SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-26556
KLAMATH FIRST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1180440
- --------------------------------------------- ----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
540 Main Street, Klamath Falls, Oregon 97601
- --------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (541) 882-3444
---------------------
Securities registered pursuant to Section 12(b) of the Act: None
----------------
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01 per share
------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 subject to such
filing requirements for the past 90 days. YES X NO .
As of January 31, 1997, there were issued and outstanding 10,451,223
shares of the Registrant's Common Stock. The Registrant's voting common stock is
traded over-the-counter and is listed on the Nasdaq National Market under the
symbol "KFBI."
<PAGE>
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements Page
Consolidated Statements of Financial Condition
(As of December 31, 1996 and September 30, 1996) 3
Consolidated Statements of Earnings (For the three months
ended December 31, 1996 and 1995) 4
Consolidated Statements of Shareholders' Equity
(For the year ended September 30, 1996 and for the three
months ended December 31, 1996) 5
Consolidated Statements of Cash Flows (For the three months
ended December 31, 1996 and 1995) 6-7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE>
<TABLE>
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1996 (Unaudited) and SEPTEMBER 30, 1996
<CAPTION>
December 31, September 30,
1996 1996
ASSETS ------------- -------------
<S> <C> <C>
Cash and due from banks ........................................................................ $ 4,312,146 $ 6,841,554
Federal funds sold ............................................................................. 12,763,573 9,338,079
------------- -------------
Total cash and cash equivalents ............................................................. 17,075,719 16,179,633
Investment securities available for sale, at fair value ........................................ 61,773,953 75,986,611
(amortized cost: $62,402,968 and $77,071,211)
Investment securities held to maturity, at amortized cost (fair
value: $9,846,550 and $9,860,165) ............................................................ 9,797,660 9,827,193
Mortgage backed and related securities available for sale, at fair
value (amortized cost: $70,189,710 and $74,249,350) .......................................... 70,685,246 74,109,321
Mortgage backed and related securities held to maturity, at amortized
cost (fair value: $6,560,888 and $6,736,007) ................................................. 6,535,659 6,783,001
Loans receivable, net .......................................................................... 488,591,338 473,555,988
Real estate owned .............................................................................. -- 69,483
Premises and equipment, net .................................................................... 4,884,560 4,964,262
Stock in Federal Home Loan Bank of Seattle, at cost ............................................ 7,674,300 4,773,800
Accrued interest receivable, net ............................................................... 5,401,287 5,037,285
Other assets ................................................................................... 674,629 682,814
------------- -------------
Total assets ................................................................................ $ 673,094,351 $ 671,969,391
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Savings deposits ............................................................................. $ 401,813,385 $ 399,673,180
Accrued interest on savings deposits ......................................................... 755,824 712,408
Advances from borrowers for taxes and insurance .............................................. 391,946 7,831,127
Advances from Federal Home Loan Bank of Seattle .............................................. 101,000,000 90,000,000
Short term borrowings ........................................................................ 7,997,500 14,904,400
Accrued interest on borrowings ............................................................... 490,165 323,163
Pension liability ............................................................................ 701,925 668,088
Deferred federal and state income taxes ...................................................... 1,971,147 735,596
Other liabilities ............................................................................ 5,413,109 3,710,455
------------- -------------
Total liabilities .......................................................................... 520,535,001 518,558,417
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares authorized; none issued ...................... -- --
Common stock, $.01 par value, 35,000,000 shares authorized,
December 31, 1996 -11,372,470 issued, 10,002,360 outstanding;
September 30, 1996 -11,612,470 issued, 10,242,360 shares outstanding ....................... 113,724 116,124
Additional paid-in-capital ................................................................... 107,145,313 110,762,678
Retained earnings-substantially restricted ................................................... 60,306,003 59,082,479
Unearned shares issued to ESOP ............................................................... (8,563,188) (8,807,850)
Unearned shares issued to MRDP ............................................................... (6,359,745) (6,694,470)
Net unrealized loss on securities available for sale ......................................... (82,757) (1,047,987)
------------- -------------
Total shareholders' equity ................................................................. 152,559,350 153,410,974
------------- -------------
Total liabilities and shareholders' equity ................................................. $ 673,094,351 $ 671,969,391
