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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-22953
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
incorporation 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 $.01
per share
-------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days. YES [ X ] NO [ ]
As of February 6, 2002 there were issued and outstanding 3,082,117 shares
of the Registrant's Common Stock. The Registrant's voting common stock is
traded and listed on the Nasdaq National Market under the symbol "OTFC".
OREGON TRAIL FINANCIAL CORP.
TABLE OF CONTENTS
Part I. Financial Information
Item I. Financial Statements (Unaudited) Page
Consolidated Balance Sheets 2
as of December 31, 2001 and March 31, 2001
Consolidated Statements of Income (For the Three and
Nine Months Ended December 31, 2001 and 2000) 3
Consolidated Statements of Shareholders' Equity
(For the Nine Months Ended December 31, 2001 and for
the Year Ended March 31, 2001) 4
Consolidated Statements of Cash Flows (For the
Nine Months Ended December 31, 2001 and 2000) 5 - 6
Notes to Consolidated Financial Statements 7 - 10
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 16
Item III. Quantitative and Qualitative Disclosures about
Market Risk 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17 - 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 and MARCH 31, 2001
(UNAUDITED)
($ in thousands, except share data)
December 31 March 31
ASSETS 2001 2001
------ ------
Cash and cash equivalents (including interest-earning
accounts of $7,482 and $8,626) $ 9,512 $10,581
Securities:
Available for sale, at fair value (amortized cost:
$71,241 and $88,812) 72,004 96,924
Loans receivable, net of allowance for loan
losses of $2,367 and $2,098 285,863 250,897
Accrued interest receivable 2,182 2,372
Premises and equipment, net 9,649 10,136
Stock in Federal Home Loan Bank of Seattle ("FHLB"),
at cost 6,223 4,651
Real estate owned and other repossessed assets 62 63
Other assets 13,695 13,257
-------- --------
TOTAL ASSETS $399,190 $388,881
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Interest-bearing $114,304 $106,206
Noninterest-bearing 20,372 19,678
Time certificates 113,183 127,893
-------- --------
Total deposits 247,859 253,777
Advances from FHLB 96,600 73,125
Accrued expenses and other liabilities 3,104 4,151
Advances from borrowers for taxes and insurance 65 22
-------- --------
Total liabilities 347,628 331,075
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;
December 31, 2001, 4,694,875 issued, 2,832,390 outstanding;
March 31, 2001, 4,694,875 issued, 3,325,757 outstanding; 31 36
Additional paid-in capital 22,805 30,972
Retained earnings (substantially restricted) 30,977 28,374
Unearned shares issued to the Employee Stock Ownership
Plan ("ESOP") (1,476) (1,878)
Unearned shares issued to the Management Recognition
and Development Plan ("MRDP") (1,336) (515)
Accumulated other comprehensive income 561 817
-------- --------
Total shareholders' equity 51,562 57,806
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $399,190 $388,881
======== ========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
(2)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(UNAUDITED)
($ in thousands, except per share data)
3 MOS ENDED 3 MOS ENDED 9 MOS ENDED 9 MOS ENDED
31-Dec-01 31-Dec-00 31-Dec-01 31-Dec-00
INTEREST INCOME: --------- --------- --------- ---------
Interest and fees on loans
receivable $5,766 $5,231 $17,463 $15,023
Securities:
Mortgage-backed and related
securities 708 1,360 2,615 4,294
U.S. government and government
agencies 278 574 1,047 1,788
Other interest and dividends 108 74 305 213
--------- --------- --------- ---------
Total interest income 6,860 7,239 21,430 21,318
INTEREST EXPENSE:
Deposits 1,906 2,811 6,639 7,890
FHLB advances 1,048 1,167 3,546 3,753
