SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURS UANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
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 incorporation (I.R.S. Employer or
organization 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
Section 12(g) of the Act: Common Stock. Par value $.01 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days. YES [ X ] NO [ ]
As of October 31, 2001, there were issued and outstanding 3,234,578 shares of
the Registrant's Common Stock. The Registrant's voting common stock is traded
and listed on the Nasdaq National Market under the symbol "OTFC."
OREGON TRAIL FINANCIAL CORP.
TABLE OF CONTENTS
Part I. Financial Information
Item I. Financial Statements (Unaudited) Page
Consolidated Balance Sheets 2
as of September 30, 2001 and March 31, 2001
Consolidated Statements of Income for the 3
Three and Six Months Ended September 30,
2001 and 2000
Consolidated Statements of Shareholders' Equity
(For the Six Months Ended September 30, 2001 and for
the Year Ended March 31, 2001). 4
Consolidated Statements of Cash Flows (For the
Six Months Ended September 30, 2001 and 2000) 5 - 6
Notes to Consolidated Financial Statements 7 - 10
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 -14
Item III. Quantitative and Qualitative Disclosures about
Market Risk 14
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2001 and MARCH 31, 2001
(UNAUDITED)
($ in thousands, except share data)
September 30 March 31
ASSETS 2001 2001
--------- ---------
Cash and cash equivalents (including
interest earning accounts of $5,496
and $8,626) $ 7,335 $ 10,581
Securities:
Available for sale, at fair value
(amortized cost: $62,495 and $88,812) 64,154 96,924
Loans receivable, net of allowance for loan
losses of $2,418 and $2,098 292,668 250,897
Accrued interest receivable 2,621 2,372
Premises and equipment, net 9,830 10,136
Stock in Federal Home Loan Bank of Seattle
("FHLB"), at cost 6,115 4,651
Real estate owned and other repossessed assets 58 63
Other assets 13,574 13,257
--------- ---------
TOTAL ASSETS $ 396,355 $ 388,881
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Interest-bearing $ 110,075 $ 106,206
Noninterest-bearing 21,772 19,678
Time certificates 119,803 127,893
--------- ---------
Total deposits 251,650 253,777
Advances from FHLB 84,875 73,125
Accrued expenses and other liabilities 4,480 4,151
Advances from borrowers for taxes and insurance 35 22
--------- ---------
Total liabilities 341,040 331,075
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; September 30, 2001, 4,694,875
issued, 3,035,077 outstanding; March 31, 2001,
4,694,875 issued, 3,325,757 outstanding; 33 36
Additional paid-in capital 26,108 30,972
Retained earnings (substantially restricted) 30,083 28,374
Unearned shares issued to the Employee Stock
Ownership Plan ("ESOP") (1,610) (1,878)
Unearned shares issued to the Management Recognition
and Development Plan ("MRDP") (363) (515)
Accumulated comprehensive income 1,064 817
--------- ---------
Total shareholders' equity 55,315 57,806
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 396,355 $ 388,881
========= =========
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 SIX MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
($ in thousands, except per share data)
3 MOS ENDED 3 MOS ENDED 6 MOS ENDED 6 MOS ENDED
30-Sep-01 30-Sep-00 30-Sep-01 30-Sep-00
<s> <c> <c> <c> <c>
INTEREST INCOME:
Interest and fees on loans receivable $6,063 $5,114 $11,696 $ 9,791
Securities:
Mortgage-backed and related securities 794 1,447 1,908 2,935
U.S. government and government agencies 359 611 769 1,215
Other interest and dividends 106 73 197 139
------ ------ ------- -------
Total interest income 7,322 7,245 14,570 14,080
INTEREST EXPENSE:
Deposits 2,202 2,669 4,733 5,079
FHLB advances 1,243 1,363 2,497 2,586
------ ------ ------- -------
Total interest expense 3,445 4,032 7,230 7,665
Net interest income 3,877 3,213 7,340 6,415
Provision for loan losses 24 502 342 606
------ ------ ------- -------
Net interest income after provision for
loan losses 3,853 2,711 6,998 5,809
NON-INTEREST INCOME:
Service charges on deposit accounts 438 498 880 842
Loan servicing fees 147 95 277 198
Realized gain on securities - - 310 -
Other Income (expense) 138 (18) 275 (24)
------ ------ ------- -------
Total non-interest income 723 575 1,742 1,016
NON-INTEREST EXPENSE:
Employee compensation and benefits 1,519 1,602 3,013 3,139
