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 March 31, 2000
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 April 21, 2000, there were issued 7,512,958 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 Balance Sheets
(As of March 31, 2000 and September 30, 1999) 3
Consolidated Statements of Earnings
(For the three months and six months
ended March 31, 2000 and 1999) 4
Consolidated Statements of Shareholders' Equity
(For the year ended September 30, 1999 and for
the six months ended March 31, 2000) 5
Consolidated Statements of Cash Flows (For the six
months ended March 31, 2000 and 1999) 6 - 7
Notes to Consolidated Financial Statements 8 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 16
Part II. Other Information
- -------- -------------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
<PAGE>
<TABLE>
<CAPTION>
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND SEPTEMBER 30, 1999
(Unaudited)
March 31, 2000 September 30, 1999
ASSETS ---------------- ------------------
<S> <C> <C>
Cash and due from banks ................................................. $ 26,042,691 $ 21,123,217
Interest bearing deposits with banks .................................... 1,222,284 1,231,516
Federal funds sold and securities purchased under agreements to resell .. 4,092,516 2,167,856
--------------- ---------------
Total cash and cash equivalents ...................................... 31,357,491 24,522,589
Investment securities available for sale, at fair value
(amortized cost: $152,101,065 and $161,112,272) ....................... 149,004,467 158,648,057
Investment securities held to maturity, at amortized cost (fair
value: $570,708 and $577,455) ......................................... 558,589 559,512
Mortgage backed and related securities available for sale, at fair
value (amortized cost: $96,891,204 and $73,075,553) ................... 96,537,407 72,695,555
Mortgage backed and related securities held to maturity, at amortized
cost (fair value: $2,385,477 and $2,596,408) .......................... 2,401,850 2,600,920
Loans receivable, net ................................................... 737,092,357 739,793,403
Real estate owned and repossessed assets ................................ 1,536,176 1,494,890
Premises and equipment, net ............................................. 12,096,843 11,581,923
Stock in Federal Home Loan Bank of Seattle, at cost ..................... 11,456,600 10,957,300
Accrued interest receivable ............................................. 7,244,345 7,153,818
Core deposit intangible ................................................. 8,952,002 9,778,341
Other assets ............................................................ 2,529,423 1,855,032
--------------- ---------------
Total assets ......................................................... $ 1,060,767,550 $ 1,041,641,340
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposit liabilities ................................................... $ 709,303,193 $ 720,401,112
Accrued interest on deposit liabilities ............................... 1,182,400 1,184,471
Advances from borrowers for taxes and insurance ....................... 3,775,667 9,758,627
Advances from Federal Home Loan Bank of Seattle ....................... 223,000,000 197,000,000
Short term borrowings ................................................. 1,000,000 --
Accrued interest on borrowings ........................................ 1,078,168 34,484
Pension liabilities ................................................... 898,942 833,644
Deferred income taxes ................................................. 693,099 579,727
Other liabilities ..................................................... 12,044,937 2,263,812
--------------- ---------------
Total liabilities ................................................... 952,976,406 932,055,877
--------------- ---------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares authorized; none issued -- --
Common stock, $.01 par value, 35,000,000 shares authorized,
March 31, 2000 - 7,512,958 issued, 6,668,875 outstanding
September 30, 1999 - 7,908,377 issued, 7,062,092 outstanding ......... 75,130 79,084
Additional paid-in capital ............................................ 39,257,776 43,794,535
Retained earnings-substantially restricted ............................ 78,988,895 76,866,452
Unearned shares issued to ESOP ........................................ (5,382,575) (5,871,900)
Unearned shares issued to MRDP ........................................ (3,008,837) (3,519,296)
Net unrealized loss on securities available for sale, net of tax ...... (2,139,245) (1,763,412)
--------------- ---------------
Total shareholders' equity .......................................... 107,791,144 109,585,463
--------------- ---------------
Total liabilities and shareholders' equity .......................... $ 1,060,767,550 $ 1,041,641,340
=============== ===============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Three Six Six
Months Ended Months Ended Months Ended Months Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans receivable ........................................ $ 14,283,921 $ 14,064,649 $ 28,529,511 $ 27,904,038
Mortgage backed and related securities .................. 1,266,675 391,092 2,350,605 952,302
Investment securities ................................... 2,469,830 2,863,380 4,991,358 6,292,645
Federal funds sold ...................................... 49,320 214,756 146,444 422,316
Interest bearing deposits ............................... 71,432 152,623 173,706 392,772
-------------- -------------- -------------- --------------
Total interest income ................................. 18,141,178 17,686,500 36,191,624 35,964,073
-------------- -------------- -------------- --------------
INTEREST EXPENSE
Deposit liabilities ..................................... 7,036,474 7,263,000 14,059,877 14,681,561
