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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, 2002
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) I.D. 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 29, 2003, there were issued 6,788,478 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."
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Part I. Financial Information
- ------- ----------------------
Item 1. Financial Statements Page
----
Condensed Consolidated Balance Sheets
(As of December 31, 2002 and September 30, 2002) 3
Condensed Consolidated Statements of Earnings
(For the three months ended December 31, 2002 and 2001) 4
Condensed Consolidated Statements of Shareholders' Equity
(For the year ended September 30, 2002 and for
the three months ended December 31, 2002) 5
Condensed Consolidated Statements of Cash Flows
(For the three months ended December 31, 2002 and 2001) 6 - 7
Notes to Condensed Consolidated Financial Statements 8 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Item 4. Controls and Procedures 17
Part II. Other Information
- -------- -------------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Certifications Required by Rules 13a-14 and 15d-14
under the Securities Exchange Act of 1934 20 - 21
Certification of Chief Executive Officer and Chief Financial
Officer of Klamath First Bancorp, Inc. Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 22
2
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND SEPTEMBER 30, 2002
(Unaudited)
December 31, 2002 September 30, 2002
ASSETS ------------------- -------------------
Cash and due from banks ................................................. $ 46,276,181 $ 38,444,500
Interest bearing deposits with banks .................................... 3,520,716 5,762,373
Federal funds sold and securities purchased under agreements to resell .. 2,635,626 1,584,540
------------------- -------------------
Total cash and cash equivalents ...................................... 52,432,523 45,791,413
Investment securities available for sale, at fair value
(amortized cost: $110,794,500 and $119,940,845) ....................... 109,214,490 119,542,052
Mortgage backed and related securities available for sale, at fair
value (amortized cost: $620,135,275 and $640,304,722) ................. 627,672,709 650,796,164
Loans receivable, net ................................................... 582,961,278 607,464,660
Real estate owned and repossessed assets ................................ 754,137 758,663
Premises and equipment, net ............................................. 23,197,677 23,410,847
Stock in Federal Home Loan Bank of Seattle, at cost ..................... 13,740,200 13,510,400
Accrued interest receivable ............................................. 7,171,484 8,177,014
Deferred income taxes ................................................... 278,489 --
Bank-owned life insurance ............................................... 15,000,000 --
Core deposit intangible ................................................. 16,513,981 17,426,074
Goodwill ................................................................ 22,872,915 22,872,915
Other assets ............................................................ 14,585,860 3,745,151
------------------- -------------------
Total assets ......................................................... $ 1,486,395,743 $ 1,513,495,353
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposit liabilities ................................................... $ 1,119,027,569 $ 1,142,005,997
Accrued interest on deposit liabilities ............................... 684,811 721,810
Advances from borrowers for taxes and insurance ....................... 403,597 5,105,955
Advances from Federal Home Loan Bank of Seattle ....................... 208,000,000 205,250,000
Short term borrowings ................................................. 1,700,000 1,700,000
Accrued interest on borrowings ........................................ 913,708 820,975
Pension liabilities ................................................... 821,493 842,272
Deferred federal and state income taxes ............................... -- 1,466,556
Other liabilities ..................................................... 8,438,194 8,438,245
------------------- -------------------
Total liabilities ................................................... 1,339,989,372 1,366,351,810
------------------- -------------------
Mandatorily redeemable preferred securities issued by subsidiary ........ 27,238,657 27,205,507
------------------- -------------------
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,
December 31, 2002 - 6,789,351 issued, 6,428,726 outstanding
September 30, 2002 - 6,744,040 issued, 6,366,546 outstanding ......... 67,894 67,440
Additional paid-in capital ............................................ 30,997,460 30,282,059
Retained earnings-substantially restricted ............................ 88,308,691 87,265,334
Unearned shares issued to ESOP ........................................ (2,690,468) (2,935,130)
Unearned shares issued to MRDP ........................................ (926,127) (999,111)
Accumulated other comprehensive income ................................ 3,410,264 6,257,444
------------------- -------------------
Total shareholders' equity .......................................... 119,167,714 119,938,036
------------------- -------------------
Total liabilities and shareholders' equity ............................. $ 1,486,395,743 $ 1,513,495,353
=================== ===================
See notes to consolidated financial statements.
