SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 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 January 29, 2001, there were issued 7,206,297 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 December 31, 2000 and September 30, 2000) 3
Consolidated Statements of Earnings (For the three months
ended December 31, 2000 and 1999) 4
Consolidated Statements of Shareholders' Equity
(For the year ended September 30, 2000 and for
the three months ended December 31, 2000) 5
Consolidated Statements of Cash Flows (For the three
months ended December 31, 2000 and 1999) 6 - 7
Notes to Consolidated Financial Statements 8 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 15
Part II. Other Information
- -------- -------------------
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND SEPTEMBER 30, 2000
(Unaudited)
December 31, 2000 September 30, 2000
ASSETS -------------------- --------------------
Cash and due from banks ................................................. $ 26,354,502 $ 19,998,788
Interest bearing deposits with banks .................................... 440,382 2,077,359
Federal funds sold and securities purchased under agreements to resell .. 2,097,006 7,870,453
-------------------- --------------------
Total cash and cash equivalents ...................................... 28,891,890 29,946,600
Investment securities available for sale, at fair value
(amortized cost: $119,821,880 and $118,689,247) ....................... 119,146,609 116,627,756
Investment securities held to maturity, at amortized cost (fair
value: $727,083 and $726,889) ......................................... 723,576 723,838
Mortgage backed and related securities available for sale, at fair
value (amortized cost: $68,633,079 and $75,483,569) ................... 69,040,121 75,331,311
Mortgage backed and related securities held to maturity, at amortized
cost (fair value: $2,062,580 and $2,145,918) .......................... 2,071,333 2,159,868
Loans receivable, net ................................................... 725,612,067 729,036,847
Real estate owned and repossessed assets ................................ 768,649 788,400
Premises and equipment, net ............................................. 13,004,547 12,727,570
Stock in Federal Home Loan Bank of Seattle, at cost ..................... 12,070,500 11,876,500
Accrued interest receivable ............................................. 7,001,061 6,432,073
Deferred federal and state income taxes ................................. -- 230,893
Core deposit intangible ................................................. 7,712,494 8,125,664
Other assets ............................................................ 1,497,930 1,567,318
-------------------- --------------------
Total assets ......................................................... $ 987,540,777 $ 995,574,638
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposit liabilities ................................................... $ 692,850,745 $ 695,380,871
Accrued interest on deposit liabilities ............................... 1,311,279 1,185,076
Advances from borrowers for taxes and insurance ....................... 326,044 9,653,376
Advances from Federal Home Loan Bank of Seattle ....................... 173,000,000 173,000,000
Short term borrowings ................................................. 5,400,000 3,000,000
Accrued interest on borrowings ........................................ 892,751 857,163
Pension liabilities ................................................... 920,545 887,896
Deferred federal and state income taxes ............................... 508,404 --
Other liabilities ..................................................... 2,944,796 2,885,695
-------------------- --------------------
Total liabilities ................................................... 878,154,564 886,850,077
-------------------- --------------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares authorized; none issued -- --
Common stock, $.01 par value, 35,000,000 shares authorized,
December 31, 2000 - 7,206,297 issued, 6,530,917 outstanding
September 30, 2000 - 7,366,226 issued, 6,692,428 outstanding ......... 72,063 73,662
Additional paid-in capital ............................................ 35,885,629 37,701,796
Retained earnings-substantially restricted ............................ 80,534,609 79,713,255
Unearned shares issued to ESOP ........................................ (4,696,637) (4,893,250)
Unearned shares issued to MRDP ........................................ (2,243,149) (2,498,378)
Net unrealized loss on securities available for sale, net of tax ...... (166,302) (1,372,524)
-------------------- --------------------
Total shareholders' equity .......................................... 109,386,213 108,724,561
-------------------- --------------------
Total liabilities and shareholders' equity ............................. $ 987,540,777 $ 995,574,638
<FN>
==================== ====================
See notes to consolidated financial statements.