FHLB advances ........................................... 3,182,153 2,135,328 5,953,181 4,346,724
Other ................................................... 19,529 62,775 38,458 220,434
-------------- -------------- -------------- --------------
Total interest expense ................................ 10,238,156 9,461,103 20,051,516 19,248,719
-------------- -------------- -------------- --------------
Net interest income ................................... 7,903,022 8,225,397 16,140,108 16,715,354
Provision for loan losses ................................. 200,000 303,000 308,000 426,000
-------------- -------------- -------------- --------------
Net interest income after provision for
loan losses ......................................... 7,703,022 7,922,397 15,832,108 16,289,354
-------------- -------------- -------------- --------------
NON-INTEREST INCOME
Fees and service charges ................................ 756,168 686,215 1,526,887 1,377,892
Gain on sale of investments ............................. -- 179,135 6,836 307,328
Gain on sale of real estate owned ....................... 748 26,179 118,314 26,179
Other income ............................................ 169,097 54,000 306,352 133,550
-------------- -------------- -------------- --------------
Total non-interest income ............................. 926,013 945,529 1,958,389 1,844,949
-------------- -------------- -------------- --------------
NON-INTEREST EXPENSE
Compensation, employee benefits and related expense ..... 2,884,515 2,549,616 5,632,127 4,963,502
Occupancy expense ....................................... 584,203 561,453 1,135,723 1,120,557
Data processing expense ................................. 243,283 242,978 464,331 482,783
Insurance premium expense ............................... 38,057 77,662 113,886 147,638
Loss on sale of investments ............................. -- -- -- 112,256
Loss on sale of real estate owned ....................... -- 5,398 -- 5,398
Amortization of core deposit intangible ................. 413,169 413,169 826,339 826,339
Other expense ........................................... 1,407,419 1,213,458 3,264,341 2,480,338
-------------- -------------- -------------- --------------
Total non-interest expense ............................ 5,570,646 5,063,734 11,436,747 10,138,811
-------------- -------------- -------------- --------------
Earnings before income taxes .............................. 3,058,389 3,804,192 6,353,750 7,995,492
Provision for income tax .................................. 1,184,248 1,508,741 2,450,999 3,246,226
-------------- -------------- -------------- --------------
Net earnings .............................................. $ 1,874,141 $ 2,295,451 $ 3,902,751 $ 4,749,266
============== ============== ============== ==============
Earnings per common share - basic ......................... $ 0.28 $ 0.32 $ 0.57 $ 0.59
Earnings per common share - fully diluted ................. $ 0.28 $ 0.31 $ 0.57 $ 0.57
Weighted average common shares outstanding - basic ........ 6,769,260 7,261,474 6,896,199 8,095,744
Weighted average common shares outstanding - with dilution 6,769,260 7,485,198 6,896,199 8,343,948
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1999 AND THE SIX MONTHS ENDED MARCH 31, 2000
(Unaudited)
Unearned Unearned
Common Common Additional shares shares Other Total
stock stock paid-in Retained issued issued comprehensive shareholders'
shares amount capital earnings to ESOP to MRDP income (loss) equity
--------- ----------- ----------- ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1998 8,898,972 $ 99,168 $82,486,183 $71,051,445 ($6,850,550) ($4,536,865) $ 2,831,574 $145,080,955
Cash dividends ............ -- -- -- (3,340,186) -- -- -- (3,340,186)
Stock repurchased and retired (2,008,389) (20,084) (39,314,056) -- -- -- -- (39,334,140)
ESOP contribution ......... 97,865 -- 602,287 -- 978,650 -- -- 1,580,937
MRDP contribution ......... 73,644 -- 20,121 -- -- 1,017,569 -- 1,037,690
------------ ------------ ---------- ---------- ---------- ---------- ---------- -----------
7,062,092 79,084 43,794,535 67,711,259 (5,871,900) (3,519,296) 2,831,574 105,025,256
Comprehensive income
Net earnings ............ 9,155,193 9,155,193
Other comprehensive income:
Unrealized loss on
securities, net of tax
and reclassification
adjustment .........(1) (4,594,986) (4,594,986)
------------
Total comprehensive
income ............... 4,560,207
------------ ---------- ----------- ----------- ----------- ----------- ----------- ------------
Balance at September 30, 1999 7,062,092 79,084 43,794,535 76,866,452 (5,871,900) (3,519,296) (1,763,412) 109,585,463
Cash dividends ............ -- -- -- (1,780,308) -- -- -- (1,780,308)
Stock repurchased and retired (395,419) (3,954) (4,615,030) -- -- -- -- (4,618,984)
ESOP contribution ......... -- -- 71,417 -- 489,325 -- -- 560,742
MRDP contribution ......... 2,202 -- 6,854 -- -- 510,459 -- 517,313
------------ ---------- ----------- ---------- ---------- ----------- ---------- -----------
6,668,875 75,130 39,257,776 75,086,144 (5,382,575) (3,008,837) (1,763,412) 104,264,226
Comprehensive income
Net earnings ............ 3,902,751 3,902,751
Other comprehensive income:
Unrealized loss on
securities, net of tax
and reclassification
adjustment ........(2) (375,833) (375,833)
------------
Total comprehensive
income ............... 3,526,918
------------ ---------- ----------- ----------- ----------- ----------- ----------- ------------
Balance at March 31, 2000 . 6,668,875 $ 75,130 $39,257,776 $78,988,895 ($5,382,575)($3,008,837) ($2,139,245) $107,791,144
============ ========== =========== =========== =========== =========== =========== ============
<FN>
(1) Net unrealized holding loss on securities of $4,332,997 (net of $2,655,708 tax benefit) less reclassification adjustment
for gains included in net earnings of $261,989 (net of $160,574 tax expense).
