UNITED STATES SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0 -22772
WESTERFED FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in this charter)
DELAWARE 81-0487794
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer ID #)
incorporation or organization)
110 East Broadway, Missoula, Montana 59802
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 406-721-5254
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 subjected to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the Issuer's Classes of Common
Stock, as of the latest date is:
Class: Common Stock, Par Value $0.01 per share; Outstanding at November 5, 1999
4,429,675 shares (including restricted shares)
<PAGE>
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - September 30, 1999
(Unaudited) and June 30, 1999........................................- 3 -
Consolidated Statements of Income - Three Month
Period Ended September 30, 1999 and
September 30, 1998 (Unaudited).......................................- 4 -
Consolidated Statements of Comprehensive Income
for Three Month Period Ended September
30, 1999 and September 30, 1998 (Unaudited)..........................- 5 -
Consolidated Statement of Stockholders' Equity
for the Three Month Period Ended
September 30, 1999 (Unaudited).......................................- 6 -
Consolidated Statements of Cash Flows for
the Three Month Period Ended September 30,
1999 and September 30, 1998 (Unaudited) ............................- 7 -
Notes to Consolidated Financial Statements
1. Basis of Presentation...........................................- 8 -
2. Cash Equivalents................................................- 8 -
3. Computation of Net Income per Share.............................- 8 -
4. Dividends Declared..............................................- 8 -
5. A Comparison of the Amortized Cost and
Estimated Fair Value of Investment
Securities and Mortgage-backed Securities ..................- 9 -
A Comparison of the Amortized Cost and
Estimated Fair Value of Investment
Securities by Contractual Maturities.......................- 10 -
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
1. Forward Looking Statements.....................................- 11 -
2. Changes in Financial Condition.
Comparison of the Three Month Period
from June 30, 1998 to September 30, 1999...................- 11 -
3. Comparison of Operating Results for
the Three Month Periods Ended
September 30, 1999 and September 30, 1998..................- 14 -
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.......- 21 -
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS................................................- 25 -
ITEM 2 CHANGE IN SECURITIES.............................................- 25 -
ITEM 3 DEFAULTS UPON SENIOR SECURITIES..................................- 25 -
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS................- 25 -
ITEM 5 OTHER INFORMATION................................................- 25 -
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.................................- 25 -
SIGNATURES...............................................................- 26 -
- 2 -
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - September 30, 1999 (Unaudited) and June 30, 1999
<TABLE>
<S> <C> <C>
(Unaudited)
September 30, June 30,
(Dollars in thousands, except share and per share data) 1999 1999
------------ ------------
ASSETS
Cash and due from banks $ 18,967 $ 25,867
Interest-bearing due from banks 2,368 3,079
---------- ----------
Cash and cash equivalents 21,335 28,946
Interest-bearing deposits 1,985 1,985
Investment securities available-for-sale 106,876 103,441
Investment securities, at amortized cost (estimated market value of
$9,246 at September 30, 1999 and $9,255 at June 30, 1999) 9,239 9,235
Stock in Federal Home Loan Bank of Seattle, at cost 14,882 14,615
Mortgage-backed securities available-for-sale 83,976 68,029
Mortgage-backed securities, at amortized cost (estimated market
value of $80,923 at September 30, 1999 and $85,252 at June 30, 1999) 79,604 83,720
Loans available-for-sale 3,389 3,740
Loans receivable, net 626,434 627,631
Accrued interest receivable 7,935 7,635
Premises and equipment, net 27,868 28,269
Core deposit intangible 3,571 3,741
Goodwill 14,929 15,096
Cash surrender value of life insurance policies 7,837 6,916
Other assets 4,189 4,350
---------- ----------
Total assets $1,014,049 $1,007,349
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 642,994 $ 645,549
Repurchase agreements 7,607 6,702
Borrowed funds 249,884 244,483
Advances from borrowers for taxes and insurance 6,270 3,302
Income taxes 2,381 1,552
Accrued interest payable 6,113 6,156
Accrued expenses and other liabilities 8,377 8,456
---------- ----------
Total liabilities 923,626 916,200
---------- ----------
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none outstanding -- --
Common stock, $.01 par value, 10,000,000 shares authorized;
4,429,678 shares outstanding at September 30, 1999 and
4,538,557 outstanding at June 30, 1999 57 56
Additional paid-in capital 70,008 69,572
Common stock acquired by ESOP/RRP (2,153) (2,216)
Treasury stock, at cost (27,694) (25,319)
Net unrealized (loss) on securities available-for-sale (1,918) (1,717)
Retained earnings, substantially restricted 52,123 50,773
---------- ----------
Total stockholders' equity $ 90,423 $ 91,149
---------- ----------
Total liabilities and stockholders' equity $1,014,049 $1,007,349
========== ==========
Book value per share $ 20.41 $ 20.08
========== ==========
Tangible book value per share $ 16.24 $ 15.93
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
Consolidated Statements of Income Three Month Period Ended September 30, 1999
and September 30, 1998 (Unaudited).
(Dollars in thousands, except share and per share data) (Unaudited)
Three Months Ended
September 30,
---------------------
1999 1998
-------- ---------
Interest income:
Loans receivable $12,935 $14,066
Mortgagebacked securities 2,624 2,061
Investment securities 1,985 2,126
Interest-bearing deposits 96 87
Other 90 80
------- -------
Total interest income 17,730 18,420
------- -------
Interest expense:
NOW and money market demand 935 881
Savings 545 646
Certificates of deposit 4,634 5,400
------- -------
6,114 6,927
Borrowed funds and repurchase agreements 3,537 3,638
------- -------
Total interest expense 9,651 10,565
------- -------
Net interest income 8,079 7,855
Provision for loan losses 445 240
------- -------
Net interest income after provision for loan losses 7,634 7,615
------- -------
Noninterest income:
Loan origination fees on loans sold 526 687
Service fees 1,349 1,212
Net gain on sale of loans available-for-sale 156 256
Net gain on sale of securities available-for-sale 5 -
Other 148 172
------- -------
Total non-interest income 2,184 2,327
------- -------
Non-interest expenses:
Compensation and employee benefits 3,137 3,357
Net occupancy expense of premises 451 516
Equipment and furnishings 500 553
Data processing 407 413
Deposit insurance premium 84 88
Intangibles amortization 337 373
Marketing and advertising 181 154
Other 1,425 1,515
------- -------
Total non-interest expense 6,522 6,969
------- -------
Income before income taxes 3,296 2,973
Income taxes 1,288 1,219
------- -------
Net income $ 2,008 $ 1,754
======= =======
Net income per common share:
Basic $ 0.46 $ 0.33
======= =======
Diluted $ 0.44 $ 0.31
======= =======
Dividends per share $ 0.155 $ 0.135
======= =======
Dividend payout ratio - basic 33.70% 40.91%
======= =======
Average common and common equivalent shares
outstanding:
Basic 4,354,871 5,369,521
========= =========
Diluted 4,516,508 5,674,227
========= =========
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
Consolidated Statements of Comprehensive Income - Three Month Periods Ended
September 30, 1999 and September 30, 1998 (Unaudited).