</FN>
3
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Three Months Ended
December 31, December 31,
2000 1999
-------------------- --------------------
INTEREST INCOME
Loans receivable ...................................................... $ 14,244,031 $ 14,245,591
Mortgage backed and related securities ................................ 1,236,056 1,083,930
Investment securities ................................................. 2,046,535 2,521,529
Federal funds sold and securities purchased under agreements to resell 185,063 97,124
Interest bearing deposits ............................................. 104,664 102,273
-------------------- --------------------
Total interest income ............................................... 17,816,349 18,050,447
-------------------- --------------------
INTEREST EXPENSE
Deposit liabilities ................................................... 7,603,335 7,023,403
Advances from FHLB of Seattle ......................................... 2,609,469 2,771,028
Other ................................................................. 125,417 18,930
-------------------- --------------------
Total interest expense .............................................. 10,338,221 9,813,361
-------------------- --------------------
Net interest income ................................................. 7,478,128 8,237,086
Provision for loan losses ............................................... 228,000 108,000
-------------------- --------------------
Net interest income after provision for
loan losses ....................................................... 7,250,128 8,129,086
-------------------- --------------------
NON-INTEREST INCOME
Fees and service charges .............................................. 870,656 770,719
Gain on sale of investments ........................................... 7,918 6,836
Gain on sale of real estate owned ..................................... 14,491 117,566
Other income .......................................................... 220,415 137,255
-------------------- --------------------
Total non-interest income ........................................... 1,113,480 1,032,376
-------------------- --------------------
NON-INTEREST EXPENSE
Compensation, employee benefits and related expense ................... 2,908,944 2,747,612
Occupancy expense ..................................................... 581,392 551,520
Data processing expense ............................................... 231,024 221,049
Insurance premium expense ............................................. 34,792 75,829
Loss on sale of investments ........................................... 30,632 --
Amortization of core deposit intangible ............................... 413,169 413,169
Other expense ......................................................... 1,582,733 1,856,922
-------------------- --------------------
Total non-interest expense .......................................... 5,782,686 5,866,101
-------------------- --------------------
Earnings before income taxes ............................................ 2,580,922 3,295,361
Provision for income taxes .............................................. 895,877 1,266,751
-------------------- --------------------
Net earnings ............................................................ $ 1,685,045 $ 2,028,610
==================== ====================
Earnings per common share - basic ....................................... $ 0.25 $ 0.29
Earnings per common share - diluted ..................................... $ 0.25 $ 0.29
Weighted average common shares outstanding - basic ...................... 6,652,096 7,021,894
Weighted average common shares outstanding - with dilution .............. 6,653,266 7,021,894
<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, 2000 AND THE THREE MONTHS ENDED DECEMBER 31, 2000
(Unaudited)
Common Common Additional Unearned Unearned Other Total
stock stock paid-in Retained shares issuedshares issued comprehensive shareholders'
shares amount capital earnings to ESOP to MRDP income (loss) equity
---------- -------- ----------- ----------- ------------ ------------ ------------ -------------
Balance at October 1, 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 ............. -- -- -- (3,579,349) -- -- -- (3,579,349)
Stock repurchased and retired (542,151) (5,422) (6,249,273) -- -- -- -- (6,254,695)
ESOP contribution .......... 97,865 -- 142,826 -- 978,650 -- -- 1,121,476
MRDP contribution .......... 74,622 -- 13,708 -- -- 1,020,918 -- 1,034,626
---------- -------- ----------- ----------- ----------- ----------- ----------- -----------
6,692,428 73,662 37,701,796 73,287,103 (4,893,250) (2,498,378) (1,763,412) 101,907,521
Comprehensive income
Net earnings ............ 6,426,152 6,426,152
Other comprehensive income:
Unrealized gain on
securities, net of tax
and reclassification
adjustment (1)........ 390,888 390,888
-----------
Total comprehensive
income ............... 6,817,040
---------- -------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 6,692,428 73,662 37,701,796 79,713,255 (4,893,250) (2,498,378) (1,372,524) 108,724,561
Cash dividends ............. -- -- -- (863,691) -- -- -- (863,691)
Stock repurchased and retired (159,929) (1,599) (1,862,051) -- -- -- -- (1,863,650)
ESOP contribution .......... (4,805) -- 42,457 -- 196,613 -- -- 239,070
MRDP contribution .......... 3,223 -- 3,427 -- -- 255,229 -- 258,656
---------- -------- ----------- ----------- ----------- ----------- ----------- -----------
6,530,917 72,063 35,885,629 78,849,564 (4,696,637) (2,243,149) (1,372,524) 106,494,946
Comprehensive income
Net earnings ............ 1,685,045 1,685,045
Other comprehensive income:
Unrealized gain on
securities, net of tax
and reclassification
adjustment (2)........ 1,206,222 1,206,222
-----------
Total comprehensive
income ............... 2,891,267
---------- -------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 6,530,917 $ 72,063 $35,885,629 $80,534,609 ($4,696,637) ($2,243,149) ($ 166,302)$109,386,213
========== ======== =========== =========== =========== =========== =========== ===========
<FN>
(1) Net unrealized holding gain on securities of $440,870 (net of $270,211 tax expense) less reclassification
adjustment for gains included in net earnings of $49,982 (net of $30,634 tax expense).