3
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Three Months Ended
December 31, December 31,
2002 2001
------------------- -------------------
INTEREST INCOME
Loans receivable ...................................................... $ 11,711,803 $ 13,959,972
Mortgage backed and related securities ................................ 5,943,799 6,583,010
Investment securities ................................................. 1,474,531 2,167,245
Federal funds sold and securities purchased under agreements to resell 39,239 221,440
Interest bearing deposits ............................................. 57,155 63,232
------------------- -------------------
Total interest income ............................................... 19,226,527 22,994,899
------------------- -------------------
INTEREST EXPENSE
Deposit liabilities ................................................... 5,550,036 9,247,378
Advances from FHLB of Seattle ......................................... 2,650,538 2,430,408
Other ................................................................. 29,489 41,268
------------------- -------------------
Total interest expense .............................................. 8,230,063 11,719,054
------------------- -------------------
Net interest income ................................................. 10,996,464 11,275,845
Provision for loan losses ............................................... -- 153,000
------------------- -------------------
Net interest income after provision for
loan losses ....................................................... 10,996,464 11,122,845
------------------- -------------------
NON-INTEREST INCOME
Fees and service charges .............................................. 2,391,712 1,802,872
Gain on sale of investments ........................................... 380,068 --
Gain on sale of real estate owned ..................................... 6,006 8,019
Gain on sale of loans ................................................. 404,591 134,395
Brokerage and annuity commissions ..................................... 507,490 241,551
Other income .......................................................... 251,518 94,736
------------------- -------------------
Total non-interest income ........................................... 3,941,385 2,281,573
------------------- -------------------
NON-INTEREST EXPENSE
Compensation, employee benefits and related expense ................... 5,876,522 5,375,511
Occupancy expense ..................................................... 1,224,446 1,205,745
Data processing expense ............................................... 345,797 373,088
Insurance premium expense ............................................. 47,733 32,275
Amortization of core deposit intangible and other intangible assets ... 912,094 1,378,135
Mandatorily redeemable preferred securities expense ................... 431,150 301,579
Other expense ......................................................... 3,329,435 3,463,069
------------------- -------------------
Total non-interest expense .......................................... 12,167,177 12,129,402
------------------- -------------------
Earnings before income taxes ............................................ 2,770,672 1,275,016
Provision for income taxes .............................................. 884,995 453,907
------------------- -------------------
Net earnings ............................................................ $ 1,885,677 $ 821,109
=================== ===================
Earnings per common share - basic ....................................... $ 0.29 $ 0.13
Earnings per common share - with dilution ............................... $ 0.29 $ 0.13
Weighted average common shares outstanding - basic ...................... 6,399,299 6,473,649
Weighted average common shares outstanding - with dilution .............. 6,541,255 6,483,860
See notes to consolidated financial statements
4
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 2002 AND THE THREE MONTHS ENDED DECEMBER 31, 2002
(Unaudited)
Unearned Unearned Accumulated
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
---------- ------- ----------- ----------- ------------ ------------ ----------- ------------
Balance at October 1, 2001 6,561,461 $70,607 $33,926,796 $83,816,307 ($3,913,510) ($1,298,859) $1,539,564 $114,140,905
Cash dividends -- -- -- (3,339,749 -- -- -- (3,339,749)
Stock repurchased
and retired (345,986) (3,460) (4,747,387) -- -- -- -- (4,750,847)
ESOP contribution 97,865 -- 410,593 -- 978,380 -- -- 1,388,973
MRDP contribution 23,847 -- 11,511 -- -- 299,748 -- 311,259
Exercise of stock options 29,359 293 369,295 -- -- -- -- 369,588
Tax benefit of stock
options -- -- 311,251 311,251
---------- ------- ----------- ----------- ------------ ------------ ----------- ------------
6,366,546 67,440 30,282,059 80,476,558 (2,935,130) (999,111) 1,539,564 108,431,380
Comprehensive income
Net earnings 6,788,776 6,788,776
Other comprehensive income:
Unrealized gain on
securities, net of tax
and reclassification
adjustment (1) 4,717,880 4,717,880
------------
Total comprehensive income 11,506,656
---------- ------- ----------- ----------- ------------ ------------ ----------- ------------
Balance at
September 30, 2002 6,366,546 67,440 30,282,059 87,265,334 (2,935,130) (999,111) 6,257,444 119,938,036
Cash dividends -- -- -- (842,320) -- -- -- (842,320)
Stock repurchased
and retired (5,859) (58) (90,658) -- -- -- -- (90,716)
ESOP contribution -- -- 132,950 -- 244,662 -- -- 377,612
MRDP contribution 16,869 -- 2,108 -- -- 72,984 -- 75,092
Exercise of stock options 51,170 512 671,001 -- -- -- -- 671,513
---------- ------- ----------- ----------- ------------ ------------ ----------- ------------
6,428,726 67,894 30,997,460 86,423,014 (2,690,468) (926,127) 6,257,444 120,129,217
Comprehensive loss
Net earnings 1,885,677 1,885,677
Other comprehensive loss:
Unrealized loss on
securities, net of tax
and reclassification
adjustment (2) (2,847,180) (2,847,180)
------------
Total comprehensive loss (961,503)
---------- ------- ----------- ----------- ------------ ------------ ----------- ------------
Balance at
December 31, 2002 6,428,726 $67,894 $30,997,460 $88,308,691 ($2,690,468) ($926,127) $3,410,264 $119,167,714
========== ======= =========== =========== ============ ============ =========== ============
(1) Net unrealized holding gain on securities of $5,095,497 (net of $3,123,389
tax expense) less reclassification adjustment for gains included in net
earnings of $377,617 (net of $231,443 tax expense).
