UNITED STATES SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
X For the quarter ended March 31, 2000
- --------------
OR
TRANSISTION 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, 406-721-5254
Including area code ---------------------
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 April 30, 2000
4,087,846 shares (including restricted shares)
<PAGE>
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 31, 2000 and December 31, 1999...........3
Consolidated Statements of Income - Three Month Period Ended
March 31, 2000 and March 31, 1999 .........................................4
Consolidated Statements of Comprehensive Income for Three Month Period Ended
March 31, 2000 and March 31, 1999 .........................................5
Consolidated Statement of Stockholders'
Equity for the Three Month Period Ended March 31, 2000 ....................6
Consolidated Statements of Cash Flows for the Three Month Period Ended
March 31, 2000 and March 31, 1999 ........................................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 December 31, 1999 to March 31, 2000.............................11
3. Comparison of Operating Results for the Three Month Periods Ended
March 31, 2000 and March 31, 1999....................................14
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk..........20
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.....................................................21
ITEM 2 CHANGE IN SECURITIES..................................................21
ITEM 3 DEFAULTS UPON SENIOR SECURITIES.......................................21
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.....................21
ITEM 5 OTHER INFORMATION.....................................................21
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K......................................21
SIGNATURES...................................................................22
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<PAGE>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 31, 2000 and December 31, 1999.
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Cash and due from banks $ 20,642 $ 20,233
Interest-bearing due from banks 1,080 5,910
-------- ----------
Cash and cash equivalents 21,722 26,143
Interest-bearing deposits 100 100
Investment securities available-for-sale 103,967 106,212
Investment securities, at amortized cost (estimated market value of
$6,200 at March 31, 2000 and $9,195 at December 31, 1999) 6,210 9,205
Stock in Federal Home Loan Bank of Seattle, at cost 15,399 15,154
Mortgage-backed securities available-for-sale 92,164 81,276
Mortgage-backed securities, at amortized cost (estimated market value
of $76,321 at March 31, 2000 and $77,926 at December 31, 1999) 76,091 77,672
Loans available-for-sale 3,523 4,470
Loans receivable, net 613,929 616,281
Accrued interest receivable 7,135 7,492
Premises and equipment, net 26,970 27,477
Core deposit intangible 3,241 3,401
Goodwill 14,596 14,763
Cash surrender value of life insurance policies 8,245 8,164
Other assets 3,124 3,075
-------- ----------
Total assets $996,416 $1,000,885
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $661,229 $ 658,404
Repurchase agreements 6,444 7,731
Borrowed funds 218,928 227,078
Advances from borrowers for taxes and insurance 6,508 3,296
Income taxes 1,382 597
Accrued interest payable 6,634 6,476
Accrued expenses and other liabilities 8,675 7,778
-------- ----------
Total liabilities 909,800 911,360
-------- ----------
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
None outstanding -- --
Common stock, $.01 par value, 10,000,000 shares authorized;
4,079,846 shares outstanding at March 31, 2000 and
4,351,404 outstanding at December 31, 1999 56 56
Additional paid-in capital 70,073 70,040
Common stock acquired by ESOP/RRP (2,024) (2,090)
Treasury stock, at cost (32,629) (28,974)
Accumulated other comprehensive loss (3,497) (2,930)
Retained earnings, substantially restricted 54,637 53,423
-------- ----------
Total stockholders' equity 86,616 89,525
-------- ----------
Total liabilities and stockholders' equity $996,416 $1,000,885
======== ==========
Book value per share $ 21.23 $ 20.57
======== ==========
Tangible book value per share $ 16.86 $ 16.40
======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
Consolidated Statements of Income - Three Month Periods Ended March 31, 2000 and
March 31, 1999.