============= =============
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
<CAPTION>
December 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
INTEREST INCOME
Loans receivable ....................................................................... $ 9,606,330 $ 8,258,304
Mortgage backed and related securities ................................................. 1,269,267 264,855
Investment securities .................................................................. 1,422,890 1,183,135
Federal funds sold ..................................................................... 284,254 1,080,825
Interest bearing deposits .............................................................. 19,882 131,431
----------- -----------
Total interest income ................................................................ 12,602,623 10,918,550
----------- -----------
INTEREST EXPENSE
Savings deposits ....................................................................... 5,145,930 5,095,856
FHLB advances .......................................................................... 1,541,397 427,139
Other .................................................................................. 228,742 44,112
----------- -----------
Total interest expense ............................................................... 6,916,069 5,567,107
----------- -----------
Net interest income .................................................................. 5,686,554 5,351,443
Provision for loan losses ................................................................ 30,000 30,000
----------- -----------
Net interest income after provision for loan losses .................................. 5,656,554 5,321,443
----------- -----------
NON-INTEREST INCOME
Fees and service charges ............................................................... 71,658 60,873
Gain on sale of investments ............................................................ 2,143 --
Gain on sale of real estate owned ...................................................... 26,297 --
Other income ........................................................................... 12,412 18,597
----------- -----------
Total non-interest income ............................................................ 112,510 79,470
----------- -----------
NON-INTEREST EXPENSE
Compensation, employee benefits and related expense .................................... 1,578,967 981,629
Occupancy expense ...................................................................... 234,485 231,320
Data processing expense ................................................................ 121,079 91,432
Insurance premium expense .............................................................. 229,429 224,642
Loss on sale of investments ............................................................ 14,530 --
Loss on sale of real estate owned ...................................................... -- 4,690
Other expense .......................................................................... 425,445 306,136
----------- -----------
Total non-interest expense ........................................................... 2,603,935 1,839,849
----------- -----------
Earnings before income taxes ............................................................. 3,165,129 3,561,064
Provision for income tax ................................................................. 1,252,042 1,319,925
----------- -----------
Net earnings ............................................................................. $ 1,913,087 $ 2,241,139
=========== ===========
Earnings per common share (based on weighted average shares outstanding) ................. $ .19 $ .20
Weighted average number of shares outstanding ............................................ 10,239,751 11,254,475
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND THE THREE MONTHS ENDED DECEMBER 31, 1996 (Unaudited)
<CAPTION>
Additional Unearned Unrealized Unearned Total
Common Stock Common Stock paid-in Retained ESOP shares gain(loss) on shares issued shareholders'
Shares Amount capital earnings at cost securities to MRDP equity
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
October 1, 1995 ..... 12,233,125 $ 122,331 $119,230,653 $ 55,811,362 $(9,786,500) $ (692,781) $ -- $164,685,065
Cash dividends ...... -- -- -- (2,838,680) -- -- -- (2,838,680)
Earned ESOP shares .. -- -- 417,652 -- 978,650 -- -- 1,396,302
Unrealized loss on
securities available
for sale ............ -- -- -- -- -- (355,206) -- (355,206)
Unearned shares
issued to MRDP Trust -- -- -- -- -- -- (6,694,470) (6,694,470)
Stock retirement .... (620,655) (6,207) (8,885,627) -- -- -- -- (8,891,834)
Net earnings ........ -- -- -- 6,109,797 -- -- -- 6,109,797
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at
September 30, 1996 .. 11,612,470 $ 116,124 $110,762,678 $ 59,082,479 ($ 8,807,850) ($ 1,047,987) ($ 6,694,470) $153,410,974
Cash dividends ...... -- -- -- (689,563) -- -- -- (689,563)
Unrealized gain on
securities available
for sale ............ -- -- -- -- -- 965,230 -- 965,230
Stock retirement .... (240,000) (2,400) (3,732,600) -- -- -- -- (3,735,000)
ESOP contribution ... -- -- 115,235 -- 244,662 -- -- 359,897
MRDP contribution ... -- -- -- -- -- -- 334,725 334,725
Net earnings ........ -- -- -- 1,913,087 -- -- -- 1,913,087
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at
December 31, 1996 ... 11,372,470 $ 113,724 $107,145,313 $ 60,306,003 ($ 8,863,188) ($ 82,757) ($ 6,359,745) $152,559,350
============ ============ ============ ============ ============ ============ ============ ============
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
<CAPTION>
December 31, December 31,
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings .................................................................... $ 1,913,087 $ 2,241,139
------------- -------------
