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 June 30, 2000
--------------
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, 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 July 31, 2000
4,051,724 shares (including restricted shares)
- 1 -
<PAGE>
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - June 30, 2000 and December 31, 1999.....- 3 -
Consolidated Statements of Income -
Three and Six Month Periods Ended
June 30, 2000 and June 30, 1999 .................................- 4 -
Consolidated Statements of Comprehensive Income
for Three and Six Month Periods Ended
June 30, 2000 and June 30, 1999 ..................................- 5 -
Consolidated Statement of Stockholders' Equity
for the Six Month Periods Ended June 30, 2000 ...................- 6 -
Consolidated Statements of Cash Flows
for the Six Month Period Ended
June 30, 2000 and June 30, 1999 .................................- 7 -
Notes to Consolidated Financial Statements
1. Basis of Presentation........................................- 8 -
2. Cash Equivalents.............................................- 8 -
3. Computation of Earnings 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 Six Month Period
from December 31, 1999 to June 30, 2000 ................- 11 -
3. Comparison of Operating Results for
the Three Month Period Ended
June 30, 2000 and June 30, 1999.........................- 14 -
4. Comparison of Operating Results for
the Six Month Period Ended
June 30, 2000 and June 30, 1999.........................- 18 -
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.......- 24 -
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 - June 30, 2000 and December 31, 1999.
(Dollars in thousands, except share and per share data)
June 30, December 31,
2000 1999
-------- ----------
ASSETS
Cash and due from banks $ 22,228 $ 20,233
Interest-bearing due from banks 1,506 5,910
-------- ----------
Cash and cash equivalents 23,734 26,143
Interest-bearing deposits 100 100
Investment securities available-for-sale 149,119 187,488
Investment securities, at amortized cost
(estimated market value of $80,648 at
June 30, 2000 and $87,121 at December 31, 1999) 80,326 86,877
Stock in Federal Home Loan Bank of Seattle, at cost 12,645 15,154
Loans available-for-sale 4,756 4,470
Loans receivable, net 614,163 616,281
Interest receivable 6,946 7,492
Premises and equipment, net 25,402 27,477
Core deposit intangible 3,101 3,401
Goodwill 14,430 14,763
Cash surrender value of life insurance policies 8,369 8,164
Other assets 2,572 3,075
-------- ----------
Total assets $945,663 $1,000,885
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $606,623 $ 658,404
Repurchase agreements 5,631 7,731
Borrowed funds 224,501 227,078
Advances from borrowers for taxes and insurance 3,614 3,296
Income taxes 959 597
Accrued interest payable 6,792 6,476
Accrued expenses and other liabilities 8,949 7,778
-------- ----------
Total liabilities 857,069 911,360
-------- ----------
Stockholders' Equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized; None outstanding -- --
Common stock, $.01 par value, 10,000,000
shares authorized; 4,084,842 shares
outstanding at June 30, 2000 and
4,351,404 outstanding at December 31, 1999 57 56
Paid-in capital 70,264 70,040
Common stock acquired by ESOP/RRP (1,959) (2,090)
Treasury stock, at cost (33,001) (28,974)
Accumulated other comprehensive loss (2,769) (2,930)
Retained earnings 56,002 53,423
-------- ----------
Total stockholders' equity 88,594 89,525
-------- ----------
Total liabilities and stockholders' equity $945,663 $1,000,885
======== ==========
Book value per common share outstanding $ 21.69 $ 20.57
======== ==========
Tangible book value per common share outstanding $ 17.22 $ 16.40
======== ==========
See accompanying notes to consolidated financial statements.
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<PAGE>
Consolidated Statements of Income -
Three and Six Month Period Ended June 30, 2000 and June 30, 1999.
