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 March 31, 1996
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 3-1180440
- - --------------------------------------------- -------------
(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
of1934 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 April 30, 1996, there were issued and outstanding 12,233,125
shares of the Registrant's Common Stock. Of that total, 978,650 shares are held
by the Employee Stock Ownership Plan, of which the total 978,650 shares were not
committed to be released, and 489,325 shares are held by the 1996 Management
Recognition and Development Plan Trust, of which the total 489,325 shares were
not committed to be released. 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 SUBSIDIARIES
TABLE OF CONTENTS
Part I. Financial Information
- - ------- ----------------------
Item 1. Financial Statements Page
----
Consolidated Statements of Financial Condition
(As of March 31, 1996 and September 30, 1995) 3
Consolidated Statements of Earnings (For the three
months and six months ended March 31, 1996 and 1995) 4
Consolidated Statement of Stockholders' Equity
(For the year ended September 30, 1995 and for
the six months ended March 31, 1996) 5
Consolidated Statements of Cash Flows (For the six
months ended March 31, 1996 and 1995) 6 - 7
Notes to Consolidated Financial Statements 8 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 16
Part II. Other Information
- - -------- -------------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF MARCH 31, 1996 AND SEPTEMBER 30, 1995
(Unaudited)
ASSETS
March 31, 1996 September 30, 1995
------------------ ------------------
Cash on hand and in banks $1,580,217 $4,033,723
Interest bearing deposits 1,000,000 994,157
Federal funds sold 5,562,881 170,966,390
------------------ ------------------
8,143,098 175,994,270
Investment securities available for sale, at market value 97,057,727 12,605,654
Investment securities held to maturity, at amortized cost (market
value: $12,194,540 and $42,178,800 at March 31, 1996
and September 30, 1995, respectively) 12,162,707 42,209,497
Mortgage backed securities available for sale, at market value 31,610,951 --
Mortgage backed securities held to maturity, at amortized cost (market
value $7,142,535 at March 31, 1996 and $0.00 at September 30, 1995) 7,169,721 --
Loans receivable, net 433,233,607 403,543,725
Real estate owned 147,029 24,384
Premises and equipment, net 5,120,694 5,231,903
Stock in Federal Home Loan Bank of Seattle, at cost 4,590,700 4,425,900
Accrued interest receivable, net 4,566,266 3,431,594
Other assets 860,095 372,654
------------------ ------------------
Total assets $604,662,595 $647,839,581
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings deposits 390,195,025 384,379,531
Stock over subscription -- 65,685,300
Accrued interest on savings deposits 751,530 1,028,766
Advances from borrowers for taxes and insurance 3,135,561 7,966,422
Advances from Federal Home Loan Bank of Seattle 40,000,000 20,000,000
Pension liability 676,709 616,035
Deferred federal and state income taxes 1,176,270 896,876
Other liabilities 1,033,424 2,581,586
------------------ ------------------
Total liabilities 436,968,519 483,154,516
------------------ ------------------
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized; none issued -- --
Common stock, $.01 par value, 35,000,000 shares authorized;
issued and outstanding 12,233,125 shares 122,331 122,331
Additional paid-in-capital 119,382,050 119,230,653
Retained earnings-substantially restricted 59,165,203 55,811,362
Unearned ESOP shares at cost (9,297,175) (9,786,500)
Unrealized loss on securities available for sale, net of tax (1,678,333) (692,781)
------------------ ------------------
Total stockholders' equity 167,694,076 164,685,065
------------------ ------------------
Total liabilities and stockholders' equity $604,662,595 $647,839,581
================== ==================
The accompanying notes are an integral part of these consolidated financial statements.