(2) Net unrealized holding loss on securities of $2,602,330 (net of $1,594,973
tax benefit) less reclassification adjustment for gains included in net
earnings of $244,850 (net of $150,069 tax expense).
See notes to consolidated financial statements.
5
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(Unaudited)
Three Months Ended Three Months Ended
December 31, December 31,
2002 2001
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ........................................................ $ 1,885,677 $ 821,109
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Depreciation and amortization ....................................... 1,454,311 1,879,032
Provision for loan losses ........................................... -- 153,000
Compensation expense related to ESOP benefit ........................ 377,612 316,832
Compensation expense related to MRDP Trust .......................... 75,092 79,759
Net amortization of premiums (discounts) paid on
investment and mortgage backed and related securities ............. 2,626,087 646,997
Increase (decrease) in deferred loan fees, net of amortization ...... (313,625) 24,664
Accretion of discounts on purchased loans ........................... -- 3,802
Net gain on sale of investment and mortgage
backed and related securities ..................................... (380,068) --
Gain on sale of real estate owned and fixed assets .................. (4,819) (8,019)
FHLB stock dividend ................................................. (229,800) (224,000)
CHANGES IN ASSETS AND LIABILITIES
Accrued interest receivable ......................................... 1,005,530 (249,257)
Other assets ........................................................ (11,304,750) 2,936,778
Accrued interest on deposit liabilities ............................. (36,999) (445,211)
Accrued interest on borrowings ...................................... 92,733 16,434
Pension liabilities ................................................. (20,779) 32,649
Other liabilities ................................................... 175,572 (1,350,588)
------------------- -------------------
Net cash provided by (used in) operating activities ..................... (4,598,226) 4,633,981
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of investment securities available for sale .. 100,000 --
Principal repayments received on mortgage backed
and related securities held to maturity .......................... -- 183,645
Principal repayments received on mortgage backed
and related securities available for sale ........................ 82,960,527 19,546,625
Principal repayments received on loans .............................. 176,307,625 70,404,303
Loan originations ................................................... (177,041,273) (71,313,970)
Loans sold .......................................................... 25,457,358 9,511,459
Purchase of investment securities available
for sale .......................................................... (1,013,258) (3,580,137)
Purchase of mortgage-backed and related securities
available for sale ................................................ (65,206,443) (96,315,809)
Proceeds from sale of investment securities
available for sale ................................................ 10,228,950 --
Proceeds from sale of real estate owned and
premises and equipment ............................................ 102,639 54,173
Purchases of premises and equipment ................................. (322,007) (5,054,069)
Purchase of bank-owned life insurance ............................... (15,000,000) --
------------------- -------------------
Net cash provided by (used in) investing activities ..................... 36,574,118 (76,563,780)
------------------- -------------------
6
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(Unaudited)
(Continued)
Three Months Ended Three Months Ended
December 31, December 31,
2002 2001
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit
liabilities ........................................................ ($22,978,428) $ 3,166,798
Proceeds from FHLB advances ......................................... 33,000,000 10,200,000
Repayments of FHLB advances ......................................... (30,250,000) (7,775,000)
Stock repurchase and retirement ..................................... (90,716) (3,056,850)
Stock options exercised ............................................. 671,513 --
Advances from borrowers for taxes and insurance ..................... (4,702,358) (5,974,636)
Dividends paid ...................................................... (984,793) (934,233)
------------------- -------------------
Net cash used in financing activities ................................... (25,334,782) (4,373,921)
------------------- -------------------
Net increase (decrease) in cash and cash
equivalents ........................................................... 6,641,110 (76,303,720)
Cash and cash equivalents at beginning
of period ............................................................. 45,791,413 118,388,566
------------------- -------------------
Cash and cash equivalents at end of period .............................. $52,432,523 $ 42,084,846
=================== ===================
SUPPLEMENTAL SCHEDULE OF INTEREST AND
INCOME TAXES PAID
Interest paid ....................................................... $ 8,174,329 $ 12,147,830
Income taxes paid ................................................... 600,000 425,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Net unrealized gain on securities
available for sale, net of tax .................................... ($ 2,847,180) ($ 2,111,743)
Dividends declared and accrued in other
liabilities ....................................................... 987,980 905,927
Loans transferred to real estate owned .............................. 113,294 64,322
See notes to consolidated financial statements
7
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. and subsidiaries' (the "Company") financial condition as of
December 31, 2002, and September 30, 2002, and the results of their operations
and cash flows for the three months ended December 31, 2002 and 2001. 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 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, 2002 and 2001 are not necessarily
indicative of the results which may be expected for the entire fiscal year.
