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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-26556
OREGON TRAIL FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Oregon 91-1829481
- ---------------------------------------------------------------------------
State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
2055 First Street, Baker City, Oregon 97814
- ------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (541) 523-6327
----------------
Securities registered pursuant to Section 12(b) of the Act: None
-------
Securities registered pursuant to Section 12(g) of the Act: Common Stock.
Par value $.01
per share
----------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days. YES [ X ] NO [ ]
As of July 31, 1998, there were issued 4,694,875 shares of the
Registrant's Common Stock. The Registrant's voting common stock is traded
over-the-counter and is listed on the Nasdaq National Market under the symbol
"OTFC".
PAGE
OREGON TRAIL FINANCIAL CORP.
TABLE OF CONTENTS
Part I. Financial Information
- ------- ----------------------
Item I. Financial Statements (Unaudited) Page
-----
Consolidated Statements of Financial
Condition as of June 30, 2
1998 and March 31, 1998
Consolidated Statements of Income;
For the Three Months 3
Ended June 30, 1998 and 1997
Consolidated Statements of Shareholders'
Equity (For the Three Months Ended June
30, 1998 and for the Year Ended March 31, 1998. 4
Consolidated Statements of Cash Flows
(For the Three Months Ended June 30,
1998 and 1997) 5 - 6
Notes to Consolidated Financial Statements 7 - 9
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Item III. Quantitative and Qualitative Disclosures
about Market Risk 14
Part II. Other Information
- ------- -----------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
(1)
OREGON TRAIL FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF JUNE 30, 1998 and MARCH 31, 1998
(UNAUDITED)
($ in thousands)
June 30, March 31,
1998 1998
ASSETS -------- ---------
Cash (including interest earning accounts of
$4,560,135 and $18,666,798) 6,196 20,311
Securities
Available for sale, at fair value
(amortized cost: $65,293 and $63,566) 65,671 65,003
Held to maturity, at amortized cost (fair value:
$12,613 and $13,225) 11,751 12,805
Loans receivable, net of allowance for loan
losses of $928 and $847 161,268 153,838
Accrued interest receivable 1,823 1,676
Premises and equipment, net 5,903 5,582
Stock in Federal Home Loan Bank of Seattle, at cost 3,043 2,985
Real estate owned 124 313
Other assets 681 711
-------- --------
TOTAL ASSETS $256,460 $263,224
======== ========
LIABILITIES AND EQUITY
LIABILITIES:
Deposits:
Interest-bearing $77,283 $79,187
Noninterest-bearing 9,232 8,647
Time certificates 97,669 104,900
-------- --------
Total deposits 184,184 192,734
Accrued expenses and other liabilities 3,006 2,400
Advances from borrowers for taxes and insurance 1,316 789
-------- --------
Total liabilities 188,506 195,923
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, 1998, 4,694,875 issued,
4,359,427 outstanding; March 31, 1998, 4,694,875
issued, 4,346,113 oustanding 47 47
Additional paid-in capital 45,962 45,885
Retained earnings (substantially restricted) 24,527 23,968
Unearned shares issued to the Employee Stock
Ownership Plan (3,353) (3,488)
Unrealized gain on securities available for sale,
net of tax 771 889
-------- --------
Total shareholders' equity 67,954 67,301
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $256,460 $263,224
======== ========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
(2)
OREGON TRAIL FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
($ in thousands except per share data)
3 Mos Ended 3 Mos Ended
30-Jun-98 30-Jun-97
INTEREST INCOME
Interest and fees on loans receivable 3,314 3,057
Securities:
Mortgage-backed and related securities 736 642
U.S. government and government agencies 680 362
Other interest and dividends 56 52
------- -------
Total interest income 4,786 4,113
INTEREST EXPENSE:
Deposits 1,817 1,856
Securities sold under agreements to
repurchase 0 11
FHLB of Seattle advances 0 67
------- -------
Total interest expense 1,817 1,934
Net interest income 2,969 2,179
Provision for Loan Losses 86 31
Net interest income after provision for ------- -------
loan losses 2,883 2,148
NONINTEREST INCOME:
Service charges on deposit accounts 154 169
Loan servicing fees 81 52
Other Income 3 54
------- -------
Total noninterest income 238 275
NONINTEREST EXPENSE:
Employee compensation and benefits 1,058 804
Supplies, postage, and telephone 125 111
Depreciation 112 87
Occupancy and equipment 101 81
FDIC insurance premium 31 28
Customer account 74 81
Advertising 85 50
Professional fees 54 34
Other 154 83
------- -------
Total noninterest expense 1,794 1,359
Income before income taxes 1,327 1,064
Provision for income taxes 551 409
------- -------
NET INCOME 776 655
======= =======
Basic Earnings per share (1) $0.18
Weighted Average Number of Shares =======
Outstanding (2) 4,346,260
(1) Per share information for the prior period is not presented as the Company
did not complete its stock offering until October 3, 1997. See Note 2.