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
March 31, 1996 March 31, 1995 March 31, 1996 March 31, 1995
---------------------- ---------------------- ---------------------- ------------------
Interest Income:
Loans receivable $8,645,846 $7,465,811 $16,904,150 $14,776,025
Mortgage backed securities 465,656 -- 730,511 --
Investment securities 1,759,474 1,053,738 3,181,255 2,130,011
Federal funds sold 180,492 54,376 1,022,671 157,125
Interest bearing deposits 86,636 28,898 218,067 80,665
------------------ ------------------ ------------------ ------------------
Total interest income 11,138,104 8,602,823 22,056,654 17,143,826
------------------ ------------------ ------------------ ------------------
Interest expense:
Savings deposits 5,024,369 4,568,191 10,120,225 9,121,168
FHLB advances 582,378 258,826 1,009,517 326,192
Other 18,759 21,904 62,871 64,895
------------------ ------------------ ------------------ ------------------
Total interest expense 5,625,506 4,848,921 11,192,613 9,512,255
------------------ ------------------ ------------------ ------------------
Net interest income 5,512,598 3,753,902 10,864,041 7,631,571
Provision for loan losses 30,000 60,000 60,000 60,000
------------------ ------------------ ------------------ ------------------
Net interest income after provision for
loan losses 5,482,598 3,693,902 10,804,041 7,571,571
------------------ ------------------ ------------------ ------------------
Non-interest income:
Fees and service charges 58,601 39,775 119,474 78,877
Gain on sale of real estate owned, net -- 27,139 -- 52,540
Other income 39,201 25,364 57,798 38,084
------------------ ------------------ ------------------ ------------------
Total non-interest income 97,802 92,278 177,272 169,501
------------------ ------------------ ------------------ ------------------
Non-interest expense:
Compensation, employee benefits
and related expense 955,357 684,747 1,936,986 1,443,781
Occupancy expense 254,627 224,299 485,947 449,552
Data processing expense 89,706 94,341 181,138 164,005
Insurance premium expense 238,430 223,272 463,072 437,662
Loss on sale of real estate owned, net -- -- 4,690 --
Other expense 390,232 328,858 696,368 626,282
------------------ ------------------ ------------------ ------------------
Total non-interest expense 1,928,352 1,555,517 3,768,201 3,121,282
------------------ ------------------ ------------------ ------------------
Earnings before income taxes 3,652,048 2,230,663 7,213,112 4,619,790
Provision for income tax 1,245,082 896,544 2,565,007 1,795,000
------------------ ------------------ ------------------ ------------------
Net earnings $2,406,966 $1,334,119 $4,648,105 $2,824,790
================== ================== ================== ==================
Earnings per common share (based on weighted
average shares outstanding) $.21 N/A $.41 N/A
Weighted average number of shares outstanding 11,254,475 N/A 11,254,475 N/A
The accompanying notes are an integral part of these consolidated financial statements.
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1995
AND THE SIX MONTHS ENDED MARCH 31, 1996
(Unaudited)
Common Stock Common Stock Additional Unearned Unrealized Total
--------------------------------- paid-in Retained ESOP shares gain (loss) stockholders'
Shares Amount capital earnings at cost on securities equity
-------------------------------------------------------------------------------------------------------------
Balance at:
September 30, 1994 -- $-- $-- $50,237,259 $-- $929,615) $49,307,644
Issuance of common stock 12,233,125 122,331 119,230,653 -- (9,786,500) -- 109,566,484
Unrealized gain on investments
available for sale -- -- -- -- -- 236,834 236,834
Net earnings -- -- -- 5,574,103 -- -- 5,574,103
-------------------------------------------------------------------------------------------------------------
Balance at:
September 30, 1995 12,233,125 122,331 119,230,653 55,811,362 (9,786,500) (692,781) 164,685,065
Cash dividends -- -- -- (1,294,264) -- -- (1,294,264)
ESOP contribution -- -- 151,397 -- 489,325 -- 640,722
Unrealized gain(loss) on
investments available
for sale -- -- -- -- -- (985,552) (985,552)
Net earnings -- -- -- 4,648,105 -- -- 4,648,105
------------------------------------------------------------------------------------------------------------
Balance at:
March 31, 1996 12,233,125 $122,331 $119,382,050 $59,165,203 ($9,297,175) ($1,678,333) $167,694,076