2. COMPREHENSIVE LOSS
For the three months ended December 31, 2002, the Company's total comprehensive
loss was $1.0 million compared to total comprehensive loss of $1.3 million for
the three months ended December 31, 2001. Total comprehensive loss for the three
months ended December 31, 2002 was comprised of net income of $1.9 million and
other comprehensive loss of $2.8 million, net of tax. Total comprehensive loss
for the three months ended December 31, 2001 was comprised of net income of
$821,109 and other comprehensive loss of $2.1 million, net of tax. Other
comprehensive losses consist entirely of unrealized losses on available for sale
securities.
3. ALLOWANCE FOR LOAN LOSSES
Activity in allowance for loan losses is summarized as follows:
Three Months Ended Year Ended
December 31, September 30,
2002 2002
------------------- -------------------
Balance, beginning of period ............................................ $7,375,812 $7,950,680
Charge-offs ............................................................. (77,860) (747,092)
Recoveries .............................................................. 30,265 16,224
Additions ............................................................... -- 156,000
------------------- -------------------
Balance, end of period .................................................. $7,328,217 $7,375,812
=================== ===================
Impaired loans totaled $151,170 at December 31, 2002. There were no impaired
loans at December 31, 2001 and no specifically allocated loan loss reserves for
either period. The average investment in impaired loans for the three months
ended December 31, 2002 and 2001 was $167,283 and zero, respectively.
8
4. GOODWILL AND INTANGIBLE ASSETS
On October 1, 2002, the Company adopted SFAS No. 147, Acquisitions of Certain
Financial Institutions, which requires certain intangible assets to be accounted
for under the provisions of SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets, which statements were also adopted on
October 1, 2002. In accordance with these standards, goodwill and other
intangible assets with indefinite lives are no longer being amortized but
instead will be tested for impairment at least annually. Upon adoption of SFAS
No. 147, $22.9 million of intangible assets related to prior branch acquisitions
were reclassified to goodwill and amortization of these assets ceased. Expense
related to amortization of other intangibles totaled $404,375 for the three
months ended December 31, 2002. A similar expense is not being recorded in
fiscal year 2003. Core deposit intangibles will continue to be amortized based
on the estimated lives of the underlying deposits. The following table
summarizes selected information about intangible assets:
Gross Carrying Amount Accumulated Amortization
- --------------------------------- -------------------------------------------- --------------------------------------------
Intangible assets December 31, 2002 September 30, 2002 December 31, 2002 September 30, 2002
carrying value
- --------------------------------- --------------------- ---------------------- ----------------------- --------------------
Core deposit intangible $28,376,467 $28,376,467 $11,862,486 $10,950,393
Mortgage servicing rights (included
in Other Assets) 1,820,823 1,820,823 747,055 604,424
--------------------- ---------------------- ----------------------- --------------------
Total $30,030,297 $30,030,297 $12,442,547 $11,387,824
===================== ====================== ======================= ====================
Amortization expense
Three months ended December 31,
--------------------------------------------
Intangible assets amortization 2002 2001
- --------------------------------- --------------------- ----------------------
Core deposit intangible $912,094 $973,760
Mortgage servicing rights 142,631 89,607
--------------------- ----------------------
Total $1,054,725 $1,063,367
===================== ======================
Estimated amortization expense
For year ended 9/30/2004 $3,611,358
For year ended 9/30/2005 $3,306,403
For year ended 9/30/2006 $1,648,489
For year ended 9/30/2007 $1,527,914
For year ended 9/30/2008 $1,258,079
9
5. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at December 31, 2002 consisted of four short term advances totaling
$26.0 million and 14 long term advances totaling $182.0 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.
Scheduled maturities of advances from the FHLB were as follows:
December 31, 2002 September 30, 2002
---------------------------------------------------------------------------------------------------------
Range of Weighted Range of Weighted
interest average interest average
Amount rates interest rate Amount rates interest rate
-------------- ----------- ------------- -------------- ----------- -------------
Due within one year ... $ 26,000,000 1.61%-2.14% 2.02% $ 31,250,000 1.91%-2.20% 2.09%
After one but within
five years ............ 24,000,000 2.22%-3.58% 3.02% 16,000,000 2.48%-3.58% 3.06%
After five but within
ten years ............. 158,000,000 4.77%-7.05% 5.86% 158,000,000 4.77%-7.05% 5.86%
-------------- ----------- ------------- -------------- ----------- -------------
$ 208,000,000 $ 205,250,000
============== ==============
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 or cash flows of the Company.
