UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number 0-25516
CAMERON FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 43-1702410
- ----------------------------------------------- --------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
1304 North Walnut, Cameron, Missouri 64429
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 632-2154
----------------------------
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
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(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
requirements for the past 90 days. YES X . NO ___.
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the closing price of such stock on the
Nasdaq National Market as of December 11, 2000, was $36,960,056. (The exclusion
from such amount of the market value of the shares owned by any person shall not
be deemed an admission by the registrant that such person is an affiliate of the
registrant.)
As of December 11, 2000, there were issued and outstanding 1,925,649 shares
of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Description of Business
-----------------------
General
Cameron Financial Corporation ("Cameron Financial" and, with its
subsidiary, the "Company") was formed at the direction of The Cameron Savings &
Loan Association, F.A. ("Cameron Savings" or the "Association") in December 1994
for the purpose of owning all of the outstanding stock of Cameron Savings issued
upon the conversion of the Association from the mutual to the stock form (the
"Conversion"). On March 31, 1995, Cameron Financial acquired all of the shares
of the Association in connection with the completion of the Conversion. The
Company's Common Stock is quoted on the Nasdaq National Market under the symbol
"CMRN."
Cameron Savings, which was originally chartered in 1887 as a Missouri-
chartered mutual savings and loan association, is headquartered in Cameron,
Missouri. The Association amended its mutual charter to become a federal mutual
savings and loan association in 1994. Its deposits are insured up to the
maximum allowable amount by the Federal Deposit Insurance Corporation ("FDIC").
Cameron Savings serves the financial needs of its customers throughout northwest
Missouri through its main office located at 1304 North Walnut, Cameron,
Missouri, and three branch offices located in Liberty, Maryville and Mound City,
Missouri. The Association occupied the new main office during June 1997 and the
new branch office in Liberty in August 1998. At September 30, 2000, the Company
had total assets of $308.9 million, deposits of $149.2 million, and
shareholders' equity of $40.4 million.
Cameron Savings has been a community-oriented financial institution
offering financial services to meet the needs of the market area it serves. The
Association attracts deposits from the general public and uses such funds to
originate loans secured by first mortgages on owner-occupied one- to four-family
residences and construction loans in its market area. To a lesser extent, the
Association originates land, commercial real estate, multi-family and consumer
loans in its market area. See "Business - Originations, Purchases and Sales of
Loans." The Association also invests in investment securities, interest-bearing
deposits and other short-term liquid assets. See "Business - Investment
Activities."
The executive office of the Association is located at 1304 North Walnut,
Cameron, Missouri. Its telephone number at that address is (816) 632-2154.
Recent Developments
On October 6, 2000, Cameron Financial, Dickinson Financial Corporation, a
Missouri corporation, and DFC Acquisition Corporation Four, a Delaware
corporation and wholly-owned subsidiary of Dickinson Financial, entered into a
merger agreement, a copy of which is incorporated
2
herein by reference as Exhibit 2 to this Form 10-K. The merger agreement
provides, among other things, for the merger of DFC Acquisition Corporation Four
into Cameron Financial, with Cameron Financial thereafter being a wholly-owned
subsidiary of Dickinson Financial. In connection with this transaction, Cameron
Financial's wholly-owned subsidiary, Cameron Savings, would merge into Bank
Midwest, N.A., a national banking association and wholly-owned subsidiary of
Dickinson Financial.
Pursuant to the merger agreement, each share of common stock of Cameron
Financial that is issued and outstanding at the effective time of the merger
(other than shares of common stock held in treasury or held directly or
indirectly by Cameron Financial or Dickinson Financial, which shares will be
canceled without payment of any consideration, and other than shares for which
appraisal rights have properly been demanded) will be converted into the right
to receive $20.75 in cash, subject to adjustment as described below in following
two situations:
First, if the effective time of the merger occurs after January 31,
2001, the per share cash consideration distributable by Dickinson Financial
will be increased by an amount equal to the lesser of:
(i) $0.0035 times the number of days that elapse between January
31, 2001 and the effective time of the merger, and
(ii) Cameron Financial's net income per share (based on 2,099,179
shares, including shares subject to option) during the period between
January 31, 2001 and the effective time of the merger.
Second, if the adjusted stockholders' equity of Cameron Financial as
of the close of business on the last business day immediately prior to the
effective time of the merger is less than $40,000,000, the per share cash
consideration distributable by Dickinson Financial will be reduced by an
amount determined by subtracting such adjusted stockholders' equity from
$40,000,000 and then dividing the result by 2,099,179.
Consummation of the merger is subject to the satisfaction of certain
conditions, including approval of the shareholders of Cameron Financial and
approval of the appropriate regulatory agencies. The special meeting of
shareholders of Cameron Financial to consider and vote on the merger agreement
is scheduled for January 12, 2001. Applications to obtain the appropriate
regulatory approvals have been filed, and are pending as of the date of this
Form 10-K.
Market Area
The Association's primary market consists of the Northwestern part of
Missouri. The Association primarily serves Clinton, Caldwell, DeKalb and
Daviess Counties, Missouri through its main office located in Cameron, Missouri.
The Association serves Nodaway County through its branch office in Maryville,
Missouri and Holt County through its branch office in Mound City,
3
Missouri, and Clay and Platte Counties through its branch office in Liberty,
Missouri. Nearly all of the Association's construction lending is originated by
the Liberty branch office and is secured by properties located in the northern
suburbs of Kansas City.
Cameron, Missouri is located approximately 50 miles northeast of Kansas
City, Missouri at the intersection of Interstate 35 and U.S. Highway 36.
According to the 1990 census, Clinton, Caldwell, DeKalb and Daviess Counties had
a combined population of approximately 45,000. The primary industries in
Clinton and surrounding counties are services; governmental; finance, insurance
and real estate; and light manufacturing. Major employers in the Association's
market area include the State of Missouri Department of Corrections, Cameron
Insurance Companies, Cameron Community Hospital and the Cameron R-1 school
district. The Association also serves commuting customers to Kansas City.
Lending Activities
General. Historically, the Association originated primarily fixed-rate
long-term residential mortgage loans. Since the early 1980s, however, the
Association has emphasized, subject to market conditions, the origination for
portfolio of adjustable rate mortgage ("ARM") loans and the origination and sale
of fixed-rate loans with terms to maturity of up to 30 years. Management's
strategy has been to attempt to increase the percentage of assets in its
portfolio with more frequent repricing terms or shorter maturities. As part of
its efforts, the Association has developed a variety of ARM loan products. In
response to customer demand, however, the Association continues to originate
fixed-rate mortgage loans with terms of 30 years, most of which it sells into
the secondary market.
The Association's primary focus in lending activities is on the origination
of loans secured by first mortgages on owner-occupied, one- to four-family
residences and loans for the construction of one- to four-family residences. In
addition, in order to serve the financial needs of the families and the
communities in the Association's primary market area, Cameron Savings also
originates, to a lesser extent, land, commercial real estate, multi-family and
consumer loans. See "- Originations, Purchases and Sales of Loans." At
September 30, 2000, the Association's net loan portfolio totaled $261.9 million.
The Association maintains an established loan approval process. Loans
under $150,000 secured by real estate are reviewed and approved by any two
members of the loan committee. Real estate loans between $150,000 and $252,700
that meet specified criteria may be approved by any three members of the loan
committee. The entire Board of Directors approves all other real estate loans.
Home equity and improvement loans are approved by the loan committee and the
consumer lending department. Other consumer loans may be approved by any one
person in the consumer lending department except for signature loans over $5,000
which require the approval of two persons on the loan committee.
4
The aggregate amount of loans that the Association is permitted to make
under applicable federal regulations to any one borrower, including related
entities, or the aggregate amount that the Association can have invested in any
one real estate project is generally the greater of 15% of unimpaired capital
and surplus or $500,000. See "Regulation - Federal Regulation of Savings
Associations." At September 30, 2000, the maximum amount which the Association
could have lent to any one borrower and the borrower's related entities was
approximately $5.8 million. At September 30, 2000, the Association had no loans
with an aggregate outstanding balance in excess of this amount. The Association
has 33 borrowers or related borrowers with total loans outstanding in excess of
$1.0 million. The largest amount outstanding to any one borrower and the
borrower's related entities was approximately $5.3 million to a real estate
investor, and was secured by real estate primarily in Clay and Platte Counties,
Missouri and the personal guarantee of the borrower. At September 30, 2000, all
of the loans to the aforementioned 33 borrowers were performing in accordance
with their terms, except for ten loans to one borrower which were non-performing
at September 30, 2000. See "Regulation - Federal Regulation of Savings
Associations."
5
Loan Portfolio Composition. The following table sets forth the composition
of the Association's loan portfolio in dollar amounts and in percentages (before
deductions for loans in process, deferred fees and discounts and allowances for
losses) at the dates indicated. Substantially all of the loans in process
reflected in the table represent undisbursed residential construction funding.
At September 30,
-------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in Thousands)
Real Estate Loans:
- -----------------
One- to four-family/(1)/... $174,183 61.62% $160,789 65.38% $134,416 65.08% $123,856 61.96% $109,292 62.06%
Multi-family............... 11,562 4.09 7,360 2.99 2,943 1.42 4,226 2.11 2,908 1.65
Commercial................. 11,120 3.93 6,398 2.60 3,243 1.57 3,403 1.70 4,322 2.45
Land....................... 13,553 4.79 14,660 5.96 11,059 5.35 8,257 4.13 9,605 5.46
Construction/(2)/.......... 43,607 15.43 40,301 16.38 45,654 22.11 51,447 25.74 41,646 23.65
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate loans... 254,025 89.87 229,508 93.31 197,315 95.53 191,189 95.64 167,773 95.27
-------- -------- -------- -------- --------
Other Loans:
- -----------
Consumer and Other Loans:
Deposit account........... 460 0.16 516 0.21 621 0.30 398 0.20 533 0.30
Automobile................ 7,249 2.56 3,244 1.32 3,094 1.50 3,302 1.65 3,359 1.91
Home equity............... 6,209 2.20 4,429 1.80 2,937 1.42 1,904 0.95 2,718 1.54
Home improvement.......... 2,092 0.74 1,154 0.47 1,181 0.57 1,014 0.51 873 0.50
Other/(3)/................ 12,623 4.47 7,116 2.89 1,408 0.68 2,091 1.05 847 0.48
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans..... 28,633 10.13 16,459 6.69 9,241 4.47 8,709 4.36 8,330 4.73
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans.............. 282,658 100.00% 245,967 100.00% 206,556 100.00% 199,898 100.00% 176,103 100.00%
====== ====== ====== ====== ======
Less:
- ----
Loans in process........... 18,429 21,927 19,730 20,679 19,502
Deferred loan fees, net.... 243 529 700 805 804
Allowance for loan losses.. 2,119 1,602 1,521 1,624 1,353
-------- -------- -------- -------- --------
Loans receivable, net...... $261,867 $221,909 $184,605 $176,790 $154,444
======== ======== ======== ======== ========
_____________________
/(1)/ Includes $384,000, $147,000, $526,000 and $466,000 of loans held for sale
at September 30, 2000, 1999, 1998 and 1997, respectively.
/(2)/ Includes $7.4 million, $11.5 million, $9.9 million, $6.6 million and $8.3
million of construction-permanent loans on one-to four-family properties
at September 30, 2000, 1999, 1998, 1997 and 1996, respectively, $0.2
million, $2.7 million, $0.8 million, $0.3 million and $1.4 million of
construction-permanent loans on multi-family properties at September 30,
2000, 1999, 1998, 1997 and 1996, respectively, and $1.2, $0.1 million and
$70,000 of construction-permanent loans on commercial property at
September 30, 2000, 1999 and 1996, respectively.
/(3)/ Includes $2.7 million of commercial lines of credit and commercial leases
and $2.3 million of recreational vehicle, boat and motorcycle loans at
September 30, 1999. Includes $2.9 million of commercial lines of credit
and commercial leases and $7.8 million of recreational vehicle, boat and
motorcycle loans at September 30, 2000.
6
The following table sets forth the composition of the Association's loan
portfolio by fixed- and adjustable-rate at the dates indicated.
At September 30,
---------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------- -------- ------- -------- -------- -------- ------- -------- ------- --------
(Dollars in Thousands)
Fixed-Rate Loans:
- -----------------
Real estate:
One- to four-family/(1)/...... $ 39,334 13.91% $ 39,792 16.18% $ 27,039 13.09% $ 22,214 11.11% $ 24,312 13.81%
Multi-family.................. 62 0.02 2,970 1.21 152 0.07 942 0.47 986 0.56
Commercial.................... 929 0.33 330 0.13 349 0.17 571 0.29 604 0.34
Land.......................... 9,170 3.24 9,911 4.03 5,284 2.56 5,180 2.59 6,298 3.58
Construction.................. 37,736 13.35 31,668 12.87 41,821 20.25 50,106 25.07 35,475 20.14
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate loans...... 87,231 30.85 84,671 34.42 74,645 36.14 79,013 25.07 67,675 38.43
Consumer and other............ 20,758 7.34 10,311 4.20 5,224 2.53 5,768 2.88 6,033 3.43
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total fixed-rate loans....... 107,989 38.19 94,982 38.62 79,869 38.67 84,781 42.41 73,708 41.86
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Adjustable-Rate Loans:
- ----------------------
Real estate:
One- to four-family........... 134,849 47.71 120,997 49.19 107,377 51.98 101,642 50.85 84,980 48.26
Multi-family.................. 11,500 4.07 4,390 1.78 2,791 1.35 3,284 1.64 1,922 1.09
Commercial.................... 10,191 3.61 6,068 2.47 2,894 1.4 2,832 1.42 3,718 2.11
Land.......................... 4,383 1.55 4,749 1.93 5,775 2.8 3,077 1.54 3,307 1.88
Construction.................. 5,871 2.08 8,633 3.51 3,833 1.86 1,341 0.67 6,171 3.5
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate loans...... 166,794 59.02 144,837 58.88 122,670 59.39 112,176 56.12 100,098 56.84
Consumer and other............. 7,875 2.79 6,148 2.50 4,017 1.94 2,941 1.47 2,297 1.3
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total adjustable-rate loans.. 174,669 61.81 150,985 61.38 126,687 61.33 115,117 57.59 102,395 58.14
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans................... 282,658 100.00% 245,967 100.00% 206,556 100.00% 199,898 100.00% 176,103 100.00%
====== ====== ====== ====== ======
Less:
- -----
Loans in process............... 18,429 21,927 19,730 20,679 19,502
Deferred loan fees, net........ 243 529 700 805 804
Allowance for loan losses...... 2,119 1,602 1,521 1,624 1,353
-------- -------- -------- -------- --------
Loans receivable, net......... $261,867 $221,909 $184,605 $176,790 $154,444
======== ======== ======== ======== ========
______________________
/(1)/ Includes ARM loans aggregating $3.9 million, $7.3 million, $2.8 million,
$6.9 million and $7.9 million at September 30, 2000, 1999, 1998, 1997 and
1996, respectively, which have their next interest rate adjustment date
five years or more from the dates indicated.
7
The following table sets forth the contractual maturity and weighted
average rates of the Association's loan portfolio at September 30, 2000. Loans
which have adjustable or renegotiable interest rates are shown as maturing in
the year during which the contract is due. The schedule does not reflect the
effects of scheduled payments, possible prepayments or enforcement of due-on-
sale clauses.
Real Estate
-----------------------------------------------------------------------------------------
Multi-family and
One- to Four-Family Commercial Land Construction
------------------------ ----------------------- ------------------- -----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Weight Amount Weight Amount Weight Amount Weight
----------- ----------- -------- ------------- -------- --------- ------- --------
(Dollars in Thousands)
Due During Years Ending
September 30,
- -------------
2001/(1)/.................. $ 179 8.01% $ 1 8.00% $ 1,107 8.54% $29,797 8.83%
2002....................... 1,500 10.84 29 9.88 57 8.83 5,066 8.20
2003....................... 716 8.12 7 9.75 2,457 8.63 -- --
2004 and 2005.............. 1,397 8.14 575 8.65 5,543 8.48 -- --
2006 to 2010............... 11,893 8.14 1,551 8.11 1,171 8.75 176 9.00
2011 to 2025............... 91,137 7.94 20,519 8.17 3,138 8.41 1,829 8.43
2026 and following......... 67,361 7.62 -- -- 80 8.60 6,739 8.49
-------- ----- ------- ---- ------- ---- ------- ----
Total...................... $174,183 7.86% $22,682 8.18% $13,553 8.52% $43,607 8.69%
======== ======= ======= =======
Consumer and Other Total
--------------------- ---------------------
Weighted Weighted
Average Average
Amount Weight Amount Weight
------- -------- -------- --------
(Dollars in Thousands)
Due During Years Ending
September 30,
- -------------
2001/(1)/.................. $ 1,451 10.27% $ 32,535 8.88%
2002....................... 958 11.83 7,610 8.81
2003....................... 2,177 11.93 5,357 9.90
2004 and 2005.............. 8,610 12.17 16,125 10.43
2006 to 2010............... 11,399 10.01 26,190 8.98
2011 to 2025............... 3,998 10.37 120,621 8.08
2026 and following......... 40 18.00 74,220 7.71
------- ----- -------- -----
Total...................... $28,633 10.94% $282,658 8.35%
======= ========
The total amount of loans due after September 30, 2001 which have fixed
interest rates is $75.7 million, while the total amount of loans due after such
date which have adjustable interest rates is $174.5 million.
8
All of the Association's lending is subject to its written underwriting
standards and loan origination procedures. Decisions on loan applications are
made on the basis of detailed applications and property valuations, if
applicable.
The Association requires evidence of marketable title and lien position
and/or appropriate title insurance or title opinions and surveys of such
properties. The Association also requires fire and extended coverage casualty
insurance in amounts at least equal to the lesser of the principal amount of the
loan or the value of improvements on the property, depending on the type of
loan. As required by federal regulations, the Association also requires flood
insurance to protect the property securing its interest if such property is
located in a designated flood area.
One- to Four-Family Residential Real Estate Lending
A primary focus of the Association's lending program has long been the
origination of long-term permanent loans secured by mortgages on owner-occupied,
one- to four-family residences. At September 30, 2000, $174.2 million, or 61.6%,
of the Association's loan portfolio consisted of permanent loans on one- to
four-family residences. Substantially all of the residential loans originated
by Cameron Savings are secured by properties located in the Association's market
area.
Historically, Cameron Savings originated for retention in its portfolio,
fixed-rate loans secured by one- to four-family residential real estate. In the
early 1980s, in order to reduce its exposure to changes in interest rates,
Cameron Savings began to emphasize the origination of ARM loans, subject to
market conditions and consumer preference. The Association originates ARM loans
for its portfolio. However, as a result of continued consumer demand for long-
term fixed-rate loans, particularly during recent periods of relatively low
interest rates, Cameron Savings has continued to originate fixed-rate loans with
terms to maturity of 15 to 30 years. During recent years, the Association's
general policy has been to sell into the secondary market, with servicing
released, most fixed-rate loans with terms to maturity of 30 years. Fixed-rate
loans with terms to maturity of less than 30 years may either be retained in
portfolio or sold in the secondary market depending on the interest rate charged
and the Association's asset/liability management objectives.
In the loan approval process, Cameron Savings assesses the borrower's
ability to repay the loan, the adequacy of the proposed security, the employment
stability of the borrower and the creditworthiness of the borrower. Initially,
Cameron Savings' loan underwriters analyze the loan application and the property
involved. As part of the loan application process, qualified independent and,
to a lesser extent, staff appraisers inspect and appraise the security property.
All appraisals are subsequently reviewed by the loan committee as applicable.
The Association's loans are underwritten and documented pursuant to the
guidelines of Freddie Mac. Most of the Association's fixed-rate residential
loans have contractual terms to maturity of ten to 30 years. The Association's
decision to hold or sell these loans is based on its asset/liability management
policies and goals and the market conditions for mortgages at any period in
time. Currently, the Association originates and sells substantially all of its
fixed-rate 30-year loans
9
which have the interest rates below a pre-determined level into the secondary
markets, servicing released. See "Business -Originations, Purchases and Sales of
Loans." The interest rates on loans sold are determined pursuant to commitments
to purchase from secondary market sources.
The Association offers ARM loans at rates and on terms determined in
accordance with market and competitive factors. Substantially all of the ARM
loans originated by the Association meet the underwriting standards regarding
creditworthiness of the secondary market for residential loans, but may not have
other terms that are generally acceptable to the secondary market (i.e.,
periodic interest rate cap or type of property). The Association's one- to
four-family residential ARM loans generally are fully amortizing loans with
contractual maturities of up to 30 years.
Cameron Savings presently offers several ARM products which adjust annually
after an initial period ranging from one to five years subject to a limitation
on the annual increase of 0.5%, 1.0% or 2.0% and an overall life of loan
limitation of 5.0% or 6.0%. These ARM products utilize the weekly average yield
on one-year U.S. Treasury securities adjusted to a constant maturity of one year
plus a margin of 2.75% or 3.0%. Borrowers are generally qualified using the
fully indexed rate. ARM products held in the Association's portfolio do not
permit negative amortization of principal and carry no prepayment restrictions.
At September 30, 2000, the Association had $134.8 million of one- to four-family
ARM loans, or 47.7% of total loans.
It is Cameron Savings' present policy generally to lend up to 97% of the
lesser of the appraised value or purchase price of the property. Cameron
Savings generally requires private mortgage insurance on residential loans with
a loan-to-value ratio at origination exceeding 80% in order to reduce its
exposure to 80% or less. The Association occasionally deviates from this policy
for first-time home buyers in which the Association will provide lending
opportunities to individuals who have not been employed long enough to qualify
for private mortgage insurance but who have qualifying incomes and low debt to
income ratios. The rates for these loans are slightly higher due to added
credit risk.
Adjustable-rate loans decrease the risk associated with changes in interest
rates but involve other risks, primarily because as interest rates rise, the
payment by the borrowers may rise to the extent permitted by the terms of the
loan, thereby increasing the potential for default. Also, adjustable-rate loans
have features which restrict changes in interest rates on a short-term basis and
over the life of the loan. In particular, the ARM loans originated by the
Association which have annual adjustments of 0.5% would take longer to adjust to
market rates than would many competing loans. At the same time, the market
value of the underlying property may be adversely affected by higher interest
rates.
The Association's residential mortgage loans customarily include due-on-
sale clauses giving the Association the right to declare the loan immediately
due and payable in the event that, among other things, the borrower sells or
otherwise disposes of the property subject to the mortgage and the loan is not
repaid. The Association may enforce due-on-sale clauses in its mortgage
contracts for the purpose of increasing its loan portfolio yield.
10
Construction and Land Lending
Historically, the Association has invested a significant proportion of its
loan portfolio in construction and land loans. Prompted by increased
residential development (predominately subdivisions) in the northern suburbs of
Kansas City, on July 1, 1987, the Association opened a loan production office in
Liberty, Missouri, a suburb community located northeast of Kansas City. In
1998, Cameron Financial completed the construction of a building in Liberty
which has been leased to the Association and operated as a full service branch.
The Liberty loan production office was closed. Vice President Stephen E. Hayward
is the Liberty Branch Manager. Substantially all of the Association's
construction and land loans are secured by residential properties located in the
northern suburbs of Kansas City and are originated, monitored, and serviced by
the Liberty office.
The Association originates five basic types of construction and land loans:
1. "Speculative" construction loans are made to home builders for the
construction principally of one- to four-family residences and
residential development projects and, to a lesser extent, commercial
buildings and multi-family residences. Speculative construction loans
generally do not have a sale contract or permanent loan in place for
the finished home, and the purchasers for the finished homes may be
identified either during or following the construction period.
2. "Contract" construction loans are made to builders who have a signed
contract to build a new home.
3. "Construction - permanent" loans are made to individuals who have
contracted with a builder to construct their personal residence.
4. "Conventional" land loans are made to individuals typically to finance
agricultural land, building lots, and unimproved land.
5. "Land acquisition and development" loans ("land A&D loans") are made
to real estate developers and individuals for the acquisition of land
upon which the purchaser can then build and for the acquisition of
unimproved land upon which the purchaser makes improvements necessary
to build upon or to sell as improved lots.
11
The table below presents information on the Association's construction and
land loans at September 30, 2000:
Outstanding
Loan Percent of
Balance/(1)/ Total
------------ ----------
(Dollars in Thousands)
Speculative............................ $31,054 54.33%
Contract............................... 3,672 6.42
Construction/permanent................. 8,881 15.54
------- ------
Total construction.................. 43,607 76.29
------- ------
Conventional land...................... 5,041 8.82
Land A&D............................... 8,512 14.89
------- ------
Total land.......................... 13,553 23.71
------- ------
Total construction and land...... $57,160 100.00%
======= ======
_______________
/(1)/ Includes loans in process.
At September 30, 2000, the Association's $43.6 million of construction
loans and $13.6 million of land loans represented 15.4% and 4.79%, respectively,
of total loans receivable. At the same time, the Association's $31.1million of
speculative construction loans and $8.5 million of land A&D loans represented
11.0% and 3.0%, respectively, of total loans receivable. At September 30, 1999,
the Association's $24.2 million of speculative construction loans and $8.6
million of land A&D loans represented 9.8% and 3.5%, respectively, of total
loans receivable.
Construction and land A&D lending affords the Association the opportunity
to achieve higher interest rates and fees with shorter terms to maturity than
does its single-family permanent mortgage lending. Construction and land A&D
lending, however, is generally considered to involve a higher degree of risk
than single-family permanent mortgage lending due to (i) the concentration of
principal among relatively few borrowers and development projects, (ii) the
increased difficulty at the time the loan is made of estimating building costs
and the selling price of the residence to be built, (iii) the increased
difficulty and costs of monitoring the loan, (iv) the higher degree of
sensitivity to increases in market rates of interest, and (v) the increased
difficulty of working out problem loans. Speculative construction loans have
the added risk associated with identifying an end-purchaser for the finished
home. The Association has sought to address these risks by developing and
adhering to underwriting policies, disbursement procedures, and monitoring
practices.
The Association seeks to make construction loans to those builders with
which it has a long-standing history of satisfactory performance. New builders
typically borrow from the Association in limited amounts and may borrow
additional amounts based on proven experience with the Association. At
September 30, 2000, the Association had 15 borrowers for which speculative
12
construction and land A&D loans outstanding totaled more than $1 million. All
but two of the foregoing builders with speculative construction and land A&D
loans totaling more than $1.0 million have been customers of the Association for
more than three years.
While substantially all of the Association's construction and land A&D
loans are secured by properties located in the northern suburbs of Kansas City,
the Association also seeks to diversify its construction and land A&D lending
risks among several development projects. At September 30, 2000, the
Association had speculative construction and land A&D loans secured by
properties in 44 developments of which 13 represented an exposure to a single
development of more than $1.0 million.
