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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-26556
KLAMATH FIRST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1180440
State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
540 Main Street, Klamath Falls, Oregon 97601
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (541) 882-3444
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 reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
As of July 21, 2000, there were issued 7,471,226 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 "KFBI."
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Part I. Financial Information
- ------- ----------------------
Item 1. Financial Statements Page
-------
Consolidated Balance Sheets
(As of June 30, 2000 and September 30, 1999) 3
Consolidated Statements of Earnings (For the three months
and nine months ended June 30, 2000 and 1999) 4
Consolidated Statements of Shareholders' Equity
(For the year ended September 30, 1999 and for
the nine months ended June 30, 2000) 5
Consolidated Statements of Cash Flows (For the nine
months ended June 30, 2000 and 1999) 6 - 7
Notes to Consolidated Financial Statements 8 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
Part II.Other Information
- ---------------------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND SEPTEMBER 30, 1999
(Unaudited)
June 30, 2000 September 30, 1999
ASSETS ---------------- ------------------
Cash and due from banks ................................................. $ 26,435,601 $ 21,123,217
Interest bearing deposits with banks .................................... 1,132,806 1,231,516
Federal funds sold and securities purchased under agreements to resell .. 93,931 2,167,856
--------------- ---------------
Total cash and cash equivalents ...................................... 27,662,338 24,522,589
Investment securities available for sale, at fair value
(amortized cost: $144,068,844 and $161,112,272) ....................... 141,036,470 158,648,057
Investment securities held to maturity, at amortized cost (fair
value: $897,075 and $577,455) ......................................... 894,167 559,512
Mortgage backed and related securities available for sale, at fair
value (amortized cost: $89,131,113 and $73,075,553) ................... 88,678,241 72,695,555
Mortgage backed and related securities held to maturity, at amortized
cost (fair value: $2,268,153 and $2,596,408) .......................... 2,297,880 2,600,920
Loans receivable, net ................................................... 737,135,902 739,793,403
Real estate owned and repossessed assets, net ........................... 1,351,498 1,494,890
Premises and equipment, net ............................................. 12,588,416 11,581,923
Stock in Federal Home Loan Bank of Seattle, at cost ..................... 11,685,600 10,957,300
Accrued interest receivable ............................................. 7,389,019 7,153,818
Core deposit intangible ................................................. 8,538,833 9,778,341
Other assets ............................................................ 2,472,639 1,855,032
--------------- ---------------
Total assets ......................................................... $ 1,041,731,003 $ 1,041,641,340
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposit liabilities ................................................... $ 696,225,187 $ 720,401,112
Accrued interest on deposit liabilities ............................... 1,106,841 1,184,471
Advances from borrowers for taxes and insurance ....................... 6,874,112 9,758,627
Advances from Federal Home Loan Bank of Seattle ....................... 221,750,000 197,000,000
Short term borrowings ................................................. 2,000,000 --
Accrued interest on borrowings ........................................ 946,540 34,484
Pension liabilities ................................................... 931,591 833,644
Deferred federal and state income taxes ............................... 774,204 579,727
Other liabilities ..................................................... 2,010,286 2,263,812
--------------- ---------------
Total liabilities ................................................... 932,618,761 932,055,877
--------------- ---------------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares authorized; none issued -- --
Common stock, $.01 par value, 35,000,000 shares authorized,
June 30, 2000 - 7,471,226 issued, 6,699,563 outstanding
September 30, 1999 - 7,908,377 issued, 7,062,092 outstanding ......... 74,712 79,084
Additional paid-in capital ............................................ 38,821,124 43,794,535
Retained earnings-substantially restricted ............................ 80,021,080 76,866,452
Unearned shares issued to ESOP ........................................ (5,137,912) (5,871,900)
Unearned shares issued to MRDP ........................................ (2,505,910) (3,519,296)
Accumulated comprehensive loss ........................................ (2,160,852) (1,763,412)
--------------- ---------------
Total shareholders' equity .......................................... 109,112,242 109,585,463
--------------- ---------------
Total liabilities and shareholders' equity .......................... $ 1,041,731,003 $ 1,041,641,340
=============== ===============
<FN>
See notes to consolidated financial statements.
