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 June 30, 2002
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 July 31, 2002, there were issued and outstanding 3,089,250 shares
of the Registrant's Common Stock. The Registrant's voting common stock is
traded over-the-counter and is listed on the Nasdaq National Market under the
symbol "OTFC".
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
TABLE OF CONTENTS
Part I. Financial Information
Item I. Financial Statements (Unaudited) Page
Consolidated Balance Sheets 2
as of June 30, 2002 and March 31, 2002
Consolidated Statements of Income (For the Three 3
Months Ended June 30, 2002 and 2001)
Consolidated Statements of Shareholders' Equity
(For the Three Months Ended June 30, 2002 and for
the Year Ended March 31, 2002) 4
Consolidated Statements of Cash Flows (For the
Three Months Ended June 30, 2002 and 2001) 5-6
Notes to Consolidated Financial Statements 7-10
Item II. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-15
Item III. Quantitative and Qualitative Disclosures about Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
CEO/CFO Certification 18
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2002 and MARCH 31, 2002
(UNAUDITED)
(In thousands, except share data)
June 30 March 31
ASSETS 2002 2002
-------- ---------
Cash and cash equivalents (including interest
earning accounts of $7,091 and $6,070) $ 8,801 $ 7,795
Securities:
Available for sale, at fair value
(amortized cost: of $97,458 and $91,959) 100,121 92,419
Loans receivable, net of allowance for loan
losses of $2,322 and $2,280 257,973 265,863
Accrued interest receivable 2,225 2,308
Premises and equipment, net 9,269 9,466
Stock in Federal Home Loan Bank of Seattle
("FHLB"), at cost 6,410 6,315
Real estate owned and other repossessed assets 61 58
Other assets 13,931 14,142
-------- --------
TOTAL ASSETS $398,791 $398,366
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Interest-bearing $118,930 $114,859
Noninterest-bearing 24,885 21,878
Time certificates 115,832 119,341
-------- --------
Total deposits 259,647 256,078
Accrued expenses and other liabilities 2,004 2,311
Advances from FHLB 80,100 87,100
Net deferred tax liability 1,459 17
Advances from borrowers for taxes and insurance 47 37
-------- --------
Total liabilities 343,257 345,543
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; June 30, 2002,
4,694,875 issued, 2,869,937 outstanding;
March 31, 2002, 4,694,875 issued, 2,854,548
outstanding; 31 31
Additional paid-in capital 23,113 22,965
Retained earnings (substantially restricted) 33,086 32,042
Unearned shares issued to the Employee Stock
Ownership Plan ("ESOP") (1,207) (1,341)
Unearned shares issued to the Management
Recognition and Development Plan ("MRDP") (1,170) (1,253)
Accumulated other comprehensive income 1,681 379
-------- --------
Total shareholders' equity 55,534 52,823
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $398,791 $398,366
======== ========
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 MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
(In thousands, except per share data)
3 MONTHS ENDED 3 MONTHS ENDED
6/30/2002 6/30/2001
INTEREST INCOME:
Interest and fees on loans receivable $5,010 $5,633
Securities:
Mortgage-backed and related securities 1,154 1,114
U.S. government and government agencies
and other 257 410
FHLB dividends 94 91
------ ------
Total interest income 6,515 7,248
INTEREST EXPENSE:
Deposits 1,565 2,531
FHLB advances 988 1,254
------ ------
Total interest expense 2,553 3,785
Net interest income 3,962 3,463
Provision for loan losses 143 318
------ ------
Net interest income after provision for
loan losses 3,819 3,145
------ ------
NON-INTEREST INCOME:
Service charges on deposit accounts 484 443
Loan servicing fees 127 130
Gain on sale of loans 60 -
Realized gain on securities - 310
Other Income 179 136
------ ------
Total non-interest income 850 1,019
NON-INTEREST EXPENSES:
Employee compensation and benefits 1,633 1,494
Supplies, postage, and telephone 226 216
Depreciation 203 219
Occupancy and equipment 176 175
Customer accounts 149 157
Advertising 41 29
Professional fees 127 342
FDIC insurance premium 11 12
Other 143 88
------ ------
Total non-interest expenses 2,709 2,732
Income before income taxes 1,960 1,432
Provision for income taxes 633 358
------ ------
NET INCOME $1,327 $1,074
====== ======
Basic Earnings per share $0.46 $0.32
Diluted Earnings per share $0.44 $0.31
Weighted average common shares
outstanding:
Basic 2,863,188 3,333,237
Diluted 3,026,925 3,436,663
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
(3)
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,
2001 3,325,757 $36 $30,972 $28,374 ($1,878) ($515) $817 $57,806
Net income - - - 4,915 - - 4,915 - 4,915
Cash dividends paid - - - (1,247) - - - - (1,247)
