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, 2003
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 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
NA
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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, 2003, there were issued and outstanding 3,108,152 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".
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [ X ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of class: As of August 14, 2003
Common stock, par value
$0.01 per share 3,108,152
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements (Unaudited) Page
Consolidated Balance Sheets 2
as of June 30, 2003 and March 31, 2003
Consolidated Statements of Income (For the Three 3
Months Ended June 30, 2003 and 2002)
Consolidated Statements of Shareholders' Equity
(For the Three Months Ended June 30, 2003 and for
the Year Ended March 31, 2003) 4
Consolidated Statements of Cash Flows (For the
Three Months Ended June 30, 2003 and 2002) 5
Notes to Consolidated Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. Controls and Procedures 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2003 and MARCH 31, 2003
(UNAUDITED)
(In thousands, except share data)
June 30 March 31
ASSETS 2003 2003
-------- --------
Cash and cash equivalents (including interest
earning accounts of $7,240 and $7,091) $ 9,303 $ 9,114
Securities:
Available for sale, at fair value (amortized cost:
of $108,275 and $97,458) 115,833 107,935
Loans receivable, net of allowance for loan
losses of $2,172 and $2,221 213,083 228,227
Accrued interest receivable 1,712 1,906
Premises and equipment, net 8,590 8,719
Stock in Federal Home Loan Bank of Seattle
("FHLB"), at cost 6,815 6,727
Real estate owned and other repossessed assets 247 302
Other assets 14,566 14,555
-------- --------
TOTAL ASSETS $370,149 $377,485
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Interest-bearing $123,951 $120,792
Noninterest-bearing 25,796 25,563
Time certificates 100,710 102,771
-------- --------
Total deposits 250,457 249,126
Accrued expenses and other liabilities 1,966 2,483
Advances from FHLB 54,500 64,500
Net deferred tax liability 1,829 1,231
Advances from borrowers for taxes and insurance 41 38
-------- --------
Total liabilities 308,793 317,378
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, 2003, 4,694,875 issued,
2,973,711 outstanding; March 31, 2003,
4,694,875 issued, 2,954,938 outstanding; 29 29
Additional paid-in capital 24,060 23,815
Retained earnings (substantially restricted) 37,036 36,098
Unearned shares issued to the Employee Stock
Ownership Plan ("ESOP") (671) (805)
Unearned shares issued to the Management
Recognition and Development Plan ("MRDP") (778) (881)
Accumulated other comprehensive income 1,680 1,851
-------- --------
Total shareholders' equity 61,356 60,107
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $370,149 $377,485
======== ========
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, 2003 AND 2002
(UNAUDITED)
(In thousands, except per share data)
3 MONTHS ENDED 3 MONTHS ENDED
6/30/2003 6/30/2002
------------- -------------
INTEREST INCOME:
Interest and fees on loans receivable $4,074 $5,010
Securities:
Mortgage-backed and related securities 812 1,154
U.S. government and government agencies
and other 426 257
FHLB dividends 88 94
------ ------
Total interest income 5,400 6,515
INTEREST EXPENSE:
Deposits 1,017 1,565
FHLB advances 933 988
------ ------
Total interest expense 1,950 2,553
Net interest income 3,450 3,962
Provision for loan losses 54 143
------ ------
Net interest income after provision for
loan losses 3,396 3,819
------ ------
NON-INTEREST INCOME:
Service charges on deposit accounts 470 484
Loan servicing fees 101 127
Gain on sale of loans 167 60
Realized gain on securities 170 -
Other Income 163 179
------ ------
Total non-interest income 1,071 850
NON-INTEREST EXPENSES:
Employee compensation and benefits 1,788 1,633
Supplies, postage, and telephone 189 226
Depreciation 175 203
Occupancy and equipment 168 176
Customer accounts 95 149
Advertising 28 41
Professional fees 102 127
FDIC insurance premium 11 11
Other 104 143
------ ------
Total non-interest expenses 2,660 2,709
Income before income taxes 1,807 1,960
Provision for income taxes 535 633
------ ------
NET INCOME $1,272 $1,327
====== ======
Basic Earnings per share $ 0.43 $ 0.46
Diluted Earnings per share $ 0.40 $ 0.44
Weighted average common shares outstanding:
Basic 2,965,962 2,863,188
Diluted 3,174,889 3,026,925
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 THREE MONTHS ENDED JUNE 30, 2003 AND THE YEAR ENDED MARCH 31, 2003
(UNAUDITED)
(In thousands, except share data)
Unearned Unearned
Shares Shares
Issued Issued to
to Management
Employee Recognition Accumulated
Stock and Other
Additional Owner- Develop- Compre- Compre-
Common Stock Paid-in Retained ship ment hensive hensive
Shares Amount Capital Earnings Plan Plan Income Income Total
