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 September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-26556
OREGON TRAIL FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Oregon 91-1829481
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State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
2055 First Street, Baker City, Oregon 97814
------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (541) 523-6327
---------------------
Securities registered pursuant to Section 12(b) of the Act: None
---------------------
Securities registered pursuant Common Stock. Par value $.01 per share
to Section 12(g) of the Act: --------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days. YES [ X ] NO [ ]
As of October 31, 2000, there were issued and outstanding 3,344,647
shares of the Registrant's Common Stock. The Registrant's voting common stock
is traded over-the-counter and is listed on the Nasdaq National Market under
the symbol "OTFC".
<PAGE>
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
TABLE OF CONTENTS
Part I. Financial Information
Item I. Financial Statements (Unaudited) Page
Consolidated Balance Sheets 2
as of September 30, 2000 and March 31, 2000
Consolidated Statements of Income; For the Three 3
and Six Months Ended September 30, 2000 and 1999
Consolidated Statements of Shareholders' Equity
(For the Six Months Ended September 30, 2000 and for
the Year Ended March 31, 2000) 4
Consolidated Statements of Cash Flows (For the
Six Months Ended September 30, 2000 and 1999) 5 - 6
Notes to Consolidated Financial Statements 7 - 11
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 15
Item III. Quantitative and Qualitative Disclosures about Market Risk 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 and MARCH 31, 2000
(UNAUDITED)
($ in thousands)
September 30 March 31
ASSETS 2000 2000
----------- -----------
Cash (including interest earning accounts of
$9,257 and $7,588) $ 11,282 $ 9,261
Securities:
Available for sale, at fair value (amortized cost:
$116,734 and $127,373) 113,353 122,051
Loans receivable, net of allowance for loan
losses of $1,958 and $1,396 244,870 220,591
Accrued interest receivable 2,791 2,452
Premises and equipment, net 10,505 9,902
Stock in Federal Home Loan Bank of Seattle, at cost 4,504 3,897
Real estate owned and other repossessed assets - 8
Net deferred tax asset 1,107 1,822
Other assets 637 628
----------- -----------
TOTAL ASSETS $ 389,049 $ 370,612
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Interest-bearing $ 108,330 $ 106,285
Noninterest-bearing 17,746 14,961
Time certificates 128,774 116,489
----------- -----------
Total deposits 254,850 237,735
Advances from Federal Home Loan Bank of Seattle 74,850 76,750
Accrued expenses and other liabilities 2,656 2,333
Advances from borrowers for taxes and insurance 1,724 690
----------- -----------
Total liabilities 334,080 317,508
SHAREHOLDERS' EQUITY:
Preferred Stock - $.01 par value; 1,000,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.01 par value; 8,000,000 shares
authorized; September 30, 2000, 4,694,875
issued, 3,338,832 outstanding; March 31, 2000,
4,694,875 issued, 3,317,006 outstanding; 35 36
Additional paid-in capital 31,754 31,743
Retained earnings (substantially restricted) 27,948 27,759
Unearned shares issued to the Employee Stock
Ownership Plan (2,146) (2,415)
Unearned shares issued to the Management Recognition
and Development Plan (596) (740)
Accumulated other comprehensive loss (2,026) (3,279)
----------- -----------
Total shareholders' equity 54,969 53,104
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 389,049 $ 370,612
=========== ===========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
(2)
<PAGE>
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
($ in thousands except per share data)