Stock repurchased
and retired (574,587) (6) (9,672) - - - - - (9,678)
Earned ESOP shares 53,656 - 339 - 537 - - - 876
Earned MRDP shares 29,380 - - - - 318 - - 318
New MRDP shares
granted - - 1,056 - - (1,056) - - -
Exercise of stock
options 20,342 1 270 - - - - - 271
Net unrealized gain
on securities avail-
able for sale of
$5,584(net of tax
expense of $3,319)
less reclassifica-
tion adjustment for
net losses included
in net income of
$1,488 (net of tax
benefit of $766) (438) (438) (438)
------
Comprehensive income - - - - - - $4,477 - -
--------- ---- ------- ------- ------- ------- ====== ------ -------
Balance, March 31,
2002 2,854,548 $31 $22,965 $32,042 ($1,341) ($1,253) $379 $52,823
Net income - - - 1,327 - - 4,915 - 1,327
Cash dividends paid - - - (283) - - - - (283)
Stock repurchased
and retired - - - - - - - - 0
Earned ESOP shares 13,414 - 121 - 134 - - - 255
Earned MRDP shares - - - - - 83 - - 83
New MRDP shares granted - - - - - - - - -
Exercise of stock
options 1,975 - 27 - - - - - 27
Net unrealized gain
on securities avail-
able for sale (net of
$810 of tax expense) 1,302 1,302 1,302
------
Comprehensive income - - - - - - $6,217 - -
--------- ---- ------- ------- ------- ------- ====== ------ -------
Balance, June 30,
2002 2,869,937 $31 $23,113 $33,086 ($1,207) ($1,170) $1,681 $55,534
========= ==== ======= ======= ======= ======= ====== =======
4
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
(In thousands)
30-Jun-02 30-Jun-01
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,327 $1,074
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 203 219
Compensation expense related to ESOP 255 224
Compensation expense related to MRDP 83 76
Amortization of deferred loan fees (63) (60)
Provision for loan losses 143 318
Deferred income taxes (810) -
Amortization and accretion of premiums and
discounts on investments and loans purchased 105 166
FHLB dividends (94) (91)
Gain on sale of real estate owned - (11)
Gain on sale of loans (60) -
Loss on sale of premises and equipment - 1
Changes in assets and liabilities:
Accrued interest receivable 83 (214)
Other assets 207 (89)
Accrued expenses and other liabilities 1,135 (56)
-------- -------
Net cash provided by operating activities 2,514 1,557
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations (25,314) (29,181)
Loan principal repayments 33,995 28,871
Loans purchased (4,241) (42,685)
Loans sold 3,341 -
Principal repayments of securities available
for sale 4,396 4,098
Purchase of securities available for sale (10,002) 21,814
Purchases of stock in FHLB - (1,268)
Purchases of premises and equipment (8) (62)
Proceeds from sales of premises and equipment 2 18
-------- -------
Net cash provided by (used in) investing activities 2,169 (18,395)
-------- -------
(5)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase(decrease) in deposits, net of withdrawals $3,569 ($3,424)
Change in advances from borrowers for taxes and
insurance 10 24
Change in borrowings from FHLB (7,000) 23,375
Payment of cash dividends (283) (340)
Stock options excercised 27 29
Stock repurchased and retired - (28)
-------- -------
Net cash provided by(used in) financing activities (3,677) 19,636
-------- -------
Net increase(decrease) in cash 1,006 2,798
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,795 10,581
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,801 $13,379
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and other borrowings $2,489 $ 3,705
Income taxes - 305
Noncash investing activities:
Unrealized gain on securities available for sale,
net of tax (1,302) (233)
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.'s and its subsidiary, Pioneer Bank, a Federal
Savings Bank (the "Bank") (together, the "Company"), financial condition as of
June 30, 2002 and March 31, 2002, the results of its operations for the three
months ended June 30, 2002 and 2001, and its cash flows for the three months
ended June 30, 2002 and 2001. 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, 2002. The results of operations for the three months
ended June 30, 2002 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 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 allowance for loan losses is summarized as follows for the year
ended March 31, 2002 and for the three months ended June 30, 2002:
June 30, 2002 March 31, 2002
(in thousands) (in thousands)
-------------- --------------
Balance, beginning of
period $ 2,280 $ 2,098
Charge-offs (104) (341)
Recoveries 3 42
Provision for loan losses 143 481
------- ------
Balance, end of period $ 2,322 $2,280
======= ======
(7)
4. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at June 30, 2002 consisted of 21 term advances varying in length
from one day to 338 months totaling $80.1 million from the FHLB of Seattle.