7. EARNINGS PER SHARE
Earnings per share ("EPS") is computed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings per Share. Shares held by the
Company's Employee Stock Ownership Plan ("ESOP") that are committed for release
are considered contingently issuable shares and are included in the computation
of basic 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.
For the Three Months Ended
December 31, December 31,
2002 2001
-------------------- --------------------
Weighted average common
shares outstanding - basic .......................... 6,399,299 6,473,649
------------------- -------------------
Effect of Dilutive Securities on Number of Shares:
MRDP shares ......................................... 9,376 7
Stock options ....................................... 132,580 10,204
------------------- -------------------
Total Dilutive Securities ........................... 141,956 10,211
------------------- -------------------
Weighted average common shares
outstanding - with dilution ........................ 6,541,255 6,483,860
=================== ===================
10
8. 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 December 31, 2002:
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
---------------------- ------------------------------ ------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ----- ------------ ----- ------------ -----
Total Capital: $106,039,327 14.1% $60,075,848 8.0% $75,094,810 10.0%
(To Risk Weighted Assets)
Tier I Capital: 98,825,356 13.2% N/A N/A 45,056,886 6.0%
(To Risk Weighted Assets)
Tier I Capital: 98,825,356 6.9% 57,746,892 4.0% 72,183,615 5.0%
(To Total Assets)
Tangible Capital: 98,825,356 6.9% 21,655,084 1.5% N/A N/A
(To Tangible Assets)
9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issues SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. It also expands and clarifies the disclosure requirements to make
those disclosures more prominent and to require such disclosures in interim as
well as annual financial statements. While the Company plans to continue to
account for stock-based compensation under APB Opinion 25, the disclosure
requirements of SFAS No. 148 will be implemented for interim reporting for the
quarter ended March 31, 2003. The Company does not expect adoption of SFAS No.
148 to have a material impact on its financial statements.
10. SUBSEQUENT EVENT
On January 16, 2003, the Company announced a five percent stock repurchase plan
to be completed over a twelve month period. Five percent represents
approximately 339,000 shares.
11
Item 2. 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, the success and costs of integration of acquired
branches, 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.
Critical Accounting Policies and Estimates
The "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as disclosures included elsewhere in this Form 10-Q, are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires management to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an ongoing basis, management evaluates
the estimates used, including the adequacy of the allowance for loan losses,
impairment of intangible assets, and contingencies and litigation. Estimates are
based upon historical experience, current economic conditions and other factors
that management considers reasonable under the circumstances. These estimates
result in judgments regarding the carrying values of assets and liabilities when
these values are not readily available from other sources as well as assessing
and identifying the accounting treatments of commitments and contingencies.
Actual results may differ from these estimates under different assumptions or
conditions. The following critical accounting policies involve the more
significant judgments and assumptions used in the preparation of the
consolidated financial statements.
The allowance for loan losses is established to absorb known and inherent losses
attributable to loans outstanding and related off-balance sheet commitments. The
adequacy of the allowance is monitored on an ongoing basis and is based on
management's evaluation of numerous factors. These factors include the quality
of the current loan portfolio, the trend in the loan portfolio's risk ratings,
current economic conditions, loan concentrations, loan growth rates, past-due
and non-performing trends, evaluation of specific loss estimates for all
significant problem loans, historical charge-off and recovery experience and
other pertinent information. Approximately 81 percent of the Company's loan
portfolio is secured by real estate, both residential and commercial properties,
and a significant depreciation in real estate values in Oregon would cause
management to increase the allowance for loan and lease losses.
12
Retained mortgage servicing rights are measured by allocating the carrying value
of the loans between the assets sold and the interest retained, based on the
relative fair value at the date of the sale. The fair market values are
determined using a discounted cash flow model. Mortgage servicing assets are
amortized over the expected life of the loan and are evaluated periodically for
impairment. The expected life of the loan can vary from management's estimates
due to prepayments by borrowers. Prepayments in excess of management's estimates
would negatively impact the recorded value of the mortgage servicing rights. The
value of the mortgage servicing rights is also dependent upon the discount rate
used in the model. Management reviews this rate on an ongoing basis based on
current market rates. A significant increase in the discount rate would
negatively impact the value of mortgage servicing rights. At December 31, 2002
the Company had recorded impairment of $213,813 related to mortgage servicing
rights.
At December 31, 2002 the Company had approximately $16.5 million in core deposit
intangibles and $22.9 million of goodwill as a result of business combinations.