(Dollars in thousands, except share and per share data)
March 31, March 31,
2000 1999
--------- ---------
Interest Income
Loans receivable $ 12,816 $ 12,988
Mortgage-backed securities 2,717 1,864
Investment securities 1,992 1,995
Interest-bearing deposits 45 145
Other 90 90
--------- ---------
Total interest income 17,660 17,082
--------- ---------
Interest expense:
NOW and money market demand 992 837
Savings 529 518
Certificates of deposit 4,965 4,985
--------- ---------
6,486 6,340
Borrowed funds and repurchase agreements 3,429 3,031
--------- ---------
Total interest expense 9,915 9,371
--------- ---------
Net interest income 7,745 7,711
Provision for loan losses 450 345
--------- ---------
Net interest income after
provision for loan losses 7,295 7,366
--------- ---------
Non-interest income:
Loan origination income 461 745
Service fees 1,207 1,090
Net gain on sale of securities
available-for-sale 3 25
Other 122 65
--------- ---------
Total non-interest income 1,793 1,925
--------- ---------
Non-interest expenses:
Compensation and employee benefits 2,957 3,253
Net occupancy expense of premises 392 380
Equipment and furnishings 478 593
Data processing 458 409
Deposit insurance premium 34 87
Intangibles amortization 326 361
Marketing and advertising 161 119
Other 1,258 1,627
--------- ---------
Total non-interest expense 6,064 6,829
--------- ---------
Income before income taxes 3,024 2,462
Income taxes 1,164 878
========= =========
Net income $ 1,860 $ 1,584
========= =========
Net income per common share:
Basic $ 0.46 $ 0.37
========= =========
Diluted $ 0.45 $ 0.35
========= =========
Dividends per share $ 0.165 $ 0.145
========= =========
Dividend payout ratio - basic 35.87% 39.19%
========= =========
Average common and common equivalent
shares outstanding:
Basic 4,059,084 4,308,744
========= =========
Diluted 4,174,548 4,568,287
========= =========
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
Consolidated Statements of Comprehensive Income - Three Month Periods Ended
March 31, 2000 and March 31, 1999.
Three Months Ended
-----------------------------
March 31, 2000 March 31, 1999
-------------- --------------
Net income $1,860 $1,584
------ ------
Other comprehensive loss:
Unrealized losses on investment securities:
Realized and unrealized holding
losses arising during the period (912) (551)
Add: reclassification adjustment
for gains included in net income (3) (25)
------ ------
Other comprehensive loss, before tax (915) (576)
Income tax benefit related
to items of other comprehensive income 348 219
------- ------
Other comprehensive loss, after tax (567) (357)
------- ------
Comprehensive income $1,293 $1,227
======= ======
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
Consolidated Statement of Stockholders' Equity for the Three Month Period Ended
March 31, 2000.
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Net
Unrealized
Loss
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 December 31, 1999 $56 $70,040 $(2,090) $(28,974) $(2,930) $53,423 $89,525
Net income - - - - - 1,860 1,860
Change in net unrealized loss on
securities available -for-sale - - - - (567) - (567)
ESOP shares committed to
be released - 30 57 - - - 87
Amortization of award of RRP stock - - 9 - - - 9
Purchase of treasury stock,
at cost (257,000 shares) - - - (3,655) - - (3,655)
Common stock options exercised
(445 shares) - 3 - - - - 3
Cash dividends declared
($0.165 per share) - - - - - (646) (646)
--- ------- ------- -------- ------- ------- -------
Balance at March 31, 2000 $56 $70,073 $(2,024) $(32,629) $(3,497) $54,637 $86,616
=== ======= ======= ======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
Consolidated Statements of Cash Flows for the Three Month Period Ended March 31,
2000 and March 31, 1999.