(2) Net unrealized holding loss on securities of $325,851 (net of $199,715 tax benefit) less reclassification adjustment
for gains included in net earnings of $49,982 (net of $30,634 tax expense).
See notes to consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
Six Months Ended Six Months Ended
March 31, March 31,
2000 1999
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net earnings .......................................... $ 3,902,751 $ 4,749,266
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization ......................... 1,455,295 1,447,131
Provision for deferred taxes .......................... 343,721 (653,002)
Provision for loan losses ............................. 308,000 426,000
Provision for loss on real estate owned ............... 120,000 --
Compensation expense related to ESOP benefit .......... 560,742 848,678
Compensation expense related to MRDP Trust ............ 517,313 507,104
Net amortization of premiums (discounts) paid on
investment and mortgage backed and related securities 128,325 (65,700)
Increase in deferred loan fees, net of amortization ... (270,335) 434,825
Accretion of discounts on purchased loans ............. (689) 2,602
Net (gain) loss on sale of real estate owned and
premises and equipment .............................. (129,314) (20,781)
Net (gain) loss on sale of investment and mortgage
backed and related securities ....................... (6,836) (195,072)
FHLB stock dividend ................................... (381,800) (396,800)
CHANGES IN ASSETS AND LIABILITIES
Accrued interest receivable ........................... (90,527) 837,669
Other assets .......................................... (754,391) (396,545)
Accrued interest on deposit liabilities ............... (2,071) (91,195)
Accrued interest on borrowings ........................ 1,043,684 (93,595)
Pension liabilities ................................... 65,298 65,298
Other liabilities ..................................... 9,977,914 926,974
---------------- ----------------
Net cash provided by operating activities ................. 16,787,080 8,332,857
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of investment securities
held to maturity .................................... -- 82,130,000
Proceeds from maturity of investment securities
available for sale .................................. -- 29,072,000
Principal repayments received on mortgage
backed and related securities held to maturity ..... 196,011 693,758
Principal repayments received on mortgage
backed and related securities available for sale ... 5,333,869 10,104,457
Principal repayments received on loans ................ 49,032,568 86,664,019
Loan originations ..................................... (51,915,658) (135,767,224)
Loans purchased ....................................... -- (4,764,023)
Loans sold ............................................ 4,108,823 --
Purchase of investment securities held
to maturity ......................................... -- (79,711,523)
Purchase of investment securities available
for sale ............................................ (1,110,000) (6,331,027)
Purchase of mortgage backed and related
securities available for sale ....................... (29,197,384) --
Purchase of FHLB stock ................................ (117,500) --
Proceeds from sale of investment securities
available for sale .................................. 10,051,563 10,302,314
Proceeds from sale of mortgage backed and related
securities available for sale ....................... -- 9,454,776
Proceeds from sale of real estate owned and
premises and equipment .............................. 1,406,366 258,865
Purchases of premises and equipment ................... (1,063,876) (245,363)
---------------- ----------------
Net cash provided by (used in) investing activities ....... (13,275,218) 1,861,029
---------------- ----------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
(Continued)
Six Months Ended Six Months Ended
March 31, March 31,
2000 1999
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposit liabilities,
<S> <C> <C>
net of withdrawals .................................. ($ 11,097,919) $ 34,635,840
Proceeds from FHLB advances ........................... 429,500,000 5,000,000
Repayments of FHLB advances ........................... (403,500,000) (5,000,000)
Proceeds from short term borrowings ................... 1,000,000 8,595,000
Repayments of short term borrowings ................... -- (20,707,500)
Stock repurchase and retirement ....................... (4,618,984) (38,980,733)
Advances from borrowers for taxes and insurance ....... (5,982,960) (5,462,456)
Dividends paid ........................................ (1,977,097) (1,646,113)
---------------- ----------------
Net cash provided by (used in) financing activities ....... 3,323,040 (23,565,962)
---------------- ----------------
Net (decrease) increase in cash and cash
equivalents ............................................. 6,834,902 (13,372,076)
Cash and cash equivalents at beginning
of period ............................................... 24,522,589 66,985,269
---------------- ----------------
Cash and cash equivalents at end of period ................ $ 31,357,491 $ 53,613,193
================ ================
SUPPLEMENTAL SCHEDULE OF INTEREST AND
INCOME
TAXES PAID
Interest paid ......................................... $ 19,009,603 $ 19,433,509
Income taxes paid ..................................... 2,940,000 3,001,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Net unrealized gain (loss) on securities
available for sale .................................. ($ 375,833) ($ 1,959,800)
Dividends declared and accrued in other
liabilities ......................................... 976,685 951,920
<FN>
See notes to consolidated financial statements
</FN>
</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 financial
statements contain all adjustments necessary for a fair presentation of Klamath
First Bancorp, Inc.'s (the "Company") financial condition as of March 31, 2000
and September 30, 1999, the results of operations for the three and six months
ended March 31, 2000 and 1999 and cash flows for the six months ended March 31,
2000 and 1999. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. These consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K. The results
of operations for the three and six months ended March 31, 2000 are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. COMPREHENSIVE INCOME
For the three months ended March 31, 2000, the Company's total comprehensive
income was $2.5 million compared to $1.8 million for the three months ended
March 31, 1999. Total comprehensive income for the three months ended March 31,
2000 was comprised of net income of $1.9 million and other comprehensive income
of $666,937, net of tax. Total comprehensive income for the three months ended
March 31, 1999 was comprised of net income of $2.3 million and other
comprehensive loss of $526,025, net of tax.
