SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) FOR THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ___________ to ____________
Commission File Number 0-25516
CAMERON FINANCIAL CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 43-1702410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1304 North Walnut Street, Cameron, Missouri 64429
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (816) 632-2154
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's
class of common stock as of the latest practicable date.
Class Outstanding at August 6, 1999
Common stock, .01 par value 2,082,379
CAMERON FINANCIAL CORPORATION
Contents
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements Page
Consolidated Balance Sheets at June 30, 1999,
unaudited, and September 30, 1998 3
Consolidated Statements of Earnings for the Three
Months and Nine Months Ended June 30, 1999 and
1998, unaudited 4
Consolidated Statements of Stockholder's Equity
for the Nine Months Ended June 30, 1999, unaudited 5
Consolidated Statements of Cash Flows for
the Nine Months Ended June 30, 1999 and
1998, unaudited 6
Notes to Unaudited Consolidated Financial
Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-17
PART II - OTHER INFORMATION 18
Signatures 18
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands)
June 30, September 30,
1999 1998
Assets (unaudited)
Cash and cash equivalents $5,056 $7,719
Investment securities held-to-maturity (estimated fair
value of $17,229,000 at June 30 and $16,467,000 at
September 30) 17,597 16,309
Loans receivable, net 208,452 184,605
Accrued interest receivable:
Loans 1,356 1,346
Investment securities 227 229
Office property and equipment, net 7,812 7,861
Stock in Federal Home Loan Bank(FHLB) of Des Moines, at cost 2,779 2,013
Deferred income taxes 153 155
Other assets 1,733 1,284
Total assets $245,165 $221,521
Liabilities and Stockholders' Equity
Liabilities:
Savings deposits 143,193 136,622
Advances from FHLB 55,566 37,250
Other borrowed funds 910 ---
Advance payments for taxes and insurance 1,666 1,903
Accrued interest on savings deposits 204 180
Accrued expenses and other liabilities 3,015 1,901
Income taxes payable 289 192
Total liabilities 204,843 178,048
Stockholders' Equity:
Serial preferred stock, $.01 par, 2,000,000
authorized, none issued or outstanding --- --
Common stock, $.01 par value, authorized 10,000,000
shares, 3,026,928 shares issued 30 30
Additional paid in capital 30,141 30,058
Retained earnings, substantially restricted 27,236 26,220
Less:
Unearned employee benefits (1,617) (1,947)
Treasury stock, at cost- 944,549 shares at June 30, 1999
and 646,196 at September 30, 1998 (15,468) (10,888)
Total stockholders' equity 40,322 43,473
Total liabilities and stockholders' equity $245,165 $221,521
See accompanying Notes to Unaudited Consolidated Financial Statements.
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
(Dollars in thousands, except share data)
Interest income:
Loans $4,123 $3,919 $12,069 $11,682
Investment securities 248 242 714 692
Certificates of deposit and other 52 159 226 435
Total interest income 4,423 4,320 13,009 12,809
Interest expense:
Savings deposits 1,810 1,783 5,453 5,339
Borrowed money 698 592 1,833 1,663
Total interest expense 2,508 2,375 7,286 7,002
Net interest income 1,915 1,945 5,723 5,807
Provision for loan losses 65 (121) (46) (17)
Net interest income after
provision for loan losses 1,850 2,066 5,769 5,824
Noninterest income:
Loan fees and service charges 76 67 250 170
Gain on sale of investments 0 0 5 0
Other income 38 24 106 81
Total noninterest income 114 91 361 251
Noninterest expense:
Compensation, payroll taxes and
fringe benefits 694 639 2,056 1,881
Occupancy expense 173 143 550 454
Data processing 84 44 208 141
Federal insurance premiums 21 20 62 61
Advertising 34 34 112 91
Loss on real estate owned (1) 0 1 10
Other operating expenses 227 205 644 547
Total noninterest expense 1,232 1,085 3,633 3,185
Earnings before income taxes 732 1,072 2,497 2,890
Income taxes 284 400 956 1,073
Net earnings $448 $672 $1,541 $1,817
Basic earnings per share $0.23 $0.28 $0.73 $0.76
Diluted earnings per share $0.23 $0.28 $0.73 $0.74
Basic average shares outstanding 1,966,627 2,365,097 2,102,395 2,397,272
Common stock equivalents-stock options 0 52,375 0 49,335
Diluted average shares outstanding 1,966,627 2,417,472 2,102,395 2,446,607
See accompanying Notes to Unaudited Consolidated Financial Statements.