One- to Four-Family Construction Loans. Loans for the construction of one-
to four-family residences are generally made for terms of six to 12 months. The
Association's loan policy includes maximum loan-to-value ratios of up to 85%
that vary by amount and type (i.e., speculative versus contract) of construction
loan. The Board of Directors may increase or decrease the maximum loan-to-value
ratio depending on borrower strength, economic conditions and other factors.
Prior to preliminary approval of a construction loan application, Association
personnel inspect the site, review the existing or proposed improvements,
identify the market for the proposed project, analyze the pro forma data and
assumptions on the project, and satisfy themselves with the experience and
expertise of the builder. After preliminary approval has been given, the
application is processed. Processing includes obtaining credit reports,
financial statements and tax returns on the borrowers and guarantors, an
independent appraisal of the project, and any other expert reports necessary to
evaluate the proposed project. The Association may require builders to
designate Cameron Savings as the beneficiary of a life insurance policy equal to
the lesser of $50,000 or 50% of the loan balance, though the Board of Directors
may require additional amounts or make other similar arrangements. All
construction loans must be approved by the Loan Committee or Board of Directors.
With few exceptions, the Association requires that construction loan
proceeds be disbursed in increments as construction progresses. To control the
disbursement process, the Association requires that builders and their
subcontractors and vendors submit invoices to the Association for payment. The
Association tracks actual disbursements compared to estimated costs by category
of expense. The Association uses this information, along with periodic on-site
inspections by Association personnel, to monitor the progress of the project.
In the event of cost overruns, depending on the circumstances (i.e., whether due
to "add-ons" not included in the original plans or due to unanticipated changes
in building costs) the Association may seek to require the borrower to deposit
funds with the Association for additional disbursements, increase the loan
amount on the basis of an increased appraisal and disburse additional loan
proceeds consistent with the original loan-to-value ratio, or become more active
in the monitoring and progress of the project.
The Association regularly monitors the accuracy of assumptions made in its
construction loan business over time. In particular, the Association tracks the
accuracy of its independent appraisers by comparing actual selling prices with
the appraised value estimated in connection with the loan approval.
Additionally, the Association tracks the performance of its builder customers by
13
comparing actual costs with those estimated in the loan application. The
Association believes that this experience mitigates some of the risks inherent
in its construction lending.
Commercial and Multi-family Construction Loans. Occasionally, the
Association originates loans for the construction of commercial buildings and
multi-family residences on terms similar to those on one- to four-family
construction loans. Multi-family construction loans also includes individual
loans secured by five or more single family dwellings. At September 30, 2000,
the Association had three such loans outstanding totalling $4.9 million.
Land and Development Loans. At September 30, 2000, the Association had
total land loans of $13.6 million. In making land loans, the Association
follows similar underwriting policies as for construction loans and, to the
extent applicable (i.e., if the loan is to develop land for future building
rather than simply to acquire raw land), similar disbursement procedures. The
Association originates land loans with similar terms and at similar rates as
construction loans, except that the initial term on conventional land loans is
typically five to ten years (not to exceed 20 years) as opposed to the term of
up to 12 months that is typical of construction loans. Land A&D loans are
interest-only loans, payable semi-annually, with provisions for principal
reductions as lots are sold.
Multi-Family and Commercial Real Estate Lending
Cameron Savings also originates loans secured by multi-family and
commercial real estate. At September 30, 2000, $11.6 million, or 4.1%, of the
Association's loan portfolio consisted of multi-family loans and $11.1 million,
or 3.9%, of the Association's loan portfolio consisted of commercial real estate
loans. These balances reflect increases from the prior fiscal year end. At
September 30, 1999, $7.4 million, or 3.0%, of the Association's loan portfolio
consisted of multi-family loans and $6.4 million, or 2.6% of the Association's
loan portfolio consisted of commercial real estate loans. Multi-family loans
also includes individual loans secured by five or more single family dwellings.
The increase in multi-family loans in fiscal 2000 was primarily due to loans
secured by several single-family dwellings. The Association placed greater
emphasis on commercial real estate lending during fiscal 2000.
Multi-family and commercial real estate loans originated by the Association
may be either fixed- or adjustable-rate loans with terms to maturity and
amortization schedules of up to 20 years. Rates on such ARM loans generally
adjust annually to specified spreads over the one-year U.S. Treasury securities
index adjusted to a constant maturity of one year, subject to annual and life-
of-loan interest rate caps. Multi-family and commercial real estate loans are
written in amounts of up to 80% of the lesser of the appraised value of the
property or the sales price.
The Association's commercial real estate portfolio consists of loans on a
variety of non-residential properties including small shopping centers, nursing
homes, small office buildings and churches. Multi-family loans generally are
secured by seven- to 36-unit apartment buildings. Appraisals on properties which
secure multi-family and commercial real estate loans are performed by an
independent appraiser designated by the Association before the loan is made.
All appraisals
14
on multi-family and commercial real estate loans are reviewed by the
Association's management. In underwriting such loans, the Association primarily
considers the cash flows generated by the real estate to support the debt
service, the financial resources and income level of the borrower and the
Association's experience with the borrower. In addition, the Association's
underwriting procedures require verification of the borrower's credit history,
an analysis of the borrower's income, financial statements and banking
relationships, a review of the borrower's property management experience and
references, and a review of the property, including cash flow projections and
historical operating results. The Association seeks to ensure that the property
securing the loans will generate sufficient cash flow to adequately cover
operating expenses and debt service payments. The Association generally requires
a debt service coverage ratio of 120% or more.
At September 30, 2000, the Association's largest multi-family or commercial
real estate loan was a $3.3 million loan, secured by twelve single-family
dwellings located in Platte County, Missouri.
Multi-family and commercial real estate lending affords the Association an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. Nevertheless, loans secured by
such properties are generally larger, more difficult to evaluate and monitor
and, therefore generally, involve a greater degree of risk than one- to four-
family residential mortgage loans. Because payments on loans secured by
commercial real estate and multi-family properties are often dependent on the
successful operation or management of the properties, repayment of such loans
may be subject to adverse conditions in the real estate market or the economy.
If the cash flow from the project is reduced, the borrower's ability to repay
the loan might be impaired. The Association has attempted to minimize these
risks by lending primarily to the ultimate user of the property or on existing
income-producing properties.
Consumer and Other Lending
The Association originates a variety of consumer and other loans, including
home equity loans, automobile loans, recreational vehicle loans, boat loans,
motorcycle loans, home improvement loans, loans secured by deposit accounts,
commercial lines of credit and commercial leases, and other types of secured and
unsecured loans. At September 30, 2000, the Association had $28.6 million, or
10.1% of its loans receivable, in outstanding consumer and other loans. The
Association has recently focused on the expansion of its consumer and other
lending portfolio as a result of the variety of products that can be offered,
the higher yields that can be obtained and the stronger consumer demand for such
products. In addition, management believes that offering consumer loan products
helps to expand the Association's customer base and creates stronger ties to its
existing customer base. Consumer loan balances typically range from $1,000 to
$50,000 and are generally repaid over periods ranging from one to ten years.
Unsecured consumer loans generally do not exceed $10,000 and typically are
repayable in monthly installment payments within five years. The Association's
consumer loans are primarily secured by second mortgages on residential real
estate, automobiles, recreational vehicles or boats. The Association's focus in
consumer lending has been the origination of home equity and improvement loans
and auto loans. At September 30, 2000 the
15
Association had $8.3 million or 29.0% of its consumer loan portfolio in home
equity and home improvement loans and $7.2 million in auto loans, or 25.3% of
the consumer loan portfolio. Approximately 2.3% of the consumer loans were
unsecured at September 30, 2000. The Association's commercial lines of credit
and commercial leases are made to local businesses and entities such as the
local school district and car dealers and are typically secured by inventory and
equipment.
Consumer and other loans generally have shorter terms and higher interest
rates than first lien mortgage loans because they generally involve more credit
risk than mortgage loans as a result of the type and nature of the collateral
and, in certain cases, the absence of collateral. Consumer and other loans
generally are dependent on the borrower's continuing financial stability and
thus are more likely to be affected by adverse personal circumstances. Despite
the risks inherent in consumer and other lending, the Association's consumer
and other loans delinquent greater than 90 days as a percentage of total
consumer loans was 0.3% at September 30, 2000.
The underwriting standards generally employed by the Association for
consumer loans include a determination of the applicant's payment history on
other debts and an assessment of the borrower's ability to meet the payments on
the proposed loan as well as existing obligations. In addition to the
creditworthiness of the applicant, the underwriting process also includes a
comparison of the value of the security in relation to the proposed loan amount.
Upon receipt of a completed consumer loan application from the prospective
borrower, a credit report is obtained, income and other information is verified
and, if necessary, additional financial information is requested.
The Association's underwriting procedures for home equity loans include a
comprehensive review of the loan application, which require a clean credit
rating and verification of stated income and other financial information. The
combined loan-to-value ratio, including prior mortgage liens, also is a
determining factor in the underwriting process. Generally, the combined loan-
to-value ratio, including prior mortgage liens, may not exceed 90% of the
underlying security property.
Loan Fees
In addition to earning interest on loans, the Association also receives
income from loan origination fees and fees related to late payments, loan
modifications, and miscellaneous activities related to loans. Income from these
activities varies from period to period with the volume and type of loans
originated.
The Association generally receives loan origination and/or commitment fees
when originating loans. Fees are generally up to 1-1/2% of the principal amount
of residential mortgage loans. In accordance with SFAS No. 91, the Association
defers loan origination and commitment fees and certain direct loan origination
costs, with the net amount amortized as an adjustment of the loan's yield. The
Association amortizes these amounts, using the level-yield method, over the
contractual life of these loans. Net deferred amounts are recorded in income
when the underlying loans are sold or paid in full. See Note 2 of Notes to
Consolidated Financial Statements.
16
Originations, Purchases and Sales of Loans
The Association originates real estate loans through marketing efforts, the
Association's customer base and walk-in customers. Mortgage loan originations
come from direct solicitation by the Association's loan officers and branch
managers, and from real estate brokers, builders, depositors and walk-in
customers. Loan applications are taken and processed by loan representatives,
while underwriting and document preparation functions are performed at the
Cameron Savings home office and Liberty loan production office. When all
necessary documents are obtained, the loan, depending on its size and type, may
be approved by any three members of the loan committee or the Board of
Directors.
While the Association originates both adjustable-rate and fixed-rate loans,
its ability to originate loans is dependent upon the relative customer demand
for loans in its market. In fiscal 2000, the Association originated $99.6
million of loans, compared to $137.9 million and $110.5 million in fiscal 1999
and 1998, respectively. During recent years, the Association's construction
loan originations have been strong, totaling $40.5 million, $49.2 million, and
$55.4 million, or 40.7%, 35.7%, and 50.1%, of total loan originations in fiscal
2000, 1999 and 1998, respectively.
Cameron Savings generally sells its 30-year fixed-rate one- to four-family
residential mortgage loans, without recourse, to secondary market purchasers.
Sales of whole loans generally are beneficial to the Association since these
sales may generate income at the time of sale, provide funds for additional
lending and other investments and increase liquidity. When loans are sold, the
Association typically does not retain the responsibility for servicing the
loans. At origination, all of the Association's mortgage loans are immediately
classified as either held for investment or held for sale. During fiscal 2000,
conventional mortgage loans originated and sold into the secondary market
totaled $2.3 million.
While the Association has purchased whole loans or loan participations from
time to time, such purchases have been infrequent. In fiscal 2000, the
Association did not purchase any loans. Any such purchases are made consistent
with the Association's underwriting standards. Most of the Association's
purchased loans are secured by property located in Missouri.
In addition, the Association may purchase mortgage-backed securities to
complement its mortgage lending activities. However, during fiscal 2000, 1999,
1998, 1997 and 1996 the Association did not purchase any mortgage-backed
securities.
Loan commitments are issued as soon as possible upon completion of the
underwriting process, and mortgage loans are closed as soon as all title
clearance and other required procedures have been completed. At September 30,
2000, there were outstanding first mortgage loan commitments totaling $2.6
million. At that date, the Association also had $43.6 million of construction
loans of which approximately $18.4 million had not yet been disbursed.
17
The following table shows the loan origination, purchase, sale and
repayment activities of the Association for the periods indicated.
Year Ended September 30,
------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- ---------- --------- ----------
(Dollars In Thousands)
Originations by type:
- --------------------
Adjustable rate:
Real estate - one- to four-family... $ 23,855 $ 34,001 $ 24,148 $ 24,074 $ 21,063
multi-family...................... 720 4,597 38 660 1,679
commercial........................ 3,180 2,378 1,593 40 1,085
land............................. 3,806 3,440 2,421 1,088 2,079
construction..................... 10,035 13,202 10,683 9,565 9,901
Non-real estate - consumer.......... 3,700 5,117 2,690 1,612 1,278
--------- --------- ---------- --------- ----------
Total adjustable-rate........ 45,296 62,735 41,573 37,039 37,085
--------- --------- ---------- --------- ----------
Fixed rate:
Real estate - one- to four-family... 3,855 21,480 17,583 4,226 4,262
- commercial.......... 160 -- 121 48 100
- land................ 3,453 8,528 3,886 1,407 5,348
- construction........ 30,510 35,976 44,681 53,980 47,089
Non-real estate - consumer.......... 16,316 9,160 2,654 3,905 5,735
--------- --------- ---------- --------- ----------
Total fixed-rate............. 54,294 75,144 68,925 63,566 62,534
--------- --------- ---------- --------- ----------
Total loan originations...... 99,590 137,879 110,498 100,605 99,619
--------- --------- ---------- --------- ----------
Purchases:
- ---------
Real estate - one- to four-family... -- -- 52 -- 882
- land.................. -- 40 14 -- --
--------- --------- ---------- --------- ----------
Total loan purchases......... -- 40 66 -- 882
Mortgage-backed securities.......... -- -- -- -- --
--------- --------- ---------- --------- ----------
Total purchases.............. -- 40 66 -- 882
--------- --------- ---------- --------- ----------
Sales and Repayments:
- --------------------
Real estate - one- to four-family... 2,273 6,512 7,916 2,731 1,531
--------- --------- ---------- --------- ----------
Total loan sales............. 2,273 6,512 7,916 2,731 1,531
Principal repayments................ 60,626 91,996 95,989 74,079 67,496
--------- --------- ---------- --------- ----------
Total sales and repayments... 62,899 98,508 103,905 76,810 69,027
Decrease (Increase) in other items:
Loans in process.................... 3,498 (2,197) 949 (1,177) (6,249)
Deferred fees and discounts......... 286 171 105 (1) (162)
Allowance for loan losses........... (517) (81) 102 (271) (359)
--------- --------- ---------- --------- ----------
Net increase................. $ 39,958 $ 37,304 $ 7,815 $ 22,346 $ 24,704
========= ========= ========== ========= ==========
Asset Quality
Delinquency Procedures. When a borrower fails to make a required
payment on a first mortgage loan, the Association attempts to cause the
delinquency to be cured by contacting the borrower by mail or telephone when the
loan is 20 days delinquent. A second late notice is sent after the loan is 30
days delinquent in addition to verbal contact with the borrower.
18
In the event the loan payment is past due for 90 days or more, the
Association performs an in-depth review of the loan's status, the condition of
the property and circumstances of the borrower. Based upon the results of the
review, the Association may negotiate and accept a repayment program with the
borrower or, when deemed necessary, initiate foreclosure proceedings. If
foreclosed on, real property is sold at a public sale and the Association may
bid on the property to protect its interest. A decision as to whether and when
to initiate foreclosure proceedings is made by the loan service officer with the
approval of the President and is based on such factors as the amount of the
outstanding loan in relation to the original indebtedness, the extent of
delinquency and the borrower's ability and willingness to cooperate in curing
the delinquencies.
The following table sets forth the Association's loan delinquencies by
type, by amount and by percentage of type at September 30, 2000.
Loans Delinquent For
-----------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
-------------------------- --------------------------- ----------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
-------- ------- --------- -------- ------- --------- -------- -------- ----------
(Dollars in Thousands)
Real Estate:
One- to four-family...... 6 $335 0.19% 4 $ 158 0.09% 10 $ 493 0.28%
Commercial-multifamily... -- -- -- 1 1 -- 1 1 --
Land..................... -- -- -- -- -- -- -- -- --
Construction............. -- -- -- 12 1,829 4.19 12 1,829 4.19
Consumer and other......... 4 50 0.17 13 74 0.26 17 124 0.43
------- ------- ------- ------- ------- ------- ------- ------- -------
Total................. 10 $385 0.14% 30 $2,062 0.73% 40 $2,447 0.87%
======= ======= ======= ======= ======= ======= ======= ======= =======
Non-Performing Assets. Real estate acquired in settlement of loans is
classified as real estate owned until it is sold. When property is acquired, it
is initially recorded at the lower of estimated fair value, less estimated costs
to sell, or cost. If, subsequent to foreclosure, the fair value of the real
estate acquired through foreclosure is determined to have declined based upon
periodic evaluations by management, valuation allowances are established through
a charge to income. Costs relating to the development or improvement of real
estate owned are capitalized to the extent of fair market value.
The following table sets forth the amounts and categories of the
Association's non-performing assets. Loans are placed on non-accrual status
when the collection of principal and/or interest is not probable; however, in no
event is interest accrued on loans for which interest is more than 90 days
delinquent. Foreclosed assets include assets acquired in settlement of loans.
19
September 30,
-----------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(Dollars in Thousands)
Non-accruing loans:
One- to four-family........................................ $ 158 $ 171 $ 721 $ 262 $ 638
Multi-family............................................... -- -- -- -- --
Commercial................................................. 1 -- 34 -- --
Land....................................................... -- 63 -- -- --
Construction............................................... 1,829 -- 1,044 110 131
Consumer and other......................................... 74 13 -- -- --
--------- --------- --------- --------- ---------
Total non-accruing loans................................ 2,062 247 1,799 372 769
--------- --------- --------- --------- ---------
Accruing loans delinquent 90 days or more:/(2)/
One- to four-family........................................ -- -- 870 708 653
Multi-family............................................... -- -- 7 -- --
Commercial................................................. -- -- -- -- --
Land....................................................... -- -- -- -- --
Construction............................................... -- -- 450 -- --
Consumer and other......................................... -- -- 10 88 56
--------- --------- --------- --------- ---------
Total accruing loans delinquent more than 90 days........ -- -- 1,337 796
--------- --------- --------- --------- ---------
Total non-performing loans............................... 2,062 247 3,136 1,168 1,478
--------- --------- --------- --------- ---------
Foreclosed assets:
One- to four-family........................................ -- 23 -- -- 70
Multi-family............................................... -- -- -- -- --
Commercial................................................. -- -- -- -- --
Land....................................................... -- -- -- -- --
Construction............................................... -- -- -- -- --
Consumer and other......................................... 29 -- 19 12 --
--------- --------- --------- --------- ---------
Total................................................... 29 23 19 12 70
--------- --------- --------- --------- ---------
Total non-performing assets.................................. $ 2,091 $ 270 $ 3,155 $ 1,180 $ 1,548
========= ========= ========= ========= =========
Total classified assets/(1)/................................. $ 12,545 $ 8,062 $ 11,803 $ 10,754 $ 7,729
Total non-performing loans as a percentage
of total loans receivable.................................... 0.73% 0.10% 1.52% 0.58% 0.84%
Total non-performing assets as a percentage
of total assets.............................................. 0.68% 0.10% 1.42% 0.56% 0.83%
Total classified assets/(1)/ as a percentage of
total assets................................................. 4.06% 3.08% 5.32% 5.06% 4.15%
Interest income that would have been recorded on
non-performing loans if current /(3)/........................ $ 52 $ 24 $ 92 $ 21 $ 40
Interest income on non-performing loans included in
net income /(4)/............................................. $ 47 $ 7 $ 62 $ 13 $ 40
_________________________
/(1)/ Includes assets designated special mention.
/(2)/ These loans are delinquent 90 days or more as to principal but not as to
interest. This can occur when the Association receives a partial payment
from a borrower which is first applied to interest due.
/(3)/ This represents the additional interest income that would have been
collected had the loans been current.
/(4)/ This represents the interest income actually collected on the loans.
20
The increase in non-performing loans during fiscal 2000 is primarily
due to one borrower's delinquency on ten speculative construction loans in the
aggregate amount of $1.5 million. These loans are secured by various duplex
residences in various stages of construction.
Other Loans of Concern. In addition to the non-performing loans and
foreclosed assets set forth in the preceding table, as of September 30, 2000,
there was also an aggregate of $10.4 million in net book value of loans
classified by the Association with respect to which known information about the
possible credit problems of the borrowers or the cash flows of the secured
properties have caused management to have some doubts as to the ability of the
borrowers to comply with present loan repayment terms and which may result in
the future inclusion of such items in the non-performing asset categories. At
September 30, 2000, other loans of concern consisted primarily of speculative
construction loans not repaid within the original one-year term and one- to
four-family loans. Speculative construction loans may not be paid off during
the initial one year due to delays in starting construction, weather delays
during construction, the inability of the new buyer to close the purchase with
the original term, or the property remaining unsold near the original maturity
date. Prior to maturity, the original loan is modified to reflect a new maturity
date one year later than the original maturity date. Such loans are not
classified as non-performing since they are performing in accordance with
current loan requirements. At September 30, 2000, $7.8 million of speculative
construction loans were included in this category. Management has considered
the Association's non-performing and other loans of concern in establishing its
allowance for loan losses.
Classification of Assets. Federal regulations require that each
savings institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, the Office of Thrift
Supervision ("OTS") and FDIC examiners have authority to identify problem assets
and, if appropriate, require them to be classified. There are three
classifications for problem assets: Substandard, Doubtful and Loss.
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the savings institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
Substandard assets, with the additional characteristics that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high probability of loss. An
asset classified Loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. Assets classified
as Substandard or Doubtful require the institution to establish prudent general
allowances for loan losses. If an asset or portion thereof is classified as
Loss, the institution must either establish specific allowances for loan losses
in the amount of 100% of the portion of the asset classified Loss, or charge-off
such amount. If an institution does not agree with an examiner's classification
of an asset, it may appeal this determination to the District Director of the
OTS. Assets which do not currently expose the savings institution to sufficient
risk to warrant classification in one of the aforementioned categories but
possess weaknesses deserving management's close attention, are required to be
designated Special Mention.
21
On the basis of management's review of its assets, at September 30,
2000, on a net basis, the Association had classified $4.1 million as
Substandard, -0- as Doubtful, -0- as Loss and $8.4 million as Special Mention.
Classified assets at September 30, 2000 were $12.5 million, compared
to $8.0 million at September 30, 1999 and $11.8 million at September 30, 1998.
The majority of the increase in fiscal 2000 was in the "special mention" and
"substandard" categories. At September 30, 2000, 21 speculative construction
loans were classified as substandard. Speculative construction loans classified
as "special mention" increased $2.0 million in fiscal 2000. The majority of the
decrease in fiscal 1999 was in the "substandard" category. At September 30,
1999, no speculative construction loans were classified as substandard. The
decrease in 1999 is primarily due to increased collection efforts. During
fiscal 1998, delinquencies in both the speculative construction and the one- to
four-family portfolio increased. At September 30, 1998, eleven speculative
construction loans had become 90 days delinquent compared to one at September
30, 1997. The majority of the increase in fiscal 1997 was in the "special
mention" category. In an attempt to insure that internal controls monitor all
situations of possible concern, the Association's classification policy was
changed in 1997 to classify all speculative construction loans not paid off
during the initial one year term as special mention. These loans may not be
paid off during the initial one year due to delays in starting construction,
weather delays during construction, the inability of the new buyer to close the
purchase within the original term, or the property remaining unsold near the
original maturity date. Prior to maturity, the original loan is modified to
reflect a new maturity date one year later than the original maturity date.
Such loans are not classified as nonperforming since they are performing in
accordance with current loan requirements. Speculative construction loans
classified as "special mention" were $7.8 million, $5.8 million, $5.8 million,
and $5.9 million at September 30, 2000, 1999, 1998 and 1997, respectively.
Allowance for Loan Losses. The allowance for estimated loan losses is
established through a provision for losses based on management's evaluation of
the risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity. Such evaluation, which includes a review of all loans of
which full collectibility may not be reasonably assured, considers the estimated
net realizable value of the underlying collateral, economic conditions,
historical loan loss experience and other factors that warrant recognition in
providing for an adequate allowance for loan losses.
Real estate properties acquired through foreclosure are recorded at
the lower of estimated fair value, less estimated costs to sell, or cost. If
fair value at the date of foreclosure is lower than the balance of the related
loan, the difference will be charged-off to the allowance for loan losses at the
time of transfer. Valuations are periodically updated by management and if the
value declines, a specific provision for losses on such property is established
by a charge to operations.
While management believes that it uses the best information available
to determine the allowance for loan losses, unforeseen market conditions could
result in adjustments to the allowance for loan losses, and net earnings could
be significantly affected, if circumstances differ substantially from the
assumptions used in making the determination of the allowance for loan losses.
22
Future additions to the Association's allowance will be the result of
periodic loan, property and collateral reviews and thus cannot be predicted in
advance. In addition, federal regulatory agencies, as an integral part of the
examination process, periodically review the Association's allowance for loan
losses. Such agencies may require the Association to recognize additions to the
allowance level based upon their judgment of the information available to them
at the time of their examination. At September 30, 2000, the Association had a
total allowance for loan losses of $2.1 million representing 102.8% of total
non-performing loans.
The following table sets forth an analysis of the Association's
allowance for loan losses.
Year Ended September 30,
-----------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- -------- --------- --------
(Dollars in Thousands)
Balance at beginning of year................. $ 1,602 $ 1,521 $ 1,624 $ 1,353 $ 994
Charge-offs:
One- to four-family........................ -- -- (20) -- --
Multi-family............................... -- -- -- -- --
Commercial................................. -- -- -- -- --
Land....................................... -- -- -- -- --
Construction............................... -- -- -- -- --
Consumer and other......................... (6) (5) (7) (14) (9)
--------- --------- -------- --------- --------
Total charge-offs.................. (6) (5) (27) (14) (9)
--------- --------- -------- --------- --------
Recoveries:
One- to four-family........................ -- -- -- -- --
Multi-family............................... -- -- -- -- --
Commercial................................. -- -- -- -- --
Land....................................... -- -- -- -- --
Construction............................... -- -- -- -- --
Consumer and other......................... -- -- -- -- --
--------- --------- -------- --------- --------
Total recoveries........................ -- -- -- -- --
Net charge-offs.............................. (6) (5) (27) (14) (9)
Additions charged to operations.............. 523 86 (76) 285 368
--------- --------- -------- --------- --------
Balance at end of year....................... $ 2,119 $ 1,602 $ 1,521 $ 1,624 $ 1,353
========= ========= ======== ========= ========
Ratio of net charge-offs during the year to
average loans outstanding during the year.... 0.002% 0.002% 0.015% 0.008% 0.006%
========= ========= ======== ========= ========
Ratio of allowance for loan losses to non-
performing loans at end of year.............. 102.76% 628.24% 48.50% 139.04% 91.54%
========= ========= ======== ========= ========
Ratio of allowance for loan losses to total
loans receivable at end of year.............. 0.75% 0.65% 0.74% 0.81% 0.77%
========= ========= ======== ========= ========
23
The distribution of the Association's allowance for loan losses at the
dates indicated is summarized in the following table. The portion of the
allowance allocated to each loan category does not necessarily represent the
total available for losses within that category since the total allowance is
applicable to the entire loan portfolio.