3 MOS ENDED 3 MOS ENDED 6 MOS ENDED 6 MOS ENDED
30-Sep-00 30-Sep-99 30-Sep-00 30-Sep-99
INTEREST INCOME:
Interest and fees on
loans receivable $5,114 $4,131 $9,791 $8,001
Securities:
Mortgage-backed and
related securities 1,447 1,218 2,935 2,325
U.S. government and
government agencies 611 617 1,215 1,202
Other interest and dividends 73 60 139 119
--------- ---------- ---------- ----------
Total interest income 7,245 6,026 14,080 11,647
INTEREST EXPENSE:
Deposits 2,669 2,052 5,079 3,934
Federal Home Loan Bank of
Seattle advances 1,363 758 2,586 1,399
--------- ---------- ---------- ----------
Total interest expense 4,032 2,810 7,665 5,333
Net interest income 3,213 3,216 6,415 6,314
Provision for loan losses 502 59 606 130
--------- ---------- ---------- ----------
Net interest income after
provision for loan losses 2,711 3,157 5,809 6,184
NONINTEREST INCOME:
Service charges on deposit
accounts 498 285 842 527
Loan servicing fees 95 82 198 170
Other Income (expense) (18) 156 (24) 168
--------- ---------- ---------- ----------
Total noninterest income 575 523 1,016 865
NONINTEREST EXPENSE:
Employee compensation and
benefits 1,602 1,485 3,139 2,889
Supplies, postage, and
telephone 239 219 455 409
Depreciation 168 155 333 310
Occupancy and equipment 228 154 432 285
FDIC insurance premium 12 29 24 59
Customer account 145 106 252 179
Advertising 70 105 135 247
Professional fees 85 52 187 94
Loss on sale of investment
securities 393 - 393 -
Other 173 172 375 348
--------- ---------- ---------- ----------
Total noninterest expense 3,115 2,477 5,725 4,820
Income before income taxes 171 1,203 1,100 2,229
Provision for income taxes 55 431 371 819
--------- ---------- ---------- ----------
NET INCOME $116 $772 $729 $1,410
========= ========== ========== ==========
Basic Earnings per share $0.03 $0.22 $0.22 $0.39
========= ========== ========== ==========
Weighted Average Number of
Shares Outstanding 3,336,110 3,579,454 3,329,981 3,648,040
Diluted Earnings per share $0.03 $0.20 $0.22 $0.37
========= ========== ========== ==========
Weighted Average Number of
Dilutive Shares 3,336,934 3,775,753 3,332,809 3,844,339
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
(3)
<PAGE>
<TABLE>
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND THE YEAR ENDED MARCH 31, 2000
(UNAUDITED)
($ in thousands)
Unearned
Shares
Unearned Issued to
Shares Management Accumu-
Issued to Recogni- lated
Employee tion Other
Stock and Compre- Compre-
Additional Owner- Develop- hensive hensive
Common Stock Paid-In Retained ship ment Income Income
Shares Amount Capital Earnings Trust Plan (Loss) (Loss) Total
------ ------ ------- -------- ----- ---- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1,
1999 3,763,564 $42 $38,357 $26,206 ($2,951) ($1,453) ($118) $60,083
Net income 2,609 $2,609 2,609
Cash dividends
paid (1,056) (1,056)
Stock repurchased (534,228) (6) (6,350) (6,356)
Earned ESOP shares 53,656 76 536 612
New MRDP shares
granted 71 (71) 0
Earned MRDP shares 34,014 373 373
Forfeiture of
MRDP shares (411) 411 0
Unrealized loss
on securities
available for
sale, net of tax (3,161) (3,161) (3,161)
------
Comprehensive income ($552)
--------- --- ------- ------- ------- ------- ====== ------- -------
Balance, March 31,
2000 3,317,006 36 31,743 27,759 (2,415) (740) (3,279) 53,104
Net income 729 729 729
Cash dividends
paid (540) (540)
Stock repurchased (5,000) (1)
Earned ESOP shares 26,826 11 269 280
Earned MRDP shares 144 144
Unrealized gain
on securities
available for
sale, net of tax 1,253 1,253 1,253
------
Comprehensive income $1,982
--------- --- ------- ------- ------- ------- ====== ------- -------
Balance, September
30, 2000 3,338,832 $35 $31,754 $27,948 ($2,146) ($596) ($2,026) $54,970
========= === ======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of these unaudited consolidated financial statements.