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For The Nine Months Ended June 30, 1999
(Unaudited)
(Dollars in Thousands)
Additional Unearned Total
Common paid-in Retained employee Treasury stockholders'
Stock capital earnings benefits stock equity
Balance at September 30, 1998 $30 $30,058 $26,220 ($1,947) ($10,888) $43,473
Net earnings - - 1,541 - - $1,541
Amortization of RRP - - - 231 (64) 167
Additional RRP award (13) (88) 101 -
Allocation of ESOP shares - 96 - 187 - 283
Dividends declared - - (525) - - (525)
Purchase 298,353 shares of
treasury stock - - - - (4,617) (4,617)
Balance at June 30, 1999 $30 $30,141 $27,236 ($1,617) ($15,468) $40,322
See accompanying Notes to Unaudited Consolidated Financial Statements.
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine Months Ended June 30,
(Unaudited)
1999 1998
Cash flows from operating activities:
Net earnings $1,541 $1,817
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 294 224
Provision for loan losses (46) (17)
Provision for losses on real estate owned 1 -
Amortization of RRP and allocation of ESOP shares 450 559
Deferred income taxes 2 (69)
Loss on sales of real estate owned 2 1
Amortization of deferred loan fees (341) (402)
Proceeds from sales of loans held for sale 4,990 6,337
Origination of loans held for sale (4,666) (5,813)
Gain on sale of loans held for sale (56) (58)
Changes in assets and liabilities:
Accrued interest receivable (8) (162)
Other assets (409) (124)
Accrued interest payable 24 5
Accrued expenses and other liabilities 1,014 (261)
Current income taxes payable 97 6
Net cash provided by operating activities $2,889 $2,043
Cash flows from investing activities:
Net increase in loans receivable (23,788) (3,781)
Mortgage-backed securities principal payments 2 3
Maturity of investment securities
held to maturity 8,714 7,047
Purchase of investment securities
held to maturity (9,999) (10,496)
Purchase of FHLB stock (766) (251)
Net proceeds from sale of real estate owned 17 254
Additions and improvements to real estate owned (1) (8)
Purchase of office properties and equipment (250) (1,260)
Cash used in investing activities ($26,071) ($8,492)
Cash flows from financing activities:
Proceeds from issuance of common stock - 73
Net increase in NOW passbook and
money market deposit accounts 6,129 3,584
Net increase in certificate accounts 442 1,205
Net decrease in advance payments by
borrowers for taxes and insurance (237) (438)
Proceeds from Federal Home Loan Bank advances 29,700 15,000
Proceeds from other borrowed funds 910 -
Repayment of FHLB advances (11,384) (10,000)
Dividends paid (424) (504)
Purchase of Treasury stock (4,617) ($2,766)
Net cash provided by
financing activities 20,519 6,154
Net (decrease) increase in cash (2,663) (295)
Cash and cash equivalents at beginning of period 7,719 10,509
Cash and cash equivalents at end of period $5,056 $10,214
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $870 $1,141
Cash paid during the period for interest, net
of capitalized interest $7,357 $6,996
Supplemental schedule of noncash investing and financing activities:
Conversion of loans to real estate owned $197 $358
Conversion of real estate owned to loans $137 $111
Dividend declared and payable $243 $159
See accompanying Notes to Unaudited Consolidated Financial Statements.
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Preparation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles (GAAP)
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. To the extent that information and footnotes
required by generally accepted accounting principles for complete financial
statements are contained in or consistent with the audited financial
statements incorporated by reference in the Company's Annual Report on Form
10-K for the year ended September 30, 1998, such information and footnotes
have not been duplicated herein. In the opinion of management, all
adjustments, consisting of only normal recurring accruals, necessary for a
fair presentation have been included. The results of operations and other
data for the three month and nine month periods ended June 30, 1999 are not
necessarily indicative of results that may be expected for the entire fiscal
year ending September 30, 1999. The September 30, 1998 balance sheet
information has been derived from the consolidated balance sheet as of that
date.
(2) Comprehensive income and segment reporting.