</FN>
3
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
INTEREST INCOME
Loans receivable ........................................ $ 14,406,305 $ 14,287,654 $ 42,935,817 $ 42,191,692
Mortgage backed and related securities .................. 1,366,483 394,188 3,717,088 1,346,490
Investment securities ................................... 2,387,046 2,680,817 7,378,404 8,973,462
Federal funds sold ...................................... 9,351 260,157 155,795 682,473
Interest bearing deposits ............................... 65,921 178,988 239,627 571,760
-------------- -------------- -------------- --------------
Total interest income ................................. 18,235,106 17,801,804 54,426,731 53,765,877
-------------- -------------- -------------- --------------
INTEREST EXPENSE
Deposit liabilities ..................................... 7,006,675 7,213,918 21,066,552 21,895,479
FHLB advances ........................................... 3,340,109 2,193,605 9,293,290 6,540,329
Other ................................................... 67,160 33,030 105,618 253,464
-------------- -------------- -------------- --------------
Total interest expense ................................ 10,413,944 9,440,553 30,465,460 28,689,272
-------------- -------------- -------------- --------------
Net interest income ................................... 7,821,162 8,361,251 23,961,271 25,076,605
Provision for loan losses ................................. 228,000 243,000 536,000 669,000
-------------- -------------- -------------- --------------
Net interest income after provision for
loan losses ......................................... 7,593,162 8,118,251 23,425,271 24,407,605
-------------- -------------- -------------- --------------
NON-INTEREST INCOME
Fees and service charges ................................ 812,006 749,074 2,338,893 2,126,966
Gain on sale of investments ............................. -- 22,106 6,836 329,435
Gain on sale of real estate owned ....................... -- -- 118,315 26,179
Other income ............................................ 223,761 55,662 530,112 189,212
-------------- -------------- -------------- --------------
Total non-interest income ............................. 1,035,767 826,842 2,994,156 2,671,792
-------------- -------------- -------------- --------------
NON-INTEREST EXPENSE
Compensation, employee benefits and related expense ..... 2,855,907 2,648,891 8,488,034 7,612,394
Occupancy expense ....................................... 621,536 543,532 1,757,259 1,664,089
Data processing expense ................................. 226,263 214,317 690,595 697,100
Insurance premium expense ............................... 36,685 74,509 150,571 222,147
Loss on sale of investments ............................. -- -- -- 112,256
Loss on sale of real estate owned ....................... -- -- -- 5,398
Amortization of core deposit intangible ................. 413,169 413,169 1,239,508 1,239,508
Other expense ........................................... 1,505,225 1,868,350 4,769,566 4,348,688
-------------- -------------- -------------- --------------
Total non-interest expense ............................ 5,658,785 5,762,768 17,095,533 15,901,580
-------------- -------------- -------------- --------------
Earnings before income taxes .............................. 2,970,144 3,182,325 9,323,894 11,177,817
Provision for income tax .................................. 1,043,681 1,291,968 3,494,680 4,538,194
-------------- -------------- -------------- --------------
Net earnings .............................................. $ 1,926,463 $ 1,890,357 $ 5,829,214 $ 6,639,623
============== ============== ============== ==============
Earnings per common share - basic ......................... $ 0.28 $ 0.27 $ 0.85 $ 0.86
Earnings per common share - diluted ....................... $ 0.28 $ 0.26 $ 0.85 $ 0.83
Weighted average common shares outstanding - basic ........ 6,773,138 7,020,994 6,855,374 7,737,494
Weighted average common shares outstanding - diluted ...... 6,773,138 7,164,093 6,855,374 7,952,159
<FN>
See notes to consolidated financial statements.
</FN>
4
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1999 AND THE NINE MONTHS ENDED JUNE 30, 2000
(Unaudited)
Unearned Unearned
Common Common Additional shares shares Accumulated Total
stock stock paid-in Retained issued issued comprehensive shareholders'
shares amount capital earnings to ESOP to MRDP income (loss) equity
--------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Balance at October 1, 1998 8,898,972 $ 99,168 $82,486,183 $71,051,445 ($6,850,550) ($4,536,865) $ 2,831,574 $145,080,955
Cash dividends ............ -- -- -- (3,340,186) -- -- -- (3,340,186)
Stock repurchased and retired (2,008,389) (20,084) (39,314,056) -- -- -- -- (39,334,140)
ESOP contribution ......... 97,865 -- 602,287 -- 978,650 -- -- 1,580,937
MRDP contribution ......... 73,644 -- 20,121 -- -- 1,017,569 -- 1,037,690
------------ ------------ ---------- ---------- ---------- ----------- ---------- ------------
7,062,092 79,084 43,794,535 67,711,259 (5,871,900) (3,519,296) 2,831,574 105,025,256
Comprehensive income
Net earnings ............ 9,155,193 9,155,193
Other comprehensive income:
Unrealized loss on
securities, net of tax
and reclassification
adjustment .........(1) (4,594,986) (4,594,986)
------------
Total comprehensive
income ............... 4,560,207
------------ ---------- ----------- ----------- ---------- ----------- ----------- ------------
Balance at September 30, 1999 7,062,092 79,084 43,794,535 76,866,452 (5,871,900) (3,519,296) (1,763,412) 109,585,463
Cash dividends ............ -- -- -- (2,674,586) -- -- -- (2,674,586)
Stock repurchased and retired (437,151) (4,372) (5,079,698) -- -- -- -- (5,084,070)
ESOP contribution ......... -- -- 96,006 -- 733,988 -- -- 829,994
MRDP contribution ......... 74,622 -- 10,281 -- -- 1,013,386 -- 1,023,667
------------ ---------- ----------- ---------- ---------- ----------- ----------- ------------
6,699,563 74,712 38,821,124 74,191,866 (5,137,912) (2,505,910) (1,763,412) 103,680,468
Comprehensive income
Net earnings ............ 5,829,214 5,829,214
Other comprehensive income:
Unrealized loss on
securities, net of tax
and reclassification
adjustment ........(2) (397,440) (397,440)
------------
Total comprehensive
income ............... 5,431,774
------------ ---------- ----------- ----------- ---------- ----------- ----------- ------------
Balance at March 31, 2000 . 6,699,563 $ 74,712 $38,821,124 $80,021,080 ($5,137,912) ($2,505,910) ($2,160,852) $109,112,242
============ ========== =========== =========== ========== =========== =========== ============
<FN>
(1) Net unrealized holding loss on securities of $4,332,997 (net of $2,655,708 tax benefit) less reclassification adjustment
for gains included in net earnings of $261,989 (net of $160,574 tax expense).