Supplies, postage, and telephone 216 239 431 455
Depreciation 219 168 439 333
Occupancy and equipment 170 228 344 432
FDIC insurance premium 10 12 22 24
Customer accounts 125 145 282 252
Advertising 16 70 43 135
Professional fees 414 85 709 187
Realized loss on securities - 393 - 393
Other 29 173 167 375
------ ------ ------- -------
Total non-interest expense 2,718 3,115 5,450 5,725
Income before income taxes 1,858 171 3,290 1,100
Provision for income taxes 525 55 883 371
------ ------ ------- -------
NET INCOME $1,333 $ 116 $ 2,407 $ 729
====== ====== ======= =======
Basic Earnings per share $ 0.40 $ 0.03 $ 0.73 $ 0.22
====== ====== ======= =======
Weighted average number of
shares outstanding 3,297,376 3,336,110 3,315,431 3,329,981
Diluted Earnings per share $ 0.39 $ 0.03 $ 0.70 $ 0.22
====== ====== ======= =======
Weighted average number of
dilutive shares 3,412,580 3,336,934 3,424,556 3,332,809
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 SIX MONTHS ENDED SEPTEMBER 30, 2001 AND THE YEAR ENDED MARCH 31, 2001
(UNAUDITED)
($ in thousands, except share data)
Unearned Unearned
Shares Issued Shares Issued
to Employee to Management
Additional Stock Recognition and
Common Stock Paid-in Retained Ownership Development
Shares Amount Capital Earnings Plan Plan
------ ------ ---------- -------- ------------- ---------------
<s> <c> <c> <c> <c> <c> <c>
Balance, April 1, 2000 3,317,006 $36 $31,743 $27,759 ($2,415) ($740)
Net income - - - 1,694 - -
Cash dividends paid - - - (1,079) - -
Stock repurchased and
retired (76,308) (1) (945) - - -
Earned ESOP shares 53,656 - 70 - 537 -
New MRDP shares granted - - 42 - - (42)
Earned MRDP shares 25,811 - - - - 267
Exercise of stock options 5,592 1 62 - - -
Net unrealized gain on
securities available
for sale of $5,584
(net of tax expense of
$3,319) less reclassification
adjustment for net losses
included in net income of
$1,488 (net of tax benefit
of $766)
Comprehensive income - - - - - -
--------- ----- ------- ------- ------ ------
Balance, March 31, 2001 3,325,757 36 30,972 28,374 (1,878) (515)
Net income - - - 2,407 - -
Cash dividends paid - - - (698) - -
Stock repurchased and
retired (321,100) (4) (5,077) - - -
Earned ESOP shares 26,828 - 181 - 268 -
Earned MRDP shares - - - - - 152
Exercise of stock options 3,592 1 32 - - -
Net unrealized loss on
securities available for
sale of $55 (net of tax
benefit of $34) less
reclassification adjustment
for net gains included
in net income of $192
(net of tax expense of $118)
Unrealized loss on
securities available
for sale, net of tax - - - - - -
Comprehensive income - - - - - -
--------- ----- ------- ------- ------ ------
Balance, September 30,
2001 3,035,077 $33 $26,108 $30,083 ($1,610) ($363)
========= ===== ======= ======= ======= ======
Accumulated
Other
Comprehensive Comprehensive
Income (Loss) Income (Loss) Total
------------- -------------- -------
<s> <c> <c> <c>
Balance, April 1, 2000 - ($3,279) $53,104
Net income $1,694 - 1,694
Cash dividends paid - - (1,079)
Stock repurchased and
retired - - (946)
Earned ESOP shares - - 607
New MRDP shares granted - - -
Earned MRDP shares - - 267
Exercise of stock options - - 63
Net unrealized gain on
securities available
for sale of $5,584
(net of tax expense of
$3,319) less reclassification
adjustment for net losses
included in net income of
$1,488 (net of tax benefit
of $766) 4,096 4,096 4,096
------
Comprehensive income $5,790 - -
------ ------ -------
Balance, March 31, 2001 817 57,806
Net income 2,407 - 2,407
Cash dividends paid - - (698)
Stock repurchased and
retired - - (5,081)
Earned ESOP shares - - 449
Earned MRDP shares - - 152
Exercise of stock options - - 33
Net unrealized loss on
securities available for
sale of $55 (net of tax
benefit of $34) less
reclassification adjustment
for net gains included
in net income of $192
(net of tax expense of $118)
Unrealized loss on securities
available for sale, net of tax (247) 247 247
------
Comprehensive income $2,160 - -
====== ------ -------
Balance, September 30, 2001 $1,064 $55,315
====== =======
(4)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
($ in thousands)
30-Sep-01 30-Sep-00
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,407 $ 729
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 439 333
Compensation expense related to ESOP 449 279
Compensation expense related to MRDP 152 144
Amortization of deferred loan fees (12) (34)
Provision for loan losses 342 606
