Filed Pursuant to Rule 424(b)(3)
Registration No: 333-99811
CCSB FINANCIAL CORP.
PROPOSED HOLDING COMPANY FOR CLAY COUNTY SAVINGS BANK
851,000 SHARES OF COMMON STOCK
(SUBJECT TO INCREASE TO UP TO 978,650 SHARES)
CCSB Financial Corp. is offering common stock for sale in connection with
the conversion of Clay County Savings and Loan Association from the mutual to
stock form of organization. As part of the stock conversion, Clay County Savings
and Loan Association will change its name to Clay County Savings Bank. CCSB
Financial Corp. will own all the outstanding common stock of Clay County Savings
Bank after the conversion. We expect that the common stock of CCSB Financial
Corp. will be quoted on the Over-the-Counter Electronic Bulletin Board under the
symbol "CCSB." There is currently no public market for the common stock, and it
is unlikely that an active and liquid market will develop.
We are offering up to 851,000 shares of the common stock on a best efforts
basis. Subject to certain conditions, we may sell up to 978,650 shares due to
regulatory considerations or changes in market or economic conditions without
the resolicitation of subscribers. We must sell a minimum of 629,000 shares in
order to complete the offering. We will terminate the offering if we do not sell
the minimum number of shares. Directors and executive officers intend to
purchase 140,000 shares of common stock, or 18.92% of the offering at the
midpoint of the offering. The offering will terminate on December 19, 2002. We
may extend the termination date without notice to you, until February 2, 2003,
unless the Office of Thrift Supervision approves a later date which may not
exceed December 19, 2004.
The minimum purchase is 25 shares. Once submitted, orders are irrevocable
unless the offering is terminated or extended beyond February 2, 2003. If the
offering is extended beyond February 2, 2003, subscribers will have the right to
modify or rescind their purchase orders. Funds received for the purchase of
common stock will be held in an account at Clay County Savings and Loan
Association and will bear interest at our passbook savings rate until the
closing date of the conversion. If the offering is terminated, subscribers will
have their funds returned promptly, with interest.
Trident Securities, a Division of McDonald Investments Inc. will assist us
in our selling efforts, but is not obligated to purchase any of the common stock
that is being offered for sale. Subscribers will not pay any commissions to
purchase common stock in the offering.
This investment involves risk, including the possible loss of principal.
Please read the "Risk Factors" beginning on page 17.
OFFERING SUMMARY
PRICE: $10.00 PER SHARE
MINIMUM MAXIMUM
---------------- ---------------
Number of shares........................................... 629,000 851,000
Gross offering proceeds.................................... $ 6,290,000 $ 8,510,000
Estimated underwriting commissions and other expenses...... $ 505,000 $ 546,000
Estimated net proceeds..................................... $ 5,785,000 $ 7,964,000
Estimated net proceeds per share........................... $ 9.20 $ 9.36
These securities are not deposits or savings accounts and are not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, nor any state securities
regulator has approved or disapproved these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
For assistance, please contact the Stock Information Center at (816)
781-8169
-----------------
TRIDENT SECURITIES, A DIVISION OF MCDONALD INVESTMENTS INC.
-----------------
The date of this prospectus is November 13, 2002
[MAP of Clay County Savings and Loan Association Branch Offices]
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TABLE OF CONTENTS
SUMMARY...................................................................... 4
SELECTED FINANCIAL INFORMATION............................................... 15
RISK FACTORS................................................................. 17
FORWARD LOOKING STATEMENTS................................................... 21
RECENT DEVELOPMENTS.......................................................... 22
USE OF PROCEEDS.............................................................. 27
DIVIDEND POLICY.............................................................. 28
MARKET FOR THE COMMON STOCK.................................................. 29
REGULATORY CAPITAL COMPLIANCE................................................ 30
CAPITALIZATION............................................................... 31
PRO FORMA DATA............................................................... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................................................... 38
BUSINESS OF CCSB FINANCIAL CORP.............................................. 54
BUSINESS OF CLAY COUNTY SAVINGS.............................................. 55
FEDERAL AND STATE TAXATION................................................... 80
SUPERVISION AND REGULATION................................................... 81
MANAGEMENT................................................................... 91
THE CONVERSION...............................................................100
RESTRICTIONS ON ACQUISITIONS OF STOCK AND RELATED TAKEOVER DEFENSIVE
PROVISIONS..................................................................121
DESCRIPTION OF CAPITAL STOCK.................................................125
LEGAL AND TAX MATTERS........................................................127
EXPERTS......................................................................127
WHERE YOU CAN FIND MORE INFORMATION..........................................127
REGISTRATION REQUIREMENTS....................................................128
INDEX TO FINANCIAL STATEMENTS................................................F-1
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SUMMARY
The following summary explains selected information regarding the
conversion, the offering of CCSB Financial Corp. common stock and the business
of Clay County Savings and Loan Association. The summary may not contain all the
information that is important to you. For additional information, you should
read this prospectus carefully, including the financial statements and the notes
to financial statements of Clay County Savings and Loan Association.
THE COMPANIES
CCSB FINANCIAL CORP.
We formed CCSB Financial Corp. in September 2002 as a Delaware corporation.
CCSB Financial Corp. will be the holding company for Clay County Savings Bank
following the conversion. CCSB Financial Corp. has not engaged in any
significant business to date. The executive offices of CCSB Financial Corp. and
Clay County Savings and Loan Association are located at 1178 West 152 Highway,
Liberty, Missouri 64068 and their telephone number is (816) 781-4500.
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Clay County Savings and Loan Association was founded in March 1922 and
operated under the name Clay County Building and Loan Association until February
1967, at which time the savings association was renamed Clay County Savings and
Loan Association. Originally a state chartered savings and loan association, we
converted to a federal charter in 1995. We conduct our business through four
offices in Clay County, Missouri, including the main office in Liberty,
Missouri, and branch offices in Liberty, Kearney, and Smithville, Missouri. As
part of the conversion, we will convert to a federally chartered savings bank
and will change our name to Clay County Savings Bank.
Clay County Savings is a community-oriented financial institution offering
selected financial services to meet the needs of the communities it serves. We
were established primarily to meet the home financing needs of the public and
now serve the expanded credit needs of residents and businesses in our market
area similar to a community bank but with a focus on residential mortgage
lending. Over the last five years we have added a number of products and
services such as non-interest bearing checking accounts, commercial business
checking, home equity and other consumer lending and expanded commercial loan
activity. We currently offer a variety of deposit accounts, including personal
and business checking accounts, passbook and statement savings accounts,
certificates of deposit, and individual retirement accounts. Our lending
activity consists of permanent and construction single-family mortgage loan
financing, home equity and other consumer lending, and loans secured by
multi-family and nonresidential real estate. We offer commercial non-mortgage
financing on a limited basis. As of June 30, 2002, we had total assets of $77.9
million, deposits of $63.7 million and retained earnings of $6.5 million.
During the fiscal year ended September 30, 2001, we had a net operating
loss of $112,000. During the nine months ended June 30, 2002, we had net
earnings of $81,000.
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BUSINESS STRATEGY
Our business strategy is to grow and improve our profitability by:
. Continuing our transition to a full-service community bank and
enhancing the products and services being offered;
. Using the additional capital raised in this offering to fund loan
activity;
. Utilizing effective asset/liability management to improve our net
interest margin and mitigate interest-rate risk;
. Increasing our sources of noninterest fee income;
. Improving operating efficiencies by leveraging our capital position
through prudent growth; and
. Maintaining high asset quality.
REASONS FOR THE CONVERSION
The primary reasons for our decision to convert from a mutual to a stock
organization are to establish a structure that will enable us to:
. compete more effectively in the financial services marketplace;
. offer our depositors, employees, management and directors an equity
ownership interest in Clay County Savings and thereby obtain an
economic interest in its future success; and
. increase our capital base and provide additional sources of capital
to grow and increase profitability.
Our new structure will permit us to issue capital stock, which is a source
of capital not available to a mutual savings association.
The conversion and the capital raised in the offering are expected to:
. increase our lending capabilities, by providing us with additional
capital to support new loans and higher lending limits;
. support growth and enhance our profitability;
. provide broader investment opportunities through the holding company
structure; and
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. improve our capital management flexibility, including the ability to
pay cash dividends and repurchase shares of our common stock, as
appropriate.
The conversion also will allow us to establish stock benefit plans for
management and employees which will permit us to attract and retain qualified
personnel.
TERMS OF THE OFFERING
We are offering between 629,000 and 851,000 shares of common stock of CCSB
Financial Corp. to qualifying depositors, tax-qualified employee plans and to
the public to the extent shares remain available. The maximum number of shares
that we sell in the offering may increase by up to 15%, to 978,650 shares, as a
result of regulatory considerations, strong demand for the shares in the
offering, or positive changes in financial markets in general and with respect
to financial institution stocks in particular. Unless the pro forma market value
of CCSB Financial Corp. decreases below $6,290,000 or increases above
$9,786,500, you will not have the opportunity to change or cancel your stock
order. The offering price is $10.00 per share. Trident Securities, a Division of
McDonald Investments Inc., our marketing advisor in connection with the
conversion, will use its best efforts to assist us in selling our stock, but
Trident Securities is not obligated to purchase any shares in the offering.
PERSONS WHO MAY ORDER STOCK IN THE OFFERING
We are offering the shares of common stock of CCSB Financial Corp. in a
"subscription offering" in the following descending order of priority:
(1) Depositors who had accounts at Clay County Savings with aggregate
balances of at least $50 on December 31, 2000;
(2) The tax-qualified employee benefit plans of Clay County Savings,
including our employee stock ownership plan;
(3) Depositors who had accounts at Clay County Savings with aggregate
balances of at least $50 on September 30, 2002; and
(4) Other depositors and borrower members of Clay County Savings on
October 31, 2002.
If any shares of our common stock remain unsold in the subscription
offering, we will offer such shares for sale in a "community offering." Natural
persons residing in Clay County, Missouri will have a purchase preference in any
community offering. Shares also may be offered to the general public. The
community offering, if any, may commence concurrently with, during or promptly
after the subscription offering. We also may offer shares of common stock not
purchased in the subscription offering or the community offering through a
syndicate of brokers in a "syndicated community offering" managed by Trident
Securities. We have the right to accept or reject, in our sole discretion, any
orders received in the community offering and the syndicated community offering.
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How We Determined the Offering Range and the $10.00 Price Per Share
The amount of common stock we are offering is based on an independent
valuation of our pro forma market value assuming the conversion and offering are
completed. Keller & Company, Inc., an appraisal firm experienced in appraisals
of financial institutions, has estimated that as of August 23, 2002 the pro
forma market value of CCSB Financial Corp. ranged from a minimum of $6,290,000
to a maximum of $8,510,000, with a midpoint of $7,400,000.
This valuation results in an offering price as a percentage of book value
equal to 54.43% at the minimum and 63.18% at the maximum of the offering, and a
price to core earnings ratio of 105.44x at the minimum and 134.57x at the
maximum of the offering.
The following table presents a summary of selected pricing ratios for
public thrift institutions used by Keller & Company to help establish the market
value of CCSB Financial Corp. and the resulting pricing ratios for CCSB
Financial Corp. Keller & Company considered various criteria for selecting the
peer group thrift institutions, including geographic market area, asset size and
return on equity. The pro forma numbers for CCSB Financial Corp. in this table
are based on financial data for the twelve months ended June 30, 2002, rather
than the nine months ended June 30, 2002, or the twelve months ended September
30, 2001, and were not calculated on a per share basis. As a result, the pro
forma numbers for CCSB Financial Corp. in this table differ from the pro forma
numbers set forth elsewhere in this prospectus.
PRO FORMA PRO FORMA PRO FORMA
PRICE TO CORE PRICE TO BOOK PRICE TO TANGIBLE
EARNINGS MULTIPLE VALUE RATIO BOOK VALUE
----------------- ------------- -----------------
CCSB Financial Corp.:
15% above maximum............................. 149.88x 67.17% 67.54%
Maximum....................................... 134.57 63.18 63.55
Midpoint...................................... 120.43 59.23 59.52
Minimum....................................... 105.44 54.43 54.80
All fully converted thrifts publicly traded
on the NYSE, NASDAQ and AMEX as of
August 23, 2002:
Averages...................................... 16.31x 120.92% 130.64%
Medians....................................... 13.56 109.11 111.47
Valuation of peer group institutions as of
August 23, 2002:
Averages...................................... 21.22x 88.12% 89.46%
Medians....................................... 16.29 80.55 80.55
Based on this valuation and the $10.00 per share price, the number of
shares of common stock being offered for sale by CCSB Financial Corp. will range
from 629,000 shares to 851,000 shares. The $10.00 price per share was selected
primarily because it is the price per share used most commonly in stock
offerings by mutual savings associations that convert to stock form.
Two measures investors use to analyze an issuer's stock are the ratio of
the offering price per share to the issuer's book value per share and the ratio
of the offering price per share to the issuer's annual net earnings per share.
Book value is the same as total equity, and represents the difference between
the value of the issuer's assets and liabilities. Keller & Company considered
these ratios, among other factors, in preparing its appraisal. The following
table presents the ratio of the offering price per share to CCSB Financial
Corp.'s pro forma book value per share
7
and earnings per share at and for the periods indicated. A description of the
assumptions we used in making these calculations is set forth elsewhere in this
prospectus.
AT AND FOR THE NINE MONTHS ENDED JUNE 30, 2002
---------------------------------------------------------
629,000 740,000 851,000 978,650
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE
----------- ----------- ----------- -----------
Pro forma price to book value ratio............. 54.41% 59.14% 63.17% 67.16%
=========== =========== =========== ===========
Pro forma price to earnings ratio............... 53.56x 62.50x 75.02x 83.33x
=========== =========== =========== ===========
AT AND FOR THE YEAR ENDED SEPTEMBER 30, 2001
---------------------------------------------------------
629,000 740,000 851,000 978,650
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE
----------- ----------- ----------- -----------
Pro forma price to book value ratio............. 54.70% 59.42% 63.45% 67.43%
=========== =========== =========== ===========
Pro forma price to earnings ratio............... (111.11)x (166.67)x (333.33)x (1000)x
=========== =========== =========== ===========
The mutual to stock conversion process of Clay County Savings is governed
by federal law and the regulations of the Office of Thrift Supervision. These
regulations require, among other things, that the offering of stock by CCSB
Financial Corp. be based upon an appraisal performed by an experienced
independent valuation firm that is qualified to practice before the Office of
Thrift Supervision. The Office of Thrift Supervision has adopted detailed
regulations and guidelines that appraisal firms must follow in preparing their
valuations. Keller & Company, the appraisal firm retained by Clay County
Savings, followed these Office of Thrift Supervision guidelines in preparing its
appraisal. The appraisal is thoroughly reviewed and must be accepted by the
Office of Thrift Supervision prior to the completion of the conversion.
It is typical for appraised valuations of converting mutual institutions to
be priced at a significant discount to book value. It is also common for most
converted institutions, particularly smaller institutions such as Clay County
Savings, to trade at a significant discount to book value for a period of time
following the completion of the initial public offering. Management believes the
discount of the price of CCSB Financial Corp.'s stock as compared with its pro
forma book value per share is in line with normal discounts for conversion
offerings under current market conditions.
The stock offering will result in a stronger equity to asset ratio for Clay
County Savings, enabling Clay County Savings to grow in the future. It is
believed such growth may improve our operating efficiency. It is further
believed that the offering will enable Clay County Savings to improve overall
earnings and net interest margin, and will also increase Clay County Savings'
equity level. With book value defined as total assets less total liabilities,
the offering will increase Clay County Savings' assets with no increase in
liabilities resulting in an increase in total equity or book value.
The board of directors of Clay County Savings, after lengthy deliberation,
determined that the stock conversion was in the best interests of Clay County
Savings, its customers, and the
8
communities it serves. In making this determination, the board of directors
considered the appraisal and the offering of stock at a discount to book value.
The independent appraisal does not indicate market value. Do not assume or
expect that the valuation of CCSB Financial Corp. as indicated above means that
the common stock will trade at or above the $10.00 purchase price after the
conversion.
The independent appraisal will be updated prior to the completion of the
conversion. Any changes in the appraisal would be subject to Office of Thrift
Supervision approval. If the pro forma market value of CCSB Financial Corp. is
either below $6,290,000 or above $9,786,500, subscribers will be notified and
provided with the opportunity to change or cancel their orders.
We Will Not Initially Pay a Cash Dividend
We will not initially pay a cash dividend. Any future payment of dividends
will depend upon a number of factors, including the amount of net proceeds
retained by us in the conversion, investment opportunities available to us,
capital requirements, our financial condition and results of operations, tax
considerations, statutory and regulatory limitations, and general economic
conditions. No assurances can be given that any dividends will be paid, or that
if paid, they will not be reduced or eliminated in future periods.
Limits on Your Purchase of Common Stock
The minimum purchase is 25 shares. No individual, or individuals through a
single account, may purchase more than 10,000 shares or $100,000 of stock. If
any of the following persons purchase common stock, their purchases when
combined with your purchases cannot exceed $300,000 (30,000 shares):
. your spouse, or relatives of you or your spouse living in your house;
. persons on joint accounts with you;
. individuals with the same address on our records as of the eligibility
dates;
. companies, trusts or other entities in which you have an interest or
hold a position; or
. other persons who may be acting together with you.
Subject to Office of Thrift Supervision approval, we may increase or
decrease the purchase limitations at any time. If we increase the purchase
limitations, subscribers for the maximum amount will be notified and given the
opportunity to increase their subscriptions up to the then applicable limit. If
we decrease the purchase limits, subscriptions for the maximum amount or for any
lesser amount above the new limit will be decreased by the minimum amount
necessary so that the subscribers will be in compliance with the new maximum
limit, and subscribers whose subscriptions are reduced pursuant to the new limit
will have their excess funds promptly refunded.
9
Our employee stock ownership plan is authorized to purchase up to 8% of the
shares sold in the offering without regard to these purchase limitations. For
example, our employee stock ownership plan may purchase up to 50,320 and 68,080
shares of common stock, respectively, at the minimum and maximum of the offering
range.
In the event of an oversubscription for shares in the offering, shares of
common stock will be allocated among subscribers in accordance with applicable
laws, regulations and the provisions of our plan of conversion.
How You May Pay for Your Shares
In the subscription offering and the community offering you may pay for
your shares only by:
(1) cash, if presented in person;
(2) personal check, bank check or money order; or
(3) authorizing us to withdraw money from your deposit accounts maintained
with Clay County Savings.
If you wish to use your Clay County Savings individual retirement account
to pay for your shares, please be aware that federal law requires that such
funds first be transferred to a self-directed retirement account with a trustee
other than Clay County Savings. The transfer of such funds to a new trustee
takes time, so please make arrangements as soon as possible. Also, please be
aware that Clay County Savings is not permitted to lend funds to anyone for the
purpose of purchasing shares of common stock in the offering.
You can subscribe for shares of common stock in the offering by delivering
a signed and completed original stock order form, together with full payment,
provided we receive the stock order form before the end of the offering. We will
pay interest at Clay County Savings' passbook rate from the date funds are
received until completion or termination of the conversion. Withdrawals from
certificates of deposit at Clay County Savings made for the purpose of
purchasing shares may be made without incurring an early withdrawal penalty. All
funds authorized for withdrawal from deposit accounts with Clay County Savings
must be in the deposit accounts at the time the stock order form is received.
However, funds will not be withdrawn from the deposit accounts until the
offering is completed and will continue to earn interest at the applicable
deposit account rate until the completion of the offering. A hold will be placed
on those funds when your stock order is received, making the designated funds
unavailable to you. After we receive an order, the order cannot be revoked or
changed. Payment may not be made by wire transfer or any other electronic
transfer of funds. In addition, we will not accept copies or facsimiles of order
forms.
You May Not Sell or Transfer Your Subscription Rights
If you order common stock in the subscription offering, you will be
required to state that you are purchasing the stock for yourself and that you
have no agreement or understanding to sell or transfer your subscription rights.
We intend to take legal action, including reporting
10
persons to federal or state regulatory agencies, against anyone who we believe
sells or gives away his or her subscription rights. We will not accept your
order if we have reason to believe that you sold or transferred your
subscription rights. In addition, joint stock registration will only be allowed
if the qualifying account is so registered.
Deadline for Orders of Common Stock
If you wish to purchase shares, we must receive your properly completed
stock order form, together with payment for the shares, no later than 12:00
noon, Central Time, on December 19, 2002, unless we extend this deadline. You
may submit your order form by mail using the return envelope provided, by
overnight courier to the indicated address on the order form, or by bringing
your order form to one of our full-service branch offices. Once submitted, your
order is irrevocable unless the offering is terminated or extended beyond
February 2, 2003.
Termination of the Offering
The subscription offering will terminate at 12:00 noon, Central Time, on
December 19, 2002. We expect that the community offering would terminate at the
same time. We may extend this expiration date without notice to you, until
February 2, 2003, unless regulators approve a later date. If the subscription
offering and/or community offerings extend beyond February 2, 2003, we will be
required to resolicit subscriptions before proceeding with the offerings. All
further extensions, in the aggregate, may not last beyond December 19, 2004.
If we do not complete the offering by February 2, 2003, we will either:
(1) promptly return any payment you made to us, with interest, or cancel
any withdrawal authorization you gave us; or
(2) extend the offering, if allowed, and give you notice of the
extension and of your rights to cancel or change your order. If we
extend the offering and you do not respond to the notice, then we will
cancel your order and return your payment, with interest, or cancel any
withdrawal authorization you gave us.
Steps We May Take If We Do Not Receive Orders for the Minimum Number of Shares
If we do not receive orders for at least 629,000 shares of common stock, we
may take several steps in order to sell the minimum number of shares in the
offering range. Specifically, we may increase the purchase limitations and/or
seek regulatory approval to extend the offering beyond the February 2, 2003
expiration date, provided that any such extension will require us to resolicit
subscriptions received in the offering.
Market for the Common Stock
We expect the common stock of CCSB Financial Corp. to be quoted on the
Over-the-Counter Electronic Bulletin Board under the symbol "CCSB." Trident
Securities currently intends to make a market in the common stock but it is
under no obligation to do so. We cannot predict whether a liquid trading market
in shares of our common stock will develop.
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How We Intend to Use the Proceeds We Raise From the Offering
Assuming we sell 851,000 shares in the offering, and we have net proceeds
of $7.96 million, we intend to distribute the net proceeds as follows:
. $3.98 million (50% of the net proceeds) will be contributed to Clay
County Savings;
. $680,800 (8.55% of the net proceeds) will be loaned to the employee
stock ownership plan to fund its purchase of common stock; and
. $3.3 million (41.45% of the net proceeds) will be retained by CCSB
Financial Corp.
CCSB Financial Corp. intends to use the net proceeds of the offering
retained by it to invest in securities and for other general corporate purposes.
CCSB Financial Corp. also may use such proceeds to finance the possible
acquisition of other financial institutions or financial service businesses, to
pay dividends or to repurchase shares of our common stock. CCSB Financial Corp.
expects that the net proceeds retained by it will initially be placed in
short-term investments. Clay County Savings intends to use the proceeds it
receives to make loans, to purchase securities and make other investments and
for general corporate purposes. Clay County Savings also may use the proceeds it
receives to expand its banking franchise internally or through acquisitions.
Clay County Savings expects the proceeds it receives will initially be placed in
short-term investments. Neither Clay County Savings nor CCSB Financial Corp. is
considering any specific acquisition or expansion transaction at this time.
Our Officers, Directors and Employees Will Receive Additional Compensation and
Benefit Programs After the Conversion
In order to align the interests of our officers, directors and employees
more closely to our stockholders' interests, we intend to establish an employee
stock ownership plan, a stock option plan and a stock recognition and retention
plan, each of which will use our common stock as compensation. The employee
stock ownership plan may purchase up to 8% of the shares sold in the offering.
The stock recognition and retention plan and stock option plan must be approved
by shareholders no sooner than six months after the conversion. The employee
stock ownership plan and the recognition and retention plan will increase our
future compensation costs, thereby reducing our earnings. Additionally,
stockholders will experience a reduction in ownership interest if newly issued
shares are used to fund stock options and the recognition and retention plan.
12
The following table summarizes the benefits that our officers, directors
and employees may receive as a result of the conversion, at the maximum of the
offering range:
PERCENTAGE VALUE OF BENEFITS
INDIVIDUALS ELIGIBLE OF BASED ON MAXIMUM
PLAN TO RECEIVE AWARDS SHARES SOLD OF OFFERING RANGE
- ------------------------------ -------------------- ----------- -----------------
Employee stock ownership plan All employees 8% $ 680,800
Recognition and retention plan Directors, officers
and employees 4% $ 340,400
Stock option plan Directors, officers
and employees 10% --/(1)/
- ----------
/(1)/ Stock options will be granted with a per share exercise price at least
equal to the market price of our common stock on the date of grant. The
value of a stock option will depend upon increases, if any, in the price
of our common stock during the period in which the stock option may be
exercised.
We also intend to enter into employment agreements with John R. Davis, our
President and Chief Executive Officer, and with Mario Usera, our Executive Vice
President and Chief Financial Officer. These agreements are designed to assist
us in maintaining a stable and competent management team after the conversion.
Each agreement has a term of three years, with provisions for annual renewals.
Under the agreements, the initial base salaries for Messrs. Davis and Usera will
be $104,700 and $75,000, respectively. In the event of termination of employment
in connection with a change in control of Clay County Savings immediately
following the conversion, Messrs. Davis and Usera would receive a payment of
approximately $252,000 and $173,000, respectively, under the employment
agreements. We also intend to enter into change-in-control severance agreements
with two other executive officers of Clay County Savings. Each of these
severance agreements has a term of three years, with provisions for annual
renewals. In the event of termination of employment in connection with a change
in control of Clay County Savings immediately following the Conversion, the two
officers would receive a payment of approximately $150,000 and $147,000,
respectively, under the severance agreements.
Once Submitted, Your Purchase Order May Not Be Revoked Unless the Stock Offering
is Terminated or Extended Beyond February 2, 2003
Funds that you use to purchase our common stock in the offering will be
held by CCSB Financial Corp. until the termination or completion of the
offering, including any extension of the expiration date. Because completion of
the conversion will be subject to an update of the independent appraisal, among
other factors, there may be one or more delays in the completion of the
conversion. Any orders that you submit to purchase our common stock in the
offering are irrevocable, and you will not have access to subscription funds
unless the stock offering is terminated, or extended beyond February 2, 2003.
13
How You May Obtain Additional Information Regarding the Conversion
If you have any questions regarding the conversion, please call the
Conversion Center at (816) 781-8169, Monday through Friday between 9:00 a.m. and
5:00 p.m., Central Time.
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SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information of Clay
County Savings at and for the periods indicated. The information presented as of
June 30, 2002, and for the nine months ended June 30, 2002 and 2001 is
unaudited, but in the opinion of management, contains all adjustments (none of
which were other than normal recurring entries) necessary for a fair
presentation of the results for these periods. The results of operations and
other data for the nine months ended June 30, 2002 are not necessarily
indicative of the results of operations that may be expected for the fiscal year
ending September 30, 2002. The selected data as of and for the years ended
September 30, 2001, 2000, 1999, 1998 and 1997 have been derived from the audited
financial statements of Clay County Savings. The audited financial statements
for 2001 and 2000 have been included in this prospectus. The audited financial
statements for 1999, 1998 and 1997 have not been included in this prospectus.
The following information is only a summary, and you should read it in
conjunction with our financial statements and notes beginning on page F-2 of
this prospectus.
AT JUNE 30, AT SEPTEMBER 30,
------------ ------------------------------------------------------------------
2002 2001 2000 1999 1998 1997
------------ ---------- --------- ---------- ---------- ----------
(IN THOUSANDS)
Selected Financial Condition Data:
Total assets............................. $ 77,872 $ 77,648 $ 77,764 $ 70,520 $ 71,417 $ 71,123
Loans receivable, net.................... 53,055 59,277 64,089 57,149 59,186 62,822
Mortgage-backed securities, available for 1,876 2,003 1,536 1,997 284 320
sale....................................
Securities held to maturity.............. 16 16 16 516 1,852 1,599
Securities available for sale............ 7,158 6,380 4,281 4,322 966 2,254
Deposits................................. 63,669 58,077 52,979 54,810 56,741 57,845
FHLB advances............................ 6,890 11,929 17,199 8,245 7,279 6,250
Retained earnings - substantially
restricted.............................. 6,526 6,465 6,449 6,344 6,168 5,942
NINE MONTHS ENDED
JUNE 30, YEARS ENDED SEPTEMBER 30,
-------------------- --------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
Selected Operations Data:
Total interest income.................. $ 3,538 $ 4,215 $ 5,566 $ 5,101 $ 4,983 $ 5,174 $ 4,682
Total interest expense................. (1,878) (2,786) (3,634) (3,024) (2,846) (3,263) (2,895)
-------- -------- -------- -------- -------- -------- --------
Net interest income................. 1,660 1,429 1,932 2,077 2,137 1,911 1,787
Provision for loan losses.............. (3) (21) (21) (12) (12) (11) (14)
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for
loan losses........................... 1,657 1,408 1,911 2,065 2,125 1,900 1,773
-------- -------- -------- -------- -------- -------- --------
Fees and service charges............... 126 92 129 109 99 110 103
Gain (loss) on sale of securities
available for sale.................... - 3 3 - - - (14)
Gain on sale of premises............... - - 69 - - - -
Gain on sale of loans.................. 74 24 40 - 47 22 -
Other non-interest income.............. 11 7 15 16 9 15 24
-------- -------- -------- -------- -------- -------- --------
Total non-interest income.............. 211 126 256 125 155 147 113
-------- -------- -------- -------- -------- -------- --------
Total non-interest expense............. (1,745) (1,731) (2,337) (2,055) (1,931) (1,706) (1,526)
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before income taxes.... 123 (197) (170) 135 349 341 360
Income taxes........................... (42) 67 58 (27) (128) (123) (117)
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss).................... $ 81 $ (130) $ (112) $ 108 $ 221 $ 218 $ 243
======== ======== ======== ======== ======== ======== ========
15
AT OR FOR THE
NINE MONTHS ENDED
JUNE 30, AT OR FOR THE YEARS ENDED SEPTEMBER 30,
-------------------- --------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- -------- -------- -------- -------- -------- --------
Operating Ratios:
Return on average assets (1).............. 0.14% (0.22)% (0.14)% 0.15% 0.31% 0.31% 0.37%
Net yield on average interest-earning
assets (1)(2)............................ 3.01 2.58 2.64 3.01 3.11 2.69 2.75
Net interest rate spread for period (1)... 2.92 2.47 2.56 2.76 2.79 2.36 2.36
Average interest-earning assets to average
interest-bearing liabilities............. 102.62 102.26 101.53 105.68 107.67 107.33 108.70
Noninterest expense to average assets (1). 2.99 2.88 3.01 2.77 2.72 2.39 2.33
Efficiency ratio (3)...................... 93.23 111.31 106.77 93.30 84.26 82.86 80.33
Retained Earnings Ratios:
Return on average retained earnings (1)... 1.67% (2.70)% (1.73)% 1.69% 3.52% 3.59% 4.19%
Average retained earnings to average assets 8.35 8.01 8.31 8.63 8.82 8.50 8.85
Long-term borrowings to retained earnings. 56.64 108.24 90.90 31.16 71.86 77.48 --
Tier 1 leverage ratio..................... 8.29 7.67 8.21 8.32 9.03 8.61 8.34
Tier 1 risk-based ratio................... 15.82 13.98 14.63 14.23 17.16 16.63 15.80
Total risk-based capital ratio............ 16.30 14.40 15.07 14.61 17.68 17.12 16.25
Asset Quality Ratios:
Net charge-offs (recoveries) to average
nonperforming assets..................... --% 1.46% 1.62% 10.47% --% --% --%
Net charge-offs (recoveries) to average
loans outstanding during the period...... -- 0.01 0.01 0.05 -- -- --
Allowance for loan losses to gross loans
receivable............................... 0.35 0.30 0.31 0.26 0.31 0.28 0.25
Nonperforming loans to total assets....... 0.12 0.22 0.00 0.47 0.07 0.36 0.41
Nonperforming assets to total assets...... 0.12 0.58 0.17 0.72 0.07 0.36 0.41
Other Data:
Number of full-service offices............ 4 4 4 4 3 3 3
- ----------
(1) Ratios for the nine month periods have been annualized.
(2) Net interest income divided by average interest earning assets.
(3) Noninterest expense divided by net interest income and noninterest
income.
16
RISK FACTORS
You Should Consider Carefully the Following Risk Factors in Evaluating
an Investment in the Common Stock.
We Had an Operating Loss During Our 2001 Fiscal Year and the Factors Resulting
in Such Loss May Continue in the Future and Have an Adverse Impact on Our
Operating Results and Stock Price.
We had a net operating loss of $112,000 for the fiscal year ended September
30, 2001. The primary reason for the loss was higher noninterest expenses,
including compensation and benefits, occupancy, equipment and data processing
expenses, related to our new home office building which was completed in August
2000. Although we improved our operating results during the first nine months of
fiscal 2002 to achieve earnings of $81,000, the higher noninterest expense
resulting from our new home office will continue to negatively affect our
operating results in the future.
The Relatively Small Amount of Stock Being Offered Makes it Unlikely that an
Active and Liquid Trading Market for the Stock Will Develop, and the Liquidity
and Price of the Stock May be Adversely Affected by a Limited Trading Market.
We expect that our common stock will trade on the over-the-counter market
with quotations available on the Over-the-Counter Electronic Bulletin Board. Due
to the relatively small size of the offering to the public, an active market for
the stock is not expected to exist after the offering. This means that there
will be limited secondary market liquidity for our stock. This may make it
difficult to buy or sell the stock after the initial offering which may
negatively affect the price of the stock or cause significant volatility in the
price of our stock.
Strong Competition Within Our Market Area May Limit Our Growth and
Profitability.
Competition in the banking and financial services industry is intense. In
our market area, we compete with commercial banks, savings institutions,
mortgage brokerage firms, credit unions, finance companies, mutual funds,
insurance companies, and brokerage and investment banking firms. Many of these
competitors have substantially greater resources and lending limits than we have
and may offer certain services that we do not or cannot provide. Our
profitability depends upon our continued ability to successfully compete in our
market area. Management believes that Clay County Savings has approximately a
2.1% deposit market share in Clay and Platte Counties, Missouri, as of June 30,
2001.
There are Increased Lending Risks Associated with Construction, Commercial Real
Estate, Commercial Business and Home Equity Lending.
Although we strive to maintain high asset quality and follow policies that
are consistent with safe and sound practices of the industry, there are inherent
risks associated with some of the types of loans that we originate. In
particular, over the past five years we have been active in construction
lending, primarily of single-family housing. Our activity is dependent on the
supply and demand of new housing in our immediate lending territory. Our gross
construction loan
17
portfolio has been as high as $11.45 million or 17.68% of total loans as of
February 29, 2000. As of June 30, 2002, gross construction loans totaled $5.1
million or 9.27% of total loans.
In addition, in recent years, we have increased our consumer, commercial
real estate and commercial business lending. Consumer loans, outside of loans on
deposits, were first offered in October 1997 and, as of June 30, 2002, totaled
$2.6 million, or 4.73% of total loans. As of June 30, 2002, our commercial real
estate loans totaled $3.8 million, or 6.88% of total loans, which represents an
increase of $1.3 million, or 49.94%, from fiscal year end September 30, 2001.
Commercial business loans totaled $382,000, or 0.69% of total loans, at June 30,
2002, compared to total commercial business loans of $208,000, or 0.34% of total
loans, at September 30, 2001. There was also an additional $584,000 in unused
outstanding lines of credit for commercial real estate and business purposes as
of June 30, 2002, compared to $574,000 as of September 30, 2001.
We have not expanded, and we do not intend to expand, our primary
geographic lending area in connection with the origination of these types of
loans. However, as we intend to originate more of these loans, we may begin to
experience higher levels of non-performing loans.
If Our Allowance for Loan Losses is Not Sufficient to Cover Actual Loan Losses,
Our Earnings Could Decrease.
Our loan customers may not repay their loans according to their terms and
the collateral securing the payment of these loans may be insufficient to pay
any remaining loan balance. We may experience significant loan losses, which
could have a material adverse effect on our operating results. We make various
assumptions and judgments about the collectibility of our loan portfolio,
including the creditworthiness of our borrowers and the value of the real estate
and other assets serving as collateral for the repayment of many of our loans.
In determining the amount of the allowance for loan losses, we review our loans
and our loss and delinquency experience, and we evaluate economic conditions. If
our assumptions are incorrect, our allowance for loan losses may not be
sufficient to cover losses inherent in our loan portfolio, resulting in
additions to our allowance. In addition, based on unimpaired capital and surplus
as of June 30, 2002, and assuming Clay County Savings receives $4.0 million,
which is 50% of the net proceeds at the maximum of the offering range, in the
conversion, our maximum lending limit will increase to $1.6 million from
$996,000. Additionally, on loans for the purpose of developing domestic
residential housing units, our maximum lending limit will increase to $3.2
million from $2.0 million. The origination of loans with higher loan balances
will require us to increase our provision for loan losses to reflect the greater
level of risk associated with larger loan balances. Material additions to our
allowance would materially decrease our net income.
In addition, bank regulators periodically review our allowance for loan
losses and may require us to increase our provision for loan losses or recognize
further loan charge-offs. Any increase in our allowance for loan losses or loan
charge-offs as required by these regulatory authorities may have a material
adverse effect on our results of operations and financial condition.
18
Our Return on Equity Will Be Low Compared to Other Financial Institutions. This
Could Negatively Affect the Trading Price of Our Common Stock.
Net income divided by average equity, known as "return on equity," is a
ratio many investors use to compare the performance of a financial institution
to its peers. We expect our return on equity to be below that of our peer
institutions until we are able to leverage our increased equity from the
offering. Our return on equity will be reduced by the capital raised in the
offering, higher expenses from the costs of being a public company, added
expenses associated with our employee stock ownership plan and our recognition
and retention plan, and the higher expenses related to our new home office.
Until we can increase our net interest income and non-interest income, we expect
our return on equity to be below the industry average, which may negatively
impact the value of our common stock.
Our Stock Benefit Plans Will Increase Our Costs, Which Will Reduce Our Income
and Stockholders' Equity.
We anticipate that our employee stock ownership plan will purchase 8% of
the common stock sold in the offering with funds borrowed from CCSB Financial
Corp. The cost of acquiring the employee stock ownership plan shares will be
between $503,200 at the minimum of the offering range and $782,920 at the
adjusted maximum of the offering range. We will record annual employee stock
ownership plan expenses in an amount equal to the fair value of shares committed
to be released to employees. If shares of common stock appreciate in value over
time, compensation expense relating to the employee stock ownership plan will
increase.
We also intend to adopt a recognition and retention plan after the
conversion. Under this plan, our officers, directors and employees may be
awarded, at no cost to them, shares of common stock in an aggregate amount equal
to 4% of the shares sold in the offering. The recognition and retention plan
cannot be implemented until at least six months after the conversion, and if it
is adopted within twelve months after the conversion, it is subject to Office of
Thrift Supervision regulations. Assuming the shares of common stock to be
awarded under the plan are repurchased in the open market and cost the same as
the purchase price in the offering, the reduction to stockholders' equity from
the plan would be between $251,600 at the minimum of the offering range and
$391,460 at the adjusted maximum of the offering range. In the event that a
portion of the shares used to fund the recognition and retention plan or satisfy
the exercise of options from our stock option plan, is obtained from authorized
but unissued shares, the issuance of additional shares will decrease our net
income per share and stockholders' equity per share.
The Implementation of Stock-Based Benefit Plans May Dilute Your Ownership
Interest.
We intend to adopt a stock option plan and recognition and retention plan
following the conversion. These stock benefit plans will be funded through
either open market purchases, if permitted, or from the issuance of authorized
but unissued shares. Stockholders will experience a reduction in ownership
interest totaling 12.9% in the event newly issued shares are used to fund stock
options and awards made under the recognition and retention plan.
19
Loss of Key Officers Could Hurt Clay County Savings' Operations.
We rely heavily on our executive officers, John R. Davis, President and
Chief Executive Officer, and Mario Usera, Executive Vice President and Chief
Financial Officer. The loss of either Mr. Davis or Mr. Usera could have an
adverse effect on us because, as a small community bank, our executive officers
are responsible for more aspects of our business than they might be at a larger
financial institution with more employees. Moreover, as a small community bank,
we have fewer management level employees who are in a position to succeed these
individuals. Although we are considering obtaining key-man life insurance
policies on Mr. Davis and/or Mr. Usera, we do not currently have such policies.
Expected Voting Control by Management and Employees Could Enable Insiders to
Prevent a Merger That May Provide Shareholders a Premium for Their Shares.
The shares of common stock that our directors and officers intend to
purchase in the conversion, when combined with the shares that may be awarded to
participants under our employee stock ownership plan and other stock benefit
plans, could result in management and employees controlling a significant
percentage of our common stock. It is expected that the executive officers and
directors as a group will purchase 140,000 shares in the offering, representing
22.26% of the shares offered at the minimum and 16.45% of the shares offered at
the maximum of the offering. If these individuals were to act together, they
could have significant influence over the outcome of any stockholder vote. This
voting power may discourage takeover attempts you might like to see happen. In
addition, the total voting power of management and employees could reach in
excess of 20% of our outstanding stock. That level would enable management and
employees as a group to defeat any stockholder matter that requires an 80% vote,
including removal of directors, amendments to our bylaws and certain amendments
to our certificate of incorporation.
We Intend to Remain Independent and You Should Not Expect to Receive a Takeover
Premium for Our Common Stock in the Near Term.
We intend to remain independent for the foreseeable future. Because we do
not plan on seeking possible acquirors, it is unlikely that we will be acquired
in the foreseeable future. Accordingly, you should not purchase our common stock
with any expectation that a takeover premium will be paid to you in the near
term.
Our Stock Value May Suffer Due to Our Ability to Impede Potential Takeovers.
Provisions in our corporate documents and in Delaware corporate law, as
well as certain federal banking regulations, make it difficult and expensive to
pursue a tender offer, change in control or to attempt a takeover that our board
of directors opposes. For example, our corporate documents require a
supermajority vote of stockholders to amend or repeal specific sections of CCSB
Financial Corp.'s certificate of incorporation and bylaws, or to remove
directors from our board of directors. As a result, you may not have an
opportunity to participate in this type of transaction, and the trading price of
our common stock may not rise to the level of other institutions that are more
vulnerable to hostile takeovers.
20
These provisions also will make it more difficult for an outsider to remove
our current board of directors or management.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements, which can be
identified by the use of such words as "estimate," "project," "believe,"
"intend," "anticipate," "plan," "seek," "expect" and similar expressions. These
forward-looking statements include:
. statements of our goals, intentions and expectations;
. statements regarding our business plans and prospects and growth and
operating strategies;
. statements regarding the asset quality of our loan and investment
portfolios; and
. estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks,
assumptions and uncertainties, including, among other things, the following
important factors that could affect the actual outcome of future events:
. significantly increased competition among depository and other
financial institutions;
. inflation and changes in the interest rate environment that reduce our
margins or reduce the fair value of financial instruments;
. general economic conditions, either nationally or in our market areas,
that are worse than expected;
. adverse changes in the securities markets;
. legislative or regulatory changes that adversely affect our business;
. our ability to enter new markets successfully and capitalize on growth
opportunities;
. changes in consumer spending, borrowing and savings habits;
. changes in accounting policies and practices, including those that may
be adopted by the bank regulatory agencies and the Financial
Accounting Standards Board; and
. changes in our organization, compensation and benefit plans.
Because of these and other uncertainties, our actual future results may be
materially different from the results indicated by these forward-looking
statements.
21
RECENT DEVELOPMENTS
The selected financial condition and operating data presented below as of
September 30, 2002 and June 30, 2002, for the three months ended September 30,
2002 and 2001, and for the year ended September 30, 2002 is unaudited. In the
opinion of management, the unaudited selected data contains all adjustments
(none of which were other than normal recurring entries) necessary for a fair
presentation of the results of such periods. This information should be read in
conjunction with the financial statements and notes beginning on page F-2. The
selected data as of and for the year ended September 30, 2001, is derived from
the audited financial statements of Clay County Savings.