Effective for the quarter ended December 31, 1998, the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income" and SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 130 requires the classification of other comprehensive income by
their nature in the consolidated financial statements and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the
consolidated statement of stockholder's equity. Since adoption, the Company
has had no components of comprehensive income other than net income. SFAS
No. 131 requires financial and descriptive reporting about their reportable
operating segments. Operating segments are components of an enterprise
about which separate financial information is available that is evaluated
regularly by management. The Company has only one segment.
(3) Impact of New Accounting Standards.
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June
1998. SFAS No. 133 established accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. This
statement is effective for all fiscal quarters beginning after June 15,
1999. The FASB subsequently issued SFAS No. 137 which effectively delayed
the effective date of SFAS No. 133 until June 15, 2000. Management believes
adoption of SFAS No. 137 will not have a material effect on the Company's
financial position or results of operation, nor will adoption require
additional capital resources.
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q may contain certain forward-looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to
various factors which could cause actual results to differ materially from
these estimates. These factors include, but are not limited to, general
economic conditions, changes in interest rates, deposit flows, loan demand,
real estate values, and competition; changes in accounting principles,
policies or guidelines; changes in legislation or regulation; and other
economic, competitive, governmental, regulatory, and technical factors
affecting the Company's operations, pricing, products and services.
The following discussion compares the financial condition of Cameron
Financial Corporation, the "Company", and its wholly owned subsidiary, The
Cameron Savings & Loan Association, F.A., the "Association", at June 30,
1999 to its fiscal year end September 30, 1998, and the results of
operations for the three and nine months ended June 30, 1999 with the three
and nine months ended June 30, 1998. This discussion should be read in
conjunction with the interim financial statements and notes which are
included herein.
GENERAL
The Company was organized as a Delaware corporation in December 1994, at
the direction of the Association's Board of Directors, to acquire all of
the capital stock issued by the Association upon its conversion from the
mutual to stock form of ownership. The business of the Company consists
primarily of the business of the Association.
The Association was originally founded in April 1887 as a Missouri
chartered savings and loan association located in Cameron, Missouri. On
November 28, 1994, the Association members voted to convert the Association
to a Federal charter. The Association conducts its business through its
main office in Cameron, Dekalb County, and three full service branch
offices located in Liberty, Clay County, Maryville, Nodaway County, and
Mound City, Holt County. Deposits are insured by the Federal Deposit
Insurance Corporation, the "FDIC", to the maximum allowable.
The Association's business strategy is to operate as a well-capitalized,
profitable and independent community savings institution dedicated to home
mortgage lending and, to a lesser extent, consumer finance, funded
primarily by retail deposits from the Association's main and branch
offices. The Association has sought to implement this strategy by
emphasizing residential mortgage lending and construction lending,
maintaining asset quality, managing interest rate risk exposure,
maintaining an investment portfolio of high grade securities and other
investments, maintaining acceptable levels of profitability and capital,
and emphasizing customer service.
The net income of the Association is dependent primarily on its net
interest income, which is the difference between interest earned on its
loans and investments and the interest paid on interest bearing
liabilities. Net income is also affected by the generation of non-interest
income, which primarily consists of fees and service charges. Net interest
income is determined by the difference between the yield earned on interest
earning assets and rates paid on interest bearing liabilities (interest
rate spread), and the relative amounts of interest earning assets and
interest bearing liabilities (net interest margin). The interest rate
spread is affected by loan demand and deposit flows. In addition, net
income is affected by the level of operating expenses and the establishment
of loan loss reserves.
The operation of a financial institution is significantly affected by
prevailing economic conditions, competition, and the monetary and fiscal
policies of governmental agencies. Lending activities are influenced by
the demand for and supply of housing, competition among lenders, the level
of interest rates, and the availability of funds. Deposit flows and cost
of funds are influenced by prevailing market rates of interest primarily
on competing investments, account maturities and the levels of personal
income and savings in the market area of the financial institution.
FINANCIAL CONDITION
Total assets increased 10.7%, or $23,644,000, to $245,165,000 at June 30,
1999 from $221,521,000 at September 30, 1998. Loans receivable, net,
increased 12.9%, or $23,847,000, to $208,452,000 at June 30, 1999 from
$184,605,000 at September 30, 1998. Cash, investment securities and
certificates of deposits in other financial institutions decreased 5.7%,
or $1,375,000, to $22,653,000 at June 30, 1999 from $24,028,000 at
September 30, 1998. Deposits increased 4.8%, or $6,571,000, to
$143,193,000 at June 30, 1999 from $136,622,000 at September 30, 1998.