(Dollars in thousands) (Unaudited)
Three Months Ended
September 30,
--------------------
1999 1998
--------- ---------
Net income $2,008 $1,754
------ ------
Other comprehensive income (loss):
Unrealized gains (losses) on investment securities:
Realized and unrealized holding gains
(losses) arising during the period (319) 744
Add: reclassification adjustment for
gains included in net income (5) ---
------ ------
Other comprehensive income (loss), before tax (324) 744
Income tax benefit (expense) related to
items of other comprehensive income 123 (283)
------ ------
Other comprehensive income (loss), after tax (201) 461
------ ------
Comprehensive income $1,807 $2,215
====== ======
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
Consolidated Statement of Stockholders' Equity for the Three Month Period Ended
September 30, 1999 (Unaudited).
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss)
Additional on Securities
Common Paid-In ESOP/ Treasury Available for Retained
Stock Capital RRP Stock Sale Earnings Total
------ ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999 $ 56 $69,572 $(2,216) $(25,319) $(1,717) $50,773 $91,149
Net income - - - - - 2,008 2,008
Change in net unrealized (loss) on
securities available-for-sale - - - - (201) - (201)
ESOP shares committed to
be released - 49 56 - - - 105
Amortization of award of
RRP stock - - 7 - - - 7
Purchase of treasury stock,
at cost - 139,000 shares - - - (2,375) - - (2,375)
Stock options exercised
(30,125 shares) 1 387 - - - - 388
Cash dividends declared
($0.155 per share) - - - - - (658) (658)
------ ------- ------- -------- ------- ------- -------
Balance at September 30, 1999 $ 57 $70,008 $(2,153) $(27,694) $(1,918) $52,123 $90,423
====== ======= ======= ======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
Consolidated Statements of Cash Flows for the Three Month Periods Ended
September 30, 1999 and September 30, 1998 (Unaudited)
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30,
----------------------
1999 1998
-------- --------
Net cash provided by operating activities $ 10,389 $ 9,372
-------- --------
Cash flows from investing activities:
Net change in interest-bearing deposits --- 100
Purchases of:
Investment securities available-for-sale (9,211) (27,309)
Mortgage-backed securities available-for-sale (20,268) ---
Proceeds from maturities of:
Investment securities --- 4,600
Investment securities available-for-sale 5,500 33,500
Proceeds from sale of:
Mortgage-backed securities available-for-sale 1,207 ---
Principal payments from:
Investment securities available-for-sale 240 86
Mortgage-backed securities 2,965 5,188
Mortgage-backed securities available-for-sale 4,072 2,665
Net change in loans receivable 802 3,985
Purchases of premises and equipment (132) (328)
Purchase of life insurance policies (840) ---
Proceeds from sale of premises and equipment 29 5
-------- --------
Net cash (used) provided by investing activities (15,636) 22,492
-------- --------
Cash flows from financing activities:
Net change in deposits excluding
interest credited (8,760) (6,313)
Net change in repurchase agreements 904 977
Proceeds from borrowings 92,300 97,900
Payments on borrowings (86,911) (127,096)
Net change in advances from borrowers
for taxes and insurance 2,968 3,208
Proceeds from exercise of options 388 47
Payments to acquire treasury stock (2,375) ---
Dividends paid to stockholders (878) (977)
-------- --------
Net cash (used) by financing activities (2,364) (32,254)
-------- --------
Net (decrease) in cash and cash equivalents (7,611) (390)
Cash and cash equivalents at beginning of period 28,946 29,068
-------- --------
Cash and cash equivalents at end of period $ 21,335 $ 28,678
======== ========
Supplemental disclosure of cash flow information:
Payments during the period for:
Interest $ 3,384 $ 3,532
Income taxes, net 250 140
======== ========
See accompanying notes to consolidated financial statements.
- 7 -
<PAGE>
WESTERFED FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10- Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the information contained
herein reflects all adjustments necessary to make the results of operations for
the interim periods a fair statement of such operations. All such adjustments
are of a normal recurring nature. Operating results for the three month period
ended September 30, 1999 are not necessarily indicative of the results
anticipated for the six month period ending December 31, 1999 which reflects the
Company's change in accounting period from a June 30 period to calendar year
accounting period, ending on and effective on, December 31, 1999. For additional
Company information, refer to the consolidated financial statements and
footnotes thereto included in WesterFed Financial Corporation's (the "Company")
audited annual report for the year ended June 30, 1999.
2. CASH EQUIVALENTS
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all cash, daily interest demand deposits, non-interest bearing
deposits with banks, and interest bearing deposits having original maturities of
three months or less to be cash equivalents.
3. COMPUTATION OF NET INCOME PER SHARE
Basic earnings per common share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period less
unvested RRP and unallocated ESOP shares. Diluted earnings per common share is
calculated by dividing net income by the weighted average number of common
shares used to compute basic EPS plus the incremental amount of potential common
stock determined by the treasury stock method.
The following table sets forth the computation of basic and diluted
earnings per share:
(Unaudited)
For the Three Month Period
Ended September 30,
-----------------------
(Dollars in thousands, except share and per share data) 1999 1998
---------- -----------
Numbers of shares on which basic earnings
per share is calculated:
Average outstanding shares during the period 4,354,871 5,369,521
Add: Incremental shares under stock option plans 161,637 304,098
Incremental shares related to RRPs --- 608
---------- -----------
Number of shares on which diluted earnings
per share is calculated 4,516,508 5,674,227
---------- -----------
Net income applicable to common stockholders $ 2,008 $ 1,754
========== ===========
Basic earnings per share $ 0.46 $ 0.33
========== ===========
Diluted earnings per share $ 0.44 $ 0.31
========== ===========
Stock options to purchase 72,169 shares as of September 30, 1999 were
outstanding, but were not included in the computation of diluted earnings per
share because the options' exercise price was greater than the average market
price of the common shares and, therefore, the effect would be anti-dilutive. No
stock options were excluded from the computation of diluted earnings per share
in 1998.