At September 30,
------------------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------------- --------------------------------- ---------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
----------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ----------
One- to four-family.... $ 434 $174,183 61.62% $ 415 $160,789 65.38% $ 357 $134,416 65.08%
Multi-family........... 47 11,562 4.09 21 7,360 2.99 15 2,943 1.42
Commercial............. 106 11,120 3.93 47 6,398 2.60 31 3,243 1.57
Land................... 254 13,553 4.79 313 14,660 5.96 261 11,059 5.35
Construction........... 649 43,607 15.43 489 40,301 16.38 673 45,654 22.11
Consumer and other..... 629 28,633 10.13 317 16,459 6.69 184 9,241 4.47
------ -------- ------ ------ -------- ------ ------ -------- ------
Total............. $2,119 $282,658 100.00 $1,602 $245,967 100.00% $1,521 $206,556 100.00%
====== ======== ====== ====== ======== ====== ====== ======== ======
-------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
Percent Percent
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
----------- ---------- ---------- ----------- ---------- ----------
(Dollars In Thousands)
....................
One- to four-family.... $ 345 $123,856 61.96% $ 299 $109,292 62.06%
Multi-family........... 21 4,226 2.11 22 2,908 1.65
Commercial............. 26 3,403 1.70 33 4,322 2.45
Land................... 209 8,257 4.13 235 9,605 5.46
Construction........... 818 51,447 25.74 577 41,646 23.65
Consumer and other..... 205 8,709 4.36 187 8,330 4.73
------ -------- ------ ------ -------- ------
Total............. $1,624 $199,898 100.00% $1,353 $176,103 100.00%
====== ======== ====== ====== ======== ======
24
Investment Activities
General. Cameron Savings must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Historically, the Association
has maintained liquid assets at levels above the minimum requirements imposed by
the OTS regulations and at levels believed adequate to meet the requirements of
normal operations, including potential deposit outflows. Cash flow projections
are regularly reviewed and updated to assure that adequate liquidity is
maintained. At September 30, 2000 and 1999, the Association's regulatory
liquidity ratio (liquid assets as a percentage of net withdrawable savings
deposits and current borrowings) was 16.4%, and 11.9%, respectively.
The Association has the authority to invest in various types of liquid
assets, including United States Treasury obligations, securities of various
federal and state agencies, certain certificates of deposit of insured banks and
savings institutions, certain bankers' acceptances, repurchase agreements and
federal funds. Subject to various restrictions, the Association may also invest
its assets in commercial paper, investment grade corporate debt securities and
mutual funds whose assets conform to the investments that a savings institution
is otherwise authorized to make directly.
Generally, the investment policy of the Association is to invest funds
among various categories of investments and maturities based upon the
Association's asset/liability management policies, investment quality and
marketability, liquidity needs and performance objectives.
Investment Securities. At September 30, 2000, the Company's certificates
of deposit in other financial institutions totaled $0.8 million, or 0.3%, of
total assets and investment securities totaled $23.3 million, or 7.6% of total
assets. As of such date, the Company also had a $5.6 million investment in
Federal Home Loan Bank ("FHLB") stock, satisfying its requirement for membership
in the FHLB of Des Moines. It is the Company's general policy to purchase
securities which are U.S. Government securities or federal or state agency
obligations or other issues that are rated investment grade or have credit
enhancements, except for certain municipal bonds purchased by the Association.
25
The following table sets forth the composition of the Company's investment
portfolio at the dates indicated.
At September 30,
----------------------------------------------------------
2000 1999 1999
----------------- ----------------- ------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
--------- ------ --------- ------ --------- -------
(Dollars in Thousands)
Investment securities:
U.S. Government securities..................... $ -- --% $ -- --% $ 1,994 7.66%
Federal agency obligations..................... 22,959 65.14 17,998 63.83 13,495 51.84
Municipal bonds................................ 342 0.97 540 1.92 813 3.12
------- ------ ------- ------ ------- ------
Subtotal.................................... 23,301 66.11 18,538 65.75 16,302 62.62
FHLB stock....................................... 5,643 16.01 3,556 12.61 2,013 7.73
------- ------ ------- ------ ------- ------
Total investment securities................. $28,994 82.12 $22,094 78.36 $18,315 70.35
and FHLB stock............................. ======= ====== ======= ====== ======= ======
Average remaining life of investment securities,
excluding FHLB stock and equity securities..... 3.3 years 4.0 years 3.0 years
Other interest-earning assets:
Cash equivalents............................... $ 5,464 15.50% $ 4,900 17.38% $ 3,319 12.75%
Certificates of deposit in other financial..... 840 2.38 1,200 4.26 4,400 16.90
institutions.................................. ------- ------ ------- ------ ------- ------
Total investment portfolio.................. $35,248 100.00% $28,194 100.00% $26,304 100.00%
======= ====== ======= ====== ======= ======
The composition and maturities of the investment securities portfolio,
excluding FHLB stock and equity securities, are indicated in the following
table.
At September 30, 2000
-------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over Total
1 Year Years Years 10 Years Investment Securities
----------- ----------- ---------- ---------- -----------------------
Book Value Book Value Book Value Book Value Book Value Fair Value
----------- ----------- ---------- ---------- ----------- ----------
(Dollars in Thousands)
U.S. Government securities... $ -- $ -- $ -- $ -- $ -- $ --
Federal agency obligations... -- 22,959 -- -- 22,959 22,569
Municipal bonds.............. 123 219 -- -- 342 342
----- ------- ---------- ---------- -------- --------
Total investment securities.. $ 123 $23,178 $ -- $ -- $ 23,301 $ 22,911
===== ======= ========== ========== ======== ========
Weighted average yield....... 4.73% 6.24% --% --% 6.23%
Mortgage-Backed Securities. From time to time, the Association purchases
mortgage-backed securities to supplement residential loan production. The type
of securities purchased is based upon
26
the Association's asset/liability management strategy and balance sheet
objectives. The balance of all mortgage-backed securities at September 30, 2000
was $3,000. The Company has not and does not intend to invest in high-risk
mortgage derivative securities. The Company may determine to increase its
investment in mortgage-backed securities in order to supplement loan origination
activity.
While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment speed, and value, of such
securities.
Effective February 10, 1992, the OTS adopted the Federal Financial
Institutions Examination Council "Statement of Policy on Securities Activities"
through its Thrift Bulletin 52 (the "Bulletin"). The Bulletin requires
depository institutions to establish prudent policies and strategies for
securities transactions, describes securities trading and sales practices that
are unsuitable when conducted in an investment portfolio and sets forth certain
factors that must be considered when evaluating whether the reporting of an
institution's investments is consistent with its intent and ability to hold such
investments. The Bulletin also establishes a framework for identifying when
certain mortgage derivative products are high-risk mortgage securities that must
be reported in a "trading" or "held for sale" account. Purchases of high-risk
mortgage securities prior to the effective date of the Bulletin generally will
be reviewed in accordance with previously-existing OTS supervisory policies. The
Association believes that it currently holds and reports its securities and
loans in a manner consistent with the Bulletin. The Association also holds no
assets which management believes qualify as high-risk mortgage securities, as
defined in the Bulletin.
Sources of Funds
General. Deposit accounts have traditionally been the principal source of
the Association's funds for use in lending and for other general business
purposes. In addition to deposits, the Association derives funds from loan
repayments, cash flows generated from operations and FHLB advances. Scheduled
loan payments are a relatively stable source of funds, while deposit inflows and
outflows and the related cost of such funds have varied. The Association
borrowed $159.6 million from the FHLB of Des Moines and repaid $117.8 million of
maturing advances during fiscal 2000 to supplement funding for loan
originations.
Deposits. The Association offers a variety of accounts, including money
market accounts, passbook savings accounts, interest and non-interest-bearing
NOW accounts and certificates of deposit accounts. Account terms vary, with
principal differences being the minimum balance required, the time period funds
must remain on deposit, fixed versus variable interest rates and the interest
rate. Maturity terms, service fees and withdrawal penalties are established by
the Association on a periodic basis. Determinations of savings rates are
predicated on funding and liquidity requirements, U.S. Treasury rates,
competition and established Association goals. As part
27
of its asset/liability management efforts, the Association has emphasized long-
term certificates of deposit with terms of up to ten years. At September 30,
2000, the Association had $12.3 million of certificates of deposit with
remaining maturities in excess of five years.
The Association's deposits are obtained primarily from the areas in which
its branch offices are located, and the Association relies primarily on customer
service, marketing programs and long-standing relationships with customers to
attract and retain these deposits. Various types of advertising and promotion
to attract and retain deposit accounts also are used. The Association does not
currently solicit or currently accept brokered deposits. The Association has
been competitive in the types of accounts and interest rates it has offered on
its deposit products. The Association intends to continue its efforts to
attract deposits as a primary source of funds for supporting its lending and
investing activities. The Association advertises via radio, direct mail and in
local newspapers.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The variety of deposit accounts offered by the Association has
allowed it to be competitive in obtaining funds and to respond with flexibility
to changes in consumer demands. The Association has become more susceptible to
short-term fluctuations in deposit flows, as customers have become more interest
rate conscious. The Association manages the pricing of its deposits in keeping
with its asset/liability management, liquidity and growth objectives. Based on
its experience, the Association believes that its savings and interest and non-
interest-bearing checking accounts are relatively stable sources of deposits.
However, the ability of the Association to attract and maintain certificates of
deposit, and the rates paid on these deposits, has been and will continue to be
significantly affected by market conditions.
In setting rates, Cameron Savings regularly evaluates (i) its internal cost
of funds, (ii) the rates offered by competing institutions, (iii) its investment
and lending opportunities and (iv) its liquidity position. In order to decrease
the volatility of its deposits, Cameron Savings imposes penalties on early
withdrawal on its certificates of deposit.
28
The following table sets forth the savings flows at the Association during
the years indicated.
Year Ended September 30,
-----------------------------------
2000 1999 1998
-------- -------- --------
(Dollars in Thousands)
Opening balance....................... $143,737 $136,622 $128,771
Deposits.............................. 203,575 197,923 126,953
Withdrawals........................... 204,454 196,156 124,073
Interest credited..................... 6,327 5,348 4,971
-------- -------- --------
Ending balance........................ $149,185 $143,737 $136,622
======== ======== ========
Net increase.......................... $ 5,448 $ 7,115 $ 7,851
======== ======== ========
Percent increase...................... 3.8% 5.2% 6.1%
======== ======== ========
The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Association at the dates
indicated.
At September 30,
-----------------------------------------------------------------
2000 1999 1998
-------------------- -------------------- --------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------- ---------- -------- ---------- -------- ----------
(Dollars in Thousands)
Transactions and Savings Deposits:
- ------------------------------------
Passbook accounts 3.25............................ $ 11,312 7.6% $ 11,525 8.0% $ 10,777 7.9%
NOW accounts 0.00 - 2.75.......................... 9,518 6.4 9,410 6.5 7,583 5.5
Money market accounts 3.00 - 4.89%................ 10,683 7.1 12,637 8.8 8,971 6.6
-------- ----- -------- ----- -------- -----
Total non-certificates............................ 31,513 21.1 33,572 23.4 27,331 20.0
-------- ----- -------- ----- -------- -----
Certificates:
- -------------
2.00 - 3.99%..................................... -- -- 5 -- 5 --
4.00 - 5.99%..................................... 47,546 31.9 73,853 51.4 68,744 50.3
6.00 - 7.99%..................................... 69,546 46.6 34,605 24.1 38,530 28.2
8.00 - 9.99%..................................... 580 0.4 1,702 1.2 2,012 1.5
-------- ----- -------- ----- -------- -----
Total certificates................................ 117,672 78.9 110,165 76.6 109,291 80.0
-------- ----- -------- ----- -------- -----
Total deposits.................................... $149,185 100.0% $143,737 100.0% $136,622 100.0%
======== ===== ======== ===== ======== =====
29
The following table shows rate and maturity information for the
Association's certificates of deposit at September 30, 2000.
Certificate accounts
maturing in 4.00- 5.00- 6.00- 7.00- 8.00% Percent
quarter ending: 4.99% 5.99% 6.99% 7.99% or greater Total of Total
- --------------- ------ -------- ------- ------ ---------- -------- --------
(Dollars in Thousands)
December 31, 2000.................... $ 883 $11,854 $ 2,745 $ 4 $ 132 $ 15,618 13.27%
March 31, 2001....................... 313 12,318 3,553 868 153 17,205 14.62
June 30, 2001........................ 111 5,337 7,150 431 48 13,077 11.11
September 30, 2001................... 571 3,909 6,445 494 -- 11,419 9.70
December 31, 2001.................... 565 734 9,853 1,018 -- 12,170 10.34
March 31, 2002....................... 72 613 6,702 353 -- 7,740 6.58
June 30, 2002........................ 34 629 1,668 23 -- 2,354 2.00
September 30, 2002................... 61 1,472 1,239 136 25 2,933 2.49
December 31, 2002.................... 107 778 1,096 41 15 2,037 1.73
March 31, 2003....................... -- 944 1,417 15 139 2,515 2.14
June 30, 2003........................ -- 813 907 15 32 1,767 1.50
September 30, 2003................... -- 587 736 13 9 1,345 1.14
Thereafter........................... -- 4,841 19,329 3,295 27 27,492 23.36
------ ------- ------- ------ ----- -------- ------
Total............................. $2,717 $44,829 $62,840 $6,706 $ 580 $117,672 100.00%
====== ======= ======= ====== ===== ======== ======
Percent of total ................% 2.31% 38.10% 53.40% 5.70% 0.49% 100.00%
30
The following table indicates the amount of the Association's certificates
of deposit and other deposits by time remaining until maturity at September 30,
2000.
Maturity
------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
--------- ---------- --------- ---------- ---------
(Dollars In thousands)
Certificates of deposit less than
$100,000................................................ $12,623 $15,308 $20,240 $49,616 $ 97,787
Certificates of deposit of $100,000 or
more.................................................... 1,955 1,717 3,908 10,516 18,096
Public funds /(1)/....................................... 1,040 180 348 221 1,789
------- ------- ------- ------- --------
Total certificates of deposit............................ $15,618 $17,205 $24,496 $60,353 $117,672
======= ======= ======= ======= ========
_______________
/(1)/ Deposits from governmental and other public entities, including deposits
greater than $100,000.
Borrowings. The Association has the ability to use advances from FHLB of
Des Moines to supplement its deposits when the rates are favorable. As a member
of the FHLB of Des Moines, the Association is required to own capital stock and
is authorized to apply for advances. Each FHLB credit program has its own
interest rate, which may be fixed or variable, and includes a range of
maturities. The FHLB of Des Moines may prescribe the acceptable uses to which
these advances may be put, as well as limitations on the size of the advances
and repayment provisions.
The Association borrowed $159.6 million under FHLB advances during 2000 to
fund loan originations and meet short term cash needs. The Association repaid
$117.8 million of maturing advances during 2000. Outstanding balances at
September 30, 2000 were $112.8 million.
31
The following tables set forth the maximum month-end balance and
average balance of FHLB advances for the periods indicated, as well as the
amount of such advances and the weighted average interest rate at the dates
indicated.
Years Ended September 30,
--------------------------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
Maximum Balance
- ---------------
FHLB advances $ 112,836 $ 71,101 $ 40,250
Average Balance
- ---------------
FHLB advances 92,423 46,725 $ 37,250
Years Ended September 30,
-----------------------------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
FHLB advances $ 112,836 $ 71,101 $37,250
========= ========= =======
Weighted average interest rate 6.09% 5.61% 5.88%
During the last several years, loan originations have exceeded savings
inflows, loan repayments and cash provided by operations. Prior to fiscal year
1996, the excess resulted in reductions in the investment securities portfolio
and the Association's total liquidity. See "Regulation-Liquidity". To maintain
liquidity above the required minimum, it is anticipated that FHLB advances will
continue to supplement projected savings inflows and loan repayments to fund
continued loan demand.
Subsidiaries
Federal associations generally may invest up to 2% of their assets in
service corporations, plus an additional 1% of assets for community purposes. In
addition, federal associations may invest up to 50% of their total capital in
conforming loans to their service corporations in which they own more than 10%
of the capital stock. In addition, federal associations are permitted to invest
an unlimited amount in operating subsidiaries engaged solely in activities which
a federal association may engage in directly.
At September 30, 2000, Cameron Savings had one service corporation. The
Service Corporation was established in 1975 for the purpose of offering credit
life, disability and accident insurance to its customers. At September 30, 2000,
the Association's investment in the Service Corporation was $320,000.
32
REGULATION
General
Cameron Savings is a federally chartered savings and loan association,
the deposits of which are federally insured and backed by the full faith and
credit of the United States Government. Accordingly, Cameron Savings is subject
to broad federal regulation and oversight extending to all its operations.
Cameron Savings is a member of the FHLB of Des Moines and is subject to certain
limited regulation by the Board of Governors of the Federal Reserve System
("Federal Reserve Board"). As the savings and loan holding company of the
Association, the Company also is subject to federal regulation and oversight.
The purpose of the regulation of the Company and other holding companies is to
protect subsidiary savings associations. Cameron Savings is a member of the
Savings Association Insurance Fund ("SAIF") and the deposits of Cameron Savings
are insured by the FDIC. As a result, the FDIC has certain regulatory and
examination authority over Cameron Savings.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, Cameron Savings is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS examination of Cameron Savings and Cameron
Financial Corp. was as of October 10, 2000. When these examinations are
conducted by the OTS and the FDIC, the examiners may require Cameron Savings to
provide for higher general or specific loan loss reserves. All savings
associations are subject to a semi-annual assessment, based upon the savings
association's total assets, to fund the operations of the OTS. The Association's
OTS assessment for the fiscal year ended September 30, 2000, was $63,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including associations and the
Company. This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of Cameron
Savings is prescribed by federal laws and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured
33
by non-residential real property may not exceed 400% of total capital, except
with approval of the OTS. Federal savings associations are also generally
authorized to branch nationwide. The Association is in compliance with the noted
restrictions.
The Association's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At September 30, 2000, Cameron Savings' lending
limit under this restriction was $5.8 million. The Association is in compliance
with the loans-to-one-borrower limit.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. A
failure to submit a plan or to comply with an approved plan will subject the
institution to further enforcement action. The OTS and the other federal banking
agencies have also adopted additional guidelines on asset quality and earnings
standards, which are designed to enhance early identification and resolution of
problems and problem assets.
Insurance of Deposits
The FDIC is an independent federal agency that insures the deposits, up
to prescribed statutory limits, of depository institutions. The FDIC currently
maintains two separate insurance funds: the Bank Insurance Fund and the Savings
Association Insurance Fund. As insurer of Cameron Savings' deposits, the FDIC
has examination, supervisory and enforcement authority over Cameron Savings.
Cameron Savings' accounts are insured by the Savings Association
Insurance Fund to the maximum extent permitted by law. Cameron Savings pays
deposit insurance premiums based on a risk-based assessment system established
by the FDIC. Under applicable regulations, institutions are assigned to one of
three capital groups that are based solely on the level of an institution's
capital -- "well capitalized," "adequately capitalized," and "undercapitalized"
- -- which are defined in the same manner as the regulations establishing the
prompt corrective action system, as discussed below. These three groups are then
divided into three subgroups which reflect varying levels of supervisory
concern, from those which are considered to be healthy to those which are
considered to be of substantial supervisory concern. The matrix so created
results in nine assessment risk classifications, with rates that until September
30, 1996 ranged from 0.23% for well capitalized, financially sound institutions
with only a few minor weaknesses to 0.31% for undercapitalized institutions that
pose a substantial risk of loss to the Savings Association Insurance Fund unless
effective corrective action is taken.
Under the Deposit Insurance Funds Act, which was enacted on September
30, 1996, the FDIC imposed a special assessment on each depository institution
with Savings Association
34
Insurance Fund-assessable deposits which resulted in the Savings Association
Insurance Fund achieving its designated reserve ratio. As a result, the FDIC
reduced the assessment schedule for Savings Association Insurance Fund members,
effective January 1, 1997, to a range of 0% to 0.27%, with most institutions,
including Cameron Savings, paying 0%. This assessment schedule is the same as
that for the Bank Insurance Fund, which reached its designated reserve ratio in
1995. In addition, since January 1, 1997, Savings Association Insurance Fund
members are charged an assessment of .065% of Savings Association Insurance
Fund-assessable deposits to pay interest on the obligations issued by the
Financing Corporation in the 1980s to help fund the thrift industry cleanup.
Bank Insurance Fund-assessable deposits will be charged an assessment to help
pay interest on the Financing Corporation bonds at a rate of approximately .013%
until the earlier of December 31, 1999 or the date upon which the last savings
association ceases to exist, after which time the assessment will be the same
for all insured deposits.
The Deposit Insurance Funds Act also contemplates the development of a
common charter for all federally chartered depository institutions and the
abolition of separate charters for national banks and federal savings
associations. It is not known what form the common charter may take and what
effect, if any, the adoption of a new charter would have on the operation of
Cameron Savings.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of Cameron Savings.
Capital Requirements.
The OTS capital regulations require savings institutions to meet three
capital standards: a 1.5% tangible capital standard, a 3.0% leverage (core
capital) standard, and an 8.0% risk-based capital standard. Core capital is
defined as common stockholders' equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, minority interests
in equity accounts of consolidated subsidiaries less intangibles other than
certain mortgage servicing rights ("MSRs") and purchased credit card
relationships. The OTS regulations require that, in meeting the tangible, core
and risk-based capital standards, institutions generally must deduct investments
in and loans to subsidiaries engaged in activities not permissible for a
national bank. In addition, the OTS prompt corrective action regulation provides
that a savings institution that has a leverage capital ratio of less than 4.0%
(3.0% for institutions receiving the highest CAMELS examination rating) will be
deemed to be "undercapitalized" and may be subject to certain restrictions.
35
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8.0%. In determining the amount of
risk-weighted assets, assets and certain off-balance sheet assets items are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3.0% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified limits, the allowance for loan losses. Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200-basis point increase or
decrease in market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk-based capital requirement. Under
the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios in excess of 12% is exempt from the
interest rate risk component, unless the OTS determines otherwise. The rule also
provides that the OTS may waive or defer an association's interest rate risk
component on a case-by-case basis. Under certain circumstances, a savings
association may request an adjustment to its interest rate risk component if it
believes that the calculated interest rate risk component, as calculated by the
OTS, overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
of the amount as calculated by the OTS. The OTS has postponed the date that the
component will first be deducted from an institution's total capital.
At September 30, 2000, the Association had tangible capital of $36.3
million, or 11.9% of adjusted total assets, which is approximately $31.7 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date. At that date, Cameron Savings had core capital equal to $36.3 million, or
11.9% of adjusted total assets, which is $24.1 million above the minimum
leverage ratio requirement of 4.0% as in effect on that date. At that date,
Cameron Savings had total risk-based capital of $38.4 million (including $36.3
million in core capital and $2.1 million in qualifying supplementary capital)
and risk-weighted assets of $205.3 million (including $4.9 million
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in converted off-balance sheet assets); or total capital of 18.7% of risk-
weighted assets. This amount was $22.0 million above the 8% requirement in
effect on that date.
Prompt Corrective Regulatory Action
Each federal banking agency is required to implement a system of prompt
corrective action for institutions that it regulates. The federal banking
agencies have promulgated substantially similar regulations to implement this
system of prompt corrective action. Under the regulations, an institution shall
be deemed to be "well capitalized" if it has a total risk-based capital ratio of
10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a
leverage ratio of 5.0% or more and is not required to meet and maintain a
specific capital level for any capital measure;"adequately capitalized" if it
has a total risk-based capital ratio of 8.0% or more, has a Tier I risk-based
capital ratio of 4.0% or more, has a leverage ratio of 4.0% or more, or 3.0%
under certain circumstances, and does not meet the definition of "well
capitalized"; "undercapitalized" if it has a total risk-based capital ratio that
is less than 8.0%, has a Tier I risk-based capital ratio that is less than 4.0%
or has a leverage ratio that is less than 4.0%, or 3.0% under certain
circumstances; "significantly undercapitalized" if it has a total risk-based
capital ratio that is less than 6.0%, has a Tier I risk-based capital ratio that
is less than 3.0% or has a leverage ratio that is less than 3.0%; and
"critically undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall face various mandatory and discretionary
restrictions on its operations.
At September 30, 2000, Cameron Savings was categorized as "well
capitalized"under the prompt corrective action regulations.
Standards for Safety and Soundness
The federal banking regulatory agencies have adopted regulatory
guidelines for all insured depository institutions relating to internal
controls, information systems and internal audit systems; loan documentation;
credit underwriting; interest rate risk exposure; asset growth; asset quality;
37
earnings; and compensation, fees and benefits. The guidelines outline the safety
and soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. If the OTS determines that Cameron Savings fails to meet any standard
prescribed by the guidelines, it may require Cameron Savings to submit to the
agency an acceptable plan to achieve compliance with the standard. OTS
regulations establish deadlines for the submission and review of safety and
soundness compliance plans.
Capital Distributions
OTS regulations govern capital distributions by savings institutions,
which include cash dividends, stock repurchases and other transactions charged
to the capital account of a savings institution to make capital distributions.
Under new regulations effective April 1, 1999, a savings institution must file
an application for OTS approval of the capital distribution if either (1) the
total capital distributions for the applicable calendar year exceed the sum of
the institution's net income for that year to date plus the institution's
retained net income for the preceding two years, (2) the institution would not
be at least adequately capitalized following the distribution, (3) the
distribution would violate any applicable statute, regulation, agreement or OTS-
imposed condition, or (4) the institution is not eligible for expedited
treatment of its filings. If an application is not required to be filed, savings
institutions which are a subsidiary of a holding company, as well as certain
other institutions, must still file a notice with the OTS at least 30 days
before the board of directors declares a dividend or approves a capital
distribution.
Liquidity
All savings associations, including Cameron Savings, are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what the Bank
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 4%.
Penalties may be imposed upon associations for violations of liquid
asset ratio requirement. At September 30, 2000, Cameron Savings was in
compliance with an overall liquid asset ratio of 16.4%.