--------- --------- --------- ---------
Total interest expense 2,954 3,978 10,185 11,643
Net interest income 3,906 3,261 11,245 9,675
Provision for (credit from) loan
losses (4) 117 337 723
Net interest income after provision------- --------- --------- ---------
for loan losses 3,910 3,144 10,908 8,952
NON-INTEREST INCOME:
Service charges on deposit accounts 487 469 1,367 1,311
Loan servicing fees 188 101 465 299
Realized gain on securities 5 - 314 -
Other Income (expense) 116 (4) 391 (29)
--------- --------- --------- ---------
Total non-interest income 796 566 2,537 1,581
NON-INTEREST EXPENSE:
Employee compensation and benefits 1,623 1,944 4,636 5,083
Supplies, postage, and telephone 215 187 646 641
Depreciation 206 230 644 671
Occupancy and equipment 182 201 527 524
FDIC insurance premium 15 12 36 37
Customer accounts 121 162 403 415
Advertising 38 40 81 175
Professional fees 363 65 1,119 251
Realized loss on securities - 561 - 953
Other 210 140 330 515
--------- --------- --------- ---------
Total non-interest expense 2,973 3,542 8,422 9,265
Income before income taxes 1,733 168 5,023 1,268
Provision for income taxes 513 52 1,396 423
--------- --------- --------- ---------
NET INCOME $1,220 $116 $3,627 $845
========= ========= ========= =========
Basic Earnings per share $0.42 $0.03 $1.14 $0.25
========= ========= ========= =========
Weighted average number of
shares outstanding 2,938,332 3,339,166 3,189,274 3,333,054
Diluted Earnings per share $0.40 $0.03 $1.10 $0.25
========= ========= ========= =========
Weighted average number of
dilutive shares 3,078,005 3,403,884 3,308,619 3,355,564
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
(3)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 2001 AND THE YEAR ENDED MARCH 31, 2001
(UNAUDITED)
($ in thousands, except share data)
Unearned Unearned
Shares Shares
Issued Issued to
to Management Accumulated
Employee Recognition Other
Stock and Compre- Compre-
Additional Owner- Develop- hensive hensive
Common Stock Paid-in Retained ship ment Income Income
Shares Amount Capital Earnings Plan Plan (Loss) (Loss) Total
------ ------ ------- -------- ----- ----- ---- ------ -----
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Balance, April 1,
2000 3,317,006 $36 $31,743 $27,759 ($2,415) ($740) - ($3,279) $53,104
Net income - - - 1,694 - - $1,694 - 1,694
Cash dividends
paid - - - (1,079) - - - - (1,079)
Stock repurchased
and retired (76,308) (1) (945) - - - - - (946)
Earned ESOP
shares 53,656 - 70 - 537 - - - 607
New MRDP shares
granted - - 42 - - (42) - - -
Earned MRDP
shares 25,811 - - - - 267 - - 267
Exercise of stock
options 5,592 1 62 - - - - - 63
Net unrealized
gain on securi-
ties 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 3,325,757 36 30,972 28,374 (1,878) (515) 817 57,806
Net income - - - 3,627 - - 3,627 - 3,627
Cash dividends paid - - - (1,024) - - - - (1,024)
Stock repurchased
and retired (574,587) (6) (9,672) - - - - - (9,678)
Earned ESOP shares 40,242 - 298 - 402 - - - 700
Earned MRDP shares 29,380 - - - - 235 - - 235
New MRDP shares
granted - - - 1,056 - - (1,056) - -
Exercise of stock
options 11,598 1 151 - - - - - 152
Net unrealized loss
on securities
available for sale
of $64 (net of tax
benefit of $40) less
reclassification
adjustment for net
losses included in
net income of $192
(net of tax expense
of $118)
Unrealized gain on
securities available
for sale, net of tax - - - - - - (256) (256) (256)
------
Comprehensive income - - - - - - $3,371 - -
--------- ----- ------- ------- ------- ------- ====== ----- -------
Balance, December 31,
2001 2,832,390 $31 $22,805 $30,977 ($1,476) ($1,336) $561 $51,562
========= ===== ======= ======= ======= ======= ===== =======
The accompanying notes are an integral part of these unaudited consolidated financial statements.