Because these intangible assets were generated by purchases of bank branches,
the Company was originally required to account for them under SFAS No. 72,
Accounting for Certain Acquisitions of Banking or Thrift Institutions, rather
than SFAS No. 142, Goodwill and Other Intangible Assets. The issuance of SFAS
No. 147, Acquisitions of Certain Financial Institutions, in October 2002 removed
such acquisitions of financial institutions from the scope of SFAS No. 72 and
required the application of SFAS No. 142. The Company adopted SFAS No. 142 and
SFAS No. 147 as of October 1, 2002. These standards require that the balance of
goodwill and other intangibles be subjected to impairment testing on a periodic
basis. Ongoing analysis of the fair value of recorded core deposit intangibles
and other intangibles for impairment will involve a substantial amount of
judgment, as will establishing and monitoring estimated lives of other
amortizable intangible assets.
The Company is party to various legal proceedings. These matters have a high
degree of uncertainty associated with them. There can be no assurance that the
ultimate outcome will not differ materially from our assessment of them. There
can also be no assurance that all matters that may be brought against us are
known to us at any point in time.
General
The Company, an Oregon corporation, is the unitary savings and loan holding
company for the Association. At December 31, 2002, the Company had total
consolidated assets of $1.5 billion and consolidated shareholders' equity of
$119.2 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 progressive, 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 and loans on commercial real estate, multi-family residential
properties, and to consumers and small businesses within its market area. While
the Association has historically emphasized fixed rate mortgage lending, it has
13
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, commercial and industrial 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. The acquisition of 13 branches from Washington Mutual Bank
("WAMU"), which was completed in September 2001, moved the Company strongly in
this direction.
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. 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 53 office facilities, with the main office located in
Klamath Falls, Oregon. The primary market areas of the Association are the state
of Oregon and adjoining areas of California and Washington.
Liquidity and Capital Resources
The Company generates cash through operating activities, primarily as a result
of net income. The adjustments to reconcile net income to net cash provided by
operations during the periods presented consisted primarily of the provision for
loan losses, depreciation and amortization, stock-based compensation expense,
amortization of deferred loan origination fees, net gain on the sale of
investment and mortgage-backed securities, increases or decreases in various
escrow accounts and increases or decreases in other assets and liabilities. The
primary investing activity of the Association is lending, which is funded with
cash provided from operations and financing activities, as well as proceeds from
amortization and prepayments on existing loans and mortgage backed and related
securities. For additional information about cash flows from operating,
financing, and investing activities, see the Condensed Consolidated Statements
of Cash Flows.
The Association is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. government,
federal agency and other investments having maturities of five years or less.
Current OTS regulations require that a savings association maintain liquid
assets of not less than 4.00% of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. At December 31,
2002, the Association's liquidity, as measured for regulatory purposes, was
7.8%. The Company has borrowing agreements with banks that can be used if funds
are needed.
OTS capital regulations require the Association to have: (i) tangible capital
equal to 1.5% of adjusted total assets, (ii) core capital equal to 4.0% of
adjusted total assets, and (iii) total risk-based capital equal to 8.0% of
risk-weighted assets. At December 31, 2002, the Association was in compliance
with all regulatory capital requirements effective as of such date, with
tangible, core and risk- based capital of 6.9%, 6.9% and 14.1%, respectively.
14
Changes in Financial Condition
At December 31, 2002, the consolidated assets of the Company totaled $1.5
billion, consistent with $1.5 billion at September 30, 2002.
Cash and cash equivalents increased $6.6 million, or 14.50%, from $45.8 million
at September 30, 2002 to $52.4 million at December 31, 2002. The increase is the
result of routine daily fluctuations in cash balances.
Net loans receivable decreased $17.8 million, or 2.94%, to $589.6 million at
December 31, 2002, compared to $607.5 million at September 30, 2002. The
decrease is the combined result of continued prepayment of loan balances due to
refinancing activity and the Company's strategy of selling much of its single
family mortgage loan production, so those loans are not adding to the portfolio
balance. The Company sold $25.5 million in single family mortgage loans with
servicing released during the quarter ended December 31, 2002.
Investment securities decreased $10.8 million, or 9.02%, from $119.5 million at
September 30, 2002 to $109.2 million at December 31, 2002. This decrease was the
primarily the result of sale of $10.2 million of securities during the quarter
ended December 31, 2002.
During the three months ended December 31, 2002, $83.0 million of principal
payments were received on MBS and $65.2 million in MBS were purchased, resulting
in a decrease in the balance of MBS from $650.8 million at September 30, 2002 to
$627.7 million at December 31, 2002.
In December 2002, the Company purchased $15.0 million in bank-owned life
insurance.
Other assets increased from $3.7 million at September 30, 2002 to $14.6 million
at December 31, 2002. The balance at December 31, 2002 included an $11.3 million
receivable from investment brokers related to the securities transactions that
had not settled at quarter end.
Deposit liabilities decreased $23.0 million, or 2.01%, from $1.14 billion at
September 30, 2002 to $1.12 billion at December 31, 2002. The decrease reflects
run off of time deposits in response to reduced interest rates offered on
accounts.