(2) Net unrealized holding loss on securities of $347,458 (net of $212,956 tax benefit) less reclassification adjustment
for gains included in net earnings of $49,982 (net of $30,634 tax expense).
See notes to consolidated financial statements.
</FN>
5
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
Nine Months Ended Nine Months Ended
June 30, June 30,
2000 1999
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings .......................................... $ 5,829,214 $ 6,639,623
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization ......................... 2,206,667 2,170,315
Provision for deferred taxes .......................... 438,069 (691,360)
Provision for loan losses ............................. 536,000 669,000
Provision for loss on real estate owned ............... 120,000 --
Compensation expense related to ESOP benefit .......... 829,994 1,234,127
Compensation expense related to MRDP Trust ............ 1,023,667 1,026,732
Net amortization of premiums (discounts) paid on
investment and mortgage backed and related securities 213,468 42,134
Increase in deferred loan fees, net of amortization ... (373,730) 498,388
Accretion of discounts on purchased loans ............. 1,541 900
Net gain on sale of real estate owned and
premises and equipment .............................. (138,814) (20,781)
Net gain on sale of investment and mortgage
backed and related securities ....................... (6,836) (217,179)
FHLB stock dividend ................................... (567,400) (587,800)
CHANGES IN ASSETS AND LIABILITIES
Accrued interest receivable ........................... (235,201) 40,835
Other assets .......................................... (737,607) (820,210)
Accrued interest on deposit liabilities ............... (77,630) (20,408)
Accrued interest on borrowings ........................ 912,056 (178,062)
Pension liabilities ................................... 97,947 97,947
Other liabilities ..................................... 41,650 1,242,143
------------- -------------
Net cash provided by operating activities ................. 10,113,055 11,126,344
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of investment securities
held to maturity .................................... 120,000 82,245,000
Proceeds from maturity of investment securities
available for sale .................................. 8,000,000 34,072,000
Principal repayments received on mortgage
backed and related securities held to maturity ..... 298,361 904,705
Principal repayments received on mortgage
backed and related securities available for sale ... 13,242,770 12,816,215
Principal repayments received on loans ................ 73,047,471 127,964,628
Loan originations ..................................... (77,154,728) (184,108,981)
Loans purchased ....................................... -- (4,764,023)
Loans sold ............................................ 5,347,283 119,350
Purchase of investment securities held
to maturity ......................................... (457,000) (79,711,523)
Purchase of investment securities available
for sale ............................................ (1,110,000) (21,361,687)
Purchase of mortgage backed and related
securities available for sale ....................... (29,396,069) (18,827,640)
Purchase of FHLB stock ................................ (160,900) --
Proceeds from sale of investment securities
available for sale .................................. 10,051,563 11,834,420
Proceeds from sale of mortgage backed and related
securities available for sale ....................... -- 9,454,776
Proceeds from sale of real estate owned and
premises and equipment .............................. 1,415,866 258,865
Purchases of premises and equipment ................... (1,853,652) (294,070)
------------- -------------
Net cash provided by (used in) investing activities ....... 1,390,965 (29,397,965)
------------- -------------
6
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
(Continued)
Nine Months Ended Nine Months Ended
June 30, June 30,
2000 1999
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposit liabilities,
net of withdrawals .................................. ($ 24,175,925) $ 37,287,661
Proceeds from FHLB advances ........................... 585,250,000 165,000,000
Repayments of FHLB advances ........................... (560,500,000) (145,000,000)
Proceeds from short term borrowings ................... 2,000,000 8,595,000
Repayments of short term borrowings ................... -- (20,707,500)
Stock repurchase and retirement ....................... (5,084,070) (39,334,140)
Advances from borrowers for taxes and insurance ....... (2,884,515) (2,472,167)
Dividends paid ........................................ (2,969,761) (2,598,034)
------------- -------------
Net cash provided by (used in) financing activities ....... (8,364,271) 770,820
------------- -------------