(4)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(UNAUDITED)
($ in thousands)
31-Dec-01 31-Dec-00
CASH FLOWS FROM OPERATING ACTIVITIES --------- ---------
Net income $3,627 $845
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 644 671
Compensation expense related to ESOP 700 448
Compensation expense related to MRDP 235 186
Amortization of deferred loan fees (145) (57)
Provision for loan losses 337 723
Amortization and accretion of premiums and discounts 279 614
on investments and loans purchased
FHLB dividends (305) (213)
Loss on sale of premises and equipment 1 (3)
Realized gain(loss) on securities available for sale 314 (561)
Changes in assets and liabilities:
Accrued interest receivable 190 164
Other assets (438) (373)
Accrued expenses and other liabilities (1,047) 1,112
------- -------
Net cash provided by operating activities 4,392 3,556
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations (84,552) (87,417)
Loan principal repayments 94,078 72,949
Loans purchased (52,484) (17,644)
Loans sold 7,567 -
Principal repayments of securities available for sale 12,800 10,300
Proceeds from sale of securities available for sale 30,400 31,020
Purchase of securities available for sale (18,895) (4,000)
Purchases of stock in FHLB (1,267) (468)
Purchases of premises and equipment (197) (1,074)
Proceeds from sales of premises and equipment 39 -
------- -------
Net cash provided by (used in) investing activities (12,511) 3,666
------- -------
(5)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase(decrease) in deposits ($5,918) $18,236
Change in advances from borrowers for taxes and insurance 43 (676)
Change in borrowings from FHLB 23,475 (10,025)
Payment of cash dividends (1,024) (809)
Stock options excercised 152 -
Stock repurchased and retired (9,678) (778)
------- -------
Net cash provided by financing activities 7,050 5,948
------- -------
Net increase(decrease) in cash (1,069) 13,170
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,581 9,261
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $9,512 $22,431
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and other borrowings $9,833 $11,241
Income taxes 1,830 435
Noncash investing activities:
Unrealized gain(loss) on securities available for sale,
net of tax (256) 3,417
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
December 31, 2001 and March 31, 2001, the results of operations for the three
and nine months ended December 31, 2001 and 2000 and of cash flows for the
nine months ended December 31, 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. The results of operations for the
three and nine months ended December 31, 2001 are not necessarily indicative
of the results which may be expected for the entire fiscal year.
2. 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.
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 the nine months ended December 31, 2001:
December 31, 2001 March 31, 2001
(in thousands) (in thousands)
----------------- ---------------
Balance, beginning of period $ 2,098 $ 1,396
Charge-offs (103) (111)
Recoveries 35 19
Provision for loan losses 337 794
----------------- ---------------
Balance, end of period $ 2,367 $ 2,098
================= ===============
(7)
4. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at December 31, 2001 consisted of 18 term advances and one
variable rate advance varying in length from two days to 344 months totaling
$96.6 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 December 31, 2001:
Due in less than one year:
- --------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
- --------------------------------------------------------------
$52,100,000 1.83% - 5.62% 2.58%
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%
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. As of December 31, 2001, all shares in this program
had been purchased at a weighted average price per share of $15.77. In
October 2001, the Company received approval from the OTS to repurchase an
additional 5% of its outstanding shares of common stock or 151,754 shares. As
of December 31, 2001, all shares in this program had been repurchased at an
average price per share of $17.52. In November 2001, the Company announced an
additional 5% repurchase plan, or 146,099 shares. As of December 31, 2001,
98,500 shares had been repurchased at an average price of $18.24. During the
nine months ended December 31, 2001, the Company repurchased 574,587 shares of
its outstanding common stock at an average price of $16.66 per share. Since
converting to a stock company in 1997, the Company has repurchased 1,817,095
shares, or 38.7% of its initial outstanding shares.
(8)
6. EARNINGS PER SHARE
Shares held by the Company's Employee Stock Ownership Plan ("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 of restricted stock awarded but not
released under the Company's Management Recognition and Development Plan
("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 Months Ended For the Nine Months Ended
December 31, December 31,
-------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
Weighted average common
shares outstanding
basic 2,938,332 3,339,166 3,189,274 3,333,054
Effect of Dilutive Securities
on Number of Shares:
MRDP shares 12,930 18,831 23,024 15,070
Stock Options 126,743 45,887 96,321 7,440
--------- --------- --------- ---------
Total Dilutive Securities 139,673 64,718 119,345 22,510
--------- --------- --------- ---------
Weighted average common
shares outstanding with
dilution 3,078,005 3,403,884 3,308,619 3,355,564
========= ========= ========= =========
7. REGULATORY CAPITAL
The Company is not subject to separate regulatory capital requirements.
During the nine months ended December 31, 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 December 31, 2001 and March 31, 2001.