(4)
</TABLE>
<PAGE>
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
($ in thousands)
30-Sep-00 30-Sep-99
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $729 $1,410
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 333 310
Compensation expense related to ESOP 279 334
Compensation expense related to MRDP 144 190
Amortization of deferred loan fees, net (34) (119)
Provision for loan losses 606 130
Amortization(accretion) of premiums/discounts 144 104
on investments and loans purchased
Federal Home Loan Bank of Seattle dividends (139) (119)
(Gain) loss on sale of real estate owned - (16)
(Gain) loss on sale of premises and equipment - 6
Changes in assets and liabilities:
Accrued interest receivable (339) (612)
Other assets (89) (430)
Accrued expenses and other liabilities 323 2,444
--------- ---------
Net cash provided by operating activities 1,957 3,632
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations (55,333) (75,109)
Loan principal repayments 44,645 55,344
Loans purchased (14,190) (5,739)
Purchase of stock in Federal Home Loan Bank
of Seattle (469) -
Purchase of securities available for sale - (27,036)
Proceeds from sale of securities available
for sale 5,915 -
Proceeds from maturity of securities available
for sale - 5,004
Principal repayments of securities available
for sale 4,779 6,294
Proceeds from sales of real estate owned - 53
Proceeds from sales of premises and equipment - 209
Purchases of premises and equipment (935) (1,565)
--------- ---------
Net cash used in investing activities (15,588) (42,545)
--------- ---------
(5)
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits, net of withdrawals $17,114 $28,822
Change in advances from borrowers for taxes
and insurance 1,034 1,050
Change in borrowings from Federal Home Loan
Bank of Seattle (1,900) 12,300
Payment of cash dividend (540) (508)
Stock repurchase (56) (2,742)
--------- ---------
Net cash provided by financing activities 15,652 38,922
--------- ---------
Net increase in cash 2,021 10
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,261 6,276
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $11,282 $6,286
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and other borrowings $2,715 $1,760
Income taxes 435 810
Noncash investing activities:
Transfer of loans to foreclosed real estate 0 84
Unrealized gain(loss) on securities available for
sale, net of tax 1,253 (2,135)
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
(6)
<PAGE>
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary for a fair presentation
of Oregon Trail Financial Corp. and Subsidiary's (the "Company") financial
condition as of September 30, 2000 and March 31, 2000, the results of
operations for the three and six months ended September 30, 2000 and 1999 and
of cash flows for the six months ended September 30, 2000 and 1999. All
adjustments are of a normal recurring nature. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report to Shareholders filed as an exhibit to the Company's Form 10-K
for the year ended March 31, 2000. The results of operations for the three
and six months ended September 30, 2000 are not necessarily indicative of the
results which may be expected for the entire fiscal year.
2. REORGANIZATION
On October 3, 1997, Pioneer Bank, A Federal Savings Bank, (the "Bank")
completed a mutual-to-stock conversion and formation of the Company as its
holding company. In connection with the conversion, the Company sold
4,694,875 shares of its common stock ("Common Stock") at $10 per share, 8% or
375,590 of which shares were purchased by an Employee Stock Ownership Plan
(the "ESOP"). Proceeds from the sale were recorded as $46,949 of Common Stock
at $.01 par value and $45,681,982 of Paid in Capital. The Common Stock and
Paid in Capital at September 30, 2000 are partially offset by the unissued
ESOP shares and unissued Management Recognition and Development Plan ("MRDP")
shares.
The Company purchased all of the stock of the Bank for one-half of the net
investable proceeds of the offering. The retained earnings of the Company
represent all prior earnings of the Bank as a mutual savings bank and all
earnings since the conversion.
The primary business of the Company is overseeing the operations of the Bank.
Accordingly, the information presented herein relates primarily to the Bank.
3. COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" requires all items that are required to be recognized
under accounting standards as components of comprehensive income to be
reported in a financial statement that is displayed in equal prominence with
the other financial statements and to disclose as a part of shareholders'
equity accumulated comprehensive income. Comprehensive income is defined as
the change in equity during a period from transactions and other events from
nonowner sources. Comprehensive income is the total of net income and other
comprehensive income, which for the Company is comprised entirely of
unrealized gains and losses on securities available for sale, net of tax.
(7)
<PAGE>
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows for
the year ended March 31, 2000 and for six months ended September 30, 2000:
September 30, 2000 March 31, 2000
(in thousands) (in thousands)
-------------- --------------
Balance, beginning of period $ 1,396 $ 1,228
Charge-offs (52) (42)
Recoveries 8 32
Provision for loan losses 606 178
-------------- --------------
Balance, end of period $ 1,958 $ 1,396
============== ==============
5. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at September 30, 2000 consisted of 19 term advances varying in
length from two days to 359 months totaling $74.9 million from the Federal
Home Loan Bank ("FHLB")of Seattle. The advances are collateralized in
aggregate as provided for in the Advances Security and Deposit Agreement with
the FHLB by certain mortgages or deeds of trust, government agency securities
and cash on deposit with the FHLB. Scheduled maturities of advances from the
FHLB were as follows at September 30, 2000:
Due in less than one year:
--------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
---------------------------------------------------------
$25,350,000 4.75% - 6.84% 6.43%
Due within one to five years:
-----------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
-----------------------------------------------------------
$34,500,000 4.93% - 7.22% 6.24%
Due in greater than five years:
-------------------------------
Amount Range of Interest Weighted Average
Rates Interest Rate
-----------------------------------------------------------
$15,000,000 7.03% - 7.12% 7.08%
(8)
<PAGE>
6. SHAREHOLDERS' EQUITY
In February 2000, the Company received a non-objection response from the
Office of Thrift Supervision ("OTS") in connection with a request to
repurchase 5% of its outstanding shares of Common Stock, or 179,005 shares.