Advances from borrowers for taxes and insurance decreased $4.7 million from
September 30, 2002 to December 31, 2002. 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 2002.
The Company's total borrowings increased $2.7 million from September 30, 2002 to
December 31, 2002. The increase is the result of FHLB borrowing at favorable
rates during the quarter ended December 31, 2002.
Total shareholders' equity decreased $770,322 from $119.9 million at September
30, 2002 to $119.2 million at December 31, 2002. This decrease was the combined
result of $1.9 million in earnings for the quarter, a $2.8 million decrease in
unrealized gains on securities available for sale, and $842,320 reduction for
payment of dividends on common stock.
Results of Operations
Comparison of Three Months Ended December 31, 2002 and 2001
General. Net income improved for the quarter ended December 31, 2002 compared
with the same quarter last year. While interest income, interest expense and net
interest income all declined due to the declining rates over the last 12 months,
non-interest income improved without an increase in non-interest expense. The
overall result was a 129.65% increase in net earnings, from $821,109 for the
quarter ended December 31, 2001 to $1.9 million for the quarter ended December
31, 2002.
Interest Income. The Company recorded interest income of $19.2 million in the
first quarter ended December 31, 2002, a decrease of 16.39% from $23.0 million
for the same period last year. Average interest earning assets for the first
quarter increased by $15.4 million, or 1.11%, compared to the first quarter last
year, due to growth throughout the branch network. During the same period, yield
on interest-earning assets decreased 115 basis points, from 6.64% for the
quarter ended December 31, 2001 to 5.49% for the same period in 2002.
15
Interest Expense. Total interest expense decreased $3.5 million from $11.7
million for the quarter ended December 31, 2001 to $8.2 million for the quarter
ended December 31, 2002. Average deposits decreased by $42.7 million comparing
the three months ended December 31, 2001 to 2002, while the average interest
paid on interest-bearing deposits decreased 134 basis points from 3.58% for the
three months ended December 31, 2001 to 2.24% for the same period ended December
31, 2002. Again, the decrease in interest rates paid was part of a strategy
adopted by the Company in the fiscal year ended September 30, 2002. The average
balance of borrowings increased $35.5 million from $170.0 million for the three
months ended December 31, 2001 to $205.5 million for the same period ended
December 31, 2002. However, the rate paid on borrowings decreased by 57 basis
points from 5.77% for the quarter ended December 31, 2001 to 5.20% for the same
period in 2002.
Provision for Loan Losses. The provision for loan losses was zero and there were
$77,860 of charge offs, and $30,265 of recoveries during the three months ended
December 31, 2002 compared to a $153,000 provision with $44,230 of charge offs
and no recoveries during the three months ended December 31, 2001. Based on
analysis of the loan portfolio, it was determined that the allowance for loan
losses was adequate at December 31, 2002 without the need for additional
reserves, thus no provision for loan losses was recorded.
At December 31, 2002, the allowance for loan losses was equal to 548.1% of total
non-performing assets compared to 699.6% at December 31, 2001. The decrease in
the coverage ratio was the result of a slight increase in non-performing assets
and a somewhat lower allowance. The ratio of non-performing assets to total
assets remained consistent, with 0.08% at December 31, 2001 to 0.09% at December
31, 2002.
Non-Interest Income. Non-interest income continues to improve, increasing $1.7
million, or 72.75%, to $3.9 million for the three months ended December 31, 2002
from $2.3 million for the three months ended December 31, 2001. Income from fees
and service charges increased by 32.66% from $1.8 million for the quarter ended
December 31, 2001 to $2.4 million for the current quarter. Brokerage and annuity
commissions also showed significant growth, increasing by 110.10% from $241,551
for the quarter ended December 31, 2001 to $507,490 for the same quarter this
year. This growth is a result of the expanded presence of Klamath First
Financial Services, making the brokerage and investment services available to
customers in more of the Company's market areas. A $380,068 gain on sale of
securities was recorded in the quarter ended December 31, 2002 while there was
no corresponding gain in the prior year.
Non-Interest Expense. The Company's continued efforts to control expenses can be
seen in the comparison of non-interest expense items for the quarters ended
December 31, 2002 and 2001. Most categories of expenses were consistent from
year to year. Compensation, employee benefits and related expense showed a 9.32%
increase due to increases in number of employees and salary increases.
Amortization of intangibles decreased as the adoption of SFAS No. 142 and SFAS
No. 147 required the Company to cease amortization of other intangibles related
to the WAMU branch acquisition beginning October 1, 2002. Amortization of core
deposit intangibles arising from the branch acquisitions from Wells Fargo and
WAMU will continue to be recorded.