The advances are collateralized in the 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 June
30, 2002:
Due in less than one year:
- -------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
- -----------------------------------------------------
$50,600,000 1.83% - 7.22% 4.07%
Due within one to five years:
- ----------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
- -----------------------------------------------------
$14,500,000 5.20% - 7.01% 6.09%
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. EARNINGS PER SHARE
Shares held by the Company's ESOP that are committed for release are
considered common stock equivalents and are included in weighted average
shares outstanding (denominator) for the calculation of basic and diluted
Earnings Per Share ("EPS"). Diluted EPS is computed using the treasury stock
method, giving effect to potential additional common shares that were
outstanding during the period. Potential dilutive common shares include
shares awarded but not released under the Company's MRDP and stock options
granted under the Stock Option Plan. Following is a summary of the effect of
dilutive securities in weighted average number of shares (denominator) for the
basic and diluted EPS calculations. There are no resulting adjustments to net
earnings.
(8)
For the Three Months ended June 30,
2002 2001
--------- ---------
Weighted average common shares
outstanding - basic 2,863,188 3,333,237
Effect of Dilutive Securities on
Number of Shares:
MRDP shares 20,955 13,916
Stock Options 142,782 89,510
--------- ---------
Total Dilutive Securities 163,737 103,426
--------- ---------
Weighted average common shares
outstanding - with dilution 3,026,925 3,436,663
========= =========
6. REGULATORY CAPITAL
The Company is not subject to separate regulatory capital requirements. The
following table illustrates the Bank's compliance with currently applicable
regulatory capital requirements at June 30, 2002 and March 31, 2002.
As of June 30, 2002:
Categorized as
"Well Capitalized"
For Capital Under Prompt
Adequacy Corrective Action
Actual Purposes Provision
(In Thousands) (In Thousands) (In Thousands)
-------------- -------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
As of June 30, 2001:
Total Capital:
(To Risk Weighted
Assets) $ 44,051 16.7% $ 20,907 8.0% $ 26,134 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 41,730 16.0 N/A N/A 15,680 6.0
Tier I Capital:
(To Tangible Assets) 41,730 10.6 15,753 4.0 19,692 5.0
Tangible Capital:
(To Tangible Assets) 41,730 10.6 5,908 1.5 N/A N/A
(9)
As of March 31, 2002
Categorized as
"Well Capitalized"
For Capital Under Prompt
Adequacy Corrective Action
Actual Purposes Provision
(In Thousands) (In Thousands) (In Thousands)
-------------- -------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
As of March 31, 2002:
Total Capital:
(To Risk Weighted
Assets) $42,583 16.3% $ 20,939 8.0% $ 26,174 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 40,303 15.4 N/A N/A 15,704 6.0
Tier I Capital:
(To Tangible Assets) 40,303 10.2 15,823 4.0 19,778 5.0
Tangible Capital:
(To Tangible Assets) 40,303 10.2 5,934 1.5 N/A N/A
7. 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 adopted the
provisions of this statement on April 1, 2002.
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
adopted the provisions of these statements on April 1, 2002.
(10)
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 of such forward-looking statements. These forward-looking statements,
which are included in Management's Discussion and Analysis, describe future
plans or strategies and include the Company's expectations of future financial
results. The words "believe," "expect," "anticipate," "estimate," "project,"
and similar expressions identify forward-looking statements. The Company's
ability to predict results or the effect of future plans or strategies is
inherently uncertain. Factors which could affect actual results include
interest rate trends, the general economic climate in the Company's market
area and the country as a whole, loan delinquency rates, and changes in
federal and state regulation. These factors should be considered in
evaluating the forward-looking statements, and undue reliance should not be
placed on such statements.
Critical Accounting Policies
The Company has established various accounting policies that govern the
application of accounting principles generally accepted in the United States
of America in preparation of the Company's Consolidated Financial Statements.