Amortization and accretion of premiums
and discounts on investments and loans purchased (321) 144
FHLB dividends (197) (139)
Gain on sale of real estate owned (11) -
Loss on sale of premises and equipment 1 -
Changes in assets and liabilities:
Accrued interest receivable (249) (339)
Other assets (317) (89)
Accrued expenses and other liabilities 329 323
-------- --------
Net cash provided by operating activities 3,012 1,957
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations (56,581) (55,333)
Loan principal repayments 58,302 44,645
Loans purchased (47,654) (14,190)
Loans sold 3,891 -
Principal repayments of securities available
for sale 9,162 4,779
Proceeds from sale of securities available
for sale 24,132 5,915
Purchases of stock in FHLB (1,267) (469)
Purchases of premises and equipment (166) (935)
Proceeds from sales of premises and equipment 33 -
-------- --------
Net cash used in investing activities (10,148) (15,588)
-------- --------
(5)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase(decrease) in deposits ($2,127) $ 17,114
Change in advances from borrowers for taxes
and insurance 13 1,034
Change in borrowings from FHLB 11,750 (1,900)
Payment of cash dividends (698) (540)
Stock options excercised 33 -
Stock repurchased and retired (5,081) (56)
-------- --------
Net cash provided by financing activities 3,890 15,652
-------- --------
Net increase(decrease) in cash (3,246) 2,021
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,581 9,261
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,335 $ 11,282
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and other borrowings $ 7,077 $ 7,538
Income taxes 965 435
Noncash investing activities:
Unrealized gain(loss) on securities available
for sale, net of tax (247) 1,253
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 its subsidiary, Pioneer Bank, a Federal
Savings Bank (the "Bank") (together, the "Company") financial condition as of
September 30, 2001 and March 31, 2001, the results of their operations for the
three and six months ended September 30, 2001 and 2000 and the cash flows for
the six months ended September 30, 2001 and 2000. 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
on Form 10-K for the year ended March 31, 2001, as amended. The results of
operations for the three and six months ended September 30, 2001 are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. COMPREHENSIVE INCOME
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 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.
3. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows for
the year ended March 31, 2001 and for six months ended September 30, 2001:
September 30, 2001 March 31, 2001
(in thousands) (in thousands)
------------------ ----------------
Balance, beginning of
period $ 2,098 $ 1,396
Charge-offs (40) (111)
Recoveries 18 19
Provision for loan losses 342 794
------------------ ----------------
Balance, end of period $ 2,418 $ 2,098
================== ================
(7)
4. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at September 30, 2001 consisted of 18 fixed-rate term advances
and one variable rate advance varying in length from one day to 347 months
totaling $84.9 million from the 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 September 30, 2001:
Due in less than one year:
- --------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
- ---------------------------------------------------------
$45,375,000 2.73% - 6.01% 4.12%
Due within one to five years:
- -----------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
- ----------------------------------------------------------
$24,500,000 5.20% - 7.22% 6.55%
Due in greater than five years:
- -------------------------------
Amount Range of interest Weighted Average
Rates Interest Rate
- ---------------------------------------------------------
$15,000,000 7.03% - 7.12% 7.08%
5. SHAREHOLDERS' EQUITY
In December 2000, the Company received approval from the Office of Thrift
Supervision ("OTS") to repurchase 10% of its outstanding shares of Common
Stock, or 331,900 shares. During the six months ended September 30, 2001 the
Company repurchased 321,100 shares of its outstanding shares of Common Stock
at an average price of $15.77 per share. Since converting to a stock company
in 1997, OTFC has repurchased 1,566,841 shares, or 33% of its common shares
initially outstanding. Shares repurchased have been retired.
