EXHIBIT 13
CAMERON FINANCIAL CORPORATION 1997
ANNUAL REPORT TO STOCKHOLDERS.
Exhibit 13
CAMERON FINANCIAL CORPORATION
Holding Company for The Cameron Savings & Loan Association, F.A.
================================================================================
December 29, 1997
To Our Stockholders:
The Board of Directors, management and staff of Cameron Financial
Corporation and its wholly-owned subsidiary, The Cameron Savings & Loan
Association, F.A., are pleased to present our third Annual Report.
The fiscal year ended September 30, 1997, was our second full year as a
public company. Net earnings increased to $2.5 million from $2.1 million the
previous year, assets increased $26 million to over $212 million and loans
receivable net increased over $22 million, continuing the controlled growth and
emphasis on real estate and consumer lending.
The Association occupied the new home office in Cameron during June 1997.
Nearly all the savings growth occurred subsequent to the move, with the
convenience and additional services available. Construction has commenced on the
branch office in Liberty, Missouri, with occupancy expected in May 1998. The
Loan Production Office will be closed and the employees will be transferred to
the loan department in the new branch office.
Your Board and management remain committed to building strong stockholder
value. The new facilities will allow the growth and customer services planned by
your Board for the future.
Thank you for your investment in Cameron Financial Corporation. We are
looking forward to a long and prosperous relationship.
Sincerely,
/s/ David G. Just
-----------------
David G. Just
President
- --------------------------------------------------------------------------------
1304 North Walnut
recycled paper P.O. Box 555 Printed with
Cameron, MO 64429 SOY INK
(816) 632-2154
CAMERON FINANCIAL CORPORATION
GENERAL INFORMATION
================================================================================
Cameron Financial Corporation (the "Company") is a Delaware Corporation which is
the holding company for The Cameron Savings & Loan Association, F.A. (the
"Association"). The Company was organized by the Association for the purpose of
acquiring all of the capital stock of the Association in connection with the
conversion of the Association from mutual to stock form, which was completed on
March 31, 1995 (the "Conversion"). The only significant assets of the Company
are the capital stock of the Association, the Company's loan to an employee
stock ownership plan, and investment securities in United States government and
agency obligations. The business of the Company initially consists of the
business of the Association.
The Association, which was originally chartered in 1887 as a Missouri-chartered
mutual savings and loan association, is headquartered in Cameron, Missouri. The
Association amended its mutual charter to become a federal mutual savings and
loan association in 1994. Its deposits are insured up to the maximum allowable
amount by the Federal Deposit Insurance Corporation (FDIC). The Association
serves the financial needs of its customers throughout northwestern Missouri
through its main office located at 1304 North Walnut, Cameron, Missouri, three
branch offices located in Maryville, Cameron and Mound City, Missouri, and one
loan production office located in Liberty, Missouri.
The Association has been, and intends to continue to be, a community-oriented
financial institution offering financial services to meet the needs of the
market area it serves. The Association attracts deposits from the general public
and uses such funds together with FHLB advances to originate loans secured by
first mortgages on owner-occupied one- to four-family residences and
construction loans in its market area. To a lesser extent, the Association
originates land, commercial real estate, multifamily and consumer loans in its
market area.
2
CAMERON FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY
================================================================================
Set forth below are selected consolidated financial and other data of the
Company. The financial data is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements and Notes thereto
presented elsewhere in this Annual Report.
================================================================================
At September 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
Selected Financial Condition Data:
Total assets $ 212,504 $ 186,346 $ 173,077 $ 144,821 $ 142,334
Loans receivable, net 176,790 154,444 129,740 113,981 110,023
Mortgage-backed securities 10 13 17 20 29
Investment securities 13,872 18,297 26,473 16,309 11,850
Cash and cash equivalents 2,909 3,783 3,315 1,072 1,584
Certificates of deposit in other financial 7,600 2,500 8,611 10,221 16,054
institutions
Savings deposits 128,771 123,108 121,280 123,110 122,378
FHLB advances 35,250 12,250 - - -
Total stockholders' equity 44,667 46,815 48,727 19,267 17,740
- -------------------------------------------------------------------------------------------------------------------
Year ended September 30,
------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
(In thousands, except share information)
Selected Operations Data:
Total interest income $ 15,989 $ 13,921 $ 12,289 $ 10,662 $ 11,100
Total interest expense 8,179 6,679 6,317 5,710 6,203
- -------------------------------------------------------------------------------------------------------------------
Net interest income 7,810 7,242 5,972 4,952 4,897
Provision for loan losses 285 368 120 252 9
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 7,525 6,874 5,852 4,700 4,888
- -------------------------------------------------------------------------------------------------------------------
Loan and deposit service charges 162 130 131 136 140
(Loss) gain on sales of investment securities - - (4) 7 -
Other income 57 92 100 43 46
- -------------------------------------------------------------------------------------------------------------------
Total noninterest income 219 222 227 186 186
- -------------------------------------------------------------------------------------------------------------------
Total noninterest expense 3,670 3,772 2,503 2,443 1,942
- -------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative effect
of a change in accounting principle 4,074 3,324 3,576 2,443 3,132
Income taxes 1,564 1,214 1,272 894 1,180
Cumulative effect of a change in accounting for
income taxes (1) - - - - 289
- -------------------------------------------------------------------------------------------------------------------
Net earnings $ 2,510 $ 2,110 $ 2,304 $ 1,549 $ 2,241
- -------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.97 0.77 0.83 - -
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 2,578,957 2,740,759 2,784,906 - -
- -------------------------------------------------------------------------------------------------------------------
(Footnotes on the following page)
3
================================================================================
At or For the Year Ended September 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of earnings before
cumulative effect of a change in accounting 1.25% 1.20% 1.45% 1.08% 1.39%
principle to average total assets)
Return on equity (ratio of earnings before
cumulative effect of a change in accounting 5.48% 4.43 6.62 8.26 11.62
principle to average equity)
Interest rate spread (2):
Average during period 2.93% 2.78 2.71 2.89 2.92
End of period 2.62% 2.71 2.35 2.67 2.55
Net interest margin (3) 4.08% 4.23 3.84 3.50 3.54
Dividend payout ratio 28.87% 36.36 8.43 - -
Ratio of noninterest expense to average total
assets 1.83% 2.14 1.57 1.70 1.39
Ratio of noninterest income to average total
assets 0.11% 0.13 0.14 0.13 0.13
Ratio of average interest-earning assets to
average interest-bearing liabilities 126.82% 137.06 127.79 115.12 113.88
- -------------------------------------------------------------------------------------------------------------------
Quality Ratios:
Nonperforming loans to total loans receivable
at end of period 0.58% 0.84 0.92 0.97 2.03
Allowance for loan losses to nonperforming
loans 139.04% 91.54 74.46 71.51 26.64
Allowance for loan losses to total loans
receivable 0.81% 0.77 0.69 0.69 0.54
Nonperforming assets to total assets at end of 0.56% 0.83 0.77 0.85 1.86
period
Classified assets to total assets (4) 5.06% 4.15 2.26 2.93 5.14
Ratio of net charge-offs to average loans
receivable .008% .006 .002 0.01 0.02
- -------------------------------------------------------------------------------------------------------------------
Capital Ratios (5):
Equity to total assets at end of period 21.03% 25.12 28.15 13.30 12.46
Average equity to average assets 22.88% 27.06 21.96 13.06 11.99
- -------------------------------------------------------------------------------------------------------------------
Other Data:
Number of full-service offices 4 3 3 3 3
Number of loan production offices 1 1 1 1 1
Real estate loan originations (in thousands) $95,088 $92,606 $64,257 $54,474 $41,748
- -------------------------------------------------------------------------------------------------------------------
(1) The Association adopted Statement of Financial Accounting Standards
("SFAS") No. 109 during the year ended September 30, 1993.
(2) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average rate on
interest-bearing liabilities.
(3) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(4) Includes assets designated as Special Mention.
(5) For a discussion of the Association's regulatory capital ratios, see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Cameron Financial Corporation ("Cameron Financial" and, with its subsidiary, the
"Company"), was formed in December 1994 by The Cameron Savings & Loan
Association, F.A. (the "Association"), to become the holding company of the
Association. The acquisition of the Association by Cameron Financial was
consummated on March 31, 1995, in connection with the Association's conversion
from the mutual to the stock form (the "Conversion"). All references to the
Company prior to March 31, 1995, except where otherwise indicated, are to the
Association and its subsidiary on a consolidated basis.
The Company's results of operation depend primarily on its level of net interest
income, which is the difference between interest earned on interest-earning
assets, consisting primarily of mortgage loans and other investments, and the
interest paid on interest-bearing liabilities, consisting primarily of deposits
and FHLB advances. Net interest income is a function of the Company's "interest
rate spread," which is the difference between the average yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities, as well as a function of the average balance of interest-earning
assets as compared to interest-bearing liabilities. The interest rate spread is
affected by regulatory, economic and competitive factors that influence interest
rates, loan demand and deposit flows. The Company, like other financial
institutions, is subject to interest-rate risk to the degree that its
interest-earning assets mature or reprice at different times, or on a different
basis, than its interest-bearing liabilities. The Company's operating results
are also affected by the amount of its noninterest income, including loan fees
and service charges and other income, which includes commission from sales of
insurance by the Association's service corporation. Noninterest expense consists
primarily of employee compensation, occupancy expense, data processing, federal
insurance premiums, advertising, real estate owned operations and other
operating expense. The Company's operating results are significantly affected by
general economic and competitive conditions, in particular, the changes in
market interest rates, government policies and actions by regulatory
authorities.
FINANCIAL CONDITION
Total assets increased $26.2 million, or 14.06%, to $212.5 million at September
30, 1997 from $186.3 million at September 30, 1996. The increase was primarily
due to an increase in Federal Home Loan Bank (FHLB) advances of $23.0 million
and an increase in savings deposits of $5.7 million. These funds were used to
finance a $22.3 million increase in net loans receivable and a $3.5 million
increase in fixed assets.
Net loans receivable increased by $22.3 million, or 14.47%, to $176.8 million at
September 30, 1997 from $154.4 million at September 30, 1996 due primarily to a
$14.6 million increase in one- to four-family permanent mortgage loans and an
$8.6 million increase in short-term construction loans, net of loans in process.
Investment securities, certificates of deposits in other financial institutions
and cash equivalents decreased $200,000, or 0.08%, to $24.4 million at September
30, 1997 from $24.6 million at September 30, 1996.
Savings deposits increased $5.7 million, or 4.60%, to $128.8 million at
September 30, 1997 from $123.1 million at September 30, 1996. Of the $5.7
million increase in deposits, $4.8 million, or 84.2% of the increase, occurred
after the opening of the new home office in Cameron on June 23, 1997. During
that time period, the Association opened 594 new certificate accounts and 366
new checking or savings accounts. FHLB advances increased $23.0 million, or
187.76%, to $35.25 million at September 30, 1997 from $12.25 million at
September 30, 1996.
Total stockholders' equity decreased $2.1 million, to $44.7 million at September
30, 1997 from $46.8 million at September 30, 1996. Earnings for the year
provided a $2.5 million increase, which was offset by the purchase of 287,602
shares of treasury stock for $4.7 million, declaration of dividends of $699,000
and the amortization of RRP and unearned ESOP shares.
5
The Association's capital exceeds all of the capital requirements imposed by
FIRREA. OTS regulations provide that an institution that exceeds all capital
requirements before and after a proposed capital distribution and, like the
Association, has not been notified of a need for more than normal supervision
could, after prior notice but without approval by the OTS, make capital
distributions during the calendar year of up to 100% of its net income to date
during the calendar year plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its capital requirements) at
the beginning of the calendar year. Any additional capital distributions would
require prior regulatory approval.
The Association declared and paid dividends of $1,652,000 to Cameron Financial
in fiscal year 1997. The Association has also notified OTS of its plans to
declare an additional $566,000 dividend to Cameron Financial in mid-December
1997. Those dividends approximate the Association's net income from July 1, 1996
through September 30, 1997.
RESULTS OF OPERATIONS
The Company's results of operations depend primarily on the level of its net
interest income and noninterest income and its control of operating expenses.
Net interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
The Company's noninterest income consists primarily of fees charged on
transaction accounts and fees charged for delinquent payments received on
mortgage and consumer loans. In addition, noninterest income is derived from the
activities of the Association's wholly-owned subsidiary, which engages in the
sale of various insurance products.