(2) Net unrealized holding loss on securities of $1,224,427 (net of $750,456 tax expense) less reclassification
adjustment for gains included in net earnings of $18,205 (net of $11,158 tax expense).
See notes to consolidated financial statements.
</FN>
5
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
(Unaudited)
Three Months Ended Three Months Ended
December 31, December 31,
2000 1999
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ........................................................ $ 1,685,045 $ 2,028,610
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization ....................................... 714,933 722,128
Provision for loan losses ........................................... 228,000 108,000
Provision for losses on real estate owned ........................... -- 120,000
Compensation expense related to ESOP benefit ........................ 239,070 291,401
Compensation expense related to MRDP Trust .......................... 258,656 258,656
Net amortization of premiums (discounts) paid on
investment and mortgage backed and related securities ............. 31,837 70,505
Increase (decrease) in deferred loan fees, net of amortization ...... (108,358) (77,888)
Accretion of discounts on purchased loans ........................... 2,192 (1,879)
Net gain (loss) on sale of investment and mortgage
backed and related securities ..................................... 22,714 (6,836)
Gain on sale of real estate owned and fixed assets .................. (16,157) (117,566)
FHLB stock dividend ................................................. (194,000) (200,200)
CHANGES IN ASSETS AND LIABILITIES
Accrued interest receivable ......................................... (568,988) (228,552)
Other assets ........................................................ 29,388 263,905
Accrued interest on deposit liabilities ............................. 126,203 60,178
Accrued interest on borrowings ...................................... 35,588 894,927
Pension liabilities ................................................. 32,649 32,649
Other liabilities ................................................... 153,019 942,547
-------------------- --------------------
Net cash provided by operating activities ............................... 2,671,791 5,160,585
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal repayments received on mortgage backed
and related securities held to maturity .......................... 87,316 141,592
Principal repayments received on mortgage backed
and related securities available for sale ........................ 6,829,421 3,450,154
Principal repayments received on loans .............................. 21,253,492 25,629,270
Loan originations ................................................... (24,457,738) (30,642,882)
Loans sold .......................................................... 6,366,479 3,403,823
Purchase of investment securities available
for sale .......................................................... (11,532,379) (1,110,000)
Proceeds from sale of investment securities
available for sale ................................................ 10,367,746 10,051,563
Proceeds from sale of real estate owned and
premises and equipment ............................................ 192,057 1,090,381
Capitalized improvements to real estate owned ....................... (15,437) --
Purchases of premises and equipment ................................. (538,741) (710,710)
-------------------- --------------------
Net cash provided by investing activities ............................... 8,552,216 11,303,191
-------------------- --------------------
6
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
(Unaudited)
(Continued)
Three Months Ended Three Months Ended
December 31, December 31,
2000 1999
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in deposit
liabilities, net of withdrawals ....................................($ 2,530,126)($ 2,163,559)
Proceeds from FHLB advances ......................................... -- 92,000,000
Repayments of FHLB advances ......................................... -- (76,000,000)
Proceeds from short term borrowings ................................. 2,400,000 --
Stock repurchase and retirement ..................................... (1,863,650) (3,349,000)
Advances from borrowers for taxes and insurance ..................... (9,327,332) (9,094,151)
Dividends paid ...................................................... (957,609) (988,548)