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation .................................................................... 89,796 102,225
Provision for loan losses ....................................................... 30,000 30,000
Compensation expense related to ESOP benefit .................................... 359,897 320,261
Compensation expense related to MRDP Trust ...................................... 334,725 --
Net amortization of premiums (discounts) paid on
investment and mortgage backed and related securities ......................... 118,893 (51,624)
Increase in deferred loan fees, net of amortization ............................. 155,724 91,690
Accretion of discounts on purchased loans ....................................... (81) (79)
Net gain (loss) on sale of real estate owned and premises and equipment ......... (3,234) 4,690
FHLB stock dividend ............................................................. (124,300) (80,800)
CHANGES IN ASSETS AND LIABILITIES
Accrued interest receivable ..................................................... (364,002) (832,738)
Other assets .................................................................... 8,185 150,938
Accrued interest on savings deposits ............................................ 43,416 (418,589)
Accrued interest on borrowings .................................................. 167,002 --
Pension liabilities ............................................................. 33,837 29,637
Deferred federal and state income taxes ......................................... 1,109,631 --
Other liabilities ............................................................... 1,825,964 (959,705)
------------- -------------
Total adjustments .................................................................. 3,785,453 (1,614,094)
------------- -------------
Net cash provided by operating activities .......................................... 5,698,540 627,045
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of investment securities held to maturity ................ 28,949,466 5,500,000
Proceeds from maturity of investment securities available for sale .............. 2,000,000 --
Principal repayments received on mortgage backed and related securities ......... 4,640,984 1,026,279
Principal repayments received on loans .......................................... 11,925,352 13,026,991
Loan originations ............................................................... (27,146,345) (27,108,658)
Purchase of investment securities held to maturity .............................. (28,930,495) --
Purchase of investment securities available for sale ............................ (3,413,607) (64,448,310)
Purchase of mortgage backed and related securities held to maturity ............. -- --
Purchase of mortgage backed and related securities available for sale ........... (5,151,261) (28,931,691)
Purchase of FHLB stock .......................................................... (2,776,200) --
Proceeds from sale of investment securities available for sale .................. 16,080,419 --
Proceeds from sale of mortgage backed and related securities available for sale . 4,710,359 --
Proceeds from sale of real estate owned and premises and equipment .............. 72,717 20,667
Purchases of premises and equipment ............................................. (10,094) (50,236)
------------- -------------
Net cash used in investing activities .............................................. 951,295 (100,964,958)
------------- -------------
(continued on next page)
</TABLE>
6
<PAGE>
<TABLE>
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
(continued from privious page)
<CAPTION>
December 31, December 31,
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in savings deposits, net of withdrawals ..................... $ 2,140,205 ($ 2,264,259)
Proceeds from FHLB advances ..................................................... 89,000,000 20,000,000
Repayments of FHLB advances ..................................................... (78,000,000) --
Proceeds from short term borrowings ............................................. 8,059,000 --
Repayments of short term borrowings ............................................. (14,965,900) --
Repayment from stock over subscription .......................................... -- (65,685,300)
Stock retirement ................................................................ (3,735,000) --
Advances from borrowers for tax and insurance ................................... (7,439,181) (7,167,001)
Dividends paid .................................................................. (812,873) --
------------- -------------
Net cash provided by financing activities .......................................... (5,753,749) (55,116,560)
------------- -------------
Net (decrease) increase in cash and cash equivalents ............................... 896,086 (155,454,473)
Cash and cash equivalents at beginning of quarter .................................. 16,179,633 175,994,270
------------- -------------
Cash and cash equivalents at end of quarter ........................................ $ 17,075,719 $ 20,539,797
============= =============
SUPPLEMENTAL SCHEDULE OF INTEREST AND INCOME
TAXES PAID
Interest paid ................................................................... $ 6,705,650 $ 5,985,696
Income taxes paid ............................................................... 5,000 --
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES
Transfer of investment securities from held
to maturity to available for sale at estimated fair market value .............. $-- $27,171,074
Transfer of mortgage backed and related securities from held to maturity to
available for sale at estimated fair value .................................... -- 1,717,890
Net unrealized gain on securities available for sale ............................ 965,230 224,788
Dividends declared and accrued in other liabilities ............................. 796,073 611,655
See notes to consolidated financial statements.
