FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-11130
OLYMPUS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 87-0166750
incorporation or organization) Identification No.)
(State or other jurisdiction of (I.R.S. Employer
115 South Main St. Salt Lake City, Utah 84111
(Address of principal executive offices)
(Zip Code)
(801) 325-1000
(Registrant's telephone number, including area code)
Securities registered persuant to Section 12(b) of the Act:
None
Securities registered persuant to Section 12(g) of the Act:
Common stock, $1.00 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
3,134,539 shares of $1.00 par value common stock of the registrant were
outstanding as of February 28, 1995.
The aggregate market value of the shares of common stock held by non-
affiliates of the registrant based on the closing price as of March 27,
1995 was $31,271,892. An estimated 2,138,249 shares are held by non-
affiliates.
PART I
Item 1. BUSINESS
Olympus Capital Corporation (the "Corporation") is a publicly held savings
and loan holding company organized under the laws of Utah with
approximately $392 million in assets and $35 million in stockholders'
equity at December 31, 1994. The Corporation's principal business
activities are conducted through Olympus Bank, a Federal Savings Bank (the
"Bank"). The principal business activities of the Bank consist of
obtaining funds from savings and transaction account deposits and
borrowings, investing in real estate loans, mortgage-backed securities and
debt securities and providing related financial services. The Bank also
makes commercial and consumer loans.
On July 22, 1994, the Corporation and the Bank signed an Agreement for
Merger with Washington Mutual Savings Bank ("WMSB") and its subsidiary
Washington Mutual Federal Savings Bank ("WMFSB"). WMSB was subsequently
involved in a reorganization that resulted in the formation of a holding
company, Washington Mutual, Inc., a Washington Corporation ("WMI") that
succeeded to the interests of WMSB. In January 1995 the Corporation, the
Bank, WMI, WMSB and WMFSB signed an Amended and Restated Agreement for
Merger (the "Agreement') which replaced the previously executed Agreement
for Merger. Pursuant to the Agreement and upon satisfaction of certain
conditions including receipt of applicable regulatory approval, the
Corporation will be merged with and into WMI (the "Merger") and each share
of the Corporation's common stock will be exchanged for $15.50 worth of WMI
common stock, based on the average closing price for a period preceding the
effective date of the merger. However, if the average price of WMI common
stock falls below $18.00, WMI may elect to purchase up to 49% of the
Corporation's common stock with cash. There can be no assurance that such
purchase or merger will occur. Pending the Merger or termination of the
Agreement, the Corporation and the Bank have agreed to certain restrictions
on their operations. The Corporation has also entered into a Stock Option
Agreement pursuant to which WMI has an option to purchase up to 9.9% of the
Corporation's common stock under certain conditions.
Since 1989 the Bank has changed its business emphasis from that of a
wholesale banking institution to that of a community-based retail banking
institution. The Bank has significantly decreased its reliance upon
brokered and "jumbo" certificates of deposit, Federal Home Loan Bank
borrowings and repurchase agreements. The Bank has significantly expanded
its services to individual and small business customers, including checking
accounts, credit cards, consumer loans and an expanded emphasis upon
residential mortgage including construction and development, apartment and
small business lending. To support and enhance its retail banking
operations, since 1989 the Bank has invested in new facilities and systems,
including nine new branch facilities (six additions and three relocations),
a state-of-the-art mortgage servicing system and a data processing system
which will accommodate the more diverse commercial banking operations of
the Bank.
In recent years the Bank has also focused on resolving unsatisfactory
commercial real estate loans originated by the Bank prior to 1990. Actions
taken have included reviewing and updating credit files, implementing more
thorough loan monitoring and more responsive loan collection procedures and
actively pursuing borrower negotiations and foreclosure proceedings where
necessary.
The Corporation's business is significantly influenced both by the
financial strength and economic stability of the regional economies in
which it operates and by interest-rate levels and other economic conditions
prevailing in regional and national financial markets. Impacted by a
series of Federal Reserve tightenings, many interest rates rose in 1994,
including the Federal Funds rate which rose 250 basis points. Despite
these higher rates, consumer sales and loan demand in the mortgage and
automobile sectors remained generally strong, while business borrowing
increased rapidly. The pace of national economic growth accelerated in
1994, but reported inflation at the retail level actually dipped below 3%.
The Intermountain West, which encompasses a significant portion of the
Corporation's market area, was the United States' fastest-growing regional
economy in 1994 for the second consecutive year. Furthermore, Utah, Idaho,
New Mexico and Nevada were the top four states in 1994 employment growth.