As of March 31, 2000, 123,777 shares had been repurchased under the program at
a weighted average price per share of $11.18. During the quarter ended
September 30, 2000, an additional 5,000 shares were repurchased at $11.25 per
share. Shares repurchased in this program have been retired.
7. EARNINGS PER SHARE
Shares held by the Company's ESOP that are committed for release are
considered common stock equivalents and are included in weighted average
shares outstanding (denominator) for the calculation of basic and diluted
Earnings Per Share ("EPS"). Diluted EPS is computed using the treasury stock
method, giving effect to potential additional common shares that were
outstanding during the period. Potential dilutive common shares include
shares awarded but not released under the Company's MRDP and stock options
granted under the Stock Option Plan. Following is a summary of the effect of
dilutive securities in weighted average number of shares (denominator) for the
basic and diluted EPS calculations. There are no resulting adjustments to net
earnings.
For the Three Months Ended For the Six Months Ended
September 30, September 30,
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2000 1999 2000 1999
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Weighted average common
shares outstanding -
basic 3,336,110 3,579,454 3,329,981 3,648,040
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Effect of Dilutive
Securities on
Number of Shares:
MRDP shares 824 147,322 2,828 147,322
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Stock Options -0- 48,977 -0- 48,977
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Total Dilutive Securities 824 196,299 2,828 196,299
------------------------------------------------------------------------------
Weighted average common
shares outstanding -
with dilution 3,336,934 3,775,753 3,332,809 3,844,339
------------------------------------------------------------------------------
For each of the three and six months ended September 30, 2000 options to
purchase 280,996 shares of Common Stock were excluded from dilutive shares as
they had an antidilutive effect on the calculation.
8. REGULATORY CAPITAL
The Company's primary sources of funding include deposits, proceeds from
loan principal and interest payments, interest income on investment
securities, and FHLB advances. The Bank has a borrowing capacity at FHLB
equal to 30 percent of total assets, which on September 30, 2000 permitted
additional advances of $41.9 million. The Bank also has an unsecured line of
credit with Key Bank of $16.0 million, and a $50.0 million reverse repurchase
line of credit with Merrill Lynch which have remained unused. While
maturities and scheduled amortization of loans are predictable sources of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions, and competition.
(9)
<PAGE>
Regulations require the Bank to maintain a minimum liquidity equal to 4
percent of deposits and short-term borrowings. Liquidity is measured by cash
and readily marketable securities which are not committed, pledged, or
required as collateral for specific liabilities. The Bank had an average
liquidity ratio of 11.62 percent and 9.22 percent for the quarters ended
September 30, 1999 and 2000, respectively.
The Company is not subject to separate regulatory capital requirements. The
following table illustrates the Bank's compliance with currently applicable
regulatory capital requirements at September 30, 2000 and March 31, 2000.
As of September 30, 2000:
Categorized as
"Well Capitalized"
Actual For Capital Under Prompt
(In Thousands) Adequacy Corrective
Purposes Action Provision
(In Thousands) (In Thousands)
------------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
As of Sept. 30,
2000:
Total Capital:
(To Risk Weighted
Assets) $ 54,480 25.9% $ 16,853 8.0% $ 21,067 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 52,522 24.9 N/A N/A 12,640 6.0
Tier I Capital:
(To Tangible
Assets) 52,522 13.5 15,606 4.0 19,507 5.0
Tangible Capital:
(To Tangible
Assets) 52,522 13.5 5,852 1.5 N/A N/A
As of March 31,
2000
Categorized as
"Well Capitalized"
Actual For Capital Under Prompt
(In Thousands) Adequacy Corrective
Purposes Action Provision
(In Thousands) (In Thousands)
------------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
As of March 31,
2000:
Total Capital:
(To Risk Weighted
Assets) $ 53,812 28.5% $ 15,114 8.0% $ 18,892 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 52,416 27.7 N/A N/A 11,335 6.0
Tier I Capital:
(To Tangible
Assets) 52,416 14.0 14,934 4.0 18,667 5.0
Tangible Capital:
(To Tangible
Assets) 52,416 14.0 5,600 1.5 N/A N/A
(10)
<PAGE>
9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board issued SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This pronouncement replaces SFAS No. 125,
issued in June 1996. SFAS No. 140 is effective for transfers occurring after
March 31, 2001 and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. The Company does
not expect the adoption of SFAS No. 140 to have a material impact on its
financial statements.