AT SEPTEMBER 30,2002 AT JUNE 30, 2002 SEPTEMBER 30, 2001
-------------------- ---------------- ------------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
Selected Financial Condition Data:
Total assets.............................. $ 77,923 $ 77,872 $ 77,648
Loans receivable, net..................... 50,374 53,055 59,277
Mortgage-backed securities, available for
sale..................................... 3,704 1,876 2,003
Securities held to maturity............... 15 16 16
Securities available for sale............. 6,651 7,158 6,380
Deposits.................................. 64,463 63,669 58,077
FHLB advances............................. 5,877 6,890 11,929
Retained earnings - substantially
restricted .............................. 6,553 6,526 6,465
THREE MONTHS ENDED SEPTEMBER 30, YEARS ENDED SEPTEMBER 30,
-------------------------------- -------------------------
2002 2001 2002 2001
------------ --------------- ----------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
Selected Operations Data:
Total interest income..................... $ 1,054 $ 1,351 $ 4,592 $ 5,566
Total interest expense.................... (500) (848) (2,378) (3,634)
Net interest income.................... 554 503 2,214 1,932
Provision for loan losses................. (13) -- (16) (21)
------------ --------------- ----------- ---------
Net interest income after provision for
loan losses.............................. 541 503 2,198 1,911
------------ --------------- ----------- ---------
Fees and service charges.................. 43 37 169 129
Gain (loss) on sale of securities
available for sale....................... -- -- -- 3
Gain on sale of premises.................. -- 69 -- 69
Gain on sale of loans..................... 48 16 122 40
Other non-interest income................. 12 8 23 15
------------ --------------- ----------- ---------
Total non-interest income................. 103 130 314 256
------------ --------------- ----------- ---------
Total non-interest expense................ (596) (606) (2,341) (2,337)
------------ --------------- ----------- ---------
Earnings (loss) before income taxes....... 48 27 171 (170)
Income taxes.............................. (16) (9) (58) 58
------------ --------------- ----------- ---------
Net earnings (loss)....................... $ 32 $ 18 $ 113 $ (112)
============ =============== =========== =========
22
AT OR FOR THE THREE MONTHS ENDED AT OR FOR THE YEARS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- -------------------------
2002(1) 2001(1) 2002 2001
------------ --------------- ----------- ---------
Operating Ratios:
Return on average assets(1)............... 0.16% 0.09% 0.15% (0.14)%
Net yield on average interest-earning
assets(1)(2)............................. 3.06 2.79 3.02 2.64
Net interest rate spread for period(1).... 2.98 2.83 2.93 2.56
Average interest-earning assets to average
interest-bearing liabilities............. 103.08 99.37 102.85 101.53
Noninterest expense to average assets(1).. 3.06 3.02 3.01 3.01
Efficiency ratio(3)....................... 90.72 95.73 92.60 106.77
Retained Earnings Ratios:
Return on average retained earnings(1).... 1.93% 1.15% 1.74% (1.73)%
Average retained earnings to average
assets 8.40 8.03 8.37 8.31
Long-term borrowings to retained earnings. 56.20 90.90 56.20 90.90
Tier 1 leverage ratio..................... 8.33 8.21 8.33 8.21
Tier 1 risk-based ratio................... 16.25 14.63 16.25 14.63
Total risk-based capital ratio............ 16.77 15.07 16.77 15.07
Asset Quality Ratios:
Net charge-offs (recoveries) to average
nonperforming assets..................... (1.98)% --% (0.29)% 1.62%
Net charge-offs (recoveries) to average
loans outstanding during the period...... 0.00 -- 0.00 0.01
Allowance for loan losses to gross loans
receivable............................... 0.41 0.31 0.41 0.31
Nonperforming loans to total assets....... 0.06 0.00 0.06 0.00
Nonperforming assets to total assets...... 0.06 0.17 0.06 0.17
Other Data:
Number of full-service offices............ 4 4 4 4
- ----------
(1) Ratios for the three-month periods have been annualized.
(2) Net interest income divided by average interest earning assets.
(3) Noninterest expense divided by net interest income and noninterest income.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS
FINANCIAL CONDITION
Total assets of $77.9 million were virtually unchanged at September 30,
2002 and June 30, 2002. Loans decreased from $53.1 million at June 30, 2002 to
$50.4 million at September 30, 2002. The decline reflects the continuing trend
of loan payoffs as customers refinance their loans at interest rates that are at
40-year lows. Our strategy is to sell long-term, fixed-rate loans in the
secondary market. Deposits increased from $63.7 million at June 30, 2002 to
$64.5 million at September 30, 2002. Cash flow from net loan repayments and
deposits were used to purchase mortgage-backed securities, increase
interest-bearing deposits and repay maturing FHLB advances. Mortgage-backed
securities increased from $1.9 million at June 30, 2002 to $3.7 million at
September 30, 2002. Interest-bearing deposits in banks increased from $9.2
million at June 30, 2002 to $10.5 million at September 30, 2002.
Non-performing assets decreased from $96,000 at June 30, 2002 to $45,000 at
September 30, 2002. Management monitors non-performing assets on a monthly
basis.
At September 30, 2002, Clay County Savings continued to exceed all
regulatory capital requirements with tangible capital of $6.5 million or 8.3% of
adjusted total assets; core capital of $6.5 million or 8.3% of adjusted total
assets; and risk-based capital of $6.7 million or 16.8% of risk-weighted assets.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
AND 2001
Performance Summary. Net earnings for the three months ended September 30,
2002 was $32,000 compared to $18,000 for the same period in 2001. The increase
of $14,000 in net earnings was due primarily to an improvement in net interest
margin and lower noninterest expense, offset by a provision for loan losses,
lower noninterest income, and higher income taxes.
Net Interest Income. Net interest income increased from $503,000 for the
three months ended September 30, 2001 to $554,000 for the three months ended
September 30, 2002 as the historic decline in interest rates affected
interest-bearing liabilities to a greater extent than interest-earning assets.
Deposit account rates have been reduced substantially compared to the prior
period, and maturing FHLB advances with relatively high interest rates were
repaid.
Interest Income. Interest income decreased from $1.4 million for the three
months ended September 30, 2001 to $1.1 million for the three months ended
September 30, 2002 since current market interest rates on interest-earning
assets repricing are lower than in the prior period.
Interest Expense. Interest expense decreased from $848,000 for the three
months ended September 30, 2001 to $500,000 for the three months ended September
30, 2002 since current market interest rates for interest-bearing liabilities
repricing are lower than in the prior period.
24
Provision for Loan Losses. During the three months ended September 30,
2002, Clay County Savings recorded a provision for loan losses of $13,000.
Management believes that all known and inherent losses in the loan portfolio
that are both probable and reasonable to estimate have been recorded as of each
balance sheet date. In determining the allowance for loan losses to be
maintained, management considers current economic conditions, Clay County
Savings' loan portfolio composition and historical loss experience, as well as
change in the level of classified assets. Management also reviews individual
loans for which full collectibility may not be reasonably assured and considers,
among other matters, the estimated fair value of the underlying collateral.
Noninterest Income. Noninterest income decreased from $130,000 for the
three months ended September 30, 2001 to $103,000 for the three months ended
September 30, 2002. The 2001 period included a nonrecurring gain of $69,000
related to the sale of premises. Gain on sale of loans increased from $16,000
for the three months ended September 30, 2001 to $48,000 for the three months
ended September 30, 2002.
Noninterest Expense. Noninterest expense decreased from $606,000 for the
three months ended September 30, 2001 to $596,000 for the three months ended
September 30, 2002 due primarily to lower advertising and miscellaneous
operating expenses.
Income Taxes. Income taxes increased from $9,000 for the three months ended
September 30, 2001 to $16,000 for the three months ended September 30, 2002 due
to higher earnings before income taxes.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
Performance Summary. Net earnings for the year ended September 30, 2002 was
$113,000 compared to a net loss of $112,000 for the year ended September 30,
2001. The increase of $225,000 in net earnings was due primarily to an
improvement in net interest margin, an increase in fees and service charges, an
increase in gain on sale of loans and lower provision for loan losses, offset by
slightly higher noninterest expense and higher income taxes. The year ended
September 30, 2001 also included a nonrecurring gain on sale of premises of
$69,000.
Net Interest Income. Net interest income increased from $1.9 million for
the year ended September 30, 2001 to $2.2 million for the year ended September
30, 2002 as the decline in interest rates affected interest-bearing liabilities
to a greater extent than interest-earning assets. Deposit account rates have
been reduced substantially compared to the prior period, and maturing FHLB
advances with relatively high interest rates were repaid.
Interest Income. Interest income decreased from $5.6 million for the year
ended September 30, 2001 to $4.6 million for the year ended September 30, 2002
since current market interest rates on interest-earning assets repricing are
lower than in the prior year.
Interest Expense. Interest expense decreased from $3.6 million for the year
ended September 30, 2001 to $2.4 million for the year ended September 30, 2002
since current market interest rates on interest-bearing liabilities repricing
are lower than in the prior year.
25
Provision for Loan Losses. Provisions for loan losses for the years ended
September 30, 2001 and 2002 were $21,000 and $16,000, respectively. Management
believes that all known and inherent losses in the loan portfolio that are both
probable and reasonable to estimate have been recorded as of each balance sheet
date. In determining the allowance for loan losses to be maintained, management
considers current economic conditions, Clay County Savings' loan portfolio
composition and historical loss experience, as well as change in the level of
classified assets. Management also reviews individual loans for which full
collectibility may not be reasonably assured and considers, among other matters,
the estimated fair value of the underlying collateral.
Noninterest Income. Noninterest income increased from $256,000 for the year
ended September 30, 2001 to $314,000 for the year ended September 30, 2002. Fees
and service charges increased from $129,000 for the year ended September 30,
2001 to $169,000 for the year ended September 30, 2002 due to higher service
charges on NOW accounts. The 2001 period included a nonrecurring gain of $69,000
related to the sale of premises. Gain on sale of loans increased from $40,000
for the year ended September 30, 2001 to $122,000 for the year ended September
30, 2002.
Noninterest Expense. Noninterest expense was virtually unchanged at $2.3
million for the year ended September 30, 2002 and 2001.
Income Taxes. Income taxes increased from a tax benefit of $58,000 for the
year ended September 30, 2001 to tax expense of $58,000 for the year ended
September 30, 2002 due to higher earnings before income taxes.
26
USE OF PROCEEDS
Although we will not be able to determine the amount of actual net proceeds
we will receive from the sale of the common stock until the offering is
completed, we anticipate that the net proceeds will be between $5.8 million and
$8.0 million, or $9.2 million if the offering is increased by 15%.
CCSB Financial Corp. intends to distribute the net proceeds from the
offering as follows:
978,650
629,000 740,000 851,000 SHARES AT
SHARES AT SHARES AT SHARES AT ADJUSTED
MINIMUM OF MIDPOINT OF MAXIMUM OF MAXIMUM OF
OFFERING OFFERING OFFERING OFFERING
RANGE RANGE RANGE RANGE
---------- ----------- ---------- ----------
(IN THOUSANDS)
Offering proceeds............................ $ 6,290 $ 7,400 $ 8,510 $ 9,787
Less offering expenses....................... 505 525 546 569
---------- ----------- ---------- ----------
Net offering proceeds........................ 5,785 6,875 7,964 9,218
Less:
Proceeds contributed to Clay County
Savings................................... 2,893 3,438 3,982 4,609
Proceeds used for loan to employee stock
ownership plan........................... 503 592 681 783
---------- ----------- ---------- ----------
Proceeds retained by CCSB Financial Corp..... $ 2,389 $ 2,845 $ 3,301 $ 3,826
========== =========== ========== ==========
The net proceeds may vary because total expenses relating to the conversion
may be more or less than our estimates. Payments for shares made through
withdrawals from existing deposit accounts will not result in the receipt of new
funds for investment but will result in a reduction of Clay County Savings'
deposits. In all instances, Clay County Savings will receive 50% of the net
proceeds of the offering. CCSB Financial Corp. intends to loan to the employee
stock ownership plan the amount necessary to acquire 8% of the common stock
issued in the conversion.
We are undertaking the conversion and offering at this time in order to
have the capital resources available to expand and diversify our business. The
offering proceeds will increase our capital and the amount of funds available to
us for lending and investment. The proceeds will also give us greater
flexibility to diversify operations and expand the products and services we
offer.
CCSB FINANCIAL CORP. MAY USE THE PROCEEDS IT RETAINS FROM THE OFFERING:
. to finance the expansion of its operations through the acquisition of
financial institutions, or through diversification into related
financial services businesses, although no specific transactions are
being considered at this time;
. to invest in securities;
. to repurchase its common stock;
. to pay dividends to stockholders; and
27
. for general corporate purposes.
Under current Office of Thrift Supervision regulations, we may not
repurchase shares of common stock during the first year following the
conversion, except when extraordinary circumstances exist and with prior
regulatory approval.
CLAY COUNTY SAVINGS MAY USE THE PROCEEDS IT RECEIVES FROM THE OFFERING:
. to fund new loans, including one-to four-family mortgage loans,
construction loans, multi-family and commercial real estate loans,
consumer loans and commercial loans;
. to expand its retail banking franchise, by establishing or acquiring
new branches or by acquiring other financial institutions, or other
financial services companies, although no transactions are
specifically being considered at this time;
. to invest in securities; and
. for general corporate purposes.
Initially, it is expected that the net proceeds retained by CCSB Financial
Corp., and received by Clay County Savings, will be placed in short-term
investments.
We will have broad discretion in allocating the proceeds of the offering.
Although our intended uses of proceeds are set forth above, we have not
allocated specific amounts of proceeds for any of these purposes and we will
have significant flexibility in determining the amount of net proceeds we apply
to different uses and the timing of such applications. Our failure to utilize
these funds effectively could reduce our profitability.
DIVIDEND POLICY
We do not intend to initially pay a dividend on the common stock. Any
future payment of dividends will depend upon a number of factors, including the
amount of net proceeds retained by us following the offering, investment
opportunities available to us, regulatory capital requirements, our financial
condition and results of operations, tax considerations, statutory and
regulatory limitations, and general economic conditions. We cannot assure you
that we will pay dividends, or that if paid, we will not reduce or eliminate
dividends in the future.
Under the rules of the Office of Thrift Supervision, Clay County Savings
will not be permitted to pay dividends on its capital stock to CCSB Financial
Corp., its sole stockholder, if Clay County Savings' stockholders' equity would
be reduced below the amount of the liquidation account. In addition, Clay County
Savings will not be permitted to make a capital distribution if, after making
the distribution it would be undercapitalized.
Unlike Clay County Savings, CCSB Financial Corp. is not restricted by
Office of Thrift Supervision regulations on the payment of dividends to its
stockholders, although the source of dividends will depend on the net proceeds
retained by CCSB Financial Corp. and earnings thereon, and upon dividends from
Clay County Savings. CCSB Financial Corp., however, is subject to the
requirements of Delaware law, which generally limit dividends to an amount equal
28
to the excess of its stockholders' equity over its statutory capital or, if
there is no excess, to its net earnings for the current and/or immediately
preceding fiscal year.
Additionally, we have committed to the Office of Thrift Supervision that
during the one-year period following the completion of the conversion, we will
not take any action to declare an extraordinary dividend to our stockholders
that would be treated by such stockholders as a tax-free return of capital for
federal income tax purposes, without prior approval of the Office of Thrift
Supervision.
MARKET FOR THE COMMON STOCK
Because this is our initial public offering, there is no market for our
common stock at this time. After we complete the offering, we anticipate that
our common stock will be traded on the Over-the-Counter Electronic Bulletin
Board under the symbol "CCSB." In order to be eligible for trading on the
Over-the-Counter Electronic Bulletin Board, we must remain current in our
periodic reporting with the Securities and Exchange Commission. Trident
Securities has indicated its intention to make a market in our common stock and
to assist us in identifying other firms to do the same. This may include the
solicitation of potential buyers and sellers in order to match buy and sell
orders. However, Trident Securities will not be subject to any obligation with
respect to these efforts.
The development of a public market having the desirable characteristics of
depth, liquidity and orderliness depends on the existence of willing buyers and
sellers, the presence of which is not within the control of Clay County Savings,
CCSB Financial Corp. or any market maker. There can be no assurance that persons
purchasing the common stock will be able to sell their shares at or above the
subscription price of $10.00 per share. Therefore, purchasers of the common
stock should have a long-term investment intent and should recognize that there
may be a limited trading market in the common stock. This may make it difficult
to sell the common stock after the conversion and may have an adverse effect on
the price at which the common stock can be sold.
29
REGULATORY CAPITAL COMPLIANCE
At June 30, 2002, Clay County Savings exceeded all regulatory capital
requirements. Set forth below is a summary of our compliance, as of June 30,
2002, with the regulatory capital standards, on a historical and pro forma basis
assuming that the indicated number of shares were sold as of such date at $10.00
per share and Clay County Savings received 50% of the net proceeds of the
offering.
PRO FORMA AT JUNE 30, 2002, BASED UPON THE SALE OF
--------------------------------------------------------------------------------------
978,650 SHARES
629,000 SHARES 740,000 SHARES 851,000 SHARES AT AT ADJUSTED
HISTORICAL AT AT MINIMUM OF AT MIDPOINT OF MAXIMUM OF MAXIMUM OF
JUNE 30, 2002 OFFERING RANGE OFFERING RANGE OFFERING RANGE OFFERING RANGE(1)
------------------- ------------------- ------------------- ------------------- --------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
------- --------- ------- --------- ------- --------- ------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
GAAP capital(6).... $ 6,526 8.38% $ 8,664 10.83% $ 9,076 11.30% $ 9,487 11.75% $ 9,961 12.27%
======= ========= ======= ========= ======= ========= ======= ========= ======== =========
Tangible capital:
Tangible capital $ 6,448 8.29% $ 8,586 10.75% $ 8,998 11.20% $ 9,409 11.66% $ 9,883 12.17%
Requirement...... 1,166 1.50 1,198 1.50 1,205 1.50 1,211 1.50 1,218 1.50
------- --------- ------- --------- ------- --------- ------- --------- -------- ---------
Excess.......... $ 5,282 6.79% $ 7,388 9.25% $ 7,793 9.70% $ 8,198 10.16% $ 8,665 10.67%
======= ========= ======= ========= ======= ========= ======= ========= ======== =========
Core capital:
Core capital(3).. $ 6,448 8.29% $ 8,586 10.75% $ 8,998 11.20% $ 9,409 11.66% $ 9,883 12.17%
Requirement(4)... 3,110 4.00 3,196 4.00 3,212 4.00 3,229 4.00 3,247 4.00
------- --------- ------- --------- ------- --------- ------- --------- -------- ---------
Excess.......... $ 3,338 4.29% $ 5,390 6.75% $ 5,786 7.20% $ 6,180 7.66% $ 6,636 8.17%
======= ========= ======= ========= ======= ========= ======= ========= ======== =========
Risk-based
capital:
Risk-based
capital(3)(5)... $ 6,642 16.30% $ 8,780 21.32% $ 9,192 22.28% $ 9,603 23.23% $ 10,077 24.32%
Requirement...... 3,260 8.00 3,294 8.00 3,301 8.00 3,307 8.00 3,315 8.00
------- --------- ------- --------- ------- --------- ------- --------- -------- ---------
Excess.......... $ 3,382 8.30% $ 5,486 13.32% $ 5,891 14.28% $ 6,296 15.23% $ 6,762 16.32%
======= ========= ======= ========= ======= ========= ======= ========= ======== =========
- ----------
(1) As adjusted to give effect to a 15% increase in the number of shares
outstanding after the offering which could occur due to an increase in the
maximum of the independent valuation as a result of regulatory
considerations, demand for the shares, or changes in market conditions or
general economic conditions following the commencement of the offering.
(2) Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as a percentage of total adjusted assets.
Risk-based capital levels are shown as a percentage of risk-weighted
assets. Based on adjusted total assets of $77,753,000, $79,891,000,
$80,303,000, $80,714,000 and $81,188,000, respectively, for the purposes of
the tangible and Tier 1 capital requirements, and net risk- weighted assets
of $40,747,000, $41,175,000, $41,257,000, $41,339,000 and $41,434,000,
respectively, for the purposes of the risk-based capital requirement.
(3) Pro forma capital levels assume that Clay County Savings funds the
recognition and retention plan, which purchases in the open market 4% of
the common stock sold in the stock offering at a price equal to the price
for which the shares are sold in the offering, and that the employee stock
ownership plan purchases 8% of the shares sold in the stock offering.
(4) The current core capital requirement for savings associations that receive
the highest supervisory rating for safety and soundness is 3% of total
adjusted assets and 4% to 5% of total adjusted assets for all other savings
associations.
(5) Assumes net proceeds are invested in assets that carry a 20%
risk-weighting. Historical risk-based capital is comprised of Tier 1 core
capital of $6,448,000, our allowance for loan losses of $193,000, and
unrealized gains on available for sale securities of $1,000 at June 30,
2002.
(6) Represents GAAP capital at June 30, 2002, plus 50% of the net proceeds of
the offering, less common stock acquired by the recognition and retention
plan and employee stock ownership plan.
30
CAPITALIZATION
The following table presents the historical consolidated capitalization of
CCSB Financial Corp. at June 30, 2002, and the pro forma consolidated
capitalization after giving effect to the offering, based upon the sale of the
number of shares indicated in the table and the other assumptions set forth
under "Pro Forma Data."
PRO FORMA CONSOLIDATED CAPITALIZATION
BASED UPON THE SALE FOR $10.00 PER SHARE OF
--------------------------------------------------
740,000 978,650
629,000 SHARES AT 851,000 SHARES AT
SHARES AT MIDPOINT SHARES AT ADJUSTED
MINIMUM OF OF MAXIMUM MAXIMUM OF
HISTORICAL OFFERING OFFERING OFFERING OFFERING
CAPITALIZATION RANGE RANGE RANGE RANGE(1)
-------------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Deposits(2)....................................... $ 63,669 $ 63,669 $ 63,669 $ 63,669 $ 63,669
FHLB borrowings................................... 6,890 6,890 6,890 6,890 6,890
----------- ---------- ---------- ---------- ----------
Total deposits and borrowed funds................. $ 70,559 $ 70,559 $ 70,559 $ 70,559 $ 70,559
=========== ========== ========== ========== ==========
Stockholders' equity:
Preferred Stock, $0.01 par value per share,
500,000 shares authorized; none to be issued $ -- $ -- $ -- $ -- $ --
Common Stock, $0.01 par value per share:
2,500,000 shares authorized; assumed
outstanding - as shown(3).................... -- 6 7 9 10
Additional paid-in capital(3)................... -- 5,779 6,868 7,955 9,208
Retained earnings............................... 6,448 6,448 6,448 6,448 6,448
Accumulated other comprehensive earnings,
other 78 78 78 78 78
Less:
Common Stock acquired by employee stock
ownership plan(4)............................ -- 503 592 681 783
Common Stock to be acquired by recognition
and retention plan(5)........................ -- 252 296 340 391
----------- ---------- ---------- ---------- ----------
Total stockholders' equity.................. $ 6,526 $ 11,556 $ 12,513 $ 13,469 $ 14,570
=========== ========== ========== ========== ==========
- ----------
(1) As adjusted to give effect to a 15% increase in the number of shares
outstanding after the offering which could occur due to an increase in the
maximum of the independent valuation as a result of regulatory
considerations, demand for the shares, or changes in market conditions or
general financial and economic conditions following the commencement of the
offering.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the offering. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the sale of shares in the offering. Does not include proceeds from
the offering that will be loaned to the employee stock ownership plan to
enable it to purchase shares in the offering. No effect has been given to
the issuance of additional shares of common stock pursuant to the stock
option plan that CCSB Financial Corp. expects to adopt. If such plan is
approved by stockholders, an amount equal to 10% of the shares of common
stock issued in the offering will be reserved for issuance upon the
exercise of options.
(4) Assumes that 8% of the shares sold in the offering will be purchased by the
employee stock ownership plan and that the funds used to acquire the
employee stock ownership plan shares will be borrowed from CCSB Financial
Corp. The common stock acquired by the employee stock ownership plan is
reflected as a reduction of stockholders' equity.
(5) Assumes that subsequent to the stock offering, 4% of the shares of common
stock sold in the stock offering are purchased by the recognition and
retention plan in the open market. The common stock to be purchased by the
recognition and retention plan is reflected as a reduction of stockholders'
equity. The recognition and retention plan will not be implemented for at
least six months after the stock offering and until it has been approved by
stockholders.
31
PRO FORMA DATA
We cannot determine the actual net proceeds from the sale of the common
stock until the offering is completed. However, we estimate that net proceeds
will be between $5.8 million and $8.0 million, or $9.2 million if the offering
range is increased by 15%, based upon the following assumptions:
. we will sell all shares of common stock in the subscription offering;
. 140,000 shares of common stock will be purchased by our executive
officers and directors, and their immediate families;
. our employee stock ownership plan will purchase 8% of the shares of
common stock sold in the offering with a loan from CCSB Financial
Corp. The loan will be repaid in substantially equal principal
payments over a period of 15 years;
. we will pay Trident Securities a fee equal to 2.0% of the aggregate
price of shares sold to persons other than executive officers,
directors and the employee stock ownership plan; and
. total expenses, excluding fees paid to Trident Securities, will be
approximately $425,000.
We calculated the pro forma consolidated net income and stockholders'
equity of CCSB Financial Corp. for the nine months ended June 30, 2002 and the
year ended September 30, 2001, as if the common stock had been sold at the
beginning of these periods and the net proceeds had been invested at 1.75% for
the nine months ended June 30, 2002 and at 3.70% for the fiscal year ended
September 30, 2001. We chose these yields because they represent the yields on
one-year United States Government securities for the corresponding periods. We
believe these rates more accurately reflect pro forma reinvestment rates than
the arithmetic average method, which assumes reinvestment of the net proceeds at
a rate equal to the average of the yield on interest-earning assets and the cost
of deposits for these periods. We assumed a tax rate of 34.0% for both periods.
This results in an annualized after-tax yield of 1.16% for the nine months ended
June 30, 2002 and 2.44% for the fiscal year ended September 30, 2001.
We calculated historical and pro forma per share amounts by dividing
historical and pro forma amounts of consolidated net income and stockholders'
equity by the indicated number of shares of common stock. We adjusted these
figures to give effect to the shares purchased by the employee stock ownership
plan. We computed per share amounts for each period as if the common stock was
outstanding at the beginning of the periods, but we did not adjust pro forma
stockholders' equity to reflect the earnings on the estimated net proceeds.
The pro forma table gives effect to the implementation of a recognition and
retention plan. Subject to the receipt of stockholder approval, the recognition
and retention plan will acquire an amount of common stock equal to 4% of the
shares of common stock sold in the offering. In preparing the table below, we
assumed that stockholder approval has been obtained and that the recognition and
retention plan purchases in the open market a number of shares equal to 4% of
the shares sold in the offering at the same price for which they were sold in
the
32
stock offering. We assume that shares of stock are granted under the plan in
awards that vest over five years.
As discussed under "Use of Proceeds," CCSB Financial Corp. intends to
contribute 50% of the net proceeds from the offering to Clay County Savings,
make a loan to the employee stock ownership plan, and retain the rest of the
proceeds for future use.
The pro forma table does not give effect to:
. shares to be reserved for issuance under the stock option plan;
. withdrawals from deposit accounts for the purpose of purchasing common
stock in the offering;
. CCSB Financial Corp.'s results of operations after the conversion;
. changes in the market price of the common stock after the conversion;
or
. the liquidation account or the effect of recapture of the tax bad debt
reserve in the event of liquidation or special circumstances.
The following pro forma information may not represent the financial effects
of the conversion at the date on which the conversion actually occurs and you
should not use the table to indicate future results of operations. Pro forma
stockholders' equity represents the difference between the stated amount of
assets and liabilities of Clay County Savings computed in accordance with
generally accepted accounting principles. We did not increase or decrease
stockholders' equity to reflect the difference between the carrying value of
loans and other assets and their market value. Pro forma stockholders' equity is
not intended to represent the fair market value of the common stock and may be
different than amounts that would be available for distribution to stockholders
if we liquidated.
33
AT OR FOR THE NINE MONTHS ENDED JUNE 30, 2002
BASED UPON THE SALE AT $10.00 PER SHARE OF
------------------------------------------------------
740,000 978,650
629,000 SHARES 851,000 SHARES
SHARES MIDPOINT SHARES 15% ABOVE
MINIMUM OF OF MAXIMUM OF MAXIMUM OF
ESTIMATED ESTIMATED ESTIMATED ESTIMATED
OFFERING OFFERING OFFERING OFFERING
RANGE RANGE RANGE RANGE(1)
---------- ---------- ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds............................................ $ 6,290 $ 7,400 $ 8,510 $ 9,787
Expenses.................................................. (505) (525) (546) (569)
---------- ---------- ------------ ----------
Estimated net proceeds................................. 5,785 6,875 7,964 9,218
Common stock acquired by employee stock ownership plan
(2)...................................................... (503) (592) (681) (783)
Common stock acquired by recognition and retention plan
(2)...................................................... (252) (296) (340) (391)
---------- ---------- ------------ ----------
Estimated net proceeds, as adjusted.................... $ 5,030 $ 5,987 $ 6,943 $ 8,044
========== ========== ============ ==========
FOR THE NINE MONTHS ENDED JUNE 30, 2002
Consolidated net income:
Historical............................................. $ 81 $ 81 $ 81 $ 81
Pro forma adjustments:
Income on adjusted net proceeds........................ 44 52 60 70
Employee stock ownership plan(2)....................... (21) (25) (29) (33)
Recognition and retention plan(2)...................... (25) (29) (34) (39)
---------- ---------- ------------ ----------
Pro forma net income................................. $ 79 $ 79 $ 78 $ 79
========== ========== ============ ==========
Net Income per share(3):
Historical............................................. $ 0.14 $ 0.12 $ 0.10 $ 0.09
Pro forma adjustments:
Income on adjusted net proceeds........................ 0.08 0.08 0.08 0.08
Employee stock ownership plan(2)....................... (0.04) (0.04) (0.04) (0.04)
Recognition and retention plan(2)...................... (0.04) (0.04) (0.04) (0.04)
---------- ---------- ------------ ----------
Pro forma net income per share(3)(4)................. $ 0.14 $ 0.12 $ 0.10 $ 0.09
========== ========== ============ ==========
Pro forma price to earnings ratio......................... 53.56x 62.50x 75.02x 83.33x
Number of shares used in per share calculations (under
SOP 93-6)................................................ 581,910 684,600 787,290 905,384
========== ========== ============ ==========
AT JUNE 30, 2002
Stockholders' equity:
Historical............................................. $ 6,526 $ 6,526 $ 6,526 $ 6,526
Estimated net proceeds................................. 5,785 6,875 7,964 9,218
Common stock acquired by employee stock ownership
plan(2)............................................... (503) (592) (681) (783)
Common stock acquired by recognition and retention
plan(2)............................................... (252) (296) (340) (391)
---------- ---------- ------------ ----------
Pro forma stockholders' equity(5).................. $ 11,556 $ 12,513 $ 13,469 $ 14,570
========== ========== ============ ==========
Stockholders' equity per share(6):
Historical............................................. $ 10.38 $ 8.82 $ 7.67 $ 6.67
Estimated net proceeds................................. 9.20 9.29 9.36 9.42
Common stock acquired by employee stock ownership
plan(2)............................................... (0.80) (0.80) (0.80) (0.80)
Common stock acquired by recognition and retention
plan(2)............................................... (0.40) (0.40) (0.40) (0.40)
---------- ---------- ------------ ----------
Pro forma stockholders' equity per share(5)(6)..... $ 18.38 $ 16.91 $ 15.83 $ 14.89
========== ========== ============ ==========
Offering price as percentage of pro forma
stockholders' equity per share........................... 54.41% 59.14% 63.17% 67.16%
Number of shares used in book value per share
calculations............................................. 629,000 740,000 851,000 978,650
(Footnotes on next page)
34
- ----------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect changes
in market and financial conditions following the commencement of the
offering.
(2) Assumes 50,320, 59,200, 68,080 and 78,292 shares of common stock will be
acquired in the offering by the employee stock ownership plan at the
minimum, midpoint, maximum and maximum as adjusted, respectively, of the
offering range. We also assumed that the funds used to acquire the shares
will be borrowed from CCSB Financial Corp. If the employee stock ownership
plan purchases 8% of the common stock sold in the offering at the minimum,
midpoint, maximum and maximum as adjusted, respectively of the offering
range, and excluding the impact of any purchase of shares by the
recognition and retention plan, pro forma stockholders' equity per share
would be $18.78, $17.31, $16.23 and $15.29, respectively. The funds used to
acquire such shares will be borrowed by the employee stock ownership plan,
at a fixed interest rate of 6.00%, from the net proceeds from the
conversion retained by CCSB Financial Corp. The amount of this borrowing
has been reflected as a reduction from gross proceeds to determine
estimated net conversion proceeds. Clay County Savings intends to make
contributions to the employee stock ownership plan in amounts at least
equal to the principal and interest requirement of the debt. As the debt is
paid down, stockholders' equity will be increased. Clay County Savings'
payment of the employee stock ownership plan debt is based upon equal
installments of principal over a fifteen-year period. Interest income
earned by CCSB Financial Corp. on the employee stock ownership plan debt
offsets the interest paid by Clay County Savings on the employee stock
ownership plan loan. No reinvestment is assumed on proceeds contributed to
fund the employee stock ownership plan. The employee stock ownership plan
expense reflects adoption of Statement of Position ("SOP") 93-6, which will
require recognition of expense based upon shares committed to be released
and reflects an effective federal and state tax rate of 34.0%. The
valuation of shares committed to be released would be based upon the
average market value of the shares during the year, which, for purposes of
this calculation, was assumed to be equal to the $10.00 per share purchase
price. If approved by CCSB Financial Corp.'s stockholders, the recognition
and retention plan intends to purchase an aggregate number of shares of
common stock equal to 4% of the shares to be sold in the offering.
Stockholder approval of the recognition and retention plan and purchases by
the plan may not occur earlier than six months after the completion of the
conversion. The shares may be acquired directly from CCSB Financial Corp.
or through open market purchases. The funds to be used by the recognition
and retention plan to purchase the shares will be provided by Clay County
Savings. The table assumes that (i) the recognition and retention plan
acquires the shares through open market purchases at $10.00 per share, (ii)
the pro rata portion of 20% of the amount contributed to the recognition
and retention plan is amortized as an expense during the nine months ended
June 30, 2002, and (iii) the recognition and retention plan expense
reflects an effective combined federal and state tax rate of 34.0%.
Assuming stockholder approval of the recognition and retention plan and
that the plan shares are awarded through the use of authorized but unissued
shares of common stock, stockholders would have their voting interests
diluted by approximately 3.83%.
(3) Net income per share computations are determined by taking the number of
shares assumed to be sold in the offering and, in accordance with Statement
of Position 93-6, subtracting the employee stock ownership plan shares
which have not been committed for release during the period. See note 2
above. The number of shares of common stock actually sold may be more or
less than the assumed amounts.
(4) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plan, which is expected to be adopted by
CCSB Financial Corp. following the offering and presented to stockholders
for approval not earlier than six months after the completion of the
conversion. If the stock option plan is approved by stockholders, a number
of shares equal to 10% of the shares sold in the offering will be reserved
for future issuance upon the exercise of options to be granted under the
stock option plan. The issuance of authorized but previously unissued
shares of common stock pursuant to the exercise of options under the stock
option plan would dilute existing stockholders' interests by approximately
9.09%.
(5) The retained earnings of CCSB Financial Corp. will be substantially
restricted after the conversion.
(6) Stockholders' equity per share calculations are based upon the number of
subscription shares assumed to be sold in the offering.
35
AT OR FOR THE YEAR ENDED SEPTEMBER 30, 2001
BASED UPON THE SALE AT $10.00 PER SHARE OF
--------------------------------------------------------
740,000 978,650
629,000 SHARES 851,000 SHARES
SHARES MIDPOINT SHARES 15% ABOVE
MINIMUM OF OF MAXIMUM OF MAXIMUM OF
ESTIMATED ESTIMATED ESTIMATED ESTIMATED
OFFERING OFFERING OFFERING OFFERING
RANGE RANGE RANGE RANGE(1)
---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds......................................... $ 6,290 $ 7,400 $ 8,510 $ 9,787
Expenses............................................... (505) (525) (546) (569)
---------- ---------- ----------- ----------
Estimated net proceeds.............................. 5,785 6,875 7,964 9,218
Common stock acquired by employee stock ownership plan
(2)................................................... (503) (592) (681) (783)
Common stock acquired by recognition and retention plan
(2)................................................... (252) (296) (340) (391)
---------- ---------- ----------- ----------
Estimated net proceeds, as adjusted................. $ 5,030 $ 5,987 $ 6,943 $ 8,044
========== ========== =========== ==========
FOR THE YEAR ENDED SEPTEMBER 30, 2001
CONSOLIDATED NET INCOME (LOSS):
Historical.......................................... $ (112) $ (112) $ (112) $ (112)
Pro forma adjustments:
Income on adjusted net proceeds..................... 123 146 170 196
Employee stock ownership plan(2).................... (28) (33) (38) (44)
Recognition and retention plan(2)................... (33) (39) (45) (52)
---------- ---------- ----------- ----------
Pro forma net income (loss)....................... $ (50) $ (38) $ (25) $ (12)
========== ========== =========== ==========
Net Income per share(3):
Historical.......................................... $ (0.19) $ (0.16) $ (0.14) $ (0.12)
Pro forma adjustments:
Income on adjusted net proceeds..................... 0.21 0.21 0.22 0.22
Employee stock ownership plan(2).................... (0.05) (0.05) (0.05) (0.05)
Recognition and retention plan(2)................... (0.06) (0.06) (0.06) (0.06)
---------- ---------- ----------- ----------
Pro forma net income (loss) per share(3)(4)....... $ (0.09) $ (0.06) $ (0.03) $ (0.01)
========== ========== =========== ==========
Pro forma price to earnings ratio...................... (111.11)x (166.67)x (333.33)x (1,000.00)x
Number of shares used in per share calculations (under
SOP 93-6)............................................. 582,987 685,867 788,747 907,059
========== ========== =========== ==========
AT SEPTEMBER 30, 2001
STOCKHOLDERS' EQUITY:
Historical.......................................... $ 6,465 $ 6,465 $ 6,465 $ 6,465
Estimated net proceeds.............................. 5,785 6,875 7,964 9,218
Common stock acquired by employee stock ownership
plan (2)........................................... (503) (592) (681) (783)
Common stock acquired by recognition and retention
plan (2)........................................... (252) (296) (340) (391)
---------- ---------- ----------- ----------
Pro forma stockholders' equity(5)............... $ 11,495 $ 12,452 $ 13,408 $ 14,509
========== ========== =========== ==========
Stockholders' equity per share(6):
Historical.......................................... $ 10.28 $ 8.74 $ 7.60 $ 6.61
Estimated net proceeds.............................. 9.20 9.29 9.36 9.42
Common stock acquired by employee stock ownership
plan(2)............................................ (0.80) (0.80) (0.80) (0.80)
Common stock acquired by recognition and retention
plan(2)............................................ (0.40) (0.40) (0.40) (0.40)
---------- ---------- ----------- ----------
Pro forma stockholders' equity per share(5)(6).. $ 18.28 $ 16.83 $ 15.76 $ 14.83
========== ========== =========== ==========
Offering price as percentage of pro forma
stockholders' equity per share........................ 54.70% 59.42% 63.45% 67.43%
Number of shares used in book value per share
calculations.......................................... 629,000 740,000 851,000 978,650
(Footnotes on next page)
36
- ----------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect changes
in market and financial conditions following the commencement of the
offering.
(2) Assumes 50,320, 59,200, 68,080 and 78,292 shares of common stock will be
acquired in the offering by the employee stock ownership plan at the
minimum, midpoint, maximum and maximum as adjusted, respectively, of the
offering range. We also assumed that the funds used to acquire the shares
will be borrowed from CCSB Financial Corp. If the employee stock ownership
plan purchases 8% of the common stock sold in the offering at the minimum,
midpoint, maximum and maximum as adjusted, respectively of the offering
range, and excluding the impact of any purchase of shares by the
recognition and retention plan, pro forma stockholders' equity per share
would be $18.68, $17.23, $16.16 and $15.23, respectively. The funds used to
acquire such shares will be borrowed by the employee stock ownership plan,
at a fixed interest rate of 6.00%, from the net proceeds from the
conversion retained by CCSB Financial Corp. The amount of this borrowing
has been reflected as a reduction from gross proceeds to determine
estimated net conversion proceeds. Clay County Savings intends to make
contributions to the employee stock ownership plan in amounts at least
equal to the principal and interest requirement of the debt. As the debt is
paid down, stockholders' equity will be increased. Clay County Savings'
payment of the employee stock ownership plan debt is based upon equal
installments of principal over a fifteen-year period. Interest income
earned by CCSB Financial Corp. on the employee stock ownership plan debt
offsets the interest paid by Clay County Savings on the employee stock
ownership plan loan. No reinvestment is assumed on proceeds contributed to
fund the employee stock ownership plan. The employee stock ownership plan
expense reflects adoption of Statement of Position ("SOP") 93-6, which will
require recognition of expense based upon shares committed to be released
and reflects an effective federal and state tax rate of 34.0%. The
valuation of shares committed to be released would be based upon the
average market value of the shares during the year, which, for purposes of
this calculation, was assumed to be equal to the $10.00 per share purchase
price. If approved by CCSB Financial Corp.'s stockholders, the recognition
and retention plan intends to purchase an aggregate number of shares of
common stock equal to 4% of the shares to be sold in the offering.
Stockholder approval of the recognition and retention plan and purchases by
the plan may not occur earlier than six months after the completion of the
conversion. The shares may be acquired directly from CCSB Financial Corp.
or through open market purchases. The funds to be used by the recognition
and retention plan to purchase the shares will be provided by Clay County
Savings. The table assumes that (i) the recognition and retention plan
acquires the shares through open market purchases at $10.00 per share, (ii)
20% of the amount contributed to the recognition and retention plan is
amortized as an expense during the year ended September 30, 2001, and (iii)
the recognition and retention plan expense reflects an effective combined
federal and state tax rate of 34.0%. Assuming stockholder approval of the
recognition and retention plan and that the plan shares are awarded through
the use of authorized but unissued shares of common stock, stockholders
would have their voting interests diluted by approximately 3.83%.
(3) Net income per share computations are determined by taking the number of
shares assumed to be sold in the offering and, in accordance with Statement
of Position 93-6, subtracting the employee stock ownership plan shares
which have not been committed for release during the year. See note 2
above. The number of shares of common stock actually sold may be more or
less than the assumed amounts.
(4) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plan, which is expected to be adopted by
CCSB Financial Corp. following the offering and presented to stockholders
for approval not earlier than six months after the completion of the
conversion. If the stock option plan is approved by stockholders, a number
of shares equal to 10% of the shares sold in the offering will be reserved
for future issuance upon the exercise of options to be granted under the
stock option plan. The issuance of authorized but previously unissued
shares of common stock pursuant to the exercise of options under the stock
option plan would dilute existing stockholders' interests by approximately
9.09%.
(5) The retained earnings of CCSB Financial Corp. will be substantially
restricted after the conversion.
(6) Stockholders' equity per share calculations are based upon the number of
subscription shares assumed to be sold in the offering.
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion and analysis reflects Clay County Savings' financial
statements and other relevant statistical data, and is intended to enhance your
understanding of our financial condition and results of operations. The
information in this section has been derived from the audited and interim,
unaudited financial statements, which appear beginning on page F-2 of this
prospectus. You should read the information in this section in conjunction with
the business and financial information regarding Clay County Savings provided in
this prospectus.
GENERAL
Our results of operations depend primarily on our net interest income. Net
interest income is the difference between the interest income we earn on our
interest-earning assets, consisting primarily of loans, mortgage-backed
securities, securities and other interest-earning assets, and the interest we
pay on our interest-bearing liabilities, consisting primarily of deposit
accounts and FHLB advances. Our results of operations are also affected by our
provisions for loan losses, noninterest income and noninterest expense.
Noninterest income consists primarily of fees and service charges and gains on
the sale of assets. Noninterest expense consists primarily of salaries and
employee benefits, occupancy, equipment, data processing, deposit insurance
premiums, advertising, and other operating expenses. Our results of operations
also may be affected significantly by general and local economic and competitive
conditions, changes in market interest rates, governmental policies and actions
of regulatory authorities.
Our results of operations and financial condition are significantly
affected by changes in interest rates. Because our interest-bearing liabilities
reprice or mature more quickly than our interest-earning assets, an increase in
interest rates generally would result in a decrease in our average interest rate
spread and net interest income. In addition, during periods of rising interest
rates, the risk of default on adjustable-rate mortgages may increase due to the
upward adjustment of interest cost to the borrower.
We are also subject to reinvestment risk associated with change in interest
rates. Changes in interest rates can affect the average life of loans and
mortgage related securities. Decreases in interest rates can result in increased
prepayments of loans and mortgage related securities, as borrowers refinance to
reduce borrowing costs. Under these circumstances, we are subject to
reinvestment risk to the extent that we are unable to reinvest such prepayments
at rates that are comparable to the rates on existing loans or securities.