------ ------ ------- -------- ----- ----- ------ ------ -----
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Balance, April 1,
2002 2,854,548 $31 $22,965 $32,042 ($1,341) ($1,253) $379 $52,823
Net income - - - 5,154 - - 5,154 - 5,154
Cash dividends paid - - - (1,246) - - - - (1,246)
Stock repurchased and
retired (6,239) (2) (38) - - - - - (40)
Earned ESOP shares 53,656 - 558 - 536 - - - 1,094
Earned MRDP shares 31,215 - - - - 372 - - 372
Exercise of stock
options 21,758 - 330 - - - - - 330
Tax benefit of SOP - - - 148 - - - - 148
Net unrealized gain
on securities avail-
able for sale of $2,388
(net of tax expense
of $916) 1,472 1,472 1,472
------
Comprehensive income - - - - - - $6,626 - -
--------- --- ------- ------- ---- ---- ====== ------ -------
Balance, March 31,
2003 2,954,938 $29 $23,815 $36,098 ($805) ($881) $1,851 $60,107
========= === ======= ======= ==== ==== ====== =======
Net income - - - 1,272 - - 1,272 - 1,272
Cash dividends paid - - - (334) - - - - (334)
Earned ESOP shares 13,394 - 184 - 134 - - - 318
Earned MRDP shares - - - - - 103 - - 103
Exercise of stock
options 5,379 - 61 - - - - - 61
Net unrealized loss
on securities
available for sale
of $277 (net of tax
benefit of $106) (171) (171) (171)
------
Comprehensive income - - - - - - $1,101 - -
--------- --- ------- ------- ---- ---- ====== ------ -------
Balance, June 30,
2003 2,973,711 $29 $24,060 $37,036 ($671) ($778) $1,680 $61,356
========= === ======= ======= ==== ==== ====== =======
(4)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
(In thousands)
30-Jun-03 30-Jun-02
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,272 $ 1,327
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 175 203
Compensation expense related to ESOP 318 255
Compensation expense related to MRDP 103 83
Amortization of deferred loan fees (134) (63)
Provision for loan losses 54 143
Amortization and accretion of premiums and
discounts on investments and loans purchased 110 105
FHLB dividends (88) (94)
Gain on sale of loans (167) (60)
Gain on sale of securites available for sale (170) -
Changes in assets and liabilities:
Accrued interest receivable 194 83
Other assets 44 207
Accrued expenses and other liabilities 55 325
-------- ---------
Net cash provided by operating activities 1,766 2,514
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations (34,263) (25,314)
Loan principal repayments 44,624 33,995
Loans purchased (5,241) (4,241)
Loans sold 10,193 3,341
Principal repayments of securities
available for sale 15,950 4,396
Purchase of securities available for sale (25,344) (10,002)
Proceeds from sale of securities available
for sale 1,489 -
Purchases of premises and equipment (46) (8)
Proceeds from sales of premises and equipment - 2
-------- ---------
Net cash provided by investing activities 7,362 2,169
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits, net of withdrawals 1,331 3,569
Change in advances from borrowers for taxes
and insurance 3 10
Advances in borrowings from FHLB 2,300 139,075
Repayments in borrowings from FHLB (12,300) (146,075)
Payment of cash dividends (334) (283)
Stock options excercised 61 27
-------- ---------
Net cash used in financing activities (8,939) (3,677)
-------- ---------
Net increase in cash 189 1,006
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 9,114 7,795
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,303 $ 8,801
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest on deposits and other borrowings $ 1,911 $ 2,489
Noncash investing activities:
Unrealized loss on securities available
for sale, net of tax (171) (1,302)
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
(5)
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's, Pioneer Bank, a
Federal Savings Bank (the "Bank") (together, the "Company"), financial
condition as of June 30, 2003 and March 31, 2003, the results of their
operations for the three months ended June 30, 2003 and 2002, and their cash
flows for the three months ended June 30, 2003 and 2002. 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, 2003. The results of
operations for the three months ended June 30, 2003 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 non-owner 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. The following summarizes total comprehensive income (loss) for the
noted periods:
For the Three Months ended
June 30,
--------------------------
(Dollars in thousands) 2003 2002
------ ------
Net income as reported $1,272 $1,327
Unrealized gains (losses) on securities (447) 2,112
Tax provision (benefit) 170 (810)
Less: reclassification adjustment for gains
on sales of securities 170 -
Tax provision (64) -
Net unrealized gain (loss) on securities, net ------ ------
of tax $1,101 $2,629
====== ======
(6)
3. ACCOUNTING FOR STOCK BASED COMPENSATION
The Company accounts for stock compensation using the intrinsic value
method as prescribed in Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations.