ITEM II.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Safe Harbor Clause. This report contains certain "forward-looking
statements". The Company desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing itself of the
protection of such safe harbor with respect to all such forward-looking
statements. These forward-looking statements, which are included in
Management's Discussion and Analysis, describe future plans or strategies and
include the Company's expectations of future financial results. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements. The Company's ability to
predict results or the effect of future plans or strategies is inherently
uncertain. Factors which could affect actual results include interest rate
trends, the general economic climate in the Company's market area and the
country as a whole, loan delinquency rates, and changes in federal and state
regulation. These factors should be considered in evaluating the
forward-looking statements, and undue reliance should not be placed on such
statements.
General
The Company, an Oregon corporation, was organized on June 9, 1997 for the
purpose of becoming the holding company for the Bank upon the Bank's
conversion from a federal mutual to a federal stock savings bank
("Conversion"). The Conversion was completed on October 3, 1997. At
September 30, 2000, the Company had total assets of $389.0 million, total
deposits of $254.9 million and shareholders' equity of $55.0 million. The
Company is currently not engaged in any business activity other than holding
the stock of the Bank. Accordingly, the information set forth in this report,
including financial statements and related data, relates primarily to the
Bank. All references to the Company herein include the Bank where applicable.
The Bank was organized in 1901. It is regulated by the OTS and its deposits
are insured up to applicable limits under the Savings Association Insurance
Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Bank is a member of the FHLB of Seattle, conducting its business through
nine office facilities, with the headquarters located in Baker City, Oregon.
The primary market areas of the Bank are the counties of Wallowa, Union,
Baker, Malheur, Harney, Grant and Umatilla in Eastern Oregon. On May 30, 2000
the Company purchased Western Bank's Pendleton branch located in Umatilla
County to increase the Bank's potential customer base.
(11)
<PAGE>
The Bank is a community oriented financial institution whose principal
business is attracting retail deposits from the general public and using these
funds to originate one-to-four family residential mortgage loans and consumer
loans within its primary market area. The Bank also actively originates home
equity and second mortgage loans. At September 30, 2000, one-to-four family
residential mortgage loans totaled $132.9 million, or 53.8% of total loans
receivable. Beginning in 1996, the Bank began supplementing its traditional
lending activities with commercial business loans, agricultural loans and the
purchase of dealer-originated automobile contracts. As a result of these
activities at September 30, 2000 the Company had agricultural loans of $16.8
million, commercial business loans of $21.0 million, commercial real estate
loans of $17.4 million, agricultural real estate loans of $3.0 million, and
automobile loans of $27.1 million (including $22.0 million of purchased
dealer-originated contracts).
Net interest income, which is the difference between interest and dividend
income on interest-earning assets, primarily loans and investment securities,
and interest expense on interest-bearing deposits and borrowings, is the major
source of income for the Company. Because the Company depends primarily on
net interest income for its earnings, the focus of management is to create and
implement strategies that will provide stable, positive spreads between the
yield on interest-earning assets and the cost of interest-bearing liabilities.
Such strategies include increasing the origination of commercial and
agricultural loans with rates that are adjustable based upon The Wall Street
Journal prime rate or the current five-year Treasury Note yield. Commercial
(including both commercial real estate and commercial business) and
agricultural loans outstanding totaled $30.9 million and $15.7 million,
respectively, at March 31, 2000 and increased to $38.4 million and $19.8
million respectively at September 30, 2000. The Company has also increased
the origination of shorter-term consumer loans, increasing automobile loans
from $21.6 million at March 31, 2000 to $27.1 million at September 30, 2000.