Advances from the Federal Home Loan Bank increased 49.2%, or $18,316,000,
to $55,566,000 at June 30, 1999 from $37,250,000 at September 30, 1998.
The Company also borrowed $910,000 from a local commercial bank during the
quarter. That balance was outstanding at June 30, 1999. Stockholders'
equity decreased 7.3%, or $3,151,000 to $40,322,000 at June 30, 1999 from
$43,473,000 at September 30, 1998, primarily as a result of the Company's
stock repurchase programs. On March 19, 1999 the Company announced its
intention to repurchase up to 5% of its outstanding shares, totaling
109,619 shares, in the open market over the next 12 months. Those shares
were repurchased in March 1999 at a cost of $1,536,000. On December 31,
1998, the Company completed a 10% stock repurchase of 243,373 shares at a
cost of $3,980,000.
The following table sets forth certain information regarding the
composition of the Association's loan portfolio.
June 30, September 30,
1999 1998
One- to four family $155,455,000 $134,416,000
Multifamily 2,820,000 2,943,000
Commercial real estate 4,778,000 3,243,000
Land 9,013,000 7,805,000
Development 7,422,000 3,254,000
Construction (1) 39,518,000 45,654,000
Consumer loans 13,052,000 9,241,000
Total Loans Receivable 232,058,000 206,556,000
Less:
Deferred loan fees, net 537,000 700,000
Loans in process 21,599,000 19,730,000
Allowance for loan losses 1,470,000 1,521,000
Net Loans Receivable $208,452,000 $184,605,000
Speculative construction $22,874,000 $30,304,000
Contract and permanent
construction $16,644,000 $15,350,000
Total (1) $39,518,000 $45,654,000
During the nine months ended June 30, 1999, permanent 1-4 family loans
increased $21,039,000, or 15.7%, to $155,455,000; development loans
increased $4,168,000, or 128.1%, to $7,422,000; and consumer loans
increased $3,811,000, or 41.2%, to $13,052,000. These increases were
primarily due to continued aggressive loan solicitation by the Association.
Construction loans decreased $6,136,000, or 13.3%, to $39,518,000. During
that time period, speculative construction loans decreased $7,430,000, or
24.5%, while contract and construction-permanent loans increased
$1,294,000, or 8.4%.
Deposits were $143,193,000 at June 30, 1999, an increase of $6,571,000, or
4.8% from $136,662,000 at September 30, 1998. The majority of the growth
is attributed to the opening of the new branch office in Liberty in August
1998. Competition from other financial and non-financial entities have,
and, will continue to impact deposit growth. The Association offers
competitive interest rates on its deposit products.
During the quarter ended June 30, 1999, the Association borrowed an
additional $5,000,000 of long term advances from the Federal Home Loan Bank
and repaid amortizing advances of $63,000. During that quarter, the
Association borrowed $12,000,000 of short term advances and repaid
$8,300,000 of short term advances. During the quarter ended June 30, 1999,
the Company borrowed $910,000 from a local commercial bank to fund stock
repurchases. That balance was outstanding at June 30, 1999. During the
quarter ended March 31, 1999, the Association borrowed an additional
$12,000,000 from the Federal Home Loan Bank and repaid maturing advances
of $3,021,000. There was no FHLB advance activity in the quarter ended
December 31, 1998.
At June 30, 1999, FHLB advances and other borrowed money and certificates
of deposit were 28.3% and 55.0% of interest-bearing liabilities,
respectively. At September 30, 1998, they were 21.4% and 62.9%,
respectively.
RESULTS OF OPERATIONS
Net Earnings: Basic and diluted earnings per share decreased $0.05, to
$0.23 for the quarter ended June 30, 1999. Net earnings decreased
$224,000, or 33.3%, to $448,000 for the quarter ended June 30, 1999. Basic
and diluted earnings per share decreased $0.03 and $0.01, respectively, to
$0.73 for the nine months ended June 30, 1999. Net earnings decreased
$276,000 to $1,541,000 for the nine months ended June 30, 1999, compared
with $1,817,000 for the nine months ended June 30, 1998. For the quarterly
period, the increases in interest income and non-interest income and the
decrease in the provision for income taxes were offset by increases in
interest expense, the provision for loan losses, and non-interest expenses.
For the nine-month period, increases in interest expense and non-interest
expense offset increases in interest income and non-interest income and
decreases in the provision for loan losses and provision for income taxes.