(2) Shares outstanding for the quarter ended June 30, 1998 were used in the
calculation of weighted average shares outstanding for the quarter ended
June 30, 1998.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
(3)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND THE YEAR ENDED MARCH 31, 1998
(UNAUDITED)
($ in thousands)
Unearned
Shares Issued Unrealized
to Employee Gain(Loss)
Additional Stock on Securities
Common Stock Paid-in Retained Ownership Available
Shares Amount Capital Earnings Trust For Sale Total
------ ------ ------- -------- --------- -------- -----
Balance at April 1, 1997 $21,149 ($122) $21,026
Net income 3,036 3,036
Cash dividends declared (217) (217)
Issuance of common stock,
net 4,694,875 $47 $45,682 45,729
Unearned ESOP shares (375,590) ($3,756) (3,756)
Earned ESOP shares 26,828 203 268 471
Change in unrealized gain
on securities available
for sale, net of tax 1,011 1,011
--------- --- ------- ------- --------- ------- -------
Balance, March 31, 1998 4,346,113 47 45,885 23,968 (3,488) 889 67,301
Net income 776 776
Cash dividends declared (217) (217)
Earned ESOP shares 13,414 77 135 212
Change in unrealized gain
on securities available
for sale, net of tax (118) (118)
--------- --- ------- ------- --------- ------- -------
Balance, June 30, 1998 4,359,527 $47 $45,962 $24,527 ($3,353) $771 $67,954
========= === ======= ======= ======= ======= =======
The accompanying notes are an integral part of these unaudited consolidated financial statements.
(4)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
($ in thousands)
30-Jun-98 30-Jun-97
CASH FLOWS FROM OPERATING ACTIVITIES --------- ---------
Net income $776 $655
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation of properties and equipment 112 87
Amortization/Accretion of Premium/Discount on
Investments (27) (4)
Amortization of deferred loan origination fees,
net of deferred loan origination costs (26) (45)
Provision for loan loss 85 31
Deferred taxes 73 (283)
Accretion of discounts on loans purchased (10) (5)
FHLB Dividends (58) (52)
CHANGES IN ASSETS AND LIABILITIES
Loans held for sale 0 72
Interest receivable (147) 0
Prepaid and other assets 31 (492)
Accrued Expenses and other liabilities 606 6,112
------- -------
Net cash provided by operating activities 1,415 6,076
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations (22,343) (11,654)
Principal repayments on loans 16,437 9,738
Purchase of loans (1,572) (1,035)
Purchase of securities available for sale (7,093) (14,680)
Maturity of securities available for sale 5,000 3,000
Purchase of securities held to maturity 0 (8)
Principle reductions of securities available
for sale 1,054 717
Principle reductions of securities held to
maturity 1,261 595
Proceeds from sales of real estate owned 189
Proceeds from sales of premises and equipment 0 248
Purchases of premises and equipment (434) (563)
------- -------
Net cash used by investing activities (7,501) (13,642)
------- -------
(5)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in deposits ($8,550) $3,423
Change in retail repurchase agreements 0 (213)
Change in advances from borrowers for taxes
and insurance 528 729
Change in borrowings from FHLB 0 4,200
Release of ESOP Shares 211 0
Payment of cash dividend (217) 0
------- -------
Net cash(used) provided by financing activities (8,028) 8,139
------- -------
Net (decrease) increase in cash (14,115) 573
Cash and cash equivalents at beginning of period 20,311 4,975
------- -------
Cash and cash equivalents at end of period $6,196 $5,548
======= =======
Supplemental disclosures
Cash paid during the quarter for:
Interest on deposits and other borrowings $1,922 $1,934
Income taxes 441 20
Noncash activity
Unrealized gain(loss) on securities available
for sale, net of tax (118) 454
The accompanying notes area an integral part of these unaudited consolidated
financial statements
(6)
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited consolidated
statements contain all adjustments necessary for a fair presentation of Oregon
Trail Financial Corp. (the "Company") financial condition as of June 30, 1998
and March 31, 1998, the results of operations for the three months ended June
30, 1998 and 1997 and the cash flows for the three months ended June 30, 1998
and 1997. 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. It is suggested that these consolidated financial statements be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report to Stockholders filed as an
exhibit to the Company's Form 10-K for the year ended March 31, 1998. The
results of operations for the three months ended June 30, 1998 are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. REORGANIZATION
On October 3, 1997, Pioneer Bank, A Federal Savings Bank, (the "Bank")
completed a mutual-to-stock conversion. The Company sold 4,694,875 shares of
common stock at $10 per share, 8% or 375,590 of which shares were purchased by
an Employee Stock Ownership Plan (the "ESOP"). Proceeds from the sale were
recorded as $46,949 of Common Stock at $.01 par value and $45,761,801 of Paid
in Capital. The Common Stock and Paid in Capital at June 30, 1998 are offset
by the unissued ESOP shares.