Accounting
An OTS policy statement applicable to all savings associations
clarifies and re-emphasizes that the investment activities of a savings
association must be in compliance with approved and documented investment
policies and strategies and must be accounted for in accordance with GAAP. Under
the policy statement, management must support its classification of and
accounting for loans
38
and securities (i.e., whether held for investment, sale or trading) with
appropriate documentation. Cameron Savings is in compliance with these amended
rules.
The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test
All savings associations are required to meet a qualified thrift lender
test to avoid certain restrictions on their operations. A savings institution
that fails to become or remain a qualified thrift lender shall either convert to
a national bank charter or face the following restrictions on its operations.
These restrictions are: the association may not make any new investment or
engage in activities that would not be permissible for national banks; the
association may not establish any new branch office where a national bank
located in the savings institution's home state would not be able to establish a
branch office; the association shall be ineligible to obtain new advances from
any Federal Home Loan Bank; and the payment of dividends by the association
shall be under the rules regarding the statutory and regulatory dividend
restrictions applicable to national banks. Also, beginning three years after the
date on which the savings institution ceases to be a qualified thrift lender,
the savings institution would be prohibited from retaining any investment or
engaging in any activity not permissible for a national bank and would be
required to repay any outstanding advances to any Federal Home Loan Bank. In
addition, within one year of the date on which a savings association controlled
by a company ceases to be a qualified thrift lender, the company must register
as a bank holding company and follow the rules applicable to bank holding
companies. A savings institution may requalify as a qualified thrift lender if
it thereafter complies with the test.
Currently, the qualified thrift lender test requires that either an
institution qualify as a domestic building and loan association under the
Internal Revenue Code or that 65% of an institution's "portfolio assets" consist
of certain housing and consumer-related assets on a monthly average basis in
nine out of every 12 months. Assets that qualify without limit for inclusion as
part of the 65% requirement are loans made to purchase, refinance, construct,
improve or repair domestic residential housing and manufactured housing; home
equity loans; mortgage-backed securities where the mortgages are secured by
domestic residential housing or manufactured housing; Federal Home Loan Bank
stock; direct or indirect obligations of the FDIC; and loans for educational
purposes, loans to small businesses and loans made through credit cards. In
addition, the following assets, among others, may be included in meeting the
test based on an overall limit of 20% of the savings institution's portfolio
assets: 50% of residential mortgage loans originated and sold within 90 days of
origination; 100% of consumer loans; and stock issued by Freddie Mac or Fannie
Mae. Portfolio assets consist of total assets minus the sum of goodwill and
other intangible assets, property used by the savings institution to conduct its
business, and liquid assets up to 20% of the institution's total assets. At
September 30, 2000, Cameron Savings was in compliance with the qualified thrift
lender test.
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Community Reinvestment Act
Savings associations are required to follow the provisions of the
Community Reinvestment Act of 1977, which requires the appropriate federal bank
regulatory agency, in connection with its regular examination of a savings
association, to assess the savings association's record in meeting the credit
needs of the community serviced by the savings associations, including low and
moderate income neighborhoods. The regulatory agency's assessment of the savings
association's record is made available to the public. Further, an assessment is
required of any savings associations which has applied, among other things, to
establish a new branch office that will accept deposits, relocate an existing
office or merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution. Cameron Savings
received a "satisfactory" rating as a result of its most recent examination.
Activities of Associations and Their Subsidiaries
A savings association may establish operating subsidiaries to engage in
any activity that the savings association may conduct directly and may establish
service corporation subsidiaries to engage in certain pre-approved activities
or, with approval of the OTS, other activities reasonably related to the
activities of financial institutions. When a savings association establishes or
acquires a subsidiary or elects to conduct any new activity through a subsidiary
that the association controls, the savings association must notify the FDIC and
the OTS 30 days in advance and provide the information each agency may, by
regulation, require. Savings associations also must conduct the activities of
subsidiaries in accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices. Based upon that determination, the
FDIC or the OTS has the authority to order the savings association to divest
itself of control of the subsidiary. The FDIC also may determine by regulation
or order that any specific activity poses a serious threat to the Savings
Association Insurance Fund. If so, it may require that no Savings Association
Insurance Fund member engage in that activity directly.
Transactions with Affiliates
Savings associations must comply with Sections 23A and 23B of the
Federal Reserve Act relative to transactions with affiliates in the same manner
and to the same extent as if the savings association were a Federal Reserve
member bank. A savings and loan holding company, its subsidiaries and any other
company under common control are considered affiliates of the subsidiary savings
association under the Home Owners Loan Act. Generally, Sections 23A and 23B
limit the extent to which the insured association or its subsidiaries may engage
in certain covered transactions with an affiliate to an amount equal to 10% of
the institution's capital and surplus and place an aggregate limit on all
transactions with affiliates to an amount equal to 20% of capital and surplus,
and require that all transactions be on terms substantially the same, or at
least as favorable to the
40
institution or subsidiary, as those provided to a non-affiliate. The
term"covered transaction" includes the making of loans, the purchase of assets,
the issuance of a guarantee and similar types of transactions.
Any loan or extension of credit by Cameron Savings to an affiliate
must be secured by collateral in accordance with Section 23A.
Three additional rules apply to savings associations. First, a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies. Second, a savings association may not purchase or invest insecurities
issued by an affiliate, other than securities of a subsidiary. Third, the OTS
may, for reasons of safety and soundness, impose more stringent restrictions on
savings associations but may not exempt transactions from or otherwise abridge
Section 23A or 23B. Exemptions from Section 23A or 23B may be granted only by
the Federal Reserve, as is currently the case with respect to all FDIC-insured
banks.
Cameron Savings' authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by those persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
loans be made on terms and conditions substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment.
Regulation O also places individual and aggregate limits on the amount of loans
Cameron Savings may make to those persons based, in part, on Cameron Savings'
capital position, and requires certain board approval procedures to be followed.
The OTS regulations, with certain minor variances, apply Regulation O to savings
institutions.
Holding Company Regulation
The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over holding companies
and their non-savings association subsidiaries which also permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings association.
Federal law and regulation generally prohibit a savings and loan
holding company, without prior OTS approval, from acquiring more than 5% of the
voting stock of any other savings association or savings and loan holding
company or controlling the assets thereof. They also prohibit, among other
things, any director or officer of a savings and loan holding company, or any
individual who owns or controls more than 25% of the voting shares of the
Company from acquiring control of any savings association not a subsidiary of a
savings and loan holding company, unless the acquisition is approved by the OTS.
41
Until recently, a unitary savings and loan holding company was not
restricted as to the types of business activities in which it could engage,
provided that its subsidiary savings association continued to be a qualified
thrift lender. Recent legislation, however, restricts unitary saving and loan
holding companies not existing or applied for before May 4, 1999 to activities
permissible for a financial holding company as defined under the legislation,
including insurance and securities activities, and those permitted for a
multiple savings and loan holding company as described below. The Company has
certain grandfather rights under this legislation. Upon any non-supervisory
acquisition by the Company of another savings association as a separate
subsidiary, the Company would become a multiple savings and loan holding company
and would have extensive limitations on the types of business activities in
which it could engage. The Home Owner's Loan Act limits the activities of a
multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for the bank holding companies
under Section 4(c)(8) of the Bank Holding Company Act, provided the prior
approval of the Office of Thrift Supervision is obtained, and to other
activities authorized by Office of Thrift Supervision regulation. Multiple
savings and loan holding companies are generally prohibited from acquiring or
retaining more than 5% of a non- subsidiary company engaged in activities other
than those permitted by the Home Owners. Loan Act.
The activities authorized by the Federal Reserve Board as permissible
for bank holding companies also must be approved by the OTS prior to being
engaged in by a multiple savings and loan holding company.
If Cameron Savings fails the QTL test, the Company must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Company must register as, and will become
subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "--Qualified Thrift Lender Test."
Financial Modernization Legislation
On November 12, 1999, President Clinton signed the Gramm-Leach-Bliley
Act, which expanded the permissible activities of savings and loan companies
like the Company. The Company will be permitted to own and control depository
institutions and to engage in activities that are financial in nature or
incidental to financial activities, or activities that are complementary to a
financial activity and do not pose a substantial risk to the safety and
soundness of depository institutions or the financial system generally. The
legislation identifies certain activities that are deemed to be financial in
nature, including non-banking activities currently permissible for bank holding
companies to engage in both within and outside the United States, as well as
insurance and securities underwriting and merchant banking activities.
In order to take advantage of this new authority, a savings and loan
holding company's depository institution subsidiaries must be well capitalized
and well managed and have at least a
42
satisfactory record of performance under the Community Reinvestment Act. The
Association currently meets these requirements. No prior regulatory notice is
required to acquire a company engaging in these activities or to commence these
activities directly or indirectly through a subsidiary.
Proposed Rules
The OTS has proposed new rules which would require savings and loan
holding companies to notify the OTS prior to engaging in transactions which (i)
when combined with other debt transactions engaged in during a 12-month period,
would increase the holding company's consolidated debt by 5% or more; (ii) when
combined with other asset acquisitions engaged in during a 12-month period,
would result in asset acquisitions of greater than 15% of the holding company's
consolidated assets; or (iii) when combined with any other transactions engaged
in during a 12-month period, would reduce the holding company's consolidated
tangible capital to consolidated tangible assets by 10% or more during the
12-month period. The OTS has proposed to exempt from this rule holding companies
whose consolidated tangible capital exceeds 10% following the transactions.
The OTS has also proposed new rules which would codify the manner in
which the OTS reviews the capital adequacy of savings and loan holding companies
and determines when a holding company must maintain additional capital. The OTS
is not currently proposing to establish uniform capital adequacy guidelines for
all savings and loan holding companies.
The Company and the Association are unable to predict whether or when
these proposed regulations will be adopted, and what effect, if any, the
adoption of these regulations would have on their business.
Federal Securities Law
The stock of the Company is registered with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the SEC
under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
43
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At September 30, 2000, Cameron Savings was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "--Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System
Cameron Savings is a member of the FHLB of Des Moines, which is one of
12 regional FHLBs, that administers the home financing credit function of
savings associations. Each FHLB serves as a reserve or central bank for its
members within its assigned region. It is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing.
As a member, Cameron Savings is required to purchase and maintain
stock in the FHLB of Des Moines. At September 30, 2000, Cameron Savings had $5.6
million in FHLB stock, which was in compliance with this requirement. In past
years, Cameron Savings has received substantial dividends on its FHLB stock.
Over the past five fiscal years such dividends have averaged 6.81% and were
6.74% for fiscal year 2000.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of Cameron Savings' FHLB stock may result in a corresponding
reduction in Cameron Savings' capital.
For the year ended September 30, 2000, dividends paid by the FHLB of
Des Moines to the Association totaled $319,000, compared to $153,000 received in
fiscal year 1999.
44
Federal Taxation
General. The Company and the Association report their income on a fiscal
year basis using the accrual method of accounting and are subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Association's reserve for bad debts discussed below.
The following discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to the
Association or the Company.
Bad Debt Reserve. Historically, savings institutions such as the
Association which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The Association's
deductions with respect to "qualifying real property loans," which are generally
loans secured by certain interest in real property, were computed using an
amount based on the Association's actual loss experience, or a percentage equal
to 8% of the Association's taxable income, computed with certain modifications
and reduced by the amount of any permitted additions to the non-qualifying
reserve. Due to the Association's loss experience, the Association generally
recognized a bad debt deduction equal to 8% of taxable income.
In August 1996, the provisions repealing the current thrift bad debt rules
were passed by Congress. The new rules eliminated the 8% of taxable income
method for deducting additions to the tax bad debt reserves for all thrifts for
tax years beginning after December 31, 1995. These rules also require that all
institutions recapture all or a portion of their bad debt reserves added since
the base year (last taxable year beginning before January 1, 1988). As of
September 30, 2000, the Association's bad debt reserve subject to recapture over
a six year period totaled approximately $192,000. The Association has
established a deferred tax liability of approximately $65,000 for this
recapture. For taxable years beginning after December 31, 1995, the
Association's bad debt deduction will be determined under the experience method
using a formula based on actual bad debt experience over a period of years or,
if the Association is a "large" association (assets in excess of $500 million)
on the basis of net charge-offs during the taxable year. The unrecaptured base
year reserves will not be subject to recapture as long as the institution
continues to carry on the business of banking. In addition, the balance of the
pre-1988 bad debt reserves continue to be subject to provisions of present law
referred to below that require recapture in the case of certain excess
distributions to shareholders.
Distributions. To the extent that the Association makes "nondividend
distributions" to the Company, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of December 31,
1987 (or a lesser amount if the Association's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in the Association's taxable income. Nondividend distributions
include distributions in excess of the Association's current and accumulated
earnings and profits, distributions in redemption of stock and
45
distributions in partial or complete liquidation. However, dividend paid out of
the Association's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from the Association's bad debt reserve. The amount of additional taxable income
created from an Excess Distribution is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution. Thus, if
the Association makes a "nondividend distribution," then approximately one and
one-half the times the Excess Distribution would be includable in gross income
for federal income tax purposes, assuming a 34% corporate income tax rate
(exclusive of state and local taxes). The Association does not presently intend
to pay dividends that wold result in a recapture of any portion of its tax bad
debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad debt
reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI. In addition, only 90%
of AMTI can be offset by net operating loss carryovers. AMTI is increased by an
amount equal to 75% of the amount by which the Association's adjusted current
earnings exceeds its AMTI (determined without regard to this preference and
prior to reduction for net operating losses). For taxable years beginning after
December 31, 1986, and before January 1, 1996, an environmental tax of 0.12% of
the excess of AMTI (with certain modification) over $2.0 million is imposed on
corporations, including the Association, whether or not an Alternative Minimum
Tax is paid.
Dividends-Received Deduction. The Company may exclude form its income 100%
of dividends received from the Association as a member of the same affiliated
group of corporations. The corporate dividends-received deduction is generally
70% in the case of dividends received from unaffiliated corporations with which
the Company and the Association will not file a consolidated tax return, except
that if the Company or the Association owns more than 20% of the stock of a
corporation distributing a dividend, then 80% of any dividends received may be
deducted.
Audits. The Association's federal income tax returns have not been audited
within the past five years.
Missouri Taxation. The State of Missouri has a corporate income tax;
however, savings and loan institutions are exempt from such tax. Missouri-based
thrift institutions, such as the Association, are subject to a special financial
institutions tax, based on net income without regard to net operating loss
carryforwards, at the rate of 7% of net income as defined in the Missouri
statutes. This tax is a prospective tax for the privilege of the Association
exercising its corporate franchise within the state, based on its net income for
the preceding year. The tax is in lieu of all other state taxes on thrifts,
except taxes on real estate, tangible personal property owned by the taxpayer
and held for lease or rental to others, certain payroll taxes, and sales and use
taxes.
Delaware Taxation. As a Delaware holding company, the Company is exempted
from Delaware corporate income tax but is required to file an annual report with
and pay an annual fee to the State of Delaware. The Company is also subject to
an annual franchise tax imposed by the State of Delaware.
46
Competition
Savings institutions generally face strong competition both in originating
real estate loans and in attracting deposits. Competition in originating loans
comes primarily from other savings institutions, commercial banks and mortgage
bankers who also make loans secured by real estate located in the Association's
market area. The Association competes for loans principally on the basis of the
interest rates and loan fees it charges, the types of loans it originates and
the quality of services it provides to borrowers.
The Association faces substantial competition in attracting deposits from
other savings institutions, commercial banks, securities firms, money market and
mutual funds, credit unions and other investment vehicles. The ability of the
Association to attract and retain deposits depends on its ability to provide an
investment opportunity that satisfies the requirements of investors as to rate
of return, liquidity, risk, convenient locations and other factors. The
Association competes for these deposits by offering a variety of deposit
accounts at competitive rates, convenient business hours and a customer-oriented
staff.
Employees
At September 30, 2000, the Association and its subsidiary had a total of 64
full-time employees and 7 part-time employees. None of the Association's
employees is represented by any collective bargaining group. Management
considers its employee relations to be good.
Executive Officers of the Company and the Association who are not Directors
Duane Kohlstaedt. Mr. Kohlstaedt, age 42, is the President and Chief
Executive Officer of Cameron Savings and responsible for the day to day
operations of the Association. Mr. Kohlstaedt joined the Association in 1999 as
loan department manager for the Liberty office of Cameron Savings. He was
appointed Executive Vice President and Chief Executive Officer on March 1, 2000.
He was appointed President on October 13, 2000. Prior to joining the
Association, Mr. Kohlstaedt had worked in the Farm Credit System for nineteen
years.
Ronald W. Hill. Mr. Hill, age 51, is the Vice President and Treasurer of
Cameron Savings, responsible for the supervision of the accounting department,
reporting to the regulatory authorities, and managing the Association's
liquidity position. Mr. Hill joined the Association in 1981 as Controller and
was promoted to his current position in 1988.
Stephen Hayward. Mr. Hayward, age 38, is the Branch Manager of the office
in Liberty, Missouri. Mr. Hayward joined the Association in 1991 as Internal
Auditor and Compliance Officer.
47
Item 2. Description of Property
-----------------------
The Association operates from four full-service facilities. The
following table sets forth certain information with respect to the offices of
the Association and its subsidiary at September 30, 2000.
Approximate Net Book Value as
Date Square of September 30,
Location Acquired Title Footage 2000
- ---------------- ---------- ------- --------- ----------------
Main Office 1993 Owned 25,942 $ 4,007,000
- -----------
1304 North Walnut Street
Cameron, MO
Branch Offices
- --------------
115 East Fourth Street 1994 Leased 1,311 5,000
Maryville, MO (expires 2003)
702 State Street 1992 Leased 900 -0-
Mound City, MO (expires
2001)(1)
1580 A Highway 1997 Owned 7700 1,103,000
Liberty, MO
Additional Property
- -------------------
309 North Main Street 1997 Owned 4,040 47,000
Cameron, MO (2)
____________________
(1) Subject to option to extend for one year.
(2) This property is currently vacant.
The Association's accounting and record-keeping activities are
maintained in house with a client-server, PC based system.
Item 3. Legal Proceedings
-----------------
The Company is involved as plaintiff or defendant in various legal
actions arising in the normal course of business. While the ultimate outcome of
these proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing the Company in the
proceedings, that the resolution of these proceedings should not have a material
effect on the Company's financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
2000.
48
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters.
Stock Listing
- -------------
Cameron Financial Corporation common stock is traded on the National Association
of Securities Dealers, Inc., National Market under the symbol "CMRN."
Price Range of Common Stock
- ---------------------------
The per share price range of the common stock for each quarter during the last
two years was as follows:
Fiscal Year 1999 High Low Dividends
---------------- ------- ------- ---------
First Quarter 17.13 14.50 .070
Second Quarter 16.00 13.50 .070
Third Quarter 14.13 11.88 .125
Fourth Quarter 14.31 12.88 .125
Fiscal Year 2000
----------------
First Quarter 13.25 12.13 .125
Second Quarter 13.13 10.50 .150
Third Quarter 15.88 11.44 .150
Fourth Quarter 18.50 15.81 .150
A $.15 per share dividend was declared by the Board of Directors on September
21, 2000, payable October 23, 2000 to stockholders of record on October 6, 2000.
The stock price information set forth in the table above was provided by the
National Association of Securities Dealers, Inc. Automated Quotation System.
At December 13, 2000, there were 1,925,649 shares of Cameron Financial
Corporation common stock issued and outstanding (including unallocated ESOP
shares) and there were 401 registered holders of record.
49
Item 6. Selected Financial Data
Set forth below are selected consolidated financial and other data of the
company. The financial data is derived in part from, and should be read in
connection with, the consolidated financial statements and notes thereto
presented elsewhere in the annual Report.
At September 30,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands)
Selected Financial Condition Data:
- ----------------------------------
Total assets $ 308,864 261,553 221,521 212,504 186,346
Loans receivable, net 261,867 221,909 184,605 176,790 154,444
Investment securities 23,304 18,543 16,309 13,882 18,310
Cash 5,464 4,900 3,319 2,909 3,783
Certificates of deposit in other financial
institutions 840 1,200 4,400 7,600 2,500
Savings deposits 149,185 143,737 136,622 128,771 123,108
FHLB advances 112,836 71,101 37,250 35,250 12,250
Total stockholders' equity 40,386 40,624 43,473 44,667 46,815
=====================================================================
Year ended September 30,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands, except share information)
Selected Operations Data:
- -------------------------
Total interest income $ 21,423 17,643 17,057 15,989 13,921
Total interest expense 13,225 9,992 9,404 8,179 6,679
---------------- ----------- --------- ---------- ----------
Net interest income 8,198 7,651 7,653 7,810 7,242
Provision for loan losses 523 86 (76) 285 368
---------------- ----------- --------- ---------- ----------
Net interest income after provision
for loan losses 7,675 7,565 7,729 7,525 6,874
---------------- ----------- --------- ---------- ----------
Loan fees and deposit service charges 455 341 235 162 130
Gain on sales of investment securities - 5 - - -
Other income 199 140 107 57 92
---------------- ----------- --------- ---------- ----------
Total noninterest income 654 486 342 219 222
---------------- ----------- --------- ---------- ----------
Total noninterest expense 5,194 4,909 4,390 3,670 3,772
---------------- ----------- --------- ---------- ----------
Earnings before income taxes 3,135 3,142 3,681 4,074 3,324
Income taxes 1,034 1,205 1,384 1,564 1,214
---------------- ----------- --------- ---------- ----------
Net earnings $ 2,101 1,937 2,297 2,510 2,110
=====================================================================
Net earnings per share:
Basic $ 1.12 0.95 0.97 0.99 0.77
Diluted 1.12 0.95 0.95 0.98 0.77
=====================================================================
As of and for the year ended September 30,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Selected Financial Ratios and Other Data:
- -----------------------------------------
Performance ratios:
Return on total assets (ratio of earnings
to average total assets) 0.74% 0.83 1.05 1.25 1.20
Return on equity (ratio of earnings to
average equity) 5.23 4.71 5.11 5.48 4.43
Interest rate spread (1):
Average during period 2.35 2.66 2.70 2.93 2.78
End of period 2.35 2.46 2.57 2.62 2.71
Net interest margin (2) 3.03 3.46 3.69 4.08 4.23
Dividend payout ratio 49.11 41.05 29.47 28.87 36.36
Ratio of noninterest expense to average total
assets 1.83 2.10 2.02 1.83 2.14
Ratio of noninterest income to average total
assets 0.23 0.21 0.16 0.11 0.13
Ratio of average interest-earning assets to
average interest-bearing liabilities 113.90 117.72 121.97 126.82 137.06
Efficiency ratio (5) 58.68 60.37 54.91 45.71 50.54
=====================================================================
Asset quality ratios:
Nonperforming loans to total loans receivable
at end of period 0.73 0.10 1.52 0.58 0.84
Allowance for loan losses to nonperforming
loans 102.76 628.24 48.50 139.04 91.54
Allowance for loan losses to total loans
receivable 0.75 0.65 0.74 0.81 0.77
Nonperforming assets to total assets at end of
period 0.68 0.10 1.42 0.56 0.83
Classified assets to total assets (3) 4.06 3.08 5.32 5.06 4.15
Ratio of net charge-offs to average loans
receivable 0.002 0.002 0.015 0.008 0.006
=====================================================================
Capital ratios:(4)
Equity to total assets at end of period 13.08 15.53 19.59 21.03 25.12
Average equity to average assets 14.19 17.61 20.61 22.88 27.06
=====================================================================
Other data:
Number of full-service offices 4 4 4 4 3
Number of loan production offices - - - 1 1
Real estate loan originations (in thousands) $ 79,574 123,602 105,220 95,088 92,606
=====================================================================
(1) Interest rate spread represents the difference between weighted average
yield on interest earning assets and the weighted average rate on
interest-bearing liabilities.
(2) Net interest margin represents net interest income as a percentage of
Average interest-earning assets.
(3) Includes assets designated as Special Mention.
(4) For a discussion of the Association's regulatory capital capital ratios, see
"Management's Discussion and Analysys of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
(5) The efficiency ratio represents total noninterest expense divided by net
interest income plus total noninterest income, excluding gain on sale of
investments.
50
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
This Annual Report on Form 10-K may contain certain forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and business of the Company that are subject to various factors which
could cause actual results to differ materially from these estimates. These
factors include, but are not limited to, general economic conditions, changes in
interest rates, deposit flows, loan demand, real estate values, and competition;
changes in accounting principles, policies or guidelines; changes in legislation
or regulations; and other economic, competitive, governmental, regulatory, and
technical factors affecting the Company's operations pricing, products and
services.
General
- -------
Cameron Financial Corporation ("Cameron Financial" and, with its subsidiary, the
"Company") was formed in December 1994 by The Cameron Savings & Loan
Association, F.A. (the "Association") to become the holding company of the
Association. The acquisition of the Association by Cameron Financial was
consummated on March 31, 1995, in connection with the Association's conversion
from the mutual to stock form (the "Conversion"). All references to the Company
prior to March 31, 1995, except where otherwise indicated, are to the
Association and its subsidiary on a consolidated basis.
The Company's results of operations depend primarily on its level of net
interest income, which is the difference between interest earned on interest-
earning assets, consisting primarily of mortgage loans and other investments,
and the interest paid on interest-bearing liabilities, consisting primarily of
deposits and FHLB advances. Net interest income is a function of the Company's
"interest rate spread," which is the difference between the average yield earned
on interest-earning assets and the average rate paid on interest-bearing
liabilities. The interest rate spread is affected by regulatory, economic, and
competitive factors that influence interest rates, loan demand, and deposit
flows. The Company, like other financial institutions, is subject to interest-
rate risk to the degree that its interest-earning assets mature or reprice at
different times, or on a different basis, than its interest-bearing liabilities.
The Company's operating results are also affected by the amount of its
noninterest income, including loan fees and service charges and other income,
which includes commissions from sales by the Association's service corporation.
In September 1988, the Association's service corporation started a full service
brokerage service. This will allow the Association to compete more effectively
with other financial services companies. Noninterest expense consists primarily
of employee compensation, occupancy expense, data processing, federal insurance
premiums, advertising, real estate owned operations, and other expenses. The
Company's operating results are significantly affected by general economic and
competitive conditions, in particular, changes in market interest rates,
government policies and actions by regulatory authorities.
FINANCIAL CONDITION
- -------------------
Total assets increased $47.3 million, or 18.09%, to $308.9 million at September
30, 2000 from $261.6 million at September 30, 1999. The increase was primarily
due to an increase of $40.0 million in net loans receivable, an increase of $4.8
million in investment securities, and an $2.1 million increase in FHLB stock,
which was funded by an increase in FHLB advances of $41.7 million and an
increase of $5.4 million in savings deposits.