The schedule on the following page presents, for the periods indicated, the
total dollar amount of interest income from average interest-earning assets and
the resultant yields, as well as the total dollar amount of interest expense on
average interest-bearing liabilities and resultant rates. The average yields
include loan fees which are considered adjustments to yields. The amount of
interest income resulting from the recognition of loan fees was $490,000,
$397,000 and $321,000 for the years ended September 30, 1997, 1996 and 1995,
respectively. No tax-equivalent adjustments were made. All average balances are
monthly average balances. Management does not believe that the use of monthly
balances instead of daily balances has caused a material difference in the
information presented. Non-accruing loans have been included as loans carrying a
zero yield.
6
Years Ended September 30,
--------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
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) $167,051 $ 14,535 8.70 $141,896 $ 12,181 8.58
Mortgage-backed securities 11 1 9.09 15 2 13.33
Investment securities 15,696 975 6.21 21,955 1,319 6.01
Certificates of deposit 5,036 285 5.66 3,525 225 6.38
Other interest-bearing deposits 2,382 92 3.86 2,572 103 4.00
Federal Home Loan Bank (FHLB) stock 1,454 101 6.95 1,254 91 7.26
-------- -------- ---- -------- -------- -----
Total interest-earning assets (1) 191,630 15,989 8.34 171,217 13,921 8.13
-------- ---- -------- -----
Noninterest earning assets 8,659 4,954
-------- --------
Total average assets $200,289 $176,171
======== ========
Interest-bearing liabilities:
Passbook accounts $ 10,834 346 3.19 $ 10,710 348 3.25
NOW and money market accounts 12,498 348 2.78 12,915 364 2.82
Certificates 101,596 5,889 5.80 98,102 5,780 5.89
FHLB advances 26,173 1,596 6.10 3,192 187 5.86
-------- -------- ---- -------- -------- -----
Total interest-bearing liabilities 151,101 8,179 5.41 124,919 6,679 5.35
-------- ---- -------- -----
Noninterest bearing liabilities 3,356 3,587
-------- --------
Total average liabilities $154,457 $128,506
======== ========
Net interest income $ 7,810 $ 7,242
======== ========
Net interest rate spread (2) 2.93% 2.78%
==== ====
Net interest-earning assets $ 40,529 $ 46,298
======== ========
Net interest margin (3) 4.08% 4.23%
==== ====
Average interest-earning assets to average
interest-bearing liabilities 126.82% 137.06%
======== ========
[RESTUBBED TABLE]
Years Ended September 30,
---------------------------------
1995
---------------------------------
Average Interest
Outstanding Earned/ Yield/
Balance Paid Rate
------- ---- ----
Interest-earning assets:
Loans receivable (1) $122,970 $ 10,472 8.52
Mortgage-backed securities 18 2 11.11
Investment securities 20,771 1,190 5.73
Certificates of deposit 8,278 484 5.85
Other interest-bearing deposits 2,063 50 2.42
Federal Home Loan Bank (FHLB) stock 1,235 91 7.37
-------- -------- -----
Total interest-earning assets (1) 155,335 12,289 7.91
-------- -----
Noninterest earning assets 3,855
--------
Total average assets $159,190
========
Interest-bearing liabilities:
Passbook accounts $ 12,458 426 3.42
NOW and money market accounts 14,758 418 2.83
Certificates 94,031 5,454 5.80
FHLB advances 308 19 6.17
-------- -------- -----
Total interest-bearing liabilities 121,555 6,317 5.20
-------- -----
Noninterest bearing liabilities 2,675
--------
Total average liabilities $124,230
========
Net interest income $ 5,972
========
Net interest rate spread (2) 2.71
=====
Net interest-earning assets $ 33,780
========
Net interest margin (3) 3.84
=====
Average interest-earning assets to average
interest-bearing liabilities 127.79%
========
(1) Calculated net of deferred loan fees and discounts, loans in process and
loss reserves.
(2) Net interest rate spread represents the difference between the average yield
on interest-earning assets and the average rate on interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
7
The following schedule presents the weighted average yields earned on loans,
investments and other interest-earning assets, and the weighted average rates
paid on deposits and FHLB advances and the resultant interest rate spreads at
the dates indicated:
================================================================================
At September 30,
--------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
Weighted average yield on:
Loans receivable 8.54% 8.48% 8.32%
Mortgage-backed securities 10.31 10.48 10.59
Investment securities 6.05 6.20 5.88
Certificates of deposit in other financial institutions 6.15 5.85 6.37
Other interest-bearing deposits 4.95 3.69 4.23
FHLB stock 7.00 7.25 7.00
Combined weighted average yield on interest-earning
assets 8.22 8.11 7.76
- ------------------------------------------------------------------------------------------------------------------
Weighted average rate paid on:
Passbook accounts 3.25 3.25 3.25
NOW and money market accounts 3.16 2.84 2.84
Certificates 5.96 5.89 5.99
FHLB advances 6.02 6.09 -
Combined weighted average rate paid on interest-
bearing liabilities 5.60 5.40 5.41
- ------------------------------------------------------------------------------------------------------------------
Spread 2.62 2.71% 2.35%
==================================================================================================================
Rate/Volume Analysis
The schedule on the following page presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the changes
due to changes in outstanding balances and those due to changes in interest
rates. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (i.e., changes in volume multiplied by prior interest rate) and (ii)
changes in rate (i.e., changes in rate multiplied by prior volume). For purposes
of this table, changes attributable to both rate and volume, which cannot be
segregated, have been allocated proportionately to the changes due to volume and
the changes due to rate.
8
================================================================================
Year Ended September 30,
1997 vs. 1996 1996 vs. 1995
------------------------------- ----------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
--------------- Increase --------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Interest-earning assets:
Loans receivable $ 2,182 $ 172 $ 2,354 $ 1,634 $ 75 $ 1,709
Mortgage-backed securities (1) - (1) - - -
Investment securities (389) 45 (344) 70 59 129
Certificates of deposit in other
financial institutions 82 (22) 60 (308) 49 (259)
Other interest-bearing deposits (8) (3) (11) 14 39 53
FHLB stock 15 (5) 10 1 (1) -
- ---------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,881 187 2,068 1,411 221 1,632
- ---------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Passbook accounts 4 (6) (2) (58) (20) (78)
NOW and money market accounts (11) (5) (16) (53) (1) (54)
Certificates 200 (91) 109 240 86 326
FHLB advances 1,393 16 1,409 169 (1) 168
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,586 (86) 1,500 298 64 362
- ---------------------------------------------------------------------------------------------------------------------
Net interest income $ 295 $ 273 $ 568 $ 1,113 $ 157 $ 1,270
=====================================================================================================================
Comparison of Operating Results for the Years Ended September 30, 1997 and 1996
General. Net earnings for the year ended September 30, 1997 increased by
$400,000, or 18.96%, to $2.5 million, or $0.97 per share, from $2.1 million, or
$0.77 per share, for the year ended September 30, 1996. The increase was
primarily due to the combined effects of a $600,000 increase in net interest
income, an $83,000 decrease in the provision for loan loss and a $102,000
decrease in noninterest expense offset by a $350,000 increase in income tax and
a $3,000 decrease in noninterest income. For the years ended September 30, 1997
and 1996, the returns on average assets were 1.25% and 1.20%, respectively,
while the returns on average equity were 5.48% and 4.43%, respectively.
Net Interest Income. For the year ended September 30, 1997, net interest income
increased by $600,000 to $7.8 million from $7.2 million for 1996. This reflects
an increase of $2.1 million in interest income to $16.0 million from $13.9
million and an increase of $1.5 million in interest expense to $8.2 million from
$6.7 million. The increase in interest income was primarily due to an increase
in total interest-earning assets and an increase in average yields on
interest-earning assets. The increase in interest expense was due to increased
interest-bearing liabilities.
Interest Income. Interest income for the year ended September 30, 1997 increased
$2.1 million to $16.0 million from $13.9 million for the year ended September
30, 1996. The $20.4 million increase in average interest-earning assets resulted
in an increase in interest income of $1.9 million. The increase in average yield
on interest-earning assets provided $187,000 additional interest income in
fiscal 1997.
Interest income on loans increased $2.4 million, or 19.33%, to $14.5 million
from $12.2 million for the year ended September 30, 1996. Interest income on
investment securities, certificates of deposits and other interest bearing
deposits decreased $285,000, or 16.4%, to $1.5 million from $1.7 million for the
year ended September 30, 1996. Interest income on loans increased due to
increased average balances and increased yields on those balances. Decreases in
average balances of investment securities, certificates of deposit and other
interest bearing deposits offset increased yields on those items. This was the
result of the changing mix of assets with higher concentration of assets in
loans.
9
Interest Expense. Interest expense for the year ended September 30, 1997
increased $1.5 million to $8.2 million from $6.7 million for the year ended
September 30, 1996. The increase was due to increased average balances
outstanding on interest-bearing liabilities. Depositors continued their
preference for higher rate certificates rather than lower rate passbook, NOW or
money market deposit accounts. Average balances in certificates of deposit
increased $3.5 million to $101.6 million for the year ended September 30, 1997
from $98.1 million for the prior fiscal year. Average passbook, NOW and money
market deposit account balances decreased $293,000 to $23.3 for the fiscal year
ended September 30, 1997, from $23.6 million for the prior fiscal year. Interest
expense on FHLB advances increased to $1.6 million for the year ended September
30, 1997 from $187,000 for the prior year. The Association borrowed $26.0
million and repaid maturing advances of $3.0 million in fiscal 1997 which
resulted in FHLB advances of $35.25 million at September 30, 1997 compared to
$12.25 million at September 30, 1996.
Provision for Loan Losses. The Association maintains a program for establishing
general loan loss reserves by classifying various components of the loan
portfolio by potential risk. Management reviews the composition of the loan
portfolio monthly and adjusts the valuation allowance. In addition, the Internal
Auditor reviews the general valuation allowance on a quarterly basis and reports
the findings to the Board of Directors. During the year ended September 30,
1997, the Association charged $285,000 against earnings as a provision for loan
losses compared to $368,000 for the year ended September 30, 1996. This resulted
in an allowance for loan losses of $1.6 million, or 0.81% of total loans
receivable at September 30, 1997, compared to $1.4 million or 0.77% of total
loans receivable at September 30, 1996. The ratio was increased during fiscal
1997 due to increased consumer loans and construction loans. Consumer loans
increased to $8.7 million from $8.3 million and construction loans increased to
$51.4 million from $41.6 million. The fiscal 1997 net charge-offs against
general valuation allowances totaled $14,000 and the net charge-offs for fiscal
1996 were $9,000. While the Association has not experienced any significant
charge-offs in the past three years, the decision was made to increase the
allowance for loan losses based on a more refined evaluation process which, in
management's view, more fully recognizes the changing composition of the
Association's loan portfolio and the risk associated with different types of
loans.
The Association had $2.1 million in loans classified as substandard, doubtful or
loss at September 30, 1997, compared to $2.3 million at September 30, 1996.
Management will continue to monitor its allowances for loan losses and make
future additions to the allowance through provision for loan losses as economic
conditions dictate. Although the Association maintains its allowance for loan
losses at a level which it considers to be adequate to provide for potential
losses, there can be no assurance that future losses will not exceed estimated
amounts or that additional provisions for loan losses will not be required in
future periods.
Noninterest Income. For the year ended September 30, 1997, noninterest income
was $219,000, compared to $222,000 for the year ended September 30, 1996. Loan
fees and deposit service charges, which consist primarily of late charges on
loans receivable and service charges on transaction accounts and ATM charges,
were $162,000 and $130,000 for fiscal 1997 and 1996, respectively. Late charges
on loans were $76,000 for fiscal 1997 compared to $61,000 for fiscal 1996. The
increase is primarily due to the increase in the number of loans outstanding.
Service charges on transaction accounts were $74,000 and $55,000 for fiscal 1997
and 1996, respectively. The increase is due to increased checking accounts that
pay a flat monthly fee and an increase in the fees charged for related items
such as return item charges. ATM fees, which were effective with the
installation of the Association's first two ATMs in the Cameron and Maryville
offices in June 1997, were $2,000. Commissions from insurance sales by the
Association's service corporation were $17,000 and $22,000 for fiscal 1997 and
1996, respectively. Gains on the sale of loans originated for sale were $23,000
and $17,000 for fiscal 1997 and 1996, respectively. A patronage dividend of
$8,000 was received in 1997 from a cooperative service bureau, compared to
$40,000 in 1996.