The Company purchased all of the stock of the Bank for one-half of the net
investable proceeds of the offering. The retained earnings of the Company
represent all prior earnings of the Bank as a mutual savings bank.
The primary business of the Company is directing the officers of the Bank.
According, the information presented herein relates primarily to the Bank.
3. RECENTLY ADOPTED/ISSUED ACCOUNTING PRONOUNCEMENTS
Earnings Per Share. SFAS No. 128 "Earnings Per Share", adopted effective
December 31, 1997, establishes standards for computing and presenting earnings
per share ("EPS") and applies to entities with publicly held common stock or
potential common stock. It replaces the presentation of primary EPS with a
presentation of basic EPS and requires the dual presentation of basic and
diluted EPS on the face of the income statement. The Company had a simple
capital structure for all periods presented, and accordingly has computed
basic earnings per share presented on the Income Statement.
(7)
PAGE
Comprehensive Income. SFAS No. 130, "Reporting Comprehensive Income,"
issued in July 1997, establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. It requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is presented with the same prominence as other financial statements. SFAS No.
130 requires that companies (I) classify items of other comprehensive income
by their nature in a financial statement and (ii) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the statement of financial
condition. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods
provided for comprehensive purposes are required.
Effective April 1, 1998, the Company adopted SFAS No. 130. Comprehensive
income (loss) was approximately $658,000 and $1.1 million for the three months
ended June 30, 1998 and 1997 respectively. The difference between
comprehensive income and net income is due to unrealized gains (losses) on
available for sale securities net of tax.
Segment Disclosures. SFAS No. 131, In June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for disclosure about operating segments in
annual financial statements and selected information in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. This statement supersedes
SFAS No. 14, "Financial Reporting for Segments of Business Enterprise." The
new standard becomes effective for the Company's fiscal year ending March 31,
1999, and requires that comparative information from earlier years be restated
to conform to the requirements of this standard. The adoption of provisions of
SFAS No. 131 is not expected to have a material impact on the Company.
4. ALLOWANCE FOR LOAN LOSSES
June 30, 1998 March 31, 1998
(In Thousands) (In Thousands)
-------------- --------------
Balance, beginning of period $ 847 $ 725
Charge-offs (11) (49)
Recoveries 7 33
Provisions for Loan Losses 85 138
----- -----
Balance, end of period $ 928 $ 847
===== =====
Amounts presented are for the year ended March 31, 1998 and for the three
months ended June 30, 1998
(8)
PAGE
5. ADVANCES FROM FEDERAL HOME LOAN BANK
The Company had no borrowings from the Federal Home Loan Bank of Seattle
("FHLB"), at June 30, 1998 or at March 31, 1998.
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.