4. DIVIDENDS DECLARED
On September 28, 1999 the Board of Directors of the Company declared a
quarterly cash dividend of $0.155 per share, payable on October 28, 1999 to
stockholders of record on October 14, 1999.
- 8 -
<PAGE>
5. A COMPARISON OF THE AMORTIZED COST AND ESTIMATED FAIR VALUE OF INVESTMENT
SECURITIES AND MORTGAGE-BACKED SECURITIES AT THE DATES INDICATED IS AS
FOLLOWS:
<TABLE>
<CAPTION>
HELD-TO-MATURITY
(Dollars in Thousands)
------------------------------------------------------------------------------------
(Unaudited)
September 30, 1999 June 30, 1999
------------------------------------------- ----------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
------- ------ ---- ------- ------- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Agency obligations $ - $ - $ - $ - $ - $ - $ - $ -
U.S. Government obligations - - - - - - - -
Corporate obligations 6,988 13 (13) 6,988 6,985 16 (6) 6,995
Other investments 2,251 7 - 2,258 2,250 10 - 2,260
------- ------ ---- ------- ------- ------ ---- -------
Total investment securities 9,239 20 (13) 9,246 9,235 26 (6) 9,255
Mortgage-backed securities 79,604 1,384 (65) 80,923 83,720 1,600 (68) 85,252
------- ------ ---- ------- ------- ------ ---- -------
$88,843 $1,404 $(78) $90,169 $92,955 $1,626 $(74) $94,507
======= ====== ==== ======= ======= ====== ==== =======
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
(Dollars in Thousands)
------------------------------------------------------------------------------------
(Unaudited)
September 30, 1999 June 30, 1999
------------------------------------------- ----------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
------- ------ ---- ------- ------- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Agency obligations $ 83,304 $ 3 $(1,398) $ 81,909 $ 81,323 $ 2 $(1,340) $ 79,985
Corporate obligations 22,413 31 (195) 22,249 23,509 32 (167) 23,374
Other investments 2,648 70 - 2,718 3 79 - 82
------- ------ ------- -------- -------- ------ ------- --------
Total investment securities 108,365 104 (1,593) 106,876 104,835 113 (1,507) 103,441
Mortgage-backed securities 85,577 121 (1,722) 83,976 69,406 78 (1,455) 68,029
------- ------ ------- -------- -------- ------ ------- --------
$193,942 $ 225 $(3,315) $190,852 $174,241 $ 191 $(2,962) $171,470
======== ====== ======= ======== ======== ====== ======= ========
</TABLE>
- 9 -
<PAGE>
A COMPARISON OF THE AMORTIZED COST AND ESTIMATED FAIR VALUE OF INVESTMENT
SECURITIES BY CONTRACTUAL MATURITIES AT SEPTEMBER 30, 1999 IS AS FOLLOWS:
HELD-TO-MATURITY
(Dollars in Thousands)
(Unaudited)
September 30, 1999
--------------------------------
Amortized Estimated
Cost Fair Value
-------------- ---------------
Due in one year or less $ 3,033 $ 3,045
Due after one year through 5 years 3,993 3,980
Due after 5 years through 10 years 238 238
Due after 10 years 1,975 1,983
----------- -----------
9,239 9,246
=========== ===========
AVAILABLE-FOR-SALE
(Dollars in Thousands)
(Unaudited)
September 30, 1999
--------------------------------
Amortized Estimated
Cost Fair Value
-------------- ---------------
Due in one year or less $ 9,746 $ 9,772
Due after one year through 5 years 91,336 89,872
Due after 5 years through 10 years 2,500 2,500
Other and SBA 4,783 4,732
----------- -----------
108,365 106,876
=========== ===========
Expected maturities of mortgage-backed securities will differ from contractual
maturities because borrowers may have the right to prepay obligations with or
without penalties.
- 10 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1. FORWARD LOOKING STATEMENTS
When used in this Form 10-Q or future filings made by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public shareholder communications, or in oral statements made with the approval
of an authorized executive officer, the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The Company
wishes to caution readers not to place undue reliance on any forward-looking
statements, which speak only as of the date made, and to advise readers that
various factors including regional and national economic conditions, changes in
levels of market interest rates, credit risks of lending activities and
competitive and regulatory factors could affect Western Security Bank's (the
"Bank") financial performance and could cause the Company's actual results for
future periods to differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims, any obligation
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
2. CHANGES IN FINANCIAL CONDITION. COMPARISON OF THE THREE MONTH PERIOD FROM
JUNE 30, 1999 TO SEPTEMBER 30, 1999.
General - Total assets increased $6.7 million to $1.014 billion at
September 30, 1999 from $1.007 billion at June 30, 1999. The increase in assets
was primarily the result of increases in mortgage-backed securities of $11.9
million, and investment securities, Federal Home Loan Bank of Seattle (FHLB)
stock and all other interest earning assets of $3.9 million, partially offset by
decreases in loans receivable and loans available for sale of $1.6 million and
cash and amounts due from banks of $6.9 million. Total deposits decreased $2.5
million while repurchase agreements and borrowed funds increased $6.3 million
and stockholders' equity decreased $726,000.
Loans Receivable and Loans Available-for-Sale - Loans receivable and loans
available-for-sale decreased $1.6 million to $629.8 million at September 30,
1999 from $631.4 million at June 30, 1999. Commercial, commercial real estate
and agricultural loans increased $5.3 million, $3.9 million, and $3.0 million
respectively while residential loans decreased $13.8 million . The decrease in
loans receivable was primarily the result of principal repayments of $59.7
million and the sale of loans available-for-sale of $22.9 million, partially
offset by loan originations of $81.2 million. Because of the interest rate risk
incurred with long term lending associated with fixed-rate one-to four family
loans (usually thirty year), the Bank currently sells a substantial portion of
the thirty year loans and reinvests the proceeds in stock repurchases, debt
reduction and other types of loans and investments.
Mortgage-Backed Securities - Mortgage-backed securities increased $11.9
million to $163.6 million at September 30, 1999 from $151.7 million at June 30,
1999 primarily as a result of purchases of $20.3 million, which were partially
offset by principal pay-downs and sales of $8.2 million.