6. 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
(8)
during the period. Potential dilutive common shares include shares of
restricted stock 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 in weighted average number of shares
(denominator) for the basic and diluted EPS calculations. There are no
resulting adjustments to net earnings.
For the Three For the Six
Months Ended Months Ended
September 30, September 30,
2001 2000 2001 2000
---------------------- ---------------------
Weighted average common
shares outstanding - basic 3,297,376 3,336,110 3,315,431 3,329,981
Effect of Dilutive
Securities on
Number of Shares:
MRDP shares 99,455 824 91,223 2,828
Stock Options 15,749 -0- 17,902 -0-
--------- --------- --------- ---------
Total Dilutive Securities 115,204 824 109,125 2,828
--------- --------- --------- ---------
Weighted average common
shares outstanding - with
dilution 3,412,580 3,336,934 3,424,556 3,332,809
========= ========= ========= =========
For each of the three and six months ended September 30, 2000 options to
purchase 280,996 shares of Common Stock were excluded from dilutive shares as
they had an antidilutive effect on the calculation.
7. REGULATORY CAPITAL
The Company is not subject to separate regulatory capital requirements.
During the six months ended September 30, 2001, the Bank received OTS approval
and paid a dividend of $14 million to the Company. The following table
illustrates the Bank's compliance with currently applicable regulatory capital
requirements at September 30, 2001 and March 31, 2001.
As of September 30, 2001:
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 Sept. 30, 2001:
Total Capital:
(To Risk Weighted
Assets) $ 39,882 14.4% $ 22,131 8.0% $ 27,664 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 37,464 13.5 N/A N/A 16,598 6.0
Tier I Capital:
(To Tangible Assets) 37,464 9.5 15,789 4.0 19,737 5.0
Tangible Capital:
(To Tangible Assets) 37,464 9.5 5,921 1.5 N/A N/A
(9)
As of March 31, 2001
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, 2001:
Total Capital:
(To Risk Weighted
Assets) $ 39,882 14.4% $ 22,131 8.0% $ 27,664 10.0%
Total Capital:
(To Risk Weighted
Assets) $ 50,646 22.3% $ 18,203 8.0% $ 22,754 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 48,548 21.3 N/A N/A 13,652 6.0
Tier I Capital:
(To Tangible Assets) 48,548 12.5 15,490 4.0 19,362 5.0
Tangible Capital:
(To Tangible Assets) 48,548 12.5 5,809 1.5 N/A N/A
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations." This statement addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs, and applies to
all entities. This statement amends SFAS No. 19, "Financial Accounting and
Reporting by Oil and Gas Producing Companies." Management does not believe
that the adoption of this statement will have a material effect on the
Company's consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The statement addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. The statement supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
Management does not believe that the adoption of this statement will have a
material effect on the Company's consolidated financial statements. The
Company plans to adopt the provisions of these statements on April 1, 2002.
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-
(10)
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
September 30, 2001, the Company had total assets of $396.4 million, total
deposits of $251.7 million and shareholders' equity of $55.3 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 the consolidated 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 its 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.