(Dollars in thousands) Three Months Ended
March 31,
--------------------
2000 1999
--------- ---------
Net cash provided by operating activities $ 12,515 $ 14,635
--------- ---------
Cash flows from investing activities:
Purchases of:
Investment securities available-for-sale (987) (57,195)
Mortgage-backed securities available-for-sale (14,655) (41,758)
Proceeds from maturities of:
Investment securities available-for-sale - 18,955
Proceeds from sales of:
Investment securities 3,000 -
Investment securities available-for-sale 2,692 13,020
Principal payments from:
Investment securities available-for-sale 190 256
Mortgage-backed securities 1,633 4,741
Mortgage-backed securities available-for-sale 3,212 2,768
Net change in loans receivable 1,743 6,191
Purchases of premises and equipment (371) (93)
Proceeds from sale of premises and equipment 402 1
Proceeds from sale of real estate owned 161 -
--------- ---------
Net cash used by investing activities (2,980) (53,114)
--------- ---------
Cash flows from financing activities:
Net change in deposits excluding interest credited (3,399) (12,115)
Net change in repurchase agreements (1,287) (975)
Proceeds from borrowings 229,627 99,000
Payments on borrowings (237,788) (70,004)
Net change in advances from borrowers
for taxes and insurance 3,212 3,452
Proceeds from exercise of options 3 154
Payments to acquire treasury stock (3,655) (54)
Dividends paid to stockholders (669) (603)
--------- ---------
Net cash provided (used) by financing activities (13,956) 18,855
--------- ---------
Net decrease in cash and cash equivalents (4,421) (19,624)
Cash and cash equivalents at beginning of period 26,143 39,634
--------- ---------
Cash and cash equivalents at end of period $ 21,722 $ 20,010
========= =========
Supplemental disclosure of cash flow information:
Payments during the period for:
Interest $ 3,436 $ 2,923
Income taxes, net 30 580
========= =========
See accompanying notes to consolidated financial statements
-7-
<PAGE>
WESTERFED FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 March 31, 2000 are not
necessarily indicative of the results anticipated for the year ending
December 31, 2000. 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 six months ended December 31, 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 net income 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 net income per share 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 net
income per share:
For the Three Month Period
Ended March 31,
(Dollars in thousands, except --------------------------
share and per share data) 2000 1999
------------ ------------
Numbers of shares on which basic earnings per
share is calculated:
Average outstanding shares during the period 4,059,084 4,308,744
Add: Incremental shares under stock option plans 115,464 257,833
Incremental shares related to RRP's - 1,710
---------- ----------
Number of shares on which diluted earnings
per share is calculated 4,174,548 4,568,287
========== ==========
Net income applicable to common stockholders $ 1,860 $ 1,584
========== ==========
Basic net income per share $ 0.46 $ 0.37
========== ==========
Diluted net income per share $ 0.45 $ 0.35
========== ==========
Stock options to purchase 180,669 shares as of March 31, 2000 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
antidilutive.
4. DIVIDENDS DECLARED
On March 28, 2000 the Board of Directors of the Company declared a
quarterly cash dividend of $0.165 per share to stockholders of record on
April 13, 2000, payable on April 27, 2000.
-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)
---------------------------------------------------------------------------------------
March 31, 2000 December 31, 1999
------------------------------------------ ------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Estimated Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value Cost Gains Losses Fair Value
--------- ---------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate obligations $ 3,995 $ - $ (16) $ 3,979 $ 6,991 $ 7 $ (17) $ 6,981
Other investments 2,215 6 - 2,221 2,214 - - 2,214
-------- -------- ------- --------- -------- -------- ------- ---------
Total investment securities 6,210 6 (16) 6,200 9,205 7 (17) 9,195
Mortgage-backed securities 76,091 638 (408) 76,321 77,672 738 (484) 77,926
-------- -------- ------- --------- -------- -------- ------- ---------
$ 82,301 $ 644 $ (424) $ 82,521 $ 86,877 $ 745 $ (501) $ 87,121
======== ======== ======= ========= ======== ======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
(Dollars in Thousands)
---------------------------------------------------------------------------------------
March 31, 2000 December 31, 1999