Net Interest Income: Net interest income decreased $30,000, or 1.5%, to
$1,915,000 for the quarter ended June 30, 1999, compared to $1,945,000 for
the quarter ended June 30, 1998. Net interest income decreased $84,000 or
1.5% to $5,723,000 for the nine months ended June 30, 1999, compared to
$5,807,000 for the nine months ended June 30, 1998. The net interest
margin decreased to 3.51% for the nine months ended June 30, 1999 compared
to 3.74% for the nine months ended June 30, 1998. Interest earning assets
averaged 117.86% of interest bearing liabilities for the nine months ended
June 30, 1999 compared to 122.30% for the same period in 1998. The average
spread between interest earning assets and interest bearing liabilities
decreased to 2.58% for the nine months ended June 30, 1999, compared to
2.63% for the same period in 1998.
Interest Income: Interest income increased by $103,000, or 2.4%, to
$4,423,000 for the quarter ended June 30, 1999, from $4,320,000 for the
quarter ended June 30, 1998. Interest income increased by $200,000, or
1.6%, to $13,009,000 for the nine months ended June 30, 1999, from
$12,809,000 for the nine months ended June 30, 1998. The increases were
primarily due to increased balances of interest earning assets. The
average yield on interest earning assets for the nine months ending June
30, 1999 was 7.93% compared to 8.19% for the prior period.
Interest Expense: Interest expense increased $133,000, or 5.6%, to
$2,508,000 for the quarter ended June 30, 1999, from $2,375,000 for the
same period in 1998. For the nine-month period ended June 30, 1999,
interest expense increased $284,000, or 4.1% to $7,286,000 from $7,002,000
for the prior period. The increases were primarily a result of increases
of average balances in savings deposits and FHLB advances. The average
cost of interest bearing liabilities for the nine months ended June 30,
1999 was 5.35% compared to 5.56% for the prior period.
Provision for Loan Losses: The provision for loan losses was $65,000 for
the quarter ended June 30, 1999, compared to a reversal of $121,000 for the
quarter ended June 30, 1998. Reversals were taken of $46,000 and $17,000
from the allowance for loan losses for the nine months ended June 30, 1999
and 1998, respectively. The changes were due to the change in the
composition of the portfolio. The allowance for loan losses is reviewed
and adjusted monthly by management based on the size and composition of the
gross loan portfolio. Various percentages are applied to the different
types of loans in the portfolio with the highest requirement assigned to
the loans with the greatest inherent risk. The provision will vary based
on increases or decreases in the total loan portfolio and changes in the
composition of the portfolio. Speculative construction loans, which carry
the highest risk factor, decreased $7,430,000, or 24.5%, to $22,874,000 at
June 30, 1999 from $30,304,000 at September 30, 1998. As of June 30, 1999,
the allowance for loan losses was $1,470,000, or 0.71% of net loans
receivable compared to $1,521,000, or 0.82% at September 30, 1998. The
allowance for loan losses was 213.35% of total nonperforming loans at June
30, 1999. While management believes that it uses the best information
available to determine the allowance for loan losses, unforeseen market
conditions could result in adjustments to the allowance for loan losses,
and net earnings could be significantly affected, if circumstances differ
substantially from the assumptions used in making the final determination.
Future additions to the Association's allowance will be the result of
periodic loan, property and collateral reviews and thus cannot be predicted
in advance. Charge-offs were $5,000 and $23,000 for the nine-month periods
ended June 30, 1999 and 1998, respectively.
A reconciliation of the Association's allowance for loan losses is
summarized as follows:
Nine Months Ended June 30,
1998 1998
Balance at beginning
of period $1,521,000 $1,624,000
Provision (46,000) (17,000)
Charge-offs (5,000) (23,000)
Recoveries - -
Balance at end of period $1,470,000 $1,584,000
Non-interest Income: Non-interest income increased 25.3% to $114,000 for
the quarter ended June 30, 1999 from $91,000 for the same period in 1998.
Loan fees and deposit service charges increased $9,000 to $76,000 for the
three months ended June 30, 1999 compared to $67,000 for the same period
in 1998. Other income increased $14,000 to $38,000 in the quarter ended
June 30, 1999 compared to $24,000 for the same period in 1998. Non-interest
income increased 43.8% to $361,000 for the nine months ended June 30, 1999
from $251,000 for the nine months ended June 30, 1998. Loan fees and
deposit service charges increased $80,000 to $250,000 for the nine months
ended June 30, 1999 compared to $170,000 for the same period in 1998.