To a lesser degree, the net earnings of the Company rely on the level of its
non-interest income. The Company is focusing on improvements in its fee
structure for income generation, and to control its non-interest expense,
which includes employee compensation and benefits, and occupancy and equipment
expense.
Changes in Financial Condition
At September 30, 2000, the consolidated assets of the Company totaled $389.0
million, an increase of $18.4 million, or 5.0%, from $370.6 million at March
31, 2000. The primary reason for the increase was a $24.3 million increase in
net loans receivable offset by $6.0 a million decrease in securities. The
increase in assets was funded by a $17.1 million increase in deposits and a
$1.9 million decrease in FHLB borrowings.
Net loans receivable increased by $24.3 million, or 11.0%, to $244.9 million
at September 30, 2000 compared to $220.6 million at March 31, 2000. The
increase was primarily the result of continued new loan demand for all types
of loans exceeding loan repayments, as well as the purchase of $2.9 million in
loans through the Pendleton branch acquisition in May 2000.
Non-performing assets, consisting of non-accruing loans, real estate owned and
other repossessed assets, decreased $120,000 from $163,000 at March 31, 2000
to $43,000 at September 30, 2000. Non-performing assets were .01% of total
assets at September 30, 2000 and .04% of total assets at March 31, 2000. The
allowance for loan losses was 4553% of non-performing loans at September 30,
2000, compared to 901% at March 31, 2000.
(12)
<PAGE>
Deposits increased $17.1 million or 7.2%, from $237.7 million at March 31,
2000 to $254.9 million at September 30, 2000. This includes the purchase of
$3.4 million in deposits through the Pendleton branch acquisition in May 2000.
Advances from borrowers for taxes and insurance increased $1.0 million from
$690,000 at March 31, 2000 to $1.7 million at September 30, 2000. Taxes are
paid annually in November and accordingly, such deposits increase ratably from
December to November when the taxes are paid. The Company had $74.9 million
in advances from the FHLB at September 30, 2000 compared to $76.8 million at
March 31, 2000.
Results of Operations
Comparison of Six Months Ended September 30, 2000 and 1999
General. The decrease in net income of $681,000 was primarily due to an
increase in the provision for loan losses as well as a loss on the sale of
investment securities. Non-interest income increased $151,000, or 17.4%,
comparing the six-month period ended September 30, 2000 to the same period in
the prior year. Net interest income increased $101,000, or 1.6% while
interest income increased $2.4 million, or 20.9%, and interest expense
increased $2.3 million, or 43.7%. The provision for loan losses increased
$476,000, or 366.2%. Non-interest expense increased $905,000, or 18.8%, and
the provision for income taxes decreased $448,000, or 54.7%. This resulted in
net income decreasing by $681,000, or 48.3%, to $729,000 for the six months
ended September 30, 2000 compared to $1.4 million for the same period in 1999.
Interest Income. The increase of $2.4 million in interest income was
generated by an additional $49.6 million in average interest earning assets
for the six months ended September 30, 2000 compared to the same period in
1999. The increase in average interest-earning assets was primarily due to
increases in the average loan portfolio of $38.1 million and the average
investment portfolio of $11.3 million.
The average yield on interest earning assets increased from 7.34% for the six
months ending September 30, 1999 to 7.65% for the same period in the current
year. The increase in the average yield was primarily due to the $38.1
million increase in the average balance of the loan portfolio. The Company
has focused on growing commercial, agricultural and dealer-originated loans
which yield a higher rate.
Interest Expense. Interest expense on savings deposits increased $1.1 million
for the six months ended September 30, 2000 compared to the same period of
1999. Average deposits increased by $27.2 million for the same period. The
average interest paid on deposits increased 36 basis points from 3.68% for the
six months ended September 30, 1999 to 4.04% for the same period in 2000. The
increase in cost of deposits is primarily due to an increased balance of
higher costing certificates of deposits in the deposit mix. The cost of all
funds, including FHLB borrowings, increased from 3.97% for the six months
ended September 30, 1999 to 4.74% for the same period in 2000. The increase
was due to a $26.5 million increase in the average balance of FHLB borrowings.
The average cost of FHLB borrowings for the six-month period ending September
30, 2000 was 6.24%. The increased borrowings were used to fund increases in
average interest earning assets.