June 30, 1998:
Categorized as "Well
Actual For Capital Capitalized" Under Prompt
Adequacy Corrective Action Provision
(In Thousands)
------------- --------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
As of June 30,
1998:
Total Capital:
(To Risk
Weighted
Assets) $48,632 36.31% $10,511 8.0% $13,138 10.0%
Tier I Capital:
(To Risk
Weighted
Assets) 47,704 37.01 N/A N/A 7,883 6.0
Tier I Capital:
(To Tangible
Assets) 47,704 18.69 10,210 4.0 12,762 5.0
Tangible Capital:
(To Tangible
Assets) 47,704 18.69 3,829 1.5 N/A N/A
As of March 31, 1998
Categorized as "Well
Actual For Capital Capitalized" Under Prompt
Adequacy Corrective Action Provision
(In Thousands)
------------- --------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
As of March 30,
1998:
Total Capital:
(To Risk
Weighted
Assets) $47,768 37.5% $10,180 8.0% $12,725 10.0%
Tier I Capital:
(To Risk
Weighted
Assets) 46,921 36.9 N/A N/A 7,635 6.0
Tier I Capital:
(To Tangible
Assets) 46,921 17.9 10,462 4.0 13,122 5.0
Tangible Capital:
(To Tangible
Assets) 46,921 17.9 3,923 1.5 N/A N/A
(9)
ITEM 111.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Safe Harbor Clause. This report contains certain "forward-looking
statement's." 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.
General
The Bank is regulated by the Office of Thrift Supervision ("OTS") and its
deposits are insured up to applicable limits under the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Bank is a member of the Federal Home Loan Bank of Seattle, conducting its
business through seven 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 and Grant in Eastern Oregon.
As a traditional, community-oriented savings bank, the Bank focuses on
customer service within its principal market area. The Bank's primary market
activity is attracting deposits from the general public and using those and
other available sources of funds to originate permanent residential
one-to-four family real estate loans within its market area and, to a lesser
extent, loans on commercial property and multi-family dwellings. At June 30,
1998, residential mortgage loans totaled $103.7 million, or 64.3% of total net
loans receivable. The Bank began supplementing its traditional lending
activities in 1996 with the development of commercial business loans,
agricultural loans and the purchase of dealer-originated automobile contracts.
The Bank has hired experienced commercial lending officers familiar with the
Bank's primary market area in an attempt to develop commercial business and
agricultural lending and to expand the purchase of dealer-originated
automobile contracts. As a result of these activities at June 30, 1998 the
Bank had agricultural loans of $6.4 million, commercial business loans of $8.6
million, commercial real estate loans of $8.6 million, and automobile loans of
$7.3 million (including $6.3 million of purchased dealer-originated
contracts).
(10)
PAGE
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 the Company's 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 adjustable based upon the Wall Street
Journal prime rate. Commercial and Agricultural loans outstanding totaled $6.0
million and $5.0 million, respectively at March 31, 1998 and increased to $8.6
million and $6.4 million, respectively at June 30, 1998. The Bank has also
increased origination of shorter term consumer loans, increasing auto loans
from $5.7 million at March 31, 1998 to $7.3 million at June 30, 1998.
To a lesser degree, the net earnings of the Company rely on the level of its
non-interest income. The Company is pursuing strategies to improve its service
charge and fee income, and control its non-interest expense, which includes
employee compensation and benefits, occupancy and equipment expense, deposit
insurance premiums and miscellaneous other expenses, as well as federal and
state income tax expense. At June 30, 1998, the Bank recognized employee
compensation and benefit expenses associated with the ESOP amounting to
approximately $212,000 of expense related to the release of 1/28th of the
375,590 ESOP shares. Shares were valued at $15.75, the closing price of the
Company's stock on June 30, 1998. The release of the shares resulted in a
reduction of $134,139 in unearned ESOP shares and an increase of $77,130 in
additional paid-in capital. The implementation of other stock benefit programs
will result in recognition of additional material employee compensation and
benefit expense in future periods. The actual aggregate amount of this new
expense cannot be currently predicted because generally accepted accounting
principals require that such expense be based on the fair market value of the
shares of Common Stock when the expenses are recognized, which would occur
when shares are committed to be released. These expenses have been reflected
in the pro forma financial information presented in the Company's Prospectus
dated August 12, 1997. The pro forma data assumed the initial public offering
purchase price of $10.00 per share as fair market value. Actual expense,
however, will be based on the fair market value of the Common Stock at the
time of recognition, which may be higher or lower than the current stock
price.
Year 2000
Data Processing for the Bank is done in-house primarily on an AS400 IBM
computer. In December 1997 the Company converted to new core software which
was purchased at a cost of approximately $250,000. The software purchased is
used to process all savings, loan and related general ledger transactions. The
vendor has given assurance that their software is Year 2000 compliant and that
no problems will arise from the turn of the century. Testing of the Jack Henry
system by all users for Year 2000 compliance will commence in September 1998.
The Bank anticipates a successful test based upon representations received
from the vendor.