10
Noninterest expense. Noninterest expense decreased $102,000, or 2.7%, to $3.7
million for the year ended September 30, 1997 from $3.8 million for the year
ended September 30, 1996. Compensation, payroll taxes and fringe benefits
expense increased $507,000 in fiscal 1997 compared to 1996. Expenses associated
with the RRP plan were $274,000 for fiscal 1997 compared to $186,000 for fiscal
1996. The plan was approved in January 1996, and was only in effect for a
portion of fiscal 1996. ESOP expenses increased to $465,000 for fiscal 1997 from
$426,000 for 1996. The increase was due to higher average monthly price for
shares of the Company's common stock in 1997 compared to 1996. Cash compensation
increased $312,000 in fiscal 1997 to $1.5 million from $1.2 million in 1996. The
increase was due to an increase in the number of employees and raises to
existing employees. There were fifty-five full time equivalent employees at
September 30, 1997 compared to forty-five at September 30, 1996. Payroll taxes
and other fringe benefits increased $57,000 due to increased compensation and
payroll taxes due to the first year's vesting of the RRP. In accordance with
SFAS No. 91, the Association defers certain direct loan origination and
modification costs and amortizes these costs as adjustment to yield. The
Association has deferred $15,000 less in compensation costs for fiscal 1997 than
1996. Occupancy expense increased $209,000 in fiscal 1997 to $418,000 from
$209,000 in 1996. Of the $418,000 of occupancy expense for the fiscal year,
$170,000 was incurred in the quarter ended September 30, 1997, the first full
quarter the new home office was occupied. The increase was primarily due to
increased depreciation and increased taxes on the new home office opened in June
1997. Depreciation also increased due to new equipment for the new home office.
Although occupancy expenses are up significantly as a result of the new office
in Cameron, the increase in deposits attributed to the opening of the new office
is also up substantially. Between the opening of the office on June 23, 1997 and
September 30, 1997, the Association opened 960 new deposit accounts and deposits
increased by $4.8 million. Data processing expenses increased $17,000 to
$168,000 for fiscal 1997 compared to $151,000 for fiscal 1996. The increase was
due to the increased number of accounts processed and increased charges for
additional on-line work stations. Federal insurance premiums decreased $965,000
to $117,000 from $1.1 million for 1996. The decrease was due to the special SAIF
assessment of $800,000 in fiscal 1996. Advertising expenses increased $65,000 to
$146,000 for fiscal 1997 compared to $81,000 for fiscal 1996. The increased was
due primarily to increased advertising for new deposit products and promotional
items for the opening of the new home office. Other operating expenses increased
to $649,000 for fiscal 1997 from $585,000 in fiscal 1996. The increase was
primarily due to increased expenses for legal services, new checking accounts,
office supplies, telephones and postage.
Income Taxes. Income taxes increased to $1.56 million for fiscal 1997 from $1.21
million in fiscal 1996. The increase was due to an increase in taxable income
for 1997 as compared to 1996.
Comparison of Operating Results for the Years Ended September 30, 1996 and 1995
General. Net earnings for the year ended September 30, 1996 decreased by
$194,000, or 8.42%, to $2.1 million, or $0.77 per share, from $2.3 million, or
$0.83 per share, for the year ended September 30, 1995. The decrease was
primarily due to the combined effects of a $1.3 million increase in net interest
income and a $58,000 decrease in income taxes offset by a $248,000 increase in
the provision for loan loss, a $5,000 decrease in noninterest income and a $1.3
million increase in noninterest expense. For the years ended September 30, 1996
and 1995, the returns on average assets were 1.20% and 1.45%, respectively,
while the returns on average equity were 4.43% and 6.62%, respectively.
A provision in the Omnibus Appropriations Bill passed by Congress and signed by
President Clinton on September 30, 1996 included an anticipated special
assessment to recapitalize the Savings Association Insurance Fund (SAIF). The
65.7 cents per $100 of qualifying accounts as of March 31, 1995 created a
pre-tax expense of $800,000 to the Association. Without the SAIF assessment, net
income would have been $2.6 million, return on average assets would have been
1.49%, return on average equity would have been 5.49% and earnings per share
would have been $.96 for the fiscal year ended September 30, 1996.
The recapitalization of SAIF is anticipated to reduce the future deposit
insurance premiums from 23 cents per $100 of deposits to 6.4 cents per $100 of
deposits. The 6.4 cent premium is projected for the years 1997 through 1999,
then decreasing further to 2.4 cents from 2000 until 2017, assuming a merger of
SAIF and the Bank Insurance Fund (BIF).
11
Net Interest Income. For the year ended September 30, 1996, net interest income
increased by $1.3 million to $7.2 million from $6.0 million for 1995. This
reflects an increase of $1.6 million in interest income to $13.9 million from
$12.3 million and an increase of $362,000 in interest expense to $6.7 million
from $6.3 million. The increase in interest income was primarily due to an
increase in total interest-earning assets and a change in asset mix with a
higher percentage of loans as compared to investment securities. The increase in
interest expense was due to increased interest-bearing liabilities and increased
rates paid.
Interest Income. Interest income for the year ended September 30, 1996 increased
$1.6 million to $13.9 million from $12.3 million for the year ended September
30, 1995. The $15.9 million increase in average interest-earning assets resulted
in an increase in interest income of $1.4 million. The increase in average yield
on interest-earning assets provided $221,000 additional interest income in
fiscal 1996.
Interest income on loans increased $1.7 million, or 16.32%, to $12.2 million
from $10.5 million for the year ended September 30, 1995. Interest income on
investment securities, certificates of deposit and other interest-bearing
deposits decreased $77,000, or 4.24%, to $1.6 million from $1.7 million for the
year ended September 30, 1995. Interest income on loans increased due to
increased average balances and increased yields on those balances. Decreases in
average balances of investment securities, certificates of deposit and other
interest-bearing deposits offset increased yields on those items. This was the
result of the changing mix of assets with higher concentration of assets in
loans.
Interest Expense. Interest expense for the year ended September 30, 1996
increased $362,000 to $6.7 million from $6.3 million for the year ended
September 30, 1995. The increase was due to increased average balances
outstanding on interest-bearing liabilities and an increase in the average rate
paid on certificates of deposit. Depositors continued their transfer of funds
from passbook and checking accounts to higher rate certificates. Average
balances in certificates of deposit increased $4.1 million to $98.1 million for
the year ended September 30, 1996 from $94.0 million for the prior fiscal year.
Average noncertificate balances decreased $3.6 million to $23.6 million from
$27.2 million for the prior fiscal year. Interest expense on FHLB advances
increased to $187,000 for the year ended September 30, 1996 from $19,000 for the
prior year. The Association borrowed $12.3 million in fiscal 1996 compared to
$2.0 million for part of fiscal 1995.
Provision for Loan Losses. The Association maintains a program for establishing
general loan loss reserves by classifying various components of the loan
portfolio by potential risk. Management reviews the composition of the loan
portfolio monthly and adjusts the valuation allowance. In addition, the Internal
Auditor reviews the general valuation allowance on a quarterly basis and reports
the findings to the Board of Directors. During the year ended September 30,
1996, the Association charged $368,000 against earnings as a provision for loan
losses compared to $120,000 for the year ended September 30, 1995. This resulted
in an allowance for loan losses of $1.4 million, or 0.77% of total loans
receivable at September 30, 1996, compared to $994,000, or 0.69% of total loans
receivable at September 30, 1995. The ratio increased during fiscal 1996 due to
increased land and development loans, consumer loans, construction loans and
one- to four-family loans. Land and development loans increased to $9.6 million
from $4.1 million, consumer loans increased to $8.3 million from $5.6 million,
construction loans increased to $41.6 million from $33.0 million, and one- to
four-family loans increased to $109.3 million from $95.0 million. Net
charge-offs totaled $9,000 and $2,000 in 1996 and 1995, respectively. While the
Association has not experienced any significant charge-offs in the past three
years, the allowance for loan losses has been increased to recognize the
changing composition of the Association's loan portfolio and the risk associated
with different types of loans.
The Association had $2.3 million in loans classified as substandard, doubtful or
loss at September 30, 1996, compared to $1.8 million at September 30, 1995.
12
Noninterest Income. For the year ended September 30, 1996, noninterest income
was $222,000 compared to $227,000 for the year ended September 30, 1995. Loan
service charges, which consist primarily of late charges on loans receivable,
were $61,000 and $58,000 for fiscal 1996 and 1995, respectively. The increase is
primarily due to the increase in the number of loans outstanding. Service
charges on transaction accounts were $55,000 and $58,000 for fiscal 1996 and
1995, respectively. The decrease is due to fewer NOW accounts and a
corresponding decline in the service charges associated with the maintenance of
such accounts. Commissions from insurance sales by the Association's service
corporation were $22,000 and $24,000 for fiscal 1996 and 1995. Gains on the sale
of loans originated for sale were $17,000 and $19,000 for fiscal 1996 and 1995,
respectively. There were no gains or losses on sales of equity securities in
fiscal 1996 compared to a net loss of $4,000 in fiscal 1995. A patronage
dividend of $40,000 was received in 1996 from a cooperative service bureau
compared to $52,000 in 1995.
Noninterest Expense. Noninterest expense increased $1.3 million, or 50.7%, to
$3.8 million for the year ended September 30, 1996 from $2.5 million for the
year ended September 30, 1995. Compensation, payroll taxes and fringe benefits
expense increased $220,000 in fiscal 1996 compared to 1995. Expenses associated
with the RRP adopted January 29, 1996 were $186,000. There was no related
expense in 1995. ESOP expenses increased $122,000 for fiscal 1996 to $425,000.
The increase was due to more shares allocated and a higher average monthly price
in 1996 compared to 1995. Cash compensation increased $89,000 in fiscal 1996 to
$1.24 million from $1.15 million in 1995. The increase was due to more
employees, raises to existing employees and an increase in incentive bonuses.
Payroll taxes and other fringe benefits increased $19,000 due to increased
compensation. In accordance with SFAS No. 91, the Association defers certain
direct loan origination and modification costs and amortizes these costs as an
adjustment to yield. The Association has deferred $100,000 more in compensation
costs for fiscal 1996 than 1995. In fiscal 1995, the Association accrued bonus
expense of $94,000. There was no related expense in fiscal 1996. Occupancy
expense increased $22,000 in fiscal 1996 to $209,000 from $187,000 in 1995. The
increase was primarily due to increased depreciation on new equipment during the
year. Federal insurance premiums increased $799,000 to $1.1 million from
$283,000 for 1995. The increase was primarily due to the special SAIF
assessment. Other operating expenses increased to $585,000 for fiscal 1996 from
$390,000 in fiscal 1995. The increase was primarily due to increased expenses as
a publicly-owned stock institution.
Income Taxes. Income taxes decreased to $1.2 million for fiscal 1996 from $1.3
million in fiscal 1995. The decrease was due to a decrease in taxable income for
1996 as compared to 1995.
Asset and Liability Management - Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets are interest rate sensitive and by monitoring an
institution's interest rate sensitivity "gap." An asset or liability is said to
be interest rate sensitive within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap is defined as
the difference between the amount of interest-earning assets and
interest-bearing liabilities maturing or repricing within a specific time
period. A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income while a positive gap would tend to positively affect
net interest income. During a period of falling interest rates, a negative gap
would tend to positively affect net interest income while a positive gap would
tend to negatively affect net interest income.
The Association's strategy in recent years has been to reduce its exposure to
interest rate risk by better matching the maturities or repricing schedules of
its interest rate sensitive assets and liabilities. This strategy has been
implemented by originating adjustable rate mortgage loans, short term
construction loans and other variable rate or short-term loans, as well as by
purchasing short-term investments. The Association seeks to lengthen the
maturities of its deposits by promoting longer-term certificates with
substantial penalties for early withdrawal. Maturities of new FHLB advances are
scheduled to compliment the current gap position. The Association does not
solicit negotiated high-rate jumbo certificates of deposit or brokered deposits.
13
At September 30, 1997, 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 $4.0 million, representing a cumulative negative
one-year gap ratio of 1.9%. The Association has established an Asset-Liability
Management Committee (ALCO) which is responsible for reviewing the Association's
asset-liability policies. The ALCO meets monthly and reports to the Board of
Directors on interest rate risks and trends, as well as liquidity and capital
ratios and requirements.