-------------------- --------------------
Net cash provided by (used in) financing activities ..................... (12,278,717) 404,742
-------------------- --------------------
Net increase (decrease) in cash and cash
equivalents ........................................................... (1,054,710) 16,868,518
Cash and cash equivalents at beginning
of period ............................................................. 29,946,600 24,522,589
-------------------- --------------------
Cash and cash equivalents at end of period .............................. $ 28,891,890 $ 41,391,107
==================== ====================
SUPPLEMENTAL SCHEDULE OF INTEREST AND
INCOME TAXES PAID
Interest paid ....................................................... $ 10,176,430 $ 8,858,256
Income taxes paid ................................................... -- --
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Net unrealized gain (loss) on securities
available for sale, net of tax .................................... $ 1,206,222 ($ 1,042,770)
Dividends declared and accrued in other
liabilities ....................................................... 956,852 953,360
Loans transferred to real estate owned .............................. 140,712 642,286
Write down of real estate owned ..................................... -- 120,000
<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. and subsidiary's (the "Company") financial condition as of
December 31, 2000, and September 30, 2000, and the results of its operations and
cash flows for the three months ended December 31, 2000 and 1999. 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 on Form 10-K. The results of operations
for the three months ended December 31, 2000 and 1999 are not necessarily
indicative of the results which may be expected for the entire fiscal year.
2. COMPREHENSIVE INCOME
For the three months ended December 31, 2000, the Company's total comprehensive
income was $2.9 million compared to $1.0 million for the three months ended
December 31, 1999. Total comprehensive income for the three months ended
December 31, 2000 was comprised of net income of $1.7 million and other
comprehensive income of $1.2 million, net of tax. Total comprehensive income for
the three months ended December 31, 1999 was comprised of net income of $2.0
million and other comprehensive loss of $1.0 million, net of tax.
3. ALLOWANCE FOR LOAN LOSSES
Activity in allowance for loan losses is summarized as follows:
Three Months Ended Year Ended
December 31, September 30,
2000 2000
-------------- --------------
Balance, beginning of period $4,082,265 $2,483,625
Charge-offs (16,253) (606,999)
Recoveries 777 441,639
Additions 228,000 1,764,000
-------------- --------------
Balance, end of period $4,294,789 $4,082,265
============== ===============
At December 31, 2000 and 1999, impaired loans totaled $78,376 and $1,453,545,
respectively. Specifically allocated loan loss reserves related to these loans
totaled $8,500 and $302,566, respectively. The average investment in impaired
loans for the three months ended December 31, 2000 and 1999 was $79,717 and
$484,515, respectively.
4. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at December 31, 2000 consisted of one short term advance totaling
$5.0 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, securities of the U.S.
Government and agencies thereof.
8
Scheduled maturities of advances from the FHLB were as follows:
December 31, 2000 September 30, 2000
------------------------------------------------ -----------------------------------------------
Range of Weighted Range of Weighted
interest average interest average
Amount rates interest rate Amount rates interest rate
------------- -------------- ------------- -------------- -------------- -------------
Due within one year $ 5,000,000 5.70% 5.70% $ 5,000,000 5.70% 5.70%
After one but within
five years 10,000,000 6.82% 6.82% 10,000,000 6.65% 6.65%
After five but within
ten years 158,000,000 4.77%-7.05% 5.86% 158,000,000 4.77%-7.05% 5.86%
------------- -------------
$173,000,000 $173,000,000
============= =============
5. 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.
6. SHAREHOLDERS' EQUITY
In May 2000, the Company announced a five percent stock repurchase plan to be
completed over a twelve month period. Five percent represents approximately
375,648 shares. As of December 31, 2000, about 76% of the repurchase plan was
completed, at a weighted average price of $11.45.