============ =========== ============ =========== ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
Six Months Ended Six Months Ended
March 31, 1996 March 31, 1995
-------------------- --------------------
Cash flows from operating activities:
Net earnings $4,648,105 $2,824,790
---------------- ----------------
Adjustments to reconcile net earnings to net
cash used by operating activities:
Depreciation 206,616 172,748
Provision for loan losses 60,000 60,000
Amortization of net (discounts) premiums paid on securities (53,854) 129,877
Increase in deferred fees 271,832 165,542
Increase in discounts, net of amortization (159) (529)
ESOP related compensation expense 640,722 --
(Gain) Loss on sale of real estate owned 4,690 (2,062)
FHLB stock dividend (164,800) (128,800)
Changes in assets and liabilities:
Accrued interest receivable (1,134,672) (84,019)
Other assets (487,442) (558,554)
Accrued interest payable (277,236) 124,642
Advances from borrowers (4,830,861) (4,855,311)
Pension liability 60,674 35,010
Deferred taxes 519,232 452,788
Other liabilities (67,916,070) (398,836)
---------------- ----------------
Total adjustments (73,101,328) (4,887,504)
---------------- ----------------
Net cash used by operating activities (68,453,223) (2,062,714)
---------------- ----------------
Cash flows from investing activities:
Maturity of investment securities held to maturity 66,082,000 2,000,000
Principal repayments received on investment securities 351,567 --
Principal repayments received on mortgage backed securities 2,831,052 --
Principal repayments received on loans 32,066,766 17,858,616
Loan originations (62,235,350) (34,991,705)
Purchase of investment securities (121,814,741) --
Purchase of mortgage backed securities (41,807,369) --
Proceeds from sale of real estate owned 19,694 97,771
Proceeds from sale of fixed assets 973 --
Additions to premises and equipment (96,380) (767,109)
---------------- ----------------
Net cash used in investing activities (124,601,788) (15,802,427)
---------------- ----------------
Cash flows from financing activities:
(Decrease) increase in savings deposits, net of withdrawals 5,815,494 (13,994,896)
Increase in FHLB advances 20,000,000 22,000,000
Dividends paid (611,655) --
---------------- ----------------
Net cash flows from financing activities 25,203,839 8,005,104
---------------- ----------------
Net decrease in cash and cash equivalents (167,851,172) (9,860,037)
Six Months Ended Six Months Ended
March 31, 1996 March 31, 1995
-------------------- --------------------
Cash and cash equivalents at beginning of year 175,994,270 19,557,018
---------------- ----------------
Cash and cash equivalents at end of period $8,143,098 $9,696,981
================ ================
Supplemental schedule of interest and income taxes paid:
Interest paid 11,469,849 9,387,613
Income taxes paid 2,469,173 1,632,000
================ ================
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited consolidated statements
contain all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of Klamath First Bancorp, Inc.'s (the "Company") Financial
Condition as of March 31, 1996, and September 30, 1995 and the Results of
Operations for the three months ended March 31, 1996 and 1995 and for the six
months ended March 31, 1996 and 1995 and the Statements of Cash Flows for the
six months ended March 31, 1996 and 1995. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principals 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 and six months ended March 31, 1996 are not necessarily indicative of the
results which may be expected for the entire fiscal year.
2. ALLOWANCE FOR LOAN LOSSES
The Company adopted Statement of Financial Accounting Standards No. 114 (SFAS
No. 114), "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" as of October 1, 1995. SFAS No. 114 requires that impaired loans
be measured based on the present value of the expected cash flows discounted at
the loan's effective interest rate or the loan's market price, or the fair value
of the collateral if the loan is collateral dependent. SFAS No. 118 amends SFAS
No. 114 to allow a creditor to use existing methods for recognizing interest
income on impaired loans, in addition to outlining disclosure requirements. The
adoption of SFAS No. 114 and SFAS No. 118 did not result in additional
provisions for loan losses because the majority of impaired loan valuations
continue to be based on the fair value of collateral.