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, consumer and
commercial loans within its primary market area. At September 30, 2001,
one-to-four family residential mortgage loans totaled $132.3 million, or 37.1%
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 September 30, 2001 the Company had
agricultural loans of $18.5 million, commercial business loans of $26.9
million, commercial real estate loans of $56.2 million, agricultural real
estate loans of $3.5 million, and automobile loans of $28.5 million (including
$24.2 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. Commercial (including both
commercial real estate and commercial business) and agricultural loans
(including agricultural real estate) outstanding totaled $42.7 million and
$19.6 million, respectively, at March 31, 2001 and increased to $83.1 million
and $22.0 million respectively at September 30, 2001. To a lesser
(11)
degree, the net earnings of the Company rely on the level of its non-interest
income. The Company is focusing on growing its fee income and controlling its
non-interest expense.
CHANGES IN FINANCIAL CONDITION
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2001 AND SEPTEMBER 30, 2001
Total assets increased $7.5 million, or 2%, from $389 million at March 31,
2001, to $396 million at September 30, 2001. Loans receivable increased $41.8
million, or 17%, from $251 million to $293 million. Commercial real estate
loans increased $36 million while all other loans increased by $5 million.
Securities decreased by $33 million, or 34%, from $97 million to $64 million.
The increase in loans and corresponding decrease in securities reflect the
Company's efforts to increase adjustable rate commercial loans balances and
decrease the investment in interest rate sensitive securities. The Company's
purchased commercial real estate loans totaled $38.0 million and have a
weighted average rate yield of 8.92% at September 30, 2001. These loans are
all in the Pacific Northwest, are all performing and were purchased in
accordance with the Company's strict underwriting standards.
Total liabilities increased $10 million, or 3%, from $331 million at March 31,
2001, to $341 million at September 30, 2001. Non-interest bearing transaction
accounts increased $2 million, or 11%, interest bearing transaction accounts
increased $4 million, or 4%, and time certificates decreased $8 million, or
6%, to $22 million, $110 million and $120 million respectively at September
30, 2001 compared to March 31, 2001. The strong growth in transaction
accounts reflects the Company's efforts to grow its core deposit base and
become less reliant on expensive borrowings and time certificates.
Total shareholders' equity decreased $2.5 million, or 4%, from $57.8 million
at March 31, 2001, to $55.3 million at September 30, 2001. Additional paid-in
capital decreased by $4.9 million, or 16%, from $31.0 million at March 31,
2001, to $26.1 million at September 30, 2001. The decrease in paid-in capital
reflects $5.1 million in share repurchases partially offset by ongoing vesting
of employee stock-based compensation during the six month period. Retained
earnings increased $1.7 million, or 6%, from $28.4 million at March 31, 2001,
to $30.1 million at September 30, 2001. The increased retained earnings
reflects net income of $2.4 million offset by $698,000 paid to shareholders as
dividends.
RESULTS OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
SEPTEMBER 30, 2001 AND 2000
GENERAL. Net income for the quarter ended September 30, 2001 was $1.3
million, or $.40 per share, compared to net income of $116,000, or $.03 per
share, for the quarter ended September 30, 2000, an increase of $1.2 million.
Net income for the first six months of the current year was $2.4 million, an
increase of $1.7 million from the six months ended September 30, 2000. The
significant increase in earnings is due to the successful restructuring of the
Company, benefits in the net interest margin attributable to a steeper yield
curve in the current period, and losses on sales of securities in the prior
period. The benefits of the restructuring include reduced cost of
(12)
funds from deposit product pricing methodology changes, strong growth in
non-interest income, a reduction in non-interest expense, decreased interest
rate risk, and considerable growth in adjustable rate commercial real estate
loans.
INTEREST INCOME. Interest income for the quarter ended September 30, 2001 was
$7.3 million compared to $7.2 million for the quarter ended September 30,
2000, an increase of $100,000, or 1%. The increase in interest income was a
result of $1.6 million growth in average balances of interest-earning assets
and an 11 basis point increase in the average yield on those assets. The
yield on average interest-earning assets increased to 7.79% for the quarter
ended September 30, 2001 compared to 7.68% for the same period a year earlier.
Average loans receivable for the quarter ended September 30, 2001 increased by
$49.8 million, or 20.4%, when compared to the quarter ended September 30,
2000, reflecting the Bank's considerable commercial real estate loan growth.