7. 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 contingently issuable shares and are included in the computation
of basic 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.
9
For the Three Months Ended
---------------------------
December 31, December 31,
2000 1999
--------- ---------
Weighted average common
shares outstanding - basic ....................... 6,652,096 7,021,894
--------- ---------
Effect of Dilutive Securities on Number of Shares:
MRDP shares ...................................... 1,170 --
Stock options .................................... -- --
--------- ---------
Total Dilutive Securities ........................ 1,170 --
--------- ---------
Weighted average common shares
outstanding - with dilution ..................... 6,653,266 7,021,894
========= =========
Options to purchase 916,258 shares of common stock were outstanding at September
30 and December 31, 2000 but were not included in the computation of diluted EPS
because the options' exercise prices were greater than the average market price
of the common shares. Additionally, 80,006 shares awarded under the MRDP but not
yet released to the individuals were not included in the computation of diluted
EPS at December 31, 1999 because their effect would not have been dilutive.
8. 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 December 31, 2000:
To Be Categorized
as "Well Capitalized"
Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
----------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------------- -------- ------------ ------- ------------ -------
Total Capital: ........... $108,671,257 20.8% $ 41,831,200 8.0% $ 52,289,000 10.0%
(To Risk Weighted Assets)
Tier I Capital: .......... 104,500,265 20.0% N/A N/A 31,373,400 6.0%
(To Risk Weighted Assets)
Tier I Capital: .......... 104,500,265 10.7% 39,107,117 4.0% 48,883,896 5.0%
(To Total Assets)
Tangible Capital: ........ 104,500,265 10.7% 14,665,169 1.5% N/A N/A
(To Tangible Assets)
10
9. 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. 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. SFAS No.
133 was also amended by SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities. The Company adopted SFAS No. 133, as
amended, on October 1, 2000. The adoption of the Statement did not have a
material impact on the financial statements of the Company.
11
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, is the unitary savings and loan holding
company for the Association. At December 31, 2000, the Company had total
consolidated assets of $987.5 million and consolidated shareholders' equity of
$109.4 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 and loans on commercial real estate, multi-family residential
properties, and to consumers and small businesses within its market area. 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.
12
Such strategies include the Association's expansion of its consumer and
commercial loan products. Consumer and commercial loans increased 27% from $17.4
million at December 31, 1999 to $22.1 million at December 31, 2000. To a lesser
degree, the net earnings of the Company rely on the level of its non-interest
income. The 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 36 office facilities, with the main office
located in Klamath Falls, Oregon. Construction is under way on a full service
branch in 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 December 31, 2000, the consolidated assets of the Company totaled $987.5
billion, down slightly from $995.6 million at September 30, 2000.
Net loans receivable decreased by $3.4 million to $725.6 million at
December 31, 2000, compared to $729.0 million at September 30, 2000. Rising
mortgage interest rates have continued to dampen mortgage demand, reducing loan
originations this quarter. In addition, the Company sold $4.1 million in single
family mortgage loans to Fannie Mae and $2.3 million in commercial real estate
loans, further reducing loans receivable.
Investment securities increased $2.5 million, or 2.15%, from $117.4 million
at September 30, 2000 to $119.9 million at December 31, 2000. This increase was
the result of sale of $10.4 million of investment securities available for sale
offset by the purchase of $11.5 million of securities.
During the three months ended December 31, 2000, $6.9 million of principal
payments were received on mortgage backed and related securities ("MBS"),
resulting in a decrease in the balance of MBS from $77.5 million at September
30, 2000 to $71.1 million at December 31, 2000.
Deposit liabilities decreased $2.5 million, less than 1.00%, from $695.4
million at September 30, 2000 to $692.9 million at December 31, 2000. The
decrease 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 $9.3 million from
September 30, 2000 to December 31, 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.
The Company's total borrowings increased $2.4 million from September 30,
2000 to December 31, 2000. The increase is the result of borrowing by the
holding company to fund payment of common stock dividends and for the repurchase
of shares.