</TABLE>
7
<PAGE>
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated statements
contain all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of Klamath First Bancorp, Inc.'s (the "Company") Financial
Condition as of December 31, 1996, and September 30, 1996 and the Results of
Operations for the three months ended December 31, 1996 and 1995 and the
Statements of Cash Flows for the three months ended December 31, 1996 and 1995.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. It is suggested that these consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K. The results of operations for the three months ended December 31, 1996 are
not necessarily indicative of the results which may be expected for the entire
fiscal year.
2. ALLOWANCE FOR LOAN LOSSES
<TABLE>
Activity in allowance for loan losses is summarized as follows:
<CAPTION>
December 31, 1996 September 30, 1996
------------------- -------------------
<S> <C> <C>
Balance, beginning of year $927,820 $807,820
Charge-offs -- --
Additions 30,000 120,000
------------------- -------------------
Balance, end of period $957,820 $927,820
=================== ==================
</TABLE>
3. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at December 31, 1996 consisted of eight short term, fixed rate and
adjustable rate London Interbank Offered Rate ("LIBOR") based advances totalling
$76.0 million and four long term, adjustable rate LIBOR based advances totalling
$25.0 million from the Federal Home Loan Bank of Seattle ("FHLB"). The advances
are collateralized in aggregate by certain mortgages or deeds of trust,
securities of the U.S. Government and agencies thereof and cash on deposit with
the FHLB.
<TABLE>
Scheduled maturities of advances from the FHLB were as follows:
<CAPTION>
December 31, 1996 September 30, 1996
----------------------------------------------- ------------------------------------------------
Range of Weighted average Range of Weighted average
Amount interest rates interest rate Amount interest rates interest rate
------------- ------------- ------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Due within one year $ 76,000,000 5.44%-5.61% 5.50% $ 65,000,000 5.40%-5.64% 5.53%
After three but within
four years ......... 25,000,000 5.55%-5.66% 5.61% 25,000,000 5.53%-5.74% 5.66%
------------- -------------
$ 101,000,000 $ 90,000,000
============= =============
</TABLE>
8
<PAGE>
4. SHORT TERM BORROWINGS
Securities sold under agreements to repurchase totalled $8.0 million with an
interest rate of 5.65%. All of the agreements are due within 90 days.
5. REGULATORY CAPITAL
<TABLE>
The following table illustrates the compliance by Klamath First Federal Saving
and Loan Association (the "Association") with applicable regulatory capital
requirements at December 31, 1996:
<CAPTION>
Categorized as "Well
For Capital Capitalized" Under
Adequacy Prompt Corrective
Actual Purposes Action Provision
-------------------- ----------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ----- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital: ......................... $115,115,858 39.1% 23,553,392 8.0 29,441,740 10.0%
(To Risk Weighted Assets)
Tier I Capital: ........................ $114,348,446 38.8% N/A 17,665,044 6.0%
(To Risk Weighted Assets)
Tier I Capital: ........................ $114,348,446 18.1% 18,935,986 3.0 31,559,976 5.0%
(To Total Assets)
Tangible Capital: ...................... $114,348,446 18.1% 9,467,993 1.5% N/A
(To Total Assets)
</TABLE>
6. SHAREHOLDERS' EQUITY
During the quarter, the Company received approval from the Office of Thrift
Supervision to repurchase 10% of its outstanding shares. This repurchase began
on December 31, 1996, with the repurchase of 240,000 shares, leaving a balance
of 821,247 to be repurchased before September 30, 1997. The stock repurchase
program, however, was completed on January 16th, 1997 at an average price of
$15.62 a share.
7. EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average number of shares
outstanding during the period. Shares held by the Company's Employee Stock
Ownership Plan ("ESOP") are considered outstanding only at such time as they are
committed for release. The Company's Management Recognition and Development Plan
("MRDP") shares are considered outstanding at such time as they are committed
for release. The company completed its initial stock offering in October 1995.