(11)
PAGE
However, in the event that testing of the Jack Henry system is not successful,
the Bank's contingency plan is to pursue conversion to a third party service
bureau. In addition to the core software, the Bank uses various personal
computer software products, some of which are already Year 2000 compliant.
Others are being monitored and the Bank is proactively communicating with
vendors to determine their course of action to become fully compliant. The
Bank anticipates replacing some computer hardware related to Year 2000
compliance with an approximate cost of $80,000 over the next 18 months.
Changes in Financial Condition
At June 30, 1998, the consolidated assets of the Company totaled $256.5
million, a decrease of $6.7 million, or 2.5%, from $263.2 million at March 31,
1998. The primary reason for the decrease was a $14.1 million decrease in cash
and cash equivalents, partially offset by a $7.4 million increase in net loans
receivable. Approximately $6.8 million of the decrease in cash was due to the
maturity of a short term deposit in April 1998.
Net loans receivable increased by $7.4 million, or 4.8%, to $161.3 million at
June 30, 1998 compared to $153.8 million at March 31, 1998. The increase was
primarily the result of continued new loan demand exceeding loan repayments
and sales, augmented by increases in agricultural and commercial loans, auto
loans and other consumer loans. Such loans are inherently riskier than one to
four family mortgage loans.
Nonperforming assets, consisting of non-accruing loans and other repossessed
assets, decreased $ 138,000 from $588,000 at March 31, 1998 to $450,000 at
June 30, 1998, primarily due to the sale of approximately $189,000 of real
estate owned in April 1998. Real estate owned amounted to $124,000 at June 30,
1998 compared to $313,000 at March 31, 1998. Nonperforming assets were .18% of
total assets at June 30, 1998, compared to .22% at March 31, 1998. The
allowance for loan losses was 284% of nonperforming loans at June 30, 1998,
compared to 308% at March 31, 1998.
Investment securities decreased $386,000, from $77.8 million at March 31, 1998
to $77.4 million at June 30, 1998. The decrease included $5.0 million of
government agency medium term notes that were called and $2.5 million of
principal payments on government agency mortgage backed securities. These
decreases were partially offset by the purchase of $2.1 million of AAA rated
municipal bonds of several Oregon municipalities with maturities of from 13 to
19 years, as well as the purchase of $5.0 million of fixed rate government
agency mortgage backed securities. Savings deposits decreased $8.6 million, or
4.4%, from $192.7 million at March 31, 1998 to $184.2 million at June 30,
1998. The decrease is primarily attributable to the maturity of a $6.8 million
short term time certificate in April 1998, as well as a $1.3 million decrease
in core deposits i.e., checking accounts and passbook savings accounts.
Advances from borrowers for taxes and insurance increased $527,000, or 66.8%,
from $789,000 at March 31, 1998 to $1.3 million at June 30, 1998. Taxes are
paid annually in November and accordingly, such deposits increase ratably from
December of one year to November of the following year. The Bank had no
advances from the FHLB at June 30, 1998 or March 31, 1998.
(12)
PAGE
Total Shareholders' equity increased $653,000 to $68.0 million at June 30,
1998 from $67.3 million at March 31, 1998. Quarterly earnings of $776,000
account for most of the increase, with an increase of $212,000 due to the
release of 1/28th of the 375,590 ESOP shares. These increases were partially
offset by dividends paid of $217,000 and the tax effected decrease in market
value of securities available for sale of $118,000.
Results of Operations
Comparison of Three Months Ended June 30, 1998 and 1997
General. Net income increased $121,000, from $655,000 for the three months
ended June 30, 1997 to $776,000 for the three months ended June 30, 1998. This
increase was primarily attributable to increased net interest income of
$790,000 partially offset by an increase of $435,000 in noninterest expense
and a $142,000 increase in the tax provision due to the partially
nondeductible nature of ESOP expense and additional net taxable income.
Interest Income. Additional interest income generated by the $44.3 million
increase in average interest earning assets contributed to an increase of
$673,000 in interest income for the three months ended June 30, 1998 compared
to 1997. The average yield on interest earning assets decreased from 8.06% for
the three months ended June 30, 1997 to 7.71% for the three months ended June
30, 1998. The decrease is primarily due to an increase of $12.3 million in the
average balance invested in lower yielding government agency medium term notes
for the three months ended June 30, 1998 as compared to the same period of
1997. In addition, an increase $11.2 million in the average balance of cash
held in interest bearing deposit accounts contributed to the lower overall
yield.