(13)
<PAGE>
Provisions for Loan Losses. The provision for loan losses was $606,000 and
net charge-offs amounted to $44,000 during the six months ended September 30,
2000 compared to a provision for loan losses of $130,000 and net recoveries of
$12,000 for the six-month period ended September 30, 1999. The allowance for
loan losses totaled $2.0 million or .80% of total loans at September 30, 2000
compared to $1.4 million or .63% of total loans at March 31, 2000. The
provision was increased primarily in response to portfolio growth, especially
in commercial, agricultural and consumer loans.
Non-Interest Income. Non-interest income increased $151,000, or 17.4%, for
the six months ended September 30, 2000 to $1.0 million compared to $865,000
for the same period in the prior year. The increase in income from deposit
accounts of $315,000, or 60.0%, was due to strong growth in core deposits as
well as an improved fee schedule. A $173,000 gain on the sale of investment
real estate was realized in the six months ended September 30, 1999.
Non-Interest Expense. Non-interest expense increased $905,000, or 18.8%, to
$5.7 million for the six months ended September 30, 2000, from $4.8 million
for the comparable period in 1999. This increase includes a $393,000 loss on
sale of investment securities as well as costs associated with the expanding
infrastructure to support positioning the Company in new market areas and
widening its customer base.
Income Taxes. The provision for income taxes decreased $448,000 for the six
months ended September 30, 2000 compared with the same period in the prior
year. The decrease was attributable to a lower level of net income before
taxes, as well as an investment in loans to school districts where the Bank
receives tax credit rather than interest income.
Comparison of Three Months Ended September 30, 2000 and 1999
General. The decrease in net income of $656,000 for the three months ended
September 30, 2000 compared to the same period in 1999 was primarily due to an
increase in the provision for loan losses and an increase in non-interest
expense. Both interest income and interest expense each increased $1.2
million. Non-interest income increased $52,000 while the provision for loan
losses increased $443,000. Non-interest expense increased $638,000, and the
provision for income taxes decreased $376,000.
Interest Income. The increase of $1.2 million in interest income was
generated by an additional $48.2 million in average interest earning assets
for the three months ended September 30, 2000 compared to the same period in
1999. The increase in average interest earning assets was primarily due to
increases in the average loan portfolio of $39.3 million and the average
investment portfolio of $9.0 million.
The average yield on interest-earning assets increased from 7.35% for the
three months ending September 30, 1999 to 7.68% for the same period in the
current year. The increase in the average yield was primarily due to the
$39.3 million increase in the average balance of the loan portfolio. The
Company has focused on increasing its portfolio of commercial, agricultural
and dealer-originated loans which yield a higher interest rate.
(14)
<PAGE>
Interest Expense. Interest expense on savings deposits increased by $617,000
for the three months ended September 30, 2000 compared to the same period of
1999. Average deposits increased by $28.8 million for the same period. The
average interest paid on deposits increased 65 basis points from 3.68% for the
three months ended September 30, 1999 to 4.33% for the same period in 2000.
The cost of deposits increased primarily due to an increased balance of higher
costing certificates of deposits in the deposit mix. The cost of all funds,
including FHLB borrowings, increased by 80 basis points from 4.00% for the
quarter ended September 30, 1999 to 4.80% for the same period in 2000. The
increase in cost of deposits was due to a $24.7 million increase in the
average balance of FHLB borrowings, which are typically at a higher cost than
deposits. The average cost of borrowings for the quarter ended September 30,
2000 was 6.54%.
Provision for Loan Losses. The provision for loan losses was $502,000 and net
charge-offs were $3,000 during the three months ended September 30, 2000
compared to a provision for loan losses of $59,000 and net charge-offs of
$13,000 for the three-month period ended September 30, 1999. At September 30,
2000, the allowance for loan losses was equal to 4553% of non-performing loans
compared to 901% at March 31, 2000. The allowance for loan losses totaled
$2.0 million or .80% of total loans at September 30, 2000 compared to $1.4
million or .63% of total loans at March 31, 2000. The provision was increased
primarily in response to portfolio growth, especially in commercial,
agricultural and consumer loans.
Non-Interest Income. Non-interest income increased $52,000, or 9.9%, to
$575,000 for the three months ended September 30, 2000 from $523,000 for the
same period in the prior year. The primary reason for the increase was a
$213,000 increase in service charges on deposit accounts due to an improved
fee schedule and strong deposit growth. A $173,000 gain on the sale of
investment real estate was realized in the quarter ended September 30, 1999.