Our financial results may be adversely affected by changes in prevailing
economic conditions, including decreases in real estate values, adverse
employment conditions, the monetary and fiscal policies of the federal
government and other significant external events. Because we have a significant
amount of real estate loans, decreases in real estate values could adversely
affect the value of property used as collateral. Adverse changes in the economy
also may have a negative effect on the ability of our borrowers to make timely
repayments of their loans, which would have an adverse impact on our earnings.
38
BUSINESS STRATEGY
Our business strategy is to operate as a well-capitalized, profitable,
community-oriented savings institution dedicated to providing quality customer
service. In the past, we implemented our business strategy by emphasizing the
origination of one- to four-family loans, but, in recent years, management has
taken steps to broaden the scope of our loan and deposit products and services
to enhance profitability and reduce the inherent interest rate risk between our
assets and liabilities. Over the last five years, we have also undertaken
significant restructuring to improve our management information systems and
improve our visibility and presence in the communities we serve. We have strived
to become a full-service, community-oriented financial institution offering a
wide range of deposit and loan products, while minimizing risks and protecting
our capital position.
The highlights of our business strategy are as follows:
Positioning the Institution for Future Growth and Improved Profitability.
In recent years, in order to position ourselves for future growth and improved
profitability, we underwent some significant changes to our infrastructure and
operations. This included (1) an expansion of products and services, (2) the
realignment of staff and the hiring of additional personnel, (3) the enhancement
of management information systems, which included a data processing conversion
in April 1999, and (4) the construction of a new home office, which opened in
August 2000, in a high traffic business section of Liberty, Missouri, in order
to improve our visibility and presence. This restructuring had a significant
impact on earnings. Noninterest expenses increased $630,000, or 36.94%, to $2.3
million for the fiscal year ended September 30, 2001, from $1.7 million for the
fiscal year ended September 30, 1998. Premises and equipment increased from
$1.36 million at September 30, 1998, to $4.4 million at September 30, 2001. This
resulted in a net loss of $112,000 for the fiscal year ended September 30, 2001,
compared to net income of $108,000, $221,000, and $218,000 for the fiscal years
ended September 30, 2000, 1999, and 1998, respectively. Management now believes
it has the infrastructure in place and, for the nine months ended June 30, 2002,
we returned to profitability and realized net earnings of $81,000. Noninterest
expense has stabilized as noninterest expense has increased only $13,000, or
0.75%, for the nine months ended June 30, 2002, compared to the nine months
ended June 30, 2001.
Continuing One- to Four-Family Residential Real Estate Lending.
Historically, we have emphasized one- to four-family residential lending within
our market area. As of June 30, 2002, $42.3 million, or 76.90% of our total loan
portfolio consisted of one- to four-family residential real estate loans. We
intend to continue to originate one- to four-family loans because of our
expertise with this type of lending. Currently, a significant portion of these
loans are sold in the secondary market. We retain the servicing on all loans
sold so as to maintain the relationship with the customer for other products and
services.
Construction Lending. We intend to remain active in construction lending
for primarily single-family homes, although during the nine months ended June
30, 2002, our construction loan volume has declined and the balance of
construction loans has decreased due to economic conditions and an overall
reduction in construction/speculative loans. For the nine months ended June 30,
2002, construction loan originations total $5.3 million compared to $7.1 million
for the nine months ended June 30, 2001. As of June 30, 2002, construction loans
totaled $5.1 million,
39
or 9.27% of total loans, compared to $9.7 million, or 15.59% of total loans, at
September 30, 2001.
Consumer and Commercial Lending. We intend to continue our increased
emphasis on consumer and commercial lending. These loans generally have a
higher-yield and a shorter-term or repricing period than one-to four-family
loans, mitigating our interest rate risk. Consumer loans total $2.6 million or
4.73% of total loans at June 30, 2002. Consumer loans, other than loans on
deposits, were first introduced in October 1997 with home equity loans. Home
equity loans total $1.2 million, or 2.11% of total loans, as of June 30, 2002.
In February 2002, we introduced a new home equity line of credit and, through
June 30, 2002, we have originated over $1.8 million in new lines of credit. As
of June 30, 2002, the outstanding amount disbursed totaled $440,000, or 0.80%,
of total loans. We will continue to cross-sell home equity lines of credit with
our existing customers and our new home loan customers. We also offer other
consumer loans, although the only other significant type is automobile loans,
which were introduced in May 1998. Automobile loans total $722,000, or 1.31%, of
total loans, at June 30, 2002.
Our commercial real estate loan portfolio has increased $1.26 million, or
49.94%, from $2.5 million at September 30, 2001, to $3.8 million at June 30,
2002. From September 30, 1998, to September 30, 2001, our commercial real estate
portfolio increased $1.5 million, or 159.83%. Subsequent to September 30, 1998,
we also began to offer, on a limited basis, commercial business loans. As of
June 30, 2002, we had a total of $382,000, or 0.69% of total loans, in
commercial business loans with another $584,000 available through undisbursed
lines of credit.
Transaction Deposit Accounts. We plan on continuing our focus on
transaction deposit accounts. Since the fiscal year end September 30, 2000, our
transaction deposit accounts have increased $9.7 million, or 54.45%, from $17.6
million to $27.3 million at June 30, 2002. This has resulted in a significant
change in the mix of deposits as transaction deposit accounts comprised 42.80%
of total deposits at June 30, 2002, compared to 33.31% at September 30, 2000.
The increase can be attributed to the introduction of noninterest bearing
checking accounts (January 1998) and commercial checking accounts (February
2000), and the offering of tiered interest rates on our money market accounts
based upon the balance of the account (January 2000). The most substantial
progress in obtaining these new types of transaction accounts was made following
the opening of our new home office and reflects increased marketing efforts.
Maintain a Sound Capital Position. Clay County Savings expects to maintain
capital at a level that would be expected of a strong, secure financial
institution but also desires to adequately leverage its capital position so as
to improve operating efficiencies and also the return on equity. As of June 30,
2002, equity capital totaled $6.5 million, or 8.38% of total assets.
Increase Sources of Noninterest Income. We will continue to seek ways to
increase our sources of noninterest income. Increased loan servicing fee income
and transaction account service fees have resulted in a $34,000, or 36.53%,
increase in noninterest income (excluding gains on the sale of loans) for the
nine months ended June 30, 2002, compared to the nine months ended June 30,
2001. Inclusive of gains on the sale of loans, noninterest income has
40
increased $84,000, or 66.77%, for the nine months ended June 30, 2002, compared
to the nine months ended June 30, 2001.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2002 AND SEPTEMBER 30, 2001
Our financial condition at June 30, 2002, as compared to September 30,
2001, was impacted primarily by net loan repayments and an increase in deposits,
which were used to repay advances from the Federal Home Loan Bank of Des Moines
and invested in interest-bearing deposits in banks. With interest rates at or
near a forty-year low, along with customer preference for 30-year fixed rate
loans, management pursued a strategy of selling long-term, fixed-rate loan
originations and using excess liquidity to repay maturing FHLB advances, which
carry higher interest rates than deposit accounts, and to invest in
interest-bearing deposits in banks.
Total assets increased $224,000, or 0.29%, to $77.9 million at June 30,
2002 from $77.6 million at September 30, 2001. Interest-bearing deposits in
banks increased by $6.5 million, or 234.72%, to $9.2 million at June 30, 2002
from $2.7 at September 30, 2001. Loans receivable, net decreased by $6.2
million, or 10.50%, to $53.1 million at June 30, 2002 from $59.3 million at
September 30, 2001 as customers refinanced their loans in the current low
interest rate environment, and Clay County Savings sold its balloon and
fixed-rate residential loans in the secondary market. Deposits increased by $5.6
million, or 9.63%, to $63.7 million at June 30, 2002 from $58.1 million at
September 30, 2001. The increase in deposits reflects the continued progress of
the Association in promoting checking and money market accounts. FHLB advances
decreased by $5.0 million, or 42.24%, to $6.9 million at June 30, 2002 from
$11.9 million at September 30, 2001. Total retained earnings increased by
$61,000, or 0.95%, to $6.53 million at June 30, 2002, from $6.46 million at
September 30, 2001 due to net earnings for the nine months ended June 30, 2002,
offset in part by a decrease in accumulated other comprehensive earnings.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
Our financial condition at September 30, 2001, as compared to September 30,
2000, was impacted primarily by net loan repayments and an increase in customer
deposits, which were used to repay FHLB advances, increase interest-bearing
deposits in banks and purchase securities and mortgage-backed securities. During
fiscal 2001, management pursued a strategy of selling long-term, fixed-rate loan
originations and using excess liquidity to repay maturing FHLB advances and to
invest in interest-bearing deposits in banks and securities and mortgage-backed
securities.
Total assets decreased $117,000, or 0.15%, to $77.6 million at September
30, 2001, from $77.8 million at September 30, 2000. Interest-bearing deposits in
banks increased by $1.4 million, or 113.17%, to $2.7 million at September 30,
2001 from $1.3 million at September 30, 2000. Loans receivable, net decreased by
$4.8 million, or 7.51%, to $59.3 million at September 30, 2001 from $64.1
million at September 30, 2000 as customers refinanced their loans in a lower
interest rate environment while balloon and fixed-rate residential loans
originated by Clay County Savings were sold in the secondary market. Deposits
increased by $5.1 million, or 9.62%, to $58.1 million at September 30, 2001 from
$53.0 million at September 30, 2000 as a result of a full year of operation of
the new home office building which
41
opened in August 2000. The increase in deposits reflects the continued progress
of Clay County Savings in promoting checking and money market accounts. FHLB
advances decreased by $5.3 million, or 30.64%, to $11.9 million at September 30,
2001 from $17.2 million at September 30, 2000 and reflects management's strategy
of repaying relatively high cost advances with lower cost retail deposits. Total
retained earnings increased by $16,000, or 0.24%, to $6.46 million at September
30, 2001 from $6.45 million at September 30, 2000 due to an increase in
accumulated other comprehensive earnings, offset by the operating loss for the
year ended September 30, 2001.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 2002 AND 2001
General. Net earnings increased to $82,000 for the nine months ended June
30, 2002 from a net loss of $130,000 for the nine months ended June 30, 2001.
The improvement in operating results reflects increases in net interest income
and noninterest income, and stable noninterest expense, offset by higher income
taxes.
Total Interest Income. Total interest income decreased by $676,000, or
16.05%, to $3.5 million for the nine months ended June 30, 2002, from $4.2
million for the nine months ended June 30, 2001. All categories of interest
income decreased, except for securities. The average interest rate for all
categories of interest-earning assets decreased during the nine months ended
June 30, 2002, as compared to the prior period.
Interest income on loans receivable decreased by $709,000, or 18.60%, to
$3.1 million for the nine months ended June 30, 2002, from $3.8 million for the
nine months ended June 30, 2001. The decrease in interest income on loans
receivable, the largest category of interest income, was attributable in part to
a lower average balance of loans receivable during the nine months ended June
30, 2002, compared to the prior period. The average outstanding balance of loan
receivable decreased $8.4 million, or 13.14%, to $55.4 million for the nine
months ended June 30, 2002, from $63.8 million for the nine months ended June
30, 2001. Although loan originations were 80.49% higher for the nine months
ended June 30, 2002 ($32.0 million) than for the nine months ended June 30, 2001
($17.7 million), principal repayments (including payoffs) increased $11.9
million, or 60.52%, and loans sold increased $5.1 million, or 183.60%, for the
nine months ended June 30, 2002, compared to the nine months ended June 30,
2001. The average interest rate on loans receivable also decreased from 7.98%
for the nine months ended June 30, 2001, to 7.47% for the nine months ended June
30, 2002.
Interest income on securities increased by $41,000, or 16.71%, to $290,000
for the nine months ended June 30, 2002, from $249,000 for the nine months ended
June 30, 2001. Interest income on mortgage-backed securities decreased slightly
from $75,000 to $74,000 and interest income on other interest-earning assets
decreased from $77,000 to $69,000 for nine months ended June 30, 2002, compared
to the nine months ended June 30, 2001.
Total Interest Expense. Total interest expense decreased by $907,000, or
32.58%, to $1.9 million for the nine months ended June 30, 2002 from $2.8
million for the nine months ended June 30, 2001. The decrease is due to lower
average rates in all interest-bearing liability categories and a reduction in
the average balance of FHLB advances, offset by an increase in the average
balance in money market deposit accounts, certificates of deposits and NOW
accounts.
42
The average rate on interest-bearing liabilities decreased from 5.15% for
the nine months ended June 30, 2001, to 3.49% for the nine months ended June 30,
2002. The average balance in FHLB advances decreased by $8.7 million, or 49.51%,
from $17.6 million for the nine months ended June 30, 2001, to $8.9 million for
the nine months ended June 30, 2002. The average rate on FHLB advances decreased
from 6.48% for the nine months ended June 30, 2001, to 6.00% for the nine months
ended June 30, 2002. This resulted in a reduction of interest expense on
borrowings of $456,000, or 53.21%, to $401,000 for the nine months ended June
30, 2002, from $857,000 for the nine months ended June 30, 2001.
Interest expense on deposits decreased $451,000, or 23.41%, to $1.48
million for the nine months ended June 30, 2002, from $1.93 million for the nine
months ended June 30, 2001. While the average balance in deposits increased $8.4
million, or 15.31%, from $54.5 million for the nine months ended June 30, 2001,
to $62.9 million for the nine months ended June 30, 2002, the weighted average
rate decreased from 4.72% to 3.13%, respectively.
Net Interest Income. Net interest income increased by $231,000, or 16.18%,
to $1.7 million for the nine months ended June 30, 2002 from $1.4 million for
the nine months ended June 30, 2001. The increase in net interest income was due
to an increase in the interest rate spread, which is the difference between the
average yield on interest-earnings assets and the average cost on
interest-bearing liabilities. The interest rate spread increased by 45 basis
points to 2.92% for the nine months ended June 30, 2002 from 2.47% for the nine
months ended June 30, 2001. The improvement in the interest rate spread reflects
management's strategy to aggressively reduce interest rates paid on deposits and
to repay maturing FHLB advances.
Provision for Loan Losses. Provisions for loan losses are charged to
operations at a level necessary to absorb management's best estimate of probable
loan losses in the loan portfolio. Management considers, among other factors,
historical loss experience, type and amount of loans in the portfolio, adverse
circumstances that may affect the borrower's ability to repay the loan, the
estimated value of underlying collateral, and current economic conditions. This
evaluation is ongoing and inherently subjective, as it requires estimates that
are susceptible to significant revision as new information becomes available or
circumstances change. Various regulatory agencies periodically review the
allowance for loan losses and may require us to record additional provisions
based on their judgment of information available to them at the time of
examination.
We recorded provisions for loan losses of $3,000 for the nine months ended
June 30, 2002, compared to provisions for loan losses of $21,000 for the nine
months ended June 30, 2001. During the nine months ended June 30, 2002, we had
$2,000 charged off against our allowance for loan losses and recoveries of
$2,000. This compares to charges against our allowance for loan losses of $7,000
and no recoveries for the nine months ended June 30, 2001. With the increase in
the allowance for loan losses and the overall decrease in our loan portfolio,
the ratio of allowance for loan losses to total loans increased from June 30,
2001, to June 30, 2002. The allowance for loan losses totaled $193,000, or 0.35%
of total loans of $55.0 million at June 30, 2002, compared to an allowance for
loan losses of $190,000, or 0.30% of total loans of $62.3 million at September
30, 2001.
43
Noninterest Income. Noninterest income increased by $85,000, or 66.77%, to
$211,000 for the nine months ended June 30, 2002 from $126,000 for the nine
months ended June 30, 2001. Service charges on deposit accounts (particularly
NOW accounts) increased by $26,000, or 37.11%, to $96,000 for the nine months
ended June 30, 2002 from $70,000 for the nine months ended June 30, 2001, due to
a higher number of accounts. Gain on sale of loans increased by $50,000, or
207.95%, to $74,000 for the nine months ended June 30, 2002 from $24,000 for the
comparable prior period, as a result of our decision to originate fixed-rate
loans for sale rather than for portfolio in order to maintain an acceptable
level of interest rate risk. We recognized gain on sale of securities of $3,000
during the nine months ended June 30, 2001. Gains on sale of securities are not
stable sources of income and no assurance can be given that we will generate
such income in the future.
Noninterest Expense. Noninterest expense was essentially unchanged between
the nine months periods ended June 30, 2002 and 2001, approximating $1.7 million
for both periods. Compensation and benefits decreased slightly from $993,000, or
57.31% of noninterest expense, for the nine months ended June 30, 2001, to
$991,000, or 56.79% of noninterest expense, for the nine months ended June 30,
2002, due to an increase in deferral of loan origination costs resulting from a
higher level of loans originated. Pursuant to generally accepted accounting
principles, we defer loan origination costs on loans originated and amortize
such costs over the life of the loans or include in the computation on gains on
loans sold. The amount of the deferred loan origination costs is reflected in
the Statement of Operations as a reduction of compensation and benefits at the
time the loan is originated. For the nine months ended June 30, 2002, deferred
loan origination costs totaled $55,000 compared to $30,000 for the nine months
ended June 30, 2001. Exclusive of deferred loan origination costs, compensation
and benefits increased $23,000, or 2.20%, to $1,046,000 for the nine months
ended June 30, 2002, from $1,023,000 for the nine months ended June 30, 2001.
Occupancy expense decreased by $3,000, or 1.60%, to $179,000, or 10.27% of
noninterest expense, for the nine months ended June 30, 2002, from $182,000, or
10.52% of noninterest expense, for the nine months ended June 30, 2001.
Equipment and data processing expense increased by $1,000, or 0.29%, to
$267,000, or 15.29% of noninterest expense, for the nine months ended June 30,
2002, from $266,000, or 15.36% of noninterest expense, for the nine months ended
June 30, 2001. All other categories of noninterest expense increased $17,000, or
5.76%, for the nine months ended June 30, 2002, compared to the nine months
ended June 30, 2001.
Income Taxes. The provision for income taxes was $42,000 for the nine
months ended June 30, 2002 compared to a credit of $67,000 for nine months ended
June 30, 2001 due to earnings before income taxes in the current period versus a
loss in the prior period.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
General. Net earnings decreased to a net loss of $112,000 for the year
ended September 30, 2001 from net earnings of $108,000 for the year ended
September 30, 2000. The decrease in net earnings is due primarily to higher
noninterest expense related to a full year of operation of the new home office
building compared to two months of operations in fiscal 2000. The new home
office opened in August 2000.
44
Total Interest Income. Total interest income increased by $465,000, or
9.12%, to $5.6 million for the year ended September 30, 2001 from $5.1 million
for the year ended September 30, 2000. Interest income on loans increased due to
both a higher yield earned on the loan portfolio and a higher average balance,
even though the balance outstanding at September 30, 2001 was lower than the
balance at September 30, 2000. For the year ended September 30, 2001, the
average outstanding balance on loans was $63.0 million with a weighted average
yield of 7.95% compared to an average outstanding balance on loans of $60.4
million with a weighted average yield of 7.65% for the year ended September 30,
2000. However, net loans receivable decreased $4.8 million, or 7.51%, to $59.3
million at September 30, 2001, from $64.1 million at September 30, 2000. We
experienced a decline in the outstanding loan balance beginning in February 2001
as borrowers refinanced long-term fixed rate loans and we sold most of these
fixed-rate loan originations in the secondary market.
Interest on mortgage-backed securities decreased $14,000, or 11.75%, in
fiscal 2001 compared to fiscal 2000 due to a decrease in the average outstanding
balance of $1.8 million for the year ended September 30, 2000, to $1.6 million
for the year ended September 30, 2001, and a decrease in the yield from 6.48%
for the year ended September 30, 2000 to 6.28% for the year ended September 30,
2001. The balance of mortgage-backed securities at September 30, 2001 was higher
than at September 30, 2000 due to purchases in the last half of fiscal 2001.
Interest income on securities increased $36,000, or 11.78%, for the year ended
September 30, 2001 compared to fiscal 2000 due to a higher average balance and a
higher yield earned. The average outstanding balance on securities totaled $5.3
million, with a weighted average yield of 6.42%, for the year ended September
30, 2001, compared to $5.0 million, with a weighted average yield of 6.13%, for
the year ended September 30, 2000. Interest on other interest-earnings assets
also increased due to a significantly higher average balance.
Total Interest Expense. Total interest expense increased by $609,000, or
20.14%, to $3.6 million for the year ended September 30, 2001 from $3.0 million
for the year ended September 30, 2000. The increase is primarily due to higher
average balances of FHLB advances and higher rates paid on certificates of
deposits. The average balance in interest-bearing liabilities increased $7.0
million, or 10.76%, to $72.2 million for the year ended September 30, 2001, from
$65.2 million for the year ended September 30, 2000. The average rate on
interest-bearing liabilities increased to 5.03% for the year ended September 30,
2001, from 4.64% for the year ended September 30, 2000.
Interest expense on borrowings increased $340,000, or 45.96%, to $1.1
million for the year ended September 30, 2001, from $742,000 for the year ended
September 30, 2000. Although FHLB advances were lower at September 30, 2001
($11.9 million) than at September 30, 2000 ($17.2 million), the average balance
in FHLB advances increased by $4.7 million, or 38.79%, from $12.2 million for
the year ended September 30, 2000, to $16.9 million for the year ended September
30, 2001. The average rate on FHLB advances increased from 6.09% for fiscal 2000
to 6.40% for fiscal 2001.
Interest expense on deposits increased $269,000, or 11.75%, to $2.55
million for the year ended September 30, 2001, from $2.28 million for the year
ended September 30, 2000. Approximately $188,000 of the increase in interest
expense on deposits is attributable to the increase in the average rate of
certificates of deposit. The weighted average rate on certificates
45
of deposit increased from 5.00% for fiscal 2000 to 5.52% for fiscal 2001, while
the average balance in certificate accounts remained relatively unchanged. The
remaining increase, approximately $78,000, in interest expense is due to an
increase in the average balance in transaction deposit accounts (passbook,
demand and NOW accounts, and money market accounts), which increased $2.6
million, or 15.24%, from $17.1 million for the year ended September 30, 2000, to
$19.7 million for the year ended September 30, 2001.
Net Interest Income. Net interest income decreased by $144,000, or 6.93%,
to $1.9 million for the year ended September 30, 2001 from $2.1 million for the
year ended September 30, 2000. The decrease in net interest income was due to a
decrease in the interest rate spread, which is the difference between the
average yield on interest-earnings assets and the average cost on
interest-bearing liabilities. The interest rate spread decreased by 20 basis
points to 2.56% for the year ended September 30, 2001 from 2.76% for the year
ended September 30, 2000. The primary reason for the decline in the interest
rate spread is due to a higher cost of funds.
Provision for Loan Losses. We recorded provisions for loan losses of
$21,000 for the year ended September 30, 2001, compared to provisions for loan
losses of $12,000 for the year ended September 30, 2000. For the year ended
September 30, 2000, we had $29,000 in charges against our allowance for loan
losses. With the increase in the amount of the provision established and a
decrease in the amount charged against the allowance for loan losses to $7,000,
our allowance for loan losses increased during the year ended September 30,
2001, and combined with the overall decrease in our loan portfolio, the ratio of
allowance for loan losses to total loans increased from September 30, 2000, to
September 30, 2001. The allowance for loan losses totaled $190,000, or 0.31% of
total loans of $62.3 million at September 30, 2001, compared to an allowance for
loan losses of $176,000, or 0.26% of total loans of $68.3 million at September
30, 2000.
Noninterest Income. Noninterest income increased by $130,000, or 103.89%,
to $256,000 for the year ended September 30, 2001 from $126,000 for the year
ended September 30, 2000. Gain on sale of premises of $69,000 for the year ended
September 30, 2001 was a nonrecurring source of income related to the sale of
residential property owned by us to John R. Davis, our President and Chief
Executive Officer. See note 5 of notes to financial statements for additional
information. Service charges on deposit accounts (particularly NOW accounts)
increased by $13,000 or 14.5%, from $87,000 for the year ended September 30,
2000 compared to $100,000 for the year ended September 30, 2001, as we attracted
new customers and related transaction accounts during the first full year of
operation of the new home office building. Gain on sale of loans was $40,000 for
the year ended September 30, 2001 compared to none for the year ended September
30, 2000, reflecting our decision to originate fixed-rate loans for sale during
fiscal 2001 rather than for portfolio in order to maintain an acceptable level
of interest rate risk. Gain on sale of loans fluctuates based on market
conditions and changes in our strategy.
Noninterest Expense. Noninterest expense increased by $282,000, or 13.72%,
to $2.3 million for the year ended September 30, 2001 from $2.1 million for the
year ended September 30, 2000. Compensation and benefits, occupancy, and
equipment and data processing expense all increased in fiscal 2001 compared to
fiscal 2000 due to a full year of expenses
46
related to the new home office building. The new home office was completed in
August 2000. Compensation and benefits increased $127,000, or 10.58%, to $1.33
million for fiscal year 2001 from $1.20 million for fiscal year 2000. Our staff
increased by three full time and one part time employee during fiscal 2001.
Occupancy expense increased $142,000, or 122.07%, to $258,000 for fiscal 2001
from $116,000 for fiscal 2000. Equipment and data processing expense increased
$88,000, or 32.22%, due to higher depreciation resulting from new equipment,
furniture, fixtures and ATMs, costs related to the expansion of our wide-area
network, and utilities, real estate taxes and maintenance costs of the new home
office building.
SAIF deposit insurance premium decreased due to lower assessment rates.
Advertising expense decreased to $73,000 for the year ended September 30, 2001,
from $115,000 for the year ended September 30, 2000, reflecting the nonrecurring
expenses associated with the grand opening celebration and marketing campaign in
connection with the August 2000 opening of the new home office. Other
noninterest expense decreased to $301,000 for the year ended September 30, 2001
from $331,000 for the year ended September 30, 2000 primarily due to certain
nonrecurring expenses related to relocation of the home office in 2000.
Income Taxes. The provision for income taxes was a credit of $58,000 for
the year ended September 30, 2001 compared to expense of $27,000 for the year
ended September 30, 2000 based on a loss during fiscal 2001 compared to earnings
before income taxes in fiscal 2000. The tax rate for the ended September 30,
2000 was 20.2% due primarily to a nonrecurring state tax refund.
47
AVERAGE BALANCE SHEET
The following table presents at the date and for the periods indicated the
total dollar amount of interest income from average interest earning assets and
the resultant yields, as well as the interest expense on average interest
bearing liabilities, expressed both in dollars and rates. No tax equivalent
adjustments were made. All average balances are monthly average balances.
Non-accruing loans have been included in the table as loans carrying a zero
yield.
NINE MONTHS ENDED JUNE 30,
--------------------------------------------------------------
2002 2001
AT JUNE 30, 2002 ------------------------------ ------------------------------
-------------------- AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING YIELD/ OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE RATE BALANCE PAID RATE BALANCE PAID RATE
----------- ------- ----------- -------- ------ ----------- -------- -------
(DOLLARS IN THOUSANDS)
Interest-Earning Assets:
Loans receivable (1)....... $ 53,055 6.99% $ 55,395 $ 3,105 7.47% $ 63,773 $ 3,815 7.98%
Mortgage-backed securities. 1,875 5.30 1,857 75 5.39 1,557 75 6.42
Securities (2)............. 8,137 4.38 7,951 290 4.86 5,422 249 6.12
Other interest-earning assets 9,374 1.40 8,449 69 1.09 3,051 77 3.37
----------- ----------- -------- ----------- --------
Total interest-earning assets $ 72,441 5.93% $ 73,652 $ 3,539 6.41% $ 73,803 $ 4,216 7.62%
=========== =========== ======== =========== ========
Interest-Bearing Liabilities:
Passbook accounts.......... $ 5,679 1.47% $ 5,245 $ 64 1.63% $ 5,174 $ 115 2.96%
Demand and NOW deposits (3) 8,757 0.76 8,161 55 0.89 6,461 96 1.98
Money market deposit accounts 12,814 2.03 11,501 192 2.23 7,440 214 3.84
Certificate accounts....... 36,419 3.47 37,954 1,166 4.10 35,442 1,503 5.65
FHLB Advances.............. 6,890 5.97 8,913 401 6.00 17,654 858 6.48
----------- ----------- -------- ----------- --------
Total interest-bearing
liabilities............... $ 70,559 2.43% $ 71,774 1,878 3.49% $ 72,171 2,786 5.15
=========== =========== -------- =========== ========
Net interest income........ $ 1,661 $ 1,430
======== ========
Net interest rate spread... 3.50% 2.92% 2.47%
Net earning assets......... $ 1,882 $ 1,878 $ 1,632
=========== =========== ===========
Net yield on average
interest-earning assets.. 3.01% 2.58%
Average interest-earning
assets to average
interest-bearing 102.62% 102.26%
liabilities..............
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------
2001 2000
------------------------------ ------------------------------
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)....... $ 63,029 $ 5,011 7.95% $ 60,428 $ 4,621 7.65%
Mortgage-backed securities. 1,624 102 6.28 1,789 116 6.48
Securities (2)............. 5,308 341 6.42 4,972 305 6.13
Other interest-earning assets 3,390 112 3.30 1,747 59 3.38
----------- -------- ----------- --------
Total interest-earning assets $ 73,351 $ 5,566 7.59% $ 68,936 $ 5,101 7.40%
=========== ======== =========== ========
Interest-Bearing Liabilities:
Passbook accounts.......... $ 5,291 $ 164 3.10% $ 4,860 $ 130 2.67%
Demand and NOW deposits (3) 6,653 128 1.92 5,849 125 2.14
Money market deposit accounts 7,725 289 3.74 6,359 227 3.57
Certificate accounts....... 35,658 1,970 5.52 35,970 1,800 5.00
FHLB Advances.............. 16,919 1,082 6.40 12,190 742 6.09
----------- -------- ----------- --------
Total interest-bearing
liabilities............... $ 72,246 3,633 5.03% $ 65,228 3,024 4.64%
=========== ======== =========== ========
Net interest income........ $ 1,933 $ 2,077
======== ========
Net interest rate spread... 2.56% 2.76%
Net earning assets......... $ 1,105 $ 3,708
=========== ===========
Net yield on average
interest-earning assets.. 2.64% 3.01%
Average interest-earning
assets to average
interest-bearing 101.53% 105.68%
liabilities..............
- ----------
(1) Calculated net of loans in process.
(2) Includes FHLB stock.
(3) Includes non-interest-bearing NOW accounts as deposits carrying a zero
yield.
48
RATE/VOLUME ANALYSIS
The following table 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 changes related to
outstanding balances and that due to the 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 old rate); (ii) changes in rate (i.e., changes
in rate multiplied by old volume); and (iii) changes attributable to both rate
and volume (i.e. changes in volume multiplied by changes in rate).
NINE MONTHS ENDED JUNE 30, YEARS ENDED SEPTEMBER 30,
---------------------------------------- ----------------------------------------
2002 VS. 2001 2001 VS. 2000
---------------------------------------- ----------------------------------------
INCREASE/(DECREASE) INCREASE/(DECREASE)
DUE TO DUE TO
----------------------------- ----------------------------
RATE/ RATE/
VOLUME RATE VOLUME TOTAL VOLUME RATE VOLUME TOTAL
------- ------- ------- ------- ------- -------- ------- --------
(IN THOUSANDS)
Loans receivable.............. $ (499) $ (243) $ 33 $ (709) $ 200 $ 182 $ 8 $ 390
Mortgage-backed securities.... 13 (12) (2) (1) (10) (4) - (14)
Securities.................... 117 (51) (24) 42 21 14 1 36
Other interest-earning assets 136 (52) (92) (8) 55 (1) (1) 53
------- ------- ------- ------- ------- -------- ------- --------
Total interest-earning assets $ (233) $ (358) $ (85) $ (676) $ 266 $ 191 $ 8 $ 465
======== ======== ======== ======== ======= ======= ======= ========
Passbook accounts............. $ 1 $ (52) $ - $ (51) $ 11 $ 21 $ 2 $ 34
NOW deposits.................. 45 (59) (27) (41) 18 (13) (2) 3
Money market deposit accounts 117 (90) (49) (22) 49 11 2 62
Certificates.................. 105 (414) (28) (337) (16) 188 (2) 170
FHLB Advances................. (424) (64) 32 (456) 288 37 15 340
------- ------- ------- ------- ------- -------- ------- --------
Total interest-bearing
liabilities.................. $ (156) $ (679) $ (72) $ (907) $ 350 $ 244 $ 15 $ 609
======== ======== ======== ======== ======= ======= ======= ========
Change in net interest income $ 231 $ (144)
======= ========
MANAGEMENT OF MARKET RISK
General. As with other financial institutions, one of the most significant
forms of market risk is interest rate risk. Interest rate risk exposure is
caused by interest-bearing liabilities, consisting primarily of deposit accounts
and FHLB advances, typically maturing or repricing more rapidly, or on a
different basis, than interest-earning assets, predominately mortgage loans. As
a result, a significant part of our overall business strategy is to manage our
interest rate risk position and mitigate the exposure of our net portfolio value
(the difference between the market value of our assets and liabilities) and net
interest income to changes in market interest rates.
The Board of Directors has established an Asset/Liability Management
Committee to evaluate and monitor the level of interest rate risk within
acceptable risk tolerances across a broad range of potential interest rate
environments. The Asset/Liability Management Committee is chaired by Executive
Vice President Usera, and consists of members of senior management. Utilizing
asset/liability management guidelines adopted by the Board of Directors, the
Asset/Liability Management Committee is responsible for maintaining a proper
balance between the amount of interest rate risk and the return on assets. The
Asset/Liability Management Committee meets at least monthly, and reports at
least quarterly to the Board of Directors.
49
In order to manage our assets and liabilities and achieve an appropriate
balance between interest rate risk and profitability in various interest rate
scenarios, in recent years we have focused our strategies on:
. Expanding loan products that have shorter-term maturities or repricing
periods and/or higher yields, including consumer loans and loans
adjusted to the prime rate of interest.
. Increasing the periodic caps on adjustable-rate, one-to four-family
mortgage loan products from 1 point and 1.5 points to 2 points.
. Selling most long-term, fixed-rate single-family mortgage loan
originations in the secondary market.
. Building non-interest sources of fee income to reduce the reliance on
net interest income for profitability.
. Reducing the weighted average term of the investment portfolio.
. Utilizing FHLB advances as an alternative source of funds during
periods of rising interest rates on deposits and also to lengthen the
maturities of funding sources.
. Introducing non-interest bearing funding sources such as non-interest
bearing checking accounts.
With interest rates at or near forty year lows, management has also chosen
to maintain a high level of liquidity, with greater reliance on short-term
deposits at the Federal Home Loan Bank and other financial institutions.
Management relies primarily on interest rate risk exposure reports provided
by the Office of Thrift Supervision.
Net Portfolio Value. The OTS, our primary regulator, requires the
computation of amounts by which the net present value of our cash flow from
assets, liabilities, and off balance sheet items (our net portfolio value or
"NPV) would change in the event of a range of assumed changes in market interest
rates. These computations estimate the effect on our NPV from instantaneous and
permanent one hundred- to three hundred basis point increases and decreases in
market interest rates. The table below sets forth, as of June 30, 2002, the
estimated changes in our NPV (i.e., the present value of expected cash flows
from assets, liabilities and off-balance sheet contracts) which would result
from the designated instantaneous changes in the U.S. Treasury yield curve.
NET PORTFOLIO VALUE NPV AS % OF PV OF ASSETS
CHANGE IN INTEREST -------------------------------- -------------------------
RATES (BASIS POINTS) $ AMOUNT $ CHANGE % CHANGE NPV RATIO CHANGE
- -------------------- -------- -------- -------- --------- -------------
(DOLLARS IN THOUSANDS)
+300* $ 8,355 $ (1,500) -15% 10.56% -151 bp
+200 9,054 (801) -8 11.30 -77 bp
+100 9,564 (291) -3 11.81 -26 bp
0 9,855 -- -- 12.07 --
-100 9,841 (14) 0 12.00 -7 bp
-200** N/A N/A N/A N/A N/A
-300** N/A N/A N/A N/A N/A
- ----------
* Basis Points
** OTS no longer provides outputs associated with the -300 and -200 bps
scenarios because of the abnormally low prevailing interest rate
environment.
50
At June 30, 2002, based on the OTS Interest Rate Exposure Reports, our
estimated NPV was $9.9 million or 12.07% of the estimated net present value of
assets. A 200 basis points sustained increase in interest rates is estimated to
reduce our NPV by $801,000, or 8%, to $9.1 million, or 11.30% of the estimated
net present value of assets. The difference between NPV ratio (NPV divided by
the net present value of assets) and the Post-Shock NPV ratio (NPV ratio after
the 200 basis point sustained increase in interest rates) is the sensitivity
measure. Our sensitivity measure at June 30, 2002, is 77 basis points.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in NPV require the making of
certain assumptions, which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the NPV table presented assumes that the composition of our interest sensitive
assets and liabilities existing at the beginning of a period remains constant
over the period being measured and also assumes that a particular change in
interest rates is reflected uniformly across the yield curve regardless of the
duration to maturity or repricing of specific assets and liabilities.
Accordingly, although the NPV table provides an indication of our interest rate
risk exposure at a particular point in time, such measurements are not intended
to and do not provide a precise forecast of the effect of changes in market
interest rates on our net interest income and will differ from actual results.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is defined by the Office of Thrift Supervision as the ability to
fund assets and meet obligations as they come due. Such obligations include the
funding of loans and deposit withdrawals and to pay operating expenses. Federal
regulations have recently been revised and there is no longer a regulatory
liquidity requirement; however, the Office of Thrift Supervision requires that
sound practices be developed for liquidity management.
Our objective is to effectively manage the liquidity portfolio and utilize
the portfolio to manage our interest-rate risk position. With interest rates at
or near forty-year lows, we currently maintain a high level of liquidity. This
impacts earnings, as liquid assets tend to have a lower yield than other assets
with longer terms (e.g., loans).
Our primary sources of funds are deposits, amortization and prepayment of
loans and mortgage-related securities, maturities of investment securities, FHLB
advances and funds provided from operations. While scheduled loan and
mortgage-related securities repayments are a relatively predictable source of
funds, deposit flows and loan and mortgage-related securities prepayments are
greatly influenced by interest rates, economic conditions and competition. We
have an agreement with the FHLB of Des Moines to provide cash advances, should
we need additional funds. We had $28.5 million in certificates due within one
year and $27.2 million in other deposits without specific maturity at June 30,
2002. Based on historical experience, management expects that most of the
deposits will be retained or replaced by new deposits.
Due to current economic conditions, both short-term and long-term interest
rates have fallen to the lowest levels in decades. Adjustable rate mortgage
loans continue to prepay as customers are choosing to refinance with long-term,
fixed rate loans.
51
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations," which requires that all business combinations initiated after
June 30, 2001 be accounted for using the purchase method. The
pooling-of-interests method of accounting is prohibited except for combinations
initiated before June 30, 2001. The remaining provisions of SFAS No. 141
relating to business combinations accounted for by the purchase method,
including identification of intangible assets, accounting for negative goodwill,
financial statement presentation and disclosure, are effective for combinations
completed after June 30, 2001. Management will follow the provisions of SFAS No.
141 for any acquisitions initiated after June 30, 2001.
In June 2001, the FASB issued SFAS No. 142 "Goodwill and Intangible
Assets," which prescribed accounting for all purchased goodwill and intangible
assets. Pursuant to SFAS No. 142, acquired goodwill is not amortized, but is
tested for impairment at the reporting unit level annually and whenever an
impairment indicator arises. All goodwill should be assigned to reporting units
that are expected to benefit from the goodwill. When an entity reorganizes its
reporting structure, goodwill should be reallocated to reporting units based on
the relative fair values of the units. Goodwill impairment should be tested with
a two-step approach. First, the fair value of the reporting unit should be
compared to its carrying value, including goodwill. If the reporting unit's
carrying value exceeds its fair value, then any goodwill impairment should be
measured as the excess of goodwill's carrying value over its implied fair value.
The implied fair value of goodwill should be calculated in the same manner as
goodwill is calculated for a business combination, using the reporting unit's
fair value as the "purchase price" over the amounts allocated to assets,
including unrecognized intangible assets, and liabilities of the reporting unit.
Goodwill impairment losses should be reported in the income statement as a
separate line item within operations, except for such losses included in the
calculation of a gain or loss from discontinued operations.
An acquired intangible asset, other than goodwill, should be amortized over
its useful economic life. The useful life of an intangible asset is indefinite
if it extends beyond the foreseeable horizon. If an asset's life is indefinite,
the asset should not be amortized until the life is determined to be finite.
Intangible assets not being amortized should be tested for impairment annually
and whenever there are indicators of impairment, by comparing the asset's fair
value to its carrying amount.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001. SFAS No. 142 will have no current effect on our financial position or
results of operations.
In June 2001, the FASB also issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. Management does not expect the adoption of this pronouncement to have a
material impact on our results of operations or financial condition.
52
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001.
The Statement addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. The adoption of this pronouncement did not have a
material impact on our results of operations or financial condition.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections," was issued in April 2002.
Management does not expect the adoption of the provisions of this Statement to
have a material impact on our results of operations or financial condition.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 is effective for exit
or disposal activities initiated after December 31, 2002. The Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities. Management does not expect the adoption of the provisions
of this Statement to have a material impact on our results of operations or
financial condition.
SFAS No. 147, "Acquisitions of Certain Financial Institutions," was issued
in October 2002. The Statement addresses financial accounting and reporting for
the acquisition of financial institutions, except transactions between two or
more mutual enterprises. The Statement also provides guidance on the accounting
for the impairment or disposal of acquired long-term customer-relationship
intangible assets. Management will follow the provisions of SFAS No. 147 for any
transactions initiated on or after October 1, 2002.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related notes of Clay County Savings have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP"). GAAP generally requires the measurement of
financial position and operating results in terms of historical dollars without
consideration for changes in the relative purchasing power of money over time
due to inflation. The impact of inflation is reflected in the increased cost of
our operations. Unlike industrial companies, our assets and liabilities are
primarily monetary in nature. As a result, changes in market interest rates have
a greater impact on performance than the effects of inflation.
53
BUSINESS OF CCSB FINANCIAL CORP.
We have not engaged in any business to date. Upon completion of the
conversion, we will own all of the issued and outstanding stock of Clay County
Savings. We will retain up to 50% of the net proceeds from the offering. A
portion of the net proceeds we retain will be used to make a loan to fund the
purchase of our common stock by the Clay County Savings employee stock ownership
plan. We will contribute the remaining net proceeds to Clay County Savings as
additional capital. We intend to invest our capital as discussed in "Use of
Proceeds."
In the future, CCSB Financial Corp., as the holding company of Clay County
Savings, will be authorized to pursue other business activities permitted by
applicable laws and regulations for savings and loan holding companies, which
may include the acquisition of banking and financial services companies. We have
no plans for any mergers or acquisitions, or other diversification of the
activities of CCSB Financial Corp. at the present time.
Our cash flow will depend on earnings from the investment of the net
proceeds we retain, and any dividends received from Clay County Savings.
Initially, CCSB Financial Corp. will neither own nor lease any property, but
will instead use the premises, equipment and furniture of Clay County Savings.
At the present time, we intend to employ only persons who are officers of Clay
County Savings to serve as officers of CCSB Financial Corp. We will, however,
use the support staff of Clay County Savings from time to time. These persons
will not be separately compensated by CCSB Financial Corp. CCSB Financial Corp.
may hire additional employees, as appropriate, to the extent it expands its
business in the future.
54
BUSINESS OF CLAY COUNTY SAVINGS
GENERAL
Clay County Savings was founded in 1922 as a state-chartered mutual savings
and loan association with the name Clay County Building and Loan Association. In
1967, we changed our name to Clay County Savings and Loan Association and, in
1995, we converted to a federal mutual savings association charter. Clay County
Savings has a total of four offices located in Clay County, Missouri. Our main
office and a branch office are located in Liberty, and branch offices are also
located in Kearney and Smithville. Clay County Savings is regulated by the
Office of Thrift Supervision and deposits are insured by the Federal Deposit
Insurance Corporation under the Savings Association Insurance Fund. Clay County
Savings has been a member of the Federal Home Loan Bank System since 1937.
Clay County Savings has been, and continues to be, a community-oriented
savings institution offering a variety of financial products and services to
meet the needs of the communities we serve. Clay County Savings was established
primarily to serve the home financing needs of the public and now serves the
expanded credit needs of area residents and businesses in its market area
similar to a community bank but with a focus on residential mortgage lending.