Interest income for the six months ended September 30, 2001 increased
$490,000, or 3.5%, from the comparable period in 2000. Interest income from
loans receivable increased $1.9 million, or 19.5%, from the comparable period
in 2000. The increase in loan interest income reflected the effect of a $45.9
million growth in average loans receivable balances and a 1 basis point
increase in the average yield on those assets. Interest income from fixed
income securities decreased by $1.5 million, or 36%, from $4.1 million in
2000, to $2.7 million in the current period reflecting a $40.9 million
decrease in average balances partially offset by a 14 basis point increase in
average yield on those securities.
INTEREST EXPENSE. Interest expense for the quarter ended September 30, 2001
was $3.4 million compared to $4.0 million for the comparable period in 2000, a
decrease of $587,000, or 15%. The decrease in interest expense was due to a
75 basis point decrease in the average cost of all liabilities from 4.80% for
the quarter ended September 30, 2000 to 4.05 % for the comparable period this
year partially offset by a $7.2 million increase in average interest-bearing
liabilities from the prior period to the current period.
Interest expense for the six months ended September 30, 2001 was $7.2 million
compared to $7.7 million for the comparable period in 2000, a decrease of
$435,000, or 6%. The decrease in interest expense was due to a 50 basis point
decrease in the average cost of all liabilities from 4.74% for the six months
ended September 30, 2000 to 4.24% for the comparable period this year and was
offset by a $17.5 million increase in average interest-bearing liabilities
from the prior period to the current period.
The net interest margin increased 72 basis points from 3.41% for the quarter
ended September 30, 2000 to 4.13% for the same period in 2001, and increased
43 basis points from 3.48% for the six months ended September 30, 2000 to
3.91% for the comparable period ended September 30, 2001. The increase is
mainly due to a decrease in the average cost of all liabilities coupled with a
higher level of interest-earning assets.
PROVISIONS FOR LOAN LOSSES. During the quarter ended September 30, 2001, the
provision for loan losses was $24,000 compared to $502,000 for the quarter
ended September 30, 2000, a decrease of $478,000. A comparison of the
provision for the loan losses for the six month periods ended September 30,
2001 and 2000 shows a decrease of $264,000 from $606,000 to $342,000. The
decrease in the provision for losses reflects the unusually high provision
made in
(13)
the previous period which caused the institution's total provision for loan
losses to mirror peer banks and more accurately reflect the inherent risk in
the overall loan portfolio which now has an increased percentage of riskier
commercial loans. Strong loan growth in the first three months of the six
months ended September 30, 2001, required a relatively large $318,000
provision, while the minimal loan growth that occurred in the three months
ended September 30, 2001, required only a $24,000 provision for loan losses.
Asset performance continues to be well above peers with non-performing assets
totaling $259,000, or 0.09% of net loans at September 30, 2001 compared to
$43,000 or 0.02% or net loans at September 30, 2000. A comparison of the
allowance for loan losses at September 30, 2001 and 2000 shows an increase of
$460,000 from $2.1 million to $2.4 million. The allowance for loan losses as
a percentage of net loans was 0.83% and 0.80% at September 30, 2001 and
September 30, 2000, respectively.
NON-INTEREST INCOME. Non-interest income increased $148,000, or 26%, for the
quarter ended September 30, 2001 to $723,000 from $575,000 for the comparable
period a year earlier. Non-interest income increased $726,000, or 71.5%, for
the six months ended September 30, 2001 to $1.7 million from $1.0 million for
the comparable period a year ago. The increase in quarterly and year-to-date
non-interest income is due to sustainable increases in fees from commercial
loan renewals, fees from the sale of conforming real estate loans and income
from bank-owned life insurance policies.
NON-INTEREST EXPENSE. Non-interest expense decreased $397,000, or 13%, from
$3.1 million for the quarter ended September 30, 2000, to $2.7 million for the
quarter ended September 30, 2001. For the six month period ended September
30, 2001, non-interest expense decreased $275,000, or 5% from $5.7 million for
the six months ended September 30, 2000, to $5.4 million for the most recent
six months. The decrease in non-interest expense is due to decreases in most
non-interest expense categories offset by increases in depreciation and
professional fees. Professional fees have increased as a result of a
contested proxy contest and related legal activity.