As of December 31, 2001:
For Capital Categorized as "Well
Adequacy Capitalized" Under Prompt
Actual Purposes Corrective Action Provision
(In Thousands) (In Thousands) (In Thousands)
-------------- -------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
As of Dec 31,
2001:
Total Capital:
(To Risk
Weighted
Assets) $ 41,249 15.1% $ 21,793 8.0% $ 27,241 10.0%
Tier I Capital:
(To Risk
Weighted
Assets) 38,882 14.3 N/A N/A 16,345 6.0
Tier I Capital:
(To Tangible
Assets) 38,882 9.8 15,847 4.0 19,809 5.0
Tangible Capital:
(To Tangible
Assets) 38,882 9.8 5,943 1.5 N/A N/A
(9)
As of March 31, 2001
For Capital Categorized as "Well
Adequacy Capitalized" Under Prompt
Actual Purposes Corrective 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) $ 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 July 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Goodwill and Other Intangible Assets". The statement will require
discontinuing the amortization of goodwill and other intangible assets with
indefinite useful lives. Instead, these assets will be tested periodically
for impairment and written down to their fair market value as necessary. This
statement is effective for fiscal years beginning after December 15, 2001,
however, early adoption is allowed for companies that have not issued first
quarter financial statements as of July 1, 2001. The Company plans to adopt
the provisions of this statement on April 1, 2002, and is currently evaluating
the 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-looking statements. The Company's ability to
predict results or the effect of future plans or
(10)
strategies is inherently uncertain. Factors which could affect actual results
include interest rate trends, deposit flows, demand for mortgages and other
loans, real estate values, competition, changes in accounting principles,
practices, or guidelines, changes in legislation, the general and local
economic climate in the Company's market area and the country as a whole, loan
delinquency rates, changes in federal and state regulation and other economic,
competitive, governmental, regulatory and technological factors effecting
operations, pricing, products and services. 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, 2001, the Company had total assets of $399.2 million, total deposits of
$247.9 million and shareholders' equity of $51.6 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 the Federal
Deposit Insurance Corporation ("FDIC"), the insurer of its deposits. The
Bank's deposits are federally insured up toapplicable limits by the FDIC under
the Savings Association Insurance Fund (SAIF"). The Bank has been a member of
the Federal Home Loan Bank ("FHLB") of Seattle since 1934.
The Bank conducts 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 December 31, 2001,
one-to-four family residential mortgage loans totaled $130.4 million, or 45.3%
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, 2001 the Company had
agricultural loans of $19.6 million, commercial business loans of $24.3
million, commercial real estate loans of $52.7 million, agricultural real
estate loans of $3.6 million, and automobile loans of $29.4 million (including
$25.2 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 adjustable rates. Commercial (including both
commercial real estate and commercial business) and agricultural loans
outstanding totaled $42.7 million and
(11)
$19.6 million, respectively, at March 31, 2001 and increased to $77.0 million
and $23.3 million respectively at December 31, 2001.
To a lesser 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 DECEMBER 31, 2001
Total assets increased $10.3 million, or 2.7%, from $388.9 million at March
31, 2001, to $399.2 million at December 31, 2001. The growth in assets was
primarily attributable to a $35.0 million, or 13.9%, increase in net loans
receivable from $250.9 million at March 31, 2001, to $285.9 million at
December 31, 2001. Included in the net loan growth, commercial real estate
loans increased $33.1 million, commercial business loans increased $1.3
million, and consumer loans increased $3.2 million while residential real
estate loans decreased $5.9 million. The increase in commercial real estate
loans was a result, in part, of the purchase of a commercial real estate loan
pool in the first quarter of 2001. The purchased loans totaled $34.4 million
at December 31, 2001. The decrease in real estate loans was partially caused
by the sale of newly originated conforming real estate loans, some of which
were refinances. For the quarter ended December 31, 2001, $3.7 million in
real estate loans were sold. Securities decreased $24.9 million, or 25.7%,
from $96.9 million at March 31, 2001, to $72.0 million at December 31, 2001.
Non-performing assets, consisting of non-accruing loans, real estate owned and
other repossessed assets, increased $843,000 from $118,000 at March 31, 2001,
to $961,000 at December 31, 2001. The increase in non-performing assets was
principally a result of a $700,000 loan participation which was in non-accrual
status at December 31, 2001, but is now current. The loan is secured by real
estate and personal guarantees, and has been restructured and brought current.
The Bank does not expect to incur any loss from this loan. Non-performing
assets represented .24% of total assets at December 31, 2001 and .03% of total
assets at March 31, 2001. The allowance for loan losses was 263.3% of
non-performing loans at December 31, 2001, compared to 3814.6% at March
31,2001.