The preparation of these financial statements requires management to use
assumptions, judgment and estimates. Management evaluates its use of these
assumptions, judgments and estimates on an ongoing basis. Estimates are based
on current economic and business conditions in our market area. Management
believes that the judgments, estimates and assumptions used in the preparation
of the Company's Consolidated Financial Statements are appropriate given the
factual circumstances at the time of preparation. The use of judgments,
estimates and assumptions, however, could result in material differences in
our results of operation and financial condition. The Company has determined
that its most critical accounting policy is the determination of its provision
for loan losses. See additional discussion under "Changes in Financial
Condition" in this section.
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 June 30,
2002, the Company had total assets of $398.8 million, total deposits of $259.6
million and shareholders' equity of $55.5 million. The Company is not
currently engaged in any business activity other than holding the stock of the
Bank. Accordingly, the information set forth in this report, including
financial statements and related data, relates primarily to the Bank. All
references to the Company herein include the Bank where applicable.
The Bank was organized in 1901. It is regulated by the OTS and its deposits
are insured up to applicable limits under the Savings Association Insurance
Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
(11)
The Bank is a member of the FHLB of Seattle, conducting its business from nine
office facilities, with the headquarters located in Baker City, Oregon. The
primary market areas of the Bank are the counties of Wallowa, Union, Baker,
Malheur, Harney, Grant and Umatilla in Eastern Oregon.
The Bank is a community oriented financial institution and its 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 June 30, 2002,
one-to-four family residential mortgage loans totaled $117.0 million, or 44.9%
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 June 30, 2002 the Company had agricultural
loans of $16.8 million, commercial business loans of $23.7 million, commercial
real estate loans of $43.2 million, agricultural real estate loans of $4.2
million, and automobile loans of $28.5 million (including $24.7 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.
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
At June 30, 2002, the Company had total assets of $398.8 million, compared
with $398.4 million at March 31, 2002. Increases in securities of $7.7
million offset decreases in net loans of $7.9 million during the quarter and
left total asset balances relatively unchanged. Cash, including
interest-earning accounts, totaled $8.8 million at June 30, 2002, compared to
$7.8 million at March 31, 2002. At June 30, 2002, the Company had $260.3
million in gross loans, a decrease of $7.8 million compared to $268.1 million
at March 31, 2002. Real estate loans declined by $7.5 million to $164.8
million at June 30, 2002 from $172.3 million at March 31, 2002. The decline
in real estate loans was caused by the sale of single family loan originations
and paydowns in commercial real estate loans. Consumer loans increased by
$671,000 to $55.0 million at June 30, 2002 compared to $54.4 million at March
31, 2002. Commercial and agricultural loans at June 30, 2002 were $40.4
million a $1.0 million decrease from $41.4 million at March 31, 2002. The
modest increases and decreases in the consumer and commercial and agricultural
portfolios reflect the mature nature of the eastern Oregon marketplace and a
slower economic environment.
Non-performing assets, consisting of non-accruing loans, real estate owned and
other repossessed assets, decreased $110,000, or 27.9% to $284,000 at June 30,
2002 compared to $394,000 at March 31, 2002. Allowance for loan losses
increased $42,000 at June 30, 2002 to remain virtually unchanged at $2.3
million. The allowance for loan losses as a percentage of net loans increased
4 basis points during the June 30, 2002 quarter to .90% of net loans from .86%
of net
(12)
loans at March 31, 2002. Management believes the allowance for loan losses,
at 1,041% of non-performing loans, is adequate to absorb potential losses in
the loan portfolio.
For the three months ended June 30, 2002, transaction and savings deposit
accounts increased $7.1 million, or 5.2% to $143.8 million from $136.7
million. Transaction and savings accounts now represent 55.4% of total
deposits. Non-interest bearing deposits increased $3.0 million, or 13.7%
during the June 30, 2002 quarter to $24.9 million and now comprise 9.6% of
total deposits. The increase in core deposits reflects the Company's ongoing
strategy to decrease its reliance on more expensive funding sources and
decrease the interest expense impact of potential increases in short-term
interest rates. Total deposits were $259.6 million at June 30, 2002, an
increase of $3.6 million, compared to deposits of $256.1 million at March 31,
2002.
For the three month period ended June 30, 2002, the Company's book value per
share increased 4.6% to $19.35 per share. Shareholders' equity increased
5.1%, or $2.7 million to $55.5 million for the quarter ended June 30, 2002
from $52.8 million in the quarter ended March 31, 2002. The increase in
shareholders' equity was primarily a result of a $1.0 million increase in
retained earnings and a $1.3 million increase in accumulated other
comprehensive income.