------------------------------------------ ------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Estimated Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value Cost Gains Losses Fair Value
--------- ---------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Agency obligations $ 87,282 $ - $(2,476) $ 84,806 $ 87,331 $ - $(2,164) $ 85,167
Corporate obligations 16,678 - (451) 16,227 18,432 6 (378) 18,060
Other investments 2,831 106 (3) 2,934 2,893 92 - 2,985
-------- -------- ------- --------- -------- -------- ------- ---------
Total investment securities 106,791 106 (2,930) 103,967 108,656 98 (2,542) 106,212
Mortgage-backed securities 94,985 85 (2,906) 92,164 83,563 228 (2,515) 81,276
-------- -------- ------- --------- -------- -------- ------- ---------
$201,776 $ 191 $(5,836) $ 196,131 $192,219 $ 326 $(5,057) $ 187,488
======== ======== ======= ========= ======== ======== ======= =========
</TABLE>
-9-
<PAGE>
A COMPARISON OF THE AMORTIZED COST AND ESTIMATED FAIR VALUE OF INVESTMENT
SECURITIES BY CONTRACTUAL MATURITIES AT MARCH 31, 2000 IS AS FOLLOWS:
HELD-TO-MATURITY
(Dollars in Thousands)
March 31, 2000
-----------------------
Amortized Estimated
Cost Fair Value
---------- ----------
Due in one year or less $ 995 $ 987
Due after one year through 5 years 3,239 3,231
Due after 5 years through 10 years 330 330
Due after 10 years 1,646 1,652
--------- --------
$ 6,210 $ 6,200
========= ========
AVAILABLE-FOR-SALE
(Dollars in Thousands)
March 31, 2000
-----------------------
Amortized Estimated
Cost Fair Value
---------- ----------
Due in one year or less $ 26,527 $ 26,214
Due after one year through 5 years 73,130 70,736
Due after 5 years through 10 years 2,649 2,601
Due after 10 years 4,392 4,261
Other $ 93 $ 155
--------- --------
$ 106,791 $103,967
========= ========
-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
DECEMBER 31, 1999 TO MARCH 31, 2000.
General - Total assets decreased $4.6 million to $996.4 million at
March 31, 2000 from $1.0 billion at December 31, 1999. The decrease in
assets was primarily the result of decreases in loans receivable and loans
available for sale of $3.3 million, and, decreases in investment
securities, Federal Home Loan Bank of Seattle (FHLB) stock and all other
interest earning assets of $9.7 million, partially offset by increases in
mortgage-backed securities for sale of $9.3 million. Total deposits
increased $2.8 million while repurchase agreements and borrowed funds
decreased $9.4 million and stockholders' equity decreased $2.9 million.
Loans Receivable and Loans Available-for-Sale - Loans receivable and
loans available-for-sale decreased $3.3 million to $617.5 million at March
31, 2000 from $620.8 million at December 31, 1999. The $3.3 million
decrease in loans was primarily comprised of decreases in residential loans
of $3.9 million and consumer dealer finance loans of $6.1 million, while
other consumer related loans increased $3.5 million and commercial and
agriculture loans increased $3.4 million. The decrease in loans receivable
was primarily the result of principal repayments of $54.6 million and the
sale of loans available-for-sale of $11.2 million, partially offset by loan
originations of $62.6 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 $9.3
million to $168.2 million at March 31, 2000 from $158.9 million at December
31, 1999. The $9.3 million increase was primarily the result of purchases
of $14.7 million, which were partially offset by principal pay-downs and
sales of $4.8 million. The purchased securities have maturities of less
than five years.
-11-
<PAGE>
Investment Securities, FHLB Stock and Other Interest Earning Assets B
Investment securities, FHLB stock and other interest earning assets
decreased $9.7 million to $135.0 million at March 31, 2000 from $144.7
million at December 31, 1999. The $9.7 million decrease was primarily the
result of investment maturities.
Goodwill and Core Deposit Intangible - Goodwill is being amortized
over 25 years, or approximately $166,000 per year. The core deposit
intangible is amortized on an accelerated basis over its estimated economic
life of seven years, or approximately $160,000 for the three months ending
March 31, 2000.
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 March 31, 2000, the amount of
the unamortized premiums paid related to the interest rate cap transactions
was $7,180. 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 outstanding at
March 31, 2000:
Notional principal Agreement
Amount Termination Cap Rate
------------------ ------------------- -------------
$5,000 July, 2000 6.0%
The counter party to the interest rate cap agreement is Merrill Lynch.
The agreement is not collateralized.
-12-
<PAGE>
Interest Rate Swaps - At March 31, 2000 the Bank did not have any
interest rate swap agreements in place.