Activity in allowance for loan losses is summarized as follows:
March 31, 1996 September 30, 1995
-------------- ------------------
Balance, beginning of year $807,820 $754,803
Charge-offs -- (66,983)
Additions 60,000 120,000
-------------- -----------------
Balance, end of period $867,820 $807,820
============== =================
3. INVESTMENT SECURITIES
On November 15, 1995, the Financial Accounting Standards Board ("FASB")
published implementation guidance on SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities", that allows a corporation a one time
reassessment of the appropriateness of the classification of its debt securities
under a special transition provision. Debt securities classified as "held to
maturity" are reported in financial statements at amortized cost while those
classified as "available for sale" are reported at fair value and unrealized
gains and losses on such securities are reported as a net amount in a separate
component of stockholders' equity. The net unrealized gain or loss on
securities classified as available for sale fluctuates based on several factors,
including market interest rates, prepayment rates and the portfolio amount. As
permitted by the implementation guidance, the Company transferred certain of its
debt securities from the held-to-maturity portfolio to the available-for-sale
portfolio. Total amortized cost of securities transferred and the related
unrealized gains at the date of transfer totalled $28.8 million and $100,137,
respectively.
During the first two quarters of the year, the Company purchased mortgage backed
securities ("MBS") that are primarily variable-rate obligations and are subject
to prepayment and interest-rate risk similar to variable-rate loans. MBS at
March 31, 1996, had a quoted market value of $38,753,486. Expected maturities
on these MBS will differ from contract maturities because borrowers may have the
right to prepay obligations with or without prepayment penalties.
4. BORROWINGS FROM FEDERAL HOME LOAN BANK
Borrowings at March 31, 1996 consisted of one short term advance of $20 million
and three long term advances totalling $20 million from the Federal Home Loan
Bank ("FHLB") of Seattle . The short term advance had an interest rate of
5.15%, which reprices quarterly based on the three month London Interbank Offer
Rate ("LIBOR") index less 10 basis points. Two long term advances for $5
million each had interest rates from 5.32% to 5.36% and reprice quarterly based
on the three month LIBOR index plus 5 basis points. The other long term advance
for $10 million had an interest rate of 5.25% and reprices semi-annually based
on the six month LIBOR index. The advances are collateralized by certain
residential first mortgage loans, deposits with the FHLB, and FHLB stock.
5. 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 March 31, 1996:
----------------------------------------------------------
Tangible capital
----------------------------------------------------------
Amount Percent
--------------- --------
GAAP capital $119,165,194 21.3 %
General loan valuation allowance -- --
------------------------------
Regulatory capital computed 119,165,194 21.3
Minimum capital requirement 8,399,885 1.5
------------------------------
Regulatory capital excess $110,765,309 19.8 %
=============== ==========
----------------------------------------------------------
Core capital
----------------------------------------------------------
Amount Percent
-------------- --------
GAAP capital $119,165,194 21.3 %
General loan valuation allowance -- --
-----------------------------
Regulatory capital computed 119,165,194 21.3
Minimum capital requirement 16,799,771 3.0
-----------------------------
Regulatory capital excess $102,365,423 18.3 %
============== ==========
----------------------------------------------------------
Risk-based capital
----------------------------------------------------------
Amount Percent
-------------- --------
GAAP capital $119,165,194 45.7 %
General loan valuation allowance 867,820 0.4
-----------------------------
Regulatory capital computed 120,033,014 46.1
Minimum capital requirement 20,852,296 8.0
-----------------------------
Regulatory capital excess $99,180,718 38.1 %
============== ==========
/TABLE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 on
October 4, 1995. At March 31, 1996, the Company had total consolidated assets
of $604.7 million and consolidated stockholders' equity of $167.7 million. The
Company is currently not engaged in any other business activity other than
holding the stock of the Association, and investing its share of the net
proceeds from the stock offering in conjunction with the conversion.
Accordingly, the information set forth in this report, including financial
statements and related data, relates primarily to the Association and its
subsidiary.