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest Income
Loans receivable $ 13,009 $ 13,115 $ 25,825 $ 26,103
Investment securities 4,631 4,166 9,340 8,025
Interest-bearing deposits 50 99 95 244
Other 129 88 219 178
--------- --------- --------- ---------
Total interest income 17,819 17,468 35,479 34,550
--------- --------- --------- ---------
Interest expense:
NOW and money market demand 1,029 869 2,021 1,706
Savings 496 522 1,025 1,040
Certificates of deposit 4,988 4,768 9,953 9,753
--------- --------- --------- ---------
6,513 6,159 12,999 12,499
Borrowed funds and repurchase
agreements 3,839 3,284 7,268 6,315
--------- --------- --------- ---------
Total interest expense 10,352 9,443 20,267 18,814
--------- --------- --------- ---------
Net interest income 7,467 8,025 15,212 15,736
Provision for loan losses 450 445 900 790
--------- --------- --------- ---------
Net interest income after
provision for loan losses 7,017 7,580 14,312 14,946
--------- --------- --------- ---------
Non-interest income:
Loan origination income 570 938 1,031 1,683
Service fees 1,316 989 2,523 2,079
Net gain (loss) on sale of securities (1,078) 64 (1,075) 89
available-for-sale
Net gain on sale of branches 1,878 - 1,878 -
Other 314 503 436 568
--------- --------- --------- ---------
Total non-interest income 3,000 2,494 4,793 4,419
--------- --------- --------- ---------
Non-interest expenses:
Compensation and employee benefits 3,252 3,850 6,208 7,103
Net occupancy expense of premises 649 445 1,041 825
Equipment and furnishings 521 626 999 1,219
Data processing 399 403 857 812
Deposit insurance premium 32 85 67 172
Intangibles amortization 306 337 633 698
Marketing and advertising 196 125 357 244
Other 1,363 1,397 2,620 3,024
--------- --------- --------- ---------
Total non-interest expense 6,718 7,268 12,782 14,097
--------- --------- --------- ---------
Income before income taxes 3,299 2,806 6,323 5,268
Income taxes 1,265 1,050 2,429 1,928
========= ========= ========= =========
Net income $ 2,034 $ 1,756 $ 3,894 $ 3,340
========= ========= ========= =========
Net income per common share:
Basic $ 0.52 $ 0.40 $ 0.98 $ 0.77
========= ========= ========= =========
Diluted $ 0.51 $ 0.39 $ 0.95 $ 0.74
========= ========= ========= =========
Dividends per share $ 0.170 $ 0.200 $ 0.335 $ 0.345
========= ========= ========= =========
Dividend payout ratio - basic 32.69% 50.00% 34.18% 44.81%
========= ========= ========= =========
Average common and common
equivalent shares outstanding:
Basic 3,918,807 4,337,573 3,988,945 4,323,159
========= ========= ========= =========
Diluted 4,024,432 4,467,867 4,099,490 4,518,077
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
Consolidated Statements of Comprehensive Income -
Three and Six Month Periods Ended June 30, 2000 and June 30, 1999.
Three Months Six Months
Ended Ended
June 30, June 30,
-------------- --------------
2000 1999 2000 1999
------ ------ ------ ------
Net income $2,034 $1,756 $3,894 $3,340
------ ------ ------ ------
Other comprehensive income (loss):
Unrealized gains (losses) on
investment securities:
Realized and unrealized holding gains
(losses) arising during the period 96 (2,270) (815) (2,821)
Add: reclassification adjustment
for (gains) losses included in
net income 1,078 (64) 1,075 (89)
------ ------ ------ ------
Other comprehensive loss, before tax 1,174 (2,334) 260 (2,910)
Income tax benefit (expense) related to
items of other comprehensive income (446) 887 (99) 1,106
------ ------ ------ ------
Other comprehensive income (loss), after tax 728 (1,447) 161 (1,804)
====== ====== ====== ======
Comprehensive income $2,762 $ 309 $4,055 $1,536
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
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<PAGE>
Consolidated Statement of Stockholders' Equity
for the Six Month Period Ended June 30, 2000.
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Common Accumulated
Stock Other Total
Acquired Compre- Stock-
Common Paid-in by Treasury hensive Retained holders'
Stock Capital ESOP/RRP Stock Loss Earnings Equity
----- ------- ------- -------- ------- ------- -------
<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 - - - - - 3,894 3,894
Change in net unrealized loss on
securities available -for-sale - - - - 161 - 161
ESOP shares committed to
be released - 58 114 - - - 172
Amortization of award of RRP stock - - 17 - - - 17
Purchase of treasury stock,
at cost (283,000 shares) - - - (4,027) - - (4,027)
Common stock options exercised
(16,400 shares) 1 166 - - - - 167
Cash dividends declared
($0.34 per share) - - - - - (1,315) (1,315)
----- ------- ------- -------- ------- ------- -------
Balance at June 30, 2000 $ 57 $70,264 $(1,959) $(33,001) $(2,769) $56,002 $88,594
===== ======= ======= ======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
Consolidated Statements of Cash Flows for the
Six Month Period Ended June 30, 2000 and June 30, 1999.
(Dollars in thousands)
Six Months Ended
June 30,
---------------------
2000 1999
-------- ---------
Net cash provided by operating activities $ 20,285 $ 22,356
-------- ---------
Cash flows from investing activities:
Purchases of:
Investment securities available-for-sale (18,558) (133,157)
Proceeds from maturities of:
Investment securities 90 3,000
Investment securities available-for-sale - 34,455
Proceeds from sales of:
Investment securities 3,000 -
Investment securities available-for-sale 49,160 21,962
Principal payments from:
Investment securities 3,567 8,430
Investment securities available-for-sale 6,942 6,118
Redemption of FHLB stock 3,000 -
Net change in loans receivable (10,994) 2,611
Net change in interest-bearing deposits - (100)
Purchases of premises and equipment (899) (197)
Proceeds from sale of premises and equipment 1,018 600
Proceeds from sale of real estate owned 266 204
Disposition of branches, net of cash
and cash equivalents of $1,605 (35,983) -
-------- ---------
Net cash provided (used) by investing activities 609 (56,074)
-------- ---------
Cash flows from financing activities:
Net change in deposits excluding
interest credited (13,775) (18,179)
Net change in repurchase agreements (2,100) (509)
Proceeds from borrowings 732,762 220,560
Payments on borrowings (735,360) (177,961)
Net change in advances from borrowers for
taxes and insurance 345 94
Proceeds from exercise of options 167 302
Payments to acquire treasury stock (4,027) (54)
Dividends paid to stockholders (1,315) (1,223)
-------- ---------
Net cash provided (used) by financing activities (23,303) 23,030
-------- ---------
Net decrease in cash and cash equivalents (2,409) (10,688)
Cash and cash equivalents at beginning of period 26,143 39,634
-------- ---------
Cash and cash equivalents at end of period $ 23,734 $ 28,946
======== =========
Supplemental disclosure of cash flow information:
Payments during the period for:
Interest $ 7,272 $ 6,137
Income taxes, net 2,145 1,608
======== =========
See accompanying notes to consolidated financial statements
Noncash investing and financing activities - In conjunction with the sale of
branches during the six months ended June 30, 2000, the Company disposed of
assets with a book value of $13.4 million and liabilities with a book value of
$51.3 million. The Company transferred loans of $298 and $265 to other real
estate owned during the six-month periods ended June 30, 2000 and 1999,
respectively. On June 24, 1999, the Company declared a dividend of approximately
$908 which is recorded in accrued expenses and other liabilities at June 30,
1999. On June 20, 2000, the Company declared a dividend of approximately $694
which is recorded in accrued expenses and other liabilities at June 30, 2000.