Preliminary 1994 annual average job gains were: Utah 6.2%; Idaho 5.3%; New
Mexico 4.9%; Oregon 3.7%; Nevada 6.4%; and Wyoming 1.4%. The November 1994
unemployment rates were: Utah 3.8%; Idaho 5.7%; New Mexico 5.4%; Oregon
4.8%; Nevada 5.8%; and Wyoming 4.5%.
The basic factors that contributed to the rapid-growth formula evident to a
significant degree in each of these six states included:
Rapid population growth fueled by substantial net in-migration;
Expanding employment opportunities to absorb the new labor force entrants;
Gains in commercial and industrial construction offsetting the slowdown
evident in residential construction; Employment and income gains
translated into strong consumer spending increases, particularly in
automobile sales.
The rate of economic growth, both nationally and in the Intermountain West,
will likely decelerate in 1995. Higher interest rates have reduced the
pace of housing construction and real estate sales and will probably slow
automobile buying as well. Job growth in the six-state region should
remain solid, but it will occur at a reduced rate, somewhat influenced by
the slower national economic growth.
While the 1995 outlook remains generally favorable, the following factors
could adversely impact regional economic activity:
Higher interest rates significantly reducing loan demand;
Possible closure of defense installations in most market areas and the
accompanying lost employment;
Reduced, or even eliminated, access to Federal lands for timber, mining,
and livestock industries;
International competitive pressures in the computer industry possibly
slowing or even decreasing employment levels.
SOURCES OF FUNDS
DEPOSITS
Customer deposits are the Bank's primary source of funds. The Bank offers
checking and other demand deposit accounts, passbook accounts, money market
deposit accounts ("MMDA") and certificates of deposit. Deposit inflows and
outflows are significantly influenced by interest rates, money market
conditions and other factors, including conditions in the financial
services industry. The Bank's level of overall deposits has remained
relatively stable for the last five years, although there have been changes
among the types of deposits. Deposits may be affected by developments in
future periods and the conditions and factors referred to above.
Reductions in deposits may require the Bank to engage in higher cost
borrowings.
Consumer and commercial deposits are attracted principally from within the
Bank's primary market areas along the Wasatch Front in Utah (a 100-mile
corridor from Ogden to Provo, including Salt Lake City) and in Butte,
Montana and the surrounding area.
The composition of the Bank's deposits have a significant impact on the
Bank's cost of funds. Management's strategy is to continue to attract
deposits in checking and regular savings accounts. Checking accounts can
provide significant fee income and are a source of low cost funds for the
Bank.
The following table describes the balances and contractual average interest
rates on deposits:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Average Average
Rate Amount Rate Amount
<S> <C> <C> <C> <C>
Checking and other demand 0.88% $ 34,847,000 0.86% $ 36,656,000
Statement savings 3.24 46,430,000 3.17 49,515,000
MMDA 3.40 16,309,000 2.83 21,864,000
Certificates of deposit 4.64 189,013,000 4.31 186,526,000
Total 3.89% $286,599,000 3.59% $294,561,000
</TABLE>
In 1991 management initiated a three phase program to modify physical
facilities, relocate certain of its branch offices, and selectively acquire
new locations which could provide opportunities for deposit and loan
growth. In furtherance of this program, since 1991 the Bank has relocated
to new or upgraded facilities the Butte, Montana branch and the Utah
branches on Main Street and at the Woodlands in Salt Lake City, as well as
in Provo, Utah. Additionally three new branches have opened since 1993,
the last being the Olympus Hills branch in Salt Lake City, Utah which
opened in November of 1994. The Bank has also received approval from the
Office of Thrift Supervision (the "OTS") to open a new branch inside a
supermarket in Park City, Utah, which is scheduled to open in July of 1995.
This program increased the number of new checking accounts at the Bank by
providing additional locations from which customers may transact checking
account business and avail themselves of other banking services.
Implementation of this program has resulted in an increase in compensation,
occupancy and advertising expenses. There can be no assurance that the
anticipated benefits from such a program will outweigh the attendant costs.
Pending consummation of the Merger, the Agreement with WMI prohibits the
establishment of additional branches and significant capital expenditures.
BORROWINGS
Borrowings in the form of advances from the Federal Home Loan Bank of
Seattle ("FHLB") provide an additional source of funds for the Bank. The
Bank is a member and stockholder of the FHLB and as such may borrow from
the FHLB, subject to the credit policy of the FHLB. FHLB advances to the
Bank totaled $46,821,000 at December 31, 1994, compared to $36,650,000 at
December 31, 1993.