For the nine months ended December 31, 2001, transaction and savings deposit
accounts increased 7%, or $8.9 million, from $30.3 million at March 31, 2001
to $134.7 million for the nine months ended December 31, 2001 and represent
54.3% of total deposits. Total deposits decreased 2%, or $5.9 million, to
$247.9 million for the nine months ended December 31, 2001 from $253.8,
million at March 31, 2001. The growth in transaction accounts reflects the
Company's strategy to decrease its dependence on more expensive borrowings and
certificates of deposit. For the quarter ended December 31, 2001, the average
cost of transaction and savings accounts was 1.42% while the average cost of
certificates of deposit was 4.72%. Borrowings from the FHLB of Seattle
increased 32%, or $23.5 million, to $96.6 million during the nine months ended
December 31, 2001 from $73.1 million at March 31, 2001. The increased
borrowings were primarily used to fund commercial real estate loan growth.
(12)
For the nine months ended December 31, 2001, the Company's book value per
share increased 5% to $18.20 per share from $17.38 at March 31, 2001.
Shareholders' equity decreased by 11%, or $6.2 million, from $57.8 million to
$51.6 million for the nine months ended December 31, 2001. The decrease in
shareholders' equity was the result of the Company completing a 10% stock
repurchase program announced in January 2001, a 5% program announced in
October 2001, and acquiring 98,500 shares related to a 5% repurchase program
announced in November 2001. During the nine months ended December 31, 2001,
the Company repurchased 574,587 shares of its outstanding common stock at an
average price of $16.66 per share. Generally, the Company has repurchased
shares to enhance shareholder value when repurchases are thought to be
accretive to earnings per share and/or book value.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
DECEMBER 31, 2001 AND 2000
GENERAL. For the quarter ended December 31, 2001, the Company had net income
of $1.2 million , or $.40 per share (diluted), compared to net income of
$116,000, or $.03 per share (diluted), for the quarter ended December 31,
2000, an increase of $1.1 million. Net income for the first nine months of
the current year was $3.6 million, or $1.10 per share (diluted), compared to
net income of $845,000, or $.25 per share (diluted), for the nine months ended
December 31, 2000, an increase of $2.8 million. For the nine months ended
December 31, 2001, net interest income before provision for loan losses was
$11.2 million, and increase of 16%, or $1.6 million, the provision for loans
losses was $337,000, a decrease of 53%, or $385,000, non-interest income was
$2.5 million, an increase of 61%, or $956,000, while non-interest expense was
$8.4 million, a decrease of 9%, or $843,000.
INTEREST INCOME. Interest income for the quarter ended December 31, 2001, was
$6.9 million compared to $7.2 million for the quarter ended December 31, 2000,
a decrease of $300,000, or 5%. The decrease in interest income occurred as a
result of a $6.9 million, or 2%, decrease in average balances of
interest-earning assets as well as a 26 basis point decrease in the average
yield on those assets. The yield on average interest-earning assets decreased
to 7.48% for the quarter ended December 31, 2001, compared to 7.74% for the
same period a year earlier. Average loans receivable for the quarter ended
December 31, 2001, increased by $41.2 million, or 17%, when compared to the
quarter ended December 31, 2000. Interest income on loans increased by
$535,000, or 10%, compared to the prior year, as the impact of the increase in
average loan balances was substantially offset by a 46 basis point decrease in
the average yield. The decrease in average loan yield reflects the
significant decline in the level of market interest rates compared to prior
year levels. Interest income on securities decreased by $948,000, or 5%,
compared to the prior year, reflecting a decrease in the yield on securities
as well as a decrease in average balances.
Interest income for the nine months ended December 31, 2001 was $21.4 million
compared to $21.3 million for the quarter ended December 31, 2000, an increase
of $112,000, or 1%. Interest income from loans increased $2.4 million, or
16%, from the comparable period in 2000. The increase in loan interest income
reflected the effect of a $44.4 million growth in average loans receivable
balances and occurred despite a 17 basis point decrease in the yield on the
loan balances. Interest income from securities decreased $2.4 million, or
40%, from $6.1 million in 2000, to $3.7 million in the current period,
reflecting a $38.6 million decrease in average balances along with a 27 basis
point decrease in yield. The yield on average earning assets
(13)
decreased from 7.68% for the nine months ended December 31, 2000, to 7.67% for
the nine months ended December 31, 2001, as a result of declines in the level
of the market interest rates.