For the six months ended March 31, 2000, the Company's total comprehensive
income was $3.5 million compared to $2.8 million for the six months ended March
31, 1999. Total comprehensive income for the six months ended March 31, 2000 was
comprised of net income of $3.9 million and other comprehensive loss of
$375,833, net of tax. Total comprehensive income for the six months ended March
31, 1999 was comprised of net income of $4.7 million and other comprehensive
loss of $1.9 million, net of tax.
8
<PAGE>
3. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Six Month Ended Year Ended
March 31, September 30,
2000 1999
------------ ------------
<S> <C> <C>
Balance, beginning of period $2,483,625 $1,949,677
Charge-offs (155,716) (398,052)
Recoveries 346,669 --
Additions 308,000 932,000
---------- ----------
Balance, end of period $2,982,578 $2,483,625
========== ==========
</TABLE>
At March 31, 2000, impaired loans totalled $445,562. Specifically allocated loan
loss reserves related to these loans totalled $32,500. The average investment in
impaired loans for the three months and six months ended March 31, 2000 was
$913,560 and $648,610, respectively. There were no impaired loans at March 31,
1999 or during the six months then ended.
4. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at March 31, 2000 consisted of one short term advance totaling $50.0
million and eight long term advances totaling $173.0 million from the Federal
Home Loan Bank of Seattle ("FHLB"). The advances are collateralized in aggregate
by certain mortgages or deeds of trust and securities of the U.S. Government and
agencies thereof.
Scheduled maturities of advances from the FHLB were as follows:
<TABLE>
<CAPTION>
March 31, 2000 September 30, 1999
----------------------------------------------- --------------------------------------------
Range of Weighted Range of Weighted
interest average interest average
Amount rates interest rate Amount rates interest rate
------------- ------------ -------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Due within one year . $ 50,000,000 6.08% 6.08% $-- -- --
After one but within
five years .......... 15,000,000 5.70%-5.96% 5.87% 40,000,000 5.39%-5.70% 5.43%
After five but within
ten years ........... 158,000,000 4.77%-7.05% 5.86% 157,000,000 4.77%-5.87% 5.32%
------------ ------------
$223,000,000 $ 197,000,000
============ =============
</TABLE>
5. SHORT TERM BORROWINGS
Short term borrowings at March 31, 2000 consisted of $1.0 million in credit line
borrowing from a financial institution at a rate of 9.00%.
6. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingencies that are not reflected in the accompanying
consolidated financial statements. In addition, the Company is a defendant in
certain claims and legal actions arising in the ordinary course of business. In
the opinion of management, after consultation with legal counsel, the ultimate
disposition of these matters is not expected to have a material adverse effect
on the consolidated financial condition of the Company.
9
<PAGE>
7. SHAREHOLDERS' EQUITY
In September 1998, the Board of Directors authorized the repurchase of
approximately 20 percent of the Company's outstanding common stock. The
repurchase was completed through a "Modified Dutch Auction Tender." Under this
procedure, the Company's shareholders were given the opportunity to sell part or
all of their shares to the Company at a price of not less than $18.00 per share
and not more than $20.00 per share. Results of the offer were finalized on
January 15, 1999 when the Company announced purchase of 1,984,090 shares at
$19.50 per share. This represented approximately 85.9 percent of the shares
tendered at $19.50 per share or below, and 64.7 percent of all shares tendered.
The value of the shares purchased was approximately $38.7 million.
In December 1999, the Company announced a five percent stock repurchase plan to
be completed over a twelve month period. As of March 31, 2000, the repurchase
had been completed with the purchase of 395,419 shares at an average price of
$11.68 per share and a total cost of $4.6 million.