Accordingly, earnings per share for any periods beginning prior to December 31,
1995 are not applicable. Weighted average shares outstanding for the three month
period ending December 31, 1996 and December 31, 1995 were 10,239,751 shares and
11,254,475 shares, respectively.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Clause. This report contains certain "forward-looking statements."
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and is including this statement
for the express purpose of availing itself of the protection of such safe harbor
with respect to all of such forward-looking statements. These forward-looking
statements, which are included in Management's Discussion and Analysis, describe
future plans or strategies and include the Company's expectations of future
financial results. The words "believe," "expect," "anticipate," "estimate,"
"project," and similar expressions identify forward looking statements. The
Company's ability to predict results or the effect of future plans or strategies
is inherently uncertain. Factors which could affect actual results include
interest rate trends, the general economic climate in the Company's market area
and the country as a whole, loan delinquency rates, and changes in federal and
state regulation. These factors should be considered in evaluating the
forward-looking statements, and undue reliance should not be placed on such
statements.
General
The Company became the unitary savings and loan holding company for the
Association upon the Association's conversion from a federally chartered mutual
to a federally chartered stock savings and loan association ("Conversion") on
October 4, 1995. At December 31, 1996, the Company had total consolidated assets
of $673.1 million and consolidated shareholders' equity of $152.6 million. The
Company is currently not engaged in any other business activity other than
holding the stock of the Association and investing excess cash in investment
securities or mortgage backed securities. Accordingly, the information set forth
in this report, including financial statements and related data, relates to the
Association.
As a traditional, community-oriented, savings and loan, the Association focuses
on customer service within its principal market area. The Association's primary
market activity is attracting deposits from the general public and using those
and other available sources of funds to originate permanent residential one- to
four-family real estate loans within its market area and, to a lesser extent, on
commercial property and multi-family dwellings.
Net interest income, which is the difference between interest and dividend
income on interest-earning assets, primarily loans and investment securities,
and interest expense on interest-bearing deposits and borrowings, is the major
source of profitability for the Company. Because the Company depends primarily
on net interest income for its earnings, the focus of the Company's management
is to create and implement strategies that will provide stable, positive spreads
between the yield on interest-earning assets and the cost of interest-bearing
liabilities. Such strategies include the Association's recent introduction of a
variable rate home equity lending program that will have an interest rate tied
to the Wall Street Journal published prime rate with an additional margin of
2.0%. To a lesser degree, the net earnings of the Company rely on the level of
its non-interest income. The Company is aggressively pursuing strategies to
improve its service charges and other fees income, and decreasing its non-
interest expense, which includes employee compensation and benefits, occupancy
and equipment expense, deposit insurance premiums and miscellaneous other
expenses, as well as federal and state income tax expense.
The Association is regulated by the Office of Thrift Supervision ("OTS") and its
deposits are insured up to applicable limits under the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Association is a member of the Federal Home Loan Bank of Seattle, conducting
its business through eight office facilities, with the main office located in
Klamath Falls, Oregon. The primary market area of the Association are the
counties of Klamath, Jackson and Deschutes in Southern and Central Oregon.
10
<PAGE>
Recently Issued Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." This Statement prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock and stock appreciation rights. The Statement defines a "fair value based
method" of accounting for employee stock options and encourages all entities to
adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation for
those plans using the "intrinsic value based method" under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion No.
25").
Under the fair value based method, compensation cost is measured at the
grant date of the option based on the value of the award and is recognized over
the service period, which is usually the vesting period. Under the intrinsic
value based method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date or other measurement date over the
amount an employee must pay to acquire the stock. The stock options granted
under the Company's stock option plan have no intrinsic value at grant date, and
under Opinion No. 25 no compensation cost is recognized for them. Compensation
cost is recognized for other types of stock-based compensation plans under
Opinion No. 25. Beginning in fiscal year ending September 30, 1997, SFAS No. 123
requires that an employer's audited financial statements include certain
disclosures about stock-based compensation arrangements regardless of the method
used to account for them. An employer that continues to apply the accounting
provisions of Opinion No. 25 will disclose pro forma amounts that reflect the
difference between compensation cost, if any, included in net income and the
related cost measured by the fair value based method, including tax effects,
that would have been recognized in the income statement if the fair valued based
method had been used. The Company will continue to apply Opinion No. 25 in
accounting for stock-based compensation plans.