Other income increased $25,000 to $106,000 during the nine months ended
June 30, 1999 compared to $81,000 for the nine months ended June 30, 1998.
Loan fees and deposit service charges increased in both periods primarily
due to the increased number of loans, increased deposit accounts with
monthly charges and income from ATM and debit card transactions. Other
income increased in the quarter ended June 30, 1999 primarily due to new
brokerage commissions and increased profit on the sale of loans as a result
of more loan sales. Profits on the sale of loans were $20,000 and $17,000
for the quarters ended June 30, 1999 and 1998 respectively. Brokerage
commissions from the Association's service corporation were $10,000 for the
quarter ended June 30, 1999. The brokerage office opened in September
1998. Commissions from the service corporation's insurance agency were
$5,000 and $4,000 for the quarters ended June 30, 1999 and 1998
respectively. Other income increased in the nine months ended June 30,
1999, compared to the prior period primarily due to increased brokerage
commissions. They were $28,000 for the current period. Profit on the sale
of loans were $56,000 and $59,000 for the nine months ended June 30, 1999
and 1998, respectively.
Non-interest Expense: Non-interest expense increased $147,000 to
$1,232,000 for the quarter ended June 30, 1999 from $1,085,000 for the same
period in 1998. Personnel expenses increased $55,000 to $694,000 for the
quarter ended June 30, 1999 compared to $639,000 for the same period in
1998. Cash compensation increased $105,000 and payroll taxes and other
benefits increased $14,000 for the current quarter. The Association had
67 full-time equivalent employees at June 30, 1999 compared to 66 at June
30, 1998. The increase in compensation was primarily due to overtime in
conjunction with the Association's data processing conversion during June
1999. Some of the employees at June 30, 1998 were not employed for the
full quarter in 1998. They were hired in anticipation of the opening of
the Association's Liberty office in August 1998. ESOP expenses decreased
$55,000 in the quarter ended June 30, 1999 compared to the prior period due
to lower average prices of the Company's common stock in the current
quarter.
Occupancy expense increased $30,000 to $173,000 for the quarter ended June
30, 1999 compared to $143,000 for the quarter ended June 30, 1998. The
increase was due to increased real estate taxes and depreciation on the new
branch office building opened in August 1998 and increased expenses for
office equipment, computer upgrades and increased depreciation expense.
Data processing expenses increased $40,000, to $84,000 for the quarter
ended June 30, 1999. The increase was due to the data processing
conversion by the Association in June 1999. Other operating expenses
increased $22,000 to $227,000 for the quarter ended June 30, 1999 compared
to the quarter ended June 30, 1998. In the current quarter, telephone
expense increased $18,000, loan expense increased $22,000, postage
increased $9,000, and deposit account supplies increased $5,000. For the
quarter ended June 30, 1999, professional fees decreased $40,000 due to the
reversal of previously established accruals.
Non-interest expense increased $97,000 for the nine months ended June 30,
1999 compared to the nine months ended June 30, 1998. Personnel expenses
increased $175,000 for the current period. Cash compensation increased
$295,000 due primarily to a greater number of employees and the overtime
costs of the data processing conversion. Payroll taxes and other benefits
increased $49,000 due to a greater number of employees and additional
overtime pay. ESOP expense decreased in the current period by $125,000 due
to lower average prices of the Company's common stock in the current
period. Occupancy expenses increased $96,000 to $550,000 for the nine
month period ended June 30, 1999 compared to $454,000 for the same period
in 1998, due to increased real estate taxes and depreciation on the new
branch office building and increased expenses for office equipment,
computer upgrades and increased depreciation expense. Data processing
expenses increased $67,000 to $208,000 for the nine months ended June 30,
1999 compared to $141,000 for the prior period. The increase was primarily
due to more accounts being processed and increased charges in conjunction
with the Association's data processing conversion, Other operating
expenses increased $97,000 to $644,000 for the nine months ended June 30,
1999 compared to $547,000 for the prior period. Telephone expenses
increased $34,000; training expenses increased $23,000; deposit account
supply expenses increased $14,000; loan expenses increased $31,000; postage
expense increased $22,000 and insurance expense increased $14,000. For
the nine months ended June 30, 1999, professional fees decreased $40,000
due to over accruals in prior periods.
