cost of severance packages issued in connection with a
downsizing of the Company's workforce. Non-interest income increased
$310,000, or 24.4% for the nine-month period ended December 31, 2000compared
to the same period in the prior year. Net interest income increased $124,000,
or 1.3% while interest income increased $3.3 million, or 18.4%, and interest
expense increased $3.2 million, or 37.7%. The provision for loan losses
increased $605,000, or 512.7%. Non-interest expense increased $1.8 million,
or 23.9%, and the provision for income taxes decreased $751,000, or 64.0%.
Interest Income. The increase of $3.3 million in interest income was
generated by an additional $42.9 million in average interest earning assets
for the nine months ended December 31, 2000 compared to the same period in
1999. The increase in average interest-earning assets was primarily due to
increases in the average loan portfolio of $36.9 million and the average
investment portfolio of $4.9 million.
The average yield on interest earning assets increased from 7.36% for the nine
months ended December 31, 1999 to 7.68% for the same period in 2000. The
increase in the average yield was primarily due to the $36.9 million increase
in the average balance of the loan portfolio. The Company has focused on
growing commercial, agricultural and dealer-originated loans which yield a
higher rate.
Interest Expense. Interest expense on savings deposits increased $1.7 million
for the nine months ended December 31, 2000 compared to the same period in
1999. Average deposits increased by $28.2 million for the same period. The
average interest paid on deposits increased 48 basis points from 3.72% for the
nine months ended December 31, 1999 to 4.20% for the same period in 2000. The
increase in cost of deposits is primarily due to an increased balance of
higher costing certificates of deposits in the deposit mix. The cost of all
funds, including FHLB borrowings, increased from 4.04% for the nine months
ended December 31, 1999 to 4.72% for
(13)
the same period in 2000. The increase was due to a $20.4 million increase in
the average balance of FHLB borrowings. The average cost of FHLB borrowings
for the nine-month period ending December 31, 2000 was 6.38%. The increased
borrowings were used to fund increases in average interest earning assets.
Provision for Loan Losses. The provision for loan losses was $723,000 and net
charge-offs amounted to $62,000 during the nine months ended December 31, 2000
compared to a provision for loan losses of $118,000 and net recoveries of
$5,000 for the nine-month period ended December 31, 1999. The allowance for
loan losses totaled $2.1 million or .81% of total loans at December 31, 2000
compared to $1.4 million or .63% of total loans at March 31, 2000. The
provision for loan losses was increased due primarily to portfolio growth,
especially in commercial, agricultural and consumer loans.
Non-Interest Income. Non-interest income increased $310,000, or 24.4%, for
the nine months ended December 31, 2000 to $1.6 million compared to $1.3
million for the same period in the prior year. The increase in income from
deposit accounts of $494,000, or 60.5%, was due to strong growth in core
deposits as well as an improved fee schedule. A $173,000 gain on the sale of
investment real estate was realized in the nine months ended December 31,
1999.
Non-Interest Expense. Non-interest expense increased $1.8 million, or 23.9%,
to $9.3 million for the nine months ended December 31, 2000 compared to $7.5
million for the same period in 1999. This increase includes a $953,000 loss
on sale of investment securities, a $303,000 severance cost associated with a
downsizing of the Company's workforce, as well as costs associated with the
expanding infrastructure to support positioning the Company in new market
areas and widening its customer base.
Income Taxes. The effective tax rate decreased to 33.4% for the nine months
ended December 31, 2000 compared to 36.4% for the same period in the prior
year. The decrease was attributable to a lower level of net income before
taxes, as well as an investment in loans to school districts where the Bank
receives tax credits rather than interest income.
Comparison of Three Months Ended December 31, 2000 and 1999
General. The decrease in net income of $526,000 for the three months ended
December 31, 2000 compared to the same period in 1999 was primarily due to an
increase in non-interest expense and an increase in provision for loan losses.
Net interest income increased $24,000, or .7% for the three-month period ended
December 31, 2000 compared to the same period in 1999. Non-interest income
increased $160,000 while the provision for loan losses increased $129,000.
Non-interest expense increased $884,000, and the provision for income taxes
decreased $303,000.
Interest Income. The increase of $878,000 in interest income was generated by
an additional $29.9 million in average interest earning assets for the three
months ended December 31, 2000 compared to the same period in 1999. The
increase in average interest earning assets was primarily due to increases in
the average loan portfolio of $34.7 million and an increase in interest
earning accounts of $3.1 million, offset by a decrease in the average
investment portfolio of $7.9 million.
(14)
The average yield on interest-earning assets increased from 7.42% for the
three months ended December 31, 1999 to 7.74% compared to the same period in
2000. The increase in the average yield was primarily due to the $34.7
million increase in the average balance of the loan portfolio. The Company
has focused on increasing its portfolio of commercial, agricultural and
dealer-originated loans which yield a higher interest rate.
Interest Expense. Interest expense on savings deposits increased by $561,000
for the three months ended December 31, 2000 compared to the same period in
1999. Average deposits increased by $22.1 million for the same period. The
average interest paid on deposits increased 53 basis points from 3.81% for the
three months ended December 31, 1999 to 4.34% compared to the same period in
2000. The cost of deposits increased primarily due to an increased balance of
higher costing certificates of deposits in the deposit mix. The cost of all
funds, including FHLB borrowings, increased by 63 basis points from 4.17% for
the quarter ended December 31, 1999 to 4.80% for the same period in 2000. The
increase in cost of funds was due to an $8.2 million increase in the average
balance of FHLB borrowings, which are typically at a higher cost than
deposits. The average cost of borrowings for the quarter ended December 31,
2000 was 6.47%.