8. EARNINGS PER SHARE
Earnings per share ("EPS") is computed in accordance with SFAS No. 128,
"Earnings per Share." Shares held by the Company's Employee Stock Ownership Plan
("ESOP") that are committed for release are considered common stock equivalents
and are included in weighted average shares outstanding (denominator) for the
calculation of basic and diluted EPS. Diluted EPS is computed using the treasury
stock method, giving effect to potential additional common shares that were
outstanding during the period. Potential dilutive common shares include shares
awarded but not released under the Company's Management Recognition and
Development Plan ("MRDP"), and stock options granted under the Stock Option
Plan. Following is a summary of the effect of dilutive securities on weighted
average number of shares (denominator) for the basic and diluted EPS
calculations. There are no resulting adjustments to net earnings. There were no
dilutive MRDP shares or stock options for the three and six months ended March
31, 2000.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
2000 1999
------------- -----------
Weighted average common
<S> <C> <C>
shares outstanding - basic 6,769,260 7,261,474
------------- -----------
Effect of Dilutive Securities on Number of Shares:
MRDP shares ................................................ -- 37,252
Stock options .............................................. -- 186,472
------------ -----------
Total Dilutive Securities .................................. -- 223,724
------------ -----------
Weighted average common shares
outstanding - with dilution ............................... 6,769,260 7,485,198
============ ===========
For the Six Months Ended
March 31, March 31,
2000 1999
------------ -----------
Weighted average common
shares outstanding - basic ................................. 6,896,199 8,095,744
------------ -----------
Effect of Dilutive Securities on Number of Shares:
MRDP shares ................................................ -- 36,218
Stock options .............................................. -- 211,986
------------ -----------
Total Dilutive Securities .................................. -- 248,204
------------ -----------
Weighted average common shares
outstanding - with dilution ............................... 6,896,199 8,343,948
============ ===========
</TABLE>
10
<PAGE>
9. REGULATORY CAPITAL
The following table illustrates the compliance by Klamath First Federal Savings
and Loan Association (the "Association") with currently applicable regulatory
capital requirements at March 31, 2000:
<TABLE>
<CAPTION>
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
---------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
As of March 31, 2000: ------------ ------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Total Capital: ........... $100,869,999 18.3% $ 44,211,760 8.0% $ 55,264,700 10.0%
(To Risk Weighted Assets)
Tier I Capital: .......... 98,150,347 17.8% N/A N/A 33,158,820 6.0%
(To Risk Weighted Assets)
Tier I Capital: .......... 98,150,347 9.3% 42,090,114 4.0% 52,612,642 5.0%
(To Total Assets)
Tangible Capital: ........ 98,150,347 9.3% 15,783,792 1.5% N/A N/A
(To Tangible Assets)
</TABLE>
10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued. SFAS No.133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The effective date of this
Statement was deferred by the issuance of SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133. This Statement is now effective for fiscal years
beginning after June 15, 2000.
The Company has determined that it currently has no instruments or contracts
that meet the scope of SFAS No. 133. Accordingly, the adoption of this Statement
in 2001 is not expected to have a material impact on the financial statements of
the Company.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other portions of this report contain certain "forward-looking
statements" concerning the future operations of Klamath First Bancorp, Inc.
Management 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 the Company of the protections of such safe
harbor with respect to all "forward-looking statements" contained in this
quarterly report. We have used "forward-looking statements" to describe future
plans and strategies, including our expectations of the Company's future
financial results. Management'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 which could affect the
collectibility of loan balances, the ability to increase non-interest income
through expansion of new lines of business, the ability of the Company to
control costs and expenses, competitive products and pricing, loan delinquency
rates, and changes in federal and state regulation. These factors should be
considered in evaluating the "forward-looking statements," and undue reliance
should not be placed on such statements.
General
The Company, an Oregon corporation, 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 March 31, 2000, the Company had total
consolidated assets of $1.06 billion and consolidated shareholders' equity of
$107.8 million. The Company is currently not engaged in any business activity
other than holding the stock of the Association. Accordingly, the information
set forth in this report, including financial statements and related data,
relates primarily to the Association.
The Association is a traditional, community-oriented savings and loan
association that focuses on customer service within its primary market area.
Accordingly, the Association is primarily engaged in attracting deposits from
the general public through its offices 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. While the Association has historically
emphasized fixed rate mortgage lending, it has been diversifying its loan
portfolio by focusing on increasing the number of originations of commercial
real estate loans, multi-family residential loans, residential construction
loans, small business loans and non-mortgage consumer loans. A significant
portion of these newer loan products carry adjustable rates, higher yields, or
shorter terms than the traditional fixed rate mortgages. This lending strategy
is designed to enhance earnings, reduce interest rate risk, and provide a more
complete range of financial services to customers and the local communities
served by the Association.