Investment Securities, FHLB Stock and Other Interest Earning Assets -
Investment securities, FHLB stock and other interest earning assets increased
$3.9 million to $143.2 million at September 30, 1999 from $139.3 million at June
30, 1999. The $3.9 million increase was primarily the result of new purchases.
- 11 -
<PAGE>
Goodwill and Core Deposit Intangible - Goodwill is being amortized over 25
years, or approximately $333,000 per year. The core deposit intangible is
amortized on an accelerated basis over its estimated economic life of seven
years, or approximately $340,000 for the six months ending December 31, 1999.
From time to time, the Bank, the regulated thrift institution subsidiary of
the Company, may, in order to reduce interest rate risk, purchase financial
instruments that lock in a spread between interest-earning assets and
interest-bearing liabilities. While these types of financial instruments limit
risk, they also reduce the Bank's ability to maximize profits during periods of
favorable interest rate trends.
The Bank may be a party to financial instruments with off-balance-sheet
risk in the normal course of business to reduce its own exposure to fluctuations
in interest rates. These financial instruments may include interest rate cap and
interest rate swap agreements. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of amounts recognized in the
consolidated balance sheets. The contract or notional amounts of these
instruments reflect the extent of involvement the Bank has in particular classes
of financial instruments. For interest rate cap and interest rate swap
agreements, the contract or notional amounts do not represent exposure to credit
loss. The Bank controls the credit risk of those instruments through credit
approval, limits and monitoring procedures.
Interest Rate Caps - Interest rate caps entitle the Bank to receive various
interest payments in exchange for payment of a premium, provided the three-month
LIBOR exceeds an agreed upon interest rate. Transaction fees paid in connection
with interest rate cap agreements are amortized to interest expense as an
adjustment of the interest cost of liabilities. Because the Bank receives
various interest payments if the three-month LIBOR exceeds the agreed upon
interest rate, the Bank is generally at risk to the extent of the unamortized
premium paid if the three-month LIBOR does not exceed the agreed upon interest
rate. At September 30, 1999, the amount of the unamortized premiums paid related
to the interest rate cap transactions was $51,000. Interest rate cap agreements
are used to manage interest rate risk by synthetically extending the life of
interest-bearing liabilities.
The following summarizes interest rate cap agreements at September 30, 1999:
Notional principal Agreement
amount termination Cap
- --------------------------- --------------------------- -----------------
$5,000,000 July, 2000 6.0%
The counter party to the interest rate cap agreement is Merrill Lynch. The
agreement is not collateralized. Interest rate swaps are collateralized by stock
in FHLB, certificates of deposit issued by the FHLB, securities issued by the
U.S. Government or agency thereof, mortgage-backed securities, or qualifying
first mortgage loans not otherwise pledged.
Interest Rate Swaps - Interest rate swap agreements involve the exchange of
fixed and floating rate payments without the exchange of the underlying
principal amounts. Estimated amounts to be received or paid on the swap
settlement dates are accrued when realized. The net swap settlements are
reflected in interest expense. Interest rate swap agreements are used to manage
interest rate risk by synthetically extending the life of interest-bearing
liabilities. At September 30, 1999 the Bank did not have any interest rate swap
agreements in place.
At September 30, 1999 the Bank had no structured notes.
- 12 -
<PAGE>
Deposits - Deposits decreased $2.5 million to $643.0 million at September
30, 1999 from $645.5 million at June 30, 1999. Checking, money market and
savings accounts increased $6.2 million while certificates of deposit decreased
$8.7 million.
Borrowed Funds and Repurchase Agreements - Borrowed funds and repurchase
agreements increased $6.3 million to $257.5 million at September 30, 1999 from
$251.2 million at June 30, 1999. There were new borrowings of $86.9 million with
maturities of less than one year and $6.3 million of advances maturing in one or
more years. The increase from new borrowings were offset by principal repayments
and maturities of $86.9 million.
Stockholders' Equity - Stockholders' equity decreased $726,000 to $90.4
million at September 30, 1999 from $91.1 million at June 30, 1999. This decrease
was due to the repurchase of 139,000 shares of common stock at an average price
of $17.08 per share for a total of $2.4 million. This decrease was partially
offset by increases in equity resulting from net income for the three month
period of $2.0 million, $112,000 related to contributions to the Employee Stock
Ownership Plan and shares earned and issued under the Recognition and Retention
Plan, and the issuance of 30,125 new common shares with a recorded value of
$388,000 related to exercised stock options. Stockholders' equity was also
reduced $658,000 for dividends declared during the three month period and
$201,000 related to the change in unrealized losses associated with assets
classified as available-for-sale being adjusted to market value in accordance
with Statement of Financial Accounting Standards No. 115.