INCOME TAXES. The income tax expense was $525,000 for the quarter ended
September 30, 2001, compared to $55,000 for the comparable period in 2000.
The Company's effective tax rates for the quarters ended September 30, 2001
and 2000, were 28% and 32%, respectively. The increase in income tax expense
was primarily due to the higher levels of pre-tax income partially offset by a
reduction in the effective tax rate. The effective tax rate decreased due to
increased tax advantaged assets and a tax benefit related to the Company's
employee stock ownership plan.
The income tax expense was $883,000 for the six months ended September 30,
2001, compared to $371,000 for the comparable period in 2000. The Company's
effective tax rates for the six months ended September 30, 2001 and 2000, were
27% and 34%, respectively. The increase in income tax expense was primarily
due to the higher levels of pre-tax income partially offset by a reduction in
the effective tax rate. The effective tax rate decreased due to increased tax
advantaged assets and a tax benefit related to the Company's employee stock
ownership plan.
Item No. III
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the six months ended September 30, 2001, there was no material change
in the market risk disclosures included in the Company's Form 10-K for the
year ended March 31, 2001.
(14)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Periodically, there have been various claims and lawsuits involving
the Bank, mainly as a defendant, such as claims to enforce liens,
condemnation proceedings on properties in which the Bank holds
security interests, claims involving the making and servicing of
real property loans and other issues incident to the Bank's
business. The Bank is not a party to any pending legal proceedings
that it believes would have a material adverse effect on the
financial condition or operations of the Bank.
The Company has been a party to legal proceedings involving a
dissident shareholder. Stilwell Associates, L.P. filed four
separate suits or proceedings against the Company and/or individual
directors. The first was a mandamus proceeding in Baker County,
Oregon to require the Company to produce additional information
about its shareholders under Oregon's shareholder inspection
statute. The initial proceeding was dismissed on technical grounds,
and the court ordered Stilwell Associates, L.P. to pay the Company's
costs and attorney fees because of improper conduct. A second
mandamus proceeding was then commenced. The court ruled
that the additional document requests do fall within the state
shareholder inspection statute, and ordered the Company to produce
the documents and to pay Stilwell Associates, L.P.'s attorney fees.
The Company produced the documents and did not appeal the
court's ruling.
Stilwell Associates, L. P. also brought a state action in Multnomah
County, Oregon against Charles Henry Rouse to remove him from the
Company's board of directors. Stilwell Associates, L.P. alleged that
Mr. Rouse violated the board's residency requirements. Mr. Rouse's
motion for summary judgment against Stilwell Associates, L.P. was
granted on September 12, 2001, and Mr. Rouse was awarded his costs
and disbursements. The third action was a purported derivative suit
brought in federal court in Portland, Oregon against both the
Company and director Edward H. Elms. Stilwell Associates, L.P.
alleged that Mr. Elms perjured himself in a deposition given in Mr.
Rouse's case because his testimony allegedly did not match that of
the other Company directors, and that Mr. Elms should be removed
from the board of directors. The Company and Mr. Elms moved to
dismiss the case against them. Stilwell Associates, L.P. responded
with a motion to amend its claims.
The Company and Mr. Elms denied the claims against them and filed
counterclaims and third-party claims against Joseph Stilwell,
Stilwell Associates, L.P., Stilwell Value LLC and Stilwell Value
Partners II, L.P. (the "Stilwell Value Group") alleging that the
Stilwell Value Group made false and misleading statements under
federal securities laws in its Schedule 13D filings with the
Securities and Exchange Commission. The Stilwell Value Group moved
to dismiss the counterclaims and third-party claims or, in the
alternative, for summary judgment on these claims. On September 18,
2001, the Court dismissed the entire lawsuit for lack of federal
jurisdiction of Stilwell's claims.
Pursuant to the Company's Articles of Incorporation and Bylaws and
in accordance with Oregon law, the Company provided defense costs
for both directors in these actions. The Company believes thelike-
lihood of incurring any "material loss contingency" in connection
with these matters is remote and that there will not be significant
continuing defense costs.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
(15)
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the
second quarter of the fiscal year ended March 31, 2002.