Net loans receivable increased by $40.0 million, or 18.01%, to $261.9 million at
September 30, 2000 from $221.9 million at September 30, 1999 primarily due to a
$14.4 million increase in one- to four-family permanent mortgage loans and a
$12.2 million increase in consumer loans, net of loans in process.
Investment securities, certificates of deposits in other financial institutions
and cash equivalents increased $5.0 million, or 20.56%, to $29.6 million at
September 30, 2000 from $24.6 million at September 30, 1999.
51
Savings deposits increased $5.4 million, or 3.79%, to $149.2 million at
September 30, 2000 from $143.7 million at September 30, 1999. FHLB advances
increased $41.7 million, or 58.70%, to $112.8 million at September 30, 2000 from
$71.1 million at September 30, 1999.
Total stockholders' equity decreased by $238,000, or 0.59%, to $40.4 million at
September 30, 2000 from $40.6 million at September 30, 1999. Earnings for the
year provided a $2.1 million increase and the amortization of the Recognition
and Retention Plan (RRP) and unearned employee stock ownership plan (ESOP)
shares, provided an aggregate of $864,000, which was offset by the purchase of
168,130 shares of treasury stock for $2.1 million and the declaration of
dividends of $1.1 million,
The Association's capital level exceeds all of the capital requirements imposed
by federal law. OTS regulations generally provide that an institution which
before and after a proposed capital distribution remains well capitalized and,
like the Association, has not been notified of a need for more than normal
supervision could, after prior notice, but without approval by OTS, make capital
distributions during the calendar year of up to 100% of its net income to date
during the calendar year plus retained net income for the two prior years. Any
additional capital distribution would require prior regulatory approval.
The Association declared and paid dividends to the Company of $2,065,000 in
fiscal year 2000. The Association has also notified OTS of its plan to declare
an additional $401,000 dividend to Cameron Financial in December 2000. Those
dividends approximate the Association's net income from July 1, 1999 through
September 30, 2000. Those funds will be available to the Company to use for
stock repurchases, dividends to the Company's shareholders, and for other
corporate purposes.
Results of Operations
- ---------------------
The Company's results of operations depend primarily on the level of net
interest income and noninterest income and its control of operating expense.
Net interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
The Company's noninterest income consists primarily of underwriting fees on
loans, fees charged on transaction accounts and fees charged for delinquent
payments received on mortgage and consumer loans. In addition, noninterest
income is derived from activities of the Association's wholly owned subsidiary,
which engages in the sale of various insurance and other investment products.
The schedule on the following page presents, for the periods indicated, the
total dollar amount of interest income from average interest-earning assets and
the resultant yields, as well as the total dollar amount of interest expense on
average interest-bearing liabilities and resultant rates. The average yields
include loan fees, which are considered adjustments to yield. The amount of
interest income resulting from recognition of loan fees was $88,000, $400,000,
and $516,000 for the years ended September 30, 2000, 1999 and 1998,
respectively. No tax-equivalent adjustments were made. All average balances
are monthly average balances. Management does not believe that the use of
monthly balances instead of daily balances has caused a material difference in
the information presented. Nonaccruing loans have been included as loans
carrying a zero yield.
52
Years ended September 30,
-----------------------------------------------------------------------------
2000 1999
---- ----
AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
------- ---- ---- ------- ---- ----
(Dollars in thousands)
Interest-earning Assets:
Loans receivable (1) $ 239,209 19,616 8.20% 197,639 16,355 8.28%
Investment securities 22,019 1,383 6.28 16,858 983 5.83
Certificates of deposit 854 53 6.21 2,338 118 5.05
Other interest bearing deposits 3,478 52 1.50 2,147 35 1.63
FHLB Stock 4,622 319 6.90 2,393 152 6.35
---------- ------- --------- ------
Total interest-earning assets (1) 270,182 21,423 7.93 221,375 17,643 7.97
Non interest-earning assets 12,921 12,058
---------- ---------
Total average assets $ 283,103 $ 233,433
---------- ---------
Passbook accounts 11,501 374 3.25 11,251 367 3.26
NOW and money market accounts 21,363 754 3.53 20,070 707 3.52
Certificates 111,845 6,454 5.77 109,727 6,189 5.64
FHLB advances 92,504 5,643 6.10 47,005 2,729 5.81
---------- ------- --------- ------
Total interest-bearing liabilities 237,213 13,225 5.58 188,053 9,992 5.31
non interest-bearing liabilities 5,793 4,262
---------- ---------
Total average liabilities $ 243,006 $ 192,315
---------- ---------
Net interest income 8,198 7,651
------- ------
Net interest rate spread (2) 2.35% 2.66%
----- -----
Net interest-earning assets $ 32,969 $ 33,322
---------- ---------
Net interest margin (3) 3.03% 3.46%
----- -----
Average interest-earning assets to
average interest-bearing liabilities 13.90% 117.72%
------------------------------------------
1998
----
AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE
------- ---- ----
Interest-earning Assets: 180,671 15,523 8.59%
Loans receivable (1) 15,553 951 6.11
Investment securities 6,430 356 5.54
Certificates of deposit 2,531 97 3.83
Other interest bearing deposits 1,936 130 6.71
FHLB Stock ---------- ------
207,121 17,057 8.24
Total interest-earning assets (1) 11,115
Non interest-earning assets ----------
$ 218,236
Total average assets ----------
10,437 347 3.32
Passbook accounts 14,234 465 3.27
NOW and money market accounts 107,814 6,342 5.88
Certificates 37,327 2,250 6.03
FHLB advances ---------- ------
169,812 9,404 5.54
Total interest-bearing liabilities 3,141
non interest-bearing liabilities ----------
$ 172,953
Total average liabilities ----------
7,653
Net interest income ------
2.70%
Net interest rate spread (2) ----
$ 37,309
Net interest-earning assets ----------
3.69%
Net interest margin (3) ----
Average interest-earning assets to 121.97%
average interest-bearing liabilities
(1) Calculated net of deferred loan fees and discounts, loans in process, and
loss reserves.
(2) Net interest rate spread represents the difference between the average
yield on interest earning assets and the average rate on interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
53
The following schedule presents the weighted average yields earned on loans,
investments and other interest-earning assets, and the weighted average rates
paid on deposits and FHLB advances and the resultant interest-rate spread at the
dates indicated.
At September 30,
----------------
2000 1999 1998
---- ---- ----
Weighted average yield on:
Loans receivable 8.35% 7.80 8.35
Investment securities 6.23 5.93 6.04
Certificates of deposit in other financial institutions 6.55 5.45 5.80
Other interest-bearing deposits 4.68 2.24 4.89
FHLB stock 7.10 6.35 6.75
---- ---- ----
Combined weighted average yield on interest-earning assets 8.14 7.68 8.06
---- ---- ----
Weighted average rate paid on:
Passbook accounts 3.25% 3.25 3.26
NOW and money market accounts 3.55 3.39 3.58
Certificates 6.13 5.56 5.87
FHLB advances 6.09 5.61 5.88
---- ---- ----
Combined weighted-average rate paid on interest-bearing
Liabilities 5.79 5.22 5.49
---- ---- ----
Spread 2.35% 2.46 2.57
---- ---- ----
Rate/Volume Analysis
- --------------------
The schedule on the following page presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the change
due to changes in outstanding balances and those due to changes in interest
rates. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (i.e., changes in volume multiplied by prior interest rate) and (ii)
changes in rate (i.e., changes in rate multiplied by prior volume). For
purposes of this table, changes attributable to both rate and volume, which
cannot be segregated, have been allocated proportionately to the changes due to
volume and the changes due to rate.
Year Ended September 30,
-------------------------------------------------------------------------------
2000 Vs. 1999 1999 Vs. 1998
Increase Increase
(Decrease) Total (Decrease) Total
Due to Increase Due to Increase
------------------ ------------------
Volume Rate (Decrease) Volume Rate (Decrease)
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Interest-earning assets
Loans receivable $ 3,417 $ (156) $ 3,261 $ 1,352 $ (520) $ 832
Investment securities 319 81 400 71 (39) 32
Certificates of deposit (102) 37 (65) (209) (29) (238)
Other interest-bearing deposits 20 (3) 17 (12) (50) (62)
FHLB Stock 153 14 167 28 (6) 22
-------------------------------------------------------------------------
Total interest-earning assets 3,807 (27) 3,780 1,230 (644) 586
-------------------------------------------------------------------------
Interest-bearing liabilities
Passbook accounts 8 (1) 7 26 (6) 20
NOW & money market accounts 45 2 47 205 37 242
Certificates 120 145 265 117 (270) (153)
FHLB advances 2,770 144 2,914 558 (79) 479
-------------------------------------------------------------------------
Total interest-bearing liabilities 2,943 290 3,233 906 (318) 588
-------------------------------------------------------------------------
Net interest income $ 864 $ (317) $ 547 $ 324 $ (326) $ (2)
=========================================================================
Comparison of Operating Results for the Years Ended September 30, 2000 and 1999
- -------------------------------------------------------------------------------
General. Net earnings for the year ended September 30, 2000 increased by
$164,000, or 8.47%, to $2.1 million, or $1.12 per diluted share, from $1.9
million, or $0.95 per diluted share, for the year ended September 30, 1999. The
increase was primarily due to a $547,000 increase in net interest income, a
$168,000 increase in noninterest income and a $171,000 decrease in income tax
expense offset by a $437,000 increase in the provision for loan losses and a
$285,000 increase in noninterest expense. For the years ended September 30,
2000 and 1999, the return on average assets was 0.74% and 0.83%, respectively,
while the return on average equity was 5.23% and 4.71%, respectively.
54
Net Interest Income. Net interest income increased $547,000, or 7.15%, to $8.2
million for the year ended September 30, 2000, from $7.7 million in fiscal 1999.
This reflects an increase of $3.8 million in total interest income to $21.4
million in fiscal 2000 from $17.6 million in fiscal 1999 and an increase of $3.2
million in total interest expense to $13.2 million in fiscal 2000 from $10.0
million in fiscal 1999. The increase in interest income was primarily due to an
increase in the average balance of interest-earning assets offsetting a slight
decrease in average yields on interest-earning assets. The increase in interest
expense was primarily due to an increase in the average balance of interest-
bearing liabilities and, to a lesser extent, an increase in the average rates
paid on interest-bearing liabilities.
Interest Income. Interest income for the year ended September 30, 2000
increased $3.8 million to $21.4 million from $17.6 million in fiscal 1999.
Increased average balances of interest earning assets offset decreased yields on
those assets.
Interest income on loans increased $3.3 million, or 19.9%, to $19.6 million for
the year ended September 30, 2000 from $16.4 million for the prior year.
Interest income on investment securities, certificates of deposit, and other
interest bearing deposits increased $519,000, or 40.3 %, to $1.8 million for the
year ended September 30, 2000, from $1.3 million for the year ended September
30, 1999. Interest income on loans increased due to increased balances in loans
offsetting decreased average yields. Interest income on investment securities,
certificates of deposit and other interest bearing deposits increased due to
increased average balances and increased yields on those items.
Interest Expense. Interest expense for the year ended September 30, 2000
increased $3.2 million to $13.2 million from $10.0 million for the year ended
September 30, 1999. The increase was due to increased average balances
outstanding on interest-bearing liabilities and increased average yields on
those liabilities. Interest expense on FHLB advances and other borrowed money
increased to $5.6 million for the year ended September 30, 2000 from $2.7
million for the prior year. Average balances of FHLB advances and other
borrowed money were $92.5 million in fiscal 2000 compared to $47.0 million in
fiscal 1999.
Provision for Loan Losses. The Association maintains a program for establishing
general loan loss reserves by classifying various components of the loan
portfolio by potential risk. Management reviews the composition of the loan
portfolio monthly and adjusts the valuation allowance. In addition, the
Internal Auditor reviews the general valuation allowance on a quarterly basis
and reports findings to the Board of Directors. During the year ended September
30, 2000, provisions for loan losses were $523,000, compared to $86,000 for the
year ended September 30, 1999. During fiscal 2000, speculative construction
loans increased $6.8 million, or 28.3% and consumer loans increased $12.2
million, or 74.0%. The total loan portfolio increased to $282.7 million at
September 30, 2000 from $246.0 million at September 30, 1999. The Association's
allowance for loan losses was $2.1 million, or 0.75% of total loans receivable,
at September 30, 2000, compared to $1.6 million or 0.65% of total loans
receivable at September 30, 1999. The fiscal 2000 and 1999 charge-offs totaled
$6,000 and $5,000, respectively.
The Association had $4.1 million in loans classified as substandard, doubtful or
loss at September 30, 2000, compared to $2.2 million at September 30, 1999. The
increase was primarily due to an increase in delinquent construction loans at
September 30, 2000.
Management will continue to monitor its allowance for loan losses and make
future adjustments to the allowance through provisions for loan losses as
economic conditions dictate. Although the Association maintains its allowance
for loan losses at a level which it considers adequate to provide for probable
losses, there can be no assurances that future losses will not exceed estimated
amounts or that additional provisions for loan losses will not be required in
future periods.
Noninterest Income. For the year ended September 30, 2000, noninterest income
was $654,000, an increase of $168,000, or 34.6%, compared to $486,000 for the
year ended September 30, 1999. Loan fees and deposit service charges, which
consist primarily of late charges on loans receivable, underwriting fees,
service charges on transaction accounts, and ATM fees were $455,000 and $341,000
in fiscal 2000 and 1999, respectively. Underwriting fees were $89,000 in fiscal
2000, compared to $52,000 in fiscal 1999. Service charges on transaction
accounts were $203,000 and $156,000 in fiscal 2000 and 1999, respectively. The
increase is primarily due to increased checking accounts that pay a flat monthly
fee and increased number of items returned on accounts. Late charges on loans
were $107,000 for fiscal 2000, compared to $85,000 for fiscal 1999. For the
year ended September
55
30, 2000, other income was $199,000 compared to $145,000 for the year ended
September 30, 1999. The increase was due to $95,000 of commissions for the sale
of investment products by the Association's service corporation in fiscal 2000,
compared to $34,000 in fiscal 1999. The sale of insurance products by the
service corporation resulted in commissions of $38,000 and $17,000 in fiscal
2000 and 1999, respectively. Profit on the sale of loans declined to $31,000 in
fiscal 2000, compared to $72,000 in fiscal 1999. The decrease was due to fewer
loan sales in fiscal 2000 compared to fiscal 1999.
Noninterest expense. Noninterest expense increased $285,000 to $5.2 million for
the year ended September 30, 2000 from $4.9 million for the prior year.
Compensation, payroll taxes and fringe benefits expense increased $380,000 in
fiscal 2000 to $3.2 million compared to $2.8 million in fiscal 1999. Cash
compensation increased $22,000 in fiscal 2000, compared to fiscal 1999. The
Association had 64 full time employees at September 30, 2000, compared to 70 at
September 30, 1999. ESOP expenses increased $233,000 to $602,000 for fiscal
2000, compared to $369,000 for fiscal 1999. The increase was primarily due to
additional shares allocated in fiscal 2000 compared to fiscal 1999. Due to
fewer loan originations in fiscal 2000 compared to fiscal 1999, the Association
deferred $140,000 less in expenses in accordance with FAS 91. Occupancy expense
increased $87,000 in fiscal 2000 to $852,000, compared to $765,000 in fiscal
1999. The increase was primarily due to increased real estate taxes and
increased depreciation expense for equipment placed into service during fiscal
1999. Data processing expense decreased $66,000 in fiscal 2000 to $197,000 from
$263,000 in fiscal 1999. The decrease was primarily due to the conversion to an
in-house data processing system in 1999. Federal insurance premiums decreased
$61,000 to $33,000 for fiscal 2000 compared to $94,000 in fiscal 1999. The
decrease was due to equal sharing of FICO bond expenses by all banks and thrifts
effective January 1, 2000. Advertising expenses decreased $59,000 to $91,000
for fiscal 2000 compared to $150,000 for fiscal 1999. The decrease was due to
less advertising in fiscal 2000. Other operating expenses increased $4,000 to
$862,000 for fiscal 2000 compared to $858,000 for fiscal 1999. Decreases in
dealer participation expenses, office supplies, telephone expenses, bond
expenses and employee expenses were offset by increases in legal expenses and
investment banking expenses.
Income taxes. Income taxes decreased to $1.0 million for fiscal 2000 from $1.2
million for fiscal 1999. The decrease was primarily due to a reduction in income
taxes payable recorded during the year ended September 30, 2000, which had been
recorded in prior years. The effective tax rate for 2000 was 33.0% compared to
38.4% for 1999.
Comparison of Operating results for the Years Ended September 30, 1999 and 1998
- -------------------------------------------------------------------------------
General. Net earnings for the year ended September 30, 1999 decreased by
$360,000, or 15.67%, to $1.9 million, or $0.95 per diluted share, from $2.3
million, or $0.95 per diluted share, for the year ended September 30, 1998. The
decrease was primarily due to a $2,000 decrease in net interest income, a
$162,000 increase in the provision for loan losses and a $519,000 increase in
noninterest expense offset by a $144,000 increase in noninterest income and a
decrease of $179,000 in income tax expense. For the years ended September 30,
1999 and 1998, the return on average assets was 0.83% and 1.05%, respectively,
while the return on average equity was 4.71% and 5.11%, respectively.
Net Interest Income. Net interest income was unchanged at $7.6 million for both
years ended September 30, 1999 and 1998. This reflects an increase of $586,000
in total interest income to $17.6 million from $17.1 million and an increase of
$588,000 in total interest expense to $10.0 in fiscal 1999 million from $9.4
million in fiscal 1998. The increase in interest income was primarily due to an
increase in the average balance of interest-earning assets offsetting a decrease
in average yields on interest-earning assets. The increase in interest expense
was due to an increase in the average balance of interest-bearing liabilities
offsetting the decrease in the average rates paid on interest-bearing
liabilities.
Interest Income. Interest income for the year ended September 30, 1999
increased $586,000 to $17.6 million from $17.1 million in 1998. Increased
average balances of interest earning assets generally offset decreased yields on
those assets.
Interest income on loans increased $832,000, or 5.36%, to $16.4 million for the
year ended September 30, 1999 from $15.5 million for the prior year. Interest
income on investment securities, certificates of deposit, and other interest
bearing deposits decreased $246,000, or 16.04%, to $1.3 million from $1.5
million for the year ended September 30, 1998. Interest income on loans
increased due to increased balances in loans offsetting decreased
56
average yields. Interest income on investment securities, certificates of
deposit and other interest-bearing deposits decreased due to decreased average
balances and decreased yields on those items.
Interest Expense. Interest expense for the year ended September 30, 1999
increased $588,000 to $10.0 million from $9.4 million for the year ended
September 30, 1998. The increase was due to increased average balances
outstanding on interest-bearing liabilities offsetting lower average rates on
those items. Interest expense on FHLB advances and other borrowed money
increased to $2.7 million for the year ended September 30, 1999 from $2.3
million for the prior year. Average balances outstanding of FHLB advances were
$47.0 million in fiscal 1999 compared to $37.3 million in fiscal 1998.
Provision for Loan Losses. The Association maintains a program for establishing
general loan loss reserves by classifying various components of the loan
portfolio by potential risk. Management reviews the composition of the loan
portfolio monthly and adjusts the valuation allowance. In addition, the
Internal Auditor reviews the general valuation allowance on a quarterly basis
and reports the findings to the Board of Directors. During the year ended
September 30, 1999, the Association charged $86,000 against earnings as a
provision for loan losses compared to a credit to earnings with a $76,000
negative provision for loan losses during the year ended September 30, 1998.
The credit to earnings for fiscal 1998 was primarily due to a decrease in
speculative construction loans. During fiscal 1998, speculative construction
loans decreased $9.9 million to $30.3 million. During fiscal 1999, speculative
construction loans decreased $6.1 million to $24.2 million. During fiscal 1999,
land acquisition and development loans increased to $8.6 million from $3.3
million at September 30, 1998. In addition, the total loan portfolio increased
to $246.0 million at September 30, 1999 from $206.6 million at September 30,
1998. The Association's allowance for loan losses was $1.6 million, or 0.65% of
total loans receivable at September 30, 1999, compared to 0.74% of total loans
receivable at September 30, 1998. The fiscal 1999 charge-offs totaled $5,000
and the net charge-offs for fiscal 1998 were $27,000.
The Association had $2.2 million in loans classified as substandard, doubtful or
loss at September 30, 1999, compared to $3.5 million at September 30, 1998. The
decrease was primarily due to a decrease in delinquent construction loans and
increased collection efforts throughout the year.
Noninterest income. For the year ended September 30, 1999, noninterest income
was $486,000, an increase of $144,000 or 42.1%, compared to $342,000 for the
year ended September 30, 1998. Loan fees and deposit service charges, which
consist primarily of late charges on loans receivable, underwriting fees,
service charges on transaction accounts and ATM fees, were $341,000 and $235,000
in fiscal 1999 and 1998, respectively. Underwriting fees were $52,000 in fiscal
1999, compared to $25,000 in fiscal 1998. Service charges on transaction
accounts were $156,000 and $108,000 in fiscal 1999 and 1998, respectively. The
increase is primarily due to increased checking accounts that pay a flat monthly
fee and increased number of items returned on accounts. ATM fees were $17,000
and $9,000 in fiscal 1999 and 1998, respectively. Two of the Association's five
ATM's were installed during 1998 and one was installed in 1999. Late charges on
loans were $85,000 for fiscal 1999 compared to $83,000 for fiscal 1998. For the
year ended September 30, 1999, other income was $145,000, compared to $107,000
for the year ended September 30, 1998. The increase was due to $34,000 of
commissions for the sale of investment products by the Association's service
corporation for fiscal 1999. No such commissions were earned in fiscal 1998.
Noninterest expense. Noninterest expense increased $519,000 to $4.9 million,
for the year ended September 30, 1999 from $4.4 million for the prior year.
Compensation, payroll taxes and fringe benefits expense increased $222,000 in
fiscal 1999 to $2.8 million compared to $2.6 million in fiscal 1998. Cash
compensation increased $343,000 in fiscal 1999 to $2.0 million from $1.7 million
in 1998. The increase was due to an increase in the number of employees and
salary increases to existing employees. During the Association's conversion to
a new core data processing system, the Association incurred approximately
$38,000 in overtime expense for training and conversion. The Association had
seventy full-time equivalent employees at September 30, 1999 compared to sixty-
seven at September 30, 1998. Eight employees were hired in connection with the
new branch office opened in August 1998. Payroll taxes and fringe benefits
increased $54,000 due to the increased number of employees and increased
compensation. ESOP expenses decreased $159,000 to $369,000 for fiscal 1999,
from $528,000 for fiscal 1998, due to a lower average monthly price of the
Company's common stock in fiscal 1999 compared to fiscal 1998. Occupancy
expense increased $143,000 in fiscal 1999 to $765,000 from $622,000 in 1998.
The increase was primarily due to increased depreciation and taxes on the new
branch office opened in August 1998. Depreciation
57
also increased due to additional data processing equipment. Data processing
expenses increased $71,000 to $263,000 for fiscal 1999 compared to $192,000 for
fiscal 1998. The increase was primarily due to the Association's conversion to a
new core data processing system in June 1999. Federal insurance premiums
increased to $94,000 in fiscal 1999 from $82,000 in fiscal 1998. Advertising
expense increased $2,000 to $150,000 for fiscal 1999 compared to $148,000 for
fiscal 1998. Other operating expenses increased to $854,000 for fiscal 1999
compared to $789,000 for fiscal 1998. The increase was primarily due to
increased loan expenses due to increased lending volume; telephone expenses due
to communication lines between offices; travel and training expenses due to the
data processing conversion and checking account expense due to increased new
accounts.
Income Taxes. Income taxes decreased to $1.2 million for fiscal 1999 from $1.4
million for fiscal 1998. The decrease was due to a decrease in taxable income
for 1999 compared to 1998. The effective tax rate for 1999 was 38.4%, compared
to 37.6% for 1998.
Asset and Liability Management - Interest Rate Sensitivity Analysis
- -------------------------------------------------------------------
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets are interest rate sensitive and by monitoring an
institution's interest rate sensitivity "gap." An asset or liability is said to
be interest rate sensitive within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap is defined
as the difference between the amount of interest-earning assets and interest-
bearing liabilities maturing or repricing within a specific time period. A gap
is considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities. A gap is considered negative
when the amount of interest rate sensitive liabilities exceeds the amount of
interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income while a positive gap would tend to positively affect
net interest income. During a period of falling interest rates, a negative gap
would tend to positively affect net interest income while a positive gap would
tend to negatively affect net interest income.
The Association's strategy in recent years has been to reduce its exposure to
interest rate risk by better matching the maturities or repricing schedules of
its interest rate sensitive assets and liabilities. This strategy has been
implemented by originating adjustable rate loans, short-term construction loans,
and other variable rate or short-term loans, as well as by purchasing short-term
investments. The Association seeks to lengthen the maturities of its deposits
by promoting longer-term certificates with substantial penalties for early
withdrawal. Maturities of new FHLB advances are scheduled to compliment the
current gap position. The Association does not solicit negotiated high-rate
jumbo certificates of deposit or brokered deposits.
At September 30, 2000, the Company's total interest-bearing liabilities maturing
or repricing within one year exceeded interest-earning assets maturing or
repricing in the same period by $39.4 million, representing a cumulative
negative one-year gap ratio of 12.8% to total assets. The Association has
established an Asset-Liability Management Committee ("ALCO") which is
responsible for reviewing the Association's asset-liability policies. The ALCO
meets monthly and reports to the Board of Directors on interest rate risks and
trends, as well as liquidity and capital ratios and requirements.
Market Risk Management
- ----------------------
Market risk is the risk of loss arising from adverse changes in market prices
and rates. The Association's market risk is comprised primarily of interest
rate risk resulting from its core banking activities of lending and deposit
taking. Interest rate risk is the risk that changes in market interest rates
might adversely affect the Association's net interest income or the economic
value of its portfolio of assets, liabilities, and off-balance sheet contracts.
Management continually develops and applies strategies to mitigate this risk.
Management does not believe that the Association's primary market risk exposures
and how those exposures are managed in fiscal year 2000 have changed when
compared to fiscal year 1999. Market risk limits have been established by the
Board of Directors based on the Association's tolerance for risk.
The Association primarily relies on the OTS Net Portfolio Value ("NPV") Model to
measure its susceptibility to interest rate changes. NPV is defined as the
present value of expected net cash flows from existing assets minus the
58
present value of expected net cash flows from existing liabilities plus or minus
the present value of net expected cash flows from existing off-balance sheet
contracts after various assumed instantaneous parallel shifts in the yield
curve, both upward and downward.