Net (decrease) increase in cash and cash
equivalents ............................................. 3,139,749 (17,500,801)
Cash and cash equivalents at beginning
of period ............................................... 24,522,589 66,985,269
------------- -------------
Cash and cash equivalents at end of period ................ $ 27,662,338 $ 49,484,468
============= =============
SUPPLEMENTAL SCHEDULE OF INTEREST AND
INCOME
TAXES PAID
Interest paid ......................................... $ 29,631,034 $ 28,887,742
Income taxes paid ..................................... 3,815,000 4,656,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES
Net unrealized loss on securities
available for sale .................................. ($ 397,440) ($ 3,701,705)
Dividends declared and accrued in other
liabilities ......................................... 970,609 949,005
<FN>
See notes to consolidated financial statements
</FN>
7
KLAMATH FIRST BANCORP, INC. 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 Klamath
First Bancorp, Inc.'s (the "Company") financial condition as of June 30, 2000
and September 30, 1999, the results of operations for the three and nine months
ended June 30, 2000 and 1999 and cash flows for the nine months ended June 30,
2000 and 1999. The Company encompasses Klamath First Federal SAvings and Loan
Association (the "Association") and its wholly-owned subsidiary, Klamath First
Financial Services. Certain information and note disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America 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. The results of operations for the three and nine
months ended June 30, 2000 are not necessarily indicative of the results which
may be expected for the entire fiscal year.
2. COMPREHENSIVE INCOME
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 and realized gains and losses on the sale of
securities available for sale.
For the three months ended June 30, 2000, the Company's total comprehensive
income was $1.9 million compared to $148,452 for the three months ended June 30,
1999. Total comprehensive income for the three months ended June 30, 2000 was
comprised of net income of $1.9 million and other comprehensive loss of $21,607,
net of tax. Total comprehensive income for the three months ended June 30, 1999
was comprised of net income of $1.9 million and other comprehensive loss of $1.7
million, net of tax.
For the nine months ended June 30, 2000, the Company's total comprehensive
income was $5.4 million compared to $2.9 million for the nine months ended June
30, 1999. Total comprehensive income for the nine months ended June 30, 2000 was
comprised of net income of $5.8 million and other comprehensive loss of
$397,440, net of tax. Total comprehensive income for the nine months ended June
30, 1999 was comprised of net income of $6.6 million and other comprehensive
loss of $3.7 million, net of tax.
8
3. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
Nine Month Ended Year Ended
June 30, September 30,
2000 1999
----------------- -------------
Balance, beginning of period $2,483,625 $1,949,677
Charge-offs (389,267) (398,052)
Recoveries 347,424 --
Additions 536,000 932,000
-------------- --------------
Balance, end of period $2,977,782 $2,483,625
============== ==============
At June 30,2000, impaired loans totaled $478,062. Specifically allocated loan
loss reserves related to these loans totaled $32,500. The average investment in
impaired loans for the three months and nine months ended June 30, 2000 was
$478,062 and $696,227, respectively. There were no impaired loans at September
30, 1999 or during the year then ended.
4. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at June 30, 2000 consisted of two short term advances totaling $53.8
million and seven long term advances totaling $168.0 million from the Federal
Home Loan Bank of Seattle ("FHLB"). The advances are collateralized in aggregate
by certain mortgages or deeds of trust and securities of the U.S. Government and
agencies thereof.
Scheduled maturities of advances from the FHLB were as follows:
June 30, 2000 September 30, 1999
-------------------------------------------------- ---------------------------------------------
Range of Weighted Range of Weighted
interest average interest average
Amount rates interest rate Amount rates interest rate
------------- ------------ -------------- ------------ ------------- ------------
Due within one year . $ 53,750,000 5.70%-6.81% 6.08% $-- -- --
After one but within
five years .......... 10,000,000 6.38% 6.38% 40,000,000 5.39%-5.70% 5.43%
After five but within
ten years ........... 158,000,000 4.77%-7.05% 5.86% 157,000,000 4.77%-5.87% 5.32%
------------ ------------
$221,750,000 $197,000,000
============ ============
5. SHORT TERM BORROWINGS
Short term borrowings at June 30, 2000 consisted of $2.0 million in credit line
borrowing from a financial institution at a rate of 9.50%.