At March 31, 2000 the Bank had no structured notes.
Deposits - Deposits increased $2.8 million to $661.2 million at March
31, 2000 from $658.4 million at December 31, 1999. Money market accounts
and certificates of deposits increased $4.9 million while checking and
saving accounts decreased $2.1 million.
Borrowed Funds and Repurchase Agreements - Borrowed funds and
repurchase agreements increased $9.4 million to $225.4 million at March 31,
2000 from $234.8 million at December 31, 1999. There were new borrowings of
$229.6 million with maturities of less than one year. The increase from new
borrowings were offset by principal repayments and maturities of $237.8
million.
Stockholders' Equity - Stockholders' equity decreased $2.9 million to
$86.6 million at March 31, 2000 from $89.5 million at December 31, 1999.
This decrease was due to the repurchase of 257,000 shares of common stock
at an average price of $14.22 per share for a total of $3.7 million. This
decrease was partially offset by increases in equity resulting from net
income for the three month period of $1.9 million, $96,000 related to
contributions to the Employee Stock Ownership Plan and shares earned and
issued under the Recognition and Retention Plan, and the issuance of 445
new common shares with a recorded value of $3,000 related to exercised
stock options. Stockholders' equity was also reduced $646,000 for dividends
declared during the three month period and $567,000 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 MARCH 31,
2000 AND MARCH 31, 1999
RESULTS OF OPERATIONS
Three Months Ended
March 31,
------------------------------
2000 1999
Amount Change Amount
------- -------- -------
(In Thousands)
Total interest income $17,660 $ 578 $17,082
Total interest expense (9,915) (544) (9,371)
------- -------- -------
Net interest income 7,745 34 7,711
Provision for loan losses (450) (105) (345)
------- -------- -------
Net interest income after
provision for loan losses 7,295 (71) 7,366
------- -------- -------
Fees and service charges 1,668 (167) 1,835
Net gain on sale of securities
available-for-sale 3 (22) 25
Other non-interest income 122 57 65
------- -------- -------
Total non-interest 1,793 (132) 1,925
------- -------- -------
Income before non-interest expense 9,088 (203) 9,291
Total non-interest expense (6,064) 765 (6,829)
------- -------- -------
Income before income taxes 3,024 562 2,462
Income taxes (1,164) (286) (878)
------- -------- -------
Net income $ 1,860 $ 276 $ 1,584
======= ======== =======
-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
----------------------------------------------------------------
March 31, 2000 March 31, 1999
------------------------------- -------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance (1) Paid Rate Balance (1) Paid Rate
----------- --------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans receivable (2) (3) $622,672 $ 12,816 8.23% $633,746 $ 12,988 8.20%
Mortgage-backed securities 164,027 2,717 6.63 125,787 1,864 5.93
Investment securities 128,867 1,992 6.18 133,149 1,995 5.99
Other interest-earning assets (4) 2,674 45 6.73 11,400 145 5.09
Cash surrender value of life insurance 8,218 90 4.38 6,902 90 5.22
-------- -------- ---- -------- -------- ----
Total interest-earning assets $926,458 $ 17,660 7.62% $910,984 $ 17,082 7.50%
======== ======== ==== ======== ======== ====
INTEREST-BEARING LIABILITIES:
Certificates of deposits $371,923 $ 4,965 5.34% $373,402 $ 4,985 5.34%
Passbook deposits 85,588 529 2.47 90,543 518 2.29
Demand and NOW accounts 116,617 196 0.67 110,970 190 0.68
Money market accounts 78,466 796 4.06 68,449 647 3.78
-------- -------- ---- -------- -------- ----
Total deposits 652,594 6,486 3.98 643,364 6,340 3.94
Borrowed funds 232,789 3,429 5.89 221,663 3,031 5.47
-------- -------- ---- -------- -------- ----
Total interest-bearing liabilities $885,383 $ 9,915 4.48% $865,027 $ 9,371 4.33%
======== ======== ==== ======== ======== ====
Net interest income $ 7,745 $ 7,711
======== ========
Net interest rate spread 3.14% 3.17%
==== ====
Net interest-earning assets $ 41,075 $ 45,957
======== ========
Net interest margin (5) 3.34% 3.39%
==== ====
Average interest-earning assets to average
interest-bearing liabilities
104.64% 105.31%
====== ======
<FN>
(1) Based on average monthly balances
(2) Calculated net of deferred loan fees, loan discounts and loans in process
(3) Includes loans held for sale
(4) Includes primarily short-term liquid assets
(5) Net interest income divided by average interest earning assets
</FN>
</TABLE>
-15-
<PAGE>
General - Net income increased $276,000 to $1.9 million for the
quarter ended March 31, 2000 as compared to $1.6 million for the same
period last year. Net interest income before provision for loan losses
increased $34,000 and non-interest expense decreased $765,000 while
provision for loan losses increased $105,000, non-interest income decreased
$132,000, and income tax expense increased $286,000. The net interest
margin (net interest income divided by average interest-earning assets)
decreased to 3.34% during the quarter ended March 31, 2000 from 3.39%
during the same period last year. The interest rate spread decreased to
3.14% at March 31, 2000 as compared to 3.17% at March 31, 1999.