Market Risk Management
Market risk is the risk of loss arising from adverse changes in market prices
and rates. The Association's market risk is comprised primarily of interest rate
risk resulting from its core banking activities of lending and deposit taking.
Interest rate risk is the risk that changes in market interest rates might
adversely affect the Association's net interest income or the economic value of
its portfolio of assets, liabilities and off-balance sheet contracts. Management
continually develops and applies strategies to mitigate this risk. Management
does not believe that the Association's primary market risk exposures and how
those exposures are managed in fiscal year 1997 have changed when compared to
fiscal year 1996. Market risk limits have been established by the board of
directors based on the Association's tolerance for risk.
The Association primarily relies on the OTS Net Portfolio Value (NPV) Model to
measure its susceptibility to interest rate changes. NPV is defined as the
present value of expected net cash flows from existing assets minus the present
value of expected net cash flows from existing liabilities plus or minus the
present value of net expected cash flows from existing off-balance sheet
contracts after various assumed instantaneous, parallel shifts in the yield
curve, both upward and downward.
The NPV model uses an option-based pricing approach to value one to four family
mortgages, mortgages serviced by or for others, and firm commitments to buy,
sell or originate mortgages. This approach makes use of an interest rate
simulation program to generate random interest rate paths that, in conjunction
with a prepayment model, are used to estimate mortgage cash flows. Prepayment
options and interest rate caps and floors contained in mortgages and
mortgage-related securities introduce significant uncertainty in estimating the
timing of cash flows for these instruments that warrant the use of this
sophisticated methodology. All other financial instruments are valued using a
static discounted cash flow method. Under this approach, the present value is
determined by discounting the cash flows the instrument is expected to generate
by yields currently available to investors from an instrument of comparable risk
and duration.
The following table sets forth the present value estimates for major categories
of financial instruments of the Association at September 30, 1997, as calculated
by the OTS NPV model. The table shows the present value of the instruments under
rate shock scenarios of -300 basis points to +300 basis points in increments of
100 basis points.
14
================================================================================
Present Value Estimates by Interest Rate Scenario
Calculated at September 30, 1997
-300 bp -200 bp -100 bp 0 bp +100 bp +200 bp +300 bp
- ------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Mortgage loans and securities $ 183,621 $ 181,623 $ 179,670 $ 177,125 $ 173,681 $ 169,602 $ 165,203
Nonmortgage loans 5,875 5,814 5,755 5,696 5,640 5,585 5,530
Cash, deposits and securities 16,728 16,584 16,445 16,300 16,150 16,004 15,862
Other assets 9,126 9,262 9,586 10,193 10,791 11,351 11,872
- ------------------------------------------------------------------------------------------------------------------
Total assets 215,350 213,283 211,456 209,314 206,262 202,542 198,467
- ------------------------------------------------------------------------------------------------------------------
Deposits 135,937 133,307 130,819 128,464 126,223 124,101 122,086
Borrowings 38,944 38,265 37,607 36,969 36,352 35,754 35,173
Other liabilities 3,496 3,495 3,495 3,494 3,494 3,493 3,492
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 178,377 175,067 171,921 168,927 166,069 163,348 160,751
- ------------------------------------------------------------------------------------------------------------------
Off-balance sheet positions 795 624 469 294 68 (186) (453)
- ------------------------------------------------------------------------------------------------------------------
Net portfolio value $ 37,768 $ 38,840 $ 40,004 $ 40,681 $ 40,261 $ 39,008 $ 37,263
- ------------------------------------------------------------------------------------------------------------------
$ change from base (2,913) (1,841) (677) - (420) (1,673) (3,418)
Percent change from base (7) (5) (2) 0 (1) (4) (8)
Percent change - Board limit (10) (5) (5) 0 (10) (20) (30)
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit runoffs, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the Association may undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in both
the computation of NPV and in an analysis of the maturing and repricing of
interest-earning assets and interest-bearing liabilities. Although certain
assets and liabilities may have similar maturities or periods within which they
will reprice, they may react differently to changes in market interest rates.
Additionally, adjustable-rate mortgages have features which restrict changes in
interest rates on short-term basis and over life of the asset. The proportion of
adjustable-rate loans could be reduced in future periods if market interest
rates would decrease and remain at lower levels for a sustained period, due to
increased refinance activity. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate significantly
from those assumed in the table. Finally, the ability of many borrowers to
service their adjustable-rate debt may decrease in the event of a sustained
interest rate increase.
Liquidity and Capital Resources
The Association's primary sources of funds are deposits, repayments on and sale
of loans, FHLB advances, the maturity of investment securities and interest
income. Although maturity and scheduled amortization of loans are relatively
predictable sources of funds, deposit flows and prepayments on loans are
influenced significantly by general interest rates, economic conditions and
competition.
15
The primary investing activity of the Association is the origination of loans to
be held for investment. For the fiscal years ended September 30, 1997 and 1996,
the Association originated loans for portfolio in the amounts of $97.9 million
and $98.1 million, respectively. Purchases of loans during the fiscal years
ended September 30, 1997 and 1996 were none and $882,000, respectively. The
Association also originates loans for sale. For the fiscal years ended September
30, 1997 and 1996, the Association originated $3.1 million and $1.5 million,
respectively, of mortgage loans for sale. For the fiscal years ended September
30, 1997 and 1996, these activities were funded primarily by principal
repayments of $74.1 million and $67.5 million, respectively, proceeds from the
sale of loans of $2.7 million and $1.5 million, respectively, and FHLB advances
of $26.0 million and $12.3 million, respectively.
The Association is required to maintain minimum levels of liquid assets under
OTS regulations. Savings institutions are required to maintain an average daily
balance of liquid assets (including cash, certain time deposits, certain
bankers' acceptances, certain corporate debt securities and highly rated
commercial paper, securities of certain mutual funds and specified U. S.
government, state or federal agency obligations) of not less than 5.0% of its
average daily balance of net withdrawable accounts plus short-term borrowings.
It is the Association's policy to maintain its liquidity portfolio in excess of
regulatory requirements. The Association's eligible liquidity ratios were 8.97%
and 6.43%, respectively, at September 30, 1997 and 1996.
The Company's most liquid assets are cash and cash equivalents, which include
short-term investments. The levels of these assets are dependent on the
operating, financing, lending and investment activities during any given period.
At September 30, 1997 and 1996, cash and cash equivalents were $2.9 million and
$3.8 million, respectively. The decrease in cash and cash equivalents in 1997
compared to 1996 results primarily from sources of cash receipts and the use of
cash to fund loans and investments. The principal components of cash provided
during the fiscal year ended September 30, 1997 were FHLB advances and loan
repayments. Additional sources of cash included maturing investments, sales of
loans and deposit activity.
Liquidity management for the Company is both an ongoing and long-term function
of the asset/liability management strategy. Excess Association funds generally
are invested in overnight deposits at the FHLB of Des Moines. Should the
Association require funds beyond its ability to generate them internally,
additional sources of funds are available through FHLB of Des Moines advances.
The Association borrowed $26.0 million in FHLB advances and repaid $3.0 million
of maturing FHLB advances in fiscal year 1997. During 1996, the Association
borrowed $12.3 million in FHLB advances. During the last several years, loan
originations have exceeded savings inflows, loan repayments and cash provided by
operations. Prior to fiscal year 1996, the excess resulted in reductions of the
investment securities portfolio and total liquidity. To maintain liquidity above
the required minimum, it is anticipated that FHLB advances will continue to
supplement projected savings inflows and loan repayments to fund continued loan
demand.
At September 30, 1997, the Association had outstanding loan commitments of $5.8
million, unused lines of credit of $2.3 million, and undisbursed loan funds in
process of approximately $20.7 million. Construction of the new full service
branch in Liberty, MO is scheduled to begin soon. A contract has been entered
into for the construction of the branch office, with estimated costs of $1.0
million. Completion of the 7,600 square foot facility is scheduled for April
1998. The Association anticipates it will have sufficient funds available to
meet its current loan commitments, including loan applications received and in
process prior to issuance of firm commitments and building costs. Certificates
of deposit which are scheduled to mature in one year or less at September 30,
1997 were $58.6 million. Management believes that a significant portion of such
deposits will remain with the Association.
At September 30, 1997, the Association had tangible capital of $34.2 million, or
16.8% of total adjusted assets, which is approximately $31.1 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date. The
Association had core capital of $34.2 million, or 16.8% of adjusted total
assets, which is $28.1 million above the minimum leverage ratio of 3.0% in
effect on that date. The Association had total risk-based capital of $35.8
million and total risk-weighted assets of $139.0 million, or total capital of
25.8% of risk-weighted assets. This was $24.7 million above the 8.0% requirement
in effect on that date.
16
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.
The Association has nearly completed assessment of its computer hardware Year
2000 compliance and testing of such hardware operating systems is approximately
fifty percent complete. However, the Associations has not yet determined the
cost, which will be expensed as incurred, of evaluating its computer software or
databases, or of making any modifications required to correct any Year 2000
problems.
The Association is requiring its computer systems and software vendors to
represent that the products are, or will be, Year 2000 compliant, and has
planned a program for testing of compliance. It is recognized that any Year 2000
failure could result in additional expense to the Association.
Recent Accounting Developments
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," was effective for all transfers and servicing
of financial assets and extinguishments of liabilities occurring after December
31, 1996. This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings.
Under the financial-components approach, after a transfer of financial assets,
an entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished. The financial-components
approach focuses on the assets and liabilities that exist after the transfer.
Many of these assets and liabilities are components of financial assets that
existed prior to the transfer. If a transfer does not meet the criteria for a
sale, the transfer is accounted for as a secured borrowing with pledge of
collateral. The adoption of this statement did not have a material effect on the
consolidated financial statements.
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125," defers the effective date for transfers and servicing of
financial assets and extinguishments of liabilities related to secured
borrowings, repurchase agreements and similar instruments occurring after
December 31, 1996 to those occurring after December 31, 1997.
SFAS No. 128, "Earnings per Share," will be adopted by the Company for the
interim period ending December 31, 1997. This statement established standards
for computing and presenting earnings per share (EPS) and applies to entities
with publicly held common stock or potential common stock. This statement
simplifies the standards for computing EPS previously found in APB Opinion No.
15, "Earnings per Share," and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Management believes adoption of SFAS Nos. 127 and 128 will not have a material
effect on the financial position or results of operations, nor will adoption
require additional capital resources.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which requires entities presenting a complete set of financial statements to
include details of comprehensive income that arise in the reporting period.
Comprehensive income consists of net earnings or loss for the current period and
other comprehensive income--expenses, gains and losses that bypass the statement
of earnings and are reported in a separate component of equity, i.e., unrealized
gains and losses on certain investment securities. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997.
17
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which required the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased costs of
the Association's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Association are monetary. As a result, interest
rates have a greater impact on the Association's performance than do the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the price of goods and services.