Our principal business consists of attracting retail deposits from the general
public in the areas surrounding our branches and investing those deposits,
together with funds generated from operations and borrowings, primarily in one-
to four-family residential mortgage loans, construction loans, multi-family and
commercial real estate loans, mortgage related securities and various other
securities. We also invest in commercial business loans and consumer and other
loans, including home equity and automobile loans. Our revenues are derived
principally from the interest on mortgage, commercial and consumer loans,
securities, loan origination and servicing fees, and service charges and fees
collected on deposit accounts. Our primary sources of funds are deposits,
borrowings, and principal and interest payments on loans and securities.
MARKET AREA
Clay County Savings serves communities located in Clay and Platte
Counties and in surrounding counties in Missouri from its main office in Liberty
and its branch offices in Liberty, Kearney and Smithville. Liberty, Kearney and
Smithville are all located in Clay County, which is part of the Kansas City
Metropolitan Statistical Area. Clay and Platte Counties have a combined
population of approximately 258,000 as of 2000. The population of the Kansas
City Metropolitan Statistical Area in 2002 was approximately 1,770,000. Clay and
Platte Counties are rapidly developing suburban markets, and are home to a large
number of people who commute to jobs in areas closer to Kansas City. Most of the
employment in Clay and Platte Counties is provided by light manufacturing,
services and retail trade. Clay and Platte Counties have experienced increases
in population as the Kansas City outer suburbs have expanded. Since 1990, these
areas have experienced significant increases in population. The Clay County
population has increased from approximately 153,000 in 1990 to approximately
184,000 in 2000, representing an 19.9% increase. The Platte County population
has increased from approximately 58,000 in 1990 to approximately 74,000 in 2000,
representing a 27.5% increase.
55
Estimated per capita annual income for 2000 was approximately $23,100 for
Clay County, and $26,400 for Platte County, as compared to the Missouri state
average of $19,900 and the United States average of $21,600. Median household
income levels showed similar patterns, as Clay and Platte Counties reported
income of $48,300 and $55,800, respectively, compared to $37,900 for the
Missouri state average and $42,000 for the United States average. The June 2002
unemployment rate was 4.0% in each of Clay and Platte Counties, compared to 5.4%
in the state of Missouri and 6.0% in the United States.
COMPETITION
We face significant competition in both originating loans and attracting
deposits. Our market area has a large number of financial institutions, most of
which are significantly larger institutions with greater financial resources
than Clay County Savings, and all of which are our competitors to varying
degrees. Our competition for loans comes principally from commercial banks,
savings banks, mortgage banking companies, credit unions, insurance companies
and other financial service companies. Our most direct competition for deposits
has historically come from commercial banks, savings banks and credit unions. We
face additional competition for deposits from non-depository competitors such as
mutual funds, securities and brokerage firms and insurance companies.
LENDING ACTIVITIES
General. Our loan portfolio is comprised mainly of one- to four-family real
estate loans. The majority of these loans have adjustable rates of interest. In
addition to one- to four-family real estate loans, our loan portfolio consists
primarily of construction loans, commercial real estate loans, multi-family
loans and home equity loans, including home equity lines of credit. To a lesser
extent, we originate loans secured by automobiles, deposits and commercial
business loans. At June 30, 2002, our gross loans totaled $55.0 million, of
which $42.3 million, or 76.90%, were secured by one- to four-family real estate,
$5.1 million, or 9.27%, were construction and land development loans, $3.8
million, or 6.88%, were secured by commercial real estate and $840,000, or
1.53%, were secured by multi-family properties. We also originate a variety of
consumer loans including loans secured by deposits and automobiles, as well as
home equity loans and lines of credit. At June 30, 2002, our consumer loans
totaled $2.6 million, or 4.73% of total loans, of which $1.6 million, or 2.91%
of total loans, were home equity loans or lines of credit. We also originate
commercial business loans. At June 30, 2002, commercial business loans totaled
$382,000, or 0.69% of total loans.
We try to reduce our interest rate risk by making our loan portfolio more
interest rate sensitive. Accordingly, we offer adjustable rate mortgage loans,
balloon loans and short- and medium-term, fixed-rate mortgage loans. Due to the
current low interest rate environment, we are currently selling all balloon and
fixed rate single-family, owner-occupied mortgage loans that we originate. In
addition, we offer shorter-term consumer loans with adjustable interest rates.
At June 30, 2002, $33.5 million, or 60.88% of our total loans had adjustable
rates of interest.
56
Loan Portfolio Composition. The following table shows the composition of
our loan portfolio in dollar amounts and in percentages (before deductions for
loans in process, deferred fees and discounts and allowances for losses) as of
the dates indicated.
AT JUNE 30, AT SEPTEMBER 30,
------------------- -----------------------------------------
2002 2001 2000
------------------- ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Real Estate Loans:
One- to four-family .......... $ 42,325 76.90% $ 45,620 73.20% $ 51,061 74.76%
Multi-family ................. 840 1.53 1,208 1.94 1,056 1.55
Commercial real estate(1) .... 3,786 6.88 2,525 4.05 2,579 3.77
Construction and land
development ................. 5,100 9.27 9,716 15.59 10,974 16.07
-------- -------- -------- -------- -------- --------
Total real estate loans ... 52,051 94.58 59,069 94.78 65,670 96.15
-------- -------- -------- -------- -------- --------
Other Loans:
Consumer Loans:
Deposit account ............. 180 0.33 360 0.58 210 0.31
Automobile .................. 722 1.31 604 0.97 397 0.58
Home equity ................. 1,164 2.11 1,996 3.20 1,801 2.64
Home equity (Lines of
Credit)(2) ................. 440 0.80 - - - -
Other ....................... 98 0.18 83 0.13 69 0.10
-------- -------- -------- -------- -------- --------
Total consumer loans ...... 2,604 4.73 3,043 4.88 2,477 3.63
-------- -------- -------- -------- -------- --------
Commercial business loans
(3) ........................ 382 0.69 208 0.34 150 0.22
-------- -------- -------- -------- -------- --------
Total loans ............... 55,037 100.00% 62,320 100.00% 68,297 100.00%
======== ======== ========
Less:
Loans in process ............. 1,769 2,816 4,009
Deferred fees and discounts .. 20 37 23
Allowance for losses.......... 193 190 176
-------- -------- --------
Total loans receivable, net .. $ 53,055 $ 59,277 $ 64,089
======== ======== ========
- ----------
/(1)/ Commitments for unused lines of credit for commercial real estate loans
were $212,000 at June 30, 2002.
/(2)/ Commitments for unused lines of credit for home equity lines of credit
were $1,374,000 at June 30, 2002.
/(3)/ Commitments for unused lines of credit for commercial business loans were
$372,000 at June 30, 2002.
57
Loan Maturity. The following table sets forth certain information at June
30, 2002, regarding the dollar amount of loans maturing in Clay County Savings'
portfolio based on their final contractual maturity, but does not include
scheduled repayments or potential prepayments.
ONE THREE TEN
THROUGH THROUGH FIVE THROUGH BEYOND
WITHIN THREE FIVE THROUGH TWENTY TWENTY
ONE YEAR YEARS YEARS TEN YEARS YEARS YEARS TOTAL
-------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
One- to four-family real estate.. $ 290 $ 134 $ 586 $ 6,307 $ 13,237 $ 21,771 $ 42,325
Multi-family real estate......... - - 149 - 691 - 840
Commercial real estate........... 897 1,710 509 180 490 - 3,786
Construction and land............ 5,052 48 - - - - 5,100
Consumer......................... 222 394 1,058 930 - - 2,604
Commercial....................... 270 47 65 - - - 382
-------- -------- -------- --------- -------- -------- --------
Total loans................ $ 6,731 $ 2,333 $ 2,367 $ 7,417 $ 14,418 $ 21,771 $ 55,037
======== ======== ======== ========= ======== ======== ========
Fixed- and Adjustable-Rate Loan Schedule. The following table sets forth at
June 30, 2002, the dollar amount of all fixed-rate and adjustable-rate loans due
after June 30, 2003.
DUE AFTER JUNE 30, 2003
------------------------------------------------
FLOATING OR
PREDETERMINED ADJUSTABLE
RATE RATES TOTAL
------------- -------------- -------------
(IN THOUSANDS)
One- to four-family real estate.. $ 10,586 $ 31,449 $ 42,035
Multi-family real estate......... 840 - 840
Commercial real estate........... 1,659 1,230 2,889
Construction and land development - 48 48
Consumer......................... 1,943 439 2,382
Commercial....................... 62 50 112
------------- -------------- -------------
Total loans................ $ 15,090 $ 33,216 $ 48,306
============= ============== =============
One- to Four-Family Real Estate Loans. Our primary lending activity
consists of originating one- to four-family, residential mortgage loans, secured
by properties located in our market area. At June 30, 2002, these loans totaled
$42.3 million, or 76.90%, of our total loan portfolio. The large majority of
these loans are secured by owner-occupied properties.
We currently offer one- to four-family real estate loans with terms up to
30 years. We offer one- to four-family loans with adjustable or fixed interest
rates. We also offer loans with a balloon feature after five years. Our
adjustable rate mortgage loans are currently originated with an initial interest
rate fixed for one, three or seven years, and annual adjustments thereafter
based on changes in the one-year Treasury constant maturity index. Our
adjustable rate mortgage loans on owner-occupied properties generally have an
interest rate adjustment limit of 200 basis points per adjustment, with a
maximum lifetime interest rate adjustment limit of 500 basis points. We
generally charge higher interest rates, with higher interest rate adjustments,
on adjustable-rate loans on non-owner-occupied properties. We currently offer
adjustable-rate loans with discounted or teaser rates, i.e., with initial rates
below those which would prevail under the foregoing computations based upon our
determination of market factors and competitive rates for adjustable-rate loans
in our market. However, on such discounted rate adjustable-rate loans,
58
borrowers are qualified at both the initial rate and at the fully indexed rate.
Our adjustable-rate loans are typically originated in conformity with Freddie
Mac guidelines, although our current policy is to retain adjustable rate loans
in our portfolio.
In the past, we offered adjustable rate mortgage loans with interest rate
adjustment limits of 100 or 150 basis points per adjustment, and we currently
have $5.9 million of such loans in our portfolio. We have also offered in the
past adjustable rate loans tied to the national monthly median cost of funds
ratio to OTS regulated, SAIF-insured institutions, and we currently have $6.5
million of such loans in our portfolio.
During the current low interest rate environment, all of our fixed rate and
balloon loans originated on owner-occupied properties are being sold in the
secondary market. We originate our fixed rate loans in conformity with Freddie
Mac guidelines in order to facilitate such secondary market sales. Generally, we
retain servicing on all loans sold.
One- to four-family real estate loans often remain outstanding for
significantly shorter periods than their contractual terms because borrowers
have the right to refinance or prepay their loans. Our conventional residential
mortgage loans customarily contain "due on sale" clauses which permit us to
accelerate the indebtedness of the loan upon transfer of ownership of the
mortgage property.
The retention of adjustable-rate loans in our portfolio helps reduce
exposure to changes in interest rates. However, there are credit risks resulting
from potential increased costs to the borrower as a result of rising interest
rates. During periods of rising interest rates, the risk of default on
adjustable-rate mortgages may increase due to the upward adjustment of interest
cost to the borrower.
At June 30, 2002, $10.9 million, or 25.67% of our one- to four-family real
estate loans had fixed rates of interest (inclusive of balloon loans), and $31.4
million, or 74.33% of such loans, had adjustable rates of interest. During the
nine months ended June 30, 2002, we originated $11.1 million in adjustable-rate
mortgage loans and $9.1 million in fixed-rate mortgage loans (inclusive of
$928,000 of balloon loans). During the year ended September 30, 2001, we
originated $4.4 million in adjustable-rate mortgage loans and $7.5 million in
fixed-rate mortgage loans.
Regulations limit the amount that a savings association may lend relative
to the appraised value of the real estate securing the loan, as determined by an
appraisal of the property at the time the loan is originated. For borrowers who
do not obtain private mortgage insurance, our lending policies generally limit
the maximum loan-to-value ratio on both fixed-rate and adjustable-rate mortgage
loans to 85% of the appraised value of single family and two unit condominium
and townhomes and 70% of the appraised value of three and four unit residential
properties. The maximum loan-to-value that will be considered on a single family
dwelling is 95% if the maximum loan amount is $275,000 or less and 90% for loans
up to $350,000. On a limited number of loans available to first-time home
buyers, we will consider a loan-to-value ratio up to 97% of the lower of the
purchase price or the appraised value. Loans secured by two unit dwellings will
be originated with a maximum loan to value of 90% and with a lending limit of up
to $275,000. Loans secured by condominiums and townhomes may be originated with
59
maximum loan-to-value ratios of 95% with a loan amount not exceeding $275,000.
For one- to four-family real estate loans with loan-to-value ratios of between
85% and 95%, we require the borrower to obtain private mortgage insurance. We
also require homeowners insurance and fire and casualty insurance on properties
securing real estate loans.
Construction and Land Development Loans. We originate two types of
residential construction loans: (1) construction/speculative loans, and (2)
construction/custom loans. As of June 30, 2002, construction loans totaled $5.1
million, or 9.27% of our total loan portfolio, all of which were secured by one-
to four-family residential properties. Clay County Savings would consider making
construction loans for multi-family or commercial properties but has not done so
in recent periods.
Construction/speculative loans are made to area homebuilders who do not
have, at the time the loan is originated, a signed contract with a homebuyer who
has a commitment for permanent financing with either Clay County Savings or
another lender. The builder may enter into a purchase and sale contract with the
homebuyer either during or after the construction period. These loans have the
risk that the builder will have to make interest and principal payments on the
loan and finance real estate taxes and other holding costs of the completed home
for a significant time after the completion of construction. Funds are disbursed
in phases as construction is completed. All construction/speculative loans
require that the builder-borrower personally sign the note as borrower or
co-borrower. These loans are generally originated for a term of twelve months,
with interest rates that are fixed for the term of the loan, and with a
loan-to-value ratio of no more than 85% of the lower of cost or the estimated
value of the completed property, although under certain circumstances we will
originate a construction loan with a loan-to-value ratio of up to 89%. The
largest number of construction/speculative loans we have originated to a single
borrower at any given time since October 1, 1999 was for eight properties. All
construction/speculative loans to one builder cannot exceed $1.0 million at any
one time. At June 30, 2002, the largest outstanding concentration of credit to
one builder consisted of four loans with an aggregate balance of $643,000. The
loans comprising this lending relationship were performing in accordance with
their terms.
Construction/custom loans are made to either an individual who has
contracted with a builder to construct their personal residence, or to a builder
who has a signed contract to build a new home for the homeowner. The terms of
construction/custom loans are similar to those of construction/speculative
loans.
Construction lending generally involves a greater degree of risk than other
one- to four-family mortgage lending. The repayment of the construction loan is,
to a great degree, dependent upon the successful and timely completion of the
home construction. Construction delays or the financial impairment of the
builder may further impair the borrower's ability to repay the loan.
Our procedures for underwriting construction loans include an assessment of
the borrower's credit history and the borrower's ability to meet other existing
debt obligations, as well as payment of principal and interest on the proposed
loan. Loans to builders are also based upon the builder's prior experience, and
our prior relationship with the builder.
60
We will also originate land development loans to area homebuilders that are
secured by individual unimproved or improved residential building lots. The
maximum loan-to-value ratio is 70% of the lower of cost or appraised value of
the property. At June 30, 2002, we had no land development loans in our
portfolio. Subsequent to June 30, 2002, we entered into a commitment to
originate a land development loan for single-family homes to a local
builder/developer in the amount of $1.7 million.
We do not originate construction/permanent loans. However, we offer
extended commitments to originate permanent financing on the construction/custom
loans that we originate. These extended commitments are typically honored for
terms of up to one year, and are at rates 50 basis points above the prevailing
rate at the term of the commitment.
Commercial Real Estate Loans. At June 30, 2002, $3.8 million, or 6.88% or
our total loan portfolio consisted of loans secured by commercial real estate
properties. Our commercial real estate loans are secured by improved property
such as offices, churches, small business facilities, strip mall shopping
centers, warehouses and other income producing, non-residential buildings. Our
commercial real estate loans are currently offered with adjustable rates or
balloon features, although we have offered fixed rates in the past. The
adjustable-rate commercial real estate loans are tied to the prime rate. Our
commercial real estate loans are currently offered with amortization schedules
of up to 25 years. At June 30, 2002, the average balance of our commercial real
estate loans was $189,000, and our largest commercial real estate loan was
$653,000 secured by land, warehouses and office properties. We generally obtain
appraisals on properties securing commercial real estate loans. An appraisal may
not be obtained where the loan to be originated is less than $250,000 and the
loan to value is based on other information that is evaluated by our Senior Vice
President of Lending, Executive Vice President or President. We generally will
make commercial real estate loans for up to 80% of the cost, or the appraised
value, of the property securing the loan, except for cash out refinancings which
are limited to 75% of the appraisal value of the property securing the loans.
Prior to funding a loan secured by commercial property, we may obtain an
environmental assessment from the loan applicant, depending upon the nature of
the property. If appropriate, we will obtain an environmental assessment from an
independent, licensed environmental engineer regarding any environmental risks
that may be associated with the property. The cost of the environmental
assessment is, in all cases paid by the applicant. The level of the
environmental engineer's evaluation of a property will depend on the facts and
circumstances relating to the specific loan, but generally the environmental
engineer's actions will range from a consultant's discretionary environmental
assessment to a Phase II environmental report. The underwriting process for
commercial real estate loans includes an analysis of the debt service coverage
of the collateral property. We typically require a debt service coverage ratio
of 115% or higher.
Loans secured by commercial real estate generally have larger loan balances
and more credit risk than one- to four-family mortgage loans. This increased
credit risk is a result of several factors, including the concentration of
principal in a limited number of loans and borrowers, the impact of local and
general economic conditions on the borrower's ability to repay the loan, and the
increased difficulty of evaluating and monitoring these types of loans. If the
cash flow from the property is reduced, the borrower's ability to repay the loan
may be
61
impaired. However, commercial real estate loans generally have higher interest
rates than loans secured by one- to four-family real estate.
Multi-Family Loans. At June 30, 2002, $840,000, or 1.53% of our total loan
portfolio consisted of loans secured by multi-family real estate. As of that
date, we had four multi-family loans in our portfolio. We originate fixed-rate
and adjustable rate multi-family real estate loans with amortization schedules
of up to 15 years for fixed rate loans and 25 years for adjustable rate loans.
We also originate multi-family loans with balloon features. We generally lend up
to 80% of the property's appraised value. If deemed necessary, we obtain an
environmental assessment from an independent engineering firm of any
environmental risks that may be associated with a particular building or the
site. In deciding to originate a multi-family loan, we review the
creditworthiness of the borrower, the expected cash flows from the property
securing the loan, the cash flow requirements of the borrower, the value of the
property and the quality of the management involved with the property. We
generally obtain the personal guarantee of the principals when originating
multi-family real estate loans. Appraisals are performed on all multi-family
loans that exceed $250,000.
Multi-family real estate lending is generally considered to involve a
higher degree of credit risk than one- to four-family lending. Such lending may
involve large loan balances concentrated on a single borrower or group of
related borrowers. In addition, the payment experience on loans secured by
income producing properties is typically dependent on the successful operation
of the related real estate project. Consequently the repayment of the loan may
be subject to adverse conditions in the real estate market or the economy
generally.
Consumer Loans. We are authorized to make loans for a variety of personal
and consumer purposes. As of June 30, 2002, consumer loans totaled $2.6 million,
or 4.73% of our total loan portfolio. Our consumer loans consist primarily of
home equity loans, home equity lines of credit, and automobile loans. Our
procedure for underwriting consumer loans includes an assessment of the
applicant's credit history and ability to meet existing obligations and payments
of the proposed loan, as well as an evaluation of the value of the collateral
security, if any.
The largest component of our consumer loans consist of home equity loans
and home equity lines of credit, the total of which amounted to $1.2 million, or
2.11% and $440,000, or 0.80%, respectively, of our total loan portfolio, as of
June 30, 2002. We commenced offering the home equity lines of credit in February
2002, and this product has been well received by our customers. Home equity
loans and home equity lines of credit are generally made for owner-occupied
homes, and are secured by first or second mortgages on residences. Home equity
loans may have terms of up to 10 years, and are originated at a fixed rate of
interest. Home equity lines of credit are revolving lines of credit and have
adjustable rates of interest. At June 30, 2002 our home equity lines of credit
were eligible to be funded up to $1.8 million. We generally offer home equity
loans and lines of credit up to $150,000 with a maximum loan to value ratio of
89% (including senior liens on the collateral property). We currently offer home
equity lines of credit for a period of five years, and generally at rates tied
to the prevailing prime interest rate.
Automobile loans accounted for $722,000 of our consumer loans at June 30,
2002. Our automobile loans generally have terms that do not exceed five years
and carry a fixed-rate of
62
interest. Generally, automobile loans are made in amounts up to 80% of the
purchase price on new vehicles, and up to the NADA loan value or 80% of the NADA
retail value on used vehicles. Collision and comprehensive insurance and vendor
single-interest coverage is required on all automobile loans. Our automobile
loans are made directly to the car buyers, and we do not participate in indirect
automobile loan programs though car dealerships.
We make loans secured by deposit accounts up to 95% of the amount of the
available deposit balance. We also make other consumer loans that may or may not
be secured. The terms of the loans vary depending on the collateral.
Consumer loans generally entail greater risk than residential mortgage
loans, particularly in the case of loans that are unsecured or are secured by
assets that tend to depreciate in value, such as automobiles. In these cases,
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment for the outstanding loan, and the remaining value often does
not warrant further substantial collection efforts against the borrower.
Commercial Business Loans. In addition to commercial real estate loans, we
also engage in small business commercial lending, including business installment
loans, lines of credit and other commercial loans. At June 30, 2002, commercial
business loans totaled $382,000, or 0.69% of total loans. We originate both
secured and unsecured commercial business loans to businesses located in our
primary lending area. Commercial business loans are originated as both
fixed-rate loans and adjustable-rate loans set at a percentage above the prime
rate.
Our underwriting standards for commercial business loans include a review
of the applicant's tax returns, financial statements, credit history and an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan based on cash flows generated by the applicant's business.
Commercial business loans generally have higher interest rates and shorter
terms than one- to four-family residential loans, but they also may involve
higher average balances, increased difficulty of loan monitoring and a higher
risk of default since their repayment generally depends on the successful
operation of the borrower's business. We typically require a principal of the
company obtaining a commercial business loan to personally sign the note as a
co-borrower.
Loan Originations, Purchases, Sales and Servicing. Although we originate
both fixed-rate and adjustable-rate loans, our ability to generate each type of
loan depends upon borrower demand, market interest rates, borrower preference
for fixed- versus adjustable-rate loans, and the interest rates offered on each
type of loan by other lenders in our market area. This includes commercial
banks, savings institutions, credit unions, and mortgage banking companies. Our
loan originations come from a number of sources, including real estate broker
referrals, existing customers, borrowers, builders, attorneys, and "walk-in"
customers.
Our lending activities are subject to written, non-discriminatory
underwriting standards and loan origination procedures adopted by management and
the Board of Directors. Upon receipt of a loan application from a prospective
borrower, a credit report, tax returns and
63
verifications are ordered or requested to confirm specific information relating
to the loan applicant's employment, income and credit standing. On commercial
loans, the source of repayment is substantiated through financial data on the
income-producing collateral property or the business. On loans secured by real
estate, an appraisal or evaluation (depending on the size and/or purpose of the
loan) is undertaken by an independent fee appraiser. Home equity loans may be
substantiated by existing appraisals or tax assessed values. All loans are
processed at the main office. Approval is dependent on the size and type of
loan. Generally, residential loans up to $400,000 and consumer loans up to
$30,000 may be approved by the Senior Vice President for Lending, Executive Vice
President or President. Consumer loans up to $30,000 may also be approved by the
Vice President for Lending. Our loan committee approves consumer loans greater
than $30,000 and commercial real estate and commercial business loans up to
$400,000. The Board of Directors must approve all loans over $400,000.
In recent years, we have not purchased loans. In the current interest rate
environment, we have recently increased our sale of loans in the secondary
market. For the nine months ended June 30, 2002 and the year ended September 30,
2001, we sold $7.3 million and $4.8 million, respectively, of conforming
residential one- to four-family loans. The residential loans sold are fixed-rate
residential loans with maturities of 10 to 30 years or loans with balloon
features after five years. We also sold $610,000 of commercial real estate loans
during the nine months ended June 30, 2002, representing a whole loan and a
participation interest in a second loan, which were sold so that we remained in
compliance with our loans-to-one-borrower limit.
We generally sell loans on a servicing retained basis. At June 30, 2002, we
had a total of $16.5 million of loans (in part or whole) that we serviced for
others.
64
The following table shows the loan origination, sales and repayment
activities of Clay County Savings for the periods indicated. We did not purchase
any loans during the periods indicated.
NINE MONTHS
ENDED JUNE 30, YEARS ENDED SEPTEMBER 30,
-------------------------- -------------------------
2002 2001 2001 2000
----------- ----------- ----------- -----------
(IN THOUSANDS)
Originations by Type:
Real estate - one- to four-family.... $ 20,214 $ 7,354 $ 11,947 $ 10,743
- multi-family................. 800 240 240 500
- commercial................... 2,315 672 770 1,634
- construction................. 5,312 7,140 9,790 13,402
Non-real estate - consumer........... 2,964 1,821 2,656 2,488
- commercial business.......... 416 520 520 167
----------- ----------- ----------- -----------
Total loans originated........... 32,021 17,747 25,923 28,934
----------- ----------- ----------- -----------
Sales and Repayments:
Real estate - one- to four-family
loans sold ......................... 7,260 2,775 4,753 -
- commercial loans sold........ 610 - - -
----------- ----------- ----------- -----------
Total loans sold................. 7,870 2,775 4,753 -
Principal repayments................. 31,433 19,439 27,147 22,503
----------- ----------- ----------- -----------
Total reductions................. 39,303 22,214 31,900 22,503
----------- ----------- ----------- -----------
Increase (decrease) in other items, net 1,060 1,310 1,165 509
----------- ----------- ----------- -----------
Net increase (decrease).......... $ (6,222) $ (3,157) $ (4,812) $ 6,940
=========== =========== =========== ===========
Loan Commitments. We issue commitments for mortgage loans conditioned upon
the occurrence of certain events. Such commitments are made in writing on
specified terms and conditions and are honored for up to 45 days from approval,
depending on the type of transaction. At June 30, 2002, we had loan commitments
(excluding undisbursed portions of interim construction loans of $1.8 million)
of $1.0 million and unused commercial lines of credit of $584,000 and unused
home equity lines of credit of $1.4 million. For information regarding
longer-term commitments for permanent financing in connection with our
construction loans, see"--Construction and Land Development Loans."
Loan Fees. In addition to interest earned on loans, we receive income from
fees in connection with loan originations, loan modifications, late payments and
for miscellaneous services related to our loans. Income from these activities
varies from period to period depending upon the volume and type of loans made
and competitive conditions. We currently charge loan origination fees equal to
1% of the loan amount on non-owner-occupied residential loans, construction
loans, commercial real estate and multi-family loans and commercial business
loans. In accordance with applicable accounting standards, loan origination fees
and discount points in excess of loan origination costs are deferred and
recognized over the contractual remaining lives of the related loans using the
interest method. Fees collected and costs on loans originated and sold to
investors are included in the computation of the gain on sale of loans and
recognized in the period in which the loan is originated and sold. We recognized
$43,000, $43,000, and $61,000 of deferred loan fees during the nine months ended
June 30, 2002 and during the fiscal years ended September 30, 2001 and 2000,
respectively, in connection with loan refinancings, payoffs, sales and ongoing
amortization of outstanding loans.
Loans-to-One-Borrower. Federal savings banks are subject to the same
loans-to-one-borrower limits as those applicable to national banks, which
restrict loans to one borrower to an amount equal to 15% of unimpaired capital
and unimpaired surplus on an unsecured basis, and
65
an additional amount equal to 10% of unimpaired capital and unimpaired surplus
if the loan is secured by readily marketable collateral (generally, financial
instruments and bullion, but not real estate). At June 30, 2002, our lending
limit was $996,000.
Subject to regulatory approval, an institution may be permitted to grant
loans-to-one borrower up to an amount equal to 30% of unimpaired capital and
surplus if such loans were for the purpose of developing domestic residential
housing units. Subject to certain conditions imposed in the notification letter
dated November 8, 1994, the Office of Thrift Supervision has granted us
permission to use the higher lending limit. The primary conditions are that no
loan shall be used to finance a single-family dwelling with a purchase price
greater than $500,000 and all loans made under this exemption shall not exceed
150% of unimpaired capital and surplus. At June 30, 2002, we had one lending
relationship in which the 30% exemption was applied. This lending relationship
totaled $1.5 million. At June 30, 2002, we had 12 lending relationships in which
the total amount outstanding exceeded $500,000. All of the loans under these
large lending relationships were performing in accordance with their terms.
ASSET QUALITY
When a borrower fails to make required payments on a loan, we take a number
of steps to induce the borrower to correct the delinquency and restore the loan
to a current status. We will send a borrower a reminder notice 15 days after the
due date if a payment has not been made. Our Senior Vice President of Lending
has discretion and may or may not make direct telephone contact with the
borrower at that time. If the borrower does not remit the entire payment due by
the end of the month or 30 day period, we will try to make direct contact with
the borrower to arrange a payment plan. At the direction of our Board of
Directors, if a satisfactory payment plan is not established within 60 days of
the due date, we will send a demand letter to the borrower. An exception to this
is in regard to consumer loans. On consumer loans, the Senior Vice President of
Lending has discretion to send a demand letter to the borrower, if a
satisfactory payment plan is not established within 30 days of the due date.
After expiration of the period established within the demand letter, we may
instruct our attorneys to initiate foreclosure proceedings if the collateral is
real estate or we may begin the process of repossession for other property.
Our policies require that management continuously monitor the status of the
loan portfolio and report to the Board of Directors on a monthly basis. These
reports include information on delinquent loans and foreclosed real estate and
our actions and plans to cure the delinquent status of the loans and to dispose
of any real estate acquired through foreclosure or other property acquired by
repossession.
Non-Performing Loans. All loans are reviewed on a regular basis and are
placed on a non-accrual status when, in the opinion of management, there is
reasonable probability of loss of principal or the collection of additional
interest is deemed insufficient to warrant further accrual. Generally, we place
all loans more than 90 days past due on non-accrual status. In addition, we
place any loan on non-accrual status if any part of it is classified as loss or
if any part has been charged-off, or if management otherwise determines the loan
to be uncollectible. When a loan is placed on non-accruing status, total
interest accrued and unpaid to date is reversed. Subsequent
66
payments are either applied to the outstanding principal balance or recorded as
interest income, depending on the assessment of the ultimate collectibility of
the loan.
As of June 30, 2002, our total non-accrual loans amounted to $96,000,
representing two loans secured by single-family, owner-occupied properties. As
of September 30, 2001, our non-accrual loans consisted of one automobile loan in
the amount of $2,000. As of September 30, 2000, our non-accrual loans consisted
of two loans secured by single-family, owner-occupied properties in the amounts
of $79,000 and $33,000, respectively, and one commercial real estate loan in the
amount of $256,000.
The following table sets forth delinquencies in our loan portfolio as of
the dates indicated:
AT JUNE 30, 2002 AT SEPTEMBER 30, 2001
------------------------------------------ ----------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
-------------------- -------------------- ------------------- -------------------
NUMBER PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
OF BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
--------- --------- --------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
Real Estate loans:
One-to four-family............ - $ - 2 $ 96 1 $ 46 - $ -
Multi-family.................. - - - - - - - -
Commercial real estate........ - - - - - - - -
Construction and development - - - - - - - -
Consumer loans.................. 1 13 - - - - 1 2
Commercial business............. - - - - - - - -
--------- --------- --------- --------- -------- --------- -------- ---------
Total...................... 1 $ 13 2 $ 96 1 $ 46 1 $ 2
========= ========= ========= ========= ======== ========= ======== =========
Delinquent loans to total loans. 0.02% 0.16% 0.08% -%
========= ========= ========= =========
AT SEPTEMBER 30, 2000
------------------------------------------
60-89 DAYS 90 DAYS OR MORE
-------------------- --------------------
PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Real Estate loans:
One-to four-family.......... 1 $ 68 2 $ 112
Multi-family................ - - - -
Commercial real estate...... - - 1 256
Construction and development - - - -
Consumer loans................ - - - -
Commercial business........... - - - -
--------- --------- --------- ---------
Total.................... 1 $ 68 3 $ 368
========= ========= ========= =========
Delinquent loans to total loans 0.11% 0.57%
======== =========
67
The table below sets forth the amounts and categories of non-performing
assets in our loan portfolio. Loans are placed on non-accrual status when the
collection of principal and/or interest become doubtful. For all years
presented, we had no troubled debt restructurings within the meaning of SFAS No.
15 or impaired loans, except as noted below. Foreclosed assets include assets
acquired in settlement of loans.
AT JUNE 30, AT SEPTEMBER 30,
----------- -----------------------
2002 2001 2000
----------- --------- ---------
(DOLLARS IN THOUSANDS)
Non-accruing loans:
One- to four-family.................... $ 96 $ - $ 112
Multi-family........................... - - -
Commercial real estate................. - - 256(1)
Construction or development............ - - -
Consumer............................... - 2 -
Commercial business.................... - - -
----------- --------- ---------
Total................................ 96 2 368
----------- --------- ---------
Accruing loans delinquent more than 90 days:
One- to four-family.................... - - -
Multi-family........................... - - -
Commercial real estate................. - - -
Construction or development............ - - -
Consumer............................... - - -
Commercial business.................... - - -
----------- --------- ---------
Total................................ - - -
----------- --------- ---------
Foreclosed assets:
One- to four-family.................... - - -
Multi-family........................... - - -
Commercial real estate................. - - -
Construction or development............ - 133 193
Consumer............................... - - -
Commercial business.................... - - -
----------- --------- ---------
Total................................ - 133 193
----------- --------- ---------
Total non-performing assets............... $ 96 $ 135 $ 561
=========== ========= =========
Total as a percentage of total assets..... 0.12% 0.17% 0.72%
=========== ========== =========
- ----------
(1) Classified as impaired loan at September 30, 2000.
For the nine months ended June 30, 2002, and for the year ended September
30, 2001, gross interest income which would have been recorded had the
non-accruing loans been current in accordance with their original terms amounted
to $5,000 and $190, respectively. The amounts that were included in interest
income were $4,000 and $40 for the nine months ended June 30, 2002, and the year
ended September 30, 2001, respectively. See also note 5 of notes to financial
statements for additional information.
Other Loans of Concern. At June 30, 2002, we had two loans with an
aggregate balance of $163,000, with respect to which known information about the
possible credit problems of the borrowers or the cash flows of the security
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.
Real Estate Owned. Real estate owned consists of property acquired through
formal foreclosure or by deed in lieu of foreclosure, and is recorded at the
lower of recorded investment or fair value. Write-downs from recorded investment
to fair value which are required at the time of foreclosure are charged to the
allowance for loan losses. After transfer, the property is carried
68
at the lower of recorded investment or fair value, less estimated selling
expenses. Adjustments to the carrying value of the properties that result from
subsequent declines in value are charged to operations in the period in which
the declines occur. At June 30, 2002, we had no property that was classified as
real estate owned. At September 30, 2001, we had $133,000 of real estate owned
consisting of one single-family residence. At September 30, 2000, we had
$193,000 of real estate owned consisting of two single-family residences.
Asset Classification. The OTS has adopted various regulations regarding
problem assets of financial institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS 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 insured institution may
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic 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
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover estimated losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention" and monitored by us.
Our Board of Directors reviews and makes the final determination (based on
management recommendations) on classified assets on at least a quarterly basis.
In addition, the Senior Vice President also prepares a monthly summary of assets
that are monitored by management. On the basis of management's review of our
asset portfolio at June 30, 2002, we had classified $98,000 of our assets as
substandard, none as doubtful, none as loss and $163,000 as special mention. At
June 30, 2002, our substandard assets consisted of two loans secured by single
family homes of $46,000 and $50,000, respectively, and one unsecured consumer
loan of $2,000. These single-family loans were also classified as non-accrual at
June 30, 2002. Our special mention assets consisted of one single-family loan of
$150,000 and one automobile loan of $13,000. The allowance for loan losses for
substandard assets amounted to $5,000. There was no allowance for losses on
assets classified as special mention.
At September 30, 2001, we had $135,000 of our assets classified as
substandard, none as doubtful, none as loss and $825,000 as special mention. At
September 30, 2001, the substandard assets consisted of real estate owned of
$133,000, which consisted of one single-family residence, and a consumer loan of
$2,000 that was secured by an automobile. The consumer loan was also classified
as non-accrual. Special mention assets at September 30, 2001, consisted of two
single-family loans of $165,000 and a commercial real estate loan of $660,000
secured by
69
an office/warehouse building and land. The allowance for loan losses for
substandard assets amounted to $1,000. There was no allowance for losses on
assets classified as special mention.
At September 30, 2000, we had $528,000 of our assets classified as
substandard, none as doubtful, none as loss and $343,000 as special mention. At
September 30, 2000, the substandard assets consisted of real estate owned of
$193,000, which consisted of two single-family residences, a loan of $79,000
secured by a single-family residence and a commercial real estate loan of
$256,000 secured by a commercial tract of land. The single-family loan and the
commercial real estate loan were also classified as non-accrual. Special mention
assets at September 30, 2000, consisted of five single-family loans, one of
which for $33,000 was also classified as non-accrual. The allowance for loan
losses for substandard assets amounted to $17,000. There was no allowance for
losses on assets classified as special mention.
Allowance for Loan Losses. We have established a systematic methodology for
the determination of provisions for loan losses. The methodology is set forth in
a formal policy and considers all loans in the portfolio. Specific allowances
are established for certain individual loans that management considers to be
impaired. The remainder of the portfolio is segmented into groups of loans with
similar risk characteristics for evaluation and analysis. In originating loans,
we recognize that losses will be experienced and that the risk of loss will vary
with, among other things, the type of loan being made, the creditworthiness of
the borrower over the term of the loan, general economic conditions, and in the
case of a secured loan, the quality of the security of the loan. We increase our
allowance for loan losses by charging provisions for loan losses against our
income. Management's periodic evaluation of the allowance is consistently
applied and is based on our estimate of losses which are probable and can be
reasonably estimated. Factors which affect the level of the allowance include
past loan loss experience, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, current
economic conditions, and other relevant internal and external factors that
affect loan collectibility.
70
At June 30, 2002, we had an allowance for loan losses of $193,000.
Management believes that all known and inherent losses in the loan portfolio
that are both probable and reasonable to estimate have been recorded as of each
balance sheet date. Although management believes that it uses the best
information available to make such determinations, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
significantly adversely affected if circumstances differ substantially from the
assumptions used in making the determinations. The following table sets forth
information regarding our allowance for loan losses and other ratios at or for
the dates indicated.
NINE MONTHS ENDED JUNE 30, YEARS ENDED SEPTEMBER 30,
--------------------------- ----------------------------
2002 2001 2001 2000
------------ ------------ ------------- ------------
(DOLLARS IN THOUSANDS)
Balance at beginning of period.............. $ 190 $ 176 $ 176 $ 193
Charge-offs:
One-to four-family........................ - - - -
Multi-family.............................. - - - -
Commercial real estate.................... - - - -
Construction or development............... - - - 29
Consumer.................................. 2 7 7 -
Commercial business....................... - - - -
------------ ------------ ------------- ------------
Total..................................... 2 7 7 29
------------ ------------ ------------- ------------
Recoveries:
One-to four-family........................ 2 - - -
Multi-family.............................. - - - -
Commercial real estate.................... - - - -
Construction or development............... - - - -
Consumer.................................. - - - -
Commercial business....................... - - - -
------------ ------------ ------------- ------------
Total..................................... 2 - - -
------------ ------------ ------------- ------------
Net charge-offs............................. - 7 7 29
------------ ------------ ------------- ------------
Additions charged to operations............. 3 21 21 12
------------ ------------ ------------- ------------
Balance at end of period.................... $ 193 $ 190 $ 190 $ 176
============ ============ ============= ============
Ratio of net charge-offs during the period
to average loans outstanding during the
period...................................... -% 0.01% 0.01% 0.05%
============ ============ ============= ============
Ratio of net charge-offs during the period
to average non-performing assets during the
period..................................... -% 1.46% 1.62% 10.47%
============ ============ ============= ============
In addition, the Office of Thrift Supervision, as an integral part of its
examination process, periodically reviews our loan and foreclosed real estate
portfolios and the related allowance for loan losses and valuation allowance for
foreclosed real estate. The Office of Thrift Supervision may require us to
increase the allowance for loan losses or the valuation allowance for foreclosed
real estate based on its review of information available at the time of the
examination, thereby adversely affecting our results of operations.
71
Allocation of the Allowance for Loans Losses. The following table sets
forth the breakdown of the allowance for loan losses by loan category at the
dates indicated. Management believes that the allowance can be allocated by
category only on an approximate basis. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any other category.
AT SEPTEMBER 30,
-----------------------------------------------------------------
AT JUNE 30, 2002 2001 2000
------------------------------- ------------------------------- -------------------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
AMOUNT LOAN IN EACH AMOUNT LOAN IN EACH AMOUNT LOAN IN EACH
OF AMOUNTS CATEGORY OF AMOUNTS CATEGORY 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
--------- -------- -------- --------- -------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
One- to four-family.... $ 47 $ 42,325 76.90% $ 45 $ 45,620 73.20% $ 53 $ 51,061 74.76%
Multi-family........... 8 840 1.53 11 1,208 1.94 9 1,056 1.55
Commercial real estate. 35 3,786 6.88 23 2,525 4.05 32 2,579 3.77
Construction or
development........... 30 5,100 9.27 53 9,716 15.59 62 10,974 16.07
Consumer............... 19 2,604 4.73 14 3,043 4.88 12 2,477 3.63
Commercial business.... 14 382 0.69 9 208 0.34 8 150 0.22
Unallocated............ 40 - - 35 - - - - -
--------- -------- -------- --------- -------- -------- --------- -------- --------
Total.............. $ 193 $ 55,037 100.00% $ 190 $ 62,320 100.00% $ 176 $ 68,297 100.00%
========= ======== ======== ========= ======== ======== ========= ======== ========
Management evaluates the total balance of the allowance for loan losses
based on several factors that are not loan specific but are reflective of the
losses inherent in the loan portfolio. This includes management's periodic
review of loan collectibility in light of historical experience, the nature and
volume of the loan portfolio, adverse situations that may affect the borrower's
ability to repay, estimated value of any underlying collateral, prevailing
economic conditions such as housing trends, inflation rates and unemployment
rates, geographic concentrations of loans within our immediate market area, and
both peer financial institution historic loan loss experience and levels of
allowance for loan losses. Generally, small balance, homogenous type loans, such
as one- to four-family mortgage, consumer and home equity loans are evaluated
for impairment in total. The allowance related to these loans is established
primarily by using loss experience data by general loan type. Nonperforming
loans are evaluated individually, based primarily on the value of the underlying
collateral securing the loan. Larger loans, such as multi-family mortgages are
also generally evaluated for impairment individually. The allowance is allocated
to each loan type based on the results of the evaluation described above. Small
differences between the allocated allowance balance and the recorded allowance
amount is reflected as "unallocated" to absorb losses resulting from the
inherent imprecision involved in the loss evaluation process.
INVESTMENT ACTIVITIES
General. We are permitted under federal law to invest in various types of
liquid assets, including United States Government obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
Federal Home Loan Bank of Des Moines, certificates of deposit of federally
insured institutions, certain bankers' acceptances and federal funds. Within
certain regulatory limits, we may also invest a portion of our assets in
commercial paper and corporate debt securities. We are also required to maintain
an investment in FHLB stock.
72
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that securities be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold these securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity."
We do not currently use or maintain a trading account. Debt and equity
securities not classified as "held to maturity" are classified as "available for
sale." These securities are reported at fair value, and unrealized gains and
losses on the securities are excluded from earnings and reported, net of
deferred taxes, as a separate component of retained earnings.
All of our securities carry market risk insofar as increases in market
rates of interest may cause a decrease in their market value. Investments in
securities are made based on certain considerations, which include the interest
rate, tax considerations, yield, settlement date and maturity of the security,
our liquidity position, and anticipated cash needs and sources. The effect that
the proposed security would have on our credit and interest rate risk and
risk-based capital is also considered. We purchase securities to provide
necessary liquidity for day-to-day operations, and when investable funds exceed
loan demand.
Generally, our investment policy is to invest funds in various categories
of securities and maturities based upon our liquidity needs, asset/liability
management policies, investment quality, marketability and performance
objectives. The board of directors reviews our securities portfolio on a monthly
basis.