- 13 -
<PAGE>
3. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTH PERIOD ENDED SEPTEMBER
30, 1999 AND SEPTEMBER 30, 1998
RESULTS OF OPERATIONS
Three Months Ended
September 30,
(Unaudited)
----------------------------
1999 1998
Amount Change Amount
-------- ------- ---------
(In Thousands)
Total interest income $ 17,730 $ (690) $ 18,420
Total interest expense (9,651) 914 (10,565)
-------- ------- ---------
Net interest income 8,079 224 7,855
Provision for loan losses (445) (205) (240)
-------- ------- ---------
Net interest income after
provision for loan losses 7,634 19 7,615
-------- ------- ---------
Fees and service charges 1,875 (24) 1,899
Net gain on sale of loans available-for-sale 156 (100) 256
Net gain on sale of securities available-for-sale 5 5 ---
Other non-interest income 148 (24) 172
-------- ------- ---------
Total non-interest income 2,184 (143) 2,327
-------- ------- ---------
Income before non-interest expense 9,818 (124) 9,942
Total non-interest expense (6,522) 447 (6,969)
-------- ------- ---------
Income before income taxes 3,296 323 2,973
Income taxes (1,288) (69) (1,219)
-------- ------- ---------
Net income $ 2,008 $ 254 $ 1,754
======== ======= =========
- 14 -
<PAGE>
Net Interest Income Analysis -- The following table presents for the periods
indicated the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
rates. No tax equivalent adjustments were made. Non-accruing loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
Three Month Period Ended
(Unaudited)
---------------------------------------------------------------
September 30, 1999 September 30, 1998
----------------------------- --------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance (5) Paid Rate Balance (5) Paid Rate
----------- -------- ------ ------------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans receivable (1) (2) $627,064 $12,935 8.25% $657,497 $14,066 8.56%
Mortgage-backed securities (2) 163,439 2,624 6.42 121,277 2,061 6.80
Investment securities (2) 128,318 1,985 6.19 132,634 2,126 6.41
Other interest-earning assets (3) 5,844 96 6.57 5,084 87 6.85
Cash surrender value of life insurance 7,530 90 4.78 6,753 80 4.74
-------- ------- ---- -------- ------- ----
Total Interest-Earning Assets $932,195 $17,730 7.61% $923,245 $18,420 7.98%
======== ======= ==== ======== ======= ====
INTERESTBEARING LIABILITIES:
Certificates of deposits $360,496 $ 4,634 5.14% $378,038 $ 5,425 5.74%
Passbook deposits 90,300 545 2.41 91,526 621 2.71
Demand and NOW accounts 116,908 198 0.68 109,213 286 1.05
Money market accounts 75,397 737 3.91 57,662 595 4.13
-------- ------- ---- -------- ------- ----
Total deposits 643,101 6,114 3.80 636,439 6,927 4.35
Borrowed funds 255,298 3,537 5.54 233,968 3,638 6.22
-------- ------- ---- -------- ------- ----
Total Interest-Bearing Liabilities $898,399 $ 9,651 4.30% $870,407 $10,565 4.86%
======== ======= ==== ======== ======= ====
Net interest income $ 8,079 $ 7,855
======= =======
Net interest rate spread 3.31% 3.12%
==== ====
Net interest earning assets $ 33,796 $ 52,838
======== ========
Net interest margin (4) 3.47% 3.40%
==== ====
Average interest-earning assets to average
interest-bearing liabilities 103.76% 106.07%
====== ======
<FN>
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves
(2) Includes held to maturity and available-for-sale categories
(3) Includes primarily short-term liquid assets
(4) Net interest income divided by average interest earning assets
(5) Based on average monthly balances
</FN>
</TABLE>
- 15 -
<PAGE>
General - Net income increased $254,000 to $2.0 million for the quarter
ended September 30, 1999 as compared to $1.8 million for the same period last
year. Net interest income before provision for loan losses increased $224,000
and non-interest expense decreased $447,000 while provision for loan losses
increased $205,000, non-interest income decreased $143,000 and income tax
expense increased $69,000. The net interest margin (net interest income divided
by average interest-earning assets) increased to 3.47% during the quarter ended
September 30, 1999 from 3.40% during the same period last year. The interest
rate spread increased to 3.31% at September 30, 1999 as compared to 3.12% at
September 30, 1998.
Interest Income - Interest income decreased $690,000 to $17.7 million for
the three month period ended September 30, 1999 from $18.4 million for the same
period last year. The decrease was the result of a decrease in the average yield
on average interest earning assets to 7.61% during the quarter ended September
30, 1999 from 7.98% during the same period last year, partially offset by an
increase in the average balance of interest earning assets of $9.0 million to
$932.2 million during the quarter ended September 30, 1999 from $923.2 million
during the same period last year.
Interest earned on loans receivable decreased $1.1 million due primarily to
a $30.4 million decrease in the average balance of loans receivable to $627.1
million during the three month period ended September 30, 1999 from $657.5
million for the same period last year. In addition, the average yield on loans
receivable decreased to 8.25% during the three month period ended September 30,
1999 from 8.56% for the same period last year.
Interest earned on mortgage-backed securities increased $563,000 due
primarily to a $42.1 million increase in the average balance of mortgage-backed
securities outstanding to $163.4 million for the three month period ended
September 30, 1999 from $121.3 million during the same period last year. The
average yield decreased to 6.42% during the three month period ended September
30, 1999 from 6.80% for the same period last year.
Interest earned on investment securities, FHLB stock and other interest
earning assets decreased $122,000 primarily due to a decrease in the average
yield to 6.13% during the quarter ended September 30, 1999 from 6.35% for the
same period last year. The average balance of these securities decreased $2.8
million to $141.7 million during the quarter ended September 30, 1999 from
$144.5 million during the same period last year.
Interest Expense - Total interest expense decreased $914,000 to $9.7
million for the three month period ended September 30, 1999 from $10.6 million
for the same period last year. Interest expense on deposits decreased $813,000
due primarily to a decrease in the average rate paid on deposits to 3.80% during
the quarter ended September 30, 1999 from 4.35% for the same period last year.
The average balance of deposits increased $6.7 million to $643.1 million during
the three month period ended September 30, 1999 from $636.4 million during the
same period last year. Interest expense on borrowed funds decreased $101,000 due
to a decrease in the average rate paid on borrowed funds to 5.54% during the
quarter ended September 30, 1999 from 6.22% during the same period last year.
The average balance of borrowed funds increased $21.3 million to $255.3 million
for the three month period ended September 30, 1999 from $234.0 million during
the same period last year.
Provisions for Loan Losses - The provision for loan losses increased
$205,000 to $445,000 for the three month period ended September 30, 1999 as
compared to a $240,000 provision for the same period last year. Increased
provisions for loan losses related to the consumer loan dealer finance program
was the primary reason for the increase in provision for loan losses and
management's goal to reduce the amount of fixed-rate long term residential loans
held in portfolio while attempting to increase the amount of consumer and
commercial loans held in portfolio which have inherently greater credit risk
than residential loans.
- 16 -
<PAGE>
The provision for loan losses is determined by management as the amount to
be added to the allowance for loan losses after net charge-offs have been
deducted to bring the allowance to a level which is considered adequate to
absorb losses inherent in the loan portfolio in accordance with generally
accepted accounting principles. At September 30, 1999 the Company had $4.1
million of non-performing assets (representing 0.41% of total assets) compared
to $4.2 million at June 30, 1999 (representing 0.42% of total assets). At
September 30, 1999 the Company had an allowance for loan losses to
non-performing assets of 128.8% as compared to 121.1% at June 30, 1999.
Management's evaluation of the adequacy of its loan loss reserves, the quality
and composition of the loan portfolio and economic conditions in Montana
resulted in the $445,000 provision for loan losses. Future additions to the
Company's allowance for loan losses and any change in the related ratio of the
allowance for loan losses to non-performing loans are dependent upon the
performance and composition of the Company's loan portfolio, the economy,
inflation, changes in real estate values and interest rates and the view of the
regulatory authorities toward adequate reserve levels. For additional
information, see "Non-Performing Assets."