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<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 and six month periods ended June 30, 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 EARNINGS 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
earnings 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
earnings per share:
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
For the Three For the Six
Month Period Month Period
Ended June 30, Ended June 30,
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Numbers of shares on which
basic earnings per share is calculated: 3,918,807 4,337,573 3,988,945 4,323,159
Average outstanding shares during the period
Add: Incremental shares under stock option plans 105,625 130,294 110,545 194,064
Incremental shares related to RRP's - - - 854
========= ========= ========= =========
Number of shares on which diluted earnings
per share is calculated 4,024,432 4,467,867 4,099,490 4,518,077
========= ========= ========= =========
Net income applicable to common stockholders $ 2,034 $ 1,756 $ 3,894 $ 3,340
========= ========= ========= =========
Basic earnings per share $ 0.52 $ 0.40 $ 0.98 $ 0.77
========= ========= ========= =========
Diluted earnings per share $ 0.51 $ 0.39 $ 0.95 $ 0.74
========= ========= ========= =========
</TABLE>
Stock options to purchase 180,669 and 72,169 shares as of June 30,
2000 and June 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 antidilutive.
4. DIVIDENDS DECLARED
On June 20, 2000 the Board of Directors of the Company declared a
quarterly cash dividend of $0.17 per share to stockholders of record on
July 6, 2000, payable on July 20, 2000.
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<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)
--------------------------------------------------------------------------
June 30, 2000 December 31, 1999
------------------------------------ -------------------------------------
Amor- Gross Un- Gross Un- Estimated Amor- Gross Un- Gross Un- Estimated
tized realized realized Fair tized realized realized Fair
Cost Gains Losses Value Cost Gains Losses Value
------- ------ ----- ------- ------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate obligations $ 3,997 $ - $ (10) $ 3,987 $ 9,641 $ 7 $ (19) $ 9,629
Other investments 2,128 321 (5) 2,444 2,214 1 - 2,215
------- ------ ----- ------- ------- ------- ------ -------
Total investment securities 6,125 321 (15) 6,431 11,855 8 (19) 11,844
Mortgage-backed securities 74,201 806 (790) 74,217 75,022 737 (482) 75,277
------- ------ ----- ------- ------- ------- ------ -------
$80,326 $1,127 $(805) $80,648 $86,877 $ 745 $ (501) $87,121
======= ====== ===== ======= ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
(Dollars in Thousands)
---------------------------------------------------------------------------
June 30, 2000 December 31, 1999
------------------------------------- -------------------------------------
Amor- Gross Un- Gross Un- Estimated Amor- Gross Un- Gross Un- Estimated
tized realized realized Fair tized realized realized Fair
Cost Gains Losses Value Cost Gains Losses Value
-------- ------ ----- ------- ------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Agency obligations $39,728 $ - $(1,248) $ 38,480 $ 87,331 $ - $(2,164) $ 85,167
Corporate obligations 18,692 - (430) 18,262 18,432 6 (378) 18,060
Other investments 3,747 70 - 3,817 2,893 92 - 2,985
-------- ------ ------- -------- -------- ------- ------- --------
Total investment securities 62,167 70 (1,678) 60,559 108,656 98 (2,542) 106,212
Mortgage-backed securities 91,424 27 (2,891) 88,560 83,563 228 (2,515) 81,276
-------- ------ ------- -------- -------- ------- ------- --------
$153,591 $ 97 $(4,569) $149,119 $192,219 $ 326 $(5,057) $187,488
======== ====== ======= ======== ======== ======= ======= ========
</TABLE>
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<PAGE>
A COMPARISON OF THE AMORTIZED COST AND ESTIMATED FAIR VALUE OF INVESTMENT
SECURITIES BY CONTRACTUAL MATURITIES AT JUNE 30, 2000 IS AS FOLLOWS:
HELD-TO-MATURITY
(Dollars in Thousands)
June 30, 2000
-----------------
Amortized Estimated
Cost Fair Value
------- -------
Due in one year or less $ 997 $ 992
Due after one year through 5 years 3,240 3,258
Due after 5 years through 10 years 331 408
Due after 10 years 1,557 1,773
------- -------
$ 6,125 $ 6,431
------- -------
AVAILABLE-FOR-SALE
(Dollars in Thousands)
June 30, 2000
-----------------
Amortized Estimated
Cost Fair Value
------- -------
Due in one year or less $ 8,560 $ 8,500
Due after one year through 5 years 46,516 45,050
Due after 5 years through 10 years 149 149
Due after 10 years 6,849 6,701
Other $ 93 $ 159
------- -------
$62,167 $60,559
------- -------
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<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 SIX MONTH PERIOD FROM
DECEMBER 31, 1999 TO JUNE 30, 2000.