Comparison of Operating Results for the Three Months Ended June 30, 2002 and
2001
GENERAL. Net income for the three months ended June 30, 2002 was $1.3
million, or $.44 per diluted share, a 23.6% and a 41.9% increase,
respectively, from the net income of $1.1 million, or $.31 per diluted share
for the three months ended June 30, 2001. Net interest income for the three
months ended June 30, 2002 was $4.0 million, a $499,000 increase from $3.5
million for the same period last year. The increase in net interest income was
primarily a result of spread widening, as the interest rate spread for the
quarter ended June 30, 2002 increased 52 basis points to 3.85% from 3.33% in
the same quarter a year ago. Non-interest income (net of June 30, 2001 quarter
gain on sale of $310,000) increased 19.9%, or $141,000 to $850,000 for the
quarter ended June 30, 2002 when compared to the same quarter in 2001.
Non-interest expense remained unchanged at $2.7 million when comparing the
quarter ended June 30, 2002 to the quarter ended June 30, 2001.
INTEREST INCOME. Interest income for the three months ended June 30, 2002 was
$6.5 million, a decrease of $733,000, or 10.1%, compared to $7.2 million for
the same period in fiscal 2002. The decrease in interest income was caused by
a 99 basis point decrease in the yield on average interest earning assets to
7.08% for the three months ended June 30, 2002 compared to 8.07% for the same
period a year ago. The lower asset yields reflects the decline in interest
rates which has occurred during the past year. Average interest earning
assets decreased $11.0 million to $369.7 million for the three months ended
June 30, 2002 compared to $380.7 million for the same period in fiscal 2002
and also minimally offset the decrease in interest income.
INTEREST EXPENSE. Interest expense for the three months ended June 30, 2002
was $2.6 million, a decrease of $1.2 million, or 2.5%, compared to $3.8
million for the quarter ended June 30, 2001. The cost of average
interest-bearing liabilities for the first quarter of year 2003 was 3.23%
compared to 4.75% for the same three months of fiscal year 2002. Transaction
and savings deposit accounts had average balances of $140.9 million and an
average cost of 1.19% for the three months ended June 30, 2002, compared to
$124.7 million at 2.17% for the comparable quarter a year ago. Certificates
of deposit accounts had an average balance of $118.8
(13)
million and an average cost of 3.87% for the quarter ended June 30, 2002
compared to $125.9 million at 5.91% for the comparable quarter a year ago.
Borrowings had an average balance of $79.2 million and an average cost of
5.00% for the quarter ended June 30, 2002 compared to $89.1 million at 5.64%
for the same period last year. The decreased cost of interest-bearing
liabilities reflects the increasing proportion of transaction accounts as well
as the overall decrease in interest rates that has occurred over the past
year.
PROVISION FOR LOAN LOSSES. The provision for loan losses are changes to
earnings to bring the total allowances for loan losses to levels considered by
management as adequate to provide for known and inherent risks in the loan
portfolio, including management's continuing analysis of factors underlying
the quality of the loan portfolio. These factors include changes in portfolio
size and composition, actual loan loss experience, current and anticipated
economic conditions, detailed analysis of individual loans for which full
collectibility may not be assured, and determination of the existence and
realizable value of the collateral and guarantees securing the loans.
The Company's methodology for calculating the necessary allowance 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.
Additionally, the Company has $191,000 of unallocated reserves. The provision
for loan losses was $143,000 during the three months ended June 30, 2002
compared to $318,000 for the same period last year. There were no loans
classified as doubtful at June 30, 2002 compared to $22,000 at June 30, 2001.
The decrease in loans classified as doubtful caused the allowance to decrease
by $4,000. Loans classified as substandard increased $76,000 to $1.1 million
at June 30, 2002 compared to $1.0 million at June 30, 2001. The increase in
substandard loans caused the allowance to be increased by $32,000. Loans
classified as other loans especially mentioned decreased by $1.7 million to
$673,000 at June 30, 2002 from $2.3 million for the same quarter a year ago.
The decrease in other loans especially mentioned caused the allowance to
decrease by $80,000. The unallocated reserve decreased by $24,000 to $191,000
at June 30, 2002 from $215,000 at June 30, 2001. The combination of changes
in the amount of classified loans, total loans outstanding, trends in loan
quality, micro and macro economic factors caused an aggregate decrease in the
allowance for loan losses for the quarter ended June 30, 2002 of $76,000 from
the quarter ended June 30, 2001.