9
6. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingencies that are not reflected in the accompanying
consolidated financial statements. In addition, the Company is a defendant in
certain claims and legal actions arising in the ordinary course of business. In
the opinion of management, after consultation with legal counsel, the ultimate
disposition of these matters is not expected to have a material adverse effect
on the consolidated financial condition of the Company.
7. SHAREHOLDERS' EQUITY
In September 1998, the Board of Directors authorized the repurchase of
approximately 20 percent of the Company's outstanding common stock. The
repurchase was completed through a "Modified Dutch Auction Tender." Under this
procedure, the Company's shareholders were given the opportunity to sell part or
all of their shares to the Company at a price of not less than $18.00 per share
and not more than $20.00 per share. Results of the offer were finalized on
January 15, 1999 when the Company announced purchase of 1,984,090 shares at
$19.50 per share. This represented approximately 85.9 percent of the shares
tendered at $19.50 per share or below, and 64.7 percent of all shares tendered.
The value of the shares purchased was approximately $38.7 million.
In December 1999, the Company announced a five percent stock repurchase plan to
be completed over a twelve month period. The repurchase was completed in March
2000 with the purchase of 395,419 shares at an average price of $11.68 per share
and a total cost of $4.6 million.
In May 2000, the Company announced a five percent stock repurchase plan to be
completed over the following twelve months. As of June 30, 2000, 25,000 shares
of an expected total of 375,648 had been repurchased at a weighted average price
of $11.475.
10
8. EARNINGS PER SHARE
Earnings per share ("EPS") is computed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." Shares held by the
Company's Employee Stock Ownership Plan ("ESOP") that are committed for release
are considered common stock equivalents and are included in weighted average
shares outstanding (denominator) for the calculation of basic and diluted 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 Management Recognition and Development Plan ("MRDP"), and stock
options granted under the Stock Option Plan. Following is a summary of the
effect of dilutive securities on 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, 2000 there were 80,005 MRDP
shares and 916,258 stock options that were not included in the calculations
because to do so would have been antidilutive. For the nine months ended June
30, 2000 there were 128,845 MRDP shares and 916,258 stock options that were not
included in the calculations because to do so would have been antidilutive.
For the Three Months Ended
June 30, June 30,
2000 1999
--------- ---------
Weighted average common
shares outstanding - basic ................................ 6,773,138 7,020,994
--------- ---------
Effect of Dilutive Securities on Number of Shares:
MRDP shares ............................................... -- 1,634
Stock options ............................................. -- 141,465
--------- ---------
Total Dilutive Securities ................................. -- 143,099
--------- ---------
Weighted average common shares
outstanding - with dilution .............................. 6,773,138 7,164,093
========= =========
For the Nine Months Ended
June 30, June 30,
2000 1999
--------- ---------
Weighted average common
shares outstanding - basic ................................ 6,855,374 7,737,494
--------- ---------
Effect of Dilutive Securities on Number of Shares:
MRDP shares ............................................... -- 24,715
Stock options ............................................. -- 189,950
--------- ---------
Total Dilutive Securities ................................. -- 214,665
--------- ---------
Weighted average common shares
outstanding - with dilution .............................. 6,855,374 7,952,159
========= =========
11
9. REGULATORY CAPITAL
The following table illustrates the compliance by Klamath First Federal Savings
and Loan Association (the "Association") with currently applicable regulatory
capital requirements at June 30, 2000:
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
-------------------------- -------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
As of June 30, 2000: ------------ ---------- ------------ ---------- ------------ ----------
Total Capital: ........... $103,461,784 19.0% $ 43,486,304 8.0% $ 54,357,880 10.0%
(To Risk Weighted Assets)
Tier I Capital: .......... 100,719,226 18.5% N/A N/A 32,614,728 6.0%
(To Risk Weighted Assets)
Tier I Capital: .......... 100,719,226 9.8% 41,341,568 4.0% 51,676,960 5.0%
(To Total Assets)
Tangible Capital: ........ 100,719,226 9.8% 15,503,088 1.5% N/A N/A
(To Tangible Assets)
10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The effective date of this
Statement was deferred by the issuance of SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133. This Statement is now effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 was also amended by SFAS No. 138,
Accounting for Certain Derivative Insturments and Certain Hedging Activities.
The Company has determined that it currently has no instruments or contracts
that meet the scope of SFAS No. 133, as amended. Accordingly, the adoption of
this Statement in 2001 is not expected to have a material impact on the
financial statements of the Company.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other portions of this report contain certain "forward-looking
statements" concerning the future operations of Klamath First Bancorp, Inc.
Management 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 the Company of the protections of such safe
harbor with respect to all "forward- looking statements" contained in this
quarterly report. We have used "forward-looking statements" to describe future
plans and strategies, including our expectations of the Company's future
financial results. Management'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 which could affect the
collectibility of loan balances, the ability to increase non-interest income
through expansion of new lines of business, the ability of the Company to
control costs and expenses, competitive products and pricing, loan delinquency
rates, and changes in federal and state regulation. These factors should be
considered in evaluating the "forward-looking statements," and undue reliance
should not be placed on such statements.