13
Total shareholders' equity increased $661,652 from $108.7 million at
September 30, 2000 to $109.4 million at December 31, 2000. This increase was the
combined result of $1.7 million in earnings for the quarter, a $1.2 million
increase in unrealized gains on securities available for sale and a $1.9 million
reduction due to the buyback of shares.
Results of Operations
Comparison of Three Months Ended December 31, 2000 and 1999
General. The interest rate environment characterized by a flat to inverted yield
curve made it difficult to improve spread income or maintain margins during the
quarter ended December 31, 2000. Net interest income for the quarter ended
December 31, 2000 decreased by $758,958, or 9.21%, compared to the same period
of 1999. This decrease impacted net earnings which decreased from $2.0 million
for the three months ended December 31, 1999 to $1.7 million for the three
months ended December 31, 2000.
Interest Income. The Company recorded interest income of $17.8 million in the
first quarter ended December 31, 2000, a decrease of 1.30% from $18.1 million
for the same period last year. While average interest earning assets decreased
by $41.8 million, or 4.16%, yield increased from 7.19% for the quarter ended
December 31, 1999 to 7.40% for the same period of 2000. Yields on all interest
earning assets have improved from a year ago.
Interest Expense. Total interest expense increased $524,860 from $9.8 million
for the quarter ended December 31, 1999 to $10.3 million for the quarter ended
December 31, 2000. Average deposits decreased by $24.7 million comparing the
three months ended December 31, 1999 to 2000, while the average interest paid on
interest-bearing deposits increased 53 basis points from 4.21% for the three
months ended December 31, 1999 to 4.74% for the same period ended December 31,
2000. The average balance of borrowings decreased $23.2 million from $200.5
million for the three months ended December 31, 1999 to $177.3 million for the
same period ended December 31, 2000. However, the rate paid on borrowings
increased by 58 basis points from 5.53% for the quarter ended December 31, 1999
to 6.11% for the same period in 2000.
Provision for Loan Losses. The provision for loan losses was $228,000 and there
were $16,253 of charge offs, and $777 of recoveries during the three months
ended December 31, 2000 compared to a $108,000 provision with $2,414 of charge
offs and $340,818 of recoveries during the three months ended December 31, 1999.
During the fiscal year ended September 30, 2000, 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 than the
Company's traditional portfolio of one- to four-family residential mortgages.
Non-Interest Income. Non-interest income continues to show improvement,
increasing $81,104, or 7.86%, to $1.1 million for the three months ended
December 31, 2000 from $1.0 million for the three months ended December 31,
1999. Income from fees and service charges continues to show growth, increasing
by 12.97% from $770,719 for the quarter ended December 31, 1999 to $870,656 for
the current quarter. Other non- interest income increased significantly due to
gains recorded on sale of mortgage loans to Fannie Mae.
Non-Interest Expense. Non-interest expense decreased $83,415, or 1.42%, to $5.8
million for the three months ended December 31, 2000, from $5.9 million in the
comparable period in 1999. Compensation, employee benefits and related expense
showed a modest increase of 5.87% which reflects salary increases and addition
14
of staff. Other expense decreased by $274,189 primarily due to one-time expenses
related to foreclosure of a commercial real estate property during the quarter
ended December 31, 1999, which were not repeated during the current quarter.
Income Taxes. The provision for income taxes decreased $370,874 for the three
months ended December 31, 2000 compared with the prior year. The effective tax
rate was 34.7% for the quarter ended December 31, 2000 compared to 38.4% for the
same period of 1999. The decrease in effective tax rate is primarily due to an
increase in income on tax-exempt municipal securities.
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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) Reference is made to the Company's Current Report on From 8-K dated
November 2, 2000, announcing that Kermit K. Houser was the new
President and Chief Executive Officer of the Company and the
Association, effective November 15, 2000, which is incorporated herein
by reference.
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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: February 13, 2001 By: /s/ Kermit K. Houser
---------------------------
Kermit K. Houser, President and
Chief Executive Officer
Date: February 13, 2001 By: /s/ Marshall Jay Alexander
---------------------------
Marshall Jay Alexander, Senior Vice
President and Chief Financial
Officer
17