Interest Income - Interest income increased $578,000 to $17.7 million
for the three month period ended March 31, 2000 from $17.1 million for the
same period last year. The increase was the result of an increase in the
average yield on average interest earning assets to 7.62% during the
quarter ended March 31, 2000 from 7.50% during the same period last year,
as well as an increase in the average balance of interest earning assets of
$15.5 million to $926.5 million during the quarter ended March 31, 2000
from $911.0 million during the same period last year.
Interest earned on loans receivable decreased $172,000 million due
primarily to a $11.0 million decrease in the average balance of loans
receivable to $622.7 million during the three month period ended March 31,
2000 from $633.7 million for the same period last year. The average yield
on loans receivable increased to 8.23% during the three month period ended
March 31, 2000 from 8.20% during the same period last year.
Interest earned on mortgage-backed securities increased $853,000 due
primarily to a $38.2 million increase in the average balance of
mortgage-backed securities outstanding to $164.0 million for the three
month period ended March 31, 2000 from $125.8 million during the same
period last year. The average yield increased to 6.63% during the three
month period ended March 31, 2000 from 5.93% during the same period last
year.
Interest earned on investment securities, FHLB stock and other interest
earning assets decreased $103,000 primarily due to a decrease in the
average balance of these securities of $6.7 million to $139.8 million
during the quarter ended March 31, 2000 from $151.5 million during the same
period last year. The average yield increased to 6.09% during the three
month period ended March 31, 2000 from 5.89% during the same period last
year.
Interest Expense - Total interest expense increased $544,000 to $9.9
million for the three month period ended March 31, 2000 from $9.4 million
for the same period last year. Interest expense on deposits increased
$146,000 due primarily to an increase in average balance of deposits of
$9.2 million to $652.6 million during the three month period ended March
31, 2000 from $643.4 million during the same period last year. The average
rate paid also increased slightly to 3.98% during the quarter ended March
31, 2000 from 3.94% during the same period last year. Interest expense on
borrowed funds increased $398,000 due to an increase in the average rate
paid on borrowed funds to 5.89% during the quarter ended March 31, 2000
from 5.47% during the same period last year. The average balance of
borrowed funds increased $11.1 million to $232.8 million for the three
month period ended March 31, 2000 from $221.7 million during the same
period last year.
Provisions for Loan Losses - The provision for loan losses increased
$105,000 to $450,000 for the three month period ended March 31, 2000 as
compared to a $345,000 provision for the same period last year. The
increased provision for loan losses is primarily related to charge-offs in
consumer loans and management's goal to reduce the amount of fixed-rate
long term residential loans held in portfolio while
-16-
<PAGE>
attempting to increase the amount of consumer and commercial loans held in
portfolio, which have inherently greater credit risk than residential
loans.