The NPV model uses an option-based pricing approach to value one- to four-family
mortgages, mortgages serviced by or for others and firm commitments to buy, sell
or originate mortgages. This approach makes use of an interest rate simulation
program to generate random interest rate paths that, in conjunction with a
prepayment model, are used to estimate mortgage cash flows. Prepayment options
and interest rate caps and floors contained in mortgage and mortgage-related
securities introduce significant uncertainty in estimating the timing of cash
flows for these instruments that warrant the use of this sophisticated
methodology.
All other financial instruments are valued using a static discounted cash flow
method. Under this approach, the present value is determined by discounting the
cash flows the instrument is expected to generate by yields currently available
to investors from instruments of comparable risk and duration.
The following table sets forth the present value estimates for major categories
of financial instruments of the Association at September 30, 2000, as calculated
by the OTS NPV model. The table shows the present value of the instruments
under rate shock scenarios of -300 basis points to +300 basis points in
increments of 100 basis points.
Calculated at September 30, 2000
-300 -200 -100 0 +100 +200 +300
basis basis basis basis basis basis basis
points points points points points points points
-------------- ---------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Mortgage loans and securities $256,001 252,302 248,415 243,601 237,989 231,891 225,534
Nonmortgage loans 21,107 20,669 20,249 19,844 19,455 19,081 18,720
Cash, deposits, and securities 29,284 29,165 29,018 28,561 27,887 27,226 26,591
Other assets 13,360 13,632 14,301 15,170 15,986 16,751 17,470
-------- ------- ------- ------- ------- ------- -------
Total assets 319,752 315,768 311,983 307,176 301,317 294,949 288,315
-------- ------- ------- ------- ------- ------- -------
Deposits 157,191 154,916 152,732 150,639 148,623 146,689 144,828
Borrowings 116,428 115,194 113,992 112,820 111,677 110,562 109,475
Other liabilities 4,074 4,072 4,070 4,068 4,065 4,064 4,062
-------- ------- ------- ------- ------- ------- -------
Total liabilities 277,693 274,182 270,794 267,527 264,365 261,315 258,365
-------- ------- ------- ------- ------- ------- -------
Off-balance sheet positions 249 150 58 (30) (127) (237) (356)
-------- ------- ------- ------- ------- ------- -------
Net portfolio value $ 42,308 41,736 41,247 39,619 36,825 33,397 29,594
$ change from base $ 2,689 2,117 1,628 - (2,794) (6,222) (10,025)
Net portfolio value (NPV) ratio 13.23% 13.22% 13.22% 12.90% 12.22% 11.32% 10.26%
Board NPV ratio limits 11.00% 12.00% 13.00% N/A 11.00% 10.00% 9.00%
Computation of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit runoffs, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the Association may undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in both
the computation of NPV and in an analysis of the maturing and repricing of
interest-earning assets and interest-bearing liabilities. Although certain
assets and liabilities may have similar maturities or periods in which they
reprice, they may react differently to changes in market interest rates.
Additionally, adjustable-rate mortgages have features that restrict changes in
interest rates on a short-term basis and over the life of the asset. The
proportion of adjustable-rate loans could reduce in future periods if market
interest rates would decrease and remain at lower levels for a sustained period,
due to increased refinance activity. Further, in the event of a change in
interest rates, prepayment, and early withdrawal levels would likely deviate
significantly from those assumed in the table. Finally, the ability of many
borrowers to service their adjustable-rate debt may decrease in the event of a
sustained interest rate increase.
Liquidity and Capital Resources
- -------------------------------
The Association's primary sources of funds are deposits, repayments on and sale
of loans, FHLB advances, the maturity of investment securities, and interest
income. Although maturity and scheduled amortization of loans are relatively
predictable sources of funds, deposit flows and prepayments on loans are
influenced significantly by general interest rates, economic conditions, and
competition.
The primary investing activity of the Association is the origination of loans to
be held for investment. For the fiscal years ended September 30, 2000 and 1999,
the Association originated loans for portfolio in the amounts of $97.3 million
and $132.4 million, respectively. Purchases of loans during the fiscal years
ended September 30, 2000 and 1999 were none and $40,000, respectively. The
Association also originates loans for sale. For the fiscal years ended
September 30, 2000 and 1999, the Association originated $2.6 million and $5.5
million, respectively, of mortgage loans for sale. For the fiscal years ended
September 30, 2000 and 1999, these activities were funded primarily by principal
repayments of $60.6 million and $92.0 million, respectively, proceeds from the
sale of loans
59
of $2.3 million and $5.9 million, respectively, and FHLB advances of $159.6
million and $67.7 million, respectively.
The Association is required to maintain minimum levels of liquid assets under
OTS regulations. Savings institutions are required to maintain an average daily
balance of liquid assets (including cash, certain time deposits, certain
banker's acceptances, certain corporate debt securities and highly rated
commercial paper, securities of certain mutual funds, and specific U. S.
government, state, or federal agency obligations) of not less than 4.0% of its
average daily balance of net withdrawable accounts plus short-term borrowings.
It is the Association's policy to maintain its liquidity portfolio in excess of
regulatory requirements. The Association's eligible liquidity ratios were 16.4%
and 11.9%, respectively, at September 30, 2000 and 1999.
The Company's most liquid assets are cash and cash equivalents, which include
short-term investments. The levels of those assets are dependent on the
operating, financing, lending and investment activities during any given period.
At September 30, 2000 and 1999, cash and cash equivalents were $6.3 million and
$6.1 million, respectively. The increase in cash and cash equivalents in 2000
compared to 1999 results primarily from sources of cash receipts and the use of
cash to fund loans and investments. The principal components of cash provided
during the fiscal year ended September 30, 2000 were FHLB advances and loan
repayments. Additional sources of cash included maturing investments, sales of
loans and deposit activity.
Liquidity management for the Company is both an ongoing and long-term function
of the asset/liability management strategy. Excess Association funds generally
are invested in overnight deposits at the FHLB of Des Moines. If the
Association requires funds beyond its ability to generate them internally,
additional sources of funds are available through FHLB of Des Moines advances.
The Association borrowed $159.6 million in FHLB advances and repaid $117.8
million of maturing advances in fiscal year 2000. During 1999, the Association
borrowed $67.7 million in FHLB advances and repaid $33.8 million in maturing
FHLB advances. During the last several years, loan originations have exceeded
savings inflows, loan repayments and cash provided by operations. To maintain
liquidity above the required minimum, it is anticipated that FHLB advances will
continue to supplement projected savings inflows and loan repayments to fund
continued loan demand.
At September 30, 2000, the Association had outstanding loan commitments of $2.6
million, unused lines of credit of $5.3 million, and undisbursed loans in
process of approximately $18.4 million. The Association anticipates it will
have sufficient funds available to meet its current loan commitments, including
applications received and in process prior to issuance of firm commitments.
Certificates of deposit that are scheduled to mature in one year or less at
September 30, 2000 were $57.3 million. Management believes that a significant
portion of such deposits will remain with the Association.
At September 30, 2000, the Association had tangible capital of $36.3 million, or
11.9% of total adjusted assets, which is approximately $31.7 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.
The Association had core capital of $36.3 million, or 11.9% of adjusted total
asserts, which is $24.1 million above the minimum leverage ratio of 4.0% in
effect on that date. The Association had total risk-based capital of $38.4
million and total risk-weighted assets of $205.3 million, or total capital of
18.7% of risk-weighted assets. This was $22.0 million above the 8.0%
requirement in effect on that date.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities, in June 1998. SFAS No. 133, as amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 and SFAS No. 138, Accounting for
Derivatives Instruments and Certain Hedging Activities, establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivative as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000.
The Company adopted these accounting standards on October 1, 2000. The adoption
of the standards did not have a material impact on the Company's financial
statements.
Item 8. Financial Statements and Supplementary Data
Set forth below are the consolidated financial statements of Cameron Financial
Corporation and Subsidiary for the periods indicated, with the independent
auditors' report thereon.
60
Independent Auditors' Report
The Board of Directors
Cameron Financial Corporation:
We have audited the accompanying consolidated balance sheets of Cameron
Financial Corporation and subsidiary (the Company) as of September 30, 2000 and
1999 and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the years in the three-year period ended September
30, 2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cameron Financial
Corporation and subsidiary as of September 30, 2000 and 1999 and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 2000, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
November 10, 2000
Kansas City, Missouri
61
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 2000 and 1999
Assets 2000 1999
-------------- ------------
Cash $ 5,464,000 4,900,000
Certificates of deposit in other financial institutions 840,000 1,200,000
-------------- ------------
Total cash and cash equivalents 6,304,000 6,100,000
Investment securities held-to-maturity (estimated fair value of
$22,911,000 in 2000 and $18,186,000 in 1999) (notes 3 and 6) 23,301,000 18,538,000
Mortgage-backed securities held-to-maturity 3,000 5,000
Loans receivable, net (notes 4 and 7) 261,867,000 221,909,000
Accrued interest receivable:
Loans and mortgage-backed securities 1,851,000 1,523,000
Investment securities 368,000 268,000
Office properties and equipment, net (note 5) 7,399,000 7,748,000
Stock in Federal Home Loan Bank (FHLB) of Des Moines, at cost 5,643,000 3,556,000
Deferred income taxes (note 8) 291,000 74,000
Other assets (note 9) 1,837,000 1,832,000
-------------- ------------
$ 308,864,000 261,553,000
============== ============
Liabilities and Stockholders' Equity
Liabilities:
Savings deposits (note 6) $ 149,185,000 143,737,000
Borrowings from the FHLB (note 7) 112,836,000 71,101,000
Advance payments by borrowers for property taxes and insurance 2,528,000 2,244,000
Accrued interest payable on savings deposits 176,000 158,000
Accrued expenses and other liabilities 3,651,000 3,491,000
Income taxes payable 102,000 198,000
-------------- ------------
Total liabilities 268,478,000 220,929,000
-------------- ------------
Stockholders' equity (notes 1, 2, and 10):
Serial preferred stock, $.01 par; 2,000,000 shares authorized; none issued
or outstanding -- --
Common stock, $.01 par; 10,000,000 shares authorized; 3,026,928 shares
issued 30,000 30,000
Additional paid-in capital 30,342,000 30,163,000
Retained earnings, substantially restricted (note 8) 28,424,000 27,385,000
Unearned employee benefits (note 9) (894,000) (1,483,000)
Treasury stock; 1,112,879 shares in 2000 and 944,749 shares in 1999
of common stock at cost (17,516,000) (15,471,000)
-------------- ------------
Total stockholders' equity 40,386,000 40,624,000
Commitment (note 4)
-------------- ------------
$ 308,864,000 261,553,000
============== ============
See accompanying notes to consolidated financial statements.
62
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended September 30, 2000, 1999, and 1998
2000 1999 1998
------------- ----------- -----------
Interest income:
Loans $ 19,616,000 16,355,000 15,523,000
Investment securities 1,383,000 983,000 950,000
Mortgage-backed securities -- -- 1,000
Certificates of deposit and other 424,000 305,000 583,000
------------- ----------- -----------
Total interest income 21,423,000 17,643,000 17,057,000
------------- ----------- -----------
Interest expense:
Savings deposits (note 6) 7,582,000 7,263,000 7,154,000
Borrowed money 5,643,000 2,729,000 2,250,000
------------- ----------- -----------
Total interest expense 13,225,000 9,992,000 9,404,000
------------- ----------- -----------
Net interest income 8,198,000 7,651,000 7,653,000
Provision for loan losses (note 4) 523,000 86,000 (76,000)
------------- ----------- -----------
Net interest income after provision for loan losses 7,675,000 7,565,000 7,729,000
------------- ----------- -----------
Noninterest income:
Loan and deposit service charges 455,000 341,000 235,000
Other income 199,000 145,000 107,000
------------- ----------- -----------
Total noninterest income 654,000 486,000 342,000
------------- ----------- -----------
Noninterest expense:
Compensation, payroll taxes, and fringe benefits (note 9) 3,159,000 2,779,000 2,557,000
Occupancy expense 852,000 765,000 622,000
Data processing 197,000 263,000 192,000
Federal deposit insurance premiums 33,000 94,000 82,000
Advertising 91,000 150,000 148,000
Other operating expenses 862,000 858,000 789,000
------------- ----------- -----------
Total noninterest expense 5,194,000 4,909,000 4,390,000
------------- ----------- -----------
Earnings before income taxes 3,135,000 3,142,000 3,681,000
Income taxes (note 8) 1,034,000 1,205,000 1,384,000
------------- ----------- -----------
Net earnings $ 2,101,000 1,937,000 2,297,000
============= =========== ===========
Earnings per share:
Basic $ 1.12 0.95 0.97
============= =========== ===========
Diluted $ 1.12 0.95 0.95
============= =========== ===========
See accompanying notes to consolidated financial statements.
63
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended September 30, 2000, 1999, and 1998
Additional Unearned
Common paid-in Retained employee Treasury
stock capital earnings benefits stock Total
--------- ---------- ---------- ---------- ----------- ----------
Balance at September 30, 1997 $ 30,000 29,804,000 24,567,000 (2,524,000) (7,210,000) 44,667,000
Net earnings -- -- 2,297,000 -- -- 2,297,000
Amortization of recognition and
retention plan (RRP), net of forfeitures -- -- -- 309,000 (89,000) 220,000
Dividend declared ($.28 per share) -- -- (644,000) -- -- (644,000)
Allocation of employee stock ownership
plan (ESOP) shares -- 259,000 -- 268,000 -- 527,000
Purchase 181,346 shares of treasury stock -- -- -- -- (3,667,000) (3,667,000)
Exercise of stock options to acquire
5,027 shares of common stock -- (5,000) -- -- 78,000 73,000
--------- ---------- ---------- ---------- ----------- ----------
Balance at September 30, 1998 30,000 30,058,000 26,220,000 (1,947,000) (10,888,000) 43,473,000
Net earnings -- -- 1,937,000 -- -- 1,937,000
Amortization of RRP, net of forfeitures -- -- -- 300,000 (38,000) 262,000
Dividend declared ($.39 per share) -- -- (772,000) -- -- (772,000)
Allocation of ESOP shares -- 117,000 -- 252,000 -- 369,000
Purchase 298,553 shares of treasury stock -- -- -- -- (4,645,000) (4,645,000)
Award of RRP (note 9) -- (12,000) -- (88,000) 100,000 --
--------- ---------- ---------- ---------- ----------- ----------
Balance at September 30, 1999 30,000 30,163,000 27,385,000 (1,483,000) (15,471,000) 40,624,000
Net earnings -- -- 2,101,000 -- -- 2,101,000
Amortization of RRP, net of forfeitures -- -- -- 287,000 (25,000) 262,000
Dividend declared ($.55 per share) -- -- (1,062,000) -- -- (1,062,000)
Allocation of ESOP shares -- 212,000 -- 391,000 -- 603,000
Purchase 173,953 shares of treasury stock -- -- -- -- (2,147,000) (2,147,000)
Exercise of stock options to acquire 400
shares of common stock -- (1,000) -- -- 6,000 5,000
Award of RRP (note 9) -- (32,000) -- (89,000) 121,000 --
--------- ---------- ---------- ---------- ----------- ----------
Balance at September 30, 2000 $ 30,000 30,342,000 28,424,000 (894,000) (17,516,000) 40,386,000
========= ========== ========== ========== =========== ==========
See accompanying notes to consolidated financial statements.
64
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended September 30, 2000, 1999, and 1998
2000 1999 1998
------------- ------------- ------------
Cash flows from operating activities:
Net earnings $ 2,101,000 1,937,000 2,297,000
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 455,000 406,000 309,000
Provision for loan losses 523,000 86,000 (76,000)
Provision for losses on real estate owned -- 1,000 --
Amortization of RRP and allocation of
ESOP shares 865,000 631,000 747,000
Deferred income taxes (217,000) 81,000 381,000
Gain on sales of real estate owned (2,000) (2,000) (8,000)
Loss on sale of properties and equipment -- 1,000 --
Amortization of deferred loan fees (88,000) (402,000) (499,000)
Proceeds from sales of loans held for sale 2,304,000 5,943,000 7,989,000
Origination of loans held for sale (2,598,000) (5,491,000) (7,976,000)
Gain on sale of loans held for sale (31,000) (72,000) (73,000)
Changes in assets and liabilities:
Accrued interest receivable (428,000) (216,000) (157,000)
Other assets (28,000) (525,000) (83,000)
Accrued interest payable on savings deposits 18,000 (22,000) 43,000
Accrued expenses and other liabilities 135,000 1,488,000 417,000
Income taxes payable (96,000) 6,000 (209,000)
------------- ------------- ------------
Net cash provided by operating activities 2,913,000 3,850,000 3,102,000
------------- ------------- ------------
Cash flows from investing activities:
Net increase in loans receivable (40,043,000) (37,645,000) (7,107,000)
Purchase of loans receivable -- (40,000) (66,000)
Mortgage-backed securities principal repayments 2,000 2,000 3,000
Maturities of investment securities held-to-maturity 2,697,000 9,769,000 11,595,000
Purchase of investment securities held-to-maturity (7,455,000) (11,999,000) (13,996,000)
Purchase of FHLB stock (2,087,000) (1,543,000) (251,000)
Net proceeds from sales of real estate owned -- 297,000 --
Additions and improvements to real estate owned -- (2,000) --
Purchase of office properties and equipment, net (111,000) (300,000) (1,793,000)
------------- ------------- ------------
Net cash used in investing activities $ (46,997,000) (41,461,000) (11,615,000)
------------- ------------- ------------
(Continued)
65
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
Years ended September 30, 2000, 1999, and 1998
2000 1999 1998
---------------- -------------- --------------
Cash flows from financing activities:
Net increase (decrease) in NOW, passbook, and
money market demand amounts $ (2,059,000) 6,241,000 5,076,000
Net increase in certificate accounts 7,507,000 874,000 2,775,000
Net increase in advance payments by borrowers
for taxes and insurance 284,000 341,000 131,000
Proceeds from FHLB advances 159,550,000 67,700,000 15,000,000
Repayment of FHLB advances (117,815,000) (33,849,000) (13,000,000)
Dividends paid (1,037,000) (670,000) (665,000)
Issuance of common stock under stock option plan 5,000 -- 73,000
Purchase of treasury stock (2,147,000) (4,645,000) (3,667,000)
---------------- -------------- --------------
Net cash provided by financing activities 44,288,000 35,992,000 5,723,000
---------------- -------------- --------------
Net (decrease) increase in cash 204,000 (1,619,000) (2,790,000)
Cash and cash equivalents at beginning of year 6,100,000 7,719,000 10,509,000
---------------- -------------- --------------
Cash and cash equivalents at end of year $ 6,304,000 6,100,000 7,719,000
================ ============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 1,346,000 1,118,000 1,216,000
================ ============== ==============
Cash paid during the year for interest $ 13,049,000 10,014,000 9,361,000
================ ============== ==============
Supplemental schedule of noncash investing and
financing activities:
Conversion of loans to real estate owned $ -- 488,000 244,000
================ ============== ==============
Conversion of real estate owned to loans $ 25,000 171,000 487,000
================ ============== ==============
Dividends declared and payable $ 277,000 247,000 150,000
================ ============== ==============
Issuance of unearned RRP shares $ 89,000 88,000 --
================ ============== ==============
See accompanying notes to consolidated financial statements.
66
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(1) Conversion and Acquisition of the Association by the Company
Cameron Financial Corporation (the "Company") was incorporated in December
1994 for the purpose of becoming the savings and loan holding company of The
Cameron Savings & Loan Association, F.A. (the "Association") in connection
with the Association's conversion from a federally chartered mutual savings
and loan to a federally chartered stock savings and loan. Pursuant to its
Plan of Conversion, on March 31, 1995, the Company issued and sold 3,026,928
shares of its common stock, in a subscription and community offering to the
Association's depositors and borrowers, the Company's employee stock
ownership plan, and the general public. The Company utilized a portion of
the net proceeds to acquire all of the common stock issued by the
Association in connection with its conversion. The acquisition of the
Association by the Company was accounted for in a manner similar to the
pooling-of-interests method. Accordingly, the accounting basis of the
assets, liabilities, and equity accounts of the Association remained the
same as prior to the conversion and acquisition and were not adjusted to
their fair values, and no purchase accounting adjustments were recorded. All
intercompany accounts and transactions are eliminated in consolidation.
In order to grant priority to eligible account holders in the event of
future liquidation, the Association, at the time of conversion, established
a liquidation account in the amount equal to the Association's capital as of
September 30, 1994 ($19,291,000). In the event of the future liquidation of
the Association, eligible account holders and supplemental eligible account
holders who continue to maintain their deposit accounts shall be entitled to
receive a distribution from the liquidation account. The total amount of the
liquidation account will be decreased as the balance of the eligible account
holders and supplemental eligible account holders is reduced subsequent to
the conversion, based on an annual determination of such balances. The
Association may not declare or pay a cash dividend to the Company on, or
repurchase any of, its common stock if the effect thereof would cause the
retained earnings of the Association to be reduced below the amount required
for the liquidation account. Except for such restrictions, the existence of
the liquidation account does not restrict the use or application of the
Association's retained earnings.
(2) Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, all short-
term investments with a maturity of three months or less at date of
purchase are considered cash equivalents. Cash and cash equivalents
reflected on the consolidated balance sheets include interest earning
deposits of $5,337,000 and $4,810,000 at September 30, 2000 and 1999,
respectively.
(b) Investment Securities
The Company and the Association classify their investment securities as
held-to-maturity, available-for-sale, or trading. Held-to-maturity
securities are recorded at amortized cost adjusted for amortization of
premiums and accretion of discounts that are recognized in income using
the interest method over the period to maturity. Available-for-sale and
trading securities are recorded at fair value. Adjustments to record
available-for-sale securities at fair value are reflected, net of tax,
in stockholders' equity. At September 30, 2000 and 1999, all of the
Company's and Association's investment and mortgage-backed securities
are classified as held-to-maturity.
(Continued)
67
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
Gain or loss on the sale of securities is recognized using the specific
identification method.
(c) Provisions for Losses on Loans and Interest Receivable
Provision for losses on loans receivable are based upon management's
estimate of the amount required to maintain an adequate allowance for
losses, relative to the risks in the loan portfolio. The estimate is
based on reviews of the portfolio, considering past loss experience,
current economic conditions, and such other factors which, in the opinion
of management, deserve current recognition. The Association is subject to
the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities. As an integral part of
those examinations, the various regulatory agencies periodically review
the Association's allowance for loan losses. Such agencies may require
the Association to recognize changes to the allowance based on their
judgments about information available to them at the time of their
examination.
Accrual of interest income on loans is discontinued for those loans with
interest more than ninety days delinquent or sooner if management
believes collectibility of the interest is not probable. Management's
assessment of collectibility is primarily based on a comparison of the
estimated value of underlying collateral to the related loan and accrued
interest receivable balances.
A loan is considered impaired when it is probable a creditor will be
unable to collect all amounts due--both principal and interest--according
to the contractual terms of the loan agreement. When measuring
impairment, the expected future cash flows of an impaired loan are
required to be discounted at the loan's effective interest rate.
Impairment may also be measured by reference to an observable market
price, if one exists, or the fair value of the collateral for a
collateral-dependent loan. Regardless of the historical measurement
method used, the Association measures impairment based on the fair value
of the collateral when the creditor determines foreclosure is probable.
Additionally, impairment of a restructured loan is measured by
discounting the total expected future cash flows at the loan's effective
rate of interest as stated in the original loan agreement.
The Association applies the methods described above to multifamily real
estate loans, commercial real estate loans, and restructured loans.
Smaller balance, homogeneous loans, including one-to-four family
residential and construction loans and consumer loans, are collectively
evaluated for impairment.
(d) Deferred Loan Fees and Costs
Mortgage loan origination fees and direct mortgage loan origination costs
are deferred, and the net fee or cost is recognized in earnings using the
interest method over the contractual life of the loan. Direct loan
origination costs for other loans are expensed, as such costs are not
material in amount.
(Continued)
68
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(e) Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or fair value. Net unrealized losses are
recognized through a valuation allowance by charges to income. At
September 30, 2000 and 1999, loans held for sale totaled $384,000 and
$146,000, respectively.
(f) Real Estate Owned
Real estate owned includes real estate acquired through, or in lieu of,
loan foreclosure, and is carried at the lower of cost or estimated fair
value less estimated cost to sell. Revenue and expenses from operations
and the provision for losses on real estate owned are included in other
operating expense in the accompanying consolidated statements of
earnings.
(g) Office Properties and Equipment
Office properties and equipment are recorded at cost, less accumulated
depreciation. Depreciation is provided on office properties and equipment
using the straight-line method over the estimated useful lives of the
related assets.
(h) Stock in Federal Home Loan Bank (FHLB)
The Association is a member of the FHLB system. As a member, the
Association is required to purchase and hold stock in the FHLB of Des
Moines in an amount equal to the greater of (a) 1% of unpaid residential
loans at the beginning of each year, (b) 5% of FHLB advances, or (c) .3%
of total assets. The Association's investment in such stock is recorded
at cost.
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the difference between the consolidated
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
(j) Earnings Per Share
The Company presents basic and diluted earnings per share. Basic earnings
per share excludes dilution and is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings
per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock.
(Continued)
69
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to consolidated Financial Statements
September 30, 2000 and 1999
The shares used in the calculation of basic and diluted earnings per
share are shown below:
For the years ended
September 30,
-----------------------------------------------
2000 1999 1998
------------- ------------- -------------
Average basic common shares outstanding 1,870,881 2,032,793 2,370,540
Common stock equivalents - stock options 1,424 -- 45,021
------------- ------------- -------------
Average diluted common shares outstanding 1,872,305 2,032,793 2,415,561
============= ============= =============
(k) Use of Estimates
Management of the Association has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America. Actual
results could differ from those estimates.
(l) New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, in June 1998. SFAS No. 133, as
amended by SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133, and SFAS No. 138, Accounting for Derivative Instruments and Certain
Hedging Activities, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, 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. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000.
The Company adopted these accounting standards on October 1, 2000. The
adoption of the standards did not have a material impact on the Company's
consolidated financial statements.