18
KPMG Peat Marwick LLP
1000 Walnut, Suite 1600 Telephone 816 474 6480 Telefax 816 556 9652
P.O. Box 13127
Kansas City, MO 64199
Independent Auditors' Report
The Board of Directors
Cameron Financial Corporation:
We have audited the accompanying consolidated balance sheets of Cameron
Financial Corporation and subsidiary (the Company) as of September 30, 1997 and
1996 and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the years in the three-year period ended September
30, 1997 These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cameron Financial
Corporation and subsidiary as of September 30, 1997 and 1996 and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
November 21, 1997
19
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1997 and 1996
==============================================================================================================
Assets 1997 1996
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 2,909,000 3,783,000
Certificates of deposit in other financial institutions 7,600,000 2,500,000
Investment securities held-to-maturity (estimated fair value of
$13,911,000 in 1997 and $18,249,000 in 1996) (note 3) 13,872,000 18,297,000
Mortgage-backed securities held-to-maturity 10,000 13,000
Loans receivable, net (notes 4 and 8) 176,790,000 154,444,000
Accrued interest receivable:
Loans and mortgage-backed securities 1,268,000 1,090,000
Investment securities 150,000 206,000
Office properties and equipment, net (note 6) 6,406,000 2,874,000
Stock in Federal Home Loan Bank (FHLB) of Des Moines, at cost 1,762,000 1,259,000
Deferred income taxes (note 9) 536,000 611,000
Other assets (notes 5 and 10) 1,201,000 1,269,000
- --------------------------------------------------------------------------------------------------------------
$ 212,504,000 186,346,000
- --------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------------------------
Liabilities:
Savings deposits (note 7) $ 128,771,000 123,108,000
Borrowings from the FHLB (note 8) 35,250,000 12,250,000
Advance payments by borrowers for property taxes and insurance 1,772,000 1,729,000
Accrued interest payable on savings deposits 137,000 141,000
Accrued expenses and other liabilities 1,506,000 1,989,000
Current income taxes payable (note 9) 401,000 314,000
- --------------------------------------------------------------------------------------------------------------
Total liabilities 167,837,000 139,531,000
- --------------------------------------------------------------------------------------------------------------
Stockholders' equity (notes 1 and 2):
Serial preferred stock, $.01 par; 2,000,000 shares authorized;
none issued or outstanding -- --
Common stock, $.01 par; 10,000,000 shares authorized;
3,026,928 shares issued 30,000 30,000
Additional paid-in capital 29,804,000 29,622,000
Retained earnings, substantially restricted (note 9) 24,567,000 22,756,000
Unearned employee benefits (note 10) (2,524,000) (3,082,000)
Treasury stock; 464,850 shares in 1997 and
177,248 shares in 1996 of common stock at cost (7,210,000) (2,511,000)
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 44,667,000 46,815,000
- --------------------------------------------------------------------------------------------------------------
Commitments (notes 4 and 12)
- --------------------------------------------------------------------------------------------------------------
$ 212,504,000 186,346,000
==============================================================================================================
See accompanying notes to consolidated financial statements.
20
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended September 30
=====================================================================================================================
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Interest income:
Loans $14,535,000 12,181,000 10,472,000
Investment securities 975,000 1,319,000 1,190,000
Mortgage-backed securities 1,000 2,000 2,000
Certificates of deposit and other 478,000 419,000 625,000
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 15,989,000 13,921,000 12,289,000
- ---------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits (note 7) 6,583,000 6,492,000 6,298,000
Borrowed money 1,596,000 187,000 19,000
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 8,179,000 6,679,000 6,317,000
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 7,810,000 7,242,000 5,972,000
Provision for loan losses (note 4) 285,000 368,000 120,000
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 7,525,000 6,874,000 5,852,000
- ---------------------------------------------------------------------------------------------------------------------
Noninterest income:
Loan and deposit service charges 162,000 130,000 131,000
Loss on sale of investment securities -- -- (4,000)
Other income 57,000 92,000 100,000
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest income 219,000 222,000 227,000
- ---------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Compensation, payroll taxes and fringe
benefits (note 10) 2,172,000 1,665,000 1,445,000
Occupancy expense 418,000 209,000 187,000
Data processing 168,000 151,000 129,000
Federal deposit insurance premiums (note 11) 117,000 1,082,000 283,000
Advertising 146,000 81,000 67,000
Other operating expenses 649,000 584,000 392,000
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest expense 3,670,000 3,772,000 2,503,000
- ---------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 4,074,000 3,324,000 3,576,000
Income taxes (note 8) 1,564,000 1,214,000 1,272,000
- ---------------------------------------------------------------------------------------------------------------------
Net earnings $ 2,510,000 2,110,000 2,304,000
- ---------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.97 0.77 0.83
- ---------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 2,578,957 2,740,759 2,784,906
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
21
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended September 30
============================================================================================================================
Net
Additional unrealized loss
Common paid-in Retained on marketable
stock capital earnings equity securities
- ----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 $ -- -- 19,291,000 (24,000)
Adoption of SFAS No. 115 -- -- -- 24,000
Sale of common stock, net of offering costs of $821,000 30,000 29,418,000 -- --
Unearned ESOP shares -- -- -- --
Net earnings -- -- 2,304,000 --
Dividend declared ($.07 per share) -- -- (197,000) --
Allocation of ESOP shares -- 58,000 -- --
Change in gain (loss) on available for sale securities -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 30,000 29,476,000 21,398,000 --
Adoption of Recognition and
Retention Plan (RRP) (note 10) 1,000 1,398,000 -- --
Amortization of RRP, net of forfeitures -- -- -- --
Net earnings -- -- 2,110,000 --
Dividend declared ($.28 per share) -- -- (752,000) --
Allocation of ESOP shares -- 124,000 -- --
Purchase 271,223 shares of treasury stock -- -- -- --
Retirement 93,975 shares of treasury stock (1,000) (1,376,000) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 30,000 29,622,000 22,756,000 --
Amortization of RRP, net of forfeitures -- -- -- --
Net earnings -- -- 2,510,000 --
Dividend declared ($.28 per share) -- -- (699,000) --
Allocation of ESOP shares -- 182,000 -- --
Purchase 287,602 shares of treasury stock -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $ 30,000 29,804,000 24,567,000 --
============================================================================================================================
See accompanying notes to consolidated financial statements.
22
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended September 30
==========================================================================================================================
Net gain
(loss) on Unearned
available-for- employee Treasury
sale securities benefits stock Total
- --------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 -- -- -- 19,267,000
Adoption of SFAS No. 115 2,000 -- -- 26,000
Sale of common stock, net of offering costs of $821,000 -- -- -- 29,448,000
Unearned ESOP shares -- (2,422,000) -- (2,422,000)
Net earnings -- -- -- 2,304,000
Dividend declared ($.07 per share) -- -- -- (197,000)
Allocation of ESOP shares -- 245,000 -- 303,000
Change in gain (loss) on available for sale securities (2,000) -- -- (2,000)
- --------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 -- (2,177,000) -- 48,727,000
Adoption of Recognition and
Retention Plan (RRP) (note 10) -- (1,399,000) -- --
Amortization of RRP, net of forfeitures -- 193,000 (7,000) 186,000
Net earnings -- -- -- 2,110,000
Dividend declared ($.28 per share) -- -- -- (752,000)
Allocation of ESOP shares -- 301,000 -- 425,000
Purchase 271,223 shares of treasury stock -- -- (3,881,000) (3,881,000)
Retirement 93,975 shares of treasury stock -- -- 1,377,000 --
- --------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 -- (3,082,000) (2,511,000) 46,815,000
Amortization of RRP, net of forfeitures -- 274,000 -- 274,000
Net earnings -- -- -- 2,510,000
Dividend declared ($.28 per share) -- -- -- (699,000)
Allocation of ESOP shares -- 284,000 -- 466,000
Purchase 287,602 shares of treasury stock -- -- (4,699,000) (4,699,000)
- --------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 -- (2,524,000) (7,210,000) 44,667,000
==========================================================================================================================
See accompanying notes to consolidated financial statements.
23
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended September 30
==============================================================================================================
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 2,510,000 2,110,000 2,304,000
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 137,000 50,000 7,000
Provision for loan losses 285,000 368,000 120,000
Provision for losses on real estate owned 3,000 -- --
Amortization of RRP and allocation of ESOP shares 740,000 611,000 303,000
Deferred income taxes 75,000 (403,000) 64,000
(Gain) loss on sales of real estate owned (4,000) (3,000) 1,000
Loss on sales of assets -- -- 5,000
Stock dividend received on FHLB stock -- (24,000) --
Amortization of deferred loan fees (490,000) (397,000) (321,000)
Proceeds from sales of loans held for sale 2,693,000 1,549,000 1,121,000
Origination of loans held for sale (3,137,000) (1,450,000) (1,184,000)
Gain on sale of loans held for sale (23,000) (17,000) (19,000)
Changes in assets and liabilities:
Accrued interest receivable (122,000) (49,000) (307,000)
Other assets 68,000 333,000 (118,000)
Accrued interest payable (4,000) (14,000) 29,000
Accrued expenses and other liabilities (483,000) 1,003,000 118,000
Current income taxes payable 87,000 24,000 133,000
- --------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 2,335,000 3,691,000 2,256,000
- --------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net increase in loans receivable (21,673,000) (23,938,000) (15,451,000)
Purchase of loans receivable -- (882,000) (26,000)
Mortgage-backed securities principal repayments 3,000 4,000 3,000
Maturities of investment securities held-to-maturity 6,456,000 12,751,000 2,560,000
Purchase of investment securities held-to-maturity (2,000,000) (4,541,000) (14,528,000)
Proceeds from sale of investment securities
available-for-sale -- -- 1,870,000
Purchase of FHLB stock (503,000) -- --
Net (increase) decrease in certificates of deposit in
other financial institutions -- 991,000 5,050,000
Net proceeds from sales of real estate owned -- 2,000 --
Purchase of life insurance policies -- -- (1,270,000)
Additions and improvements to real estate owned -- (7,000) --
Purchase of office properties and equipment (3,700,000) (2,259,000) (126,000)
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $(21,417,000) (17,879,000) (21,918,000)
- --------------------------------------------------------------------------------------------------------------
(Continued)
24
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
=========================================================================================================================
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from sale of common stock, net of costs of issuance $ -- -- 27,026,000
Net (decrease) increase in NOW, passbook and money
market demand amounts (1,712,000) 139,000 (7,864,000)
Net increase in certificate accounts 7,375,000 1,689,000 6,034,000
Net increase in advance payments by borrowers
for taxes and insurance 43,000 101,000 149,000
Proceeds from Federal Home Loan Bank advances 26,000,000 12,250,000 2,500,000
Repayment of Federal Home Loan Bank advances (3,000,000) -- (2,500,000)
Dividends paid (699,000) (762,000) --
Purchase of treasury stock (4,699,000) (3,881,000) --
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 23,308,000 9,536,000 25,345,000
- -------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash 4,226,000 (4,652,000) 5,683,000
Cash and cash equivalents at beginning of year 6,283,000 10,935,000 5,252,000
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 10,509,000 6,283,000 10,935,000
=========================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 1,401,000 1,594,000 1,061,000
=========================================================================================================================
Cash paid during the year for interest $ 8,168,000 6,505,000 6,268,000
=========================================================================================================================
Supplemental schedule of noncash investing and financing activities:
Conversion of loans to real estate owned $ -- 121,000 63,000
=========================================================================================================================
Conversion of real estate owned to loans $ 51,000 59,000 63,000
=========================================================================================================================
Dividends declared and payable $ 168,000 186,000 197,000
=========================================================================================================================
Issuance of unearned ESOP shares $ -- -- 2,422,000
=========================================================================================================================
Issuance of unearned RRP shares $ -- 1,399,000 --
=========================================================================================================================
See accompanying notes to consolidated financial statements.
25
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
================================================================================
(1) Conversion and Acquisition of the Association by the Company
Cameron Financial Corporation (the "Company") was incorporated in
December 1994 for the purpose of becoming the savings and loan holding
company of The Cameron Savings & Loan Association, F.A. (the
"Association") in connection with the Association's conversion from a
federally chartered mutual savings and loan to a federally chartered
stock savings and loan. Pursuant to its Plan of Conversion, on March 31,
1995, the Company issued and sold 3,026,928 shares of its common stock,
in a subscription and community offering to the Association's depositors
and borrowers, the Company's employee stock ownership plan and the
general public. Total proceeds of the offering, net of costs and funding
the ESOP, were approximately $27,026,000. The Company utilized
$14,724,000 of the net proceeds to acquire all of the common stock
issued by the Association in connection with its conversion. The
remaining proceeds were retained by the Company and invested in
government and agency securities.
The acquisition of the Association by the Company was accounted for in a
manner similar to the pooling-of-interests method. Accordingly, the
accounting basis of the assets, liabilities and equity accounts of the
Association remained the same as prior to the conversion and acquisition
and were not adjusted to their fair values, and no purchase accounting
adjustments were recorded. All intercompany accounts and transactions
are eliminated in consolidation.
In order to grant priority to eligible account holders in the event of
future liquidation, the Association, at the time of conversion
established a liquidation account in the amount equal to the
Association's capital as of September 30, 1994 ($19,291,000). In the
event of the future liquidation of the Association, eligible account
holders and supplemental eligible account holders who continue to
maintain their deposit accounts shall be entitled to receive a
distribution from the liquidation account. The total amount of the
liquidation account will be decreased as the balance of the eligible
account holders and supplemental eligible account holders is reduced
subsequent to the conversion, based on an annual determination of such
balances. The Association may not declare or pay a cash dividend to the
Company on, or repurchase any of its common stock if the effect thereof
would cause the retained earnings of the Association to be reduced below
the amount required for the liquidation account. Except for such
restrictions, the existence of the liquidation account does not restrict
the use or application of the Association's retained earnings.