Non-Interest Expense. Non-interest expense increased $638,000, or 25.8% to
$3.1 million for the three months ended September 30, 2000, from $2.5 million
for the comparable period in 1999. This increase includes a $393,000 loss on
sale of investment securities as well as costs associated with the expanding
infrastructure to support positioning the Company in new market areas and
widening its customer base.
Income Taxes. The provision for income taxes decreased $376,000 for the
three months ended September 30, 2000 compared with the same period in the
prior year. The decrease was attributable to a lower level of net income
before taxes as well as an investment in loans to school districts where the
Bank receives tax credit rather than interest income.
Liquidity and Capital Resources. For a discussion of the Company's liquidity
and capital resources see Note 8 of Notes to Consolidated Financial
Statements.
(15)
<PAGE>
Item No. III
Quantitative and Qualitative Disclosures about Market Risk
The mismatch between maturities and interest rate sensitivities of balance
sheet items results in interest rate risk. The extent of interest rate risk
to which the Bank is subject is monitored by management by modeling the change
in net portfolio value ("NPV") over a variety of interest rate scenarios. NPV
is the present value of expected cash flows from assets, liabilities and off-
balance sheet contracts. The calculation is intended to illustrate the change
in NPV that will occur in the event of an immediate change in interest rates
of at least 200 basis points with no effect given to any steps which
management might take to counter the effect of that interest rate movement.
At March 31, 2000 there was a $20.6 million, or 55.4% decrease in the Bank's
NPV as a percent of the present value of assets, assuming a 200 point increase
in interest rates. The Bank has taken steps to decrease its interest rate
risk by better matching maturities of its balance sheet items. At September
30, 2000 the decrease in the Bank's NPV was $18.1 million or 38.9%.
(16)
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is involved in various claims and legal actions arising
in the normal course of business. Management believes that these
proceedings will not result in a material loss to the Company.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's Annual Meeting of Stockholders ("Meeting") was held on
August 8, 2000. The results of the vote on the matters presented at
the Meeting were as follows:
1. The following individuals were elected as directors for three
year terms:
Vote For Vote Withheld
-------- -------------
Stephen R. Whittemore 2,899,177 223,920
Charles H. Rouse 2,899,402 223,695
2. The appointment of the Company's auditors, Deloitte & Touche
LLP, as independent auditors for the fiscal year ending March
31, 2001 was approved by stockholders by the following vote:
For 3,069,958; Against 46,956; Abstain 6,183; Broker Non-Votes 0
--------- ------ ----- -
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
3(a) Articles of Incorporation of the Registrant (1)
3(b) Bylaws of the Registrant (1)
10(a) Employment Agreement with Zane Lockwood (2)
10(b) Severance Agreement with William H. Winegar (3)
10(c) Severance Agreement with Thomas F. Bennett (5)
10(d) Severance Agreement with Jerry Kincaid (5)
10(e) Severance Agreement with Marvin L. Sumner (6)
10(f) Employee Severance Compensation Plan (3)
10(g) Pioneer Bank, a Federal Savings Bank Employee Stock
Ownership Plan (3)
10(h) Pioneer Bank, a Federal Savings Bank 401(k) Plan (1)
10(i) Pioneer Bank Director Emeritus Plan (1)
10(j) 1998 Stock Option Plan (4)
10(k) 1998 Management Recognition and Development Plan (4)
27 Financial Data Schedule
------------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (333-30051), as amended.
(2) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended June 30, 2000.
(3) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1997.
(4) Incorporated by reference to the Registrant's Definitive Proxy Statement
for the 1998 Annual Meeting of Shareholders.
(5) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1998.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the quarter ended
September 30, 2000.
(6) Incorporated by reference to the Registrant's Form 10-K for the year
ended March 31, 2000.
(17)
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OREGON TRAIL FINANCIAL CORP.
Date: November 14, 2000 By: /s/ Berniel L. Maughan
---------------------------------
Berniel L. Maughan, President and
Chief Executive Officer
Date: November 14, 2000 By: /s/ Jon McCreary
---------------------------------
Jon McCreary, Chief Financial
Officer
(18)
<PAGE>