Securities. It is our intent to purchase investments of only high quality.
Our investment policy authorizes us to invest in U.S. Government, agency and
sponsored entity securities, such as Fannie Mae, Ginnie Mae, Freddie Mac and the
FHLB. Our policy also permits investments in mortgage-related securities,
deposits with the FHLB, Federal Funds and deposits in other insured financial
institutions. In addition, management is authorized to invest in investment
grade state and municipal obligations, commercial paper and corporate debt
obligations within regulatory parameters. We do not engage in any hedging
activities or trading activities, nor do we purchase any high-risk mortgage
derivative products, corporate junk bonds, zero coupon bonds and certain types
of structured notes.
73
The following table sets forth the composition of our securities portfolio
and other interest-earning assets at the dates indicated.
AT JUNE 30, AT SEPTEMBER 30,
-------------------------- ----------------------------------------------------------
2002 2001 2000
-------------------------- --------------------------- ----------------------------
CARRYING CARRYING CARRYING
VALUE % OF TOTAL VALUE % OF TOTAL VALUE % OF TOTAL
------------ ----------- ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
Securities held to maturity:/(1)/
U.S. government securities.......... $ - -% $ - -% $ - -%
Federal agency obligations.......... - - - - - -
Municipal bonds..................... 16 0.2 16 0.2 16 0.3
------------ ----------- ------------ ------------ ------------ -------------
Subtotal........................... 16 0.2 16 0.2 16 0.3
Securities available for sale:/(2)/
U.S. government securities.......... - - - - - -
Federal agency obligations.......... 6,157 75.7 5,380 73.1 4,281 83.0
Municipal bonds..................... - - - - - -
AMF Adjustable rate mortgage
fund/(3)/.......................... 1,001 12.3 1,001 13.6 - -
------------ ----------- ------------ ------------ ------------ -------------
Subtotal........................... 7,158 88.0 6,381 86.7 4,281 83.0
------------ ----------- ------------ ------------ ------------ -------------
FHLB stock............................ 963 11.8 963 13.1 860 16.7
------------ ----------- ------------ ------------ ------------ -------------
Total securities and FHLB stock..... $ 8,137 100.0% $ 7,360 100.0% $ 5,157 100.0%
============ =========== ============ ============ ============ =============
Average remaining life of securities.. 3.16 years 3.59 years 4.24 years
Other interest-earning assets:
Interest-bearing deposits with banks $ 9,181 100.0% $ 2,743 100.0% $ 1,287 100.0%
Federal funds sold.................. - - - - - -
------------ ----------- ------------ ------------ ------------ -------------
Total.............................. $ 9,181 100.0% $ 2,743 100.0% $ 1,287 100.0%
============ =========== ============ ============ ============ =============
- ----------
/(1)/ Securities classified as held to maturity are reported at amortized cost.
/(2)/ Securities classified as available for sale are reported at fair value.
/(3)/ Represents an investment in a mutual fund.
Mortgage-Backed Securities. Mortgage-backed securities represent a
participation interest in a pool of one- to four-family or multi-family
mortgages. The mortgage originators use intermediaries (generally United States
Government agencies and government-sponsored enterprises) to pool and repackage
the participation interests in the form of securities, with investors such as
Clay County Savings receiving the principal and interest payments on the
mortgages. Such United States Government agencies and government-sponsored
enterprises guarantee the payment of principal and interest to investors.
Mortgage-backed securities are typically issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a specific range and have varying
maturities. The characteristics of the underlying pool of mortgages, i.e.,
fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the
certificate holder. The life of a mortgage-backed pass-through security thus
approximates the life of the underlying mortgages. Our mortgage-backed
securities consist primarily of Fannie Mae ("FNMA"), Freddie Mac ("FHLMC") and
Ginnie Mae ("GNMA") securities.
At June 30, 2002, our mortgage-backed securities totaled to $1.9 million,
which represented 2.41% of our total assets at that date. At June 30, 2002, all
of our mortgage-backed
74
securities were classified as available-for-sale. At that date, most of our
mortgage-backed securities had adjustable rates of interest.
Mortgage-backed securities generally yield less than the mortgage loans
underlying such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk to the security holder. In
addition, mortgage-backed securities are more liquid than individual mortgage
loans and we may use them to collateralize borrowings or other obligations of
Clay County Savings.
The following table sets forth the composition of our mortgage-backed
securities at the dates indicated.
AT JUNE 30, AT SEPTEMBER 30,
-------------------------- ----------------------------------------------------------
2002 2001 2000
-------------------------- --------------------------- ----------------------------
CARRYING % OF CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL VALUE TOTAL
------------ ----------- ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
Mortgage-backed securities available
for sale:/(1)/
GNMA................................ $ 729 38.86% $ 1,010 50.42% $ 158 10.29%
FNMA................................ 566 30.17 800 39.94 1,097 71.42
FHLMC............................... 581 30.97 193 9.64 281 18.29
------------ ----------- ------------ ------------ ------------ -------------
Total.............................. $ 1,876 100.00% $ 2,003 100.00% $ 1,536 100.00%
============ =========== ============ ============ ============ =============
- ----------
/(1)/ Mortgage-backed securities classified as available for sale are reported
at fair value.
Carrying Values, Yields and Maturities. The composition and maturities of
our securities portfolio and of our mortgage-backed securities, excluding FHLB
stock, are indicated in the following table.
AT JUNE 30, 2002
--------------------------------------------------------
LESS THAN 1 TO 5 5 TO 10 OVER TOTAL INVESTMENT
1 YEAR YEARS YEARS 10 YEARS SECURITIES
------------ ----------- ------------ ------------ ----------------------------
AMORTIZED AMORTIZED AMORTIZED AMORTIZED AMORTIZED MARKET
COST COST COST COST COST VALUE
------------ ----------- ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
U.S. government securities:
Federal agency obligations............ $ 500 $ 5,342 $ - $ - $ 5,842 $ 5,932
SBA loan pools........................ - - - 228 228 225
Adjustable rate mortgage fund......... 1,000 - - - 1,000 1,001
Municipal obligations................. - 16 - - 16 15
Mortgage-backed securities............ - 97 - 1,747 1,844 1,876
------------ ----------- ------------ ------------ ------------ -------------
Total investment securities........... $ 1,500 $ 5,455 $ - $ 1,975 $ 8,930 $ 9,049
============ =========== ============ ============ ============ =============
Weighted average yield(1)............. 4.11% 4.92% -% 4.97% 4.80% 4.81%
- -------------
(1) Includes actual yield for municipal obligations, rather than tax-equivalent
yield.
SOURCES OF FUNDS
General. Deposits have been our primary source of funds for lending and
other investment purposes. We also utilize borrowings, primarily FHLB advances,
to supplement cash flow needs, lengthen the maturities of liabilities for
interest-rate risk purposes and to manage the cost of funds. Other sources of
funds include principal and interest payments. Loan repayments
75
are a relatively stable source of funds, while prepayments on loans and deposit
flow are impacted significantly by interest rates.
Deposits. Our deposits are generated primarily from residents within our
primary market area. Deposit account terms vary, with the principal differences
being the minimum balance required, the time periods the funds must remain on
deposit and the interest rate. We are not currently using, nor have we used in
recent years, brokers to obtain deposits. Our deposit products include personal
and commercial checking, NOW, money market, statement and passbook savings, and
term certificate accounts. During recent years, our focus has been on attracting
checking and savings accounts and we intend to continue such a strategy.
Interest rates on new deposit accounts are generally determined weekly, but
may periodically be changed as needed. Interest rates are established by our
Asset/Liability Management Committee and are based on various factors including
market interest rates, the cost of borrowings, local competition, our liquidity
position and current deposit flow and new account activity. Our primary method
of soliciting funds is through advertising in local media, the competitive
pricing of savings instruments and the focus on personal service and
convenience.
The following table sets forth our deposit flows during the periods
indicated.
NINE MONTHS YEARS ENDED
ENDED JUNE 30, SEPTEMBER 30,
-------------------------- ---------------------------
2002 2001 2001 2000
------------ ----------- ------------ ------------
(IN THOUSANDS)
Net deposits (withdrawals)............ $ 4,206 $ 3,471 $ 2,881 $ (3,797)
Interest credited on deposit accounts. 1,386 1,683 2,217 1,966
------------ ----------- ------------ ------------
Total increase (decrease) in deposit
accounts............................. $ 5,592 $ 5,154 $ 5,098 $ (1,831)
============ =========== ============ ============
The following table sets forth the distribution of the our average deposit
accounts for the periods indicated and the weighted average interest rates on
each category of deposits presented. Averages for the periods presented utilize
average monthly balances.
NINE MONTHS ENDED JUNE 30, 2002 NINE MONTHS ENDED JUNE 30, 2001
----------------------------------------- -------------------------------------------
PERCENT PERCENT
OF TOTAL WEIGHTED OF TOTAL WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
------------ ----------- ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
NOW accounts........................... $ 6,681 10.6% 1.09% $ 5,551 10.2% 2.30%
Savings accounts....................... 5,245 8.3 1.63 5,174 9.5 2.96
Money market deposit accounts.......... 11,501 18.3 2.23 7,440 13.6 3.84
Non-interest-bearing demand checking
accounts.............................. 1,480 2.4 - 910 1.7 -
------------ ----------- ------------ ------------
Total transaction deposit accounts 24,907 39.6 1.66 19,075 35.0 2.97
Certificate of deposit accounts........ 37,954 60.4 4.10 35,442 65.0 5.65
------------ ----------- ------------ ------------
Total average deposits............. $ 62,861 100.0% 3.13% $ 54,517 100.0% 4.72%
============ =========== ============ ============
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YEAR ENDED SEPTEMBER 30, 2001 YEAR ENDED SEPTEMBER 30, 2000
----------------------------------------- -------------------------------------------
PERCENT PERCENT
OF TOTAL WEIGHTED OF TOTAL WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
------------ ----------- ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
NOW accounts.......................... $ 5,651 10.2% 2.26% $ 5,362 10.1% 2.34%
Savings accounts...................... 5,291 9.6 3.10 4,860 9.2 2.67
Money market deposit accounts......... 7,725 14.0 3.74 6,359 12.0 3.57
Non-interest-bearing demand checking
accounts............................. 1,002 1.8 - 487 0.9 -
------------ ----------- ------------ ------------
Total transaction deposit accounts 19,669 35.6 2.95 17,068 32.2 2.83
Certificate of deposit accounts....... 35,658 64.4 5.52 35,970 67.8 5.00
------------ ----------- ------------ ------------
Total average deposits............ $ 55,327 100.0% 4.60% $ 53,038 100.0% 4.30%
============ =========== ============ ============
At June 30, 2002, we had outstanding $5.3 million in certificate of deposit
accounts of $100,000 or more, maturing as follows:
WEIGHTED
AVERAGE
AMOUNT RATE
---------------------- ------------
(Dollars in Thousands)
Maturity period:
Three months or less............................. $ 848 3.59%
Over three months through six months............. 1,439 2.83
Over six months through 12 months................ 1,796 5.06
Over 12 months................................... 1,254 4.60
----------------------
Total........................................ $ 5,337 4.12%
======================
The following table presents, by rate category, our certificate of deposit
accounts as of the dates indicated.
AT JUNE 30, AT SEPTEMBER 30,
-------------------------- ----------------------------------------------------------
2002 2001 2000
-------------------------- --------------------------- ----------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------ ----------- ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
Certificate of deposit rates:
1.01% - 2.00%................... $ 5,653 15.52% $ - -% $ - -%
2.01% - 3.00%................... 12,620 34.65 247 0.67 - -
3.01% - 4.00%................... 5,420 14.88 8,844 24.13 - -
4.01% - 5.00%................... 5,662 15.55 11,874 32.39 5,354 15.15
5.01% - 6.00%................... 4,665 12.81 12,044 32.86 26,044 73.71
6.01% - 7.00%................... 2,399 6.59 3,648 9.95 3,934 11.14
------------ ----------- ------------ ------------ ------------ -------------
Total......................... $ 36,419 100.00% $ 36,657 100.00% $ 35,332 100.00%
============ =========== ============ ============ ============ =============
The following table presents, by rate category, the remaining period to
maturity of certificate of deposit accounts outstanding as of June 30, 2002.
MATURITY DATE
--------------------------------------------------------
1 YEAR OVER 1 OVER 2 OVER
OR LESS TO 2 YEARS TO 3 YEARS 3 YEARS TOTAL
------------ ----------- ------------ ------------ ------------
(IN THOUSANDS)
Interest rate:
1.01% - 2.00%.................... $ 5,611 $ 42 $ - $ - $ 5,653
2.01% - 3.00%.................... 11,644 640 336 - 12,620
3.01% - 4.00%.................... 4,094 278 854 194 5,420
4.01% - 5.00%.................... 3,253 1,268 246 895 5,662
5.01% - 6.00%.................... 2,805 733 1,016 111 4,665
6.01% - 7.00%.................... 1,138 249 896 116 2,399
------------ ----------- ------------ ------------ ------------
Total......................... $ 28,545 $ 3,210 $ 3,348 $ 1,316 $ 36,419
============ =========== ============ ============ ============
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Borrowings. We may obtain advances from the Federal Home Loan Bank of Des
Moines upon the security of the common stock we own in the Federal Home Loan
Bank and our qualifying residential mortgage loans and mortgage-backed
securities, provided certain standards related to creditworthiness are met.
These advances are made pursuant to several credit programs, each of which has
its own interest rate and range of maturities. Federal Home Loan Bank advances
are generally available to meet seasonal and other withdrawals of deposit
accounts and to permit increased lending. FHLB advances are a significant part
of our operating strategy. As of June 30, 2002, we had FHLB advances in the
amount $6.9 million, which represented 9.66% of total liabilities. Due to a high
liquidity position, we have recently been repaying FHLB advances as they have
matured and no new FHLB advances have been obtained since February 2001. As a
member of the Federal Home Loan Bank, Clay County Savings can currently borrow
up to approximately $33.5 million from the Federal Home Loan Bank.
The following table sets forth certain information regarding FHLB advances
for the periods indicated. We had no other material borrowings at the dates
indicated.
NINE MONTHS YEARS ENDED
ENDED JUNE 30, SEPTEMBER 30,
-------------------------- ---------------------------
2002 2001 2001 2000
----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
FHLB Advances:
Maximum month-end balance.................. $ 10,925 $ 18,762 $ 18,762 $ 17,199
Balance at the end of period............... 6,890 17,441 11,929 17,199
Average balance............................ 8,913 17,654 16,919 12,190
Weighted average interest rate at end of
period.................................... 5.97% 6.19% 5.93% 6.66%
Weighted average interest rate during period 6.00% 6.48% 6.40% 6.09%
EMPLOYEES
At June 30, 2002, we had a total of 31 full-time and five part-time
employees. Our employees are not represented by any collective bargaining group.
Management believes that we have good relations with our employees.
78
PROPERTIES
At June 30, 2002, we conducted our business from our main office at 1178
West 152 Highway Liberty, Missouri, and three full service branch offices. The
following table sets forth information about our offices as of June 30, 2002.
NET BOOK VALUE OF
PROPERTY OR ORIGINAL YEAR
LOCATION LEASEHOLD IMPROVEMENTS LEASED OR OWNED ACQUIRED OR BUILT
- -------- ---------------------- --------------- -----------------
(DOLLARS IN THOUSANDS)
Main office:
1178 W. 152 Highway
Liberty, MO 64068 $ 3,664 Owned 2000
Branch offices :
303 S. Jefferson
Kearney, MO 64060 206 Owned 1974
1101 S. 169 Highway
Smithville, MO 64089 240 Owned 1979
134 N. Water
Liberty, MO 64068 253 Owned 1961
----------------------
Total Net Book Value of Property or
Leasehold Improvements.............. $ 4,363
======================
LEGAL PROCEEDINGS
We are involved, from time to time, as plaintiff or defendant in various
legal actions arising in the normal course of our business. At June 30, 2002, we
were not involved in any legal proceedings the outcome of which would be
material to our financial condition or results of operations.
SERVICE CORPORATION ACTIVITIES
As a federally chartered savings bank, we are permitted by Office of Thrift
Supervision regulations to invest up to 2% of our assets in the stock of, or
loans to, service corporation subsidiaries. We may invest an additional 1% of
our assets in service corporations if the additional funds are used for
inner-city or community development purposes, and up to 50% of our total capital
in conforming loans to service corporations in which we own more than 10% of the
capital stock. In addition to investments in service corporations, we may invest
an unlimited amount in operating subsidiaries engaged solely in activities in
which Clay County Savings may engage as a federal savings bank. At June 30,
2002, Clay County Savings had no subsidiaries.
79
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. CCSB Financial Corp. and Clay County Savings will be subject to
federal income taxation in the same general manner as other corporations, with
some exceptions discussed below. Clay County Savings' tax returns have not been
audited during the past five years. The following discussion of federal taxation
is intended only to summarize certain pertinent federal income tax matters and
is not a comprehensive description of the tax rules applicable to CCSB Financial
Corp. or Clay County Savings.
Method of Accounting. For Federal income tax purposes, Clay County Savings
currently reports its income and expenses on the accrual method of accounting
and uses a tax year ending September 30 for filing its Federal income tax
returns.
Bad Debt Reserves. Prior to the Small Business Job Protection Act of 1996
(the "1996 Act"), Clay County Savings was permitted to establish a reserve for
bad debts and to make annual additions to the reserve. These additions could,
within specified formula limits, be deducted in arriving at our taxable income.
Clay County Savings was required to use the experience method in computing its
bad debt deduction beginning with its 1996 federal tax return. Savings
institutions were required to recapture any excess reserves over those
established as of September 30, 1988 (base year reserve). Clay County Savings
had reserves subject to recapture of $146,000 at June 30, 2002.
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt
reserves created prior to October 1, 1988 were subject to recapture into taxable
income should Clay County Savings fail to meet certain thrift asset and
definitional tests. Federal legislation has eliminated these thrift related
recapture rules.
At June 30, 2002, our total federal pre-1988 base year reserve was
approximately $1.2 million. However, under current law, pre-1988 base year
reserves remain subject to recapture should Clay County Savings make certain
non-dividend distributions, repurchase of any of its stock, pay dividends in
excess of tax earnings and profits, or cease to maintain a bank charter.
Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended (the
"Code") imposes an alternative minimum tax ("AMT") at a rate of 20% on a base of
regular taxable income plus certain tax preferences ("alternative minimum
taxable income" or "AMTI"). The AMT is payable to the extent such AMTI is in
excess of an exemption amount and the AMT exceeds the regular income tax. Net
operating losses can offset no more than 90% of AMTI. Certain payments of
alternative minimum tax may be used as credits against regular tax liabilities
in future years. Clay County Savings has not been subject to the alternative
minimum tax and has no such amounts available as credits for carryover.
Net Operating Loss Carryovers. A financial institution may carry back net
operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. At June 30, 2002, Clay County Savings had no net
operating loss carryforwards for federal income tax purposes.
80
Corporate Dividends-Received Deduction. CCSB Financial Corp. may exclude
from its income 100% of dividends received from Clay County Savings as a member
of the same affiliated group of corporations. The corporate dividends-received
deduction is 80% in the case of dividends received from corporations with which
a corporate recipient does not file a consolidated return, and corporations
which own less than 20% of the stock of a corporation distributing a dividend
may deduct only 70% of dividends received or accrued on their behalf.
STATE TAXATION
Missouri Taxation. Missouri-based thrift institutions, such as Clay County
Savings, 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. This tax is in lieu of certain other state taxes on thrift
institutions, on their property, capital or income, except taxes on tangible
personal property owned by Clay County Savings and held for lease or rental to
others and on real estate, contributions paid pursuant to the Unemployment
Compensation Law of Missouri, social security taxes, sales taxes and use taxes.
In addition, Clay County Savings is entitled to credit against this tax all
taxes paid to the State of Missouri or any political subdivision except taxes on
tangible personal property owned by Clay County Savings and held for lease or
rental to others and on real estate, contributions paid pursuant to the
Unemployment Compensation Law of Missouri, social security taxes, sales and use
taxes and taxes imposed by the Missouri Financial Institutions Tax Law. Missouri
thrift institutions are not subject to the regular state corporate income tax.
CCSB Financial Corp. will be subject to the regular state corporate income
tax at the rate of 6.25% of taxable income derived from Missouri sources.
Delaware Taxation. As a Delaware holding company, CCSB Financial Corp. 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. CCSB Financial Corp.
is also subject to an annual franchise tax imposed by the State of Delaware.
SUPERVISION AND REGULATION
GENERAL
Clay County Savings is examined and supervised by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation. This regulation and
supervision establishes a comprehensive framework of activities in which an
institution may engage and is intended primarily for the protection of the
Federal Deposit Insurance Corporation's deposit insurance funds and depositors.
Under this system of federal regulation, financial institutions are periodically
examined to ensure that they satisfy applicable standards with respect to their
capital adequacy, assets, management, earnings, liquidity and sensitivity to
market interest rates. Following completion of its examination, the federal
agency critiques the institution's operations and assigns its rating (known as
an institution's CAMELS rating). Under federal law, an institution may not
disclose its CAMELS rating to the public. Clay County Savings also is a member
of and owns stock in the Federal Home Loan Bank of Des Moines, which is one of
the
81
twelve regional banks in the Federal Home Loan Bank System. Clay County Savings
also is regulated to a lesser extent by the Board of Governors of the Federal
Reserve System, governing reserves to be maintained against deposits and other
matters. The Office of Thrift Supervision examines Clay County Savings and
prepares reports for the consideration of its board of directors on any
operating deficiencies. Clay County Savings' relationship with its depositors
and borrowers also is regulated to a great extent by both federal and state
laws, especially in matters concerning the ownership of deposit accounts and the
form and content of Clay County Savings' mortgage documents.
Any change in these laws or regulations, whether by the Federal Deposit
Insurance Corporation, Office of Thrift Supervision or Congress, could have a
material adverse impact on CCSB Financial Corp. and Clay County Savings and
their operations.
FEDERAL BANKING REGULATION
Business Activities. A federal savings association derives its lending and
investment powers from the Home Owners' Loan Act, as amended, and the
regulations of the Office of Thrift Supervision. Under these laws and
regulations, Clay County Savings may invest in mortgage loans secured by
residential and commercial real estate, commercial business and consumer loans,
certain types of debt securities and certain other assets, subject to applicable
investment limits. Clay County Savings also may establish subsidiaries that may
engage in activities not otherwise permissible for Clay County Savings,
including real estate investment and securities and insurance brokerage.
Capital Requirements. Office of Thrift Supervision regulations require
savings associations to meet three minimum capital standards: a 1.5% tangible
capital ratio, a 4% leverage ratio (3% for associations receiving the highest
rating on the CAMELS rating system) and an 8% risk-based capital ratio. The
prompt corrective action standards discussed below, in effect, establish a
minimum 2% tangible capital standard.
The risk-based capital standard for savings associations requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the Office of Thrift Supervision based on the
risks believed inherent in the type of asset. Core capital is defined as common
stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus and minority interests in equity
accounts of consolidated subsidiaries, less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock, the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets and up to 45% of net
unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
At June 30, 2002, Clay County Savings' capital exceeded all applicable
requirements.
82
Loans-to-One Borrower. A federal savings association generally may not make
a loan or extend credit to a single or related group of borrowers in excess of
15% of unimpaired capital and surplus. An additional amount may be loaned, equal
to 10% of unimpaired capital and surplus, if the loan is secured by readily
marketable collateral, which generally does not include real estate. As of June
30, 2002, Clay County Savings was in compliance with the loans-to-one borrower
limitations.
Qualified Thrift Lender Test. As a federal savings association, Clay County
Savings is subject to a qualified thrift lender, or "QTL," test. Under the QTL
test, Clay County Savings must maintain at least 65% of its "portfolio assets"
in "qualified thrift investments" in at least nine of the most recent 12 months.
"Portfolio assets" generally means total assets of a savings institution, less
the sum of specified liquid assets up to 20% of total assets, goodwill and other
intangible assets, and the value of property used in the conduct of the savings
association's business.
"Qualified thrift investments" includes various types of loans made for
residential and housing purposes, investments related to such purposes,
including certain mortgage-backed and related securities, and loans for
personal, family, household and certain other purposes up to a limit of 20% of
portfolio assets. "Qualified thrift investments" also include 100% of an
institution's credit card loans, education loans and small business loans. Clay
County Savings also may satisfy the QTL test by qualifying as a "domestic
building and loan association" as defined in the Internal Revenue Code.
A savings association that fails the qualified thrift lender test must
either convert to a bank charter or operate under specified restrictions. At
June 30, 2002, Clay County Savings maintained approximately 96.83% of its
portfolio assets in qualified thrift investments.
Capital Distributions. Office of Thrift Supervision regulations govern
capital distributions by a federal savings association, which include cash
dividends, stock repurchases and other transactions charged to the capital
account. A savings association must file an application for approval of a
capital distribution if:
. the total capital distributions for the applicable calendar year
exceed the sum of the association's net income for that year to date
plus the association's retained net income for the preceding two
years;
. the association would not be at least adequately capitalized following
the distribution;
. the distribution would violate any applicable statute, regulation,
agreement or Office of Thrift Supervision-imposed condition; or
. the association is not eligible for expedited treatment of its
filings.
Even if an application is not otherwise required, every savings association
that is a subsidiary of a holding company must still file a notice with the
Office of Thrift Supervision at least 30 days before the board of directors
declares a dividend or approves a capital distribution.
83
The Office of Thrift Supervision may disapprove a notice or application if:
. the association would be undercapitalized following the distribution;
. the proposed capital distribution raises safety and soundness
concerns; or
. the capital distribution would violate a prohibition contained in any
statute, regulation or agreement.
In addition, the Federal Deposit Insurance Act provides that an insured
depository institution shall not make any capital distribution, if after making
such distribution the institution would be undercapitalized.
Liquidity. A federal savings association is required to maintain a
sufficient amount of liquid assets to ensure its safe and sound operation.
Community Reinvestment Act and Fair Lending Laws. All savings associations
have a responsibility under the Community Reinvestment Act and related
regulations of the Office of Thrift Supervision to help meet the credit needs of
their communities, including low- and moderate-income neighborhoods. In
connection with its examination of a federal savings association, the Office of
Thrift Supervision is required to assess the association's record of compliance
with the Community Reinvestment Act. In addition, the Equal Credit Opportunity
Act and the Fair Housing Act prohibit lenders from discriminating in their
lending practices on the basis of characteristics specified in those statutes.
An association's failure to comply with the provisions of the Community
Reinvestment Act could, at a minimum, result in regulatory restrictions on its
activities. The failure to comply with the Equal Credit Opportunity Act and the
Fair Housing Act could result in enforcement actions by the Office of Thrift
Supervision, as well as other federal regulatory agencies and the Department of
Justice. Clay County Savings received a satisfactory Community Reinvestment Act
rating in its most recent federal examination.
Transactions with Related Parties. A federal savings association's
authority to engage in transactions with its "affiliates" is limited by Office
of Thrift Supervision regulations and by Sections 23A and 23B of the Federal
Reserve Act (the "FRA"). The term "affiliates" for these purposes generally
means any company that controls or is under common control with an institution.
CCSB Financial Corp. is an affiliate of Clay County Savings. In general,
transactions with affiliates must be on terms that are as favorable to the
association as comparable transactions with non-affiliates. Certain types of
these transactions are restricted to an aggregate percentage of the
association's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the association. In addition,
Office of Thrift Supervision regulations prohibit a savings association from
lending to any of its affiliates that are engaged in activities that are not
permissible for bank holding companies and from purchasing the securities of any
affiliate, other than a subsidiary.
Clay County Savings' authority to extend credit to its directors, executive
officers and 10% shareholders, as well as to entities controlled by such
persons, is currently governed by the requirements of Sections 22(g) and 22(h)
of the FRA and Regulation O of the Federal Reserve
84
Board. Among other things, these provisions require that extensions of credit to
insiders (i) be made on terms that are substantially the same as, and follow
credit underwriting procedures that are not less stringent than, those
prevailing for comparable transactions with unaffiliated persons and that do not
involve more than the normal risk of repayment or present other unfavorable
features, and (ii) not exceed certain limitations on the amount of credit
extended to such persons, individually and in the aggregate, which limits are
based, in part, on the amount of Clay County Savings' capital. In addition,
extensions of credit in excess of certain limits must be approved by Clay County
Savings' board of directors.
Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over federal savings institutions and has the authority to bring
enforcement action against all "institution-affiliated parties," including
stockholders, and attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors of the institution, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. The
Federal Deposit Insurance Corporation also has the authority to recommend to the
Director of the Office of Thrift Supervision that enforcement action be taken
with respect to a particular savings institution. If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take action
under specified circumstances.
Standards for Safety and Soundness. Federal law requires each federal
banking agency to prescribe certain standards for all insured depository
institutions. These standards relate to, among other things, internal controls,
information systems and audit systems, loan documentation, credit underwriting,
interest rate risk exposure, asset growth, compensation, and other operational
and managerial standards as the agency deems appropriate. The federal banking
agencies adopted Interagency Guidelines Prescribing Standards for Safety and
Soundness to implement the safety and soundness standards required under federal
law. The guidelines set forth the safety and soundness standards that the
federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The guidelines address
internal controls and information systems, internal audit systems, credit
underwriting, loan documentation, interest rate risk exposure, asset growth,
compensation, fees and benefits. If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the
guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard. If an institution fails
to meet these standards, the appropriate federal banking agency may require the
institution to submit a compliance plan.
Prompt Corrective Action Regulations. Under the prompt corrective action
regulations, the Office of Thrift Supervision is required and authorized to take
supervisory actions against undercapitalized savings associations. For this
purpose, a savings association is placed in one of the following five categories
based on the association's capital:
85
. well-capitalized (at least 5% leverage capital, 6% Tier 1 risk-based
capital and 10% total risk-based capital);
. adequately capitalized (at least 4% leverage capital, 4% Tier 1
risk-based capital and 8% total risk-based capital);
. undercapitalized (less than 8% total risk-based capital, 4% Tier 1
risk-based capital or 3% leverage capital);
. significantly undercapitalized (less than 6% total risk-based capital,
3% Tier 1 risk-based capital or 3% leverage capital); and
. critically undercapitalized (less than 2% tangible capital).
Generally, the banking regulator is required to appoint a receiver or
conservator for an association that is "critically undercapitalized." The
regulation also provides that a capital restoration plan must be filed with the
Office of Thrift Supervision within 45 days of the date an association receives
notice that it is "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." In addition, numerous mandatory supervisory
actions become immediately applicable to the association, including, but not
limited to, restrictions on growth, investment activities, capital distributions
and affiliate transactions. The Office of Thrift Supervision may also take any
one of a number of discretionary supervisory actions against undercapitalized
associations, including the issuance of a capital directive and the replacement
of senior executive officers and directors.
At June 30, 2002, Clay County Savings met the criteria for being considered
"well-capitalized."
Insurance of Deposit Accounts. Deposit accounts in Clay County Savings are
insured by the Federal Deposit Insurance Corporation, generally up to a maximum
of $100,000 per separately insured depositor. Clay County Savings' deposits
therefore are subject to Federal Deposit Insurance Corporation deposit insurance
assessments. The Federal Deposit Insurance Corporation has adopted a risk-based
system for determining deposit insurance assessments. The Federal Deposit
Insurance Corporation is authorized to raise the assessment rates as necessary
to maintain the required ratio of reserves to insured deposits of 1.25%. In
addition, all Federal Deposit Insurance Corporation-insured institutions must
pay assessments to the Federal Deposit Insurance Corporation at an annual rate
of approximately .02% of insured deposits to fund interest payments on bonds
maturing in 2017 issued by a federal agency to recapitalize the predecessor to
the Savings Association Insurance Fund.
Prohibitions Against Tying Arrangements. Federal savings associations are
prohibited, subject to some exceptions, from extending credit to or offering any
other service, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional
service from the institution or its affiliates or not obtain services of a
competitor of the institution.
Federal Home Loan Bank System. Clay County Savings is a member of the
Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan
Banks. The Federal Home Loan Bank System provides a central credit facility
primarily for member
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institutions. As a member of the Federal Home Loan Bank of Des Moines, Clay
County Savings is required to acquire and hold shares of capital stock in the
Federal Home Loan Bank in an amount at least equal to 1% of the aggregate
principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its borrowings from the
Federal Home Loan Bank, whichever is greater. As of June 30, 2002, Clay County
Savings was in compliance with this requirement.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings associations to
maintain non-interest-earning reserves against their transaction accounts, such
as negotiable order of withdrawal and regular checking accounts. At June 30,
2002, Clay County 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 imposed by the
Office of Thrift Supervision.
HOLDING COMPANY REGULATION
Upon completion of the conversion, CCSB Financial Corp. will be a unitary
savings and loan holding company, subject to regulation and supervision by the
Office of Thrift Supervision. The Office of Thrift Supervision has enforcement
authority over CCSB Financial Corp. and its non-savings institution
subsidiaries. Among other things, this authority permits the Office of Thrift
Supervision to restrict or prohibit activities that are determined to be a risk
to Clay County Savings.
Under prior law, a unitary savings and loan holding company generally had
no regulatory restrictions on the types of business activities in which it may
engage, provided that its subsidiary savings bank was a qualified thrift lender.
The Gramm-Leach-Bliley Act of 1999, however, restricts unitary savings and loan
holding companies not existing or applied for before May 4, 1999 to those
activities permissible for financial holding companies or for multiple savings
and loan holding companies. CCSB Financial Corp. will not be a grandfathered
unitary savings and loan holding company and, therefore, will be limited to the
activities permissible for financial holding companies or for multiple savings
and loan holding companies. A financial holding company may engage in activities
that are financial in nature, including underwriting equity securities and
insurance, incidental to financial activities or complementary to a financial
activity. A multiple savings and loan holding company is generally limited to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act, subject to the prior approval of the Office of Thrift
Supervision, and certain additional activities authorized by Office of Thrift
Supervision regulations.
Federal law prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring control of
another savings institution or holding company thereof, without prior written
approval of the Office of Thrift Supervision. It also prohibits the acquisition
or retention of, with specified exceptions, more than 5% of the equity
securities of a company engaged in activities that are not closely related to
banking or financial in nature or acquiring or retaining control of an
institution that is not federally insured. In evaluating applications by holding
companies to acquire savings institutions, the Office of Thrift
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Supervision must consider the financial and managerial resources, future
prospects of the savings institution involved, the effect of the acquisition on
the risk to the insurance fund, the convenience and needs of the community and
competitive factors.
FEDERAL SECURITIES LAWS
CCSB Financial Corp. has filed with the Securities and Exchange Commission
a registration statement under the Securities Act of 1933 for the registration
of the common stock to be issued pursuant to the conversion. Upon completion of
the conversion, CCSB Financial Corp. common stock will be registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
CCSB Financial Corp. will continue to be subject to the information, proxy
solicitation, insider trading restrictions and other requirements under the
Securities Exchange Act of 1934.
The registration under the Securities Act of 1933 of shares of common stock
to be issued in the conversion does not cover the resale of those shares. Shares
of common stock purchased by persons who are not affiliates of CCSB Financial
Corp. may be resold without registration. Shares purchased by an affiliate of
CCSB Financial Corp. will be subject to the resale restrictions of Rule 144
under the Securities Act of 1933. If CCSB Financial Corp. meets the current
public information requirements of Rule 144 under the Securities Act of 1933,
each affiliate of CCSB Financial Corp. that complies with the other conditions
of Rule 144, including those that require the affiliate's sale to be aggregated
with those of other persons, would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the
greater of 1% of the outstanding shares of CCSB Financial Corp., or the average
weekly volume of trading in the shares during the preceding four calendar weeks.
In the future, CCSB Financial Corp. may permit affiliates to have their shares
registered for sale under the Securities Act of 1933.
THE USA PATRIOT ACT
In response to the events of September 11th, the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001, or the USA PATRIOT Act, was signed into law on October
26, 2001. The USA PATRIOT Act gives the federal government new powers to address
terrorist threats through enhanced domestic security measures, expanded
surveillance powers, increased information sharing, and broadened anti-money
laundering requirements. By way of amendments to the Bank Secrecy Act, Title III
of the USA PATRIOT Act takes measures intended to encourage information sharing
among bank regulatory agencies and law enforcement bodies. Further, certain
provisions of Title III impose affirmative obligations on a broad range of
financial institutions, including banks, thrifts, brokers, dealers, credit
unions, money transfer agents and parties registered under the Commodity
Exchange Act.
Among other requirements, Title III of the USA PATRIOT Act imposes the
following requirements with respect to financial institutions:
. Pursuant to Section 352, all financial institutions must establish
anti-money laundering programs that include, at minimum: internal
policies, procedures, and
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controls; specific designation of an anti-money laundering compliance
officer; ongoing employee training programs; and an independent audit
function to test the anti-money laundering program.
. Section 326 of the Act authorizes the Secretary of the Department of
Treasury, in conjunction with other bank regulators, to issue
regulations by October 26, 2002 that provide for minimum standards
with respect to customer identification at the time new accounts are
opened.
. Section 312 of the Act requires financial institutions that establish,
maintain, administer, or manage private banking accounts or
correspondence accounts in the United States for non-United States
persons or their representatives (including foreign individuals
visiting the United States) to establish appropriate, specific, and,
where necessary, enhanced due diligence policies, procedures, and
controls designed to detect and report money laundering.
. Effective December 25, 2001, financial institutions are prohibited
from establishing, maintaining, administering or managing
correspondent accounts for foreign shell banks (foreign banks that do
not have a physical presence in any country), and will be subject to
certain record keeping obligations with respect to correspondent
accounts of foreign banks.
. Bank regulators are directed to consider a holding company's
effectiveness in combating money laundering when ruling on Federal
Reserve Act and Bank Merger Act applications.
The federal banking agencies have begun to propose and implement
regulations pursuant to the USA PATRIOT Act. These proposed and interim
regulations would require financial institutions to adopt the policies and
procedures contemplated by the USA PATRIOT Act.
SARBANES-OXLEY ACT OF 2002
On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of
2002 (the "Act"), which implemented legislative reforms intended to address
corporate and accounting fraud. In addition to the establishment of a new
accounting oversight board that will enforce auditing, quality control and
independence standards and will be funded by fees from all publicly traded
companies, the Act places certain restrictions on the scope of services that may
be provided by accounting firms to their public company audit clients. Any
non-audit services being provided to a public company audit client will require
preapproval by the company's audit committee. In addition, the Act makes certain
changes to the requirements for partner rotation after a period of time. The Act
requires chief executive officers and chief financial officers, or their
equivalent, to certify to the accuracy of periodic reports filed with the
Securities and Exchange Commission, subject to civil and criminal penalties if
they knowingly or willingly violate this certification requirement. In addition,
under the Act, counsel will be required to report evidence of a material
violation of the securities laws or a breach of fiduciary duty by a company to
its chief executive officer or its chief legal officer, and, if such officer
does not
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appropriately respond, to report such evidence to the audit committee or other
similar committee of the board of directors or the board itself.
Under the Act, longer prison terms will apply to corporate executives who
violate federal securities laws; the period during which certain types of suits
can be brought against a company or its officers is extended; and bonuses issued
to top executives prior to restatement of a company's financial statements are
now subject to disgorgement if such restatement was due to corporate misconduct.
Executives are also prohibited from insider trading during retirement plan
"blackout" periods, and loans to company executives (other than loans by
financial institutions permitted by federal rules and regulations) are
restricted. In addition, a provision directs that civil penalties levied by the
Securities and Exchange Commission as a result of any judicial or administrative
action under the Act be deposited to a fund for the benefit of harmed investors.
The Federal Accounts for Investor Restitution provision also requires the
Securities and Exchange Commission to develop methods of improving collection
rates. The legislation accelerates the time frame for disclosures by public
companies, as they must immediately disclose any material changes in their
financial condition or operations. Directors and executive officers must also
provide information for most changes in ownership in a company's securities
within two business days of the change.
The Act also increases the oversight of, and codifies certain requirements
relating to audit committees of public companies and how they interact with the
company's "registered public accounting firm" ("RPAF"). Audit Committee members
must be independent and are absolutely barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose whether at least one member of the committee is a "financial expert"
(as such term will be defined by the Securities and Exchange Commission) and if
not, why not. Under the Act, a RPAF will be prohibited from performing
statutorily mandated audit services for a company if such company's chief
executive officer, chief financial officer, comptroller, chief accounting
officer or any person serving in equivalent positions had been employed by such
firm and participated in the audit of such company during the one-year period
preceding the audit initiation date. The Act also prohibits any officer or
director of a company or any other person acting under their direction from
taking any action to fraudulently influence, coerce, manipulate or mislead any
independent accountant engaged in the audit of the company's financial
statements for the purpose of rendering the financial statements materially
misleading. The Act also requires the Securities and Exchange Commission to
prescribe rules requiring inclusion of any internal control report and
assessment by management in the annual report to shareholders. The Act requires
the RPAF that issues the audit report to attest to and report on management's
assessment of the company's internal controls.
Although we anticipate that we will incur additional expense in complying
with the provisions of the Sarbanes-Oxley Act and the resulting regulations,
management does not expect that such compliance will have a material impact on
our results of operations or financial condition.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF CCSB FINANCIAL CORP.
The Board of Directors of CCSB Financial Corp. currently consists of seven
members, each of whom is also a director of Clay County Savings. See "Directors
and Executive Officers of Clay County Savings." Each Director of CCSB Financial
Corp. has served as such since CCSB Financial Corp.'s incorporation in September
2002. Directors of CCSB Financial Corp. will serve three-year staggered terms.
The terms of the current directors of CCSB Financial Corp. are the same as their
terms as directors of Clay County Savings. CCSB Financial Corp. intends to pay
directors a fee of $3,000 per annum, payable on a monthly basis. See "Directors
and Executive Officers of Clay County Savings."
The following individuals hold positions as executive officers of CCSB
Financial Corp. as is set forth below opposite their names:
NAME POSITION
- ---------------- --------------------------------------------------------------
John R. Davis Chairman of the Board, President and Chief Executive Officer
Mario Usera Director, Executive Vice President and Chief Financial Officer
Deborah A. Jones Senior Vice President, Secretary and Treasurer
Debra S. Coltman Senior Vice President and Assistant Secretary
The executive officers of CCSB Financial Corp. are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors.
It is not anticipated that the executive officers of CCSB Financial Corp.
will receive any remuneration in their capacity as executive officers of the
holding company. For information regarding compensation of directors and
executive officers of Clay County Savings, see "Compensation of the Board of
Directors of Clay County Savings" and "Executive Compensation."
COMMITTEES OF CCSB FINANCIAL CORP.
CCSB Financial Corp. formed standing Audit, Nominating and Compensation
Committees in connection with its organization in September 2002. CCSB Financial
Corp. was not incorporated in fiscal 2001 and therefore the committees did not
meet during that fiscal year.
The Audit Committee will review audit reports and related matters to ensure
effective compliance with regulations and internal policies and procedures. This
committee also will act on the recommendation by management of an accounting
firm to perform CCSB Financial Corp.'s annual audit and acts as a liaison
between the auditors and the Board. The current members of this committee are
Directors Cooper, Turpin, Whipple, Oberkrom and McKinley.
The Nominating Committee will meet annually in order to nominate candidates
for membership on the Board of Directors. This committee is comprised of the
Board members who are not standing for election.
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The Compensation Committee will establish the holding company's
compensation policies and review compensation matters. The current members of
this Committee are Directors Cooper, Turpin, Whipple, Oberkrom and McKinley.
DIRECTORS AND EXECUTIVE OFFICERS OF CLAY COUNTY SAVINGS
Directors. Prior to the conversion, the direction and control of Clay
County Savings, as a mutual savings institution, had been vested in its Board of
Directors. Upon conversion of Clay County Savings to stock form, each of the
directors of Clay County Savings will continue to serve as a director of the
converted association. The Board of Directors of Clay County Savings currently
consists of seven directors. The Board was enlarged from six to seven members in
August 2002, and Mario Usera was appointed to fill the vacancy on the Board
effective August 21, 2002. The directors are divided into three classes.
Approximately one-third of the directors are elected at each annual meeting of
stockholders. Because CCSB Financial Corp. will own all of the issued and
outstanding shares of capital stock of the converted savings bank after the
conversion, directors of CCSB Financial Corp. will elect the directors of Clay
County Savings.
The following table sets forth certain information regarding the directors
and executive officers of Clay County Savings and CCSB Financial Corp.:
POSITION(S) HELD WITH CLAY COUNTY DIRECTOR TERM
DIRECTORS AGE(1) SAVINGS SINCE EXPIRES(2)
- ------------------ ------ --------------------------------- -------- ----------
John R. Cooper 77 Chairman of the Board 1969 2004
William J. Turpin 83 Vice Chairman of the Board 1985 2002
Robert A. Whipple 72 Director and Vice President 1978 2003
Keith A. Oberkrom 55 Director 1992 2002
George A. McKinley 66 Director 1996 2003
John R. Davis 55 Director, President and Chief 1992 2004
Executive Officer
Mario Usera 42 Director, Executive Vice President 2002 2002
and Chief Financial Officer
- ----------
(1) At June 30, 2002.