(2) Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
For purposes of the statements of cash flows, all short-term investments
with a maturity of three months or less at date of purchase are
considered cash equivalents. Cash and cash equivalents reflected on the
balance sheet include interest earning deposits of $2,448,000 and
$3,333,000 at September 30, 1997 and 1996, respectively.
(b) Investment Securities
The Company and the Association classify their investment securities as
held-to-maturity, available-for-sale or trading. Held-to-maturity
securities are recorded at amortized cost adjusted for amortization of
premiums and accretion of discounts that are recognized in income using
the interest method over the period to maturity. Available-for-sale and
trading securities are recorded at fair value. Adjustments to record
available-for-sale securities at fair value are reflected, net of tax,
in equity. At September 30, 1997 and 1996, all of the Company's and
Association's investment and mortgage-backed securities are classified
as held-to-maturity.
Gain or loss on the sale of securities is recognized using the specific
identification method.
26
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(c) Provisions for Losses on Loans and Interest Receivable
Provision for losses on loans receivable are based upon management's
estimate of the amount required to maintain an adequate allowance for
losses, relative to the risks in the loan portfolio. The estimate is
based on reviews of the portfolio, including assessment of the carrying
value of the loans to the estimated net realizable value of the related
underlying collateral, considering past loss experience, current
economic conditions and such other factors which, in the opinion of
management, deserve current recognition. The Association is subject to
the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities. As an integral part of
those examinations, the various regulatory agencies periodically review
the Association's allowance for loan losses. Such agencies may require
the Association to recognize changes to the allowance based on their
judgments about information available to them at the time of their
examination.
Accrual of interest income on loans is discontinued for those loans with
interest more than ninety days delinquent or sooner if management
believes collectibility of the interest is not probable. Management's
assessment of collectibility is primarily based on a comparison of the
estimated value of underlying collateral to the related loan and accrued
interest receivable balances.
A loan is considered impaired when it is probable a creditor will be
unable to collect all amounts due both principal and interest -
according to the contractual terms of the loan agreement. When measuring
impairment, the expected future cash flows of an impaired loan are
required to be discounted at the loan's effective interest rate.
Impairment may also be measured by reference to an observable market
price, if one exists, or the fair value of the collateral for a
collateral-dependent loan. Regardless of the historical measurement
method used, the Association measures impairment based on the fair value
of the collateral when the creditor determines foreclosure is probable.
Additionally, impairment of a restructured loan is measured by
discounting the total expected future cash flows at the loan's effective
rate of interest as stated in the original loan agreement.
The Association applies the methods described above to multifamily real
estate loans, commercial real estate loans and restructured loans.
Smaller balance, homogeneous loans, including one- to four-family
residential and construction loans and consumer loans, are collectively
evaluated for impairment.
(d) Deferred Loan Fees and Costs
Mortgage loan origination fees and direct mortgage loan origination
costs are deferred and the net fee or cost is recognized in earnings
using the interest method over the contractual life of the loan. Direct
loan origination costs for other loans are expensed, as such costs are
not material in amount.
(e) Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or fair value. Net unrealized losses
are recognized through a valuation allowance by charges to income. At
September 30, 1997, loans held for sale totaled $466,000. At September
30, 1996, there were no loans held for sale.
27
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(f) Real Estate Owned
Real estate owned includes real estate acquired through, or in lieu of,
loan foreclosure and is carried at the lower of cost or estimated fair
value less estimated cost to sell. Revenue and expenses from operations
and the provision for losses on real estate owned are included in other
operating expense in the accompanying consolidated statements of
earnings.
(g) Office Properties and Equipment
Office properties and equipment are recorded at cost, less accumulated
depreciation. Depreciation is provided on office properties and
equipment using the straight-line method over the estimated useful lives
of the related assets.
(h) Stock in Federal Home Loan Bank (FHLB)
The Association is a member of the FHLB system. As a member, the
Association is required to purchase and hold stock in the FHLB of Des
Moines in an amount equal to the greater of (a) 1% of unpaid residential
loans at the beginning of each year, (b) 5% of FHLB advances, or (c) .3%
of total assets. The Association's investment in such stock is recorded
at cost.
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the difference between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(j) Earnings Per Share
Earnings per share is based upon the weighted average common and common
equivalent shares outstanding, less treasury shares and unallocated ESOP
shares. Stock options and the shares awarded under the RRP (see note 10)
are regarded as common stock equivalents and are therefore considered in
both primary and fully diluted earnings per share calculations. Common
stock equivalents are computed using the treasury stock method.
For 1995, earnings per share is based upon the total number of common
shares outstanding after the conversion and acquisition described above
and are presented as if those shares had been outstanding for the entire
year. The 1995 computation does not reflect the pro forma effect of any
investment income that would have been earned if the net proceeds from
conversion had been received at the beginning of the year.
(k) Use of Estimates
Management of the Association has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
28
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(l) New Account Pronouncements
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," was effective for all
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. This statement provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control.
It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings.
Under the financial-components approach, after a transfer of financial
assets, an entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial
assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets
and liabilities that exist after the transfer. Many of these assets and
liabilities are components of financial assets that existed prior to the
transfer. If a transfer does not meet the criteria for a sale, the
transfer is accounted for as a secured borrowing with pledge of
collateral. The adoption of this statement did not have a material
effect on the consolidated financial statements.
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125," defers the effective date for transfers and
servicing of financial assets and extinguishments of liabilities related
to secured borrowings, repurchase agreements and similar instruments
occurring after December 31, 1996 to those occurring after December 31,
1997.
SFAS No. 128, "Earnings per Share," will be adopted by the Company for
the interim period ending December 31, 1997. This statement establishes
standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common
stock. This statement simplifies the standards for computing EPS
previously found in APB Opinion No. 15, "Earnings per Share," and makes
them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation.
Management believes adoption of SFAS Nos. 127 and 128 will not have a
material effect on the financial position or results of operations, nor
will adoption require additional capital resources.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which requires entities presenting a complete set of financial
statements to include details of comprehensive income that arise in the
reporting period. Comprehensive income consists of net earnings or loss
for the current period and other comprehensive income--expenses, gains,
and losses that bypass the statement of earnings and are reported in a
separate component of equity, i.e., unrealized gains and losses on
certain investment securities. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997.
29
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(3) Investment Securities
A summary, by maturity dates, of investment securities held-to-maturity
at September 30, 1997 follows:
=================================================================================================================
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
- -----------------------------------------------------------------------------------------------------------------
United States government and agency obli-
gations maturing in less than one year $ 3,483,000 14,000 (7,000) 3,490,000
United States government and agency
obligations maturing after one year
but within five years 9,481,000 51,000 (19,000) 9,513,000
United States government and agency
obligations maturing after five
years but within ten years - - - -
- ----------------------------------------------------------------------------------------------------------------
Privately issued bonds maturing in:
2001 908,000 - - 908,000
- -----------------------------------------------------------------------------------------------------------------
Total $ 13,872,000 65,000 (26,000) 13,911,000
=================================================================================================================
A summary, by maturity dates, of investment securities held-to-maturity
at September 30, 1996 follows:
- -----------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
- -----------------------------------------------------------------------------------------------------------------
United States government and agency obli-
gations maturing in less than one year $ 3,988,000 16,000 (1,000) 4,003,000
United States government and agency
obligations maturing after one year
but within five years 12,194,000 41,000 (122,000) 12,113,000
United States government and agency
obligations maturing after five
years but within ten years 500,000 - (4,000) 496,000
Privately issued bonds maturing in:
2001 615,000 41,000 - 656,000
2005 1,000,000 - (19,000) 981,000
- -----------------------------------------------------------------------------------------------------------------
Total $ 18,297,000 98,000 (146,000) 18,249,000
=================================================================================================================
Proceeds from the sale of investment securities for the year ended
September 30, 1995 totaled $1,870,000, and resulted in gross realized
losses of $53,000 and gross realized gains of $49,000. There were no
sales of investment securities in the years ended September 30, 1996 and
1997.
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(4) Loans Receivable
Loans receivable at September 30 are summarized as follows:
============================================================================================
1997 1996
- --------------------------------------------------------------------------------------------
Residential real estate loans:
One- to four-family $123,390,000 109,292,000
Multifamily 4,226,000 2,908,000
Held for sale 466,000 --
Construction loans, primarily single family 51,447,000 41,646,000
Land 8,257,000 9,605,000
Commercial real estate 3,403,000 4,322,000
Consumer loans 8,709,000 8,330,000
- --------------------------------------------------------------------------------------------
Total loans receivable 199,898,000 176,103,000
Less:
Loans in process 20,679,000 19,502,000
Deferred loans fees, net 805,000 804,000
Allowance for loan losses 1,624,000 1,353,000
- --------------------------------------------------------------------------------------------
$176,790,000 154,444,000
============================================================================================
The Association grants residential and commercial real estate and other
consumer and commercial loans primarily in its lending territory which
includes Clay, Platte, and Clinton Counties in Missouri and contiguous
counties. Although the Association has a diversified loan portfolio, a
substantial portion of its borrowers' ability to repay their loans is
dependent upon economic conditions in the Association's lending
territory.
The Association makes contractual commitments to extend credit which are
subject to the Association's credit monitoring procedures. At September
30, 1997, the Association was committed to originate loans receivable
aggregating approximately $5,807,000, including fixed-rate loan
commitments of approximately $1,466,000, with interest rates ranging
from 7.75% to 9.0%. At September 30, 1997, commitments to sell loans
were $828,000. There were no commitments to buy loans.
At September 30, 1997 and 1996, the Association had loans of $604,000
and $725,000, respectively, to various directors, officers and their
families. During 1997, $74,000 of new loans were made and repayments
totaled $181,000. These loans are made subject to the same interest
rates and underwriting standards used to originate loans to other
borrowers of the Association.
31
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
The following is a summary of activity in the allowance for loan losses
for the years ended September 30:
=================================================================================================
1997 1996 1995
- -------------------------------------------------------------------------------------------------
Balance at beginning of year $ 1,353,000 994,000 876,000
Provision for loan losses 285,000 368,000 120,000
Charge-offs (14,000) (9,000) (2,000)
- -------------------------------------------------------------------------------------------------
Balance at end of year $ 1,624,000 1,353,000 994,000
- -------------------------------------------------------------------------------------------------
Loans delinquent ninety days or more at September 30, 1997 and 1996 were
approximately $1,010,000 and $1,478,000, respectively, including
nonaccrual loans of approximately $372,000 and $769,000, respectively.
Interest that would have been recognized on nonaccrual loans under their
original terms but for which an allowance has been established amounted
to $21,000 and $40,000 at September 30, 1997 and 1996, respectively. The
amount that was included in income on such loans was $13,000 and $40,000
for the years ended September 30, 1997 and 1996, respectively.
(5) Real Estate Owned
At September 30, 1996, the Association had $70,000 in real estate owned
included in other assets in the accompanying balance sheet. At September
30, 1997, the Association had no real estate owned.
(6) Office Properties and Equipment
At September 30, 1997 and 1996, office properties and equipment
consisted of the following:
==================================================================================================
1997 1996
- --------------------------------------------------------------------------------------------------
Land $1,278,000 428,000
Buildings and improvements 4,736,000 127,000
Furniture, fixtures and equipment 649,000 427,000
Construction in progress 22,000 2,105,000
- --------------------------------------------------------------------------------------------------
6,685,000 3,087,000
Less accumulated depreciation 279,000 213,000
- --------------------------------------------------------------------------------------------------
$6,406,000 2,874,000
==================================================================================================
32
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
The Association completed construction on its new home office building
in Cameron, Missouri in June 1997. Total project costs of the new
building was $4,619,000. In January 1997, the Company purchased a parcel
of land for $850,000 in Liberty, Missouri for the purpose of building a
branch office, which the Association will lease as a branch location,
and for the development and sale of the adjoining lots. It is expected
that the construction costs of the new branch will be $1,000,000 with
completion expected in April 1998. The Company plans to fund the
construction of the Liberty office with existing short-term investment
securities and cash provided from operations.