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 March 31, 2000 the Company had
$2.7 million of non-performing assets (representing 0.27% of total assets)
as compared to $3.1 million at December 31, 1999 (representing 0.31% of
total assets). At March 31, 2000 the Company had an allowance for loan
losses to non-performing assets of 201.9% as compared to 165.4% at December
31, 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 $450,000 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 $132,000 to $1.8
million for the quarter ended March 31, 2000 from $1.9 million for the same
quarter last year. The $132,000 decrease was primarily the result of loan
origination income decreasing $284,000 to $461,000 for the quarter ended
March 31, 2000 from $745,000 for the same period last year due to reduced
loan refinancing and related sales activity. Further declines in loan
volume due to increased interest rates and seasonal fluctuations could
adversely affect loan origination income.
Non-Interest Expense - Non-interest expense decreased $765,000 to $6.1
million for the quarter ended March 31, 2000 from $6.8 million for the same
period last year. The $765,000 decrease was comprised primarily of
decreases in compensation and employee benefits, equipment and furnishings
and other expenses of $296,000, $115,000 and $369,000 respectively.
Income Taxes - Income tax expense increased $286,000 due to the
$562,000 increase in income before income taxes and because the quarter
ended March 31, 1999 included non-taxable life insurance proceeds of
$138,000.
-17-
<PAGE>
Loan Quality -- The following table sets forth the amounts and categories of
non-performing assets in the Company's loan portfolio. At March 31, 2000 and
December 31, 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.
March 31, December 31,
2000 1999
--------- --------
Non-accruing loans: (In Thousands)
Real Estate:
One-to-four family $ 472 $ 549
Multi-family - -
Commercial 145 348
Construction 245 324
Agricultural (non real estate) 1,118 1,113
Commercial (non real estate) 89 51
Consumer 241 508
--------- --------
Total 2,310 2,893
--------- --------
Accruing loans delinquent 90 days or more:
Real Estate:
One-to-four family - 40
Multi-family - -
Commercial - -
Construction - -
Agriculture (non-real estate) - -
Commercial (non-real estate) - -
Consumer - 20
--------- --------
Total 0 60
--------- --------
Foreclosed Assets:
Real Estate:
One-to-four family 272 94
Multi-family - -
Commercial - -
Land 26 26
Consumer 67 48
--------- --------
Total 365 168
--------- --------
Total non-performing assets $ 2,675 $ 3,121
========= ========
Total as a percentage of total assets 0.27% 0.31%
========= ========
Total allowance for loan losses
to non-performing loans
(exclusive of foreclosed) 233.77 174.77
========= ========
Total allowance for loan
losses to total non-performing assets 201.87 165.36
========= ========
Non-Performing Assets - Total non-performing assets decreased $446,000 to $2.7
million at March 31, 2000 from $3.1 million at December 31, 1999. The $446,000
decrease in non-performing assets was primarily the result of a $268,000
decrease in non-performing consumer loans and a $239,000 decrease in
non-performing construction, commercial and agriculture loans. Total
non-performing assets as a percentage of total assets decreased to 0.27% at
March 31, 2000 as compared to 0.31% at December 31, 1999. The 0.27% is less than
the national composite for thrifts non-performing assets as a percentage of
assets of 0.62% at December 31, 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 March 31, 2000, there were no other loans 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 March 31, 2000 there were no other impaired loans.
The following table sets forth an analysis of the Bank's allowance for
loan losses.
For the Three Month
Periods Ended March 31,
----------------------------
2000 1999
------------ --------------
(Dollars In Thousands)
Balance of beginning of period $ 5,161 $ 4,846
========== ===========
Charge-Offs:
Real Estate:
One-to-four family (17) -
Commercial - -
Other:
Commercial (10) (1)
Consumer (312) (199)
---------- -----------
Total charge-offs (339) (200)
---------- -----------
Recoveries:
Real Estate
One-to-four family - -
Commercial - -
Other:
Commercial 5 4
Consumer 123 14
---------- -----------
Total recoveries 128 18
---------- -----------
Net charge-offs (211) (182)
Provisions charged to operations 450 345
---------- -----------
Balance at end of period $ 5,400 $ 5,009
========== ===========
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.03% 0.03%
========== ===========
Ratio of net charge-offs during the
period to average non-performing
assets during the period 7.28% 4.28%
========== ===========
Ratio of allowance for loan losses
to loans receivable, net
before allowance 0.87% 0.79%
========== ===========
-19-
<PAGE>
Regulatory Capital -- At March 31, 2000 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 March 31, 2000.