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, multi-family dwellings, commercial loans and consumer loans.
The Company's profitability depends primarily on its net interest income, which
is the difference between interest and dividend income on interest-earning
assets, principally loans and investment securities, and interest expense on
interest-bearing deposits and borrowings. Because the Company is primarily
dependent on net interest income for its earnings, the focus of the Company's
planning is to devise and employ strategies that provide stable, positive
spreads between the yield on interest-earning assets and the cost of interest-
bearing liabilities in order to maximize the dollar amount of net interest
income. The Company's net earnings are dependent, to a lesser extent, on the
level of its non-interest income, such as service charges and other fees, and
its non-interest expense, such as employee compensation and benefits, occupancy
and equipment expense, deposit insurance premiums and miscellaneous other
expenses, as well as federal and state income tax expense.
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 FHLB of Seattle. The Association conducts
its business through seven full service branch office facilities, with the main
office located in Klamath Falls, Oregon. The Association considers its primary
market area to be the counties of Klamath, Deschutes and Jackson in Southern and
Central Oregon. The Association opened a new loan production office in the city
of Redmond, Deschutes County, Oregon in March 1996.
Recapitalization of SAIF and its Impact on SAIF Premiums
In August 1995, the FDIC substantially reduced deposit insurance premiums for
well-capitalized, well-managed financial institutions that are members of the
Bank Insurance Fund ("BIF"). Under the new assessment schedule, approximately
92% of the BIF members pay only the statutory minimum annual assessment of
$2,000. The reduction of BIF premiums went into effect in September 1995. With
respect to SAIF member institutions, the FDIC has retained the existing rate
schedule of 23 to 31 basis points. The Association is a member of SAIF rather
than BIF. SAIF premiums may not be reduced for several years because SAIF has
lower reserves than BIF and is responsible for more troubled financial
institutions. Deposit insurance premiums are often a significant component of
non-interest expense for insured depository institutions. The reduction in BIF
premiums may place the Association at a competitive disadvantage because BIF-
insured institutions (such as most commercial banks) may be able to offer more
attractive loan rates, deposit rates, or both. The magnitude of the competitive
advantage of BIF insured institutions due to a disparity in deposit insurance
premiums and its impact on the Association's results of operations cannot be
determined at this time.
Several alternatives to mitigate the effect of the BIF/SAIF premium disparity
have been suggested by the federal banking regulators, by members of Congress,
by industry groups and by the Clinton Administration, including a merger of the
funds and/or a payment by all SAIF-member institutions, including the
Association, of a one-time assessment to increase SAIF's reserves to $1.25 per
$100 of deposits. Such assessment is estimated to be approximately 80 basis
points on the amount of deposits held by a SAIF-member institution at March 31,
1995. The payment of a one-time fee would have the effect of immediately
reducing the capital and earnings of SAIF member institutions by the amount of
the fee. Based on the Association's assessable deposits of $376.4 million at
March 31, 1995, a one-time assessment of 80 basis points would equal
approximately $3.0 million. This assessment, if it occurred, would represent a
decrease in book value per share of $.27 at March 31, 1996. Management cannot
predict whether any legislation, including legislation imposing such a fee, will
be enacted, or, if enacted, the amount of any one-time fee or whether ongoing
SAIF premiums will be reduced to a level equal to that of BIF premiums.
Proposed Recapture of Bad Debt Reserves
The Budget Reconciliation Bill currently before the U.S. Congress contains a
provision that repeals the reserve method of accounting for thrift bad debt
reserves (including the percentage-of-taxable income method) for tax years
beginning after December 31, 1995. This would require the Association to
account for bad debts using the specific charge-off method. Under the proposed
legislation, the change in accounting method that eliminates the reserve method
would trigger bad debt reserve recapture for post-1987 excess reserves over a
six-year period. At March 31, 1996, the Association's post-1987 excess reserves
amounted to $4.0 million. A special provision suspends recapture of post-1987
excess reserves for up to two years if, during those two years, the institution
satisfies a "residential loan requirement." This requirement would be met if
the principal amount of the institution's residential loans exceeds a base year
amount, which is determined by reference to the average of the institution's
loans during the six taxable years ending before January 1, 1996. However,
notwithstanding this special provision, recapture would be required to begin no
later than the first taxable year beginning after December 31, 1997. Management
cannot predict whether the legislation providing for the recapture of bad debt
reserves will be enacted, or, if enacted, the final form of such legislation and
its ultimate impact on the Association.