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 profit 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 expansion of its consumer
and commercial loan products. Consumer and commercial loans increased 50% from
$13.7 million at March 31, 1999 to $20.5 million at March 31, 2000. The Company
hired an experienced commercial loan officer to spearhead the plan to further
increase commercial
12
<PAGE>
loan growth. After only 90 days in operation, the commercial lending department
has over $10 million in loans in the pipeline. 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 charge and
fee income, and control its non-interest expense, which includes employee
compensation and benefits, occupancy and equipment expense, deposit insurance
premiums and miscellaneous other expenses.
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 35 office facilities, with the main office located in
Klamath Falls, Oregon. The Association has applied for approval to open new
branches in Central Point, near Medford, and Redmond, Oregon. The primary market
areas of the Association are the state of Oregon and adjoining areas of
California and Washington.
Changes in Financial Condition
At March 31, 2000, the consolidated assets of the Company totaled $1.061
billion, up 1.84% from $1.042 billion at September 30, 1999.
Net loans receivable decreased by $2.7 million to $737.1 million at March 31,
2000, compared to $739.8 million at September 30, 1999. Rising mortgage interest
rates have dampened mortgage demand, reducing loan originations during the last
six months. In addition, the Company sold $4.1 million in single family mortgage
loans to Fannie Mae, further reducing loans receivable.
Investment securities decreased $9.6 million, or 6.06%, from $159.2 million at
September 30, 1999 to $149.6 million at March 31, 2000. This decrease was
primarily the result of sale of $10.1 million of investment securities available
for sale.
During the six months ended March 31, 2000, $5.5 million of principal payments
were received on mortgage backed and related securities ("MBS") and $29.2
million of MBS available for sale were purchased, resulting in an overall
increase in the balance of MBS from $75.3 million at September 30, 1999 to $98.9
million at March 31, 2000.
Deposit liabilities decreased $11.1 million, or 1.54%, from $720.4 million at
September 30, 1999 to $709.3 million at March 31, 2000. The decrease reflects
the Company's strategy to rely on Federal Home Loan Bank of Seattle borrowed
funds which can be acquired at lower rates than corresponding maturities of new
deposits. This approach controls interest expense as well as managing scheduled
liability maturities.
Advances from borrowers for taxes and insurance decreased $6.0 million from
September 30, 1999 to March 31, 2000. The decrease is the result of using the
reserves to pay the required real estate taxes due on the Association's loans
receivable portfolio in November.
The Company's total borrowings increased $26.0 million from September 30, 1999
to March 31, 2000. The majority of the increase was used to purchase MBS as part
of the plan to manage interest rate risk.
Total shareholders' equity decreased $1.8 million, or 1.64%, from $109.6 million
at September 30, 1999 to $107.8 million at March 31, 2000. This decrease was
primarily the result of a $4.6 million reduction due to the buyback of shares
and a $375,833 increase in unrealized losses on securities available for sale,
partially offset by $3.9 million in earnings for the six month period.
13
<PAGE>
Results of Operations
Comparison of Six Months Ended March 31, 2000 and 1999
General. The higher interest rate environment, the inverted yield curve, and low
loan volume had an adverse effect on earnings, primarily by lowering loan demand
throughout the Company's statewide market. Net income decreased by $846,515, or
17.82%, from $4.7 million for the six months ended March 31, 1999 to $3.9
million for the six months ended March 31, 2000. Increases in interest income
and non-interest income were offset by increases in interest expense and
non-interest expense.
Interest Income. Additional interest income generated by the $26.6 million
increase in average interest earning assets contributed to an increase of
$227,551 in interest income for the six months ended March 31, 2000 compared to
1999. Interest income on loans receivable increased $625,473, or 2.24%, from
$27.9 million for the six months ended March 31, 1999 to $28.5 million for the
same period of 2000. This increase was a result of the $45.4 million increase in
average loans receivable. The increase in interest on loans was offset by a
$494,938 decrease in interest on federal funds and interest bearing deposits.
Short term investments matured and interest bearing deposits were liquidated to
provide funds for stock repurchase programs in January 1999, December 1999, and
January 2000, reducing average investment balances, thus generating less income.
The average yield on interest earning assets decreased 14 basis points to 7.18%
for the six months ended March 31, 2000 compared to 7.32% for the same period
ended March 31, 1999. Interest rate spread (the difference between the rates
earned on interest earning assets and the rates paid on interest bearing
liabilities) decreased from 2.72% to 2.59% and interest rate margin (net
interest income divided by average interest earning assets) decreased from 3.40%
to 3.20% comparing the six month periods.
Interest Expense. Total interest expense increased $802,797, or 4.17%, for the
six months ended March 31, 2000 compared to the same period in 1999. That
increase was the combined result of a $621,684 decrease in interest on deposit
liabilities and a $1.6 million increase in interest expense on FHLB advances.
Interest on deposit liabilities declined due to a 20 basis point reduction in
the average interest rate paid on deposit accounts. Interest expense on FHLB
advances increased with the $36.9 million increase in average borrowings and a
45 basis point increase in the average rate paid.