General
The Company, an Oregon corporation, became the unitary savings and loan holding
company for the Association upon the Association's conversion from a federally
chartered mutual to a federally chartered stock savings and loan association
("Conversion") on October 4, 1995. At June 30, 2000, the Company had total
consolidated assets of $1.04 billion and consolidated shareholders' equity of
$109.1 million. The Company is currently not engaged in any business activity
other than holding the stock of the Association. Accordingly, the information
set forth in this report, including financial statements and related data,
relates primarily to the Association.
The Association is a traditional, community-oriented savings and loan
association that focuses on customer service within its primary market area.
Accordingly, the Association is primarily engaged in attracting deposits from
the general public through its offices 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 on commercial
property and multi-family dwellings. While the Association has historically
emphasized fixed rate mortgage lending, it has been diversifying its loan
portfolio by focusing on increasing the number of originations of commercial
real estate loans, multi-family residential loans, residential construction
loans, small business loans and non-mortgage consumer loans. A significant
portion of these newer loan products carry adjustable rates, higher yields, or
shorter terms than the traditional fixed rate mortgages. This lending strategy
is designed to enhance earnings, reduce interest rate risk, and provide a more
complete range of financial services to customers and the local communities
served by the Association.
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 profit 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 the Association's expansion of its consumer
and commercial loan products. Consumer and commercial loans continue to
increase, up 43% from $15.0 million at June 30, 1999 to $21.5 million at June
30, 2000. To a lesser degree, the net earnings of the Company rely on the level
of its non-interest income. The
13
Company is aggressively 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.
The Association 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 Association is a member of the Federal Home Loan Bank of Seattle, conducting
its business through 35 office facilities, with the main office located in
Klamath Falls, Oregon. The Association has received approval to open new
branches in south Medford, Central Point, near Medford, and Redmond, Oregon. The
primary market areas of the Association are the state of Oregon and adjoining
areas of California and Washington.
Changes in Financial Condition
At June 30, 2000, the consolidated assets of the Company totaled $1.042 billion,
consistent with September 30, 1999.
Net loans receivable decreased by $2.7 million to $737.1 million at June 30,
2000, compared to $739.8 million at September 30, 1999. Rising mortgage interest
rates have dampened mortgage demand, reducing loan originations during the last
nine months. In addition, the Company sold $5.3 million in single family
mortgage loans to Fannie Mae, further reducing loans receivable.
Investment securities decreased $17.3 million, or 10.85%, from $159.2 million at
September 30, 1999 to $141.9 million at June 30, 2000. This decrease was
primarily the result of the sale of $10.1 million of investment securities
available for sale and $8.1 million in maturities during the period.
During the nine months ended June 30, 2000, $13.5 million of principal payments
were received on mortgage backed and related securities ("MBS") and $29.4
million of MBS available for sale were purchased, resulting in an overall
increase in the balance of MBS from $75.3 million at September 30, 1999 to $91.0
million at June 30, 2000. The purchased MBS are adjustable rate with a margin
over the one year Treasury rate.
Deposit liabilities decreased $24.2 million, or 3.36%, from $720.4 million at
September 30, 1999 to $696.2 million at June 30, 2000. The decrease is primarily
related to certificates of deposit and reflects the Company's strategy to rely
on Federal Home Loan Bank of Seattle borrowed funds which can be acquired at
lower rates than corresponding maturities of new deposits. This approach
controls interest expense as well as managing scheduled liability maturities.
Advances from borrowers for taxes and insurance decreased $2.9 million from
September 30, 1999 to June 30, 2000. The decrease is the result of using the
reserves to pay the required real estate taxes due on the Association's loans
receivable portfolio in November. This decrease was partially offset by the
accumulated monthly payments received from borrowers in the period since
November 1999.
The Company's total borrowings increased $26.8 million from September 30, 1999
to June 30, 2000. The majority of the increase was used to purchase MBS as part
of the plan to manage interest rate risk.
Total shareholders' equity decreased $473,221 from $109.6 million at September
30, 1999 to $109.1 million at June 30, 2000. This decrease was the combined
result of a $5.1 million reduction due to the buyback of shares and $397,440 in
unrealized losses on securities available for sale, offset by $5.8 million in
earnings for the nine month period.
14
Results of Operations
Comparison of Nine Months Ended June 30, 2000 and 1999
General. The higher interest rate environment, the inverted yield curve, and low
loan volume had an adverse effect on earnings, primarily by lowering loan demand
throughout the Company's statewide market. Net income decreased by $810,409, or
12.21%, from $6.6 million for the nine months ended June 30, 1999 to $5.8
million for the nine months ended June 30, 2000. Increases in interest income
and non-interest income were offset by increases in interest expense and
non-interest expense.