Non-Interest Income - Non-interest income decreased $143,000 to $2.2
million for the quarter ended September 30, 1999 from $2.3 million for the same
quarter last year. The $143,000 decrease was primarily the result of loan
origination fees on loans sold and net gain on loans available-for-sale
decreasing $261,000 to $682,000 for the quarter ended September 30, 1999 from
$943,000 for the same period last year due to reduced loan refinancing activity.
Further declines in loan volume due to increased interest rates and seasonal
fluctuations could adversely affect origination fees and gains on sale of loans
available for sale.
Non-Interest Expense - Non-interest expense decreased $447,000 to $6.5
million for the quarter ended September 30, 1999 from $7.0 million for the same
quarter last year. The $447,000 decrease was primarily the result of decreases
in occupancy and equipment expenses, other operating, and compensation and
employee benefit costs of $118,000, $90,000 and $220,000 respectively.
Income Taxes - Income tax expense increased $69,000 due to the $323,000
increase in income before income taxes.
- 17 -
<PAGE>
Loan Quality -- The following table sets forth the amounts and categories
of non-performing assets in the Company's loan portfolio. At September 30, 1999
and June 30, 1999 the Company did not have any loans termed troubled debt
restructuring which involved forgiving a portion of interest or principal on any
loans or making loans at a rate materially less than market rates. Foreclosed
assets include assets acquired in settlement of loans, and are recorded at the
lower of the related loan balance, less any specific allowance for loss, or fair
value at the date of foreclosure less estimated disposal costs.
(Unaudited)
-----------------------
September 30, June 30,
1999 1999
------------ ----------
Nonaccruing loans: (In Thousands)
Real Estate:
Onetofour family $ 384 $ 521
Commercial 149 ---
Construction 324 112
Agricultural 1,421 1,098
Commercial non real estate 51 106
Consumer 749 1,212
------ ------
Total 3,078 3,049
------ ------
Accruing loans delinquent 90 days or more:
Real Estate:
Onetofour family 411 426
Construction --- 344
Consumer 51 5
------ ------
Total 462 775
------ ------
Foreclosed Assets:
Real Estate:
Onetofour family 465 238
Commercial 26 26
Consumer 84 106
------ ------
Total 575 370
------ ------
Total nonperforming assets $4,115 $4,194
====== ======
Total as a percentage of total assets 0.41% 0.42%
====== ======
Total allowance for loan losses to assets non
performing loans (exclusive of foreclosed assets) 149.7% 132.9%
====== ======
Total allowance for loan losses to total
nonperforming assets 128.8% 121.1%
====== ======
Non-Performing Assets - Total non-performing assets decreased $79,000 to
$4.1 million at September 30, 1999 from $4.2 million at June 30, 1999. The
$79,000 decrease in non-performing assets was primarily the result of a $439,000
decrease in non-performing consumer loans, partially offset by a $323,000
increase in Non-performing agriculture loans. In addition, non-performing
commercial loans increased $94,000, non-performing one-to-four family real
estate loans increased $75,000 and non-performing construction loans decreased
$132,000. Total non-performing assets as a percentage of total assets decreased
to 0.41% at September 30, 1999 as compared to 0.42% at June 30, 1999. The 0.41%
is less than the national composite for thrifts non-performing assets as a
percentage of assets of 0.65% at June 30, 1999, which is the latest available
information as reported by the Office of Thrift Supervision. In addition to the
non-performing loans and foreclosed assets set forth in the preceding table, as
of September 30, 1999, there were two commercial real-estate loans to one
borrower totaling $868,000 identified by the Company with respect to which
information known about the possible credit problems of the borrowers or of the
cash flows of the security properties have caused management to have some
concerns as to the ability of the borrowers to comply with present loan
repayment terms and which may result in the future inclusion of such items in
the non-performing asset categories.
- 18 -
<PAGE>
At September 30, 1999 the recorded investment in impaired loans was $3.1
million, all of which were on non-accrual status. The amount of interest income
recognized on impaired loans during this period was insignificant.
The following table sets forth an analysis of the Bank's allowance for loan
losses.
For the Three Month
Periods Ended
September 30,
----------------------
1999 1998
----------- ---------
(Dollars in Thousands)
Balance at beginning of period............................ $5,080 $4,907
------ ------
Charge-Offs:
Real Estate:
One- to four-family.................................. (4) --
Commercial .......................................... -- --
Other:
Commercial........................................... (45) (3)
Consumer............................................. (212) (286)
------ ------
Total charge-offs......................................... (261) (289)
------ ------
Recoveries:
Other:
Commercial........................................... -- --
Consumer............................................. 36 22
------ ------
Total recoveries.......................................... 36 22
------ ------
Net charge-offs........................................... (225) (267)
Provisions charged to operations.......................... 445 240
------ ------
Balance at end of period.................................. $5,300 $4,880
====== ======
Ratio of net charge-offs during the period to average loans
outstanding during the period........................ 0.04% 0.04%
====== ======
Ratio of net charge-offs during the period to average non-
performing assets during the period ................. 5.42% 5.23%
====== ======
- 19 -
<PAGE>
Regulatory Capital -- At September 30, 1999 the Bank met all applicable
regulatory capital requirements, including the fully phased-in risk based
capital requirements. The following table provides information on an
unconsolidated basis indicating the extent to which the Bank exceeds the minimum
capital requirements under federal regulations as of September 30, 1999.
Minimum Minimum
to be adequately to be well
capitalized under capitalized under
prompt corrective prompt corrective
Actual actions provision actions provision
--------------- ----------------- -----------------
As of September 30, 1999: Amount Ratio Amount Ratio Amount Ratio
------- ------ ------- ----- ------- ------
Total capital (to risk-
weighted assets) $75,821 12.09% $50,155 8.00% $62,694 10.00%
Core (Tier 1) capital (to
risk-weighted assets) 70,734 11.28 25,078 4.00 37,616 6.00
Core (Tier 1) capital (to
adjusted assets) 70,734 7.12 39,743 4.00 49,678 5.00
Tangible capital (to
tangible assets) 70,734 7.12 14,903 1.50 14,903 1.50
- 20 -
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management believes there has been no material change in interest rate risk
since June 30, 1999. For additional information, see Management's Discussion and
Analysis of Financial Condition and Results of Operations included herein in
Item 2 and refer to the Interest Rate Risk Management discussion included in
WesterFed Financial Corporation's Annual Report for the fiscal year ended June
30, 1999.