Under the intrinsic value based method, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of stock at grant
date over the amount an employee must pay to acquire the stock. Stock options
granted by the Company have no intrinsic value at the grant date and, under
APB No. 25, there is no compensation expense to be recorded. All options
granted under our stock option plan had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following
table illustrates the effect on net income and earnings per share if the fair
value based method established in SFAS No. 123, "Accounting for Stock-Based
Compensation", had been applied to all outstanding and unvested awards in each
period.
Three months ended
(Dollars in thousands): June 30,
------------------
2003 2003
------ ------
Net income:
As reported $1,272 $1,327
Pro forma 1,266 1,321
Earnings per common share - basic:
As reported $ 0.43 $ 0.46
Pro forma 0.43 0.46
Earnings per common share - diluted:
As reported $ 0.40 $ 0.44
Pro forma 0.40 0.44
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows for
the year ended March 31, 2003 and for the three months ended June 30, 2003:
June 30, 2003 March 31, 2003
(in thousands) (in thousands)
-------------- --------------
Balance, beginning of
period $ 2,221 $ 2,280
Charge-offs (136) (427)
Recoveries 33 47
Provision for loan
losses 54 321
--------- -------
Balance, end of period $ 2,172 $ 2,221
========= =======
(7)
5. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at June 30, 2003 consisted of 11 term advances varying in
length from 79 days to 326 months totaling $54.5 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, 2003:
Due in less than one year:
- -------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
- --------------------------------------------------------
$22,500,000 4.93% - 6.01% 5.43%
Due within one to five years:
- ----------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
- --------------------------------------------------------
$22,000,000 2.22% - 7.03% 4.88%
Due in greater than five years:
- ------------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
- --------------------------------------------------------
$10,000,000 7.10% - 7.12% 7.11%
(8)
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 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.
For the Three Months ended
June 30,
--------------------------
2003 2002
---- ----
Weighted average common shares
outstanding - basic 2,965,962 2,863,188
Effect of Dilutive Securities on Number of
Shares:
MRDP shares 21,626 20,955
Stock options 187,301 142,782
Total Dilutive Securities 208,927 163,737
Weighted average common shares --------- ---------
outstanding - with dilution 3,174,889 3,026,925
========= =========
7. 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, 2003 and March 31,
2003.