Provision for Loan Losses. The provision for loan losses was $308,000 and there
were $155,716 of charge offs and $346,669 of recoveries during the six months
ended March 31, 2000 compared to a $426,000 provision and $3,000 of charge offs
during the six months ended March 31, 1999. As the Company has grown over the
last twelve months, the composition of the loan portfolio has changed with
increases in construction loans and commercial and consumer loans, which are
considered to have more associated risk than the Company's traditional portfolio
of one- to four-family residential mortgages. Because of the Company's history
of relatively low loan loss experience, it has historically maintained an
allowance for loan losses at a lower percentage of total loans as compared with
other institutions with higher risk loan portfolios and higher loss experience.
The increased provision for loan losses reflects such changes in the composition
of the loan portfolio, although the Company's recent experience has not
indicated a deterioration in loan quality. The balance of non-performing loans
has decreased during the current fiscal year, primarily as a result of the pay
off of a $1.5 million land development loan. The Company is not anticipating any
material loss on the remaining non-performing loans at this time.
Non-Interest Income. Non-interest income increased $113,440, or 6.15%, to $2.0
million for the six months ended March 31, 2000 from $1.8 million for the six
months ended March 31, 1999. Fees and service charges increased by 10.81% due to
an increase in deposit accounts subject to service charges. In the time since
March 31, 1999 the Company initiated a program to sell mortgage loans and
established a retail investment subsidiary, Klamath First Financial Services.
The results of these actions can be seen in the 129.39% increase in other
non-interest income from $133,550 for the six months ended March 31, 1999 to
$306,352 for the six months ended March 31, 2000. Of this increase $60,800 is
14
<PAGE>
from profit on sale of mortgage loans and $68,487 is income from the new
investment subsidiary.
Non-Interest Expense. Non-interest expense increased $1.3 million, or 12.80%, to
$11.4 million for the six months ended March 31, 2000, from $10.1 million for
the comparable period in 1999. Compensation, employee benefits, and related
expense increased $668,625, or 13.47% from $5.0 million for the six months ended
March 31, 1999 to $5.6 million for the same period in 2000. Of this increase,
$243,787 relates directly to an increase in salary expense. The remaining
increase in compensation expense is a function of a routine accounting procedure
wherein a portion of compensation expense is allocated to the cost of
originating loans and such cost is deferred and taken to expense over the life
of the loans. Because the number of loan originations decreased significantly
for the six months ended March 31, 2000 compared to the previous year, less
compensation cost was allocated to loan originations and deferred, resulting in
an increase in compensation expense. Other non-interest expense increased by
$784,003, or 31.61%, comparing the six months ended March 31, 2000 with the same
period of 1999. Approximately $400,000 of this increase is due to charges
related to foreclosure of a commercial real estate property. The ratio of
non-interest expense to average total assets was 2.18% and 1.97% for the six
months ended March 31, 2000 and 1999, respectively.
Income Taxes. The provision for income taxes decreased $795,227 for the six
months ended March 31, 2000 compared with the prior year. The effective tax rate
was evaluated and revised to 38.57% for the six months ended March 31, 2000
compared to 40.60% for the same period of 1999.
Comparison of Three Months Ended March 31, 2000 and 1999
General. Basic earnings per share decreased from $.32 for the quarter ended
March 31, 1999 to $.28 for the same period of 2000. Net income decreased
$421,310, or 18.35%, from $2.3 million for the three months ended March 31, 1999
to $1.9 million for the three months ended March 31, 2000. This decrease was the
combined result of a decrease in net interest income and an increase in
non-interest expense.
Interest Income. The Company recorded interest income of $18.1 million in the
second quarter ended March 31, 2000, an increase of 2.57% from $17.7 million for
the same period last year. While average interest earning assets increased by
$45.4 million, or 4.69%, yield decreased from 7.31% for the quarter ended March
31, 1999 to 7.17% for the same period of 2000. The primary factor contributing
to the decrease in yield was a decrease in the yield on loans receivable from
7.83% for the quarter ended March 31, 1999 to 7.61% for the current quarter.
Yields on other interest earning assets remained stable or improved for the
period.
Interest Expense. Total interest expense increased $777,053, or 8.21%, to $10.2
million for the quarter ended March 31, 2000 compared to $9.5 million for the
quarter ended March 31, 1999. Average deposits decreased by $12.6 million
comparing the three months ended March 31, 1999 to 2000, while the average
interest paid on interest-bearing deposits decreased 6 basis points from 4.35%
for the three months ended March 31, 1999 to 4.29% for the same period ended
March 31, 2000. The average balance of FHLB advances increased $49.7 million,
from $170.5 million for the three months ended March 31, 1999 to $220.2 million
for the same period ended March 31, 2000, resulting in an increase in interest
on FHLB advances of $1.0 million for the three months ended March 31, 2000
compared with the same period ended March 31, 1999. The rate paid on borrowings
increased by 68 basis points from 5.12% for the quarter ended March 31, 1999 to
5.80% for the same period in 2000.