General - Total assets decreased $55.3 million to $945.7 million
at June 30, 2000 from $1.001 billion at December 31, 1999. The decrease
in assets was primarily the result of decreases in loans receivable and
loans available-for-sale of $1.9 million, and decreases in investment
securities, Federal Home Loan Bank of Seattle (FHLB) stock and all
other interest earning assets of $51.6 million. Total deposits
decreased $51.8 million while repurchase agreements and borrowed funds
decreased $4.7 million and stockholders' equity decreased $931,000. In
May 2000, the Bank completed the sale of six branches in eastern
Montana that resulted in the sale of $50.5 million of deposits and
$12.2 million of loans with a resulting net gain on sale of branches of
$1.9 million.
Loans Receivable and Loans Available-for-Sale - Loans receivable
and loans available-for-sale decreased $1.9 million to $618.9 million
at June 30, 2000 from $620.8 million at December 31, 1999. The $1.9
million decrease in loans was primarily comprised of decreases in
residential loans of $5.0 million and consumer dealer finance loans of
$14.2 million, while other consumer related loans increased $5.5
million and commercial and agriculture loans increased $12.4 million.
The decrease in loans receivable was primarily the result of principal
repayments of $118.0 million and the sale of loans available-for-sale
of $23.2 million, partially offset by loan originations of $139.8
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.
Investment Securities, FHLB Stock and Other Interest Earning
Assets - Investment securities, FHLB stock and other interest earning
assets decreased $51.6 million to $252.1 million at June 30, 2000 from
$303.7 million at December 31, 1999. The $51.6 million decrease was
primarily the result of the sale of $47.6 million of investment
securities available-for-sale. Proceeds from
- 11 -
<PAGE>
investment sales were used to pay down FHLB advances that funded the
sale of Bank branches during the quarter ended June 30, 2000.
Goodwill and Core Deposit Intangible - Goodwill is being amortized
over 25 years, or approximately $666,000 per year. The core deposit
intangible is amortized on an accelerated basis over its estimated
economic life of seven years, or approximately $299,700 for the six
months ending June 30, 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 six-month LIBOR does not exceed the agreed upon interest rate. At
June 30, 2000, the amount of the unamortized premiums paid related to
the interest rate cap transactions was $1,900. 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
June 30, 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.
Interest Rate Swaps - At June 30, 2000 the Bank did not have any
interest rate swap agreements in place.
At June 30, 2000 the Bank had no structured notes.
- 12 -
<PAGE>
Deposits - Deposits decreased $51.8 million to $606.6 million at
June 30, 2000 from $658.4 million at December 31, 1999, primarily as a
result of the sale of $50.5 million of deposits related to the sale of
six branches.
Borrowed Funds and Repurchase Agreements - Borrowed funds and
repurchase agreements decreased $4.7 million to $230.1 million at June
30, 2000 from $234.8 million at December 31, 1999. There were new
borrowings of $732.8 million with maturities of less than one year. The
increase in new borrowings was offset by principal repayments and
maturities of $737.5 million. The majority of the borrowing activity
has been for periods of less than sixty days to enable the Bank to
borrow at the lowest cost possible to fund loan demand.
Stockholders' Equity - Stockholders' equity decreased $931,000 to
$88.6 million at June 30, 2000 from $89.5 million at December 31, 1999.