Interest Income. Additional interest income generated by the $25.1 million
increase in average interest earning assets contributed to an increase of
$660,584 in interest income for the nine months ended June 30, 2000 compared to
1999. Interest income on loans receivable increased $744,125, or 1.76%, from
$42.2 million for the nine months ended June 30, 1999 to $42.9 million for the
same period of 2000. This increase was a result of the $33.9 million increase in
average loans receivable. As noted above, $29.4 million of MBS have been
purchased during the nine months ended June 30, 2000, resulting in a $2.4
million increase in interest income on MBS. The increases in interest on loans
and MBS were partially offset by decreases in interest income on investment
securities, federal funds and interest bearing deposits. Short term investments
matured and interest bearing deposits were liquidated to provide funds for stock
repurchase programs in December 1999, January 2000, and June 2000, reducing
average investment balances, thus generating less income. The average yield on
interest earning assets decreased 9 basis points to 7.20% for the nine months
ended June 30, 2000 compared to 7.29% for the same period ended June 30, 1999.
Interest rate spread (the difference between the rates earned on interest
earning assets and the rates paid on interest bearing liabilities) decreased
from 2.75% to 2.54% and interest rate margin (net interest income divided by
average interest earning assets) decreased from 3.40% to 3.17% comparing the
nine month periods.
Interest Expense. Total interest expense increased $1.8 million, or 6.19%, for
the nine months ended June 30, 2000 compared to the same period in 1999. That
increase was the combined result of a $828,927 decrease in interest on deposit
liabilities and a $2.8 million increase in interest expense on FHLB advances.
Interest on deposit liabilities declined due to a 9 basis point reduction in the
average interest rate paid on deposit accounts coupled with a $10.8 million
decrease in the average balance of deposits. Interest expense on FHLB advances
increased with the $41.5 million increase in average borrowings and a 63 basis
point increase in the average rate paid.
Provision for Loan Losses. The provision for loan losses was $536,000 and there
were $164,267 of charge offs and $347,424 of recoveries during the nine months
ended June 30, 2000 compared to a $669,000 provision and $3,000 of charge offs
during the nine months ended June 30, 1999. As the Company has grown, the
composition of the loan portfolio has changed with increases in construction
loans and commercial and consumer loans, which are considered to have more
associated risk than the Company's traditional portfolio of one- to four-family
residential mortgages. Because of the Company's history of relatively low loan
loss experience, it has historically maintained an allowance for loan losses at
a lower percentage of total loans as compared with other institutions with
higher risk loan portfolios and higher loss experience. During the previous
fiscal year, the provision for loan losses was increased to reflect changes in
the composition of the loan portfolio. The provision has been maintained at a
similar level during the current year, although the Company's recent experience
has not indicated a deterioration in loan quality. The balance of non-performing
loans has decreased during the current fiscal year, primarily as a result of the
pay off of a $1.5 million land development loan. The Company is not anticipating
any material loss on the remaining non-performing loans at this time.
Non-Interest Income. Non-interest income increased $322,364, or 12.07%, to $3.0
million for the nine months ended June 30, 2000 from $2.7 million for the nine
months ended June 30, 1999. Fees and service charges increased by 10.00% due to
an increase in deposit accounts subject to service charges. In
15
the time since June 30, 1999 the Company initiated a program to sell mortgage
loans and established a retail investment subsidiary, Klamath First Financial
Services. The results of these actions can be seen in the 180.17% increase in
other non-interest income from $189,212 for the nine months ended June 30, 1999
to $530,112 for the nine months ended June 30, 2000. Of this increase $78,490 is
from profit on sale of mortgage loans and $110,094 is income from the new
investment subsidiary.
Non-Interest Expense. Non-interest expense increased $1.2 million, or 7.51%, to
$17.1 million for the nine months ended June 30, 2000, from $15.9 million for
the comparable period in 1999. Compensation, employee benefits, and related
expense increased $875,640, or 11.50% from $7.6 million for the nine months
ended June 30, 1999 to $8.5 million for the same period in 2000. Of this
increase, $260,541 relates directly to an increase in salary expense. The
remaining increase in compensation expense is a function of a routine accounting
procedure wherein a portion of compensation expense is allocated to the cost of
originating loans and such cost is deferred and taken to expense over the life
of the loans. Because the number of loan originations decreased significantly
for the nine months ended June 30, 2000 compared to the previous year, less
compensation cost was allocated to loan originations and deferred, resulting in
an increase in compensation expense. Other non-interest expense increased by
$420,878, or 9.68%, comparing the nine months ended June 30, 2000 with the same
period of 1999. Approximately $400,000 of this increase is due to charges
related to foreclosure of a commercial real estate property. The ratio of
non-interest expense to average total assets was 2.17% and 2.06% for the nine
months ended June 30, 2000 and 1999, respectively.