INTEREST EXPENSE. Interest expense for the quarter ended December 31, 2001,
was $3.0 million compared to $4.0 million for the comparable period in 2000, a
decrease of $1.0 million, or 26%. The decrease in interest expense was a
result of a decrease in the average cost of all interest-bearing liabilities
from 4.80% to 3.55%. The decrease in the average cost of funds was generally
a result of a lower interest rate environment and increases in low cost
transaction account balances offset by decreases in certificate of deposit
account balances. Deposit interest expense decreased $905,000 to $1.9 million
for the quarter ended December 31, 2001, compared to $2.8 million for the same
quarter a year ago. Transaction and savings deposit accounts had an average
balance of $129.1 million and an average cost of 1.42% for the quarter ended
December 31, 2001, compared to $127.0 million at 2.27% for the comparable
quarter a year ago. Certificate of deposit accounts had an average balance of
$122.8 million and an average cost of 4.72% for the quarter ended December 31,
2001, compared to $130.0 million at 6.04% for the comparable quarter a year
ago. Borrowings had an average balance of $80.8 million and an average cost
of 5.19% for the quarter ended December 31, 2001, compared to $71.5 million at
6.53% for the comparable quarter a year ago.
Interest expense for the nine months ended December 31, 2001, was $10.2
million compared to $11.6 million for the comparable period in 2000, a
decrease of $1.4 million, or 13%. The decrease in interest expense was a
result of a decrease in the average cost of all interest-bearing liabilities
from 4.72% to 4.02%. The decrease in the average cost of funds was generally
a result of a lower interest rate environment and increases in low cost
transaction account balances offset by decreases in certificate of deposit
account balances. Deposit interest expense decreased $1.3 million to $6.6
million for the nine months ended December 31, 2001, compared to $7.9 million
for the same period a year ago. Transaction and savings deposit accounts had
an average balance of $127.6 million and an average cost of 1.90% for the
nine months ended December 31, 2001, compared to $124.4 million at 2.52% for
the comparable period a year ago. Certificate of deposit accounts had an
average balance of $123.4 million and an average cost of 5.33% for the nine
months ended December 31, 2001, compared to $124.8 million at 5.92% for the
comparable period a year ago. Borrowings had an average balance of $86.6
million and an average cost of 5.46% for the nine months ended December 31,
2001, compared to $78.0 million at 6.41% for the comparable period a year ago.
PROVISION FOR LOAN LOSSES. The Company's methodology for calculating the
necessary reserves for loan losses requires the Company to reserve specific
percentages of outstanding loan balances with the percentages varying based
upon the perceived risk of the different loan types and loan classification
within specific loan types. For unclassified loans the Company reserves .25%
of outstanding balances for single family real estate loans, .50% for
commercial real estate loans, 1.00% for consumer loans, and 1.50% for dealer
auto loans, 7.00% for credit card balances, and 1.50% for commercial and
agricultural loans. For classified loans the Company reserves from 2.00% to
100.00% of outstanding balances depending upon the loan type and
classification. Additionally, the Company has $231,000 of unallocated
reserves as of December 31, 2001. The unallocated reserves were added in
fiscal 2000 to help bring the Company's loan loss reserves in line with the
reserves of its peer institutions and be reflective of the increased risk in
the loan portfolio in connection with the growth in commercial, agricultural
and consumer loans. During
(14)
the quarter ended December 31, 2001, seasonality, real estate loan sales and
prepayments caused loan balances to decline by $6.8 million. Generally, the
decrease in loan balances during the most recent quarter caused the required
allowance for loan losses to decline by $55,000 to $2.4 million. The
provision for loan losses for the quarter ended December 31, 2001 was a $4,000
credit, while net charge offs for the quarter were $51,000. During the
quarter ended December 31, 2001 a commercial real estate loan participation
became delinquent and was moved from unclassified to substandard status
increasing its required loan loss reserve from $10,500 to $31,500.
Subsequently the loan has been restructured with a new borrower and has been
moved back to unclassified status. At December 31, 2001 the allowance for
loan losses was .83% of total loans compared to .82% at December 31, 2000.
For the nine months ended December 31, 2001, the provision for loan losses was
$337,000 compared to $723,000 for the nine months ended December 31, 2000, a
decrease of $386,000. The reduction in the provision for loan losses reflects
the change in reserving methodology that occurred in 2000, which required
significant increases in reserves for that year. For the nine months ended
December 31, 2001, the net charge-offs were $68,000 compared to $62,000 for
the same period a year ago.