This decrease was due to the repurchase of 283,000 shares of common
stock at an average price of $14.23 per share for a total of $4.0
million. This decrease was partially offset by increases in equity
resulting from net income for the six month period of $3.9 million,
$189,000 related to contributions to the Employee Stock Ownership Plan
and shares earned and issued under the Recognition and Retention Plan,
and the issuance of 16,400 new common shares with a recorded value of
$167,000 related to exercised stock options. Stockholders- equity was
also reduced $1.3 million for dividends declared during the six month
period. Stockholders' equity increased $161,000 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 JUNE
30, 2000 AND JUNE 30, 1999.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------
2000 1999
Amount Change Amount
-------- ------ -------
(In Thousands)
<S> <C> <C> <C>
Total interest income $ 17,819 $ 351 $17,468
Total interest expense (10,352) (909) (9,443)
-------- ------ -------
Net interest income 7,467 (558) 8,025
Provision for loan losses (450) (5) (445)
-------- ------ -------
Net interest income after provision for loan losses 7,017 (563) 7,580
-------- ------ -------
Fees and service charges 1,886 (41) 1,927
Net gain (loss) on sale of securities available-for-sale (1,078) (1,142) 64
Other non-interest income 2,192 1,689 503
-------- ------ -------
Total non-interest 3,000 506 2,494
-------- ------ -------
Income before non-interest expense 10,017 (57) 10,074
Total non-interest expense (6,718) 550 (7,268)
-------- ------ -------
Income before income taxes 3,299 493 2,806
Income taxes (1,265) (215) (1,050)
-------- ------ -------
Net income $ 2,034 $ 278 $ 1,756
======== ====== =======
</TABLE>
- 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
----------------------------------------------------------
June 30, 2000 June 30, 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) $625,541 $ 13,009 8.32% $639,762 $13,115 8.20%
Investment securities 275,678 4,631 6.72% 271,150 4,166 6.15%
Other interest-earning assets (4) 3,327 50 6.01% 9,127 99 4.34%
Cash surrender value of life insurance 8,313 129 6.21% 6,889 88 5.11%
-------- -------- ---- ------- ------- ----
Total Interest-Earning Assets $912,859 $ 17,819 7.81% $926,928 $17,468 7.54%
======== ======== ==== ======= ======= ====
INTEREST-BEARING LIABILITIES:
Certificates of deposits $348,401 $ 4,988 5.73% $368,717 $ 4,768 5.17%
Savings accounts 79,345 496 2.50% 89,443 522 2.33%
Demand and NOW accounts 117,271 196 0.67% 114,254 195 0.68%
Money market accounts 79,566 833 4.19% 71,049 674 3.79%
-------- -------- ---- ------- ------- ----
Total deposits 624,583 6,513 4.17% 643,463 6,159 3.83%
Borrowed funds 246,560 3,839 6.23% 242,646 3,284 5.41%
-------- -------- ---- ------- ------- ----
Total interest-bearing liabilities $871,143 $ 10,352 4.75% $886,109 $ 9,443 4.26%
======== ======== ==== ======= ======= ====
Net interest income $ 7,467 $ 8,025
======== =======
Net interest rate spread 3.06% 3.28%
==== ====
Net interest-earning assets $ 41,716 $ 40,819
======== ========
Net interest margin (5) 3.27% 3.46%
==== ====
Average interest-earning assets to average
interest-bearing liabilities
104.79% 104.61%
====== ======
<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 $278,000, or 15.8%, to $2.0 million for
the quarter ended June 30, 2000 as compared to $1.8 million for the same
period last year. Net interest income before provision for loan losses
decreased $558,000 and the provision for loan losses increased $5,000.
Non-interest income increased $506,000 and non-interest expense decreased
$550,000. Income tax expense increased $215,000. There was approximately an
$800,000 net increase to non-interest income related to $1.9 million gain
on the sale of branches and $1.1 million in losses on the sale of
investment securities available-for-sale, both non-recurring, during the
quarter ended June 30, 2000. The net interest margin (net interest income
divided by average interest-earning assets) decreased to 3.27% during the
quarter ended June 30, 2000 from 3.46% during the same period last year.
The interest rate spread decreased to 3.06% at June 30, 2000 as compared to
3.28% at June 30, 1999.
Interest Income - Interest income increased $351,000 to $17.8 million
for the three month period ended June 30, 2000 from $17.5 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 7.81% during the
quarter ended June 30, 2000 from 7.54% during the same period last year,
partially offset by a decrease in the average balance of interest earning
assets of $14.0 million to $912.9 million during the three month ended June
30, 2000 from $926.9 million during the same period last year.
Interest earned on loans receivable decreased $106,000 due primarily to
a $14.3 million decrease in the average balance of loans receivable to
$625.5 million during the three month period ended June 30, 2000 from
$639.8 million for the same period last year. The average yield on loans
receivable increased to 8.32% during the three month period ended June 30,
2000 from 8.20% during the same period last year.
Interest earned on investment securities, FHLB stock and other interest
earning assets increased $457,000. The average balance of these securities
increased $152,000 to $287.3 million during the three month ended June 30,
2000 from $287.2 million during the same period last year. The average
yield increased to 6.70% during the quarter ended June 30, 2000 from 6.06%
during the same period last year.
Interest Expense - Total interest expense increased $909,000 to $10.4
million for the three month period ended June 30, 2000 from $9.4 million
for the same period last year. Interest expense on deposits increased
$354,000 due to an increase in interest rates paid on deposits during the
quarter ended June 30, 2000 as compared to the same period last year. The
average balance of deposits decreased $18.9 million to $624.6 million
during the three month period ended June 30, 2000 from $643.5 million
during the same period last year. The average rate paid increased to 4.17%
during the three month ended June 30, 2000 from 3.83% during the same
period last year. Interest expense on borrowed funds increased $555,000 due
to an increase in the average rate paid on borrowed funds to 6.23% during
the quarter ended June 30, 2000 from 5.41% during the same period last
year. The average balance of borrowed funds increased $4.0 million to
$246.6 million for the three month period ended June 30, 2000 from $242.6
million during the same period last year.