"Year 2000 Readiness Disclosure"
General. The Year 2000 ("Y2K") issue confronting the Bank and its
suppliers, customers, customer's suppliers, and competitors centers on the
inability of computer systems to recognize the Year 2000. Many existing computer
programs and systems originally were programmed with six digit dates that
provided only two digits to identify the calendar year in the date field. With
the impending new millennium, these programs and computers will recognize "00"
as the year 1900 rather than the year 2000. The Year 2000 issue affects
virtually all companies and organizations.
Financial institution regulators recently have increased their focus upon
Y2K compliance issues and have issued guidance concerning the responsibilities
of senior management and directors. The Federal Financial Institution
Examination Council ("FFIEC") has issued several interagency statements on Y2K
Project Management Awareness. These statements require financial institutions
to, among other things, examine the Y2K implications of their reliance on
vendors and with respect to data exchange and the potential impact of the Y2K
issue on their customers, suppliers, and borrowers. These statements also
require each federally regulated financial institution to survey its exposure,
measure its risk, and prepare a plan to address the Y2K issue. In addition, the
federal banking regulators have issued safety and soundness guidelines to be
followed by insured depository institutions, such as the Bank, to assure
resolution of any Y2K problems. The federal banking agencies have asserted that
Y2K testing and certification is a key safety and soundness issue in conjunction
with regulatory examinations and, thus, that an institution's failure to address
appropriately the Y2K issue could result in supervisory action, including the
reduction of the institution's supervisory rating, the denial of applications
for approval of mergers or acquisitions, or the imposition of civil monetary
penalties.
Risk. Like most financial institution service providers, the Bank and its
operations may be significantly affected by the Y2K issue due to its dependence
on technology and date-sensitive data. Computer software and hardware and other
equipment, both within and outside the Bank's direct control and third parties
with whom the Bank electronically or operationally interfaces (including without
limitation its customers and third party vendors), are likely to be affected. If
computer systems are not modified in order to be able to identify the Year 2000,
many computer applications could fail or create erroneous results. As a result,
many calculations which rely on date field information such as interest,
payments, or due dates, and other operating functions, could generate results
which are significantly misstated, and the Bank could experience an inability to
process transactions, prepare statements, or engage in similar normal business
activities. Likewise, under certain circumstances, a failure to adequately
address the Y2K issue could adversely affect the viability of the Bank's
suppliers and creditors and the creditworthiness of its borrowers. Thus, if not
adequately addressed, the Y2K issue could result in a significant adverse impact
on the Bank's operations and, in turn, its financial condition and result of
operations.
State of Readiness. During July 1997, the Bank formulated its plan to
address the Y2K issue. Since that time, the Bank has taken the following steps:
o Established senior management advisory and review responsibilities;
o Completed a Bank-wide assessment of applications and system software;
o Built an internal tracking database for application and vendor
software;
- 21 -
<PAGE>
o Developed compliance plans and schedules for all lines of business;
o Initiated vendor compliance verification;
o Conducted awareness and education activities for employees through
existing internal communication channels;
o Developed a process to respond to customer inquiries as well as help
educate customers on the Y2K issue;
o Converted to new certified Y2K primary data system including: 1)
loans, deposit, and general ledger software; 2) data center service
provider; and 3) PC-based hardware and software throughout the Bank;
o Developed contingency plans for each mission critical system;
o Established a business remediation plan;
o Developed systems verification procedures for after rollover; and
o Established the Bank's Y2K cash needs.
The following paragraphs summarize the phases of the Bank's Y2K plan:
Awareness Phase. The Bank formally established a Y2K plan headed by a
senior manager, and a Y2K committee was assembled for management of the Y2K
project. The Y2K committee created a plan of action that includes
milestones, budget estimates, strategies, and methodologies to track and
report the status of the project. Members of the Y2K committee also
received regulatory publications and attended conferences and information
sharing sessions to gain more insight into the Y2K issue and potential
strategies for addressing it.
Assessment Phase. The Bank's strategies were further developed with
respect as to how the objectives of the Y2K plan would be achieved, and a
Y2K business risk assessment was made to quantify the extent of the Bank's
Y2K exposure. An assessment of applications and software (which is
periodically updated as new technology is acquired and as systems progress
through subsequent phases) was developed to identify and monitor Y2K
readiness for information systems (hardware, software, utilities, and
vendors) as well as environmental systems (security systems, facilities,
etc.). Systems were prioritized based on business impact and available
alternatives. Mission critical systems supplied by vendors were researched
to determine Y2K readiness. Where Y2K-ready versions were not immediately
available, the Bank is monitoring vendor renovation progress. The Bank
identified functional replacements which were either up-gradable or
currently Y2K-ready, and a formal plan developed to repair, upgrade, or
replace all mission critical systems.
Beginning in August 1998, all credits greater than $250,000 were
evaluated for Y2K exposure by the relationship account officer using a
questionnaire developed by the Bank's credit administration staff. Because
the Bank's loan portfolio is primarily real estate based and is diversified
with regard to individual borrowers and types of businesses, and the Bank's
primary market area is not significantly dependent on one employer or
industry. As part of the current credit approval process, all new and
renewed loans are evaluated for Y2K risk. During the course of these
evaluations, Bank personnel have met individually with each of its larger
borrowers to discuss and obtain information regarding each borrower's
dependence on information technology and third party vendors and the nature
of steps being taken by the borrowers to address their Y2K risk. While the
Bank will continue to monitor the progress being made by its larger
borrowers in addressing their own Y2K risk, to date the Bank is generally
satisfied with these customers responses to the Bank's inquiries and their
progress in addressing their Y2K risk.
Renovation Phase. The Bank's assessment of applications and system
software revealed that Y2K upgrades were available for all vendor supplied
mission critical systems. All of the Y2K-ready versions have been delivered
and placed into production and have entered the validation process with the
exception of the Bank's utility company. The Bank has not yet received
sufficient information from this vendor to predict the outcome of their Y2K
efforts.
- 22 -
<PAGE>
Validation Phase. The validation phase is designed to test the ability
of hardware and software to accurately process date sensitive data. The
Bank has conducted validation testing of each mission critical system.
During the validation testing, no significant Y2K problems were identified
relating to any mission critical systems.
Implementation Phase. The Bank's plan calls for putting Y2K-ready
systems into production before having actually completed Y2K validation
testing. Y2K-ready modified or upgraded versions have been installed and
placed into production with respect to all missions critical systems with
the exception of the Bank's utility company.