Changes in Financial Condition
At March 31, 1996, the consolidated assets of the Company totalled $604.7
million, a decrease of $43.1 million, or 6.65% from September 30, 1995. The
decrease in total assets was primarily a result of the refund of $65.7 million
to subscribers in the stock offering as a result of the oversubscription of the
offering. However, despite this $65.7 million decrease, an increase of $22.6
million was achieved primarily through an increase in loans and investments
funded by an additional $20.0 million advance from the FHLB of Seattle and a
$5.8 million increase in deposits.
Net loans receivable increased by $29.7 million, or 7.36%, to $433.2 million at
March 31, 1996, compared to $403.5 at September 30, 1995. The increase was
primarily the result of an increase in loan demand due to lower interest rates
and strong local economies, which resulted in loan originations, including both
new purchase loans and refinanced loans, for the six months ended March 31,
1996 of $62.2 million.
Total cash and investment securities decreased $113.4 million, or 49.13%, from
$230.8 million on September 30, 1995 to $117.4 on March 31, 1996. This decrease
was primarily a result of the refund of $65.7 million to subscribers in the
stock offering, the purchase of $41.8 million in adjustable rate mortgage backed
securities, the funding of the additional $29.7 million in loans mentioned
above, the payment of real estate taxes reserved on loans receivable of $8.2
million, and an increase in savings deposits of $5.8 million. Within the above
mix of changes, an additional FHLB of Seattle advance of $20.0 million was also
used to fund the increase in loans receivable and the purchase of investments.
The Financial Accounting and Standards Board allowed investors a one-time
opportunity to reclassify investments from "Held to Maturity" to "Available for
Sale" between November 15, 1995 and December 31, 1995. The Association took
advantage of this opportunity and reclassified $28.8 million of investments to
"Available for Sale."
The Company had not invested in MBS for several years, but as a result of the
conversion proceeds and the Company's goal to improve interest rate risk, $28.9
million in adjustable rate mortgage backed securities were purchased during the
quarter ended December 31, 1995, and an additional $12.9 million were purchased
during the quarter ended March 31, 1996. Also during these periods, $2.8
million of principal was repaid on MBS which resulted in a balance of $38.8
million at March 31, 1996.
Savings deposits increased $5.8 million, or 1.51%, from $384.4 million at
September 30, 1995 to $390.2 million at March 31, 1996. This increase can be
attributed to the introduction of two new checking account products, a basic
checking account and a small business checking account, aggressive pricing on
certificate accounts with greater than 12 month maturities, and accepting
deposits on a national basis, outside of the normal market area, which includes
deposits from banks, thrifts and credit unions.
Advances from borrowers for taxes and insurance decreased $4.8 million from
September 30, 1995 to March 31, 1996, after paying $8.2 million in reserves for
the required real estate taxes due on the Association's loan receivable
portfolio and $1.4 million in refunds for excess reserves collected during the
past 12 months and the accrual of payments received on loans during the past six
months.
Advances from the FHLB of Seattle increased $20.0 million, or 100%, from $20.0
million at September 30, 1995 to $40.0 million at March 31, 1996. The increase
was used to fund the $29.7 million increase in net loans receivable and purchase
additional investments.
Total stockholders' equity increased $3.0 million, or 1.82%, from $164.7 million
at September 30, 1995 to $167.7 million at March 31, 1996. This increase was
primarily the result of $4.6 million in earnings during the six month period
between September 30, 1995 and March 31, 1996, and a decrease in the market
value of securities available for sale of $1.0 million, and a decrease due to
dividends of $1.3 million.