Provisions for Loan Losses - The provision for loan losses increased
$5,000 to $450,000 for the three month period ended June 30, 2000 as
compared to a $445,000 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 change the composition of the loan
portfolio by reducing 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 June 30, 2000 the Company had
$2.9 million of non-performing assets (representing 0.31% of total assets)
as compared to $3.1 million at December 31, 1999 (representing 0.31% of
total assets) and $2.7 million at March 31, 2000 (representing 0.27% of
total assets). At June 30, 2000 the Company had an allowance for loan
losses to non-performing assets of 196.9% as compared to 165.4% at December
31, 1999 and 201.9% at March 31, 2000. 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 for the quarter. 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."
Total non-interest income increased $506,000 to $3.0 million during the
quarter ended June 30, 2000 from $2.5 million during the same period last
year. There was approximately an $800,000 net increase to non-interest
income related to $1.9 million gain on the sale of branches and $1.1
million in losses on the sale of investment securities available-for-sale,
both non-recurring, during the quarter ended June 30, 2000. Non-interest
income for the quarter ended June 30, 1999 included $314,000 from the sale
of the Bank's credit card program, life insurance proceeds and the sale of
a building, reduced by the write down of purchased servicing values. Loan
origination income decreased $368,000 while service fees increased $327,000
for the quarter ended June 30, 2000 as compared to the same period last
year. The decrease in loan origination income was the result of continued
interest rate increases during the current year as compared to a mostly
declining, or stable interest rate environment during the same period last
year. The increase in interest rates resulted in lower volumes of refinance
activity on residential loans during the quarter ended June 30, 2000 as
compared to the same period last year.
Non-interest expenses decreased $550,000, or 7.6%, to $6.7 million for
the quarter ended June 30, 2000, down from $7.3 million for the same period
last year. Included in non-interest expense for the quarter ended June 30,
2000 were $687,000 of additional expenses of which $250,000 were related to
compensation and employee benefits, $269,000 related to net occupancy
expense of premises, $58,000 related to equipment and furnishings,, and
$110,000 of other expenses. Included in non-interest expense for the
quarter ended June 30, 1999 was $575,000 related to payment of retirement
incentives and other non-recurring expenses.
Income Taxes - Income tax expense increased $215,000 due to the
$493,000 increase in income before income taxes.
- 17 -
<PAGE>
4. COMPARISON OF OPERATING RESULTS FOR THE SIX MONTH PERIOD ENDED JUNE 30,
2000 AND JUNE 30, 1999.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
2000 1999
Amount Change Amount
-------- ------ -------
(In Thousands)
<S> <C> <C> <C>
Total interest income $ 35,479 $ 929 $ 34,550
Total interest expense (20,267) (1,453) (18,814)
-------- ------- --------
Net interest income 15,212 (524) 15,736
Provision for loan losses (900) (110) (790)
-------- ------- --------
Net interest income after provision for loan losses 14,312 (634) 14,946
-------- ------- --------
Fees and service charges 3,554 (208) 3,762
Net gain (loss) on sale of securities available-for-sale (1,075) (1,164) 89
Other non-interest income 2,314 1,746 568
-------- ------- --------
Total non-interest 4,793 374 4,419
-------- ------- --------
Income before non-interest expense 19,105 (260) 19,365
Total non-interest expense (12,782) 1,315 (14,097)
-------- ------- --------
Income before income taxes 6,323 1,055 5,268
Income taxes (2,429) (501) (1,928)
-------- ------- --------
Net income $ 3,894 $ 554 $ 3,340
======== ======= ========
</TABLE>
- 18 -
<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>
Six Month Period Ended
----------------------------------------------------------
June 30, 2000 June 30, 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) $624,107 $ 25,825 8.28% $636,754 $26,103 8.20%
Investment securities 284,286 9,340 6.57% 265,043 8,025 6.06%
Other interest-earning assets (4) 3,001 95 6.33% 10,264 244 4.75%
Cash surrender value of life insurance 8,266 219 5.30% 6,896 178 5.16%
-------- -------- ---- -------- ------- ----
Total interest-earning assets $919,660 $ 35,479 7.72% $918,957 $34,550 7.52%
======== ======== ==== ======== ======= ====
INTEREST-BEARING LIABILITIES:
Certificates of deposits $360,162 $ 9,953 5.53% $371,060 $ 9,753 5.26%
Savings accounts 82,467 1,025 2.49% 89,993 1,040 2.31%
Demand and NOW accounts 116,944 392 0.67% 112,612 385 0.68%
Money market accounts 79,016 1,629 4.12% 69,749 1,321 3.79%
-------- -------- ---- -------- ------- ----
Total deposits 638,589 12,999 4.07% 643,414 12,499 3.89%
Borrowed funds 239,675 7,268 6.06% 232,155 6,315 5.44%
-------- -------- ---- -------- ------- ----
Total interest-bearing liabilities $878,264 $ 20,267 4.62% $875,569 $18,814 4.30%
-------- -------- ---- -------- ------- ----
Net interest income $ 15,212 $15,736
======== =======
Net interest rate spread 3.10% 3.22%
==== ====
Net interest-earning assets $ 41,396 $ 43,388
======== ========
Net interest margin (5) 3.31% 3.42%
==== ====
Average interest-earning assets to average
interest-bearing liabilities 104.71% 104.96%
====== ======
<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>
- 19 -
<PAGE>
General - Net income increased $554,000, or 16.6%, to $3.9 million for
the six month period ended June 30, 2000 as compared to $3.3 million for
the same period last year. Net interest income before provision for loan
losses decreased $524,000 and the provision for loan losses increased
$110,000. Non-interest income increased $374,000 and non-interest expense
decreased $1.3 million. Income tax expense increased $501,000. There was
approximately an $800,000 net increase to non-interest income related to
$1.9 million gain on the sale of branches and $1.1 million in losses on the
sale of investment securities available-for-sale, both non-recurring,
during the six month period ended June 30, 2000. The net interest margin
(net interest income divided by average interest-earning assets) decreased
to 3.31% during the six month period ended June 30, 2000 from 3.42% during
the same period last year. The interest rate spread decreased to 3.10% at
June 30, 2000 as compared to 3.22% at June 30, 1999.