(2) Prior to the closing of the conversion, the three directors with terms
expiring in 2002 are expected to be reelected for terms expiring in 2005.
The business experience of each director is set forth below. All directors
have held their present position for at least the past five years, except as
otherwise indicated.
John R. Cooper. Mr.Cooper was the owner and President of Cooper Insurance
Agency, Inc., located in Liberty, Missouri, from 1960 until September 2002. He
is now retired.
William J. Turpin. Mr.Turpin is an attorney with the Wherritt and Turpin
law firm, located in Liberty, Missouri, where he has been practicing for
approximately 50 years.
Robert A. Whipple. Prior to his retirement in 1995, Mr.Whipple was the
co-owner and co-publisher of the Whipple Printing Company, located in Kearney,
Missouri, which publishes the Kearney Courier.
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Keith A. Oberkrom. Mr.Oberkrom has served as the District Manager for ATI
Title Co. since May 1997.
George A. McKinley. Mr.McKinley has been the owner and President of Al
McKinley, Inc., a construction company located in Liberty, Missouri, since 1980.
John R. Davis. Mr.Davis has been employed by Clay County Savings in
various capacities continuously since 1981, and has served as President and
Chief Executive Officer since 1986. He had previously been employed by Clay
County Savings as a loan officer from April 1973 to December 1975. As President
and Chief Executive Officer, he is responsible for overseeing the day to day
operations of Clay County Savings.
Mario Usera. Mr.Usera joined Clay County Savings in June 1997 as Vice
President. He was named Executive Vice President in October 1999. In that
capacity, he is responsible for assisting Mr. Davis in overseeing the operations
of Clay County Savings. Previously, Mr. Usera was employed in various capacities
by the Office of Thrift Supervision from 1982 until January 1997.
Executive Officers Who Are Not Directors. The executive officers of Clay
County Savings are elected annually by the Board of Directors of Clay County
Savings. The business experience of the executive officers of Clay County
Savings and CCSB Financial Corp. who are not also directors are set forth below.
Deborah A. Jones. Ms.Jones, age 47, has been employed by Clay County
Savings in various capacities since 1977, and has served as Senior Vice
President, Secretary and Treasurer since October 2001. Prior to that time, she
served as Vice President and Treasurer from July 1989 to October 2001, and she
has also served as Secretary since March 1999.
Debra S. Coltman. Ms.Coltman, age 49, has been employed by Clay County
Savings in various capacities since 1974. She has served as Senior Vice
President and Chief Lending Officer since October 2001. From June 1978 to
October 2001, she served as Vice President/Lending. She has also served as
Assistant Secretary since 1975.
MEETINGS OF THE BOARD OF DIRECTORS OF CLAY COUNTY SAVINGS
The Board of Directors met 17 times during the year ended September 30,
2001. During fiscal 2001, no director of Clay County Savings attended fewer than
75% of the aggregate of the total number of Board meetings and the total number
of meetings held by the committees of the Board of Directors on which he served.
COMPENSATION OF THE BOARD OF DIRECTORS OF CLAY COUNTY SAVINGS
Executive officers of Clay County Savings receive no fees for service on
the Board of Directors of Clay County Savings. Directors other than executive
officers were paid an annual retainer fee of $10,200 for the year ended
September 30, 2001, except that John R. Cooper, the Chairman of the Board,
received an annual fee of $11,400. The retainer fee is payable in
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monthly installments. Directors do not receive additional fees for their service
on committees. For a discussion of additional benefits that may be received by
directors following the conversion, see "Future Stock Benefit Plans--Stock
Option Plan" and"--Recognition and Retention Plan."
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or granted to Clay County Savings' Chief Executive Officer. No other executive
officer of Clay County Savings received salary and bonus in excess of $100,000
in fiscal 2001.
Annual Compensation(1)
Other
Fiscal Annual All Other
Name and Principal Position Year(1) Salary Bonus Compensation Compensation
- ---------------------------- ------- -------- ------- ------------ ------------
John R. Davis, President and
Chief Executive Officer 2001 $ 94,500 $ 1,000 $ -- $ 2,900(2)
- ----------
(1) Summary compensation information is excluded for the fiscal years ended
September 30, 2000 and 1999, as Clay County Savings was not a public
company during these periods.
(2) Represents 401(k) matching contribution from Clay County Savings. Does not
include the aggregate amount of other personal benefits, which did not
exceed 10% of the total salary and bonus reported.
BENEFIT PLANS
General. Clay County Savings currently provides health care benefits,
including medical, disability and group life insurance, subject to certain
deductibles and copayments, for its full time employees.
401(k) Plan. Clay County Savings maintains the Clay County Savings
Employees' Savings & Profit Sharing Plan (the "401(k) Plan"), which is a
qualified, tax-exempt profit sharing plan with a cash or deferred feature under
Section 401(k) of the Internal Revenue Code. Employees are eligible to become
participants in the 401(k) Plan on the first day of the month following
completion of twelve months of employment during which they completed at least
1,000 hours of service with Clay County Savings.
Under the 401(k) Plan, participants are permitted to make salary reduction
contributions to the plan in amounts of up to 75% of their "plan salary". For
these purposes, "plan salary" includes the participant's total taxable salary as
reported on the Form W-2, exclusive of any compensation deferred from a prior
year. In addition, any pre-tax contributions made to a 401(k) plan or Section
125 cafeteria plan are also included in plan salary. Compensation in excess of
the Internal Revenue Code Section 401(a)(17) limits (in 2002, this limit is
$200,000) are excluded. The participants' salary reduction contributions will be
matched by Clay County Savings, up to 50% of the participants' first 6% of
compensation contributed to the 401(k) Plan. Participants are at all times fully
vested in their contributions to the 401(k) Plan and in the
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employer matching contributions credited to their accounts. A participant may
withdraw salary reduction contributions in the event the participant suffers a
financial hardship.
The 401(k) Plan permits employees to direct the investment of their own
accounts into various investment options. In connection with the offering, the
401(k) Plan will give participants the opportunity to invest in CCSB Financial
Corp. common stock.
Upon termination of employment, 401(k) Plan benefits will be paid to a
participant in a lump sum; however, if the participant's account equals or
exceeds $500, the participant may elect to be paid in annual installments, with
the right to take in a lump sum the vested balance of his account at any time
during such payment period. At June 30, 2002, the market value of the 401(k)
Plan trust fund equaled approximately $635,000. Our expenses for the 401(k) Plan
were $26,900 for the year ended September 30, 2001.
Employment Agreements. Clay County Savings plans to enter into employment
agreements with Messrs. Davis and Usera. Each of these agreements will have a
term of three years. Once a year, the disinterested members of the board of
directors will conduct a performance evaluation of the executives and may renew
the agreements for an additional year so that the remaining term will be three
years, subject to termination on notice as provided in the agreements. Under the
agreements, the initial base salaries for Messrs. Davis and Usera will be
$104,700 and $75,000, respectively. In addition to the base salary, each
agreement provides for, among other things, participation in bonus programs and
other employee pension benefit and fringe benefit plans applicable to executive
employees. The executive's employment may be terminated for cause at any time,
in which event the executive would have no right to receive compensation or
other benefits for any period after termination.
Certain events resulting in the executive's termination or resignation
entitle the executive to payments of severance benefits following termination of
employment. In the event the executive's employment is terminated for reasons
other than for cause, disability, retirement, or following a change in control,
or in the event the executive resigns during the term of the agreement following
(1) failure to elect or reelect or to appoint or reappoint the executive to his
executive position, (2) a significant change in the nature or scope of the
executive's authority, (3) relocation of the executive's place of employment to
a location that is more than 25 miles from Clay County Savings' principal
executive offices, (4) the liquidation or dissolution of Clay County Savings
that would affect the status of the executive, or (5) a breach of the employment
agreement by Clay County Savings, then Messrs. Davis and Usera would be entitled
to payment of an amount equal to the compensation payable to each executive for
the remaining term of the agreement. For these purposes, compensation includes
(A) the highest annual rate of base salary paid to the executives at any time
under the employment agreements and (B) the greater of (x) the average annual
cash bonus awarded to them during the three completed fiscal years prior to the
termination, or (y) the cash bonus paid to them with respect to the fiscal year
ended prior to the termination, and (C) any other compensation paid to or on
behalf of the executives during the twelve months preceding the executives'
termination, including the amount of any benefits credited, accrued or received
pursuant to any employee benefit plan other than a welfare plan. The sum of
these amounts will be divided by twelve and multiplied by the number of full
months in the remaining term of the agreement (rounding up for a partial month).
Such amounts will be
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payable, at the executive's election, either in a lump sum or in quarterly
installments during the remaining term of the agreement. The executives will
also be entitled to continued life, medical and dental coverage for the
remaining term of the agreement or payment of an equivalent cash amount,
adjusted for any federal or state income taxes that the executive has to pay on
the cash amount. In the event of the executive's involuntary termination of
employment following a change in control during the remaining term of the
agreement or resignation during the first year following a change in control,
Messrs. Davis and Usera would be entitled to the payment of a sum equal to the
greater of (i) three times and two and one-half times, respectively, the sum of:
(A) their highest annual rate of base salary paid under these employment
agreements, and (B) the greater of (x) the average annual cash bonus awarded to
them during the three completed fiscal years prior to the termination, or (y)
the cash bonus paid to the executives with respect to the fiscal year ended
prior to the termination, or (ii) 299% and 250%, respectively, of the
executives' "base amount" as defined in the Internal Revenue Code. In addition,
the executives will be entitled to continued life, medical and dental coverage
for 36 months or payment of an equivalent cash amount, adjusted for any federal
or state income taxes that the executives have to pay on the cash amount. In the
event payments to the executives include an "excess parachute payment" as
defined in the Internal Revenue Code, payments under the employment agreements
with Clay County Savings would be reduced in order to avoid this result.
Should the executive become disabled, he would be entitled to the payment
of 75% of his base salary until the earlier of (1) the date the executive
returns to full-time employment with Clay County Saving in the same capacity,
(2) the executive's full-time employment with another employer, (3) the
executive's attainment of age 65, or (4) the executive's death; provided that
any amount paid the executive pursuant to any disability insurance would reduce
the compensation he would receive. The executive would also be entitled to
continued life, medical and dental coverage for the entire period that he
receives disability income payments under the agreement. In the event the
executive dies while employed by Clay County Savings, the executive's estate
will be paid the executive's base salary for one year and the executive's family
will be entitled to continuation of health benefit coverage for one year.
Change-in-Control Agreements. Clay County Savings intends to enter into
severance agreements with two other officers of Clay County Savings, which would
provide certain benefits in the event of a change in control of Clay County
Savings or CCSB Financial Corp. Each of the severance agreements provides for an
initial term of 36 months, renewable annually. Commencing on each anniversary
date, the Board of Directors may extend each change in control agreement for an
additional year. The change-in-control agreements enable Clay County Savings to
offer to designated officers certain protections against termination without
cause in the event of a change in control (as defined in the agreements). These
protections against termination without cause in the event of a change in
control are frequently offered by other financial institutions, and Clay County
Savings may be at a competitive disadvantage in attracting and retaining key
employees if it does not offer similar protections.
Following a change in control of CCSB Financial Corp. or Clay County
Savings, an officer is entitled to a payment under the change-in-control
agreement if the officer's employment is terminated during the term of such
agreement other than for cause, disability, retirement or the officer's death,
or if the officer voluntarily terminates employment during the
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term of such agreement for "good reason," defined to include a demotion, loss of
title, office or significant authority, reduction in the officer's annual
compensation or benefits, relocation of the officer's principal place of
employment by more than 25 miles from its location immediately prior to the
change in control, termination of the officer's employment for disability or
retirement not effected pursuant to a notice of termination under the agreement,
or failure of CCSB Financial Corp. to obtain the assumption of the
change-in-control agreements by any successor. In the event that an officer who
is a party to a change-in-control agreement is entitled to receive payments
pursuant to the change-in-control agreement, the officer will receive a cash
payment of two times the officer's "highest compensation", defined as an amount
equal to two times the sum of (A) the highest annual rate of base salary paid to
the officer under the agreement and (B) the greater of (x) the average annual
cash bonus paid for the three completed fiscal years prior to termination, or
(y) the cash bonus paid for the fiscal year ended prior to the termination. In
addition to the severance payment, each covered officer is entitled to receive
life, health, dental and any other insurance coverage offered by Clay County
Savings for a period of 24 months from the date of termination, or payment of an
equivalent cash amount, adjusted for any federal or state income taxes the
officer has to pay on the cash amount. Notwithstanding any provision to the
contrary in the change-in-control agreements, payments under the
change-in-control agreements are limited so that they will not constitute an
excess parachute payment under Section 280G of the Internal Revenue Code.
FUTURE STOCK BENEFIT PLANS
Employee Stock Ownership Plan and Trust. In connection with the offering,
Clay County Savings will implement an employee stock ownership plan. The
employee stock ownership plan will be a tax qualified defined contribution plan
designed to invest primarily in the common stock of CCSB Financial Corp.
Full-time employees who are at least 18 years old with at least one year of
employment with Clay County Savings are eligible to participate. As part of the
reorganization and offering, the employee stock ownership plan trust intends to
borrow funds from us and use those funds to purchase a number of shares equal to
up to 8% of the common stock sold in the offering. Collateral for the loan will
be the common stock purchased by the employee stock ownership plan. The loan
will be repaid principally from Clay County Savings discretionary contributions
to the employee stock ownership plan over a period of up to 15 years. The loan
documents will provide that the loan may be repaid over a shorter period,
without penalty for prepayments. It is anticipated that the interest rate for
the loan will be a fixed rate set at 6%. Shares purchased by the employee stock
ownership plan will be held in a suspense account for allocation among
participants as the loan is repaid.
Contributions to the employee stock ownership plan and shares released from
the suspense account in an amount proportional to the repayment of the employee
stock ownership plan loan will be allocated among employee stock ownership plan
participants on the basis of compensation in the year of allocation.
Participants with fewer than 5 years of credited service will be 0% vested in
their account. Upon completion of five years of credited service, participants
will become fully vested in their accounts. Credit will be given to participants
for years of credited service with Clay County Savings' mutual predecessor prior
to the adoption of the plan. A participant's interest in his account under the
plan will also fully vest in the event of termination of service due to a
participant's early or normal retirement, death, disability, or upon a change in
control (as defined in the plan). Vested benefits will be payable in the form of
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common stock and/or cash. Clay County Savings contributions to the employee
stock ownership plan are discretionary, subject to the loan terms and tax law
limits. Therefore, benefits payable under the employee stock ownership plan
cannot be estimated. Pursuant to SOP 93-6, we will be required to record
compensation expense each year in an amount equal to the fair market value of
the shares released from the suspense account. In the event of a change in
control, the employee stock ownership plan will terminate.
Stock Option Plan. We intend to adopt a stock option plan for our
directors, officers and employees of CCSB Financial Corp. and Clay County
Savings after the conversion. Office of Thrift Supervision regulations prohibit
us from implementing this plan until six months after the conversion and
offering. If the stock option plan is implemented within the first 12 months
after the conversion, Office of Thrift Supervision regulations require that the
plan be approved by the holders of a majority of the outstanding shares of CCSB
Financial Corp.
We expect that the stock option plan will authorize a committee of
non-employee directors or the full board, to grant options to purchase up to 10%
of the shares sold in the offering. The stock option plan will have a term of 10
years. The committee will decide which directors, officers and employees will
receive options and the terms of those options. Generally, no stock option will
permit its recipient to purchase shares at a price that is less than the fair
market value of a share on the date the option is granted, and no option will
have a term that is longer than 10 years. If we implement a stock option plan
before the first anniversary of the conversion, current regulations will require
that:
. the total number of options available for grant to non-employee
directors be limited to 30% of the options authorized under the plan;
. the number of options that may be granted to any one non-employee
director be limited to 5% of the options authorized under the plan;
. the number of options that may be granted to any officer or employee
be limited to 25% of the options authorized for the plan;
. the options may not vest more rapidly than 20% per year, beginning on
the first anniversary of stockholder approval of the plan; and
. accelerated vesting is not permitted except for death, disability or
upon a change in control of Clay County Savings Bank or CCSB Financial
Corp.
CCSB Financial Corp. may obtain the shares needed for this plan by issuing
additional shares or through stock repurchases.
Recognition and Retention Plan. We expect to implement a recognition and
retention plan for the directors, officers and employees of Clay County Savings
and CCSB Financial Corp. after the conversion. Office of Thrift Supervision
regulations prohibit us from implementing this plan until six months after the
conversion. If the recognition plan is implemented within the first 12 months
after the conversion, Office of Thrift Supervision regulations require that the
plan be approved by the holders of a majority of the outstanding shares of CCSB
Financial Corp.
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In the event the recognition and retention plan is implemented within 12
months after the conversion, we expect that the plan will authorize a committee
of non-employee directors or our full board to make restricted stock awards of
up to 4% of the shares sold in the offering. In the event we implement the
recognition and retention plan more than 12 months after the conversion, the
recognition and retention plan will not be subject to regulations limiting the
plan to no more than 4% of the shares sold in the offering. The committee will
decide which directors, officers and employees will receive restricted stock and
the terms of those awards. We may obtain the shares needed for this plan by
issuing additional shares or through stock repurchases. If we implement a
recognition and retention plan before the first anniversary of the conversion,
current regulations will require that:
. the total number of shares that are awarded to non-employee directors
be limited to 30% of the shares authorized under the plan;
. the number of shares that are awarded to any one non-employee director
be limited to 5% of the shares authorized under the plan;
. the number of shares that are awarded to any officer or employee be
limited to 25% of the shares authorized under the plan;
. the awards may not vest more rapidly than 20% per year, beginning on
the first anniversary of stockholder approval of the plan;
. accelerated vesting is not permitted except for death, disability or
upon a change in control of Clay County Savings Bank or CCSB Financial
Corp.
Restricted stock awards under this plan may feature employment restrictions
that require continued employment for a period of time for the award to be
vested. Awards are not vested unless the specified employment restrictions are
met. However, pending vesting, the award recipient may have voting and dividend
rights. When an award becomes vested, the recipient must include the current
fair market value of the vested shares in his or her income for federal income
tax purposes. We will be allowed a federal income tax deduction in the same
amount. We will have to recognize compensation expense for accounting purposes
ratably over the vesting period, equal to the fair market value of the shares on
the original award date.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
Federal law and regulation generally requires that all loans or extensions
of credit to executive officers and directors must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features.
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.
Pursuant to such a program, Clay County Savings has extended loans to President
Davis and Senior Vice President Coltman that exceeded $60,000 and were in
existence at any time since October 1, 2000.
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Set forth below is certain information as to loans made by Clay County
Savings to certain of its directors and executive officers, or their affiliates,
pursuant to the loan program mentioned above, whose aggregate indebtedness to
Clay County Savings exceeded $60,000 at any time since October 1, 2000. Unless
otherwise indicated, all of the loans are secured loans and all loans designated
as residential loans are first mortgage loans secured by the borrower's
principal place of residence.
HIGHEST
BALANCE
ORIGINAL SINCE INTEREST RATE
DATE LOAN OCTOBER 1, BALANCE ON ON JUNE 30,
NAME OF INDIVIDUAL LOAN TYPE ORIGINATED AMOUNT 2000 JUNE 30, 2002 2002
- ------------------------ ------------- ----------- --------- ---------- ------------- -------------
John R. Davis Single-Family August 30, $ 108,000 $ 108,000 $ 106,062(1) 6.875%
2001
January 10,
Debra S. Coltman Single-Family 2001 250,000 250,000 - 0 - N/A
- ----------
(1) Represents outstanding balance of loan being serviced by Clay County
Savings. Loan was sold in the secondary market with servicing retained.
Other than as described above, all loans, the principal balances of which
exceeded $60,000 at any time since October 1, 2000, made by Clay County Savings
to executive officers, directors, immediate family members of executive officers
and directors, or organizations with which executive officers and directors are
affiliated, were made in the ordinary course of business, on substantially the
same terms including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons.
In August 2001, Clay County Savings sold a single-family residence located
adjacent to its former main office at 134 N. Water Street to John R. Davis. The
sale price of $135,000 was based upon an independent appraisal of the property,
as adjusted for estimated costs of repairs and maintenance. Clay County Savings
had originally purchased the property in 1977 for purposes of expansion.
Although Clay County Savings converted the backyard of the property into a paved
parking lot for use by Clay County Savings employees and also used the basement
and garage of the residence to store equipment and supplies, Clay County Savings
decided not to utilize the dwelling as additional office space. Beginning in
1982, Clay County Savings rented the property, first to the local chamber of
commerce, and then to John R. Davis. The rental rates were periodically
increased based upon local market conditions and an independent appraisal. In
2001, following completion of the new main office, the Board determined that the
extra parking provided by the property was no longer needed, and an agreement
was reached to sell the property to Mr. Davis. Clay County Savings made a loan
to Mr. Davis in the original amount of $108,000 to finance the purchase of the
property. The loan was made on substantially the same terms, including interest
rate and collateral, as comparable loans to other borrowers. The loan was
subsequently sold in the secondary market.
THE CONVERSION
The board of directors of Clay County Savings and the Office of Thrift
Supervision have approved the plan of conversion, subject to approval by the
members of Clay County Savings entitled to vote on the matter and the
satisfaction of certain other conditions. Office of Thrift Supervision approval,
however, is not a recommendation or endorsement of the plan. Certain terms used
in the following summary are defined in the plan of conversion, a copy of which
may be obtained by contacting Clay County Savings.
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GENERAL
On July 30, 2002 the board of directors unanimously adopted the plan of
conversion, subject to approval by the Office of Thrift Supervision and the
voting members of Clay County Savings. Pursuant to the plan, Clay County Savings
will convert from a federal mutual savings and loan association to a federal
stock savings bank, with the concurrent formation of a holding company. The
Office of Thrift Supervision has approved the plan, subject to its approval by
the affirmative vote of the members of Clay County Savings holding not less than
a majority of the total number of votes eligible to be cast at a special meeting
called for that purpose to be held on December 20, 2002.
The plan of conversion provides generally that Clay County Savings will
convert from a federally chartered mutual savings and loan association to a
federally chartered stock savings bank; the common stock will be offered by CCSB
Financial Corp. in the subscription offering to persons having subscription
rights. If necessary, shares of common stock not subscribed for in the
subscription offering will be offered in a community offering to certain members
of the general public, with preference given to natural persons residing in Clay
County, Missouri and then to certain members of the general public in a
syndicated community offering through a syndicate of registered broker-dealers
under selected dealers agreements. The conversion will be completed only upon
the sale of a minimum of $6,290,000 of common stock.
As part of the conversion, CCSB Financial Corp. is making a subscription
offering of its common stock to holders of subscription rights in the following
order of priority. First, depositors of Clay County Savings with $50.00 or more
on deposit as of the close of business on December 31, 2000. Second, Clay County
Savings' tax-qualified benefit plans which include the employee stock ownership
plan. Third, depositors of Clay County Savings with $50.00 or more on deposit as
of the close of business on September 30, 2002. Fourth, members of Clay County
Savings as of the close of business on October 31, 2002.
Shares of common stock not subscribed for in the subscription offering may
be offered for sale in the community offering. The community offering, if one is
held, is expected to begin immediately after the expiration of the subscription
offering, but may begin at any time during the subscription offering. Shares of
common stock not sold in the subscription and community offerings may be offered
in the syndicated community offering. Regulations require that the community and
syndicated community offerings be completed within 45 days after completion of
the fully extended subscription offering unless extended by Clay County Savings
or CCSB Financial Corp. with the approval of the regulatory authorities. If the
syndicated community offering is determined not to be feasible, the board of
directors of Clay County Savings will consult with the regulatory authorities to
determine an appropriate alternative method for selling the unsubscribed shares
of common stock. The plan of conversion provides that the conversion must be
completed within 24 months after the date of the approval of the plan of
conversion by the members of Clay County Savings.
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No sales of common stock may be completed, either in the subscription
offering, direct community offering or syndicated community offering unless the
plan of conversion is approved by the members of Clay County Savings.
The completion of the offering, however, will also depend on market
conditions and other factors beyond Clay County Savings' control. No assurance
can be given as to the length of time after approval of the plan of conversion
at the special meeting that will be required to complete the community or
syndicated community offerings or other sale of the common stock.
Orders for shares of common stock will not be filled until at least 629,000
shares of common stock have been subscribed for or sold and the Office of Thrift
Supervision approves the final valuation and the conversion is completed. If the
conversion is not completed within 45 days after the expiration date of the
subscription offering and the Office of Thrift Supervision consents to an
extension of time to complete the conversion, subscribers will be given the
right to maintain, modify or rescind their subscriptions. Unless an affirmative
indication is received from subscribers that they wish to continue to subscribe
for shares, the funds will be returned promptly, together with accrued interest
at Clay County Savings' passbook rate from the date payment is received until
the funds are returned to the subscriber. If the period is not extended, or, in
any event, if the conversion is not completed, all withdrawal authorizations
will be terminated and all funds held will be promptly returned together with
accrued interest at Clay County Savings' passbook rate from the date payment is
received until the conversion is terminated.
PURPOSES OF CONVERSION
The board of directors and management believe that the conversion is in the
best interests of Clay County Savings, its members and the communities it
serves. Clay County Savings' board of directors has formed CCSB Financial Corp.
to serve as a holding company, with Clay County Savings as its subsidiary, after
the conversion. By converting to the stock form of organization, CCSB Financial
Corp. and Clay County Savings will be structured in the form used by holding
companies of commercial banks, most business entities and by a growing number of
savings institutions. Management of Clay County Savings believes that the
conversion offers a number of advantages which will be important to the future
growth and performance of Clay County Savings. The capital raised in the
conversion is intended to support Clay County Savings' current lending and
investment activities and may also support possible future expansion and
diversification of operations, although there are no current specific plans,
arrangements or understandings, written or oral, regarding any expansion or
diversification. The conversion is also expected to afford Clay County Savings'
management, members and others the opportunity to become stockholders of CCSB
Financial Corp. and participate more directly in, and contribute to, any future
growth of CCSB Financial Corp. and Clay County Savings. The conversion will also
enable CCSB Financial Corp. and Clay County Savings to raise additional capital
in the public equity or debt markets should the need arise, although there are
no current specific plans, arrangements or understandings, written or oral,
regarding any financing activities.
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EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF CLAY COUNTY
SAVINGS
Voting Rights. Upon conversion, neither deposit account holders nor
borrower members will have voting rights in Clay County Savings or CCSB
Financial Corp. and will therefore not be able to elect directors of either
entity or to control their affairs. These rights are currently accorded to
deposit account holders and borrower members with regard to Clay County Savings.
Subsequent to conversion, voting rights will be vested exclusively in CCSB
Financial Corp. as the sole stockholder of Clay County Savings. Voting rights as
to CCSB Financial Corp. will be held exclusively by its stockholders. Each
purchaser of CCSB Financial Corp. common stock shall be entitled to vote on
matters considered by CCSB Financial Corp. stockholders. A stockholder will be
entitled to one vote for each share of common stock owned, subject to certain
limitations applicable to holders of 10% or more of the shares of the common
stock. See "Restrictions on Acquisitions of Stock and Related Takeover Defensive
Provisions." CCSB Financial Corp. intends to supply each stockholder with annual
reports and proxy statements.
Deposit Accounts and Loans. The terms of Clay County Savings' deposit
accounts, the balances of the individual accounts and the existing FDIC
insurance coverage will not be affected by the conversion. Furthermore, the
conversion will not affect the loan accounts, the balances of these accounts, or
the obligations of the borrowers under their individual contractual arrangements
with Clay County Savings.
Tax Effects. Clay County Savings has received an opinion from Luse Gorman
Pomerenk & Schick, P.C. with regard to federal income taxation, and an opinion
from Michael Trokey & Company, P.C., with regard to Missouri taxation, to the
effect that the adoption and implementation of the plan of conversion will not
be taxable for federal or Missouri tax purposes to Clay County Savings or CCSB
Financial Corp. See "--Income Tax Consequences."
Liquidation Rights in Present Mutual Association. In addition to the
protection of FDIC insurance up to applicable limits, in the event of a complete
liquidation each holder of a deposit account in Clay County Savings in its
present mutual form would receive his pro rata share of any assets of Clay
County Savings remaining after payment of claims of all creditors, including the
claims of all depositors in the amount of the withdrawal value of their
accounts. Each depositor's pro rata share of the remaining assets would be in
the same proportion as the balance in his or her deposit account to the
aggregate balance in all deposit accounts in Clay County Savings at the time of
liquidation.
Liquidation Rights in the Converted Association. After the conversion, each
deposit account holder, in the event of a complete liquidation, would have a
claim of the same general priority as the claims of all other general creditors
of Clay County Savings, in addition to the protection of FDIC insurance up to
applicable limits. Except as described below, the deposit account holder's claim
would be solely in the amount of the balance in his or her deposit account plus
accrued interest and the holder would have no interest in the value of Clay
County Savings above that amount.
The plan of conversion provides that there shall be established, upon the
completion of the conversion, a special "liquidation account" for the benefit of
eligible account holders and
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supplemental eligible account holders in an amount equal to the net worth of
Clay County Savings as of the date of its latest statement of financial
condition contained in the final prospectus relating to the conversion. Each
eligible account holder and supplemental eligible account holder would have an
initial interest in the liquidation account for each qualifying deposit account
held in Clay County Savings on the qualifying date. An eligible account holder's
or supplemental eligible account holder's interest as to each deposit account
would be in the same proportion as the balance in his or her account on the
applicable eligibility date was to the aggregate balance in all qualifying
deposit accounts on that date. For accounts in existence on both dates, separate
subaccounts shall be determined on the basis of the qualifying deposits in the
accounts on the record dates. However, if an eligible account holder or
supplemental eligible account holder reduces the amount in the qualifying
deposit account on any annual closing date of Clay County Savings to a level
less than the lowest amount in the account on the applicable eligibility date,
and on any subsequent closing date, then the account holder's interest in this
special liquidation account would be reduced by an amount proportionate to any
such reduction, and the account holder's interest would cease to exist if the
qualifying deposit account were closed.
The interest in the special liquidation account would never be increased
despite any increase in the balance of the account holders' related accounts
after the conversion.
Any assets remaining after the above liquidation rights of eligible account
holders and supplemental eligible account holders were satisfied would be
distributed to CCSB Financial Corp. as the sole stockholder of Clay County
Savings.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether Clay
County Savings, or another federally insured institution is the surviving
institution, is deemed to be a complete liquidation for purposes of distribution
of the liquidation account. In any such transaction, the liquidation account
would be assumed by the surviving institution. The Office of Thrift Supervision
has stated that the completion of a transaction of the type described in the
preceding sentence in which the surviving entity is not a federally insured
institution would be reviewed on a case-by-case basis to determine whether the
transaction should constitute a "complete liquidation" requiring distribution of
any then remaining balance in the liquidation account.
Common Stock. For information as to the characteristics of the common stock
to be issued under the plan of conversion, see "Dividend Policy" and
"Description of Capital Stock." Common stock issued under the plan of conversion
cannot, and will not, be insured by the FDIC or any other government agency.
OFFERING OF COMMON STOCK
Under the plan of conversion, up to 851,000 shares of CCSB Financial Corp.
common stock will be offered for sale, subject to certain restrictions described
below, through a subscription and community offering.
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Subscription Offering. The subscription offering will expire at 12:00 noon,
Central Time, on December 19, 2002, unless otherwise extended by Clay County
Savings and CCSB Financial Corp. Regulations of the Office of Thrift Supervision
require that all shares to be offered in the conversion be sold within a period
ending not more than 45 days after the expiration date of the subscription
offering or a longer period as may be approved by the Office of Thrift
Supervision or, despite approval of the plan of conversion by members, the
conversion will not be effected. This period expires on February 2, 2003, unless
extended with the approval of the Office of Thrift Supervision. If the
conversion is not completed by February 2, 2003, all subscribers will have the
right to modify or rescind their subscriptions and to have their subscription
funds returned promptly with interest. In the event of an extension of this
type, all subscribers will be notified in writing of the time period within
which subscribers must notify Clay County Savings of their intention to
maintain, modify or rescind their subscriptions. If the subscriber rescinds or
does not respond in any manner to Clay County Savings' notice, the funds
submitted will be refunded to the subscriber with interest at Clay County
Savings' current passbook savings rate, and/or the subscriber's withdrawal
authorizations will be terminated. In the event that the conversion is not
effected, all funds submitted and not previously refunded pursuant to the
subscription and community offering will be promptly refunded to subscribers
with interest at Clay County Savings' current passbook savings rate, and all
withdrawal authorizations will be terminated.
Subscription Rights. Under the plan of conversion, nontransferable
subscription rights to purchase the common stock have been issued to persons and
entities entitled to purchase the common stock in the subscription offering. The
amount of the common stock which these parties may purchase will depend on the
availability of the common stock for purchase under the categories described in
the plan of conversion. Subscription priorities have been established for the
allocation of stock to the extent that the common stock is available. These
priorities are as follows:
Category 1: Eligible Account Holders. Subject to the maximum purchase
limitations, each depositor with $50.00 or more on deposit at Clay County
Savings as of the close of business on December 31, 2000 will receive
nontransferable subscription rights to subscribe for up to the greater of the
following:
(1) $100,000 of common stock;
(2) one-tenth of one percent of the total offering of common stock; or
(3) 15 times the product, rounded down to the next whole number, obtained
by multiplying the total number of shares of common stock to be issued
by a fraction, the numerator of which is the amount of the qualifying
deposit of the eligible account holder and the denominator is the
total amount of qualifying deposits of all eligible account holders.
If the exercise of subscription rights in this category results in an
oversubscription, shares of common stock will be allocated among subscribing
eligible account holders so as to permit each one, to the extent possible, to
purchase a number of shares sufficient to make the person's
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total allocation equal 100 shares or the number of shares actually subscribed
for, whichever is less. Thereafter, unallocated shares will be allocated among
the remaining subscribing eligible account holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective qualifying
deposits bear to the total amount of qualifying deposits of all remaining
eligible account holders whose subscriptions remain unfilled; however, no
fractional shares shall be issued. If the amount so allocated exceeds the amount
subscribed for by any one or more eligible account holders, the excess shall be
reallocated, one or more times as necessary, among those eligible account
holders whose subscriptions are still not fully satisfied on the same principle
until all available shares have been allocated or all subscriptions satisfied.
Subscription rights received by officers and directors in this category based on
their increased deposits in Clay County Savings in the one-year period preceding
December 31, 2000 are subordinated to the subscription rights of other eligible
account holders.
Category 2: Tax-Qualified Employee Plans. The plan of conversion provides
that tax-qualified employee plans of Clay County Savings, such as the employee
stock ownership plan, shall receive nontransferable subscription rights to
purchase up to 10% of the shares of common stock issued in the conversion. The
employee stock ownership plan intends to purchase 8% of the shares of common
stock issued in the conversion. In the event the number of shares offered in the
conversion is increased above the maximum of the valuation range, the plan shall
have a first priority right to purchase any shares exceeding that amount up to
8% of the common stock. If the plan's subscription is not filled in its
entirety, the employee stock ownership plan may purchase shares in the open
market or may purchase shares directly from the holding company.
Category 3: Supplemental Eligible Account Holders. To the extent that there
are sufficient shares remaining after satisfaction of subscriptions by eligible
account holders and the tax-qualified plans, and subject to the maximum purchase
limitations, each depositor with $50.00 or more on deposit as of the close of
business on September 30, 2002 will receive nontransferable subscription rights
to subscribe for up to the greater of:
(1) $100,000 of common stock;
(2) one-tenth of one percent of the total offering of common stock; or
(3) 15 times the product, rounded down to the next whole number, obtained
by multiplying the total number of shares of common stock to be issued
by a fraction, the numerator of which is the amount of qualifying
deposits of the supplemental eligible account holder and the
denominator is the total amount of qualifying deposits of all
supplemental eligible account holders.
If the exercise of subscription rights in this category results in an
oversubscription, shares of common stock will be allocated among subscribing
supplemental eligible account holders so as to permit each supplemental eligible
account holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation equal 100 shares or the number of
shares actually subscribed for, whichever is less. Thereafter, unallocated
shares will be allocated among subscribing supplemental eligible account holders
whose subscriptions remain unfilled in
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the proportion that the amounts of their respective qualifying deposits bear to
total qualifying deposits of all subscribing supplemental eligible account
holders.
Category 4: Other Members. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by eligible account holders, the
tax-qualified plans and supplemental eligible account holders, and subject to
the maximum purchase limitations, each member of Clay County Savings as of the
close of business on October 31, 2002 will receive nontransferable subscription
rights to purchase up to the greater of:
(1) $100,000 of common stock; or
(2) one-tenth of one percent of the total offering of common stock.
If there is an oversubscription in this category, the available shares will
be allocated proportionately based on the amount of the other members' number of
votes as compared to the total number of votes of all subscribing other members.
Clay County Savings and CCSB Financial Corp. will make reasonable efforts
to comply with the securities laws of all states in the United States in which
persons entitled to subscribe for shares pursuant to the plan of conversion
reside. However, no shares will be offered or sold under the plan of conversion
to any person who resides in a foreign country or resides in a state of the
United States in which a small number of persons otherwise eligible to subscribe
for shares under the plan of conversion reside or as to which Clay County
Savings and CCSB Financial Corp. determine that compliance with the securities
laws of the state would be impracticable for reasons of cost or otherwise,
including, but not limited to, a requirement that Clay County Savings or CCSB
Financial Corp. or any of their officers, directors or employees register, under
the securities laws of the state, as a broker, dealer, salesman or agent. No
payments will be made in lieu of the granting of subscription rights to any
person.
Community Offering. Any shares of common stock which remain unsubscribed
for in the subscription offering will be offered by CCSB Financial Corp. in a
community offering to members of the general public to whom CCSB Financial Corp.
delivers a copy of this prospectus and a stock order form, with preference given
to natural persons residing in Clay County, Missouri. Subject to the maximum
purchase limitations, these persons, together with associates of and persons
acting in concert with these persons, may purchase up to $100,000 of common
stock. The community offering, if any, may be concurrent with, during, or
promptly after the subscription offering, and may terminate at any time without
notice, but may not terminate later than February 2, 2003, unless extended with
the approval of the Office of Thrift Supervision. Subject to any required
regulatory approvals, CCSB Financial Corp. will determine the advisability of a
community offering, the commencement and termination dates of any community
offering, and the methods of finding potential purchasers in such offering, in
its discretion based upon market conditions. The opportunity to subscribe for
shares of common stock in the community offering category is subject to the
right of CCSB Financial Corp. and Clay County Savings, in their sole discretion,
to accept or reject these orders in whole or in part either at the time of
receipt of an order or as soon as practicable thereafter.
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If there are not sufficient shares available to fill orders in the
community offering, the stock will be allocated first to each natural person
residing in Clay County whose order is accepted by Clay County Savings, in an
amount equal to the lesser of 1,000 shares or the number of shares subscribed
for by each subscriber residing in Clay County, if possible. Thereafter,
unallocated shares will be allocated among the subscribers residing in Clay
County, whose orders remain unsatisfied, in the same proportion that the
unfilled subscription of each bears to the total unfilled subscriptions of all
subscribers residing in Clay County whose subscription remains unsatisfied. If
there are any shares remaining, shares will be allocated to other members of the
general public who subscribe in the community offering applying the same
allocation described above for subscribers residing in Clay County.
Syndicated Community Offering. All shares of common stock not purchased in
the subscription and community offerings, if any, may be offered for sale to the
general public in a syndicated community offering through a syndicate of
registered broker-dealers to be formed and managed by Trident Securities. CCSB
Financial Corp. and Clay County Savings expect to market any shares which remain
unsubscribed after the subscription and community offerings through a syndicated
community offering. CCSB Financial Corp. and Clay County Savings have the right
to reject orders in whole or part in their sole discretion in the syndicated
community offering. Neither Trident Securities nor any registered broker-dealer
shall have any obligation to take or purchase any shares of common stock in the
syndicated community offering; however, in the event Trident Securities agrees
to participate in a syndicated community offering, it will use its best efforts
in the sale of shares in the syndicated community offering.
The price at which common stock is sold in the syndicated community
offering will be the same price as in the subscription and community offerings.
Subject to the overall purchase limitations, no person by himself or herself or
with an associate or group of persons acting in concert, may subscribe for or
purchase in the syndicated community offering more than $100,000 or 10,000
shares of common stock.
Trident Securities may enter into agreements with selected dealers to
assist in the sale of the shares in the syndicated community offering, although
no agreements exist as of the date of this prospectus. No orders may be placed
or filled by or for a selected dealer during the subscription offering. After
the close of the subscription offering, Trident Securities will instruct
selected dealers as to the number of shares to be allocated to each selected
dealer. Only after the close of the subscription offering and upon allocation of
shares to selected dealers may selected dealers take orders from their
customers. During the subscription and community offerings, selected dealers may
only solicit indications of interest from their customers to place orders with
CCSB Financial Corp. as of a certain order date for the purchase of shares of
common stock. When and if CCSB Financial Corp., in consultation with Trident
Securities, believes that enough indications of interest and orders have not
been received in the subscription and community offerings to consummate the
conversion, it will instruct Trident Securities to request, as of the order
date, selected dealers to submit orders to purchase shares for which they have
previously received indications of interest from their customers. Selected
dealers will send confirmations of the orders to customers on the next business
day after the order date. Selected dealers will debit the accounts of their
customers on the settlement date, which date will be three business days from
the order date. Customers who authorize selected dealers to debit their
brokerage accounts
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are required to have the funds for payment in their account on but not before
the settlement date. On the settlement date, selected dealers will remit funds
to the account established by Clay County Savings for each selected dealer. Each
customer's funds so forwarded to Clay County Savings, along with all other
accounts held in the same title, will be insured by the FDIC up to $100,000 in
accordance with applicable FDIC regulations. After payment has been received by
Clay County Savings from selected dealers, funds will earn interest at Clay
County Savings' passbook rate until the completion or termination of the
conversion. Funds will be promptly returned, with interest, in the event the
conversion is not completed as described above.
The syndicated community offering will terminate no more than 45 days
following the subscription expiration date, unless extended by CCSB Financial
Corp. and Clay County Savings with the approval of the Office of Thrift
Supervision.
Limitations on Purchase of Shares. The plan also provides for certain
additional limitations to be placed upon the purchase of shares in the
conversion. Specifically, the maximum purchase of common stock in the
subscription offering by a person or group of persons acting through a single
account is $100,000, and no person, other than Clay County Savings' employee
stock ownership plan, by himself or herself or with an associate, and no group
of persons acting in concert, may subscribe for or purchase more than $300,000
of common stock offered in the conversion. Officers and directors and their
associates may not purchase, in the aggregate, more than 34% of the shares to be
sold in the conversion. For purposes of the plan, the members of the board of
directors are not deemed to be acting in concert solely by reason of their board
membership. Moreover, any shares attributable to the officers and directors and
their associates, but held by a tax-qualified employee plan other than that
portion of a plan which is self-directed, shall not be included in calculating
the number of shares which may be purchased under the limitations in this
paragraph. Shares purchased by employees who are not officers or directors of
Clay County Savings, or their associates, are not subject to this limitation.
The term "associate" is used above to indicate any of the following
relationships with a person:
. any corporation or organization, other than CCSB Financial Corp. or
Clay County Savings or a majority-owned subsidiary of CCSB Financial
Corp. or Clay County Savings, of which a person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of equity security;
. any trust or other estate in which the person has a substantial
beneficial interest or as to which the person serves as trustee or in
a similar fiduciary capacity; and
. any relative or spouse of the person or any relative of the spouse who
has the same home as the person or who is a director or officer of
CCSB Financial Corp. or Clay County Savings or any subsidiary of CCSB
Financial Corp. or Clay County Savings.
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As used above, the term "acting in concert" means:
. knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an
express agreement;
. a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether
written or otherwise; or
. a person or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in concert
with any person or company who is also acting in concert with that
other party, except that any tax-qualified employee plan will not be
deemed to be acting in concert with its trustee or a person who serves
in a similar capacity solely for the purpose of determining whether
stock held by the trustee and stock held by the plan will be
aggregated.
Persons or companies who file jointly a Form 13-D or Form 13-G with any
regulatory agency will be deemed to be acting in concert.