NON-INTEREST INCOME. Non-interest income for the quarter ended June 30, 2002,
was $850,000 compared to $1.0 million for the quarter ended June 30, 2001, a
decrease of $169,000 or 16.6%. The decrease reflects a realized gain on the
sale of securities of $310,000 for the quarter ended June 30, 2001 partially
offset by a $60,000 gain on sale of loans, an increase of $41,000 in service
charges on deposit accounts and an increase in other income of $43,000 for the
quarter ended June 30, 2002 when compared to the prior year quarter.
NON-INTEREST EXPENSE. Non-interest expense remained unchanged at $2.7 million
for each of the quarters ended June 30, 2002 and 2001. Comparing the quarters
ended June 30, 2002 and 2001, a $215,000 decrease in professional fees was
offset by a $139,000 increase in compensation and benefits and an aggregate
$53,000 increase in all other non-interest expense.
(14)
INCOME TAXES. The provision for income taxes for the quarter ended June 30,
2002 increased $275,000, or 76.8% to $633,000 from $358,000 in the same
quarter last year. The increase in taxes is reflective of higher levels of
pre-tax income and an increase in the effective tax rate to 32.3% from 25.0%.
The effective tax rate was lower in 2001 due to a tax benefit related to the
Company's employee stock ownership plan.
The following table provides additional data on the Company's operating
performance:
Quarters Ended
Average balances (in thousands) June 30
----------------
2002 2001
---- ----
Cash and interest earning deposits $ 9,704 $ 8,809
Investment Securities 92,644 95,102
Loans 261,019 271,591
FHLB Stock 6,318 5,194
-------- --------
Total average interest-earning assets 369,685 380,696
Non interest-earning assets 25,758 20,719
-------- --------
Total average assets 395,443 401,415
Deposits 259,620 250,682
Advances from FHLB 79,186 89,090
-------- --------
Total average interest-bearing liabilities 338,806 339,772
Non interest-bearing liabilities 2,886 4,298
-------- --------
Total average liabilities 341,692 344,070
Equity 53,751 57,345
-------- --------
Total average liabilities and equity $395,443 $401,415
======== ========
Item No. III
Quantitative and Qualitative Disclosures about Market Risk
The mismatch between maturities and interest rate sensitivities of balance
sheet items results in interest rate risk. The extent of interest rate risk
to which the Bank is subject is monitored by management by modeling the change
in net portfolio value ("NPV") over a variety of interest rate scenarios. NPV
is the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The calculation is intended to illustrate the
change in NPV that will occur in the event of an immediate change in interest
rates of at least 200 basis points with no effect given to any steps which
management might take to counter the effect of that interest rate movement.
The Bank has taken steps to decrease its interest rate risk by better matching
maturities of its balance sheet items. During the quarter ended June 30,
2002, there was no material change in the market risk disclosures included in
the Company's Form 10-K for the year ended March 31, 2002.
(15)
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.
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
---------------------------------------------------
No matters were submitted to a vote of security holders during the
first quarter of the fiscal year ended March 31, 2003.
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)
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) Employment Agreement with Jonathan P. McCreary (7)
10(d) Amended Employee Severance Compensation 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) August 21, 2001 Amendment to 1998 Stock Option Plan (6)
10(i) January 30, 2002 Amendment to 1998 Stock Option Plan
10(j) 1998 Management Recognition and Development Plan (5)
10(k) August 21, 2001 Amendment to 1998 Management Recognition and
Development Plan (6)
- ------------
(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.
(6) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 2001.
(7) Incorporated by reference to the Registrant's form 10-K for the year
ended March 31, 2002.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended June
30, 2002.
(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.
Date: August 13, 2002 By: /s/Berniel L. Maughan
----------------------------
Berniel L. Maughan, President and
Chief Executive Officer
Date: August 13, 2002 By: /s/Jon McCreary
----------------------------
Jon McCreary, Chief Financial
(17)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
OF OREGON TRAIL FINANCIAL CORP.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and in connection with this Quarterly Report on Form 10-Q, that:
1. the report fully complies with the requirements of Sections 13(a) and
15(d) of the Securities and Exchange Act of 1934, as amended, and
2. the information contained in the report fairly presents, in all
material respects, the Company's financial condition and results of
operations.
/s/Berniel L. Maughan /s/Jon P. McCreary
- ------------------------------------- --------------------------------
Berniel L. Maughan Jon P. McCreary
President and Chief Executive Officer Chief Financial Officer
Dated: August 13, 2002
(18)