Interest Income - Interest income increased $929,000 to $35.5 million
for the six month period ended June 30, 2000 from $34.6 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 7.72% during the six
month period ended June 30, 2000 from 7.52% during the same period last
year, as well as an increase in the average balance of interest earning
assets of $703,000 to $919.7 million during the six month period ended June
30, 2000 from $919.0 million during the same period last year.
Interest earned on loans receivable decreased $278,000 due primarily to
a $12.7 million decrease in the average balance of loans receivable to
$624.1 million during the six month period ended June 30, 2000 from $636.8
million for the same period last year. The average yield on loans
receivable increased to 8.28% during the six month period ended June 30,
2000 from 8.20% during the same period last year.
Interest earned on investment securities, FHLB stock and other interest
earning assets increased $1.2 million primarily due to an increase in the
average balance of these securities of $13.4 million to $295.6 million
during the six month period ended June 30, 2000 from $282.2 million during
the same period last year. The average yield increased to 6.53% during the
six month period ended June 30, 2000 from 5.99% during the same period last
year.
Interest Expense - Total interest expense increased $1.5 million to
$20.3 million for the six month period ended June 30, 2000 from $18.8
million for the same period last year. Interest expense on deposits
increased $500,000 due to an increase in interest rates paid on deposits
during the six month period ended June 30, 2000 as compared to the same
period last year. The average balance of deposits decreased $4.8 million to
$638.6 million during the six month period ended June 30, 2000 from $643.4
million during the same period last year. The average rate paid increased
to 4.07% during the six month ended June 30, 2000 from 3.89% during the
same period last year. Interest expense on borrowed funds increased
$953,000 due to an increase in the average rate paid on borrowed funds to
6.06% during the six month period ended June 30, 2000 from 5.44% during the
same period last year. The average balance of borrowed funds increased $7.5
million to $239.7 million for the six month period ended June 30, 2000 from
$232.2 million during the same period last year.
Provisions for Loan Losses - The provision for loan losses increased
$110,000 to $900,000 for the six month period ended June 30, 2000 as
compared to a $790,000 provision for the same period last year.
Non-interest income increased $374,000 to $4.8 million during the
six-month period ended June 30, 2000 from $4.4 million during the same
period last year. The $374,000 increase resulted primarily from the
non-recurring $800,000 net gain on sale of branches and net loss on sale of
investment
- 20 -
<PAGE>
securities and a $444,000 increase in service fees, partially offset by a
$652,000 decrease in loan origination income. The increasing interest rate
environment that existed during the six month period ended June 30, 2000 as
compared to the lower interest rate environment during the same period last
year resulted in reduced loan refinance activity. Loans sold decreased to
$23.2 million during the six-month period ended June 30, 2000 as compared
to $38.5 million during the same period last year. Seasonal fluctuations in
loan volume and a decline in loan volume due to increased interest rates
could continue to adversely affect origination fees and gains on sale of
loans available-for-sale.
Non-interest expense decreased $1.3 million, or 9.2%, to $12.8
million during the six month period ended June 30, 2000 from $14.1 million
during the same period last year. Compensation and employee benefits
decreased $895,000 and other operating expenses decreased $404,000.
Compensation and employee benefits for the six month period ended June 30,
1999 included $575,000 related to payment of early retirement incentives
and other compensation not incurred during the six month period ended June
30, 2000.
Income Taxes - Income tax expense increased $501,000 due to the $1.1
million increase in income before income taxes and non-taxable life
insurance proceeds of $138,000 included in the six-months ended June 30,
1999.
- 21 -
<PAGE>
Loan Quality -- The following table sets forth the amounts and categories of
non-performing assets in the Company's loan portfolio. At June 30, 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.