Changes in Financial Condition
At December 31, 1996, the consolidated assets of the Company totalled $673.1
million, an increase of $1.1 million or 0.16% from September 30, 1996. The
increase in total assets was a result of an increase in net loans receivable of
$15.0 million and a $2.9 million increase in FHLB stock. These increases were
offset by sales and repayments on mortgage backed securities of $3.7 million and
sales and maturities on investment securities of $14.2 million.
Net loans receivable increased by $15.0 million for the quarter, or 3.17%, to
$488.6 million at December 31, 1996, compared to $473.6 at September 30, 1996.
The increase was primarily the result of continued new loan demand, prompted by
aggressive marketing efforts by each branch office, exceeding loan repayments.
Investment securities decreased $14.2 million, or 16.6%, from $85.8 million at
September 30, 1996 to $71.6 million at December 31, 1996. This was the result of
$30.9 million in securities maturing during the quarter and $16.1 million of
securities that were sold, offset by the purchase of $32.3 million in additional
securities.
During the quarter ended December 31, 1996, $4.6 million of principal was repaid
on mortgage backed securities ("MBS") and $4.7 million in available for sale MBS
were sold. In addition, $5.1 million in MBS were purchased, which resulted in
the decreased balance of $77.2 million at December 31, 1996 compared to $80.9
million at September 30, 1996, a decrease of $3.7 million, or 4.6%.
Savings deposits increased $2.1 million, or .5%, from $399.7 million at
September 30, 1996 to $401.8 million at December 31, 1996. Management attributes
the increase to the maintaining of competitive interest rates. Interest credited
on accounts also contributed to the increase.
11
<PAGE>
Advances from borrowers for taxes and insurance decreased $7.4 million from
September 30, 1996 to December 31, 1996, after paying $9.5 million in reserves
for the required real estate taxes due on the Association's loan receivable
portfolio and $300,000 in refunds due to decreased real estate taxes due for the
prior twelve months.
Advances from the FHLB of Seattle increased $11.0 million, or 12.2%, from $90.0
million at September 30, 1996 to $101.0 million at December 31, 1996. The
increase was used to fund the $15.0 million in net loans receivable.
Total shareholders' equity decreased $800,000, or 0.6%, from $153.4 million at
September 30, 1996 to $152.6 million at December 31, 1996. This was the combined
result of $1.9 million in earnings during the three month period of September
30, 1996 to December 31, 1996, the repurchase of stock on December 31, 1996 for
$3.7 million, and declaring a dividend for the first quarter totalling $0.8
million.
RESULTS OF OPERATION
Comparison of Three Months Ended December 31, 1996 and 1995
General. Net interest income increased $335,111 or 6.26% comparing the three
month period ending December 31, 1996 to the same period ending December 31,
1995. Interest income increased $1.7 million, while interest expense increased
by only $1.3 million comparing the three month period ended December 31, 1995 to
the same period ended December 31, 1996. Non-interest income also increased by
$33,040, while non interest expense increased by $764,086 comparing the same two
periods. This resulted in net income decreasing $300,000 or 14.6%, from $2.2
million for the three months ended December 31, 1995 to $1.9 million for the
three months ended December 31, 1996. The additional non-interest expense was
primarily attributable to an $597,000 increase in non-interest expense related
to employee benefit plans adopted in connection with the Conversion.
Interest Income. The increase of $1.7 million in interest income was generated
by an additional $70.2 million in average interest earning assets for the three
months ended December 31, 1996 compared to 1995. The decrease in federal funds
sold income of $.08 million resulted from federal funds sold being redeployed in
mortgage backed securities and loans receivable, resulting in a $1.0 million
increase in interest income on mortgage backed securities and $1.3 million
increase in loans receivable.
The average yield on interest earning assets increased 25 basis points from
7.18% for the three months ended December 31, 1995 to 7.43% for the same period
ended December 31, 1996. This reflects the Company's continued effort to invest
in loans and investments with higher yields, without materially increasing risk.