The boards of directors of CCSB Financial Corp. and Clay County Savings
may, in their sole discretion, decrease the maximum purchase limitation referred
to above or increase the maximum purchase limitation up to 9.99% of the shares
being offered in the conversion, provided that orders for shares exceeding 5.0%
of the shares being offered in the conversion shall not exceed, in the
aggregate, 10% of the shares being offered in the conversion. Requests to
purchase additional shares of CCSB Financial Corp. common stock under this
provision will be allocated by the boards of directors on a pro rata basis
giving priority in accordance with the priority rights set forth above.
Depending upon market and financial conditions, and subject to certain
regulatory limitations, the boards of directors of CCSB Financial Corp. and Clay
County Savings, with the approval of the Office of Thrift Supervision and
without further approval of the members, may increase or decrease any of the
above purchase limitations at any time. To the extent that shares are available,
each subscriber must subscribe for a minimum of 25 shares. In computing the
number of shares to be allocated, all numbers will be rounded down to the next
whole number.
Common stock purchased in the conversion will be freely transferable except
for shares purchased by executive officers and directors of Clay County Savings
or CCSB Financial Corp. and except as described below. In addition, under
National Association of Securities Dealers, Inc. ("NASD") guidelines, members of
the NASD and their associates are subject to certain restrictions on transfer of
securities purchased in accordance with subscription rights and to certain
reporting requirements upon purchase of these securities.
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RESTRICTIONS ON TRANSFERABILITY OF SUBSCRIPTION RIGHTS
Subscription rights are nontransferable. Clay County Savings may reasonably
investigate to determine compliance with this restriction. Persons selling or
otherwise transferring their rights to subscribe for common stock in the
subscription offering or subscribing for common stock on behalf of another
person may forfeit those rights and may face possible further sanctions and
penalties imposed by the Office of Thrift Supervision or another agency of the
United States Government. Clay County Savings and CCSB Financial Corp. will
pursue any and all legal and equitable remedies in the event they become aware
of the transfer of subscription rights and will not honor orders known by them
to involve the transfer of these rights. Each person exercising subscription
rights will be required to certify that he or she is purchasing shares solely
for his or her own account and that he or she has no agreement or understanding
with any other person for the sale or transfer of the shares. In addition, joint
stock registration will only be allowed if the qualifying account is so
registered. Once tendered, subscription orders cannot be revoked without the
consent of Clay County Savings and CCSB Financial Corp.
PLAN OF DISTRIBUTION AND MARKETING ARRANGEMENTS
Offering materials for the offering initially have been distributed to
certain persons by mail, with additional copies made available through our
conversion center and Trident Securities. All prospective purchasers are to send
payment directly to Clay County Savings, where such funds will be held in a
segregated savings account and not released until the offering is completed or
terminated.
To assist in the marketing of the common stock, we have retained Trident
Securities, which is a broker-dealer registered with the NASD. Trident
Securities will assist us in the offering as follows: (1) in training and
educating our employees regarding the mechanics of the offering; (2) in
conducting informational meetings for employees, customers and the general
public; (3) in coordinating the selling efforts in our local communities; and
(4) in soliciting orders for common stock. For these services, Trident
Securities will receive a fee of 2.0% of the aggregate dollar amount of the
common stock sold in the Conversion, excluding shares sold to the ESOP and to
our executive officers and directors. If there is a syndicated offering, Trident
Securities will receive a fee in an amount competitive with gross underwriting
discounts charged at such time for underwritings of comparable amounts of common
stock sold at a comparable price per share in a similar market environment.
However, the total fees payable to Trident Securities and other NASD member
firms in the syndicated offering shall not exceed 4 1/2% of the aggregate dollar
amount of the common stock sold in the syndicated community offering.
We also will reimburse Trident Securities for its reasonable legal fees and
expenses associated with its marketing effort, up to a maximum of $50,000. We
will indemnify Trident Securities against liabilities and expenses (including
legal fees) incurred in connection with certain claims or litigation arising out
of or based upon untrue statements or omissions contained in the offering
material for the common stock, including liabilities under the Securities Act of
1933.
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Our directors and executive officers may participate in the solicitation of
offers to purchase common stock. Other trained employees may participate in the
offering in ministerial capacities, providing clerical work in effecting a sales
transaction or answering questions of a ministerial nature. Other questions of
prospective purchasers will be directed to executive officers or registered
representatives. We will rely on Rule 3a4-1 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), so as to permit officers, directors, and
employees to participate in the sale of the common stock. No officer, director,
or employee will be compensated for his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the common stock.
HOW WE DETERMINED STOCK PRICING AND THE NUMBER OF SHARES TO BE ISSUED
The plan of conversion and federal regulations require that the aggregate
purchase price of the common stock sold in the offering be based on the
appraised pro forma market value of the common stock, as determined on the basis
of an independent valuation. We retained Keller & Company to make the
independent valuation. Keller & Company will receive a fee of $20,000, which
amount does not include a fee of up to $8,000 to be paid to Keller & Company for
assistance in the preparation of a business plan, plus reasonable out-of-pocket
expenses. We have agreed to indemnify Keller & Company and its employees and
affiliates against certain losses (including any losses in connection with
claims under the federal securities laws) arising out of its services as
appraiser, except where Keller & Company's liability results from its negligence
or bad faith.
The independent valuation was prepared by Keller & Company in reliance upon
the information contained in the prospectus, including the financial statements.
Keller & Company also considered the following factors, among others:
. the present and projected operating results and financial condition of
Clay County Savings and the economic and demographic conditions in our
existing market area;
. historical, financial and other information relating to Clay County
Savings;
. a comparative evaluation of the operating and financial statistics of
Clay County Savings with those of other publicly traded subsidiaries
of holding companies;
. the aggregate size of the offering;
. the impact of the conversion on our stockholders' equity and earnings
potential;
. the proposed dividend policy of CCSB Financial Corp.; and
. the trading market for securities of comparable institutions and
general conditions in the market for such securities.
On the basis of the foregoing, Keller & Company advised us that as of
August 23, 2002, the estimated pro forma market value of the common stock ranged
from a minimum of $6,290,000 to a maximum of $8,510,000, with a midpoint of
$7,400,000 (the estimated valuation range). The board determined to offer the
shares in the offering at the purchase price of $10.00
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per share, the price most commonly used in stock offerings involving mutual to
stock conversions. Based on the estimated valuation range and the purchase price
of $10.00 per share, the number of shares of common stock that CCSB Financial
Corp. will issue will range from between 629,000 shares to 851,000 shares, with
a midpoint of 740,000 shares.
The board reviewed the independent valuation and, in particular, considered
(1) our financial condition and results of operations for the nine months ended
June 30, 2002 and the year ended September 30, 2001, (2) financial comparisons
in relation to other financial institutions, and (3) stock market conditions
generally and, in particular, for financial institutions, all of which are set
forth in the independent valuation. The board also reviewed the methodology and
the assumptions used by Keller & Company in preparing the independent valuation.
The estimated valuation range may be amended with the approval of the Office of
Thrift Supervision, if necessitated by subsequent developments in our financial
condition or market conditions generally.
Following commencement of the subscription offering, the maximum of the
estimated valuation range may be increased by up to 15%, to up to $9,786,500, to
reflect changes in market and financial conditions, demand for the shares, or
regulatory considerations, without the resolicitation of subscribers. The
minimum of the estimated valuation range and the minimum of the offering range
may not be decreased without a resolicitation of subscribers. The purchase price
of $10.00 per share will remain fixed. See "-Limitations On Purchases Of Common
Stock" as to the method of distribution and allocation of additional shares that
may be issued in the event of an increase in the offering range to fill unfilled
orders in the subscription and community offerings.
The independent valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares. Keller &
Company did not independently verify the financial statements and other
information provided by Clay County Savings, nor did Keller & Company value
independently the assets or liabilities of Clay County Savings. The independent
valuation considers Clay County Savings as a going concern and should not be
considered as an indication of liquidation value. Moreover, because the
valuation is necessarily based upon estimates and projections of a number of
matters, all of which are subject to change from time to time, no assurance can
be given that persons purchasing shares in the offering will thereafter be able
to sell such shares at prices at or above the purchase price.
The independent valuation will be updated at the time of the completion of
the offering. If the update to the independent valuation at the conclusion of
the offering results in an increase in the maximum of the estimated valuation
range to more than $9,786,500 or a decrease in the minimum of the estimated
valuation range to less than $6,290,000, then CCSB Financial Corp., after
consulting with the Office of Thrift Supervision, may terminate the plan of
conversion and return all funds promptly, with interest on payments made by
check, certified or teller's check, bank draft or money order, extend or hold a
new subscription offering, community offering, or both, establish a new offering
range, commence a resolicitation of subscribers or take such other actions as
permitted by the Office of Thrift Supervision in order to complete the
conversion. In the event that a resolicitation is commenced, unless an
affirmative response is received within a reasonable period of time, all funds
will be promptly returned to investors as described above. A
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resolicitation, if any, following the conclusion of the subscription and
community offerings would not exceed 45 days unless further extended by the
Office of Thrift Supervision for periods of up to 90 days not to extend beyond
24 months following the special meeting of members, or December 19, 2004.
An increase in the independent valuation and the number of shares to be
issued in the offering would decrease both a subscriber's ownership interest and
CCSB Financial Corp.'s pro forma earnings and stockholders' equity on a per
share basis while increasing pro forma earnings and stockholders' equity on an
aggregate basis. A decrease in the independent valuation and the number of
shares to be issued in the offering would increase both a subscriber's ownership
interest and CCSB Financial Corp.'s pro forma earnings and stockholders' equity
on a per share basis while decreasing pro forma net income and stockholders'
equity on an aggregate basis. For a presentation of the effects of such changes,
see "Pro Forma Data."
Copies of the appraisal report of Keller & Company and the detailed
memorandum of the appraiser setting forth the method and assumptions for such
appraisal are available for inspection at the main office of Clay County Savings
and the other locations specified under "Where You Can Obtain Additional
Information."
No sale of shares of common stock may occur unless, prior to such sale,
Keller & Company confirms to Clay County Savings and the Office of Thrift
Supervision that, to the best of its knowledge, nothing of a material nature has
occurred that, taking into account all relevant factors, would cause Keller &
Company to conclude that the independent valuation is incompatible with its
estimate of the pro forma market value of the common stock of CCSB Financial
Corp. at the conclusion of the offering. Any change that would result in an
aggregate purchase price that is below the minimum or above the maximum of the
estimated valuation range would be subject to Office of Thrift Supervision's
approval. If such confirmation is not received, we may extend the offering,
reopen or commence a new offering, establish a new estimated valuation range and
commence a resolicitation of all purchasers with the approval of the Office of
Thrift Supervision or take such other actions as permitted by the Office of
Thrift Supervision in order to complete the offering.
PROCEDURE FOR PURCHASING SHARES
Prospectus Delivery. To ensure that each purchaser receives a prospectus at
least 48 hours before the expiration date, prospectuses may not be mailed any
later than five days prior to such date or be hand delivered any later than two
days prior to such date. Order forms may only be distributed with a prospectus.
Expiration Date. The offering will terminate at 12:00 noon, Central Time on
December 19, 2002, unless extended by us for up to an additional 45 days or, if
approved by the Office of Thrift Supervision, for an additional period after
such 45-day extension (as so extended, the "expiration date"). We are not
required to give purchasers notice of any extension unless the expiration date
is later than February 2, 2003, in which event purchasers will be given the
right to increase, decrease, confirm, or rescind their orders.
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Use of Order Forms. In order to purchase the common stock, each purchaser
must complete an order form except for certain persons purchasing in the
syndicated community offering as more fully described below. Any person
receiving an order form who desires to purchase common stock may do so by
delivering (by mail or in person), to a full service branch of Clay County
Savings, a properly executed and completed order form, together with full
payment for the shares purchased. The order form must be received prior to 12:00
noon, Central Time on December 19, 2002. Each person ordering shares is required
to represent that they are purchasing such shares for their own account. Our
interpretation of the terms and conditions of the plan of conversion and of the
acceptability of the order forms will be final. We are not required to accept
copies of order forms.
Payment for Shares. Payment for all shares will be required to accompany a
completed order form for the purchase to be valid. Payment for shares may be
made by (1) cash, if delivered in person, (2) personal check, bank check or
money order, or (3) authorization of withdrawal from a deposit account
maintained with Clay County Savings. Third party checks will not be accepted as
payment for a subscriber's order. Appropriate means by which such withdrawals
may be authorized are provided in the order forms.
Once such a withdrawal amount has been authorized, a hold will be placed on
such funds, making them unavailable to the depositor until the offering has been
completed or terminated. In the case of payments authorized to be made through
withdrawal from deposit accounts, all funds authorized for withdrawal will
continue to earn interest at the contract rate until the offering is completed
or terminated.
Interest penalties for early withdrawal applicable to certificate of
deposit accounts at Clay County Savings will not apply to withdrawals authorized
for the purchase of shares. However, if a withdrawal results in a certificate of
deposit account with a balance less than the applicable minimum balance
requirement, the certificate of deposit shall be canceled at the time of
withdrawal without penalty, and the remaining balance will earn interest at our
passbook rate subsequent to the withdrawal.
Payments received by Clay County Savings will be placed in a segregated
savings account and will be paid interest at our passbook rate from the date
payment is received until the offering is completed or terminated. Such interest
will be paid by check, on all funds held, including funds accepted as payment
for shares of common stock, promptly following completion or termination of the
offering.
The employee stock ownership plan will not be required to pay for the
shares it intends to purchase until consummation of the offering.
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of common stock in the offering, provided that the IRA accounts are not
maintained at Clay County Savings. Persons with IRAs maintained with us must
have their accounts transferred to a self-directed IRA account with an
unaffiliated trustee in order to purchase shares of common stock in the offering
In addition, the provisions of ERISA and IRS regulations require that executive
officers, trustees, and 10% stockholders who use self-directed IRA funds and/or
Keogh plan
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accounts to purchase shares of common stock in the offering, make such purchase
for the exclusive benefit of the IRA and/or Keogh plan participant. Assistance
on how to transfer IRAs maintained at Clay County Savings can be obtained from
the Conversion Center. Depositors interested in using funds in an IRA maintained
at the bank should contact the Conversion Center as soon as possible.
Once submitted, an order cannot be modified or revoked unless the offering
is terminated or extended beyond February 2, 2003.
Depending on market conditions, the common stock may be offered for sale to
the general public on a best efforts basis in a syndicated community offering by
a selling group of broker-dealers to be managed by Trident Securities. Trident
Securities, in their discretion, will instruct selected broker-dealers as to the
number of shares to be allocated to each selected broker-dealer. Only upon
allocation of shares to selected broker-dealers may they take orders from their
customers. Investors who desire to purchase shares in the syndicated community
offering directly through a selected broker-dealer, which may include Trident
Securities, will be advised that the members of the selling group are required
either (a) upon receipt of an executed order form or direction to execute an
order form on behalf of an investor, to forward the appropriate purchase price
to us for deposit in a segregated account on or before twelve noon, prevailing
time, of the business day next following such receipt or execution; or (b) upon
receipt of confirmation by such member of the selling group of an investor's
interest in purchasing shares, and following a mailing of an acknowledgment by
such member to such investor on the business day next following receipt of
confirmation, to debit the account of such investor on the third business day
next following receipt of confirmation and to forward the appropriate purchase
price to us for deposit in the segregated account on or before twelve noon,
prevailing time, of the business day next following such debiting. Payment for
any shares purchased pursuant to alternative (a) above must be made by check in
full payment therefor. Payment for shares purchased pursuant to alternative (b)
above may be made by wire transfer to Clay County Savings.
Delivery of Stock Certificates. Certificates representing common stock
issued in the offering will be mailed to the persons entitled thereto at the
registration address noted on the order form, as soon as practicable following
consummation of the offering. Any certificates returned as undeliverable will be
held by us until claimed by persons legally entitled thereto or otherwise
disposed of in accordance with applicable law. Until certificates for the common
stock are available and delivered to purchasers, purchasers may not be able to
sell the shares of stock which they ordered.
RESTRICTIONS ON SALE OF STOCK BY DIRECTORS AND OFFICERS
All shares of the common stock purchased by our directors and officers in
the offering will be subject to the restriction that such shares may not be sold
or otherwise disposed of for value for a period of one year following the date
of purchase, except for any disposition of such shares (1) following the death
of the original purchaser or (2) by reason of an exchange of securities in
connection with a merger or acquisition approved by the applicable regulatory
authorities. Sales of shares of the common stock by CCSB Financial Corp.'s
directors and
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officers will also be subject to certain insider trading and other transfer
restrictions under the federal securities laws. See "Supervision and
Regulation--Federal Securities Laws."
Purchases of outstanding shares of common stock of CCSB Financial Corp. by
directors, executive officers, or any person who was an executive officer or
director of Clay County Savings after adoption of the plan of conversion, and
their associates during the three-year period following the conversion may be
made only through a broker or dealer registered with the Securities and Exchange
Commission, except with the prior written approval of the Office of Thrift
Supervision. This restriction does not apply, however, to negotiated
transactions involving more than 1% of CCSB Financial Corp.'s outstanding common
stock or to the purchase of stock under the stock option plan.
CCSB Financial Corp. has filed with the Securities and Exchange Commission
a registration statement under the Securities Act of 1933, as amended, for the
registration of the common stock to be issued in the conversion. The
registration under the Securities Act of shares of the common stock to be issued
in the conversion does not cover the resale of the shares. Shares of common
stock purchased by persons who are not affiliates of CCSB Financial Corp. may be
resold without registration. Shares purchased by an affiliate of CCSB Financial
Corp. will have resale restrictions under Rule 144 of the Securities Act. If
CCSB Financial Corp. meets the current public information requirements of Rule
144 under the Securities Act, each affiliate of CCSB Financial Corp. who
complies with the other conditions of Rule 144, including those that require the
affiliate's sale to be aggregated with those of certain other persons, would be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of 1% of the outstanding
shares of CCSB Financial Corp. or the average weekly volume of trading in the
shares during the preceding four calendar weeks. Provision may be made in the
future by CCSB Financial Corp. to permit affiliates to have their shares
registered for sale under the Securities Act under certain circumstances.
Under guidelines of the NASD, members of the NASD and their associates face
certain restrictions on the transfer of securities purchased in accordance with
subscription rights and to certain reporting requirements upon purchase of the
securities.
INCOME TAX CONSEQUENCES
Completion of the conversion is expressly conditioned upon prior receipt by
Clay County Savings of either a ruling from the Internal Revenue Service or an
opinion of Luse Gorman Pomerenk & Schick, P.C. with respect to federal taxation,
and a ruling of the Missouri taxation authorities or an opinion with respect to
Missouri taxation, to the effect that consummation of the conversion will not be
taxable to the converted association or CCSB Financial Corp.
Luse Gorman Pomerenk & Schick, P.C. has issued an opinion with respect to
the proposed conversion of Clay County Savings to the effect that:
1. the conversion of Clay County Savings' charter to a stock savings
association charter will qualify as a reorganization under Section
368(a)(1)(F) of the Code, and no
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gain or loss will be recognized by Clay County Savings in its mutual or
stock form by reason of the conversion;
2. no gain or loss will be recognized by Clay County Savings or CCSB
Financial Corp. on the receipt by Clay County Savings of money from CCSB
Financial Corp. in exchange for shares of Clay County Savings' capital
stock or by CCSB Financial Corp. upon the receipt of money from the sale of
its common stock;
3. the basis of the assets of Clay County Savings in the stock form will
be the same as immediately prior to the conversion;
4. the holding period of the assets of Clay County Savings in the stock
form will include the holding period of Clay County Savings in the mutual
form;
5. no gain or loss will be recognized by Clay County Savings' account
holders upon the issuance to them of accounts in Clay County Savings
immediately after the conversion, in the same dollar amounts and on the
same terms and conditions as their accounts at Clay County Savings in its
mutual form, plus interest in the liquidation account;
6. it is more likely than not that the fair market of the nontransferable
subscription rights to purchase shares of CCSB Financial Corp.'s common
stock is zero. Accordingly, no gain or loss will be recognized by eligible
account holders and supplemental eligible account holders upon the receipt
of nontransferable subscription rights in the conversion, and no taxable
income will be realized upon the exercise by them of the nontransferable
subscription rights;
7. the tax basis of account holders' accounts in Clay County Savings
immediately after the conversion will be the same as the tax basis of their
accounts immediately before conversion and the tax basis of account
holders' interest in the liquidation account will be zero;
8. it is more likely than not that the tax basis of the shares of common
stock purchased in the conversion will be the amount paid for such stock
and the holding period for the stock will begin on the date of purchase;
and
9. for purposes of Section 381 of the Code, Clay County Savings will be
treated as if there had been no reorganization. Accordingly, the taxable
year of Clay County Savings will not end on the effective date of the
conversion merely because of the transfer of assets of Clay County Savings
in mutual form to Clay County Savings in stock form. The tax attributes of
Clay County Savings in mutual form will be taken into account by Clay
County Savings in stock form as if there had been no reorganization.
The opinion addresses all material federal income tax consequences of the
conversion. The tax opinion as to item (6) above is based on the position that
subscription rights to be received by eligible account holders and supplemental
eligible account holders do not have any
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economic value at the time of distribution or the time the subscription rights
are exercised. In this regard, Luse Gorman Pomerenk & Schick, P.C. noted that
the subscription rights will be granted at no cost to the recipients, are
legally non-transferable and of short duration, and will provide the recipient
with the right only to purchase shares of common stock at the same price to be
paid by members of the general public in any community offering. The firm also
noted that the Internal Revenue Service has not in the past concluded that
subscription rights have value. Based on the foregoing, Luse Gorman Pomerenk &
Schick, P.C. believes that it is more likely than not that the nontransferable
subscription rights to purchase shares of common stock have no value. However,
the issue of whether or not the nontransferable subscription rights have value
is based on all the facts and circumstances. If the nontransferable subscription
rights granted to eligible subscribers are subsequently found to have an
ascertainable value greater than zero, income may be recognized by various
recipients of the nontransferable subscription rights (in certain cases, whether
or not the rights are exercised) and we could recognize gain on the distribution
of the nontransferable subscription rights. The federal and state tax opinions,
respectively, referred to in this prospectus are filed as exhibits to the
registration statement. See "Where You Can Find More Information."
With respect to Missouri taxation, Clay County Savings has received an
opinion from Michael Trokey & Company, P.C. to the effect that, assuming the
conversion does not result in any federal taxable income, gain or loss to Clay
County Savings in its mutual or stock form, CCSB Financial Corp., the account
holders, borrowers, officers, directors and employees and tax-qualified employee
plans of Clay County Savings, the conversion should not result in any Missouri
income tax liability to these entities or persons.
Unlike a private letter ruling, the opinions of Luse Gorman Pomerenk &
Schick, P.C. and Michael Trokey & Company, P.C. have no binding effect or
official status, and no assurance can be given that the conclusions reached in
any of those opinions would be sustained by a court if contested by the IRS or
the Missouri tax authorities.
INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the plan of conversion by the board of directors
will be final, subject to the authority of the Office of Thrift Supervision. The
plan of conversion provides that, if deemed necessary or desirable by the board
of directors of Clay County Savings, the plan of conversion may be substantively
amended by a majority vote of the board of directors as a result of comments
from regulatory authorities or otherwise, at any time prior to submission of
proxy materials to Clay County Savings' members. Amendment of the plan of
conversion thereafter requires a majority vote of the board of directors, with
the concurrence of the Office of Thrift Supervision. The plan of conversion may
be terminated by a majority vote of the board of directors of Clay County
Savings at any time prior to the earlier of approval of the plan by the Office
of Thrift Supervision and the date of the special meeting of members, and may be
terminated at any time thereafter with the concurrence of the Office of Thrift
Supervision. The plan of conversion shall be terminated if the conversion is not
completed within 24 months from the date on which the members of Clay County
Savings approve the plan of conversion, and may not be extended by Clay County
Savings or the Office of Thrift Supervision.
119
CONVERSION CENTER
If you have any questions regarding the offering or the conversion, please
call the Conversion Center at (816) 781-8169, from 9:00 a.m. to 5:00 p.m.,
Central Time, Monday through Friday.
PARTICIPATION BY MANAGEMENT IN THE OFFERING
The following table sets forth information regarding intended common stock
purchases by each of the directors and executive officers of Clay County Savings
and their associates, and by all directors and executive officers as a group. In
the event the individual maximum purchase limitation is increased, persons
subscribing for the maximum amount may increase their purchase order. This table
excludes shares to be purchased by the employee stock ownership plan, as well as
any recognition and retention plan awards or stock option grants that may be
made no earlier than six months after the completion of the conversion. The
directors and officers have indicated their intention to purchase in the
offering an aggregate of $1.4 million of common stock, equal to 22.26%, 18.92%,
16.45%, and 14.31% of the number of shares to be sold in the offering, at the
minimum, midpoint, maximum and adjusted maximum of the estimated valuation
range, respectively.
AGGREGATE NUMBER OF PERCENT AT
NAME AND TITLE PURCHASE PRICE(1) SHARES(1) MIDPOINT
- --------------------------------------------------- ----------------- ---------- ----------
John R. Cooper, Chairman of the Board.............. $ 200,000 20,000 2.70%
William J. Turpin, Vice Chairman of the Board...... 200,000 20,000 2.70
Robert A. Whipple, Director and Vice President..... 50,000 5,000 0.68
Keith A. Oberkrom, Director........................ 100,000 10,000 1.35
George A. McKinley, Director....................... 300,000 30,000 4.05
John R. Davis, Director, President and
Chief Executive Officer........................... 200,000 20,000 2.70
Mario Usera, Director, Executive Vice President
and Chief Financial Officer....................... 150,000 15,000 2.03
Debra S. Coltman, Senior Vice President............ 150,000 15,000 2.03
Deborah A. Jones, Senior Vice President,
Secretary and Treasurer........................... 50,000 5,000 0.68
----------------- ---------- ----------
All directors and executive officers as a group
(9 persons)....................................... $ 1,400,000 140,000 18.92%
================= ========== ==========
- ----------
(1) Includes purchases by associates.
120
RESTRICTIONS ON ACQUISITIONS OF STOCK AND RELATED TAKEOVER
DEFENSIVE PROVISIONS
Although the boards of directors of Clay County Savings and CCSB Financial
Corp. are not aware of any effort that might be made to obtain control of CCSB
Financial Corp. after conversion, the boards of directors, as discussed below,
believe that it is appropriate to include certain provisions as part of CCSB
Financial Corp.'s certificate of incorporation to protect the interests of CCSB
Financial Corp. and its stockholders from takeovers which the board of directors
of CCSB Financial Corp. might conclude are not in the best interests of Clay
County Savings, CCSB Financial Corp. or CCSB Financial Corp.'s stockholders.
The following discussion is a general summary of the material provisions of
CCSB Financial Corp.'s certificate of incorporation and bylaws, Clay County
Savings' charter and bylaws and certain other regulatory provisions which may be
deemed to have an "anti-takeover" effect. The following description of certain
of these provisions is necessarily general and, with respect to provisions
contained in CCSB Financial Corp.'s certificate of incorporation and bylaws and
Clay County Savings' proposed stock charter and bylaws, reference should be made
in each case to the document in question, each of which is part of Clay County
Savings' application to the Office of Thrift Supervision and CCSB Financial
Corp.'s Registration Statement filed with the Securities and Exchange
Commission. See "Where You Can Find Additional Information."
PROVISIONS OF CCSB FINANCIAL CORP.'S CERTIFICATE OF INCORPORATION AND BYLAWS
Restrictions on Call of Special Meetings. The certificate of incorporation
provides that a special meeting of stockholders may be called by the board of
CCSB Financial Corp. pursuant to a resolution adopted by a majority of the board
of directors. Stockholders are not authorized to call a special meeting of
stockholders.
Absence of Cumulative Voting. The certificate of incorporation provides
that there shall be no cumulative voting rights in the election of directors.
Authorization of Preferred Stock. The certificate of incorporation
authorizes 500,000 shares of preferred stock, par value $0.01 per share. CCSB
Financial Corp. is authorized to issue preferred stock from time to time in one
or more series subject to applicable provisions of law; and the board of
directors is authorized to fix the designations, and relative preferences,
limitations, voting rights, if any, including without limitation, offering
rights of these shares (which could be a multiple or as a separate class). In
the event of a proposed merger, tender offer or other attempt to gain control of
CCSB Financial Corp. that the board of directors does not approve, it might be
possible for the board of directors to authorize the issuance of a series of
preferred stock with rights and preferences that would impede the completion of
such a transaction. An effect of the possible issuance of preferred stock,
therefore, may be to deter a future takeover attempt. The board of directors has
no present plans or understandings for the issuance of any preferred stock but
it may issue preferred stock on terms which the board deems to be in the best
interests of CCSB Financial Corp. and its stockholders.
121
Limitation on Voting Rights. The certificate of incorporation of CCSB
Financial Corp. provides that in no event will any record owner of any
outstanding common stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns more than 10% of the then outstanding shares of
common stock, be entitled or permitted to vote any of the shares held in excess
of the 10% limit. For these purposes, a person (including management) who has
obtained the right to vote shares of the common stock pursuant to revocable
proxies shall not be deemed to be the "beneficial owner" of those shares if that
person is not otherwise deemed to be a beneficial owner of those shares.
Restrictions on Removing Directors from Office. The certificate of
incorporation provides that directors may only be removed for cause, and only by
the affirmative vote of the holders of at least 80% of the voting power of all
of our then-outstanding stock entitled to vote (after giving effect to the
limitation on voting rights discussed above in -"Limitation on Voting Rights.")
Amendments to Certificate of Incorporation and Bylaws. Amendments to the
certificate of incorporation must be approved by CCSB Financial Corp.'s board of
directors and also by a majority of the outstanding shares of CCSB Financial
Corp.'s voting stock; provided, however, that approval by at least 80% of the
outstanding voting stock is generally required to amend the following
provisions:
(1) The limitation on voting rights of persons who directly or indirectly
offer to acquire or acquire the beneficial ownership of more than 10%
of any class of equity security of CCSB Financial Corp.;
(2) The inability of stockholders to act by written consent;
(3) The inability of stockholders to call special meetings of
stockholders;
(4) The division of the board of directors into three staggered classes;
(5) The ability of the board of directors to fill vacancies on the board;
(6) The inability to deviate from the manner prescribed in the bylaws by
which stockholders nominate directors and bring other business before
meetings of stockholders;
(7) The requirement that at least 80% of stockholders must vote to remove
directors, and can only remove directors for cause;
(8) The ability of the board of directors to amend and repeal the bylaws;
and
(9) The ability of the board of directors to evaluate a variety of factors
in evaluating offers to purchase or otherwise acquire CCSB Financial
Corp.
122
The bylaws may be amended by the affirmative vote of the total number of
directors of CCSB Financial Corp. or the affirmative vote of at least 80% of the
total votes eligible to be voted at a duly constituted meeting of stockholders.
The shares of common stock that our directors and officers intend to
purchase in the conversion, when combined with the shares that may be awarded to
participants under our employee stock ownership plan and other stock benefit
plans, could result in management and employees controlling in excess of 20% of
our outstanding stock. See "Proposed Management Purchases." That level would
enable management and employees as a group to defeat any stockholder matter that
requires an 80% vote, including amending the certificate of incorporation and
bylaws, or removing directors from office, discussed above in "- Restrictions on
Removing Directors from Office."
RESTRICTIONS IN CLAY COUNTY SAVINGS' FEDERAL STOCK CHARTER AND BYLAWS
Although the board of directors of Clay County Savings is not aware of any
effort that might be made to obtain control of Clay County Savings after the
conversion, the board of directors believes that it is appropriate to adopt
provisions permitted by federal regulation to protect the interests of the
converted association and its stockholders from any hostile takeover. These
provisions may, indirectly, inhibit a change in control of CCSB Financial Corp.,
as Clay County Savings' sole stockholder.
Clay County Savings' charter will contain a provision whereby the
acquisition of beneficial ownership of more than 10% of the issued and
outstanding shares of any class of equity securities of Clay County Savings by
any person (i.e., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
through an affiliate, will be prohibited for a period of five years following
the date of completion of the conversion. If shares are acquired in violation of
this provision of Clay County Savings' charter, all shares beneficially owned by
any person in excess of 10% will be considered "excess shares" and will not be
counted as shares entitled to vote and will not be voted by any person or
counted as voting shares in connection with any matters submitted to the
stockholders for a vote. If holders of revocable proxies for more than 10% of
the shares of the common stock of CCSB Financial Corp. seek, among other things,
to elect one-third or more of CCSB Financial Corp.'s board of directors, to
cause CCSB Financial Corp.'s stockholders to approve the acquisition or
corporate conversion of CCSB Financial Corp. or to exert a continuing influence
on a material aspect of the business operations of CCSB Financial Corp., which
actions could indirectly result in a change in control of Clay County Savings,
the board of directors of Clay County Savings will be able to assert this
provision of Clay County Savings' charter against these holders. Although the
board of directors of Clay County Savings is not currently able to determine
when and if it would assert this provision of Clay County Savings' charter, the
board, in exercising its fiduciary duty, may assert this provision if it were
deemed to be in the best interests of Clay County Savings, CCSB Financial Corp.
and its stockholders. It is unclear, however, whether this provision, if
asserted, would be successful against such persons in a proxy contest which
could result in a change in control of Clay County Savings indirectly through a
change in control of CCSB Financial Corp.
123
In addition, stockholders will not be permitted to cumulate their votes in
the election of directors. Furthermore, Clay County Savings' bylaws provide for
the election of three classes of directors to staggered terms.
Finally, the charter provides for the issuance of shares of preferred stock
on terms, including conversion and voting rights, as may be determined by Clay
County Savings' board of directors without stockholder approval. Although Clay
County Savings has no arrangements, understandings or plans at the present time
for the issuance or use of the shares of undesignated preferred stock proposed
to be authorized, the board believes that the availability of these shares will
provide Clay County Savings with increased flexibility in structuring possible
future financings and acquisitions and in meeting other corporate needs that may
arise. If a proposed merger, tender offer or other attempt to gain control of
Clay County Savings occurs of which management does not approve, the board can
authorize the issuance of one or more series of preferred stock with rights and
preferences which could impede the completion of such a transaction. An effect
of the possible issuance of preferred stock, therefore, may be to deter a future
takeover attempt. The board does not intend to issue any preferred stock except
on terms which the board deems to be in the best interest of Clay County Savings
and its then existing stockholders.
FEDERAL REGULATION
A federal regulation prohibits any person, prior to the completion of a
conversion, from transferring, or entering into any agreement or understanding
to transfer, the legal or beneficial ownership of the subscription rights issued
under a plan of conversion or the stock to be issued upon their exercise. This
regulation also prohibits any person, prior to the completion of a conversion,
from offering, or making an announcement of an offer or intent to make an offer,
to purchase such subscription rights or stock. For three years following
conversion, this regulation prohibits any person, without the prior approval of
the Office of Thrift Supervision, from acquiring or making an offer to acquire
more than 10% of the stock of any converted savings institution if the person
is, or after consummation of the acquisition would be, the beneficial owner of
more than 10% of the stock. In the event that any person, directly or
indirectly, violates this regulation, the securities beneficially owned by the
person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matter submitted to a vote of stockholders.
Federal law provides that no company "directly or indirectly or acting in
concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings and loan
association at any time without the prior approval of the Office of Thrift
Supervision. "Acting in concert" is defined very broadly. In addition, federal
regulations require that, prior to obtaining control of a savings and loan
association, a person, other than a company, must give 60 days' prior notice to
the Office of Thrift Supervision and have received no Office of Thrift
Supervision objection to the acquisition of control. Any company that acquires
this control becomes a "savings and loan holding company" subject to
registration, examination and regulation as a savings and loan holding company.
Under federal law, as well as the regulations referred to below, the term
"savings and loan association" includes state and federally chartered
institutions whose accounts are insured by the Savings
124
Association Insurance Fund and federally chartered savings banks whose accounts
are insured by the FDIC's Bank Insurance Fund and holding companies thereof.
Furthermore, the Office of Thrift Supervision has indicated that as a condition
to its approval of the conversion that Clay County Savings must have a charter
that subjects it to Office of Thrift Supervision jurisdiction for a least three
years.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings and
loan association's directors, or a determination by the Office of Thrift
Supervision that the acquirer has the power to direct, or directly or indirectly
to exercise a controlling influence over, the management or policies of the
institution. Acquisition of more than 10% of any class of a savings and loan
association's voting stock, if the acquirer also is subject to any one of eight
"control factors," constitutes a rebuttable determination of control under the
regulations. These control factors include the acquirer being one of the two
largest stockholders. The determination of control may be rebutted by submission
to the Office of Thrift Supervision, prior to the acquisition of stock or the
occurrence of any other circumstances giving rise to the determination, of a
statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings and loan association's stock
must file with the Office of Thrift Supervision a certification that the holder
is not in control of the institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the Office of Thrift Supervision, as applicable.
DESCRIPTION OF CAPITAL STOCK
GENERAL
CCSB Financial Corp. is authorized to issue 2,500,000 shares of common
stock having a par value of $0.01 per share and 500,000 shares of preferred
stock. CCSB Financial Corp. currently expects to issue in the conversion up to
851,000, subject to adjustment, shares of common stock in the offering. CCSB
Financial Corp. does not intend to issue shares of preferred stock in the
conversion. Each share of CCSB Financial Corp. common stock will have the same
relative rights as, and will be identical in all respects with, each other share
of common stock. Upon payment of the $10.00 per share subscription price for the
common stock, in accordance with the plan of conversion, all of the common stock
will be duly authorized, fully paid and nonassessable.
The common stock of CCSB Financial Corp. will represent nonwithdrawable
capital, will not be an account of an insurable type, and will not be insured by
the Federal Deposit Insurance Corporation or any other government agency.
COMMON STOCK
Dividends. CCSB Financial Corp. can pay dividends out of statutory surplus
or from net profits if, as and when declared by its board of directors. The
payment of dividends by CCSB
125
Financial Corp. is subject to limitations that are imposed by law and applicable
regulation. The holders of common stock of CCSB Financial Corp. will be entitled
to receive and share equally in dividends as may be declared by the board of
directors of CCSB Financial Corp. out of funds legally available therefor. If
CCSB Financial Corp. issues preferred stock, the holders thereof may have a
priority over the holders of the common stock with respect to dividends.
Voting Rights. Upon the conversion, the holders of common stock of CCSB
Financial Corp. will possess exclusive voting rights in CCSB Financial Corp.
They will elect CCSB Financial Corp.'s board of directors and act on other
matters as are required to be presented to them under Delaware law or as are
otherwise presented to them by the board of directors. Generally, each holder of
common stock will be entitled to one vote per share and will not have any right
to cumulate votes in the election of directors. If CCSB Financial Corp. issues
preferred stock, holders of the preferred stock may also possess voting rights.
Certain matters require an 80% stockholder vote.
As a federal stock savings bank, corporate powers and control of Clay
County Savings are vested in its board of directors, who elect the officers of
Clay County Savings and who fill any vacancies on the board of directors as it
exists upon the conversion. Voting rights of Clay County Savings are vested
exclusively in the owners of the shares of capital stock of Clay County Savings,
which will be CCSB Financial Corp., and voted at the direction of CCSB Financial
Corp.'s board of directors. Consequently, the holders of the common stock will
not have direct control of Clay County Savings.
Liquidation. In the event of any liquidation, dissolution or winding up of
CCSB Financial Corp., CCSB Financial Corp., as holder of Clay County Savings'
capital stock, would be entitled to receive, after payment or provision for
payment of all debts and liabilities of Clay County Savings, including all
deposit accounts and accrued interest thereon, and after distribution of the
balance in the special liquidation account to eligible account holders and
supplemental eligible account holders, all assets of Clay County Savings
available for distribution. In the event of liquidation, dissolution or winding
up of CCSB Financial Corp., the holders of its common stock would be entitled to
receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of CCSB Financial Corp. available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the common stock in the event of liquidation or
dissolution.
Preemptive Rights. Holders of the common stock of CCSB Financial Corp. will
not be entitled to preemptive rights with respect to any shares which may be
issued. The common stock is not subject to redemption.
PREFERRED STOCK
None of the shares of CCSB Financial Corp.'s authorized preferred stock
will be issued in the conversion. Preferred stock may be issued with preferences
and designations as the board of directors may from time to time determine. The
board of directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
126
LEGAL AND TAX MATTERS
The legality of the common stock and the federal income tax consequences of
the conversion will be passed upon for Clay County Savings and CCSB Financial
Corp. by the firm of Luse Gorman Pomerenk & Schick, P.C., Washington, D.C. The
Missouri state income tax consequences of the conversion will be passed upon for
Clay County Savings and CCSB Financial Corp. by Michael Trokey & Company, P.C.,
St. Louis, Missouri. Luse Gorman Pomerenk & Schick, P.C. and Michael Trokey &
Company, P.C. have consented to the references in this prospectus to their
opinions. Certain legal matters regarding the conversion will be passed upon for
Trident Securities by Muldoon Murphy & Faucette LLP, Washington, D.C.
EXPERTS
The financial statements of Clay County Savings at September 30, 2001 and
2000 and for the years then ended, appearing in this prospectus and registration
statement have been audited by Michael Trokey & Company, P.C., independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
Keller & Company has consented to the publication in this prospectus of the
summary of its report to Clay County Savings and CCSB Financial Corp. setting
forth its opinion as to the estimated pro forma market value of the common stock
upon the completion of the conversion.
WHERE YOU CAN FIND MORE INFORMATION
CCSB Financial Corp. has filed a registration statement with the Securities
and Exchange Commission under the Securities Act, with respect to the common
stock offered hereby. As permitted by the rules and regulations of the
Securities and Exchange Commission, this prospectus does not contain all the
information set forth in the registration statement. This information can be
examined without charge at the public reference facilities of the Securities and
Exchange Commission located at 450 Fifth Street, NW, Washington, D.C. 20549, and
copies of the material can be obtained from the Securities and Exchange
Commission at prescribed rates. The registration statement also is available
through the Securities and Exchange Commission's world wide web site on the
internet at http://www.sec.gov. The statements contained in this prospectus as
to the contents of any contract or other document filed as an exhibit to the
registration statement are, of necessity, brief descriptions thereof and are not
necessarily complete but do contain all material information regarding the
documents; each statement is qualified by reference to the contract or document.
Clay County Savings has filed an Application for Conversion with the Office
of Thrift Supervision with respect to the conversion. Pursuant to the rules and
regulations of the Office of Thrift Supervision, this prospectus omits certain
information contained in that Application. The Application may be examined at
the principal offices of the Office of Thrift Supervision, 1700 G Street, N.W.,
Washington, D.C. 20552 and at the Midwest Regional Office of the Office of
Thrift Supervision located at 122 W. John Carpenter Freeway, Suite 600, Irving,
Texas 75039.
127
REGISTRATION REQUIREMENTS
In connection with the conversion, CCSB Financial Corp. will register the
common stock with the Securities and Exchange Commission under Section 12(g) of
the Securities Exchange Act of 1934, as amended; and, upon this registration,
CCSB Financial Corp. and the holders of its common stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the
Securities Exchange Act of 1934. Under the plan, CCSB Financial Corp. has
undertaken that it will not terminate this registration for a period of at least
three years following the conversion.
A copy of the certificate of incorporation and bylaws of CCSB Financial
Corp. are available without charge from Clay County Savings.
128
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors F-2
Balance Sheets as of June 30, 2002 (unaudited) and September 30, 2001 and 2000 F-3
Statements of Operations for the nine months ended June 30, 2002 and 2001
(unaudited) and years ended September 30, 2001 and 2000 F-4
Statements of Retained Earnings for the nine months ended June 30, 2002
(unaudited) and years ended September 30, 2001 and 2000 F-5
Statements of Cash Flows for the nine months ended June 30, 2002 and 2001
(unaudited) and years ended September 30, 2001 and 2000. F-6
Notes to Financial Statements F-8
########
All schedules are omitted because the required information is not
applicable or is included in the Financial Statements and related Notes.
All financial statements of CCSB Financial Corp. have been omitted
because CCSB Financial Corp. has not issued any stock, has no assets or
liabilities, and has not conducted any business other than that of an
organizational nature.
F-1
MICHAEL TROKEY & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
10411 CLAYTON ROAD
ST. LOUIS, MISSOURI 63131
(314) 432-0996
Report of Independent Auditors
The Board of Directors
Clay County Savings and Loan Association
Liberty, Missouri
We have audited the accompanying balance sheets of Clay County Savings and Loan
Association as of September 30, 2001 and 2000 and the related statements of
operations, retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
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 financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Clay County Savings and Loan
Association as of September 30, 2001 and 2000, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
/s/ Michael Trokey & Company, P.C.