The FHLB prescribes the acceptable uses of proceeds of FHLB advances under
various programs as well as limitations on the size of advances.
Acceptable uses have included expansion of residential mortgage lending and
funding short-term liquidity needs. The limit on advances is generally
based on the FHLB's assessment of the institutions' credit worthiness.
Under Federal law, an institution's record of lending to low-and moderate-
income borrowers may also be used as a basis on which to determine its
ability to borrow from the FHLB. The FHLB is required to review an
institution's credit limitations and standards at least once each year.
The cost of FHLB advances may at times be higher than alternate sources of
funds and prepayments of advances may entail payment of prepayment
penalties. The Bank uses FHLB advances as a secondary funding source to
augment deposits.
As an additional source of funds, the Bank periodically sells securities
subject to an obligation to repurchase these securities under repurchase
agreements ("repurchase agreements") with major investment bankers, the
Treasurer of Butte Silver Bow County, Montana, the Federal National
Mortgage Association ("FNMA") or with the Federal Home Loan Mortgage
Corporation ("FHLMC"). The Bank's reliance on this source of borrowings
has declined in the last five years. Repurchase agreements totaled
$20,470,000 at December 31, 1994, compared to $44,996,000 at December 31,
1993. There is no assurance that this source of borrowings will not
increase.
Generally, securities with a value in excess of the amount borrowed are
pledged by the Bank as collateral for its obligations under the repurchase
agreements. Because such excess may be at risk in a repurchase
transaction, it has been the Bank's policy since 1985 to enter into
repurchase agreements only with institutions with a satisfactory credit
history. The use of repurchase agreements may expose the Bank to certain
risks not associated with other sources of funds, including obligations to
provide additional collateral under certain circumstances and the risk that
such agreements, which generally involve short terms and larger amounts,
may not be renewed. In the event the Bank were unable to deliver
additional required collateral, existing collateral could be sold, possibly
resulting in a significant loss. If the Bank were no longer able to obtain
repurchase agreement financing, the Bank would be required to obtain
alternative sources of short-term funds. Such alternative sources of
funds, if available, may be more expensive. In addition, since repurchase
agreements are generally short-term, they increase the Bank's exposure to
rising interest rates.
USES OF FUNDS
LENDING ACTIVITIES
The Bank's principal use of funds is lending, with loan and lease
receivables accounting for approximately 60% of the total assets of the
bank as of December 31, 1994.
The Bank's aggregate non-residential real estate loans may not exceed 400%
of its capital as determined in accordance with applicable laws and
regulations. At December 31, 1994, the Bank was in compliance with the
400% limitation, but its ability to originate additional non-residential
real estate loans is subject to this limitation. Additionally, the Bank is
prohibited from originating loans to any one borrower after August 9, 1989
in excess of 15% of unimpaired capital and surplus, except for loans not to
exceed $500,000 or to facilitate the sale of real estate acquired in
settlement of loans. The 15% limitation results in a dollar limitation of
approximately $5,845,000 at December 31, 1994. The Bank does not believe
it has originated a loan which was in violation of this limitation since it
became applicable.
RESIDENTIAL REAL ESTATE FUNDING
Residential loan originations consist primarily of first mortgage loans for
the financing and refinancing of 1-to-4 family homes. Mortgage origination
centers are located in the primary geographic markets served by the Bank,
the Wasatch Front area in Utah and the Silver Bow-Butte region in Montana.
The Bank makes both adjustable rate and fixed rate mortgage loans,
generally retaining some conventional fixed rate loans with maturities of
fifteen years or less and all adjustable rate loans in its portfolio and
selling longer term fixed rate loans, Federal Housing Administration
("FHA") and Veterans' Administration ("VA") loans in the secondary market.
The Bank's real estate loan portfolio generally includes loans up to 95% of
the value of the property as appraised at the time the loan was made. FHA
and VA guaranteed loans secured by first mortgages are made at the maximum
loan-to-value ratios allowed by the particular agency and may, in some
cases, exceed 100% of the property value. The Bank generally adheres to
FNMA, FHLMC, VA or FHA guidelines in originating its residential real
estate loans. The Bank generally requires that all conventional loans with
loan-to-value ratios in excess of 80% carry private mortgage insurance in
an amount sufficient to reduce the Bank's exposure to 75% of the appraised
value. The Bank sells residential real estate loans in the secondary
market primarily on a non-recourse basis which provides additional funding
for loan originations. The Bank may retain servicing rights for loans
originated and sold into the secondary market. The Bank has, from time to
time, purchased or sold servicing rights on residential real estate loan
portfolios. During 1994, the Bank purchased servicing rights for loans in
aggregate principal amount of $511,994,000. Purchased servicing rights may
involve loans made in geographic areas outside of the traditional lending
area of the Bank. Servicing rights provide fee income to the Bank but the
possibility that loans in the portfolio will pay off or be refinanced
faster than anticipated, may reduce the actual fee income collected and the
subsequent value of the servicing rights.