Income Taxes. The provision for income taxes decreased $1.0 million for the nine
months ended June 30, 2000 compared with the prior year. The effective tax rate
decreased slightly to 37.5% for the nine months ended June 30, 2000 from 40.6%
for the same period of 1999.
Comparison of Three Months Ended June 30, 2000 and 1999
General. Basic earnings per share increased from $.27 for the quarter ended June
30, 1999 to $.28 for the same period of 2000. Net income was consistent for the
three months ended June 30, 1999 and 2000.
Interest Income. The Company recorded interest income of $18.2 million in the
third quarter ended June 30, 2000, an increase of 2.43% from $17.8 million for
the same period last year. Average interest earning assets increased by $22.0
million, or 2.23%, while yield remained consistent at 7.23% for the quarter
ended June 30, 1999 and 7.24% for the same period of 2000. Yield on loans
receivable decreased from 7.76% for the quarter ended June 30, 1999 to 7.71% for
the current quarter. Yields on other interest earning assets remained stable or
improved for the period.
Interest Expense. Total interest expense increased $1.0 million, or 10.31%, to
$10.4 million for the quarter ended June 30, 2000 compared to $9.4 million for
the quarter ended June 30, 1999. Average deposits decreased by $34.2 million
comparing the three months ended June 30, 1999 to 2000, while the average
interest paid on interest-bearing deposits increased 9 basis points from 4.25%
for the three months ended June 30, 1999 to 4.34% for the same period ended June
30, 2000. The average balance of borrowings increased $50.6 million, from $171.4
million for the three months ended June 30, 1999 to $222.0 million for the same
period ended June 30, 2000, resulting in an increase in interest on borrowings
of $1.1 million for the three months ended June 30, 2000 compared with the same
period ended June 30, 1999. The rate paid on borrowings increased by 98 basis
points from 5.12% for the quarter ended June 30, 1999 to 6.10% for the same
period in 2000.
Provision for Loan Losses. The provision for loan losses was $228,000 and there
were $8,551 of charge offs, and $755 of recoveries during the three months ended
June 30, 2000 compared to a $243,000 provision and no charge offs during the
three months ended June 30, 1999. In previous periods, the provision was
increased in response to portfolio growth and changes in the composition of the
portfolio to include a higher percentage of loans, such as commercial real
estate and consumer loans, which are considered to have more associated risk
16
than the Company's traditional portfolio of one- to four-family residential
mortgages. The provision for loan losses is being maintained at the higher
level.
Non-Interest Income. Non-interest income increased $208,925, or 25.27%, to $1.0
million for the three months ended June 30, 2000 from $826,842 for the three
months ended June 30, 1999. Income from fees and service charges continues to
show growth, increasing by 8.40% from $749,074 for the quarter ended June 30,
1999 to $812,006 for the current quarter. Other non-interest income increased
significantly due to gains recorded on sale of mortgage loans to Fannie Mae and
income generated by Klamath First Financial Services.
Non-Interest Expense. Non-interest expense decreased $103,983, or 1.80%, to $5.7
million for the three months ended June 30, 2000, from $5.8 million in the
comparable period in 1999. An increase was noted in compensation, employee
benefits and related expense. As a routine accounting procedure, a portion of
compensation expense is allocated to the cost of originating loans and such cost
is taken to expense over the life of the loans. Because the number of loan
originations decreased significantly in the quarter ended June 30, 2000, less
compensation cost was allocated to loan originations and deferred, resulting in
an increase in compensation expense. Other expense decreased primarily due to
non-recurring losses recorded in the third quarter of 1999. The ratio of
non-interest expense to average total assets was 2.16% and 2.24% for the three
months ended June 30, 2000 and 1999, respectively.
Income Taxes. The provision for income taxes decreased $248,287 for the three
months ended June 30, 2000 compared with the prior year. The effective tax rate
decreased to 35.1% for the quarter ended June 30, 2000 from 40.6% for the same
period of 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk from that
disclosed in the Annual Report on Form 10-K for the year ended September 30,
1999.
17
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
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
a) Not applicable.
b) A Current Report on Form 8-K was filed on May 26, 2000 announcing
the retirement of Gerald V. Brown, President and Chief Executive
Officer.
18
SIGNATURES
Pursuant to the 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.
KLAMATH FIRST BANCORP, INC.
Date: August 11, 2000 By: /s/ Gerald V. Brown
----------------------------------
Gerald V. Brown, President and
Chief Executive Officer
Date: August 11, 2000 By: /s/ Marshall Jay Alexander
----------------------------------
Marshall Jay Alexander, Senior Vice
President and Chief Financial Officer
19