RESULTS OF OPERATION
Comparison of Six Months Ended March 31, 1996 and 1995
General. Net income increased $1.8 million, or 64.29%, from $2.8 million for
the six months ended March 31, 1995 to $4.6 million for the six months ended
March 31, 1996. This increase was primarily attributable to an increase of
$155.3 million in total average earning assets from average interest-earning
assets of $444.4 million at March 31, 1995 to $599.7 million on March 31, 1996,
which was primarily the result of the additional capital raised by the stock
conversion as well as normal growth. Accordingly, although the interest rate
spread decreased 83 basis points from 2.89% for the six month period ended March
31, 1995 to 2.06% for the six month period ended March 31, 1996, net interest
margin increased 19 basis points from 3.43% for the six month period ended March
31, 1995 to 3.62% for the six month period ended March 31, 1996.
Interest Income. As mentioned above, the additional interest income generated
by the additional $155.3 million in average interest-earning assets, contributed
to an increase of $4.9 million in interest income for the six months ended March
31, 1996 compared to the same period in 1995, despite the average yield on
interest-earning assets decreasing 35 basis points from 7.71% for the six months
ended March 31, 1995 compared to 7.36% for the same period ended March 31, 1996.
Of this increase, $2.1 million was attributable to additional loan interest
income due to an increase in loans receivable. The increase in loans receivable
was primarily a result of new purchase loan originations, as opposed to loan
refinancing, which resulted in greater net loan growth for the six months ended
March 31, 1996.
The remaining increase of $2.8 million was a result of investing the proceeds of
the stock sale in MBS and other investments. The average balance of investment
securities and MBS increased by $106.7 million for the six months ended March
31, 1996 compared with the comparable period in 1995.
Interest Expense. Interest expense on savings deposits increased $999,057 for
the six months ended March 31, 1996 as compared to the comparable period in
1995. Total deposits increased by $14.4 million comparing March 31, 1995 to
March 31, 1996, and the average interest paid on interest-bearing deposits
increased 49 basis points from 4.78% for the six months ended March 31, 1995 to
5.27% for the same period ended March 31, 1996. This increase in the rate paid
is a result of the increased competition in the Company's market area to attract
and retain a strong deposit base.
Provision for Loan Losses. The provision for loan losses was $60,000 and there
were not any charge offs during the six months ended March 31, 1996 compared to
a $60,000 provision and $57,000 in charge offs during the six months ended March
31, 1995. At March 31, 1996, the allowance for loan losses was 134.99% of non-
performing assets compared to 106.60% at September 30, 1995. The increase in
this ratio at March 31, 1996 was the result of foreclosure proceedings being
dropped against a borrower, after the $304,992 loan was brought current out of
the total non-performing assets of $758,000 at September 30, 1995.
Non-Interest Income. Non-interest income increased $7,771, or 4.58%, to
$177,272 for the six months ended March 31, 1996 from $169,501 for the six
months ended March 31, 1995. The increase was primarily attributable to
increased income from loan fees and service charges of $40,597 and increases in
other income of $19,714, despite the lack of gain on the sale of real estate
owned, compared to the $52,540 earned for the six months ended March 31, 1995.
Non-Interest Expense. Non-interest expense increased $646,919, or 20.73%, for
the six months ended March 31, 1996, from $3.1 million for the comparable period
in 1995 to $3.8 million. Of this increase, $493,205 was attributable to an
increase in compensation and benefit expense in 1996, primarily reflecting the
accrual for ESOP contributions to be distributed at year end. The balance of
the increase was a result of a general increase in occupancy expense, data
processing expense and insurance premiums. However, the ratio of non-interest
expense to average total assets decreased from 1.39% for the six months ended
March 31, 1995 to 1.22% for the same period ended March 31, 1996.
Income Taxes. The provision for income taxes increased $770,007 for the six
months ended March 31, 1996 compared with the comparable period in the prior
year, primarily as a result of higher pretax earnings.