(7) Savings Deposits
Savings deposits at September 30, 1997 and 1996 are summarized as
follows:
===================================================================================================================
1997 1996
------------------------ ------------------------
Rate Amount Percent Amount Percent
- -------------------------------------------------------------------------------------------------------------------
Balance by interest rate:
NOW and super NOW
accounts 0-3.00% $ 4,362,000 3.4% $ 5,294,000 4.3%
Passbook accounts 3.25 12,022,000 9.3 11,179,000 9.1
Money market demand
accounts 3.00-4.89 5,871,000 4.6 7,494,000 6.1
- -------------------------------------------------------------------------------------------------------------------
22,255,000 17.3 23,967,000 19.5
- -------------------------------------------------------------------------------------------------------------------
Certificate accounts 0-3.99 4,000 - 4,000 -
4.00-4.99 208,000 .2 1,280,000 1.0
5.00-5.99 59,302,000 46.1 62,586,000 50.8
6.00-6.99 39,118,000 30.3 25,793,000 21.0
7.00-7.99 5,844,000 4.5 7,389,000 6.0
8.00-8.99 1,868,000 1.5 1,923,000 1.6
9.00 172,000 .1 166,000 .1
- -------------------------------------------------------------------------------------------------------------------
106,516,000 82.7 99,141,000 80.5
- -------------------------------------------------------------------------------------------------------------------
$128,771,000 100.0% $123,108,000 100.0%
===================================================================================================================
Weighted average interest rate on
savings deposits at September 30 5.49% 5.33%
===================================================================================================================
1997 1996
------------------------ ------------------------
Amount Percent Amount Percent
- -------------------------------------------------------------------------------------------------------------------
Contractual maturity of certificate accounts:
Under 12 months $ 58,586,000 55.0 $ 49,547,000 50.0%
12 to 24 months 12,741,000 12.0 18,131,000 18.3
24 to 36 months 6,563,000 6.2 6,383,000 6.4
36 to 48 months 3,449,000 3.2 4,506,000 4.5
48 to 60 months 3,660,000 3.4 2,851,000 2.9
Over 60 months 21,517,000 20.2 17,723,000 17.9
- -------------------------------------------------------------------------------------------------------------------
$106,516,000 100.0 $ 99,141,000 100.0%
===================================================================================================================
33
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
===================================================================================================================
The components of interest expense on savings deposits are as follows for the years ended September 30:
===================================================================================================================
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
NOW, super NOW, passbook and money market $ 696,000 691,000 844,000
Certificate accounts 5,886,000 5,801,000 5,454,000
- -------------------------------------------------------------------------------------------------------------------
$6,582,000 6,492,000 6,298,000
===================================================================================================================
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was approximately $8,248,000 and $9,119,000 at
September 30, 1997 and 1996, respectively. The amount by which
individual certificates of deposit exceed $100,000 are not insured by
the Federal Deposit Insurance Corporation. The Association has pledged
investment securities with an amortized cost of approximately $3,795,000
and $3,170,000 at September 30, 1997 and 1996, respectively, as
additional security on savings deposits.
(8) FHLB Advances
The Association had the following debt outstanding from the Federal Home
Loan Bank of Des Moines at September 30, 1997:
===================================================================================================================
$3,000,000 advance, interest at 5.78%, due October 1997 $ 3,000,000
$2,000,000 advance, interest at 5.49%, due February 1998 2,000,000
$5,000,000 advance, interest at 5.628%, due April 1998 5,000,000
$1,000,000 advance, interest at 5.860%, due July 1998 1,000,000
$2,000,000 advance, interest at 6.21%, due September 1998 2,000,000
$3,000,000 advance, interest at 6.070%, due January 1999 3,000,000
$1,000,000 advance, interest at 6.75%, due July 1999 1,000,000
$2,000,000 advance, interest at 6.4%, due September 1999 2,000,000
$2,000,000 advance, interest at 6.19%, due January 2000 2,000,000
$5,000,000 advance, interest at 5.55%, due June 2000 5,000,000
$1,000,000 advance, interest at 6.46%, due October 2000 1,000,000
$1,250,000 advance, interest at 5.79%, due December 2000 1,250,000
$1,000,000 advance, interest at 6.36%, due January 2001 1,000,000
$1,000,000 advance, interest at 7.01%, due July 2001 1,000,000
$2,000,000 advance, interest at 6.49%, due December 2001 2,000,000
$1,000,000 advance, interest at 6.43%, due January 2002 1,000,000
$1,000,000 advance, interest at 6.61%, due October 2002 1,000,000
$1,000,000 advance, interest at 6.57%, due December 2002 1,000,000
- -------------------------------------------------------------------------------------------------------------------
$35,250,000
===================================================================================================================
The advances from the FHLB are collateralized by first mortgage loans.
34
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Scheduled maturities of FHLB advances are as follows:
- --------------------------------------------------------------------------------
Year ending September 30,
1998 $13,000,000
1999 6,000,000
2000 9,250,000
2001 4,000,000
2002 3,000,000
- --------------------------------------------------------------------------------
$35,250,000
================================================================================
(9) Income Taxes
The components of income tax expense are as follows:
=================================================================================================================
Federal State Total
- -----------------------------------------------------------------------------------------------------------------
Year ended September 30, 1997:
Current $1,355,000 134,000 1,489,000
Deferred 42,000 33,000 75,000
- -----------------------------------------------------------------------------------------------------------------
$1,397,000 167,000 1,564,000
=================================================================================================================
Year ended September 30, 1996:
Current 1,440,000 177,000 1,617,000
Deferred (351,000) (52,000) (403,000)
- -----------------------------------------------------------------------------------------------------------------
$1,089,000 125,000 1,214,000
=================================================================================================================
Year ended September 30, 1995:
Current $1,088,000 120,000 1,208,000
Deferred 47,000 17,000 64,000
- -----------------------------------------------------------------------------------------------------------------
$1,135,000 137,000 1,272,000
=================================================================================================================
The reasons for the differences between the effective tax rates and the
expected federal income tax rate of 34% are as follows:
===================================================================================================================
Percentage of earnings
before income taxes
-------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Expected federal income tax rate 34.0% 34.0 34.0
State taxes, net of federal tax benefit 2.6 2.3 2.5
Other, net 1.8 0.1 (0.9)
- -------------------------------------------------------------------------------------------------------------------
Effective income tax rate 38.4% 36.4 35.6
===================================================================================================================
35
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
===================================================================================================================
Temporary differences which give rise to a significant portion of deferred tax assets and liabilities at
September 30, 1997 and 1996 are as follows:
===================================================================================================================
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Accrued and prepaid expenses $ - 295,000
Accrued compensation 305,000 283,000
Allowance for loan losses 548,000 457,000
Other 8,000 -
- -------------------------------------------------------------------------------------------------------------------
Deferred income tax asset 861,000 1,035,000
- -------------------------------------------------------------------------------------------------------------------
Loan origination fees, net of deferred costs (40,000) (123,000)
FHLB dividends (186,000) (186,000)
Accrued and prepaid expenses (12,000) -
Federal and state taxes related to reversing temporary differences (56,000) (69,000)
Accrued interest on loans originated prior to September 25, 1985 (18,000) (25,000)
Depreciation of fixed assets (13,000) (13,000)
Other - (8,000)
- -------------------------------------------------------------------------------------------------------------------
Deferred income tax liability (325,000) (424,000)
- -------------------------------------------------------------------------------------------------------------------
Net deferred income taxes $ 536,000 611,000
- -------------------------------------------------------------------------------------------------------------------
There was no valuation allowance for deferred tax assets at September
30, 1997 or 1996. Management believes that it is more likely than not
that the results of future operations will generate sufficient taxable
income to realize the deferred tax assets.
Prior to 1996, savings institutions that met certain definitional tests
and other conditions prescribed by the Internal Revenue Code were
allowed to deduct, within limitations, a bad debt deduction under either
of two alternative methods: (i) a deduction based on a percentage of
taxable income (most recently 8%), or (ii) a deduction based upon actual
loan loss experience (the Experience Method). On August 20, 1996, the
President signed the Small Business Job Protection Act (the Act) into
law. The Act repealed the bad debt deduction based on a percentage of
taxable income effective for taxable years beginning after December 31,
1995. The Association, therefore, will be limited to the use of the bad
debt deduction computed under the Experience Method for its year ended
September 30, 1997, the first period affected by the Act. The
Association's base year tax bad debt reserve balance of approximately
$4.6 million as of September 30, 1997, will, in future years, be subject
to recapture in whole or in part upon the occurrence of certain events,
such as a distribution to stockholders in excess of the Association's
current and accumulated earnings and profits, a redemption of shares or
upon a partial or complete liquidation of the Association. The
Association does not intend to make distributions to stockholders that
would result in recapture of any portion of its base year bad debt
reserve. Since management intends to use the reserve only for the
purpose for which it was intended, a deferred tax liability of
approximately $1.6 million has not been recorded.
36
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(10) Benefit Plans
Pension and Retirement Plans
The Association has a supplemental retirement plan to provide members of
the Board of Directors with supplemental retirement, disability and
death benefits. The Plan provides benefits for directors or their
beneficiaries after they have completed service to the Association. The
annual benefits are equal to the number of years of service on the board
times $500, paid monthly for ten years following retirement. Expense
under the plan for the years ended September 30, 1997, 1996 and 1995
amounted to $32,000, $29,000 and $24,000, respectively. The Association
purchased life insurance policies to fund its obligations under the plan
in October 1994, which are included in other assets.
Employee Stock Ownership Plan (ESOP)
All employees meeting age and service requirements are eligible to
participate in an ESOP. Under the terms of the ESOP, contributions are
allocated to participants using a formula based upon compensation.
Participants vest over five years.
In connection with the conversion described in note 1, the ESOP
purchased 242,154 shares of Company common stock. The remaining
unamortized cost of such shares purchased is reflected as unearned
employee benefits in the accompanying consolidated balance sheet. On
September 30, 1997, 1996 and 1995, 28,215, 30,605 and 24,330 shares were
allocated to participants, respectively. The fair value of such shares,
$466,000, $425,000 and $303,000, respectively, were charged to expense.
The fair value of the remaining unallocated shares at September 30,
1997, 1996, and 1995 aggregated $3,060,000, $2,761,000 and $3,158,000,
respectively.
Stock Option and Recognition and Retention Plan
The shareholder approved the adoption of a stock option plan and a
recognition and retention plan (RRP) in January 1996.
Under the RRP, common stock aggregating 121,077 shares may be awarded to
certain officers and directors of the Company or the Association. In
January 1996, the Company awarded 95,675 shares with a market value of
$1,399,000. These shares have been reflected as unearned employee
benefits in the accompanying consolidated balance sheet. Participants
vest over five years. As the awards vest, they are reflected as
compensation expense. The amortization of the RRP awards during 1997 and
1996 was $274,000 and $193,000, respectively. The unamortized cost of
the RRP awards at September 30, 1997 and 1996 was $932,000 and
$1,206,000, respectively.
Under the stock option plan, options to acquire 302,692 shares of the
Company's common stock may be granted to certain officers and directors
of the Company or the Association. In January 1996, the Company awarded
options to acquire 186,323 shares of stock. The options enable the
recipients to purchase stock at an exercise price equal to the fair
market value of the stock at the date of the grant ($14.56). The options
vest over the five years following the date of grant. No stock options
were exercised by recipients during 1997 and 1996.
37
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
The Company applies APB 25 and related interpretations in accounting for
the stock option plan. Accordingly, no compensation expense has been
recognized in the accompanying consolidated financial statements. SFAS
No. 123 requires pro forma disclosures for companies that do not adopt
its fair value method of accounting for stock-based employee
compensation. Accordingly, the following pro forma information presents
net income and earnings per share as if the Standard's fair value method
had been used to measure compensation cost for stock options granted.
================================================================================
1997 1996
- --------------------------------------------------------------------------------
Net income as reported $2,510,000 2,110,000
Pro forma net income 2,460,000 2,071,000
Earnings per share as reported .97 .77
Pro forma earnings per share .95 .76
- --------------------------------------------------------------------------------
The fair value of options granted of $2.20 was estimated using the
following weighted-average information: risk-free interest rate of 5.5%,
expected life of four years, expected volatility of stock price of 6%
and expected dividends of 1.5% per year.
(11) Federal Deposit Insurance Premiums
The deposits of the Association are presently insured by the Savings
Association Insurance Fund (SAIF), which together with the Bank
Insurance Fund (BIF), are the two insurance funds administered by the
FDIC. In the third quarter of 1995, the FDIC lowered the premium
schedule for BIF-insured institutions in anticipation of the BIF
achieving its statutory reserve ratio. The reduced premium created a
significant disparity in deposit insurance expense, causing a
competitive advantage for BIF members. Legislation enacted on September
30, 1996 provided for a one-time special assessment of .657% of the
Association's SAIF insured deposits at March 31, 1995. The purpose of
the assessment is to bring the SAIF to its statutory reserve ratio.