St. Louis, Missouri
October 25, 2001
F-2
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Balance Sheets
June 30, 2002 (Unaudited) and September 30, 2001 and 2000
June 30, September 30,
--------------- ------------------------------
2002 2001 2000
-------------- ------------ -------------
Assets (Unaudited)
Cash and due from banks $ 550,052 662,844 509,025
Interest-bearing deposits in banks 9,181,466 2,743,029 1,286,766
------------ ------------ -------------
Total cash and cash equivalents 9,731,518 3,405,873 1,795,791
Certificates of deposit 192,350 450,000 -
Securities available for sale, at market value (amortized cost
of $7,070,070, $6,263,007 and $4,323,983, respectively) 7,158,352 6,380,460 4,281,285
Securities held to maturity, at amortized cost (market value
of $15,180, $15,571 and $15,451, respectively) 15,520 15,638 15,798
Stock in Federal Home Loan Bank of Des Moines (FHLB) 963,300 963,300 860,000
Mortgage-backed securities available for sale, at market
value (amortized cost of $1,844,806, $1,970,512 and 1,875,767 2,002,717 1,535,589
$1,534,136, respectively)
Loans receivable, net of allowance for loan losses of
$193,035, $190,313 and $175,587, respectively 53,054,625 59,277,355 64,088,723
Premises and equipment, net 4,363,371 4,398,901 4,499,217
Foreclosed real estate, net - 132,973 192,899
Accrued interest receivable:
Securities 84,324 100,981 56,526
Loans receivable 248,463 329,145 306,213
Mortgage-backed securities 10,952 12,144 7,750
Other assets, including prepaid income taxes of $0,
$17,052 and $15,308, respectively 173,139 178,381 124,420
------------ ------------ -------------
Total assets $ 77,871,681 77,647,868 77,764,211
============ ============ =============
Liabilities and Retained Earnings
Deposits $ 63,668,837 58,076,935 52,978,839
Accrued interest on deposits 19,424 51,567 61,529
Advances from FHLB 6,889,980 11,928,736 17,198,649
Advances from borrowers for taxes and insurance 529,218 786,379 844,329
Other liabilities 102,445 203,778 126,379
Accrued income taxes 221 - -
Deferred income taxes 135,179 135,521 105,263
------------ ------------ -------------
Total liabilities 71,345,304 71,182,916 71,314,988
------------ ------------ -------------
Commitments and contingencies
Retained earnings - substantially restricted 6,447,677 6,366,178 6,478,094
Accumulated other comprehensive earnings, net 78,700 98,774 (28,871)
------------ ------------ -------------
Total retained earnings 6,526,377 6,464,952 6,449,223
------------ ------------ -------------
Total liabilities and retained earnings $ 77,871,681 77,647,868 77,764,211
============ ============ =============
See accompanying notes to financial statements.
F-3
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Statements of Operations
Nine Months Ended June 30, 2002 and 2001 (Unaudited)
and Years ended September 30, 2001 and 2000
June 30, September 30,
---------------------------- -------------------------
2002 2001 2001 2000
------------- ------------ ----------- -----------
(Unaudited) (Unaudited)
Interest income:
Loans receivable $ 3,105,225 3,814,792 5,011,239 4,621,028
Mortgage-backed securities 74,461 75,001 102,080 115,677
Securities 290,342 248,771 341,305 305,350
Other interest-earning assets 68,916 76,853 111,484 58,958
------------- ------------ ----------- -----------
Total interest income 3,538,944 4,215,417 5,566,108 5,101,013
------------- ------------ ----------- -----------
Interest expense:
Deposits 1,476,887 1,928,357 2,551,155 2,282,826
Borrowings 401,246 857,507 1,082,301 741,524
------------- ------------ ----------- -----------
Total interest expense 1,878,133 2,785,864 3,633,456 3,024,350
------------- ------------ ----------- -----------
Net interest income 1,660,811 1,429,553 1,932,652 2,076,663
Provision for loan losses 3,374 21,558 21,498 12,000
------------- ------------ ----------- -----------
Net interest income after provision for loan losses 1,657,437 1,407,995 1,911,154 2,064,663
------------- ------------ ----------- -----------
Noninterest income:
Service charges on deposit accounts 95,593 69,718 99,972 87,310
Loan service charges 29,988 22,263 28,526 22,064
Gain on sale of securities available for sale - 3,281 3,281 -
Gain on sale of premises - - 69,398 -
Gain on sale of loans 73,863 23,985 39,617 -
Other 11,390 7,172 15,258 16,210
------------- ------------ ----------- -----------
Total noninterest income 210,834 126,419 256,052 125,584
------------- ------------ ----------- -----------
Noninterest expense:
Compensation and benefits 990,959 992,545 1,328,726 1,201,600
Occupancy expense 179,290 182,212 257,642 116,016
Equipment and data processing expense 266,737 265,953 363,123 274,629
SAIF deposit insurance premium 8,201 7,992 10,615 16,765
Advertising 54,595 57,815 72,986 115,076
Loss on sale of foreclosed real estate 4,026 - 3,060 -
Other 241,211 225,455 300,624 330,700
------------- ------------ ----------- -----------
Total noninterest expense 1,745,019 1,731,972 2,336,776 2,054,786
------------- ------------ ----------- -----------
Earnings (loss) before income taxes 123,252 (197,558) (169,570) 135,461
------------- ------------ ----------- -----------
Income taxes:
Current 31,753 (42,170) (24,654) 70,366
Deferred 10,000 (25,000) (33,000) (43,000)
------------- ------------ ----------- -----------
Total income taxes 41,753 (67,170) (57,654) 27,366
------------- ------------ ----------- -----------
Net earnings (loss) $ 81,499 (130,388) (111,916) 108,095
============= ============ =========== ===========
See accompanying notes to financial statements.
F-4
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Statements of Retained Earnings
Nine Months Ended June 30, 2002 (Unaudited)
and Years Ended September 30, 2001 and 2000
Accumulated
Other Total
Retained Comprehensive Retained
Earnings Earnings, Net Earnings
------------- --------------- -----------
Balance at September 30, 1999 $ 6,369,999 (25,685) 6,344,314
------------ ---------- -----------
Net earnings 108,095 - 108,095
Unrealized loss on securities available for sale, net - (3,186) (3,186)
------------ ---------- -----------
Comprehensive earnings 108,095 (3,186) 104,909
------------ ---------- -----------
Balance at September 30, 2000 6,478,094 (28,871) 6,449,223
------------ ---------- -----------
Net loss (111,916) - (111,916)
Unrealized gain (loss) on securities available for sale, net - 127,645 127,645
------------ ---------- -----------
Comprehensive earnings (111,916) 127,645 15,729
------------ ---------- -----------
Balance at September 30, 2001 6,366,178 98,774 6,464,952
------------ ---------- -----------
Net earnings 81,499 - 81,499
Unrealized gain (loss) on securities available for sale, net - (20,074) (20,074)
------------ ---------- -----------
Comprehensive earnings 81,499 (20,074) 61,425
------------ ---------- -----------
Balance at June 30, 2002 (Unaudited) $ 6,447,677 78,700 6,526,377
============ ========== ===========
See accompanying notes to financial statements.
F-5
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Statements of Cash Flows
Nine Months Ended June 30, 2002 and 2001 (Unaudited)
and Years Ended September 30, 2001 and 2000
Nine Months Ended June 30, Years Ended September 30,
------------------------------- ----------------------------
2002 2001 2001 2000
--------------- -------------- ------------ --------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net earnings (loss) $ 81,499 (130,388) (111,916) 108,095
Adjustments to reconcile net earnings (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization:
Deferred loans fees, net (42,734) (32,879) (43,369) (60,624)
Premises and equipment 175,747 185,289 253,852 127,237
Premiums and discounts, net 4,329 (1,107) (1,562) (2,963)
(Increase) decrease in accrued interest receivable 98,531 (47,202) (71,781) (23,879)
Increase (decrease) in accrued interest on deposits (32,143) (36,768) (9,962) 59,211
Provision for loan losses 3,374 21,558 21,498 12,000
Loans originated for sale (7,870,350) (2,774,825) (4,752,775) -
Proceeds from sale of loans, net 7,944,213 2,798,810 4,792,392 -
Loss on foreclosed real estate, net 4,026 - 3,060 -
Gain on sale of securities available for sale - (3,281) (3,281) -
Gain on sale of premises - - (69,398) -
Gain on sale of loans (73,863) (23,985) (39,617) -
Change in other assets and other liabilities, net (85,870) (89,646) (9,562) (55,234)
------------ ------------- ------------ -------------
Net cash provided by operating activities 206,759 (134,424) (42,421) 163,843
------------ ------------- ------------ -------------
Cash flows from investing activities:
Net change in loans receivable 6,262,090 3,168,272 4,987,238 (7,050,657)
Certificates of deposit:
Purchases (192,350) (450,000) (450,000) (1,000,000)
Proceeds from maturity 450,000 - - 1,191,999
Securities available for sale:
Purchases (5,091,937) (2,500,000) (3,748,438) (1,499,844)
Proceeds from maturity or call 4,248,537 1,000,000 1,500,000 1,500,000
Proceeds from sale - 253,281 253,281 -
Principal collections 36,624 15,818 59,436 45,454
Securities held to maturity - proceeds from maturity or call - - - 500,000
Purchase of FHLB stock - (103,300) (103,300) (342,600)
Mortgage-backed securities available for sale:
Principal payments 615,823 328,793 518,814 458,832
Purchases (494,616) (644,890) (953,490) -
Additions to foreclosed real estate, net 128,947 (106,517) (97,133) (32,889)
Proceeds from sale of premises - - 134,664 -
Purchase of premises and equipment (140,217) (188,187) (218,802) (2,742,833)
------------ ------------- ------------ -------------
Net cash provided by (used for) investing activities $ 5,822,901 773,270 1,882,270 (8,972,538)
------------ ------------- ------------ -------------
(Continued)
F-6
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Statements of Cash Flows
Nine Months Ended June 30, 2002 and 2001 (Unaudited)
and Years Ended September 30, 2001 and 2000
(Continued)
Nine Months Ended June 30, Years Ended September 30,
----------------------------- ---------------------------
2002 2001 2001 2000
------------ -------------- ------------ -------------
(Unaudited) (Unaudited)
Cash flows from financing activities:
Net increase (decrease) in deposits $ 5,591,902 5,154,328 5,098,096 (1,831,088)
Proceeds from advances from FHLB - 9,919,300 9,919,300 18,639,850
Repayments of advances from FHLB (5,038,756) (9,676,628) (15,189,213) (9,686,694)
Increase (decrease) in advances from
borrowers for taxes and insurance (257,161) (238,049) (57,950) 4,238
------------ -------------- ----------- -------------
Net cash provided by (used for)
financing activities 295,985 5,158,951 (229,767) 7,126,306
------------ -------------- ----------- -------------
Net increase (decrease) in cash and cash equivalents 6,325,645 5,797,797 1,610,082 (1,682,389)
Cash and cash equivalents at beginning of period 3,405,873 1,795,791 1,795,791 3,478,180
------------ -------------- ----------- -------------
Cash and cash equivalents at end of period $ 9,731,518 7,593,588 3,405,873 1,795,791
============ ============== =========== =============
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest on deposits and advances from FHLB $ 1,910,276 2,822,632 3,643,418 2,965,139
Federal and state income taxes 14,480 (22,911) (22,911) 102,307
Real estate acquired in settlement of loans $ - - - 160,010
See accompanying notes to financial statements.
F-7
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
June 30, 2002 (Unaudited) and September 30, 2001 and 2000
and Nine Months Ended June 30, 2002 and 2001 (Unaudited)
and Years Ended September 30, 2001 and 2000
(1) Summary of Significant Accounting Policies
The following comprise the significant accounting policies that Clay
County Savings and Loan Association (Association) follows in preparing and
presenting its financial statements:
a. For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks and interest-bearing deposits in other
banks with original maturities of three months or less.
b. Certificates of deposit are carried at cost, and have original
maturities of more than three months.
c. Securities and mortgage-backed securities classified as available for
sale are reported at fair value, with unrealized gains and losses
excluded from net earnings and reported as a separate component of
retained earnings. Securities and mortgage-backed securities which the
Association has the positive intent and ability to hold to maturity
are classified as held to maturity securities and reported at cost,
adjusted for amortization of premiums and accretion of discounts over
the life of the security using the interest method. The Association
does not purchase securities and mortgage-backed securities for
trading purposes. The cost of securities sold is determined by
specific identification. Stock in the Federal Home Loan Bank of Des
Moines is recorded at cost which represents redemption value.
d. Loans receivable, net are carried at unpaid principal balances, less
loans in process, allowance for losses, and net deferred loan fees.
Loan origination and commitment fees and certain direct loan
origination costs are deferred and amortized to interest income over
the contractual life of the loan using the interest method. Loans
originated and held for sale are carried at the lower of cost or
market value in the aggregate. Net unrealized losses are recognized
through a valuation allowance by charges to income. There were no
loans held for sale at June 30, 2002, September 30, 2001 or 2000.
Gain on sale of loans is recognized once title has passed to the
purchaser; substantially all risks and rewards of ownership have
irrevocably passed to the purchaser and recourse obligations, if
any, are minor and can be reasonably estimated. The Association
presently sells loans without recourse.
e. Specific valuation allowances are established for impaired loans for
the difference between the loan amount and the fair value of
collateral less estimated selling costs. The Association determines
that a loan is impaired when, based on current information and events,
it is probable that the Association will be unable to collect all
amounts due according to the contractual terms of the loan agreement
on a timely basis. The types of loans for which impairment is measured
include nonaccrual income property loans (excluding loans collectively
reviewed for impairment) and troubled debt restructurings. Such loans
are placed on nonaccrual status at the point they are deemed
uncollectible. Impairment losses are recognized through an increase in
the allowance for loan losses. Loans are identified for evaluation
based on payment status or internal asset review.
F-8
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
f. Allowances for losses are available to absorb losses incurred on loans
receivable and represent additions charged to expense, less net
charge-offs. In determining the allowance for losses to be maintained,
management considers current economic conditions, the Association's
loan portfolio composition and historical loss experience used to
estimate probable losses as well as change in the level of classified
assets. Management also reviews individual loans for which full
collectibility may not be reasonably assured and considers, among
other matters, the estimated fair value of the underlying collateral.
Management believes that all known and inherent losses in the loan
portfolio that are both probable and reasonable to estimate have been
recorded as of each balance sheet date.
g. Servicing assets, included in other assets, are amortized in
proportion to, and over the period of, estimated net servicing income.
Impairment of servicing assets is assessed based on the fair value of
those assets. Fair values are estimated using discounted cash flows
based on a current market interest rate. Impairment is measured by
stratifying servicing assets based on the interest rate and term of
loan. The amount of impairment recognized is the amount by which the
servicing asset for a stratum exceeds fair value. The fair value of
recognized servicing assets amounted to $90,416, $50,677 and $25,284
at June 30, 2002, September 30, 2001 and September 30, 2000,
respectively. Servicing assets of $74,518, $27,748 and $45,072 were
capitalized during the nine months ended June 30, 2002 and 2001 and
year ended September 30, 2001, respectively. There were no servicing
assets capitalized during 2000. Amortization of servicing assets was
$34,779, $12,753, $19,679 and $21,742 during the nine months ended
June 30, 2002 and 2001 and years ended September 30, 2001 and 2000,
respectively. No valuation allowance existed at June 30, 2002,
September 30, 2001 or 2000.
h. Premises and equipment, net are carried at cost, less accumulated
depreciation. Depreciation of premises and equipment is computed using
the straight-line method based on the estimated useful lives of the
related assets. Estimated lives are forty years for office buildings,
fifteen to forty years for building improvements and three to ten
years for furniture and equipment.
i. Foreclosed real estate held for sale is carried at the lower of cost
or fair value less estimated selling costs. Costs relating to
improvement of foreclosed real estate are capitalized. Allowance for
losses are available to absorb losses incurred on foreclosed real
estate and represents additions charged to expense, less net gains or
losses. In determining the allowance for losses to be maintained,
management evaluates current economic conditions, fair value of the
underlying collateral and risk characteristics of foreclosed real
estate held for sale.
j. Interest on securities, certificates of deposit, mortgage-backed
securities and loans receivable is accrued as earned. Interest on
loans receivable is excluded from income when considered
uncollectible.
k. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount that will more likely than not be
realized. Income tax expense is the tax payable or refundable for the
period plus or minus the net change in the deferred tax assets and
liabilities.
F-9
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
l. Information at June 30, 2002 and for the nine months ended June 30,
2002 and 2001 is unaudited. In the opinion of management, the
unaudited financial statements contain all adjustments (none of which
were other than normal recurring entries) necessary for a fair
statement of the results for the interim periods.
(2) Risks and Uncertainties
The Association is a community oriented financial institution, which
provides traditional financial services within the areas it serves.
The Association is engaged primarily in the business of attracting
deposits from the general public and using these funds to originate
one- to four-family residential mortgage loans located primarily in
Clay County and Platte County, Missouri.
The financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of
America. In preparing the financial statements, management is
required to make estimates and assumptions, which affect the reported
amounts of assets and liabilities as of the balance sheet dates and
income and expenses for the periods covered. Actual results could
differ significantly from these estimates and assumptions.
The Association's operations are affected by interest rate risk,
credit risk, market risk and regulations by the Office of Thrift
Supervision (OTS). The Association is subject to interest rate risk to
the degree that its interest-bearing liabilities mature or reprice
more rapidly, or on a different basis, than its interest-earning
assets. The Association uses a net market value methodology provided
by the OTS to measure its interest rate risk exposure. This exposure
is a measure of the potential decline in the net portfolio value of
the Association based upon the effect of an increase or decrease in
interest rates in 100 basis point increments. Net portfolio value is
the expected net cash flows from the institution's assets,
liabilities and off-balance-sheet contracts. Credit risk is the risk
of default on the Association's loan portfolio that results from the
borrowers' inability or unwillingness to make contractually required
payments. Market risk reflects changes in the value of collateral
underlying loans receivable and the valuation of real estate held by
the Association. The Association is subject to periodic examination
by regulatory agencies, which may require the Association to record
increases in the allowances based on their evaluation of available
information. There can be no assurance that the Association's
regulators will not require further increases to the allowances.
F-10
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
(3) Securities
Securities are summarized as follows:
June 30, 2002 (Unaudited)
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------------ ------------ -------------
Debt securities available for sale -
Federal agency obligations maturing:
Within one year $ 500,000 15,628 - 515,628
After one through five years 5,342,307 74,198 - 5,416,505
After five through ten years - - - -
SBA loan pool 227,763 - (2,550) 225,213
------------- ------------ ------------- -------------
6,070,070 89,826 (2,550) 6,157,346
Equity securities available for sale -
AMF Adjustable Rate Mortgage Fund 1,000,000 1,006 - 1,001,006
------------- ------------ ------------- -------------
$ 7,070,070 90,832 (2,550) 7,158,352
============= ============ ============= =============
Debt securities held to maturity:
Municipal obligations maturing
after one through five years $ 15,520 - (340) 15,180
============= ============ ============= =============
Weighted-average rate 4.57%
=============
September 30, 2001
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ----------- ------------ -------------
Debt securities available for sale -
Federal agency obligations maturing:
Within one year $ 499,819 12,335 - 512,154
After one through five years 3,750,000 101,066 - 3,851,066
After five through ten years 748,469 5,283 - 753,752
SBA loan pool 264,719 - (2,237) 262,482
------------- ----------- ------------ -------------
5,263,007 118,684 (2,237) 5,379,454
Equity securities available for sale -
AMF Adjustable Rate Mortgage Fund 1,000,000 1,006 - 1,001,006
------------- ----------- ------------ -------------
$ 6,263,007 119,690 (2,237) 6,380,460
============= =========== ============ =============
Debt securities held to maturity:
Municipal obligations maturing
after one through five years $ 15,638 - (67) 15,571
============= ============ ============ =============
Weighted-average rate 5.57%
=============
F-11
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
September 30, 2000
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- --------------- --------------- -----------------
Debt securities available for sale:
Federal agency obligations due:
Within one year $ 500,000 - (2,523) 497,477
After one through five years 3,823,983 5,942 (46,117) 3,783,808
--------------- -------------- -------------- ----------------
$ 4,323,983 5,942 (48,640) 4,281,285
=============== ============== ============== ================
Debt securities held to maturity:
Municipal obligations maturing
after one through five years $ 15,798 - (347) 15,451
=============== ============== ============== ================
Weighted-average rate 6.37%
===============
Securities with a market value of $2,360,000 and $2,828,405 were pledged to
secure public deposits in excess of federal deposit insurance limitations at
June 30, 2002 and September 30, 2001. During the year ended September 30,
2001, proceeds from sale and gain on sale of securities available for sale
amounted to $253,281 and $3,281,respectively.
(4) Mortgage-backed Securities
Mortgage-backed securities available for sale are summarized as follows:
June 30, 2002 (Unaudited)
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- --------------- ------------ -----------
Available for sale:
FNMA $ 555,802 10,441 - 566,243
FHLMC 574,518 6,605 - 581,123
GNMA 714,486 15,402 (1,487) 728,401
-------------- ------------ ------------ -----------
$ 1,844,806 32,448 (1,487) 1,875,767
============== ============ ============ ===========
Weighted-average rate 5.30%
==============
F-12
CLAY COUNTY SAVING AND LOAN ASSOCIATION
Notes to Financial Statements
September 30, 2001
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ------------ ---------- ------------
Available for sale:
FNMA $ 787,808 12,417 - 800,225
FHLMC 186,596 6,462 - 193,058
GNMA 996,108 14,236 (910) 1,009,434
-------------- ------------ ---------- ------------
$ 1,970,512 33,115 (910) 2,002,717
============== ============ ========== ============
Weighted-average rate 6.15%
==============
September 30, 2000
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ------------ ---------- ------------
Available for sale:
FNMA $ 1,095,951 1,275 - 1,097,226
FHLMC 285,955 - (4,978) 280,977
GNMA 152,230 6,027 (871) 157,386
-------------- ------------ ----------- ------------
$ 1,534,136 7,302 (5,849) 1,535,589
============== ============ =========== ============
Weighted-average rate 6.39%
==============
Adjustable-rate mortgage-backed securities amounted to $1,685,048, $1,649,142
and $1,097,226 at June 30, 2002, September 30, 2001 and 2000, respectively.
F-13
CLAY COUNTY SAVING AND LOAN ASSOCIATION
Notes to Financial Statements
(5) Loans Receivable, Net
Loans receivable, net are summarized as follows:
September 30,
June 30, ---------------------------------
2002 2001 2000
------------- ------------- -------------
(Unaudited)
Real estate loans:
Single-family, 1-4 units 42,324,562 45,619,912 51,060,839
Multi-family, 5 or more units 840,407 1,208,512 1,056,033
Construction 5,099,566 9,715,949 10,973,828
Commercial 3,787,017 2,524,978 2,578,707
Consumer loans 2,423,595 2,682,168 2,267,195
Commercial non-real estate loans 381,769 208,041 149,873
Loans secured by deposits 180,113 360,103 210,411
------------- ------------- -------------
55,037,029 62,319,663 68,296,886
Allowance for losses (193,035) (190,313) (175,587)
Loans in process (1,769,683) (2,815,047) (4,009,233)
Deferred loan fees, net (19,686) (36,948) (23,343)
------------- ------------- -------------
53,054,625 59,277,355 64,088,723
============= ============= =============
Weighted-average rate 6.99% % 7.81 % 7.85%
============= ============= =============
Loans serviced for others amounted to $16,493,413, $8,620,174, $9,980,381 and
$6,405,868 at June 30, 2002 and 2001 and September 30, 2001 and 2000,
respectively. Adjustable-rate loans included in the loan portfolio amounted to
$33,508,331, $31,078,182 and $35,480,287 at June 30, 2002, September 30, 2001
and 2000, respectively. Real estate construction loans are secured primarily by
single-family residences.
Commercial real estate loans consist of the following:
September 30,
June 30, ------------------------------
2002 2001 2000
-------------- ------------- ------------
(Unaudited)
Retail/office buildings $ 2,389,397 $ 2,078,067 1,965,137
Strip shopping center 446,231 446,911 357,460
Land - 878 ,810 - 256,110
Church 72,579 - -
-------------- ------------- ------------
$ 3,787,017 $ 2,524,978 $ 2,578,707
============== ============= ============
F-14
CLAY COUNTY SAVING AND LOAN ASSOCIATION\
Notes to Financial Statements
Following is a summary of activity in allowance for losses:
Nine Months Ended June 30, Years Ended September 30,
----------------------------- --------------------------------
2002 2001 2001 2000
------------ -------------- -------------- ---------------
(Unaudited)
Balance, beginning of period 190,313 175,587 175,587 192,500
Loan charge-offs (2,552) (6,772) (6,772) (28,913)
Loan recoveries 1,900 - - -
Provision charged to expense 3,374 21,558 21,498 12,000
------------ -------------- -------------- ---------------
Balance, end of period 193,035 190,373 190,313 175,587
============ ============== ============== ===============
Following is a summary of loans to directors, executive officers and associates
of such persons in excess of $60,000 in the aggregate for the year ended
September 30, 2001 and nine months ended June 30, 2002:
Balance, September 30, 2000 $ 773,804
Additions 967,650
Repayments (1,022,867)
------------
Balance, September 30, 2001 718,587
Additions 421,600
Repayments (655,905)
------------
Balance, June 30, 2002 (Unaudited) $ 484,282
============
These loans were made on substantially the same terms as those prevailing
at the time for comparable transactions with unaffiliated persons. The
Association sold a residence to the President of the Association and
recognized a gain of $69,398. The purchase price was determined by an
independent appraisal. The Association originated a loan to finance the
transaction after receiving a down payment of approximately 20% of the
purchase price. The loan was subsequently sold in the secondary market.
The Association had one commercial real estate loan amounting to $256,110, whose
terms were modified prior to the effective date of SFAS No. 114, and which
was considered impaired at September 30, 2000. The average balance during the
year was $256,110 and the related allowance for loss was $12,806. The amount
of interest income recognized during the impairment period on a cash basis
was $17,209. Total interest income which would have been recorded during the
year if the loan had been current in accordance with the original terms was
$23,050. Theloan was paid off in March 2001.
F-15
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
(6) Premises and Equipment, Net
Premises and equipment, net are summarized as follows:
September 30,
June 30, ------------------------
2002 2001 2000
-------------- ---------- ----------
(Unaudited)
Land $ 685,257 685,257 700,257
Office buildings and improvements 3,774,397 3,737,076 3,707,523
Furniture and equipment 889,747 880,819 916,436
Automobile 28,515 28,515 28,515
-------------- ---------- ----------
5,377,916 5,331,667 5,352,731
Less accumulated depreciation 1,014,545 932,766 853,514
-------------- ---------- ----------
$ 4,363,371 4,398,901 4,499,217
============== ========== ==========
(7) Foreclosed Real Estate Held for Sale, Net
Following is a summary of activity in allowance for losses:
Nine Months Ended June 30, Years Ended September 30,
---------------------------- ----------------------------
2002 2001 2001 2000
------------ ------------ ----------- -----------
(Unaudited)
Balance, beginning of year $ 5,178 - - -
Charge-offs, net of gain on sale (9,204) - 2,118 -
Loss (gain) charged to operations 4,026 - 3,060 -
----------- ----------- ----------- -----------
Balance, end of year $ - - 5,178 -
=========== =========== =========== ===========
(8) Deposits
Deposits are summarized as follows:
September 30,
June 30, ----------------------------
Description and interest rate 2002 2001 2000
------------- ----------- -----------
(Unaudited)
Non-interest bearing NOW accounts $ 2,144,471 1,071,436 1,017,487
NOW accounts, 1.01%, 2.10% and 2.40% 6,611,807 6,254,786 5,494,301
Passbook accounts, 1.47%, 2.65% and 2.63% 5,679,337 4,849,202 4,760,685
Money market deposit accounts, 2.03%, 3.42% and 3.79% 12,814,360 9,244,257 6,373,989
-------------- ----------- ----------
Total transaction accounts 27,249,975 21,419,681 17,646,462
-------------- ----------- ----------
Certificates:
1.01 - 2.00% 5,653,084 - -
2.01 - 3.00% 12,619,765 246,833 -
3.01 - 4.00% 5,419,775 8,843,549 -
4.01 - 5.00% 5,662,755 11,874,370 5,353,788
5.01 - 6.00% 4,664,681 12,043,826 26,043,913
6.01 - 7.00% 2,398,802 3,648,676 3,934,676
-------------- ----------- ----------
Total certificates, 3.47%, 4.81% and 5.57% 36,418,862 36,657,254 35,332,377
-------------- ----------- ----------
Total deposits $ 63,668,837 58,076,935 52,978,839
============== =========== ==========
Weighted-average rate - total deposits 2.63% 4.03% 4.65%
============== =========== ==========
F-16
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
Interests on deposits is summarized as follows:
Nine Months Ended June 30, Years Ended September 30,
------------------------------- ---------------------------
2002 2001 2001 2000
-------------- -------------- ------------ ------------
(Unaudited)
NOW accounts $ 54,730 95,893 127,851 125,443
Passbook accounts 64,162 115,626 163,911 130,121
Money market deposit accounts 191,645 213,973 288,859 227,294
Certificates 1,166,350 1,502,865 1,970,534 1,799,968
-------------- ------------- ------------ ------------
Total deposits $ 1,476,887 1,928,357 2,551,155 2,282,826
============== ============= ============ ============
Deposits in excess of $100,000 are not federally insured.
Certificate maturities are summarized as follows:
September 30,
June 30, 2002 ---------------------------
(Unaudited) 2001 2000
--------------- ------------ -------------
First year $ 28,544,396 27,238,354 26,382,573
Second year 3,209,955 4,921,655 3,088,805
Third year 3,348,996 2,679,613 2,776,644
Fourth year 1,315,515 1,113,465 2,067,865
Fifth year - 704,167 1,016,490
--------------- ------------ -------------
$ 36,418,862 36,657,254 35,332,377
=============== ============ =============
(9) Advances from the Federal Home Loan Bank
Advances from the FHLB of Des Moines are summarized as follows:
September 30,
Final Average Rate June 30, 2002 ----------------------------
Maturity Date at June 30, 2002 (Unaudited) 2001 2000
--------------- ------------ ------------
During first year 5.82% $ 3,139,200 6,000,000 15,139,850
During second year 6.33% 2,919,300 2,139,200 1,139,200
During third year - - 2,919,300 -
December 2, 2013 5.25% 831,480 870,236 919,599
--------------- ------------ ------------
$ 6,889,980 11,928,736 17,198,649
=============== ============ ============
Weighted-average rate 5.97% 5.93% 6.66%
=============== ============ ============
F-17
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
Maturities are summarized as follows:
June 30, 2002 September 30,
(Unaudited) 2001
--------------- -------------
First year $ 3,193,316 6,052,018
Second year 2,976,326 2,194,015
Third year 60,093 2,977,063
Fourth year 63,549 60,870
Fifth year 67,295 64,370
After fifth year 529,401 580,400
--------------- -------------
$ 6,889,980 11,928,736
=============== =============
At June 30, 2002 and September 30, 2001 advances from the FHLB of Des
Moines were secured by FHLB stock and single-family loans of $9,301,473 and
$16,103,794, respectively.
(10) Income Taxes
On August 20, 1996 the Small Business Job Protection Act of 1996 was signed
into law. Under the Act, tax bad debt reserves in excess of the base year
level (September 30, 1988) are subject to recapture and payable in equal
amounts over six years in tax years beginning October 1, 1996. The
Association used the experience method bad debt deduction for all periods
covered by the financial statements. The provisions of SFAS No. 109 require
the Association to establish a deferred tax liability for the tax effect of
the tax bad debt reserves over the amounts at September 30, 1988. The
Association's tax bad debt reserves at September 30, 1988, as adjusted,
were $1,213,000. The estimated deferred tax liability on such amount is
approximately $412,000, which has not been recorded in the accompanying
financial statements. If these tax bad debt reserves are used for other
than loan losses, the amount used will be subject to Federal income taxes
at the then prevailing corporate rate.
The components of the net deferred tax liability are summarized as follows:
September 30,
June 30, ------------------------
2002 2001 2000
-------------- ----------- ----------
Deferred tax liabilities: (Unaudited)
FHLB stock dividends $ 83,226 83,226 83,226
Tax bad debt reserves after September 30, 1988 53,897 71,863 95,818
Unrealized gain on securities available for sale 40,543 50,884 -
Other 28,936 - 3,560
-------------- ---------- ----------
Total deferred tax liabilities 206,602 205,973 182,604
-------------- ---------- ----------
Deferred tax assets:
Allowance for losses on loans 71,423 70,416 64,967
Unrealized loss on securities available for sale - - 12,374
Other - 36 -
-------------- ---------- ----------
Total deferred tax assets 71,423 70,452 77,341
-------------- ---------- ----------
Net deferred tax liability $ 135,179 135,521 105,263
============== ========== ==========
F-18
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
Income taxes are summarized as follows:
Nine Months Ended June 30, Years Ended September 30,
------------------------------ -------------------------------
2002 2001 2001 2000
-------------- ------------- ------------- -------------
(Unaudited)
Current:
Federal $ 31,753 (42,170) (24,654) 90,339
State - - - (19,973)
-------------- ------------- ------------- -------------
31,753 (42,170) (24,654) 70,366
-------------- ------------- ------------- -------------
Deferred:
Federal 10,000 (25,000) (33,000) (43,000)
State - - - -
-------------- ------------- ------------- -------------
10,000 (25,000) (33,000) (43,000)
-------------- ------------- ------------- -------------
$ 41,753 (67,170) (57,654) 27,366
============== ============= ============= =============
The provision for income taxes differs from the Federal statutory
corporate tax rate as follows:
Percentage of earnings (loss) before income taxes
-----------------------------------------------------------------
Nine Months Ended June 30, Years Ended September 30,
------------------------------ -------------------------------
2002 2001 2001 2000
-------------- ------------- ------------- -------------
(Unaudited)
Federal statutory income tax rate 34.0% (34.0)% (34.0)% 34.0%
Increase (decreases) in tax rate:
State taxes, net of Federal tax benefit - - - (14.7)
Other, net (0.1) - - 0.9
-------------- ------------- ------------- -------------
Tax rate 33.9% (34.0)% (34.0)% 20.2%
============== ============= ============= =============
(11) Employee Benefits
The Association is enrolled in a defined contribution pension plan which
covers substantially all employees. Effective December 1, 2000,
participants can contribute up to 20% of their salary (previously 15%)
which the Association will match 50% of the employee contribution, up to a
maximum of 6% of salary. Participants are fully invested upon enrollment
in the pension plan. Pension plan expense was $22,391, $20,176, $26,947
and $23,560 for the nine months ended June 30, 2002 and 2001 and years
ended September 30, 2001 and 2000, respectively.
(12) Minimum Regulatory Capital
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can result in certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Association's financial statements.
Under capital adequacy guidelines, the Association must meet specific
capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The
F-19
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
Association's capital amounts and classifications are also subject to
quantitative judgments by the regulators about components,
risk-weightings and other factors. At June 30, 2002 and September 30,
2001, the Association met all capital adequacy requirements.
The Association is also subject to the regulatory framework for prompt
corrective action. The most recent notification from the regulatory
agencies categorized the Association as well capitalized. To be
categorized as well capitalized, the Association must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the following table. There are no conditions
or events since the aforementioned notifications that management
believes have changed the Association's category.
The Association's actual and required capital amounts and ratios at
June 30, 2002 (Unaudited) are as follows:
Minimum Required
for Capital to be "Well
Actual Adequacy Capitalized"
------------------------- ----------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------------ --------- --------- ------- --------- -------
(Dollars in Thousands)
Retained earnings $ 6,526
Unrealized gain on securities AFS, net (78)
-------------
Tangible capital $ 6,448 8.3% $ 1,166 1.5%
Includable unrealized gain on equity
securities available for sale, net 1
General valuation allowance 193
-------------
Total capital to risk-weighted assets $ 6,642 16.3% $ 3,260 8.0% $ 4,075 10.0%
=============
Tier 1 capital to risk-weighted assets $ 6,448 15.8% $ 1,630 4.0% $ 2,449 6.0%
=============
Tier 1 capital to total assets $ 6,448 8.3% $ 3,110 4.0% $ 3,888 5.0%
=============
F-20
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
The Association's actual and required capital amounts and ratios at
September 30, 2001 are as follows:
Minimum Required
for Capital to be "Well
Actual Adequacy Capitalized"
------------------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
Retained earnings $ 6,465
Unrealized gain on securities AFS, net (99)
--------
Tangible capital $ 6,366 8.2% $ 1,163 1.5%
Includable unrealized gain on equity
securities available for sale, net 1
General valuation allowance 190
--------
Total capital to risk-weighted assets $ 6,557 15.1% $ 3,482 8.0% $ 4,352 10.0%
========
Tier 1 capital to risk-weighted assets $ 6,366 14.6% $ 1,741 4.0% $ 2,611 6.0%
========
Tier 1 capital to total assets $ 6,366 8.2% $ 3,100 4.0% $ 3,875 5.0%
========
The Association's actual and required capital amounts and ratios at
September 30, 2000 are as follows:
Minimum Required
for Capital to be "Well
Actual Adequacy Capitalized"
------------------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
Retained earnings $ 6,449
Unrealized loss on securities AFS, net 29
--------
Tangible capital $ 6,478 8.3% $ 1,167 1.5%
General valuation allowance 176
--------
Total capital to risk-weighted assets $ 6,654 14.6% $ 3,642 8.0% $ 4,553 10.0%
========
Tier 1 capital to risk-weighted assets $ 6,478 14.2% $ 1,821 4.0% $ 2,732 6.0%
========
Tier 1 capital to total assets $ 6,478 8.3% $ 3,112 4.0% $ 3,890 5.0%
========
F-21
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
(13) Financial Instruments with Off-Balance-Sheet Risk
The Association is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments generally include commitments to
originate loans. Those instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in the
balance sheet. The Association's maximum exposure to credit loss in the
event of nonperformance by the borrower is represented by the contractual
amount and related accrued interest receivable of those instruments. The
Association minimizes this risk by evaluating each borrower's
creditworthiness on a case-by-case basis. Generally, collateral held
by the Association consists of a first or second mortgage on the
borrower's property. Commitments at June 30, 2002 and September 30, 2001
to originate variable and fixed-rate loans were $252,000 and $2,515,000
and $201,000 and $3,317,000, respectively, generally expiring in 180 days
or less. Interest rates for commitments to fund fixed-rate loans ranged
from 5.25% to 9.00% at June 30, 2002 and 6.50% to 9.00% at September 30,
2001.
Commitments on behalf of borrowers for variable and fixed-rate lines of
credit were $1,853,000 and $105,000, respectively at June 30, 2002 and
variable and fixed-rate lines of credit were $574,000 and $0, respectively
at September 30, 2001.
The interest rate for the commitment to fund fixed-rate lines of credit
at June 30, 2002 was 7.75%.
(14) Contingencies
At June 30, 2002 and September 30, 2001, there were no known pending
litigation or other claims that management believes will be material to
the Association's financial position or results of operations.
F-22
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
(15) Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Association's
financial instruments are summarized as follows:
June 30, 2002 September 30, September 30,
(Unaudited) 2001 2000
------------------------------- -------------------------- --------------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
-------------- -------------- ------------ ----------- ------------ ------------
Non-trading instruments
and nonderivatives:
Cash and cash equivalents $ 9,731,518 9,731,518 3,405,873 3,405,873 1,795,791 1,795,791
Certificates of deposit 192,350 192,350 450,000 450,000 - -
Securities available for sale 7,158,352 7,158,352 6,380,460 6,380,460 4,281,285 4,281,285
Securities held to maturity 15,520 15,180 15,638 15,571 15,798 15,451
Stock in FHLB of Des Moines 963,300 963,300 963,300 963,300 860,000 860,000
Mortgage-backed securities
available for sale 1,875,767 1,875,767 2,002,717 2,002,717 1,535,589 1,535,589
Loans receivable, net 53,054,625 54,232,438 59,277,355 60,221,136 64,088,723 62,940,063
Accrued interest receivable 343,739 343,739 442,270 442,270 370,489 370,489
Deposits 63,668,837 64,100,684 58,076,935 58,425,179 52,978,839 52,521,955
Accrued interest on deposits 19,424 19,424 51,567 51,567 61,529 61,529
Advances from FHLB 6,889,980 7,078,765 11,928,736 12,112,439 17,198,649 17,036,985
Off-balance sheet credit related
financial instruments $ 12,000 12,000 5,000 5,000 7,000 7,000
The following methods and assumptions were used in estimating the fair
values:
Cash and cash equivalents, certificates of deposit, accrued interest
receivable and accrued interest on deposits are valued at their carrying
amounts due to the relatively short period to maturity of the instruments.
Fair values of securities and mortgage-backed securities are based on
quoted market prices or, if unavailable, quoted market prices of similar
securities.
Stock in FHLB of Des Moines is valued at cost, which represents redemption
value and approximates fair value.
Fair values are computed for each loan category using market spreads to
treasury securities for similar existing loans in the portfolio and
management's estimates of prepayments.
Deposits with no defined maturities, such as NOW accounts, passbook
accounts and money market deposit accounts are valued at the amount
payable on demand at the reporting date.
The fair value of certificates of deposit and advances from the FHLB is
computed at fixed spreads to treasury securities with similar maturities.
Fair values for off-balance sheet, credit-related financial instruments are
based on fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the counter-parties
credit standing.
F-23
CLAY COUNTY SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
(16) Plan of Conversion
On July 30, 2002, the Board of Directors of the Association adopted by
unanimous vote a Plan of Conversion (Plan), whereby the Association
will convert from a federally-chartered mutual savings and loan
association to a federally-chartered stock savings bank as a
wholly-owned subsidiary of a holding company to be formed at the
direction of the Association. The Association will change its name to
Clay County Savings Bank. The Plan is subject to the prior written
approval of the OTS and must be adopted by the affirmative vote of at
least a majority of the total number of votes entitled to be voted by
the members of the Association. Pursuant to the Plan, shares of stock
in the holding company will be offered in a subscription offering
pursuant to non-transferable subscription rights at a predetermined
and uniform price first to the Association's eligible account holders
of record as of December 31, 2000; second to tax-qualified employee
benefit plans which include the employee stock ownership plan; third
to the Association's eligible account holders of record as of
September 30, 2002; and fourth to account holders as of the voting
record date. Concurrently with the subscription offering, shares not
subscribed for in the subscription offering will be offered to the
general public in a community offering with preference being given to
natural persons residing in Clay County, Missouri. Shares not
subscribed for in the community offering will be offered to the
general public in a syndicated offering. The aggregate purchase price
of the conversion stock will be based upon an independent appraisal of
the Association and will reflect the estimated pro forma market value
of the Association, as converted, as a subsidiary of the holding
company.
Subsequent to conversion, deposit account holders and borrowers will not
have voting rights in the Association. Voting rights will be vested
exclusively with the stockholders of the holding company. Deposit
account holders will continue to be insured by the SAIF. A liquidation
account will be established at the time of the conversion in an amount
equal to the capital of the Association as of the date of the latest
balance sheet date contained in the final prospectus. Each eligible
account holder or supplemental account holder will be entitled to a
proportionate share of this account in the event of a complete
liquidation of the Association, and only in such event. This share
will be reduced if the account holder's or supplemental eligible
account holder's deposit balance falls below the amount on the date of
record and will cease to exist if the account is closed. The liquidation
account will never be increased despite any increase after conversion in
the related deposit balance.
An OTS regulation restricts the Association's ability to make capital
distributions, including paying dividends. The regulations do not
permit cash dividend payments if the Association's capital would be
reduced below the amount of the minimum capital requirements or the
liquidation account. The OTS may impose other restrictions.
Costs associated with the conversion will be deferred and deducted from the
proceeds from the sale of the stock. If the conversion is not
consummated, all costs incurred will be charged to expense by the
Association. The Association had not incurred any costs at June 30,
2002.
F-24
You should rely only on the information contained in this document or that
to which we have referred you. We have not authorized anyone to provide you with
information that is different. This document does not constitute an offer to
sell, or the solicitation of an offer to buy, any of the securities offered
hereby to any person in any jurisdiction in which such offer or solicitation
would be unlawful. The affairs of Clay County Savings Bank or CCSB Financial
Corp. may change after the date of this prospectus. Delivery of this document
and the sales of shares made hereunder does not mean otherwise.
CCSB FINANCIAL CORP.
Proposed Holding Company for Clay County Savings Bank
851,000 Shares of Common Stock
(Subject to Increase to up to 978,650 Shares)
---------------
PROSPECTUS
---------------
Trident Securities, a Division of McDonald Investments Inc.
November 13, 2002
Until the later of February 11, 2003 or 90 days after the commencement of the
offering, all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.