Income Taxes: Income tax expense decreased $116,000 to $284,000 for the
quarter ended June 30, 1999, compared to $400,000 for the same period in
1998. The effective tax rate was 38.8% and 37.3% for the quarters ended
June 30, 1999 and 1998, respectively. Income tax expense decreased
$117,000 to $956,000 for the nine months ended June 30, 1999, compared to
$1,073,000 for the nine months ended June 30, 1998. The effective tax rate
was 38.3% and 37.1% for the nine months periods ended June 30, 1999 and
1998, respectively. The decreases were primarily due to decreases in
taxable income.
Asset and Liability Management - Interest Rate Sensitivity
At June 30, 1999, the Company's total interest-bearing liabilities maturing
or repricing within one year exceeded interest-earning assets maturing or
repricing in the same period by $29.9 million, representing a cumulative
negative one-year gap ratio of 12.2% to total assets. At September 30,
1998, the negative gap was $1.2 million. The change is primarily due to
the decrease in the average term of liabilities and the increase in average
term of assets. The decrease in the average term of liabilities is
primarily due to increased balances in money market deposit accounts and
other transaction accounts which have no stated maturity and a preference
by customers for shorter term certificates of deposit. The increase in the
average term of assets is primarily due to the amount of adjustable
mortgage loans with time periods between three and five years prior to the
start of annual adjustments. During the nine months ended June 30, 1999,
the Association originated $42.1 million of adjustable mortgage loans,
primarily with either three or five years until the first adjustment, and
$13.3 million of fixed rate mortgage loans with terms exceeding 15 years.
As previously stated, speculative construction loans, which generally have
a term of one year, have decreased $7.4 million in the nine months ended
June 30, 1999.
The Year 2000 Issue
The Association has an ongoing program designed to ensure that its
operational and financial systems will not be adversely affected by Year
2000 software failures, due to processing errors arising from calculations
using the Year 2000 date. Should the Company's mission critical systems
fail in the Year 2000, the Company would have difficulty in processing
transactions for loan and deposit customers, which could cause significant
damage to the Company's important customer relationships.
As of June 30, 1999, the Association had successfully completed testing of
all mission critical computer systems. The renovation, testing and
implementation of all non-mission critical applications is also approaching
completion with only the Association's voice mail system requiring further
attention.
The Association is requiring its computer systems and software vendors to
represent that the products are, or will be, Year 2000 compliant. Major
suppliers and vendors have been requested to provide the Association with
their progress in becoming Year 2000 compliant. Responses and progress of
vendors is being monitored.
The Association has an ongoing program to inform customers of the Year 2000
problem and the progress the Association is making in becoming Year 2000
compliant. The Association has reviewed customer relationships and does
not believe potential Year 2000 problems of customers will have a material
effect on the Association. The Association has developed a cash and
currency plan to ensure that the Association has adequate funds on hand to
meet cash requirements of customers during late 1999 and early 2000.
In the quarter ended June 30, 1999, Year 2000 costs did not exceed $30,000.
Additional costs of Year 2000 compliance are not expected to exceed $20,000
in fiscal 1999. This estimate to become Year 2000 compliant is exclusive
of the $425,000 necessary to purchase the new core processing system and
related hardware.
The Association has prepared a contingency plan which focuses on the
courses of action required under different failure scenarios ranging from
system failure to telecommunications failure. The plan details who is
responsible for initiating action in each scenario and the required action
to be pursued. The plan includes operating procedures for all departments
if the core applications are not available. Some testing of the plan has
occurred. Additional testing and training is scheduled. Testing of the
contingency plan to date has not disclosed any material concerns.
NON-PERFORMING ASSETS
The following table sets forth the amounts and categories of the
Association's non-performing assets. Loans are placed on non-accrual
status when the collection of principal and/or interest is not probable;
however, in no event is interest accrued on loans for which interest is
more than 90 days delinquent. Foreclosed assets include assets acquired
in settlement of loans.