As of June 30, 2003:
Categorized as
For "Well Capitalized"
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, 2003:
Total Capital:
(To Risk Weighted
Assets) $ 49,551 21.7% $ 18,301 8.0% $ 22,876 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 47,379 20.7 N/A N/A 13,726 6.0
Tier I Capital:
(To Tangible
Assets) 47,379 13.0 14,607 4.0 18,258 5.0
Tangible Capital:
(To Tangible
Assets) 47,379 13.0 5,478 1.5 N/A N/A
(9)
As of March 31, 2003:
Categorized as
For "Well Capitalized"
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, 2003:
Total Capital:
(To Risk Weighted
Assets) $ 48,327 20.7% $ 18,676 8.0% $ 23,345 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 46,106 19.8 N/A N/A 14,007 6.0
Tier I Capital:
(To Tangible
Assets) 46,106 12.4 14,888 4.0 18,610 5.0
Tangible Capital:
(To Tangible
Assets) 46,106 12.4 5,583 1.5 N/A N/A
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." The
Statement amends and clarifies accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under Statement 133. This Statement is effective for
contracts entered into or modified after June 30, 2003. The Company currently
has no such instruments that will be impacted by SFAS No. 149.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
The Statement improves the accounting for certain financial instruments that,
under previous guidance, issuers could account for as equity. The new
Statement requires that those instruments be classified as liabilities in
statements of financial position. Those instruments include mandatorily
redeemable shares, instruments that do or may require the issuer to buy back
some of its shares in exchange for cash or other assets, and obligations that
can be settled with shares, the monetary value of which is fixed, tied solely
or predominately to a variable such as a market index, or varies inversely
with the value of the issuer's shares. Most of the guidance in Statement No.
150 is effective for all financial instruments entered into or modified after
March 31, 2003. The Company currently has no such instruments that will be
impacted by SFAS No. 150.
(10)
ITEM 2. 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, judgments 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,
2003, the Company had total assets of $370.1 million, total deposits of $250.5
million and shareholders' equity of $61.4 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 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 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, 2003,
one-to-four family residential mortgage loans totaled $80.2 million, or 37.3%
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 June 30, 2003 the Company had agricultural
loans of $17.4 million, commercial business loans of $25.0 million, commercial
real estate loans of $36.0 million, agricultural real estate loans of $4.0
million, and automobile loans of $28.6 million (including $25.9 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.
Pending Acquisition
On February 24, 2003, the Company entered into a definitive merger agreement
("Agreement") with FirstBank NW Corp., Lewiston, Idaho ("FirstBank") pursuant
to which the Company will be merged into FirstBank. The Agreement also
provides for the merger of the Bank with and into FirstBank's subsidiary
financial institution, FirstBank Northwest. Under the terms of the Agreement,
shareholders of the Company may elect to receive either $22 in cash or 1.028
shares of FirstBank common stock in exchange for their shares of Oregon Trail
common stock (subject to election and allocation procedures as provided for in
the Agreement, which are intended to ensure that in the aggregate 46% of the
Oregon Trail shares will be exchanged for FirstBank stock). In the merger,
FirstBank is expected to issue 1.48 million shares of common stock and
approximately $36.5 million in cash, for a transaction value, at the time of
the announcement of the merger, of approximately $74.0 million. Consummation
of the merger is subject to approval by FirstBank's and the Company's
shareholders and the receipt of all required regulatory approvals.
Changes in Financial Condition
At June 30, 2003, the Company had total assets of $370.1 million, compared
with $377.5 million at March 31, 2003. Increases in securities of $8.0
million partially offset decreases in net loans of $15.1 million during the
quarter. Cash, including interest-earning accounts, totaled $9.3 million at
June 30, 2003, compared to $9.1 million at March 31, 2003. At June 30, 2003,
the Company had $215.3 million in gross loans, a decrease of $16.5 million
compared to
(12)
$231.8 million at March 31, 2003. Real estate loans declined by $17.1 million
to $120.6 million at June 30, 2003 from $137.7 million at March 31, 2003. 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 $669,000 to $52.2 million at June 30, 2003 compared to $51.5
million at March 31, 2003. Commercial and agricultural loans at June 30, 2003
were $42.4 million, a $141,000 decrease from $42.6 million at March 31, 2003.
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 $168,000, or 20.6% to $647,000 at June 30,
2003 compared to $815,000 at March 31, 2003. Allowance for loan losses
decreased $49,000 at June 30, 2003 to remain virtually unchanged at $2.2
million. The allowance for loan losses as a percentage of net loans increased
five basis points during the June 30, 2003 quarter to 1.02% of net loans from
..97% of net loans at March 31, 2003. Management believes the allowance for
loan losses, at 543% of non-performing loans, is adequate to absorb potential
losses in the loan portfolio.