Interest Expense. Interest expense on savings deposits increased $50,074 for the
three months ended December 31, 1996 as compared to the same period in 1995.
Although total deposits grew by $19.7 million from December 31, 1995 to December
31, 1996, the average interest paid on interest-bearing deposits declined 11
basis points from 5.26% for the three months ended December 31, 1995 to 5.15%
for the same period ended December 31, 1996. Although the average cost of funds
decreased to 5.15%, total interest expense increased due to the $19.7 million in
deposit growth.
Provision for Loan Losses. For both three month periods ending December 31, 1996
and December 31, 1995, the provision for loan losses was $30,000 and there were
not any charge offs during the quarter. At December 31, 1996, the allowance for
loan losses was equal to 447.7% of non-performing assets compared to 485.9% at
September 30, 1996. The decrease in the coverage ratio at December 31, 1996 was
the result of a slight increase non-performing loans from $191,000 at September
30, 1996 to $214,000 at December 31, 1996.
12
<PAGE>
Non-Interest Income. Non-interest income increased $33,040, or 41.6%, to
$112,510 for the three months ended December 31, 1996 from $79,470 for the three
months ended December 31, 1995. The increase was primarily attributable to
increased income from additional fee income, gains on the sale of real estate
owned and gain on sale of investments. Additional fee income came as a result of
aggressive internal marketing efforts to improve fee income from checking
accounts, ATMs, and mortgage life insurance sales.
Non-Interest Expense. Non-interest expense increased $764,086, or 41.5%, for the
three months ended December 31, 1996, from $1.8 million for the comparable
period in 1995 to $2.6 million. Of this increase, $597,338 was attributable to
an increase in compensation and benefit expense in 1996, reflecting the accrual
for Employee Stock Ownership Plan contributions and the Management Recognition
and Development Plan. The balance of the increase was a result of a loss on sale
of investments of $15,000. The ratio of non-interest expense to average total
assets was 1.5% and 1.2% for the three months ended December 31, 1996 and 1995,
respectively.
Income Taxes. Although the provision for income tax increased to 40% of pretax
income for the three months ended December 31, 1996, compared to 37% for the
same period ended December 31, 1995, the provision for income taxes decreased
$68,000 for the three months ended December 31, 1996 compared with the prior
year, as a result of lower pretax earnings for the quarter.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various claims and legal actions
arising in the normal course of business. Management believes that
these proceedings will not result in a material loss to the
Company.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Not applicable.
b) No Current Reports on Form 8-K were filed during the
quarter ended December 31, 1996.
14
<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.
KLAMATH FIRST BANCORP, INC.
Date: February 14, 1997 By: /s/ Gerald V. Brown
---------------------------
Gerald V. Brown, President
and Chief Executive Officer
Date: February 14, 1997 By: /s/ Marshall Jay Alexander
---------------------------
Marshall Jay Alexander,
Vice President
and Chief Financial Officer
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,312
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,764
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 132,459
<INVESTMENTS-CARRYING> 16,333
<INVESTMENTS-MARKET> 16,407
<LOANS> 488,591
<ALLOWANCE> 958
<TOTAL-ASSETS> 673,094
<DEPOSITS> 401,813
<SHORT-TERM> 83,998
<LIABILITIES-OTHER> 9,724
<LONG-TERM> 25,000
0
0
<COMMON> 114
<OTHER-SE> 152,446
<TOTAL-LIABILITIES-AND-EQUITY> 673,094
<INTEREST-LOAN> 9,606
<INTEREST-INVEST> 2,692
<INTEREST-OTHER> 304
<INTEREST-TOTAL> 12,603
<INTEREST-DEPOSIT> 5,146
<INTEREST-EXPENSE> 6,916
<INTEREST-INCOME-NET> 5,657
<LOAN-LOSSES> 30
<SECURITIES-GAINS> (12)
<EXPENSE-OTHER> 2,589
<INCOME-PRETAX> 3,165
<INCOME-PRE-EXTRAORDINARY> 3,165
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,913
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
<YIELD-ACTUAL> 2.16
<LOANS-NON> 214
<LOANS-PAST> 0
<LOANS-TROUBLED> 9
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 928
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 958
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 958
</TABLE>