Provision for Loan Losses. The provision for loan losses was $200,000 and there
were $153,303 of charge offs, and $5,851 of recoveries during the three months
ended March 31, 2000 compared to a $303,000 provision and no charge offs during
the three months ended March 31, 1999. In previous periods, the provision was
increased in response to portfolio growth and changes in the composition of the
portfolio to include a higher percentage of loans, such as commercial real
estate and consumer loans, which are considered to have more associated risk
than the Company's traditional portfolio of one- to four-family residential
mortgages. The provision for loan losses is being maintained at the higher
level.
15
<PAGE>
Non-Interest Income. Non-interest income decreased $19,516, or 2.06%, to
$926,013 for the three months ended March 31, 2000 from $945,529 for the three
months ended March 31, 1999. Income from fees and service charges continues to
show growth, increasing by 10.19% from $686,215 for the quarter ended March 31,
1999 to $756,168 for the current quarter. Other non-interest income increased
significantly due to gains recorded on sale of mortgage loans to Fannie Mae and
income generated by Klamath First Financial Services. Gain on sale of
investments of $179,135 during the quarter ended March 31, 1999 was not matched
in 2000, resulting in the slight decrease in non-interest income.
Non-Interest Expense. Non-interest expense increased $506,912, or 10.01%, to
$5.6 million for the three months ended March 31, 2000, from $5.1 million in the
comparable period in 1999. The most significant increases were noted in
compensation, employee benefits and related expense, and other expense. As a
routine accounting procedure, a portion of compensation expense is allocated to
the cost of originating loans and such cost is taken to expense over the life of
the loans. Because the number of loan originations decreased significantly in
the quarter ended March 31, 2000, less compensation cost was allocated to loan
originations and deferred, resulting in an increase in compensation expense.
Other expense increased due to increases in general operating expenses. The
ratio of non-interest expense to average total assets was 2.12% and 1.99% for
the three months ended March 31, 2000 and 1999, respectively.
Income Taxes. The provision for income taxes decreased $324,493 for the three
months ended March 31, 2000 compared with the prior year. The effective tax rate
was evaluated and revised to 38.72% for the quarter ended March 31, 2000
compared to 39.66% for the same period of 1999.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various claims and legal actions arising in
the normal course of business. Management believes that these
proceedings will not result in a material loss to the Company.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held an annual meeting on January 26, 2000. The election
of three directors was brought before the security holders for vote.
The following three directors were nominated and elected for
three-year terms:
Vote For Vote Withheld
Timothy A. Bailey 6,271,067 142,056
James D. Bocchi 6,258,312 154,811
William C. Dalton 6,250,560 162,563
The following directors continue in office for their respective
remaining terms: Gerald V. Brown (two-year term), J. Gillis Hannigan
(two-year term), Dianne E. Spires (two-year term), Rodney N. Murray
(one-year term), and Bernard Z. Agrons (one-year term).
No additional items were on the agenda of the annual meeting and no
items were brought to a vote during the meeting.
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
March 31, 2000.
17
<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: May 12, 2000 By: /s/ Gerald V. Brown
---------------------------
Gerald V. Brown, President and
Chief Executive Officer
Date: May 12, 2000 By: /s/ Marshall Jay Alexander
--------------------------------
Marshall Jay Alexander, Senior Vice President
and Chief Financial Officer
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 26,042,691
<INT-BEARING-DEPOSITS> 1,222,284
<FED-FUNDS-SOLD> 4,092,516
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 245,541,874
<INVESTMENTS-CARRYING> 2,960,439
<INVESTMENTS-MARKET> 2,956,185
<LOANS> 737,029,357
<ALLOWANCE> 2,982,578
<TOTAL-ASSETS> 1,060,767,550
<DEPOSITS> 709,303,193
<SHORT-TERM> 1,000,000
<LIABILITIES-OTHER> 19,673,213
<LONG-TERM> 223,000,000
0
0
<COMMON> 75,130
<OTHER-SE> 107,716,014
<TOTAL-LIABILITIES-AND-EQUITY> 1,060,767,550
<INTEREST-LOAN> 28,529,511
<INTEREST-INVEST> 7,341,963
<INTEREST-OTHER> 320,150
<INTEREST-TOTAL> 36,191,624
<INTEREST-DEPOSIT> 14,059,877
<INTEREST-EXPENSE> 20,051,516
<INTEREST-INCOME-NET> 16,140,108
<LOAN-LOSSES> 308,000
<SECURITIES-GAINS> 6,836
<EXPENSE-OTHER> 11,436,747
<INCOME-PRETAX> 6,353,750
<INCOME-PRE-EXTRAORDINARY> 6,353,750
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,902,751
<EPS-BASIC> .57
<EPS-DILUTED> .57
<YIELD-ACTUAL> 2.59
<LOANS-NON> 986,748
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,483,625
<CHARGE-OFFS> 155,716
<RECOVERIES> 346,669
<ALLOWANCE-CLOSE> 2,982,578
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,982,578
</TABLE>