June 30, September 30,
1999 1998
(Dollars in Thousands)
Non-Accruing Loans:
One- to four-family $317 $721
Multi-family -- --
Commercial -- 34
Land 63 --
Construction 260 1,044
Consumer 49 --
Total non-accuring loans 689 1,799
Accruing loans delinquent 90 days or more(1)
One- to four-family -- 870
Multi-family -- 7
Commercial -- --
Land -- --
Construction -- 450
Consumer -- 10
Total accruing loans delinquent
90 days or more -- 1,337
Total non-performing loans 689 3,136
Foreclosed Assets:
One- to four-family 41 --
Multi-family -- --
Commercial -- --
Land -- --
Construction -- --
Consumer -- 19
Total foreclosed assets 41 19
Total non-performing assets $730 $3,155
Total classified assets $8,423 $11,803
Total non-performing loans as a
percentage of loans receivable 0.30% 1.52%
Total non-performing assets as a
percentage of total assets 0.30% 1.42%
Non-performing loans decreased $2,447,000, or 78.0% to $689,000 at June 30,
1999 from $3,136,000 at September 30, 1998. The majority of the decrease
was due to fewer delinquent construction loans and fewer delinquent one-
to four-family loans. Classified assets decreased 28.6% to $8,423,000 at
June 30, 1999 from $11,803,000 at September 30, 1998, primarily because of
the decrease in speculative construction loans that were not paid off in
their initial one year term and fewer delinquent loans.
CAPITAL RESOURCES
The Association is subject to three capital to asset requirements in
accordance with Office of Thrift Supervision regulations. The following
table is a summary of the Association's regulatory capital requirements and
actual capital as of June 30, 1999:
Actual Required Excess
Amount/Percent Amount/Percent Amount/Percent
(Dollars in Thousands)
Tangible Capital $35,316 14.68% $3,608 1.50% $31,708 13.18%
Core Leverage
Capital 35,316 14.68% 9,622 4.00% 25,694 10.68%
Risk-Based
Capital 36,779 22.81% 12,900 8.00% 23,879 14.81%
LIQUIDITY
The Association's principal sources of funds are deposits, advances from
the Federal Home Loan Bank of Des Moines, principal and interest payments
on loans, and investment securities classified as held to maturity. While
scheduled loan repayments and maturing investments are relatively
predictable, deposit flows and early loan prepayments are more influenced
by interest rates, general economic conditions and competition.
The Association is required to maintain minimum levels of liquid assets as
defined by regulations. The required percentage is currently 4% of net
withdrawable savings deposits, less withdrawable deposits maturing in more
than one year, and borrowings payable on demand or in one year or less.
The Association has maintained its liquidity ratios at levels exceeding the
minimum requirement. The eligible liquidity ratios at June 30, 1999 and
September 30, 1998 were 9.53% and 15.00%, respectively.
In light of the competition for deposits and demand for loans, the
Association has utilized the funding sources of the Federal Home Loan Bank
to meet demand in accordance with the Association's growth plan. The
wholesale funding sources may allow the Association to obtain a lower cost
of funding and create a more efficient liability match to the respective
assets being funded. In addition, the Association utilizes short term
borrowings from the Federal Home Loan Bank to meet day to day cash needs
as required. For long term financing, the Association borrowed $5.0
million and repaid $63,000 on amortizing advances in the quarter ended June
30, 1999. Two new advances, for a total of $5.0 million, have fixed
interest rates and final maturities of ten years with quarterly call
provisions after initial periods of nine months and three years,
respectively. The Association borrowed $12.7 million and repaid $8.3
million in short term advances during the quarter ended June 30, 1999. The
Company borrowed $0.9 million during the quarter ended June 30, 1999 to
fund stock repurchases from the previous quarter. Certificates of deposits
were 76.6% of total savings and 55.0% of total interest-bearing liabilities
at June 30, 1999 compared to 80.0% and 62.9% respectively at September 30,
1998.
CAMERON FINANCIAL CORPORATION
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Holding Company and the Association are not involved in
any legal proceedings incident to the business of the
Holding Company and the Association, which involve amounts
in the aggregate which management believes are material to
the financial condition and results of operation.
ITEM 2. Changes in Securities
Not Applicable
ITEM 3. Defaults upon Senior Securities
Not Applicable
ITEM 4. Submissions of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports of Form 8-K
Financial Data Schedule; EX-27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CAMERON FINANCIAL CORPORATION
Registrant
Date: August 12, 1999 /s/ David G. Just
David G. Just, President and Chief
Executive Officer (Duly Authorized
Officer)
Date: August 12, 1999 /s/ Ronald W. Hill
Ronald W. Hill, Vice-President &
Treasurer (Principal Financial &
Accounting Officer)