Interest Expense. Interest expense on savings deposits decreased $39,000 for
the three months ended June 30, 1998 as compared to the same period of 1997.
Average deposits increased by $7.5 million comparing June 30, 1997 to 1998.
The average interest paid on deposits decreased 25 basis points from 4.12% for
the three months ended June 30, 1997 to 3.87% for the same period ended June
30, 1998, partially as a result of cash received from the mutual to stock
conversion which is held in a noninterest bearing checking account at the Bank
and used to fund loans and investments at no interest cost.
Provision for Loan Losses. The provision for loan losses was $86,000 and net
charge-offs amounted to $5,000 during the three months ended June 30, 1998
compared to a $31,000 provision and $9,000 of net charge-offs during the three
months ended June 30, 1997. The provision was increased during the quarter
ended June 30, 1998 primarily in response to portfolio growth especially in
commercial, agricultural and consumer loans, and also due to net charge-offs.
Non-Interest Income. Non-interest income decreased $37,000, or 13.5%, to
$238,000 for the three months ended June 30, 1998 from $275,000 for the three
months ended June 30, 1997. The decrease was primarily attributable to the
inclusion of a $52,000 gain from the sale of the LaGrande office building in
the prior year quarter.
(13)
PAGE
Non-Interest Expense. Non-interest expense increased $435,000, or 32.0% to
$1.8 million for the three months ended June 30, 1998 from $1.4 million in the
comparable period in 1997. The increase is primarily attributable to $254,000
of increased compensation and benefits expense. Of the increase, $212,000 is
due to the release of 1/28th of the ESOP shares on June 30, 1998 and the
remainder is due to staff increases and normal salary increases. Depreciation
expense increased $25,000 due to the core software purchase and the completion
of the Island City Branch building. Depreciation for these additions was not
included in the prior year quarter. Advertising expense increased $35,000 due
to additional stockholder relations expense associated with being a public
company, as well as increased radio and newspaper advertising. Professional
fees increased $20,000 primarily due to increased audit and legal fees related
to doing business as a public entity versus a mutual savings bank. An increase
of $71,000 is attributable to other expenses related to employee training and
relocation of new employees to the Bank's market area. Increases in utilities
and supplies expenses relate to space and staff additions.
Income Taxes. The provision for income taxes increased $142,000 for the three
months ended June 30, 1998 compared with the prior year quarter. The increase
was attributable to a higher level of net income before taxes, as well as
$212,000 of ESOP compensation expense which is not entirely deductible for
taxes in the current or future periods.
Item No. 3 Quantitative and Qualitative Disclosures about Market Risk
During the quarter ended June 30, 1998, there was no material change in the
market risk disclosures included in the Company's Form 10-K for the year ended
March 31, 1998.
(14)
PAGE
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is involved in various claims and legal actions
arising in the normal course of business. Management believes that
these proceedings will not result in a material loss to the
Company.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
3(a) Articles of Incorporation of the Registrant*
3(b) Bylaws of the Registrant*
10(a) Employment Agreement with Jerry F. Aldape**
10(b) Severance Agreement with Nadine J. Johnson**
10(c) Severance Agreement with William H. Winegar**
10(d) Employee Severance Compensation Plan**
10(e) Pioneer Bank, a Federal Savings Bank Employee Stock
Ownership Plan
10(f) Pioneer Bank, a Federal Savings Bank 401(k) Plan*
10(g) Pioneer Bank Director Emeritus Plan***
10(h) 1998 Stock Option Plan***
10(i) 1998 Management Recognition and Development Plan***
13 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
99 Former Independent Auditor's Report
- -------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (333-30051), as amended.
** Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1997.
*** Incorporated by reference to the Registrant's Definitive Proxy
Statement for the 1998 Annual Meeting of Shareholders.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on March 24, 1998 to report
the resignation of Dan L. Webber, President and Chief Executive
Officer of the Company and the Savings Bank, and to announce the
appointment of Jerry F. Aldape as his successor.
(15)
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, 1998 By: /s/ Jerry F. Aldape
-------------------------------
Jerry F. Aldape, President and
Chief Executive Officer
Date: August 13, 1998 By: /s/ Nadine J. Johnson
-------------------------------
Nadine J. Johnson, Chief
Financial Officer and Corporate
Secretary
(16)