<TABLE>
<CAPTION>
Minimum to be well
Minimum to be capitalized under
adequately capitalized prompt
under prompt corrective corrective actions
Actual actions provision provision
-------------- ----------------- --------------------
As of March 31, 2000: Amount Ratio Amount Ratio Amount Ratio
------- ------ --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $73,191 11.97% $48,916 8.00% $61,145 10.00%
Core (Tier 1) capital (to risk-weighted
assets) 69,068 11.30 24,458 4.00 36,687 6.00
Core (Tier 1) capital (to adjusted assets) 69,068 7.06 39,113 4.00 48,891 5.00
Tangible capital (to tangible assets) 69,068 7.06 14,667 1.50 14,667 1.50
</TABLE>
ITEM 2. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management believes there has been no material change in interest rate risk
since December 31, 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 six months ended
December 31, 1999.
-20-
<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, results of operations or liquidity.
ITEM 2 CHANGE IN SECURITIES -- None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES -- None
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On April 25, 2000 the annual meeting of the stockholders was held to
elect three directors of the Company and to ratify the appointment of
KPMG LLP as auditors of the Company for the fiscal year ended December
31, 2000. The voting results are listed below:
Proposal 1 - Election of Directors For Votes Withheld
--------- ----------------
Robert F. Burke 3,622,785 109,127
Dr. Marvin P. Reynolds 3,621,109 110,804
Ralph K. Holliday 3,503,641 228,271
For Against Abstain
Proposal 2 - Ratify the appointment --------- ------- -------
of KPMG LLP as the Company's
auditors for fiscal year ending 12/31/00 3,709,524 6,632 15,756
ITEM 5 OTHER INFORMATION -- None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
A. Form 8-K
The registrant filed a current report on Form 8-K on April
11, 2000 to report a dividend declaration of $0.165 per
share.
The registrant filed a current report on Form 8-K on April
20, 2000 to report the quarterly earnings release.
-21-
<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 May 12, 2000 /s/ Lyle R. Grimes
-------------------------------------
Lyle R. Grimes
Chairman of the Board
Date May 12, 2000 /s/ Ralph K. Holliday
-------------------------------------
Ralph K. Holliday
President/ Chief Executive Officer
Date May 12, 2000 /s/ James A. Salisbury
-------------------------------------
James A. Salisbury
Treasurer and Chief Financial Officer
(Principal Finance and Accounting Officer)
-22-
<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 MARCH 31, 2000 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> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 21,722
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 196,131
<INVESTMENTS-CARRYING> 97,700
<INVESTMENTS-MARKET> 97,920
<LOANS> 617,452
<ALLOWANCE> 5,400
<TOTAL-ASSETS> 996,416
<DEPOSITS> 661,229
<SHORT-TERM> 129,440
<LIABILITIES-OTHER> 23,199
<LONG-TERM> 89,488
<COMMON> 56
0
0
<OTHER-SE> 86,560
<TOTAL-LIABILITIES-AND-EQUITY> 996,416
<INTEREST-LOAN> 12,816
<INTEREST-INVEST> 4,754
<INTEREST-OTHER> 90
<INTEREST-TOTAL> 17,660
<INTEREST-DEPOSIT> 6,486
<INTEREST-EXPENSE> 9,915
<INTEREST-INCOME-NET> 7,745
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 1,258
<INCOME-PRETAX> 3,024
<INCOME-PRE-EXTRAORDINARY> 1,860
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,860
<EPS-BASIC> .46
<EPS-DILUTED> .45
<YIELD-ACTUAL> 0
<LOANS-NON> 2,310
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,161
<CHARGE-OFFS> 339
<RECOVERIES> 128
<ALLOWANCE-CLOSE> 5,400
<ALLOWANCE-DOMESTIC> 5,400
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 913
</TABLE>