16
Income Taxes. The provision for income taxes increased $431,088 for the three
months ended December 31, 2002 compared with the prior year. The effective tax
rate was 31.9% for the quarter ended December 31, 2002 compared to 35.6% for the
same period of 2001. The decrease in effective tax rate is primarily due to an
increase in tax-exempt securities and addition of low income housing tax
credits.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's financial performance is affected by the success of the fee
generating products it offers to its customers, the credit quality of its loans
and securities, and the extent to which its earnings are affected by changes in
interest rates. Credit risk is the risk that borrowers will become unable to
repay their debts as they become due. The Company relies on strict underwriting
standards, loan review, and an adequate allowance for loan losses to mitigate
its credit risk.
Interest rate risk is the risk of loss in principal value and risk of earning
less net interest income due to changes in interest rates. Put simply, savings
institutions solicit deposits and lend the funds they receive to borrowers. The
difference between the rate paid on deposits and the rate received on loans is
the interest rate spread. If the rates paid on deposits change, or reprice, with
the same timing and magnitude as the rates change on the loans, there is perfect
matching of interest rate changes and thus, no change in interest rate spread
and no interest rate risk. In actuality, interest rates on deposits and other
liabilities do not reprice at the same time and/or with the same magnitude as
those on loans, investments and other interest-earning assets. For example,
historically the Company primarily originated fixed-rate residential loans for
its portfolio. Because fixed-rate loans do not reprice until payoff and because
the majority of residential loans have terms of 15 to 30 years (with actual
expected lives of seven to ten years), the interest rate characteristics of the
loan portfolio do not exactly match the Company's liabilities, which consist of
deposits with maturities ranging up to ten years and borrowings which mature or
reprice in five years or less. When interest rates change, this mismatch creates
changes in interest rate spread that influence net interest income and result in
interest rate risk.
Changes in interest rates also impact the fair value of the assets and
liabilities on the Company's balance sheet, expressed as changes in the net
portfolio value ("NPV"). NPV represents the market value of portfolio equity and
is equal to the market value of assets minus the market value of liabilities
plus or minus the estimated market value of off-balance sheet instruments. For
example, the market value of investment securities and loans is impacted by
changes in interest rates. Fixed-rate loans and investments held in the
Company's portfolio increase in market value if interest rates decline.
Conversely, the market value of fixed-rate portfolio assets decreases in an
increasing interest rate environment. It is generally assumed that assets with
adjustable rates are less subject to market value changes due to interest rate
fluctuations based on the premise that their rates will adjust with the market.
There has not been any material change in the market risk disclosures contained
in the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 2002.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the
Company's disclosure controls and procedures (as defined in Section 13(a) -
14(c) of the Securities Exchange Act of 1934 (the "Act") was carried out under
the supervision and with the participation of the Company's Chief Executive
Officer, Chief Financial Officer and several other members of the Company's
senior management within the 90-day period preceding the filing date of this
quarterly report. The Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures as
currently in effect are effective in ensuring that the information required to
be disclosed by the Company in the reports it files or submits under the Act is
(i) accumulated and communicated to the Company's management (including the
Chief Executive Officer and Chief Financial Officer) in a timely manner, and
(ii) recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.
(b) Changes in Internal Controls: In the quarter ended December 31, 2002,
the Company did not make any significant changes in, nor take any corrective
actions regarding, its internal controls or other factors that could
significantly affect these controls.
17
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) There were no Current Reports on Form 8-K filed during the
quarter ended December 31, 2002.
18
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, 2003 By: /s/ Kermit K. Houser
-------------------------------
Kermit K. Houser, President and
Chief Executive Officer
Date: February 14, 2003 By: /s/ Marshall Jay Alexander
-------------------------------
Marshall Jay Alexander,
Executive Vice President and
Chief Financial Officer
19
Certification Required
by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
I, Kermit K. Houser, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Klamath First
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003
By: /s/ Kermit K. Houser
-------------------------------
Kermit K. Houser, President and
Chief Executive Officer
20
Certification Required
by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
I, Marshall J. Alexander, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Klamath First
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: February 14, 2003 By: /s/ Marshall Jay Alexander
-------------------------------
Marshall Jay Alexander,
Executive Vice President and
Chief Financial Officer
21
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
OF KLAMATH FIRST BANCORP, INC.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report on Form
10-Q, that:
1. the report fully complies with the requirements of Sections 13(a) and
15(d) of the Securities Exchange Act of 1934, as amended, and
2. the information contained in the report fairly presents, in all
material respects, the company's financial condition and results of
operations.
By: /s/ Kermit K. Houser By: /s/ Marshall Jay Alexander
- -------------------------- ------------------------------
Kermit K. Houser Marshall Jay Alexander
Chief Executive Officer Chief Financial Officer
Dated: February 14, 2003
22