Based on the above formula, the Association's SAIF assessment of
$800,000 was recorded in the 1996 consolidated financial statements.
(12) Regulatory Capital Requirements
The Financial Institution Reform, Recovery and Enforcement Act of 1989
(FIRREA) and the capital regulations of the OTS promulgated thereunder
require institutions to have a minimum regulatory tangible capital equal
to 1.5% of total assets, a minimum 3% leverage capital ratio and a
minimum 8% risk-based capital ratio. These capital standards set forth
in the capital regulations must generally be no less stringent than the
capital standards applicable to national banks. FIRREA also specifies
the required ratio of housing-related assets in order to qualify as a
savings institution.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) established additional capital requirements which require
regulatory action against depository institutions in one of the
undercapitalized categories defined in implementing regulations.
Institutions such as the Association, which are defined as well
capitalized, must generally have a leverage (core) capital ratio of at
least 5%, a Tier 1 risk-based capital ratio of at least 6% and a total
risk-based capital ratio of at least 10%. FDICIA also provides for
increased supervision by federal regulatory agencies, increased
reporting requirements for insured depository institutions and other
changes in the legal and regulatory environment for such institutions.
38
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
===============================================================================================================
The Association met all regulatory capital requirements at September 30, 1997, 1996 and 1995. The
Association's actual and required capital amounts and ratios as of September 30, 1997 were as follows:
===============================================================================================================
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
--------------------- ------------------ -------------------
Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------
Tangible capital
(to tangible assets) $34,186,000 16.81% $ 3,051,000 1.5% $ - - %
Tier I leverage (core) capital
(to adjusted tangible assets) 34,186,000 16.81 6,102,000 3.0 10,170,000 5.0
Risk-based capital
(to risk-weighted assets) 35,784,000 25.75 11,119,000 8.0 13,899,000 10.0
Tier I leverage risk-based capital
(to risk-weighted assets) 34,186,000 16.81 - - 12,204,000 6.0
===============================================================================================================
(13) Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
and SFAS No. 119, "Disclosures About Derivative Financial Instruments
and Fair Value of Financial Instruments," require disclosure of
estimated fair values of financial instruments, both assets and
liabilities recognized and not recognized in the consolidated financial
statements. Fair value estimates have been made as of September 30, 1997
based on then current economic conditions, risk characteristics of the
various financial instruments and other subjective factors.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable
to estimate that value:
Cash and Cash Equivalents and Certificates of Deposit
The carrying amounts approximate fair value because of the short
maturity of these instruments.
Investment Securities and Mortgage-backed Securities
The fair values of investment securities and mortgage-backed
securities are estimated based on published bid prices or bid
quotations received from securities dealers.
Certificates of Deposit in Other Financial Institutions
The fair values of certificates of deposit are estimated based on
the static discounted cash flow approach using rates currently
offered for deposits of similar remaining maturities.
Loans Receivable
The fair values of loans receivable are estimated using the
option-based approach. Cash flows consist of scheduled principal,
interest and prepaid principal. Loans with similar characteristics
were aggregated for purposes of these calculations.
39
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Accrued Interest
The carrying amount of accrued interest is assumed to be its
carrying value because of the short-term nature of these items.
Stock in the FHLB
The carrying amount of such stock is estimated to approximate fair
value.
Deposits
The fair values of deposits with no stated maturity are deemed to
be equivalent to amounts payable on demand. The fair values of
certificates of deposit are estimated based on the static
discounted cash flow approach using rates currently offered for
deposits of similar remaining maturities.
FHLB Advances
The fair values of FHLB advances are estimated based on discounted
values of contractual cash flows using the rates currently
available to the Association for advances of similar remaining
maturities. The carrying amount of the advances under the line of
credit approximates fair value due to the short maturity.
Fair value estimates of the Association's financial instruments as of
September 30, 1997 are set forth below:
===================================================================================================================
Carrying Estimated
amount fair value
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents and certificates of deposit $ 10,509,000 10,509,000
===================================================================================================================
Investment securities $ 13,872,000 13,911,000
===================================================================================================================
Mortgage-backed securities $ 10,000 10,000
===================================================================================================================
Loans receivable, net of loans in process $176,790,000 180,765,000
===================================================================================================================
Accrued interest receivable $ 1,418,000 1,418,000
===================================================================================================================
Stock in the FHLB $ 1,762,000 1,762,000
===================================================================================================================
Deposits:
Money market and NOW deposits $ 10,233,000 10,233,000
Passbook accounts 12,022,000 12,022,000
Certificate accounts 106,516,000 106,203,000
- -------------------------------------------------------------------------------------------------------------------
Total deposits $128,771,000 128,458,000
===================================================================================================================
FHLB Advances $ 35,250,000 35,241,000
===================================================================================================================
Accrued interest payable $ 137,000 137,000
===================================================================================================================
40
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Association's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Association's financial instruments,
fair value estimates are based on judgments regarding future loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates. Fair value
estimates are based on existing balance sheet financial instruments
without attempting to estimate the value of anticipated future business
and the value of assets and liabilities that are not considered
financial instruments.
(14) Parent Company Condensed Financial Statements
Condensed Balance Sheets
September 30, 1997 and 1996
===================================================================================================================
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 2,143,000 2,630,000
Investment securities held-to-maturity 5,965,000 9,443,000
Investment in Association 34,186,000 32,928,000
ESOP loan receivable 1,695,000 1,937,000
Office properties and equipment, net 872,000 -
Accrued interest receivable 49,000 -
Other 15,000 97,000
- -------------------------------------------------------------------------------------------------------------------
Total assets $44,925,000 47,035,000
===================================================================================================================
Dividends payable $ 179,000 199,000
Other liabilities 79,000 21,000
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 258,000 220,000
Stockholders' equity 44,667,000 46,815,000
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $44,925,000 47,035,000
===================================================================================================================
Condensed Income Statements
Years ended September 30, 1997 and 1996
===================================================================================================================
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Dividend income $ 1,652,000 2,248,000
Interest income 753,000 969,000
Expense (414,000) (510,000)
- -------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of Association 1,991,000 2,707,000
Equity in undistributed earnings (loss) of the Association 519,000 (597,000)
- -------------------------------------------------------------------------------------------------------------------
Net income $ 2,510,000 2,110,000
===================================================================================================================
41
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Condensed Statements of Cash Flows
Years ended September 30, 1997 and 1996
==============================================================================================================
1997 1996
- --------------------------------------------------------------------------------------------------------------
Cash provided by operations:
Net earnings $2,510,000 2,110,000
Amortization (21,000) (31,000)
Change in accrued interest receivable (49,000) -
Change in other assets 82,000 104,000
Change in other liabilities 38,000 (40,000)
Undistributed (earnings) loss of subsidiary, net (519,000) 597,000
- ---------------------------------------------------------------------------------------------------------------
Cash provided by operations 2,041,000 2,740,000
- ---------------------------------------------------------------------------------------------------------------
Cash used by investing activities:
Purchase of investment securities held-to-maturity - (2,042,000)
Proceeds from ESOP note receivable 242,000 241,000
Purchase of office properties and equipment (872,000) -
Maturities of investment securities held-to-maturity 3,500,000 4,000,000
- ---------------------------------------------------------------------------------------------------------------
Cash provided by investing activities 2,870,000 2,199,000
- ---------------------------------------------------------------------------------------------------------------
Cash provided by financing activities:
Purchase of treasury stock 4,699,000) (3,881,000)
Dividends paid (699,000) (752,000)
- ---------------------------------------------------------------------------------------------------------------
Cash used in financing activities 5,398,000) (4,633,000)
- ---------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash $ (487,000) 306,000
===============================================================================================================
Cash and cash equivalents at beginning of period $2,630,000 2,324,000
===============================================================================================================
Cash and cash equivalents at end of period $2,143,000 2,630,000
===============================================================================================================
Dividends paid by the Company are primarily provided through Association
dividends paid to the Company. At September 30, 1997, the Company had
declared dividends of $179,000 which had not been paid as of year-end.
During 1997, the Association paid dividends of $1,652,000 to the
Company.
42
CAMERON FINANCIAL CORPORATION
STOCKHOLDER INFORMATION
================================================================================
Annual Meeting
The Annual Meeting of Stockholders will be held at 4:00 p.m., Cameron, Missouri
time, on January 26, 1998, in the Community Room of The Cameron Savings & Loan
Association, F.A., 1304 North Walnut Street, Cameron, Missouri 64429.
Stock Listing
Cameron Financial Corporation common stock is traded on the National Association
of Securities Dealers, Inc. National Market under the symbol "CMRN."
Price Range of Common Stock
The per share price range of the common stock for each quarter since conversion
was as follows:
====================================================================================================================
Fiscal Year 1995 High Low Dividends
- --------------------------------------------------------------------------------------------------------------------
Third Quarter $12.13 $10.50 $ -
Fourth Quarter $15.50 $11.38 $ .07
Fiscal Year 1996
- --------------------------------------------------------------------------------------------------------------------
First Quarter $14.75 $13.50 $ .07
Second Quarter $15.25 $13.75 $ .07
Third Quarter $14.50 $13.50 $ .07
Fourth Quarter $15.25 $13.50 $ .07
Fiscal Year 1997
- --------------------------------------------------------------------------------------------------------------------
First Quarter $16.25 $14.50 $ .07
Second Quarter $17.00 $15.50 $ .07
Third Quarter $18.00 $15.50 $ .07
Fourth Quarter $19.50 $17.00 $ .07
====================================================================================================================
A $.07 per share dividend was declared by the Board of Directors on September
23, 1997, payable October 27, 1997 to stockholders of record on October 10,
1997. The stock price information set forth in the table above was provided by
the National Association of Securities Dealers, Inc., Automated Quotation
System.
At December 10, 1997, there were 2,564,305 shares of Cameron Financial
Corporation common stock issued and outstanding (including unallocated ESOP
shares) and there were 527 registered holders of record.
Shareholders and General Inquiries Transfer Agent
David G. Just, President Registrar and Transfer Co.
Cameron Financial Corporation 10 Commerce Drive
1304 North Walnut Street Cranford, New Jersey 07016
Cameron, Missouri 64429
(816) 632-2154
43
Annual and Other Reports
A copy of Cameron Financial Corporation's Annual Report on Form 10-K for the
year ended September 30, 1997, as filed with the Securities and Exchange
Commission, may be obtained without charge by contacting David G. Just,
President and Chief Executive Officer, Cameron Financial Corporation, 1304 North
Walnut Street, Cameron, Missouri 64429.
44
CAMERON FINANCIAL CORPORATION
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
Company and Association Address
1304 North Walnut Street Telephone: (816) 632-2154
Cameron, Missouri 64429 Fax: (816) 632-2157
Directors of the Board
Herschel Pickett William J. Heavner
Chairman of Cameron Financial Owner, Red X Motors
Corporation, and
The Cameron Savings and Loan Harold D. Lee
Association, F.A., and retired Retired Owner, Lee Auto & Tractor
CEO of The Cameron Savings & NAPA Dealership
Loan Association, F.A.
Jon N. Crouch
David G. Just Manager, Cameron Memorial Airport
President of Cameron Financial Owner, Crouch Aviation
Corporation and Retired Frontier and Continental
The Cameron Savings & Loan Airlines Captain
Association, F.A.
William F. Barker, DDS
Kennith R. Baker Owner, Barker Dental Clinic
Agent, State Farm Insurance
Cameron Financial Corporation Executive Officers
David G. Just Ronald W. Hill
President and Chief Executive Officer Vice President and Treasurer
The Cameron Savings & Loan Association, F.A. Executive Officers
David G. Just Ronald W. Hill
President and Chief Executive Officer Vice President and Treasurer
Stephen D. Hayward Earl T. Frazier
Director of Lending Manager, Liberty Loan Production
Office
Independent Auditors Special Counsel
KPMG Peat Marwick LLP Luse, Lehman, Gorman, Pomerenk & Schick, PC
1000 Walnut, Suite 1600 5335 Wisconsin Avenue, N.W.
Post Office Box 13127 Suite 400
Kansas City, Missouri 64199 Washington, D.C. 20015
45