For the three months ended June 30, 2003, transaction and savings deposit
accounts increased $3.4 million, or 2.3% to $149.7 million from $146.4
million. Transaction and savings accounts now represent 59.8% of total
deposits. Non-interest bearing deposits increased $233,000, or 0.9% during
the June 30, 2003 quarter to $25.8 million and now comprise 10.3% 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 $250.5 million at June 30, 2003, an
increase of $1.3 million, compared to deposits of $249.1 million at March 31,
2003.
For the three month period ended June 30, 2003, the Company's book value per
share increased 1.4% to $20.63 per share. Shareholders' equity increased
2.1%, or $1.2 million to $61.4 million for the quarter ended June 30, 2003
from $60.1 million in the quarter ended March 31, 2003. The increase in
shareholders' equity was primarily a result of a $937,000 increase in retained
earnings .
Comparison of Operating Results for the Three Months Ended June 30, 2003 and
2002
GENERAL. Net income for the three months ended June 30, 2003 was $1.3
million, or $.40 per diluted share, a 4.1% and a 9.1% decrease, respectively,
from the net income of $1.3 million, or $.44 per diluted share for the three
months ended June 30, 2002. Net interest income for the three months ended
June 30, 2003 was $3.5 million, a $512,000 decrease from $4.0 million for the
same period last year. The decrease in net interest income was primarily a
result of spread narrowing, as the interest rate spread for the quarter ended
June 30, 2003 decreased 41 basis points to 3.44% from 3.85% in the same
quarter a year ago. Non-interest income increased 26.0%, or $221,000 to $1.1
million for the quarter ended June 30, 2003 compared to $850,000 for the same
quarter in 2002. Non-interest expense remained relatively unchanged at $2.7
million when comparing the quarter ended June 30, 2003 to the quarter ended
June 30, 2002.
INTEREST INCOME. Interest income for the three months ended June 30, 2003 was
$5.4 million, a decrease of $1.1 million, or 17.1%, compared to $6.5 million
for the same period in
(13)
fiscal 2003. The decrease in interest income was caused by a 95 basis point
decrease in the yield on average interest earning assets to 6.13% for the
three months ended June 30, 2003 compared to 7.08% 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
$15.6 million to $352.3 million for the three months ended June 30, 2003
compared to $367.9 million for the same period in fiscal 2003 and also
minimally offset the decrease in interest income.
INTEREST EXPENSE. Interest expense for the three months ended June 30, 2003
was $2.0 million, a decrease of $603,000, or 23.6%, from $2.6 million for the
quarter ended June 30, 2002. The cost of average interest-bearing
liabilities for the first quarter of year 2004 was 2.69% compared to 3.23% for
the same three months of fiscal year 2003. Transaction and savings deposit
accounts had average balances of $149.3 million and an average cost of 0.72%
for the three months ended June 30, 2003, compared to $140.9 million at 1.19%
for the comparable quarter a year ago. Certificates of deposit accounts had
an average balance of $101.6 million and an average cost of 2.94% for the
quarter ended June 30, 2003 compared to $118.8 million and an average cost of
3.87% for the comparable quarter a year ago. Borrowings had an average
balance of $64.4 million and an average cost of 5.79% for the quarter ended
June 30, 2003 compared to $79.2 million and an average cost of 5.00% 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.
The provision for loan losses was $54,000 during the three months ended June
30, 2003 compared to $143,000 for the same period last year. Loans classified
as substandard increased $527,000 to $1.7 million at June 30, 2003 compared to
$1.1 million at June 30, 2002. The increase in substandard loans caused the
allowance to be increased by $48,000. Loans classified as other loans
especially mentioned increased by $4.4 million to $5.1 million at June 30,
2003 from $673,000 for the same quarter a year ago. The increase in other
loans especially mentioned caused the allowance to decrease by $217,000. 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, 2003 of $49,000 from March 31, 2003.
NON-INTEREST INCOME. Non-interest income for the quarter ended June 30, 2003,
was $1.1 million compared to $850,000 for the quarter ended June 30, 2002, an
increase of $221,000 or 26.01%. The increase reflects a realized gain on the
sale of securities of $170,000 for the quarter ended June 30, 2003 and a
$107,000 increase in gain on sale of loans when compared to the prior year
quarter.