Item 5. Other Information
-----------------
On September 18, 2001, the Company awarded stock options and
restricted stock awards to the following employees of the Company:
Name Options* Restricted stock Awards*
---- ------- -----------------------
David E. Stirewalt 5,000 --
Jonathan McCreary 10,000 4,000
Steven R. Rehn 3,258 1,500
-------------
* To defer expenses, these awards vest ratably over a three year
period with the first vesting commencing on September 18, 2002.
On October 23, 2001, the Company awarded stock options and
restricted stock awards to the following directors of the Company
and the Bank:
Name Options* Restricted stock Awards**
---- ------- -------------------------
Stephen R. Whittemore 16,228 9,727
Albert H. Durgan 16,228 9,727
Edward H. Elms 16,228 9,727
John W. Gentry 16,228 9,727
Charles R. Rouse 16,228 9,727
John A. Lienkaemper 16,228 9,727
Kevin D. Padrick 5,000 --
-------------
* Immediate vesting.
** To defer expenses, these awards vest ratably over a three year
period with the first vesting commencing on October 23, 2003.
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)
3(c) Amendment to Bylaws of the Registrant (2)
10(a) Amended Employment Agreement with Berniel Maughan (3)
10(b) Amended Employment Agreement with Zane F. Lockwood (3)
10(c) Amended Employee Severance Compensation Plan (4)
10(d) Pioneer Bank, a Federal Savings Bank Employee Stock Ownership
Plan (4)
10(e) Pioneer Bank, a Federal Savings Bank 401(k) Plan (1)
10(f) Pioneer Bank Director Emeritus Plan (1)
10(g) 1998 Stock Option Plan (5)
10(h) Amendment to 1998 Stock Option Plan
10(i) 1998 Management Recognition and Development Plan (5)
10(j) Amendment to 1998 Management Recognition and Development Plan
- ---------------
(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 December 31, 2000.
(3) Incorporated by reference to the Registrant's Form 10-Q/A for the quarter
ended December 31, 2000.
(4) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended June 30, 2000.
(5) Incorporated by reference to the Registrant's Definitive Proxy Statement
for the 1998 Annual Meeting of Shareholders.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended June 30,
2001.
(16)
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.
/s/Berniel L. Maughan
Date: November 13, 2001 By: ----------------------------------
Berniel L. Maughan, President and
Chief Executive Officer
/s/Jon McCreary
Date: November 13, 2001 By: ----------------------------------
Jon McCreary, Chief Financial
Officer
Exhibit 10(h)
Amendment to 1998 Stock Option Plan
OREGON TRAIL FINANCIAL CORP.
AMENDMENT TO THE 1998 STOCK OPTION PLAN
Effective August 21, 2001, the following amendment was adopted:
RESOLVED, effective retroactive to the Plan effective date, the first
sentence of Section 6(c) is amended to read as follows:
Unless otherwise determined by the Board, upon the termination of a
Participant's employment (or, in the case of a Director who no longer
serves as a member of the board of directors of the Corporation or its
subsidiaries) for any reason other than Disability, death or Termination
for Cause, the Participant's Non-Qualified Stock Options shall be
exercisable only as to those shares which were immediately exercisable by
the Participant at the date of termination and only for a period of one
(1) year following termination. Notwithstanding any provision set forth
herein nor contained in any Agreement relating to the award of an Option,
in the event of Termination for Cause, all rights under the Participant's
Non-Qualified Stock Options shall expire upon termination.
* * * * *
Exhibit 10(j)
Amendment to 1998 Management Recognition and Development Plan
OREGON TRAIL FINANCIAL CORP.
MANAGEMENT RECOGNITION AND DEVELOPMENT PLAN
AMENDMENT NUMBER ONE
Effective August 21, 2001, the following amendment was adopted:
RESOLVED, effective retroactive to the Plan effective date, the
definition of "Board" as defined in Section 2 of the Plan shall read as
follows:
"DIRECTOR shall mean a member of the Board of Directors of the
Corporation, or a member of the board of directors of any subsidiary of
the Corporation, who is not also an employee of the Corporation or its
subsidiaries."
* * * * *