(Continued)
70
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(3) Investment Securities
A summary, by maturity dates, of investment securities held-to-maturity at
September 30, 2000 follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
------------ ----------- ------------ ------------
United States government and
agency obligations maturing
after one year but within five
years $22,959,000 6,000 (396,000) 22,569,000
Privately issued bonds due serially
with final maturity in 2002 342,000 -- -- 342,000
----------- ----------- ----------- -----------
Total $23,301,000 6,000 (396,000) 22,911,000
=========== =========== =========== ===========
A summary, by maturity dates, of investment securities held-to-maturity at
September 30, 1999 follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ----------- ----------- -----------
United States government and
agency obligations maturing
in less than one year $ 998,000 5,000 -- 1,003,000
United States government and
agency obligations maturing
after one year but within five
years 15,500,000 2,000 (349,000) 15,153,000
United States government and
agency obligations maturing
after five years but within ten
years 1,500,000 -- (10,000) 1,490,000
Privately issued bonds due serially
with final maturity in 2002 540,000 -- -- 540,000
----------- ----------- ----------- -----------
Total $18,538,000 7,000 (359,000) 18,186,000
=========== =========== =========== ===========
71 (Continued)
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(4) Loans Receivable
Loans receivable at September 30 are summarized as follows:
2000 1999
-------------- --------------
Residential real estate loans:
One-to-four family $ 173,799,000 160,642,000
Multifamily 11,562,000 7,360,000
Held for sale 384,000 146,000
Construction loans, primarily single family 43,607,000 40,302,000
Land 13,553,000 14,660,000
Commercial real estate 11,120,000 6,398,000
Consumer loans 28,633,000 16,459,000
-------------- --------------
Total loans receivable 282,658,000 245,967,000
Less:
Loans in process 18,429,000 21,926,000
Deferred loans fees, net 243,000 530,000
Allowance for loan losses 2,119,000 1,602,000
-------------- --------------
$ 261,867,000 221,909,000
============== ==============
The Association grants residential and commercial real estate and other
consumer and commercial loans primarily in its lending territory which
includes Clay, Platte, and Clinton counties in Missouri and contiguous
counties. Although the Association has a diversified loan portfolio, a
substantial portion of its borrowers' ability to repay their loans is
dependent upon economic conditions in the Association's lending territory.
The Association makes contractual commitments to extend credit which are
subject to the Association's credit monitoring procedures. At September 30,
2000, the Association was committed to originate loans receivable
aggregating approximately $2,562,000, including fixed-rate loan commitments
of approximately $1,110,000, with interest rates ranging from 8.25% to
10.25%. At September 30, 2000, commitments to sell loans were $384,000.
There were no commitments to buy loans at September 30, 2000.
At September 30, 2000 and 1999, the Association had loans of $592,000 and
$714,000, respectively, to various directors, officers, and their families.
During 2000, $261,000 of new loans were made and repayments totaled
$383,000. These loans are made subject to the same interest rates and
underwriting standards used to originate loans to other borrowers of the
Association.
72 (Continued)
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
The following is a summary of activity in the allowance for loan losses for
the years ended September 30:
2000 1999 1998
------------- ------------- -------------
Balance at beginning of year $ 1,602,000 1,521,000 1,624,000
Provision for loan losses 523,000 86,000 (76,000)
Charge-offs, net of recoveries (6,000) (5,000) (27,000)
------------- ------------- -------------
Balance at end of year $ 2,119,000 1,602,000 1,521,000
============= ============= =============
Loans delinquent ninety days or more at September 30, 2000 and 1999 were
approximately $2,063,000 and $247,000, respectively, all of which were
reflected as nonaccrual loans. Interest that would have been recognized on
nonaccrual loans under their original terms but for which an allowance has
been established amounted to $99,000 and $31,000 at September 30, 2000 and
1999, respectively. The amount that was included in income on such loans was
$47,000 and $7,000 for the years ended September 30, 2000 and 1999,
respectively. Impaired loans, exclusive of nonaccrual loans, were
insignificant in amount, and, accordingly, the disclosures required by SFAS
No. 114, Accounting by Creditors for Impairment of a Loan, as amended, are
not presented herein.
(5) Office Properties and Equipment
At September 30, 2000 and 1999, office properties and equipment consisted of
the following:
2000 1999
------------- -------------
Land $ 1,270,000 1,270,000
Buildings and improvements 5,665,000 5,677,000
Furniture, fixtures, and equipment 1,817,000 1,734,000
------------- -------------
8,752,000 8,681,000
Less accumulated depreciation 1,353,000 933,000
------------- -------------
$ 7,399,000 7,748,000
============= =============
73 (Continued)
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(6) Savings Deposits
Savings deposits at September 30, 2000 and 1999 are summarized as follows:
2000 1999
----------------------------- ------------------------------
Rate Amount Percent Amount Percent
-------------- --------------- ----------- --------------- -----------
Balance by interest rate:
NOW and super NOW accounts 0-2.75% $ 9,518,000 6.4% $ 9,410,000 8.0%
Passbook accounts 3.25% 11,312,000 7.6 11,525,000 6.5
Money market demand accounts 3.00-4.89% 10,683,000 7.1 12,637,000 8.8
--------------- ------------ -------------- -----------
31,513,000 21.1 33,572,000 23.3
--------------- ------------ -------------- -----------
Certificate accounts 0-3.99% -- -- 5,000 --
4.00-4.99% 2,716,000 1.8 33,915,000 23.6
5.00-5.99% 44,830,000 30.1 39,938,000 27.8
6.00-6.99% 62,840,000 42.1 29,538,000 20.6
7.00-7.99% 6,706,000 4.5 5,067,000 3.5
8.00-8.99% 580,000 0.4 1,602,000 1.1
9.00% -- -- 100,000 0.1
--------------- ------------ -------------- -----------
117,672,000 78.9 110,165,000 76.7
--------------- ------------ -------------- -----------
$ 149,185,000 100.0% $ 143,737,000 100.0%
--------------- ------------ -------------- -----------
Weighted average interest rate on
savings deposits at September 30 5.55% 5.03%
============ =============
2000 1999
----------------------------- -----------------------------
Amount Percent Amount Percent
--------------- ------------ -------------- -----------
Contractual maturity of certificate
accounts:
Under 12 months $ 57,319 48.7 $ 57,422,000 52.1%
12 to 24 months 25,197 21.4 13,564,000 12.3
24 to 36 months 7,664 6.5 6,375,000 5.8
36 to 48 months 7,912 6.7 6,583,000 6.0
48 to 60 months 7,295 6.2 6,387,000 5.8
Over 60 months 12,285 10.5 19,834,000 18.0
--------------- ------------ -------------- -----------
$ 117,672,000 100.0% $ 110,165,000 100.0%
=============== ============ ============== ===========
74 (Continued)
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
The components of interest expense on savings deposits are as follows for the
years ended September 30:
2000 1999 1998
------------- ------------- -------------
NOW, super NOW, passbook, and money market $ 1,107,000 1,074,000 810,000
Certificate accounts 6,475,000 6,189,000 6,344,000
------------- ------------- -------------
$ 7,582,000 7,263,000 7,154,000
============= ============= =============
The aggregate amount of certificate accounts with a minimum denomination of
$100,000 was approximately $19,395,000 and $16,811,000 at September 30, 2000 and
1999, respectively. The amount by which individual certificates of deposit
exceed $100,000 are not insured by the Federal Deposit Insurance Corporation
(FDIC). The Association has pledged investment securities with an amortized cost
of approximately $8,490,000 and $7,740,000 at September 30, 2000 and 1999,
respectively, as additional security on certain certificate accounts.
(Continued)
75
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(7) FHLB Advances
The Association had the following debt outstanding from the FHLB of Des
Moines at September 30, 2000:
$5,000,000 advance, interest at 6.68%, due October 2000 $ 5,000,000
$1,000,000 advance, interest at 6.69%, due October 2000 1,000,000
$2,000,000 advance, interest at 6.69%, due October 2000 2,000,000
$1,000,000 advance, interest at 6.46%, due October 2000 1,000,000
$1,000,000 advance, interest at 6.68%, due November 2000 1,000,000
$5,000,000 advance, interest at 6.67%, due November 2000 5,000,000
$10,000,000 advance, interest at 6.68%, due November 2000 10,000,000
$1,000,000 advance, interest at 6.68%, due November 2000 1,000,000
$1,250,000 advance, interest at 5.79%, due December 2000 1,250,000
$1,000,000 advance, interest at 6.36%, due January 2001 1,000,000
$5,000,000 advance, interest at 6.653%, due January 2001, callable October 2000 5,000,000
$2,000,000 advance, interest at 6.62%, due April 2001, callable October 2000 2,000,000
$6,000,000 advance, interest at 6.66%, due July 2001, callable July 2001 6,000,000
$5,000,000 advance, interest at 6.66%, due July 2001, callable October 2000 5,000,000
$1,000,000 advance, interest at 7.01%, due July 2001 1,000,000
$2,000,000 advance, interest at 6.49%, due December 2001 2,000,000
$1,000,000 advance, interest at 6.43%, due January 2002 1,000,000
$1,000,000 advance, interest at 6.61%, due October 2002 1,000,000
$1,000,000 advance, interest at 6.57%, due December 2002 1,000,000
$8,000,000 advance, interest at 5.76%, due December 2009, callable December 2002 8,000,000
$8,000,000 advance, interest at 5.42%, due January 2008, callable January 2003 8,000,000
$2,000,000 advance, interest at 5.40%, due April 2008, callable April 2001 2,000,000
$3,000,000 advance, interest at 5.63%, due April 2008, callable April 2003 3,000,000
$3,000,000 advance, interest at 4.83%, due January 2009, callable January 2004 3,000,000
$3,000,000 advance, interest at 5.29%, due March 2009, callable March 2004 3,000,000
$4,000,000 advance, interest at 5.71%, due June 2009, callable June 2002 4,000,000
$3,000,000 advance, interest at 5.99%, due July 2009, callable July 2004 3,000,000
$3,000,000 advance, interest at 5.60%, due July 2009, callable July 2002 3,000,000
$5,000,000 advance, interest at 5.03%, due July 2009, callable October 2000 5,000,000
$5,000,000 advance, interest at 5.88%, due January 2010, callable January 2001 5,000,000
$8,000,000 advance, interest at 6.06%, due March 2010, callable March 2001 8,000,000
$3,000,000 advance, interest at 5.66%, due serially through January 2014 2,778,000
$3,000,000 advance, interest at 6.10%, due serially through March 2014 2,808,000
-------------
$ 112,836,000
=============
(Continued)
76
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
Scheduled maturities of FHLB advances based on original maturity date are as
follows:
Year ending
September 30,
----------------
2001 $ 47,250,000
2002 3,000,000
2003 2,000,000
2004 --
2005 --
Thereafter 60,586,000
---------------
$ 112,836,000
===============
(8) Income Taxes
The components of income tax expense are as follows:
Federal State Total
------------ ----------- ------------
Year ended September 30, 2000:
Current $ 1,208,000 43,000 1,251,000
Deferred (198,000) (19,000) (217,000)
------------ ----------- ------------
$ 1,010,000 24,000 1,034,000
============ =========== ============
Year ended September 30, 1999:
Current $ 1,000,000 124,000 1,124,000
Deferred 67,000 14,000 81,000
------------ ----------- ------------
$ 1,067,000 138,000 1,205,000
============ =========== ============
Year ended September 30, 1998:
Current $ 890,000 113,000 1,003,000
Deferred 338,000 43,000 381,000
------------ ----------- ------------
$ 1,228,000 156,000 1,384,000
============ =========== ============
(Continued)
77
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
The reasons for the differences between the effective tax rates and the
expected federal income tax rate of 34% are as follows:
Percentage of
earnings before
income taxes
--------------------------------------
2000 1999 1998
----------- ---------- ---------
Expected federal income tax rate 34.0 % 34.0 34.0
State taxes, net of federal tax benefit 2.7 2.9 2.7
Other, net (3.7) 1.5 0.9
------------ ---------- ---------
Effective income tax rate 33.0 % 38.4 37.6
============ ========== =========
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities at September 30, 2000 and 1999 are as follows:
2000 1999
----------- -----------
Accrued compensation $ 290,000 337,000
Allowance for loan losses 655,000 559,000
Other 24,000 15,000
----------- -----------
Deferred income tax asset 969,000 911,000
----------- -----------
Loan origination fees, net of deferred costs (143,000) (209,000)
FHLB dividends (154,000) (186,000)
Accrued and prepaid expenses (4,000) (6,000)
Federal and state taxes related to reversing
temporary differences -- (8,000)
Accrued interest on loans originated prior
to September 25, 1985 (4,000) (9,000)
Depreciation of fixed assets (373,000) (419,000)
----------- -----------
Deferred income tax liability (678,000) (837,000)
----------- -----------
Net deferred income tax asset $ 291,000 74,000
=========== ===========
There was no valuation allowance for deferred tax assets at September 30,
2000 or 1999. Management believes that it is more likely than not that the
results of future operations will generate sufficient taxable income to
realize the deferred tax assets.
78 (Continued)
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
Prior to 1996, savings institutions that met certain definitional tests and
other conditions prescribed by the Internal Revenue Code were allowed to
deduct, within limitations, a bad debt deduction under either of two
alternative methods: (i) a deduction based on a percentage of taxable income
(most recently 8%), or (ii) a deduction based upon actual loan loss
experience (the Experience Method). On August 20, 1996, the President signed
the Small Business Job Protection Act (the Act) into law. The Act repealed
the bad debt deduction based on a percentage of taxable income effective for
taxable years beginning after December 31, 1995. The Association, therefore,
will be limited to the use of the bad debt deduction computed under the
Experience Method for its year ended September 30, 1998, the first period
affected by the Act. The Association's base year tax bad debt reserve
balance of approximately $4.6 million as of September 30, 1998 will, in
future years, be subject to recapture, in whole or in part, upon the
occurrence of certain events, such as a distribution to stockholders in
excess of the Association's current and accumulated earnings and profits, a
redemption of shares, or upon a partial or complete liquidation of the
Association. The Association does not intend to make distributions to
stockholders that would result in recapture of any portion of its base year
bad debt reserve. Since management intends to use the reserve only for the
purpose for which it was intended, a deferred tax liability of approximately
$1.6 million has not been recorded.
(9) Benefit Plans
Pension and Retirement Plans
The Association has a supplemental retirement plan to provide members of the
Board of Directors with supplemental retirement, disability, and death
benefits. The Plan provides benefits for directors or their beneficiaries
after they have completed service to the Association. The annual benefits
are equal to the number of years of service on the board times $500, paid
monthly for ten years following retirement. Expense under the plan for the
years ended September 30, 2000, 1999, and 1998 amounted to $36,000, $39,000,
and $40,000, respectively. The Association purchased life insurance policies
to fund its obligations under the plan in October 1994, which are included
in other assets. The cash surrender value of such policies at September 30,
2000 and 1999 was $1,232,000 and $1,186,000, respectively.
Employee Stock Ownership Plan (ESOP)
All employees meeting age and service requirements are eligible to
participate in the ESOP. Under the terms of the ESOP, contributions are
allocated to participants using a formula based upon compensation.
Participants vest over five years.
In connection with the conversion described in note 1, the ESOP purchased
242,154 shares of Company common stock. The remaining unamortized cost of
such shares purchased is reflected as unearned employee benefits in the
accompanying consolidated balance sheets. For the years ended September 30,
2000, 1999, and 1998, 41,215, 25,504, and 27,226 shares were allocated to
participants, respectively. The fair value of such shares, $603,000,
$369,000, and $527,000, respectively, were charged to expense. The fair
value of the remaining 65,023 unallocated shares at September 30, 2000
aggregated $1,154,000.
(Continued)
79
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
Recognition and Retention Plan (RRP) and Stock Option Plan
Under the RRP, common stock aggregating 121,077 shares may be awarded to
certain officers and directors of the Company or the Association. In January
1996, January 1999, and January 2000, the Company awarded 95,675, 6,053, and
7,534 shares with a market value of $1,399,000, $88,000, and $89,000,
respectively. These shares have been reflected as unearned employee benefits
in the accompanying consolidated balance sheets. Participants vest over five
years. As the awards vest, the cost of such shares are included in
compensation expense. The amortization of the RRP awards, net of
forfeitures, during 2000, 1999, and 1998 was $262,000, $262,000, and
$220,000, respectively. The unamortized cost of the RRP awards at September
30, 2000 and 1999 was $213,000 and $411,000, respectively.
Under the stock option plan, options to acquire 302,692 shares of the
Company's common stock may be granted to certain officers and directors of
the Company or the Association. The options enable the recipients to
purchase stock at an exercise price equal to the fair market value of the
stock at the date of the grant. The options vest over a period of five to
nine years following the date of grant.
The Company applies Accounting Principles Board (APB) No. 25 and related
interpretations in accounting for the stock option plan. Accordingly, no
compensation expense has been recognized in the accompanying consolidated
financial statements. SFAS No. 123 requires pro forma disclosures for
companies that do not adopt the fair value method of accounting for stock-
based employee compensation. Accordingly, the following pro forma
information presents net income and earnings per share as if the fair value
method required by SFAS No. 123 had been used to measure compensation cost
for stock options granted:
2000 1999 1998
------------- ------------- -------------
Net income - as reported $ 2,101,000 1,937,000 2,297,000
============= ============= =============
Net income - pro forma $ 2,045,000 1,887,000 2,247,000
============= ============= =============
Basic earnings per share - as reported $ 1.12 0.95 0.97
============= ============= =============
Basic earnings per share - pro forma $ 1.09 0.93 0.95
============= ============= =============
The per share fair value of options granted in 2000 was $1.12. The fair
value was calculated using the following weighted average information: risk-
free interest rate of 5.0%, expected life of nine years, expected volatility
of stock price of 6.15%, and expected dividends of 3.94% per year.
The per share fair value of options granted in 1999 was $2.20. The fair
value was calculated using the following weighted average information: risk-
free interest rate of 5.5%, expected life of four years, expected volatility
of stock price of 6.00%, and expected dividends of 1.5% per year.
(Continued)
80
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
Stock option activity during the periods indicated is as follows:
Number Weighted average
of shares exercise price
-------------- -----------------------
Balance at September 30, 1997 185,823 $ 14.56
Granted -- --
Exercised (5,027) 14.56
Forfeited (3,400) 14.56
-------------- -----------------------
Balance at September 30, 1998 177,396 14.56
Granted 15,134 14.54
Exercised -- --
Forfeited (8,400) 14.56
-------------- -----------------------
Balance at September 30, 1999 184,130 14.56
Granted 17,634 12.09
Exercised (400) 14.56
Forfeited (16,234) 14.56
-------------- -----------------------
Balance at September 30, 2000 185,130 $ 14.32
============== =======================
All options issued during the years ended September 30, 2000 and 1999 have
exercise prices equal to the market value of the stock on the grant date.
At September 30, 2000, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $11.93 to $14.56 and
5.63 years, respectively.
At September 30, 2000, 1999, and 1998, the number of options exercisable
was 124,256, 100,184, and 94,624, respectively, and the weighted average
exercise price of those options was $14.56, $14.56, and $14.56,
respectively.
(10) Regulatory Capital Requirements
The Financial Institution Reform, Recovery and Enforcement Act of 1989
(FIRREA) and the capital regulations of the OTS promulgated thereunder
require institutions to have a minimum regulatory tangible capital equal to
1.5% of total assets, a minimum 4% leverage capital ratio, and a minimum 8%
risk-based capital ratio. These capital standards set forth in the capital
regulations must generally be no less stringent than the capital standards
applicable to national banks. FIRREA also specifies the required ratio of
housing-related assets in order to qualify as a savings institution.
(Continued)
81
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established additional capital requirements which require regulatory action
against depository institutions in one of the undercapitalized categories
defined in implementing regulations. Institutions such as the Association,
which are defined as well-capitalized, must generally have a leverage (core)
capital ratio of at least 5%, a Tier 1 risk-based capital ratio of at least
6%, and a total risk-based capital ratio of at least 10%. FDICIA also
provides for increased supervision by federal regulatory agencies, increased
reporting requirements for insured depository institutions, and other
changes in the legal and regulatory environment for such institutions.
The Association met all regulatory capital requirements at September 30,
2000 and 1999. The Association's actual and required capital amounts and
ratios as of September 30, 2000 and 1999 were as follows:
To be well-
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
----------------------- ---------------------- ------------------------
2000 Amount Ratio Amount Ratio Amount Ratio
- -------------------------------- ------------ -------- ----------- -------- ------------- --------
(Dollars in thousands)
Tangible capital
(to tangible assets) $ 36,313 11.88 % $ 4,585 1.50 % $ -- -- %
Tier 1 leverage (core) capital
(to adjusted tangible assets) 36,313 11.88 12,226 4.00 15,283 5.00
Risk-based capital
(to risk-weighted assets) 38,416 18.71 16,423 8.00 20,528 10.00
Tier 1 leverage risk-based capital
(to risk-weighted assets) 36,313 17.69 -- -- 12,317 6.00
============ ======== =========== ======== ============= ========
1999
- --------------------------------
Tangible capital
(to tangible assets) $ 35,411 13.76 % $ 3,861 1.50 % $ -- -- %
Tier 1 leverage (core) capital
(to adjusted tangible assets) 35,411 13.76 10,296 4.00 12,869 5.00
Risk-based capital
(to risk-weighted assets) 37,005 21.70 13,641 8.00 17,051 10.00
Tier 1 leverage risk-based capital
(to risk-weighted assets) 35,411 20.77 -- -- 10,230 6.00
============ ======== =========== ======== ============= ========
(11) Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, and
SFAS No. 119, Disclosures About Derivative Financial Instruments and Fair
Value of Financial Instruments, require disclosure of estimated fair values
of financial instruments, both assets and liabilities recognized and not
recognized in the consolidated financial statements. Fair value estimates
have been made as of September 30, 2000 based on then current economic
conditions, risk characteristics of the various financial instruments, and
other subjective factors.
82 (Continued)
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to
estimate that value:
. Cash and cash equivalents and certificates of deposit - The carrying
amounts approximate fair value because of the short maturity of these
instruments.
. Certificates of deposit in other financial institutions - The fair
values of certificates of deposit are estimated based on the static
discounted cash flow approach using rates currently offered for deposits
of similar remaining maturities.
. Investment securities and mortgage-backed securities - The fair values
of investment securities and mortgage-backed securities are estimated
based on published bid prices or bid quotations received from securities
dealers.
. Loans receivable - The fair values of loans receivable are estimated
using the option-based approach. Cash flows consist of scheduled
principal, interest, and prepaid principal. Loans with similar
characteristics were aggregated for purposes of these calculations.
. Accrued interest - The carrying amount of accrued interest is assumed to
be its carrying value because of the short-term nature of these items.
. Stock in the FHLB - The carrying amount of such stock is estimated to
approximate fair value.
. Deposits - The fair values of deposits with no stated maturity are
deemed to be equivalent to amounts payable on demand. The fair values of
certificate accounts are estimated based on the static discounted cash
flow approach using rates currently offered for deposits of similar
remaining maturities.
. FHLB advances - The fair values of FHLB advances are estimated based on
discounted values of contractual cash flows using the rates currently
available to the Association for advances of similar remaining
maturities.
83 (Continued)
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
Fair value estimates of the Association's financial instruments as of
September 30, 2000 and 1999 are set forth below:
2000 1999
---------------------------------- ----------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
--------------- --------------- --------------- ---------------
Cash and cash equivalents and
certificates of deposit $ 6,304,000 6,304,000 6,100,000 6,100,000
=============== =============== =============== ===============
Investment securities $ 23,301,000 22,911,000 18,538,000 18,186,000
=============== =============== =============== ===============
Mortgage-backed securities $ 3,000 3,000 5,000 5,000
=============== =============== =============== ===============
Loans receivable, net of loans in process $ 261,867,000 259,488,000 221,909,000 220,490,000
=============== =============== =============== ===============
Accrued interest receivable $ 2,219,000 2,219,000 1,791,000 1,791,000
=============== =============== =============== ===============
Stock in the FHLB $ 5,643,000 5,643,000 3,556,000 3,556,000
=============== =============== =============== ===============
Deposits:
Money market and NOW deposits $ 20,201,000 20,201,000 24,162,000 24,162,000
Passbook accounts 11,312,000 11,312,000 9,410,000 9,410,000
Certificate accounts 117,672,000 117,672,000 110,165,000 110,165,000
--------------- --------------- --------------- ---------------
Total deposits $ 149,185,000 149,185,000 143,737,000 143,737,000
=============== =============== =============== ===============
FHLB advances $ 112,836,000 111,678,000 71,101,000 71,034,000
=============== =============== =============== ===============
Accrued interest payable $ 176,000 176,000 158,000 158,000
=============== =============== =============== ===============
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instruments. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Association's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the
Association's financial instruments, fair value estimates are based on judgments
regarding future loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates. Fair value
estimates are based on existing balance sheet financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments.
(Continued)
84
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(12) Parent Company Condensed Financial Statements
Condensed Balance Sheets
September 30, 2000 and 1999
2000 1999
------------- ------------
Cash and cash equivalents $ 1,061,000 1,325,000
Investment securities held-to-maturity -- 998,000
Investment in Association 36,313,000 35,411,000
ESOP loan receivable 1,211,000 1,211,000
Office properties and equipment, net 1,941,000 1,970,000
Accrued interest receivable 102,000 17,000
Other 17,000 (37,000)
------------- ------------
Total assets $ 40,645,000 40,895,000
============= ============
Dividends payable $ 285,000 260,000
Other liabilities (26,000) 11,000
------------- ------------
Total liabilities 259,000 271,000
Stockholders' equity 40,386,000 40,624,000
------------- ------------
Total liabilities and stockholders' equity $ 40,645,000 40,895,000
============= ============
Condensed Income Statements
Years ended September 30, 2000, 1999, and 1998
2000 1999 1998
------------- ------------- -------------
Dividend income $ 2,066,000 1,837,000 2,128,000
Interest income 163,000 286,000 565,000
Other income 133,000 139,000 55,000
Expense (298,000) (279,000) (293,000)
------------- ------------- -------------
Income before equity in undistributed
earnings of the Association 2,064,000 1,983,000 2,455,000
Equity in undistributed earnings (loss) of the Association 37,000 (46,000) (158,000)
------------- ------------- -------------
Net income $ 2,101,000 1,937,000 2,297,000
============= ============= =============
85 (Continued)
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000, 1999, and 1998
Condensed Statements of Cash Flows
Years ended September 30, 2000, 1999, and 1998
2000 1999 1998
--------------- ------------- --------------
Cash provided by operations:
Net earnings $ 2,101,000 1,937,000 2,297,000
Depreciation and amortization 29,000 18,000 (25,000)
Change in accrued interest receivable (85,000) 10,000 22,000
Change in other assets (54,000) (5,000) 57,000
Change in other liabilities (37,000) (529,000) 410,000
Equity in undistributed (earnings) loss of the Association, net (37,000) 46,000 158,000
--------------- ------------- --------------
Cash provided by operations 1,917,000 1,477,000 2,919,000
--------------- ------------- --------------
Cash used by investing activities:
Proceeds from ESOP note receivable -- 242,000 242,000
Purchase of office properties and equipment -- -- (1,121,000)
Maturities of investment securities held-to-maturity 998,000 1,997,000 3,000,000
--------------- ------------- --------------
Cash provided by investing activities 998,000 2,239,000 2,121,000
--------------- ------------- --------------
Cash used in financing activities:
Purchase of treasury stock (2,147,000) (4,645,000) (3,667,000)
Dividends paid (1,037,000) (670,000) (665,000)
Issuance of common stock under stock option plan 5,000 -- 73,000
--------------- ------------- --------------
Cash used in financing activities (3,179,000) (5,315,000) (4,259,000)
--------------- ------------- --------------
Net increase (decrease) in cash and cash equivalents (264,000) (1,599,000) 781,000
Cash and cash equivalents at beginning of year 1,325,000 2,924,000 2,143,000
--------------- ------------- --------------
Cash and cash equivalents at end of year $ 1,061,000 1,325,000 2,924,000
=============== ============= ==============
Dividends paid by the Company are primarily provided through Association
dividends paid to the Company. At September 30, 2000, the Company had
declared dividends of $277,000 which had not been paid as of year-end.