Comparison of Three Months Ended March 31, 1996 and 1995
General. Net earnings increased $1.1 million, or 84.62%, from $1.3 million for
the three months ended March 31, 1995 to $2.4 million for the three months ended
March 31, 1996. This increase was primarily attributable to an increase of
$150.8 million in total average interest-earning assets from $446.0 million for
the quarter ended March 31, 1995 to $596.8 million for the quarter ended March
31, 1996, which was primarily the result of the additional capital raised by the
stock conversion as well as normal growth. The interest rate spread decreased
60 basis points from 2.82% for the three month period ended March 31, 1995 to
2.22% for the three month period ended March 31, 1996, however, net interest
margin increased 32 basis points from 3.37% for the three month period ended
March 31, 1995 to 3.69% for the three month period ended March 31, 1996.
Interest Income. As mentioned above, the additional interest income generated
by the additional $150.8 million in average interest-earning assets, contributed
to an increase of $2.5 million in interest income for the three months ended
March 31, 1996 compared to 1995, despite the average yield on interest-earning
assets decreasing 26 basis points from 7.72% for the three months ended March
31, 1995 compared to 7.46% for the same period ended March 31, 1996. Of this
increase, $1.2 million is attributable to additional loan income due to an
increase in loans receivable. The increase in loans receivable was primarily a
result of new purchase loan originations as opposed to loan refinancing which
resulted in greater net loan growth for the three months ended March 31, 1996.
The remaining increase of $1.3 million was a result of investing the proceeds of
the stock sale in MBS and other investments. The average balance of investment
securities and MBS increased by $100.0 million for the quarter ended March 31,
1996 compared with the comparable period in 1995.
Interest Expense. Interest expense on savings deposits increased $456,178 for
the three months ended March 31, 1996 as compared to the comparable period in
1995. Total deposits increased by $14.4 million comparing March 31, 1995 to
March 31,1996, and the average interest paid on interest-bearing deposits
increased 36 basis points from 4.85% for the three months ended March 31, 1995
to 5.21% for the three months ended March 31, 1996. This increase in average
interest paid is a result of the increased competition in the Company's market
area to attract and retain a strong deposit base.
Provision for Loan Losses. The provision for loan losses was $30,000 and there
were not any charge offs during the three months ended March 31, 1996 compared
to a $60,000 provision and $57,000 in charge offs during the three months ended
March 31, 1995.
Non-Interest Income. Non-interest income increased $5,524, or 5.99% to $97,802
for the three months ended March 31, 1996 from $92,278 for the three months
ended March 31, 1995. The increase was primarily attributable to increased
income from loan fees and service charges of $18,826 and increase in other
income of $13,837, despite the lack of gain on the sale of real estate owned,
compared to the $27,139 earned for the three months ended March 31, 1995.
Non-Interest Expense. Non-interest expense increased $372,835, or 23.97%, for
the three months ended March 31, 1996, from $1.6 million for the comparable
period in 1995 to $1.9 million. Of this increase, $270,610 was attributable to
an increase in compensation and benefit expense in 1996, primarily reflecting
the accrual for ESOP contributions to be distributed at year end. The balance
of the increase was a result of a general increase in occupancy expense and
insurance premiums. The ratio of non-interest expense to average total assets
decreased from 1.38% for the three months ended March 31, 1995 to 1.28% for the
same period ended March 31, 1996.
Income Taxes. The provision for income taxes increased $348,538 for the three
months ended March 31, 1996 compared with the comparable period in the prior
year, primarily as a result of higher pretax earnings.
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) No Current Reports on Form 8-K were filed during the quarter
ended March 31, 1996.
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: May 13, 1996 By: /s/ Gerald V. Brown
------------------------------------
Gerald V. Brown, President and
Chief Executive Officer
Date: May 13, 1996 By: /s/ Marshall Jay Alexander
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Marshall Jay Alexander, Vice President
and Chief Financial Officer