June 30, December 31,
2000 1999
------ ------
(In Thousands)
Non-accruing loans:
Real Estate:
One-to-four family $ 549 $ 549
Multi-family - -
Commercial 145 348
Construction 178 324
Agricultural (non real estate) 1,128 1,113
Commercial (non real estate) 41 51
Consumer 556 508
------ ------
Total 2,597 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 17 20
------ ------
Total 17 60
------ ------
Foreclosed Assets:
Real Estate:
One-to-four family 202 94
Multi-family - -
Commercial - -
Land - 26
Consumer 120 48
------ ------
Total 322 168
------ ------
Total non-performing assets $2,936 $3,121
====== ======
Total as a percentage of total assets 0.31% 0.31%
====== ======
Total allowance for loan losses
to non-performing loans
(exclusive of foreclosed assets) 221.12% 174.77%
====== ======
Total allowance for loan losses
to total non-performing assets 196.87% 165.36%
====== ======
Non-Performing Assets - Total non-performing assets decreased $185,000 to $2.9
million at June 30, 2000 from $3.1 million at December 31, 1999. The $185,000
decrease in non-performing assets was primarily the result of a $370,000
decrease in non-performing construction, commercial and agriculture loans. Total
non-performing assets as a percentage of total assets remained stable to 0.31%
at June 30, 2000 as compared to 0.31% at December 31, 1999. The 0.31% is less
than the national composite for thrifts non-performing assets as a percentage of
assets of 0.61% at March 31, 2000, 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 June 30,
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.
- 22 -
<PAGE>
At June 30, 2000 there were no other impaired loans.
The following table sets forth an analysis of the Bank's allowance for
loan losses.
<TABLE>
<CAPTION>
For the Three Month For the Six Month
Period Ended Period Ended
June 30, June 30,
--------------- -----------------
2000 1999 2000 1999
------ ------ ------- -------
<S> <C> <C> <C> <C>
Balance of beginning of period $5,400 $5,009 $ 5,161 $ 4,846
====== ====== ======= =======
Charge-Offs:
Real Estate:
One-to-four family - (47) (17) (47)
Commercial - - - -
Other:
Commercial - - (10) (1)
Consumer (152) (365) (464) (564)
------ ------ ------- -------
Total charge-offs (152) (412) (491) (612)
------ ------ ------- -------
Recoveries:
Real Estate
One-to-four family - - - -
Commercial - - - -
Other:
Commercial 3 2 8 6
Consumer 79 36 202 50
------ ------ ------- -------
Total recoveries 82 38 210 56
------ ------ ------- -------
Net charge-offs (70) (374) (281) (556)
Provisions charged to operations 450 445 900 790
------ ------ ------- -------
Balance at end of period $5,780 $5,080 $ 5,780 $ 5,080
====== ====== ======= =======
Ratio of net charge-offs during the period to average
loans outstanding during the period 0.01% 0.06% 0.05% 0.09%
====== ====== ======= =======
Ratio of net charge-offs during the period to average
non-performing assets during the period 2.50% 9.21% 10.02% 13.68%
====== ====== ======= =======
Ratio of allowance for loan losses to loans receivable, net
before allowance 0.93% 0.80% 0.93% 0.80%
====== ====== ======= =======
</TABLE>
- 23 -
<PAGE>
Regulatory Capital -- At June 30, 2000 the Bank met all applicable
regulatory capital requirements, including the fully phased-in risk based
capital requirements. The following table provides information on a bank only
basis indicating the extent to which the Bank exceeds the minimum capital
requirements under federal regulations as of June 30, 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 June 30, 2000: Amount Ratio Amount Ratio Amount Ratio
------- -------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted
assets) $75,310 12.44% $48,421 8.00% $60,527 10.00%
Core (Tier 1) capital (to
risk-weighted assets) 70,705 11.68 24,211 4.00 36,316 6.00
Core (Tier 1) capital
(to adjusted assets) 70,705 7.63 37,069 4.00 46,337 5.00
Tangible capital (to tangible
assets) 70,705 7.63 13,901 1.50 13,901 1.50
======= ==== ======= ==== ======= ====
</TABLE>
ITEM 3. 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.
The Office of Thrift Supervision ("OTS") has established guidelines for
determining the level of interest rate risk for an OTS regulated institution
and has developed an interagency uniform ratings system establishing several
levels of interest rate risk: "minimal", "moderate", "significant," "high" and
"imminent threat." Based on a 200 basis point increase in interest rates the
Bank's post-shock 6.54% NPV ratio, representing a 189 basis point change from
8.43% pre-shock NPV ratio, indicates a risk rating of "minimal" for the Bank
at March 31, 2000, which is the latest available information as reported by
the OTS.
- 24 -
<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 - None
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 August 8,
2000 to report a dividend declaration of $0.17 per share.
The registrant filed a current report on Form 8-K on August 8,
2000 to report the quarterly earnings release.
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<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: August 14, 2000 /s/ Lyle R. Grimes
-------------------- -------------------------------------
Lyle R. Grimes
Chairman of the Board
Date: August 14, 2000 /s/ Ralph K. Holliday
-------------------- -------------------------------------
Ralph K. Holliday
President/ Chief Executive Officer
Date: August 14, 2000 /s/ James A. Salisbury
-------------------- -------------------------------------
James A. Salisbury
Treasurer and Chief Financial Officer
(Principal Finance and Accounting Officer)
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