NON-INTEREST INCOME. Non-interest income was $796,000 for the quarter ended
December 31, 2001, an increase of $230,000, or 41%, from $566,000 for the
quarter ended December 31, 2000. Fees from newly originated loans sold of
$72,000 and income from corporate-owned life insurance of $175,000 contributed
to the increase in non-interest income during the most recent quarter. There
was no income from loans sold or corporate-owned life insurance in the quarter
ended December 31, 2000.
For the nine months ended December 31, 2001 non-interest income was $2.5
million compared to $1.6 million for the same period a year ago, an increase
of $956,000. Fees from newly originated loans sold of $121,000, income from
corporate-owned life insurance of $518,000 and a securities gain of $314,000
contributed to the increase in non-interest income during the most recent nine
months. There was no income from loans sold or corporate-owned life insurance
or net securities gains in the nine months ended December 31, 2000.
NON-INTEREST EXPENSE. Non-interest expense decreased 19%, or $569,000, to
$3.0 million for the quarter ended December 31, 2001 from $3.5 million for the
same quarter a year ago. Non-interest expense would have increased by 1%, or
$39,000 for the quarter ended December 31, 2001, if the Company had not
incurred (a) $257,000 in legal and proxy fees expensed during the December 31,
2001 quarter, (b) a $561,000 loss on securities sales during the December 31,
2000 quarter, and (c) $303,000 in restructuring charges during the December
31, 2000 quarter.
Non-interest expense for the nine months ended December 31, 2001 was $8.4
million, a decrease of $843,000, or 9%, compared to the $9.3 million expensed
in the same period a year ago. The decrease in non-interest expense was a
result of the absence of restructuring charges which resulted in increased
non-interest expense in the prior nine month period. During the nine months
ended December 31, 2000 charges, including reduction in force expenses and
losses incurred in liquidating low yielding securities totaled $1.3 million.
(15)
INCOME TAXES. The provision for income taxes was $513,000 for the quarter
ended December 31, 2001 compared to $52,000 for the same quarter a year ago.
The effective tax rate for the quarter ended December 31, 2001 was 30%
compared to 31% for the same quarter a year ago. Generally, the lower
effective tax rate was a result of the Company having higher balances of tax
advantaged assets partially offset by the Company having higher levels of
earnings taxed at a higher marginal tax rate. For the nine months ended
December 31, 2001 the effective tax rate was 28% compared to 33% for the same
period a year ago. Generally, the lower effective tax rate was a result
of the Company having higher balances of tax advantaged assets and an income
tax benefit related to the Company's ESOP Plan partially offset by the Company
having higher levels of earnings taxed at a higher marginal tax rate.
ITEM 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, 2001 there was a $14.7 million, or 28.9% 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 FHLB model, at September 30, 2001 the decrease in the Bank's NPV was
$6.8 million, or 19.3%.
(16)
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. Stilwell Associates, L.P. has filed an
appeal with the Oregon Court of Appeals. The parties have not
briefed the issues. 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 that 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 the likelihood of incurring any
"material loss contingency" in connection with these matters is
remote.
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
September 28, 2001. The results of the vote on the matters
presented at the Meeting were as follows:
(17)
1. The following individuals were elected as directors for three
year terms:
Vote For Vote Withheld
-------- -------------
John Gentry 1,076,094 39,761
Kevin D. Padrick 1,865,828 5,176
The directors whose terms continued and the years their terms
expire are as follows: Albert H. Durgan (2002), Edward H. Elms
(2002), Stephen R. Whittemore (2003), and Charles H. Rouse
(2003).
2. The appointment of the Company's auditors, Deloitte & Touche LLP,
as Independent auditors for the fiscal year ending March 31, 2002
was approved by stockholders by the following vote:
For 2,869,307; Against 20,080; Abstain 94,547; 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)
- ----------------
(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 and the Form 10-Q for the
quarter ended September 30, 2001.
(5) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1998.
(6) Incorporated by reference to the Registrant's Form 10-K for the year
ended March 31, 2000.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the quarter ended
December 31, 2001.
(18)
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, 2002 By: /s/Berniel L. Maughan
----------------------------
Berniel L. Maughan, President and
Chief Executive Officer
Date: February 14, 2002 By: /s/Jon McCreary
----------------------------
Jon McCreary, Chief Financial
Officer
(19)