During 2000, the Association paid dividends of $2,066,000 to the Company.
(13) Subsequent Event
Effective October 6, 2000, the Company entered into an Agreement and Plan
of Merger with Dickinson Financial Corporation. The closing of the
transaction is expected to occur in the first quarter of 2001, subject to
approval of the Company's stockholders, regulator approval, and
satisfaction of other conditions of the agreement.
86
Item 9. Changes in and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The Company's Board of Directors is presently composed of six members,
each of whom is also a director of the Association. The Directors are divided
into three classes. Directors of the Company are generally elected to serve for
a three-year term which is staggered to provide for the election of
approximately one-third of the directors each year. The following table sets
forth certain information regarding the Company's Board of Directors, including
their terms of office.
87
Shares of Common
Age at Term Stock Beneficially Percent
September 30, Director to Owned at of
Name 2000 Position(s) Held Since/1)/ Expire November 1, 2000/2)/ Class
- -------------------- ----------------- ---------------------- ----------- ---------- ---------------------- -------
David G. Just 56 Director and Former 1981 2003 74,932/(3)/ 3.78%
President and Chief
Executive Officer
William J. Heavner 60 Director 1997 2003 1,311 *
Harold D. Lee 57 Director 1981 2001 20,350/(4)/ 1.03
Dennis E. Marshall 50 Director 1998 2001 1,300 *
Jon N. Crouch 60 Chairman of the 1992 2002 32,589/(5)/ 1.64
Board
William F. Barker 52 Director 1996 2002 13,30/(6)/ *
- -------------------------------
*Less than 1.0%.
/(1)/ Includes service as a director of the Association.
/(2)/ Unless otherwise indicated, the persons identified in this table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them. Percentage ownership calculations are based
on 1,914,049 shares of common stock outstanding and the number of shares
issuable to such persons upon the exercise of outstanding stock options.
/(3)/ Mr. Just served as the Company's Chief Executive Officer until March 1,
2000 and as the Company's President until the October 13, 2000 date of
his retirement. The amount includes 200 shares held as custodian for
family members. Also includes 24,216 shares issuable upon the exercise of
options granted under the Company's Stock Option Plan and 9,686 awards of
shares of restricted stock under the Company's Recognition and Retention
Plan.
/(4)/ The amount includes 12,108 shares issuable upon the exercise of options
granted under the Company's Stock Option Plan and 4,842 awards of shares
of restricted stock under the Company's Recognition and Retention Plan.
/(5)/ The amount includes 12,108 shares issuable upon the exercise of options
granted under the Company's Stock Option Plan and 3,631 awards of shares
of restricted stock under the Company's Recognition and Retention Plan.
/(6)/ The amount includes 3,027 shares issuable upon the exercise of options
granted under the Company's Stock Option Plan and 1,211 awards of shares
of restricted stock under the Company's Recognition and Retention Plan.
The Company's directors and executive officers are required to report
their ownership and changes in ownership of the common stock with the Company.
Based solely on the Company's review of ownership reports received prior to
December 1, 2000, or written representations from reporting persons that no
annual report of change in beneficial ownership is required, the Company
believes that all directors and executive officers have complied with the
reporting requirements for the 2000 fiscal year.
The business experience of each director is set forth below. All
directors have held their present positions for at least the past five years,
except as otherwise indicated.
David G. Just. Mr. Just served as the Association's Chief Executive
Officer until March 1, 2000, and as the Association's President until his
retirement on October 13, 2000. As Chief Executive Officer, he was responsible
for overseeing the day to day operations of the Association.
88
He has been a member of the Board of Directors since 1981.
William J. Heavner. Mr. Heavner has been a member of the Board of
Directors since 1997. Since 1984, he has owned and operated Red-X Motors, a full
line GM dealership in Cameron.
Harold D. Lee. Mr. Lee was elected to the Board of Directors in 1981.
Mr. Lee is currently Chairman of the Board. He owned and operated a local NAPA
Auto Parts store for over 20 years until its sale in 1997.
Dennis E. Marshall. Mr. Marshall has been a member of the Board of
Directors since 1998. Mr. Marshall is a 1972 graduate of Central Missouri State
University with a B.S. in Mathematics. He was a high school mathematics teacher
from 1972 until 1992 while building a farming operation. Presently, Mr. Marshall
operates a livestock and grain farming operation involving approximately 2,000
acres of land.
Jon N. Crouch. Mr. Crouch has been a member of the Board of Directors
since 1992. Mr. Crouch is a retired Frontier and Continental pilot and manages
the Cameron Municipal Airport. He also owns and operates Crouch Aviation located
in Cameron, Missouri.
Dr. William F. Barker, DDS. Dr. Barker was elected to the Board of
Directors in 1996. Dr. Barker owns and operates a dental clinic in Cameron.
Item 11. Executive Compensation
----------------------
Director Compensation
During fiscal 2000, directors of the Company were paid a fee of $500
per regular meeting attended and $100 to $200 for each special and committee
meeting attended. Directors of the Association were paid fees of $700 per month
for attendance at regular meetings of the Association's Board of Directors and
$50 per meeting attended of the Association's service corporation. Directors of
the Association are also paid from $100 to $250 per special meeting attended and
for committee meetings attended.
Stock Benefit Plans. Following approval by the Company's stockholders
at the Annual Meeting of Stockholders held on January 29, 1996, each director
and advisory director of the Company who was not a full-time employee and who
served as a director for at least three years (Directors Baker, Lee and Crouch,
as well as three former directors) received an option to purchase 15,134 shares
of Common Stock at an exercise price of $14.56 per share under the Company's
Stock Option Plan and an award of 6,053 shares of restricted stock under the
Company's Recognition and Retention Plan, with vesting to occur over a five year
period. During fiscal 1999, Director Barker received an option to purchase
15,134 shares of common stock at an exercise price of $14.54 per share and an
award of 6,053 shares of restricted stock, with vesting to occur over a five
year period. During fiscal 2000, Director Heavner received an option to purchase
15,134 shares of common stock at an exercise price of $11.94 per share and an
award of 7,534 shares of restricted stock with vesting to occur over a five year
period.
89
Director Deferred Fee Agreement. In order to encourage directors to
remain members of the Association's Board, the Association has adopted,
effective October 12, 1994, a director deferred fee program whereby directors
may defer all or a portion of their regular monthly directors' fees. Each
individual director elects whether to participate in this program. As of the
date of this Proxy Statement, Directors Lee, Crouch, Just, Barker and Heavner
have elected to participate. Each participating director enters into a Deferred
Fee Agreement (the "Agreement"), which provides for a cash-out and disability
benefit equal to the amount of fees deferred.
Director Emeritus Agreement. In order to encourage directors to remain
members of the Board, the Association has also established a Director Emeritus
Agreement (the "Emeritus Agreement"). Pursuant to the Emeritus Agreement, the
Association's Directors Emeritus receive an annual benefit equal to $500
multiplied by the director's years of service on the board paid monthly or
annually for ten years following retirement. The agreement provides for a death
benefit equal to the amount that would be paid to the director upon serving
until age 72. The Association has purchased life insurance to finance these
benefits. Upon termination following a change in control of the Association,
each participant would be entitled to a lump sum payment equal to the amount
payable to such director over a ten-year period. Assuming a change in control
were to take place as of September 30, 2000, the aggregate amount payable to all
active and emeritus directors would be approximately $1.1 million.
Executive Compensation
The Company has not paid any compensation to its executive officers
since its formation. However, the Company does reimburse the Association for
services performed on behalf of the Company by its officers. The Company does
not presently anticipate paying any compensation to such persons until it
becomes actively involved in the operation or acquisition of businesses other
than the Association.
90
The following table sets forth the compensation paid or accrued by
Cameron Savings for services rendered by David G. Just and by Duane Kohlstaedt.
Mr. Just served as Chief Executive Officer until March 1, 2000 and served as
President until October 13, 2000. Mr. Kohlstaedt was appointed Chief Executive
Officer and Executive Vice President on March 1, 2000. Mr Kohlstaedt was
appointed President on October 13, 2000.
===========================================================================================================================
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
Annual Compensation Awards
-------------------------------------------------------------------
Other
Annual Restricted Stock Options/ All Other
Name and Principal Fiscal Salary Bonus Compensation Awards/(2)/ SARs/(3)/ Compensation
Position Year ($) ($) ($)/(1)/ ($) (#) ($)
===========================================================================================================================
David G. Just, 2000 $107,000 $55,505/(4)/
Former President and Chief 1999 $107,000 -- -- -- -- $32,003/(4)/
Executive Officer 1998 $102,375 -- -- -- -- $41,931/(4)/
Duane Kohlstaedt 2000 72,910 -- -- -- -- 31,542/(5)/
President and Chief 1999 29,615 -- -- -- -- --
Executive Officer
===========================================================================================================================
- --------------------
/(1)/ Mr. Just did not receive any additional benefits or perquisites which, in
the aggregate, exceeded 10% of his salary and bonus or $50,000.
/(2)/ Awards of 12,107 shares of Common Stock were granted to Mr. Just pursuant
to the Company's Recognition and Retention Plan in January, 1996. Such
awards vest in five equal annual installments, and will be 100% vested
upon termination of employment due to death or disability. When such
shares become vested and are distributed, the recipient will also receive
an amount equal to the accumulated dividends and earnings thereon. The
aggregate value of the 12,107 shares of restricted stock awarded to Mr.
Just including both vested and unvested shares, as of September 30, 2000,
was $214,899 based upon a closing price of 17.75 per share on September
30, 2000.
/(3)/ In January 1996, 30,269 options were granted to Mr. Just pursuant to the
Company's 1995 Stock Option and Incentive Plan, which vest and become
exercisable in equal annual installments at a rate of 20% per year
commencing one year from the date of grant. The market value per share of
Common Stock was $14.5625 on the date of grant. The first installment of
options became exercisable on January 29, 1997.
/(4)/ Includes $32,981 allocated under the ESOP and $8,950 of Board fees in
fiscal 1998, $22,653 allocated under the ESOP and $9,350 of Board fees in
fiscal 1999 and $46,705 allocated under the ESOP and 8,800 of Board fees
in fiscal 2000. Mr. Just deferred $8,400 of Board fees in fiscal 1998,
1999 and 2000.
/(5)/ Includes $31,542 allocated under the ESOP in fiscal 2000.
Stock Options. The Board of Directors of the Company has adopted the
1995 Stock Option and Incentive Plan (the "Stock Option Plan"), which has been
approved by the stockholders. Certain directors, officers and employees of the
Association and the Company are eligible to participate in the Stock Option
Plan. The Stock Option Plan is administered by a committee of outside directors
(the "Committee"). The Stock Option Plan authorizes the grant of stock options
and limited rights equal to 302,692 shares of Common Stock. The Stock Option
Plan provides for the grant of (i) options to purchase Common Stock intended to
qualify as incentive stock options under Section 422 of the Internal Revenue
91
Code, (ii) options that do not so qualify ("nonstatutory options") and (iii)
limited rights that are exercisable only upon a change in control of the
Company. Options granted to directors under the Stock Option Plan are awarded
under a formula pursuant to which each non- employee director of both the
Company and the Association receives an option to purchase 15,134 shares of
Common Stock of the Company. Options must be exercised within 10 years from the
date of grant. The exercise price of the options must be at least 100% of the
fair market value of the underlying Common Stock at the time of the grant.
92
No options were granted under the Stock Option Plan to the named
executive officers during the year ended September 30, 2000.
Set forth below is certain additional information concerning options
outstanding to the named executive officers at September 30, 2000. No options
were exercised by such persons during fiscal 2000.
=====================================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
=====================================================================================================================
Number of Unexercised Value of Unexercised In-
Options at The-Money Options at
Fiscal Year-End Year-End (1)
---------------------------------------------------------------
Shares Acquired Value
Name Upon Exercise Realized Exercisable/Unexercisable (#) Exercisable/Unexercisable ($)
- ---------------------------------------------------------------------------------------------------------------------
David G. Just -- $-- 24,216/6,053 77,188/19,294
Duane Kohlstaedt -- -- -- --
=====================================================================================================================
- ------------------------------------
(1) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the shares of Common Stock that
would be received upon exercise, assuming such exercise occurred on
September 30, 2000, at which date the closing sales price of the Common
Stock as reported on the Nasdaq National Market was $17.75.
Employment and Change of Control Agreements
On February 29, 2000, the Association entered into an employment
agreement with Duane Kohlstaedt in anticipation of his becoming chief executive
officer of the Association. This agreement provides that in the event of a
change in control of the Association or the Company, Mr. Kohlstaedt would be
entitled to receive a severance payment if he is terminated without cause or
there is a material change in his duties, compensation or certain other aspects
of his employment arrangement resulting in his resignation. The severance
payment under this agreement would be equal to 299% of his average annual
compensation during the three years (or shorter period if applicable) next prior
to the change in control. To the extent that any such payment would result in a
"parachute payment" for purposes of Section 280G of the Internal Revenue Code,
the payment would be reduced by the amount necessary to cause it not to be
considered a parachute payment. The transactions contemplated by the merger
agreement would constitute a change in control of the Association and the
Company. Following the consummation of the merger, if Mr. Kohlstaedt becomes
entitled to a severance payment under the agreement, the total amount that he
could receive under the agreement, prior to any adjustment, would be
approximately $216,508.
The Association has also entered into change in control severance
agreements with Ronald W. Hill, Vice President and Treasurer, and Stephen D.
Hayward, Vice President. Each of these agreements provides that in the event of
a change in control of the Association or the Company, the officer would be
entitled to receive a severance payment if he is terminated without cause or
there is a material change in his duties, compensation or certain other aspects
of his employment arrangement resulting in his resignation. The severance
payment under Mr. Hill's agreement would be equal to 200% of his base annual
compensation, and the severance payment under Mr. Hayward's agreement would be
equal to 100% of his base annual compensation. Following the consummation
93
of the merger, if Mr. Hill or Mr. Hayward becomes entitled to a severance
payment under the agreement, the total amount that the officer could receive
under the agreement would be approximately $197,570 and $84,728, respectively.
In addition, Mr. Hill and Mr. Hayward each would continue to receive life and
health insurance benefits comparable to those presently provided to them.
Severance Plan
At its October 5, 2000 meeting, the Company's board adopted a
change-in-control severance plan. The plan entitles all salaried employees,
including officers, to a severance payment if the employee is terminated
involuntarily, other than for cause, within six months after a change in control
or the employee voluntarily leaves during that period due to certain changes in
his or her employment conditions or compensation. The plan is not applicable to
salaried employees who are covered by an agreement that explicitly addresses
compensation and benefits payable to them upon termination of their employment.
The amount of the payment under the plan would be equal to two weeks of base
salary plus one week of base salary for every year of service up to ten years
and one additional week of base salary for each two years of service above ten
years. The transactions contemplated by the merger agreement would constitute a
change in control.
Report of the Compensation Committee
General. The function of administering the Company's executive
compensation policies has been performed by the Budget Committee of the Board of
Directors of the Association. The Budget Committee consists of all outside
directors of the Association. The Budget Committee is responsible for reviewing
the performance of the Chief Executive Officer and other officers and employees
in developing and making recommendations to the Board concerning compensation
programs and awards. The Budget Committee makes its recommendations on the basis
of its annual review and evaluation of the performance of the officers and the
consolidated financial condition and results of operations of the Company, as
well as available information regarding the compensation of officers of
comparable companies.
Executive Compensation Program. The overall executive compensation
program was developed with the objective of attracting and retaining qualified
and motivated executives by recognizing and rewarding successful performance. It
is the Budget Committee's goal to align management compensation with the goals
of the Company by implementing direct incentives to manage the business
successfully from both a financial and operating perspective to enhance
stockholder value. The program principally consists of (i) salaries, (ii) an
incentive compensation plan, (iii) a stock option and incentive plan, (iv) a
recognition and retention plan, and (v) an employee stock ownership plan. Total
executive compensation is determined on the basis of the Budget Committee's
review and evaluation of the respective executive officers' performance and the
Company's consolidated financial condition and results of operations, as well as
available information regarding the compensation of comparable officers of
comparable companies. It has been the Budget Committee's policy to set base
salaries at levels that are slightly below the average for the peer group, with
incentive compensation and bonuses designed to serve as a supplement. Annual
awards under the incentive compensation plan are based upon the attainment of
targeted levels of performance by the Association. While periodic awards under
the stock option and
94
incentive plan and the recognition and retention plan may be based on
recognition of officers' past or future performance or other considerations,
options and restricted stock generally are awarded as an incentive to maximize
long-term stockholder value, typically with option exercise prices equal to the
market price of the Company's stock at the award date, and gains on options
therefore generally dependent upon future appreciation in the stock's price.
Compensation of the Chief Executive Officer. The Chief Executive
Officer's base salary is determined on the basis of the Budget Committee's
review and evaluation of his performance and the Company's consolidated
financial condition and results of operations, as well as available information
regarding the compensation of chief executive officers of comparable companies.
It has been the Budget Committee's policy to set the base salary at a level that
is slightly below the average for the peer group. During fiscal 2000, Mr.
Kohlstaedt was appointed the Chief Executive Officer of the Association at a
base salary of $73,600.
95
Comparative Stock Performance Graph
The following graph shows the cumulative total return on the Common
Stock of the Company since April 3, 1995, compared with the cumulative total
return of the S&P 500 Index and an industry peer group index over the same
period. Cumulative total return on the Common Stock and each index equals the
total increase in value since that date assuming reinvestment of all dividends
paid. The graph was prepared assuming that $100 was invested on April 3, 1995 in
the Common Stock or in each index. The stockholder return shown on the graph
below is not necessarily indicative of future performance.
Cameron Financial Comparative Thrift Index S & P 500
4/3/95 100.0 100.0 100.0
9/29/95 145.0 123.7 116.0
9/27/96 161.0 153.4 137.0
9/26/97 216.0 301.9 188.0
9/30/98 190.6 270.9 203.0
9/30/99 150.1 249.1 256.0
9/30/00 215.5 322.4 286.7
COMPARISON OF CUMULATIVE TOTAL RETURN
Among Cameron Financial Corporation Common Stock,
Comparative Thrift Index and S & P 500
[GRAPHIC OMITTED]
96
Compensation Committee Interlocks and Insider Participation
During fiscal 2000, the Budget Committee of the Board of Directors of
the Association functioned as the compensation committee. Neither Mr. Just nor
Mr. Kohlstaedt participated in any deliberations regarding their compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Persons and groups who beneficially own in excess of 5% of the Common
Stock are required to file certain reports with the Company and with the
Securities and Exchange Commission (the "SEC") regarding such ownership pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act"). The following table
sets forth share ownership information regarding each person known to be a
beneficial owners of more than 5% of the Company's outstanding shares of Common
Stock on November 1, 2000 and all directors and executive officers of the
Company as a group.
Shares
Beneficially Percent
Beneficial Owner Owned of Class
- -----------------------------------------------------------------------------------------------------------------------
Cameron Financial Corporation Employee Stock Ownership Plan/(1)/ 208,692 10.90
1304 North Walnut
Cameron, Missouri 64429
Wellington Management Company, LLP 148,500 7.76
75 State Street
Boston, Massachusetts 02109-1807
Financial Edge Fund LP/(3)/ 114,500 5.98
440 S. Lasalle Street
One Financial Plaza, Suite 1021
Chicago, Illinois 60605
Dimensional Fund Advisors 108,300 5.66
1299 Ocean Avenue, 11/th/ Floor
Santa Monica, California 90401
Directors and executive officers of the Company 201,668 10.17
and the Association, as a group (9 persons)/(4)/
- ------------------------
/(1)/ The amount reported represents shares held by the Employee Stock
Ownership Plan ("ESOP"), 143,669 shares of which have been allocated to
accounts of participants. First Bankers Trust of Quincy, Illinois, the
trustee of the ESOP, may be deemed to beneficially own the shares held by
the ESOP which have not been allocated to accounts of participants.
Participants in the ESOP are entitled to instruct the trustee as to the
voting of shares allocated to their accounts under the ESOP. Unallocated
shares held in the ESOP's suspense account are voted by the trustee in
the same proportion as allocated shares voted by participants.
/(2)/ As reported on Schedule 13G dated February 11, 2000.
/(3)/ As reported on Schedule 13D dated June 9, 2000.
/(4)/ The amount reported includes shares held directly, as well as shares held
jointly with family members, shares held in retirement accounts, shares
held in a fiduciary capacity or by certain family members, with respect
to which shares the group members may be deemed to have sole or shared
voting and/or investment power. The amount reported includes 69,059
shares issuable upon the exercise of options granted under the Stock
Option Plan. The amount reported excludes options and awards which do not
vest within 60 days of November 1, 2000.
97
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The Association has followed a policy of granting loans to eligible
directors, officers, employees and members of their immediate families for the
financing of their personal residences and for consumer purposes. All such loans
to directors and executive officers, and members of their immediate families,
are made in the ordinary course of business and on the same terms, including
collateral and interest rates, as those prevailing at the time for comparable
transactions and do not involve more than the normal risk of collectibility. At
September 30, 2000, the Association's loans to directors, executive officers and
members of their immediate families totaled $592,000, which represents 1.47% of
shareholders' equity. All loans by the Association to its executive officers and
directors are subject to OTS regulations restricting loans and other
transactions with affiliated persons of the Association. Federal law generally
prohibits a savings association from making loans to its executive officers and
directors at favorable rates or on terms not comparable to those prevailing to
the general public. However, recent regulations now permit executive officers
and directors to receive the same terms through benefit or compensation plans
that are widely available to other employees, as long as the director or
executive officer is not given preferential treatment compared to the other
participating employees. All loans to directors and officers were performing in
accordance with their terms at September 30, 2000.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) (1) Financial Statements:
-----------------------------
The following financial information appears in part II, Item 8 of this
Form 10-K Annual Report.
Report of Independent Auditors
Consolidated Balance Sheets at September 30, 2000 and 1999
Consolidated Statements of Earnings for the Years ended September 30, 2000, 1999
and 1998
Consolidated Statements of Stockholders' Equity for the Years ended
September 30, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years ended September 30, 2000,
1999 and 1998
Notes to Consolidated Financial Statements
98
(a) (2) Financial Statement Schedules:
--------------------------------------
All financial statement schedules have been omitted as the information
is not required under the related instructions or is inapplicable.
(a) (3) Exhibits:
-----------------
Reference to
Regulation Prior Filing or
S-K Exhibit Exhibit Number
Number Document Attached Hereto
----------- -------- ---------------
2 Plan of acquisition, reorganization, *****
arrangement, liquidation or succession
3.1 Certificate of Incorporation *
3.2 Bylaws ***
4 Instruments defining the rights of *
security holders, including indentures
9 Voting trust agreement None
10.1 Severance Agreements of David G. Just *
and Ronald Hill
10.2 Employee Stock Ownership Plan *
10.3 1995 Stock Option and Incentive Plan **
10.4 Recognition and Retention Plan **
10.5 Deferred Fee Agreement *
10.6 Director Emeritus Agreement *
10.7 Severance Agreement of Stephen D. ****
Hayward
10.8 Severance Agreement with Duane 10.8
Kohlstaedt
10.9 Severance Plan 10.9
99
Reference to
Regulation Prior Filing or
S-K Exhibit Exhibit Number
Number Document Attached Hereto
----------- -------- ---------------
11 Statement re: computation of per None
share earnings
12 Statement re: computation or ratios Not required
13 Annual Report to Security Holders None
Reference to
16 Letter re: change in certifying None
accountant
18 Letter re: change in accounting None
principles
21 Subsidiaries of Registrant 21
22 Published report regarding matters None
submitted to vote of security holders
23 Consent of experts and counsel 23
24 Power of Attorney Not Required
27 Financial Data Schedule 27
28 Information from reports furnished to None
State insurance regulatory authorities
99 Additional exhibits None
- -------------------
* Filed on December 23, 1994, as exhibits to the Registrant's Form S-1
registration statement (Registration No. 33-87900), pursuant to the Securities
Act of 1933. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-K.
** Filed December 27, 1995, as exhibits to the Registrant's Form 10-K
Annual Report for the fiscal year ended September 30, 1995. All of such
previously filed documents are hereby incorporated herein by reference in
accordance with Item 601 of Regulation S-K.
*** Filed December 29, 1997, as exhibits to the Registrant's Form 10-K
Annual Report for the fiscal year ended September 30, 1997. Such previously
filed document is hereby incorporated herein by reference in accordance with
Item 601 of Regulation S-K.
**** Filed December 29, 1998, as exhibits to the Registrant's Form 10-K
Annual Report for the fiscal year ended September 30, 1998. Such previously
filed document is hereby incorporated herein by reference in accordance with
Item 601 of Regulation S-K.
***** Filed October 23, 2000, as exhibit 2.1 to the Registrant's Form
8-K Current Report. Such previously filed document is hereby incorporated herein
by reference in accordance with Item 601 of Regulation S-K.
100
(b) Reports on Form 8-K:
------------------------
No current reports on Form 8-K were filed by the Company during the
three months ended September 30, 2000.
101
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
CAMERON FINANCIAL CORPORATION
Date: December 26, 2000 By: /s/ Duane Kohlstaedt
--------------------------------
Duane Kohlstaedt
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Duane Kohlstaedt By: /s/ David G. Just
--------------------------------- ------------------------------
Duane Kohlstaedt, President and David G. Just, Director
Chief Executive Officer
Date: December 26, 2000 Date: December 26, 2000
By: /s/ Dennis E. Marshall By: /s/ Harold D. Lee
--------------------------------- ------------------------------
Dennis E. Marshall Harold D. Lee, Secretary and
Director Director
Date: December 26, 2000 Date: December 26, 2000
By: /s/ William J. Heavner By: /s/ William F. Barker
--------------------------------- ------------------------------
William J. Heavner, Director William F. Barker, Director
Date: December 26, 2000 Date: December 26, 2000
By: /s/ Jon N. Crouch By: /s/ Ronald W. Hill
--------------------------------- ------------------------------
Jon N. Crouch Ronald W. Hill, Vice President,
Treasurer, and Chief Financial
Officer (Principal Financial and
Accounting Officer
Date: December 26, 2000 Date: December 26, 2000