Provision for Loan Losses. The provision for loan losses was $117,000 and net
charge-offs were $18,000 for the three months ended December 31, 2000 compared
to a provision for loan losses of a $12,000 credit and net charge-offs of
$7,000 for the three-month period ended December 31, 1999. At December 31,
2000, the allowance for loan losses was equal to 2818% of non-performing loans
compared to 901% at March 31, 2000. The allowance for loan losses totaled
$2.1 million or .81% of total loans at December 31, 2000 compared to $1.4
million or .63% of total loans at March 31, 2000. The provision was increased
due primarily to portfolio growth, especially in commercial, agricultural and
consumer loans.
Non-Interest Income. Non-interest income increased $160,000, or 39.4%, to
$566,000 for the three months ended December 31, 2000 from $406,000 for the
same period in the prior year. The primary reason for the increase was a
$179,000 increase in service charges on deposit accounts due to an improved
fee schedule and strong deposit growth.
Non-Interest Expense. Non-interest expense increased $884,000, or 33.3% to
$3.5 million for the three months ended December 31, 2000, from $2.7 million
compared to the same period in 1999. This increase includes a $561,000 loss
on sale of investment securities, and a $303,000 severance cost associated
with downsizing the Company's workforce.
Income Taxes. The effective tax rate decreased to 31.0% for the three months
ended December 30, 2000 compared to 33.6% for the same period in 1999. The
decrease was attributable to a lower level of net income before taxes as well
as an investment in loans to school districts where the Bank receives tax
credits rather than interest income.
Liquidity and Capital Resources. For a discussion of the Company's liquidity
and capital resources see Note 8 of Notes to Consolidated Financial
Statements.
(15)
Item No. III
Quantitative and Qualitative Disclosures about Market Risk
The mismatch between maturities and interest rate sensitivities of balance
sheet items results in interest rate risk. The extent of interest rate risk
to which the Bank is subject is monitored by management by modeling the change
in net portfolio value ("NPV") over a variety of interest rate scenarios. NPV
is the present value of expected cash flows from assets, liabilities and off-
balance sheet contracts. The calculation is intended to illustrate the change
in NPV that will occur in the event of an immediate change in interest rates
of at least 200 basis points with no effect given to any steps which
management might take to counter the effect of that interest rate movement.
At March 31, 2000 there was a $20.6 million, or 55.4% decrease in the Bank's
NPV as a percent of the present value of assets, assuming a 200 point increase
in interest rates. The Bank has taken steps to decrease its interest rate
risk by better matching maturities of its balance sheet items. Based on the
OTS model at December 31, 2000 the decrease in the Bank's NPV was $12.2
million, or 23.0%.
(16)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is involved in various claims and legal actions arising
in the normal course of business. Management believes that these
proceedings will not result in a material loss to the Company.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's Annual Meeting of Stockholders ("Meeting") was held on
August 8, 2000. The results of the vote on the matters presented at
the Meeting were as follows:
1. The following individuals were elected as directors for three year
terms:
Vote For Vote Withheld
-------- -------------
Stephen R. Whittemore 2,899,177 223,920
Charles H. Rouse 2,899,402 223,695
2. The appointment of the Company's auditors, Deloitte & Touche LLP,
as Independent auditors for the fiscal year ending March 31, 2001
was approved by stockholders by the following vote:
For 3,069,958; Against 46,956; Abstain 6,183; Broker Non-Votes 0
--------- ------ ----- -
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
3(a) Articles of Incorporation of the Registrant (1)
3(b) Bylaws of the Registrant (1)
10(a) Employment Agreement with Zane Lockwood (2)
10(b) Severance Agreement with William H. Winegar (3)
10(c) Severance Agreement with Thomas F. Bennett (5)
10(d) Severance Agreement with Jerry Kincaid (5)
10(e) Severance Agreement with Marvin L. Sumner (6)
10(f) Employee Severance Compensation Plan (3)
10(g) Pioneer Bank, a Federal Savings Bank Employee Stock Ownership
Plan (3)
10(h) Pioneer Bank, a Federal Savings Bank 401 (k) Plan (1)
10(i) Pioneer Bank Director Emeritus Plan (1)
10(j) 1998 Stock Option Plan (4)
10(k) 1998 Management Recognition and Development Plan (4)
27 Financial Data Schedule
- ----------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (333-30051), as amended.
(2) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended June 30, 2000.
(3) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1997.
(4) Incorporated by reference to the Registrant's Definitive Proxy Statement
for the 1998 Annual Meeting of Shareholders.
(5) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1998.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the quarter ended
December 31, 2000.
(6) Incorporated by reference to the Registrant's Form 10-K for the year
ended March 31, 2000.
(17)
SIGNATURES
Pursuant to 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.
OREGON TRAIL FINANCIAL CORP.
Date: February 14, 2001 By: /s/ Berniel L. Maughan
-------------------------------------
Berniel L. Maughan, President and
Chief Executive Officer
Date: February 14, 2001 By: /s/ Jon McCreary
-------------------------------------
Jon McCreary, Chief Financial
Officer
(18)