(14)
NON-INTEREST EXPENSE. Non-interest expense remained relatively unchanged at
$2.7 million for each of the quarters ended June 30, 2003 and 2002. Comparing
the quarters ended June 30, 2003 and 2002, a $155,000 increase in compensation
and benefit expense was offset by a $108,000 decrease in administration
expense and a $36,000 decrease in office building and equipment expense.
INCOME TAXES. The provision for income taxes for the quarter ended June 30,
2003 decreased $98,000, or 15.48% to $535,000 from $633,000 in the same
quarter last year. The decrease in taxes is reflective of lower levels of
pre-tax income and a decrease in the effective tax rate to 29.6% from 32.3%.
The following table provides additional data on the Company's operating
performance:
Quarters Ended
Average balances (in thousands) June 30
------------------------------- -------------------
2003 2002
-------- --------
Cash and interest earning deposits $ 11,973 $ 9,704
Investment Securities 117,019 92,644
Loans 218,400 261,019
FHLB Stock 6,728 6,618
-------- --------
Total average interest-earning assets 354,120 369,685
Non interest-earning assets 25,328 25,758
-------- --------
Total average assets 379,448 395,443
Deposits 250,882 259,620
Advances from FHLB 64,438 79,186
-------- --------
Total average interest-bearing liabilities 315,323 338,806
Non interest-bearing liabilities 3,579 2,886
-------- --------
Total average liabilities 318,902 341,692
Equity 60,546 57,751
-------- --------
Total average liabilities and equity $379,448 $395,443
======== ========
ITEM NO. 3
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,
2003, there was no material change in the market risk disclosures included in
the Company's Form 10-K for the year ended March 31, 2003.
(15)
ITEM 4.
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of
the Company's disclosure controls and procedures (as defined in
Section 13(a)- 14(c) of the Securities and Exchange Act of 1934 (the
"Act")) was carried out under the supervision and with the
participation of the Company's Chief Executive Officer, Chief
Financial Officer and several other members of the Company's senior
management within the 90-day period preceding the filing date of this
quarterly report. The Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls
and procedures as currently in effect are effective in ensuring
that the information required to be disclosed by the Company in the
reports it files or submits under the Act is (i) accumulated and
communicated to the Company's management (including the Chief
Executive Officer and Chief Financial Officer) in a timely manner,
and (ii) recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms.
(b) Changes in Internal Controls: In the quarter ended June 30, 2003,
the Company did not make any significant changes in, nor take any
corrective actions regarding, its internal controls or other factors
that could significantly affect these controls.
(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.
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, 2004.
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 (7)
10(j) 1998 Management Recognition and Development Plan (5)
10(k) August 21, 2001 Amendment to 1998 Management Recognition
and Development Plan (6)
31 Certifications Pursuant to Section 302 of the
Sarbanes-Oxley Act of 202
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
- ---------
(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, 2003.
(17)
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OREGON TRAIL FINANCIAL CORP.
Date: August 12, 2003 By: /s/Berniel L. Maughan
-----------------------------------
Berniel L. Maughan, President and
Chief Executive Officer
Date: August 12, 2003 By: /s/Jonathan P. McCreary
----------------------------------
Jonathan P. McCreary, Chief Financial
Officer
(18)
Exhibit 31
CERTIFICATION
I, Berniel L. Maughan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oregon Trail
Financial Corp.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 12, 2003
/s/Berniel L. Maughan
----------------------------------
Berniel L. Maughan
President and Chief Executive Officer
(19)
Certification
I, Jonathan P. McCreary, certify that:
I have reviewed this quarterly report on Form 10-Q of Oregon Trail
Financial Corp.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 12, 2003
/s/Jonathan P. McCreary
-----------------------------
Jonathan P. McCreary
Chief Financial Officer
(20)
Exhibit 32
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/Jonathan P. McCreary
- ------------------------------------- ----------------------------------
Berniel L. Maughan Jonathan P. McCreary
President and Chief Executive Officer Chief Financial Officer
Dated: August 12, 2003
A signed original of this written statement required by Section 906 has been
provided to Oregon Trail Financial Corp. and will be retained by Oregon Trail
Financial Corp. and furnished to the Securities and Exchange Commission or its
staff upon request.
(21)