Bank Resources Invested. The Bank's Y2K committee was assigned the
task of ensuring that all systems across the Bank are identified, analyzed
for Y2K compliance, corrected, if necessary, tested and changes
implemented. The Y2K committee members represent all functional areas of
the Bank, including senior management, accounting, central operations,
commercial/agricultural lending, internal audit, and information systems.
The Vice-President-Audit/Compliance is the Y2K coordinator and heads the
Y2K committee. The Bank's Board of Directors oversees the Y2K plan and
provides guidance and resources to, and receives monthly updates from the
Y2K coordinator.
Management currently estimates total costs of the Bank's Year 2000
compliance to be less than $280,000; $236,000 of which has already been
incurred. The Bank does not believe the cost of addressing the Year 2000
issues will be a material event or uncertainty that would cause reported
financial information not to be necessarily indicative of future operating
results or financial conditions. Nor does it believe that the costs or the
consequences of incomplete or untimely resolution of its Year 2000 issues
represent a known material event or uncertainty that is reasonably likely
to affect its future financial results, or cause its reported financial
information not to be necessarily indicative of future financial condition.
There are numerous risks associated with the Year 2000, including the
possibility of a failure of third parties to remediate their own Year 2000
issues. The failure of third parties, which the Bank has financial or
operational relationships with, to remediate their technology systems in a
timely manner could result in a material financial risk to the Bank. While
the Bank exercises no control over third parties, the Bank's Year 2000 plan
includes a survey assessment of critical third party responses and
remediation plans and their potential impact to the Bank.
Contingency Plans. During the assessment phase, the Bank developed
back-up or contingency plans for each of its mission critical systems.
These contingency plans were reviewed for adequacy and employee training
was conducted. Validation of the contingency plans by the Bank's Internal
Audit Department is substantially complete. The Bank also developed a
Remediation Plan for the Corporate offices.
System Verification Procedures for After Rollover: Systems
verification procedures are a critical phase of the Bank's project
management process to ensure the integrity of all data. Validation will
occur on all core applications and testing will also be performed on system
software. In addition, testing to validate historical or archive data will
be conducted. Systems verification procedures will be conducted for all
core applications on January 2, 2000 (Year end-December 31st); January 4,
2000 (1st business day-January 3rd); February 1, 2000 (Month-end-January
31st); and March 1, 2000 (Leap year-February 29th). System verification
procedures for all system software will be conducted on January 1, 2000
(Year end-December 31st).
Cash and Liquidity Plan: Management has established a cash and
liquidity plan to ensure that adequate funds are available for the Bank's
Y2K needs and details both a primary and secondary source of funding for
Y2K cash needs in addition to alternative sources of funds. Y2K cash needs
will be reviewed and updated monthly to account for any changes in the
environment related to Y2K. In the event additional funds are needed to
meet Y2K demands, the Bank will obtain these funds in the most cost
effective way.
- 23 -
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Neither the registrant or its subsidiaries are part to any legal
proceedings, other than routine litigation arising in the normal course of
its business. While the ultimate outcome of these various legal proceedings
cannot be predicted with certainty, it is the opinion of management that
the resolution of these legal actions should not have a material effect on
the Company's consolidated financial position or results of operations.
ITEM 2 CHANGE IN SECURITIES - None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On October 26, 1999 the annual meeting of the stockholders was held to
elect three directors of the Company and to ratify the appointment of KPMG
Peat Marwick LLP as auditors of the Company for the fiscal year ended June
30, 1999. The voting results are listed below:
Proposal 1 - Election of Directors For Votes Withheld
John E. Roemer 4,143,183 70,073
Laurie C. DeMarois 4,140,100 73,156
David W. Jorgenson 4,053,835 159,421
For Against Abstain
Proposal 2 - Ratify the appointment
of KPMG LLP as the Company's
auditors for fiscal year ending 6/30/00 4,193,907 4,157 15,192
ITEM 5 OTHER INFORMATION - None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
A. Form 8-K
The registrant filed current reports on Form 8-K on October 7, 1999 to
report a dividend declaration of $0.155 per share.
The registrant filed current reports on Form 8-K on October 22, 1999
to report the quarterly earnings release.
The registrant filed current reports on Form 8-K on November 4, 1999
to report the change in fiscal year end from June 30 to December 31.
- 24 -
<PAGE>
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:
WESTERFED FINANCIAL CORPORATION
Date November 12, 1999 /s/ Lyle R. Grimes
------------------------- -----------------------------------------
Lyle R. Grimes
Chairman of the Board/President and
Chief Executive Officer
(Duly Authorized Officer)
Date November 12, 1999 /s/ James A. Salisbury
------------------------- ----------------------------------------
James A. Salisbury
Executive Vice President/Treasurer and
Chief Financial Officer
(Principal Finance and Accounting Officer)
- 25 -
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 21,335
<INT-BEARING-DEPOSITS> 1,985
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 190,852
<INVESTMENTS-CARRYING> 103,725
<INVESTMENTS-MARKET> 105,051
<LOANS> 629,823
<ALLOWANCE> 5,300
<TOTAL-ASSETS> 1,014,049
<DEPOSITS> 642,994
<SHORT-TERM> 157,152
<LIABILITIES-OTHER> 23,141
<LONG-TERM> 92,732
<COMMON> 57
0
0
<OTHER-SE> 90,366
<TOTAL-LIABILITIES-AND-EQUITY> 1,014,049
<INTEREST-LOAN> 12,935
<INTEREST-INVEST> 4,705
<INTEREST-OTHER> 90
<INTEREST-TOTAL> 17,730
<INTEREST-DEPOSIT> 6,114
<INTEREST-EXPENSE> 9,651
<INTEREST-INCOME-NET> 8,079
<LOAN-LOSSES> 445
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 1,425
<INCOME-PRETAX> 3,296
<INCOME-PRE-EXTRAORDINARY> 2,008
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,008
<EPS-BASIC> .46
<EPS-DILUTED> .44
<YIELD-ACTUAL> 0
<LOANS-NON> 3,078
<LOANS-PAST> 462
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 868
<ALLOWANCE-OPEN> 5,080
<CHARGE-OFFS> 261
<RECOVERIES> 36
<ALLOWANCE-CLOSE> 5,300
<ALLOWANCE-DOMESTIC> 5,300
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 684
</TABLE>