Adjustable rate residential real estate loans originated by the Bank have
various adjustment periods and generally limit periodic adjustments on each
adjustment date as well as aggregate adjustments. The Bank is exposed to
the risk that borrowers of these loans may not be able to make higher
payments resulting from rate adjustments. These adjustments depend upon
the magnitude and frequency of shifts in market interest rates.
During 1992 and 1993, residential real estate loan rates were at or near
historic low levels which resulted in a higher volume of new loan
originations and existing loan refinancings than the Bank experienced
during 1994 as interest rates rose.
Competition for residential real estate lending is primarily with other
savings associations, mortgage banking companies, mortgage brokers,
commercial banks, insurance companies and credit unions. Generally, the
competition for mortgage loans is dependent on interest rates, availability
of funds, service and convenience to customers.
The Bank purchases interests in various types of residential real estate
loans in the form of loan participation or mortgage-backed securities.
These loan participation and mortgage-backed securities are generally
serviced by others with a portion of the interest paid by the borrower
being retained by the servicer to cover servicing fees and costs.
CONSTRUCTION LOANS
Construction lending activity consists primarily of first mortgage loans to
construct single family dwellings along the Wasatch Front area of Utah.
Loans are made to either the owner of the home or a licensed general
contractor. Terms are typically an adjustable rate with a maximum 80% loan
to value ratio and a six to nine month term.
Individual home loans are made directly to intended owner/occupants after
they are approved for long term financing. Individual home loans and lines
of credit are also extended to general contractors to build homes for
resale. These homes may be under earnest money contract with a permanent
buyer or they may be unsold at the time the loan is committed. The major
risks associated with single family construction lending include the
possibility of interest rates rising to a level that may slow or curtail
home sales, or a change in the financial status of pre-approved buyers,
including the impact of rising interest rates such that they no longer
qualify for permanent financing.
Construction lending also includes multi-family, condominium, land
acquisition and development of single family building lots and other
commercial real estate projects. These loan types have constituted only a
small portion of the total construction loan portfolio. Interest rates are
adjustable with terms ranging from twelve to eighteen months. Loan to
value ratios range from 75% or less depending upon the perceived credit
risk associated with a given transaction.
MULTI-FAMILY REAL ESTATE LOANS
The Bank also makes permanent loans secured by existing multi-family
properties along the Wasatch Front in Utah. The maximum loan to value
ratio is 80% of the appraised value or sales price, whichever is lower.
The interest rate is normally adjustable after one, three or five year
periods.
The debt coverage ratio required is a minimum of 120%, typically based upon
historical cash flow from the property. Although the Bank's market is
experiencing rapidly rising rental rates, the Bank has not usually relied
on pro forma cash flow statements when underwriting multi-family
properties, in an effort to minimize the risk associated with this type of
lending.
COMMERCIAL REAL ESTATE LENDING
The Bank originates new commercial real estate loans subject to the
limitations allowed under applicable federal law. As existing commercial
real estate loans mature, the Bank will consider renewing the loan as
circumstances warrant. Prior to renewal, the borrower's financial
condition is reviewed and the existing and proposed loan terms are
analyzed. The Bank may propose modifying the interest rate, the
amortization term and other loan terms or insist on repayment as the
circumstances justify. Loan maturities are generally between five and ten
years. Commercial real estate loans are generally considered to have a
higher level of risk than single family residential loans, due to the
concentration of principal in a limited number of loans and borrowers. In
addition, the nature of these loans is such that they are generally less
predictable and more difficult to evaluate and monitor.
Commercial real estate loans outstanding at December 31, 1994, and December
31, 1993, totaled $102 million and $119 million, respectively. There can
be no assurance that additional losses will not be realized in connection
with the commercial real estate loans.
The Bank has established allowances for possible losses for known and
anticipated problem loans, as well as a general loan loss allowance for the
portfolio as a whole. Total allowances for possible losses totaled $6.7
million or 1.7% of assets of the Bank at the end of December 31, 1994.
When commercial real estate acquired in settlement of loans ("REO") is
sold, the Bank often provides financing for the sale. In some cases the
Bank may provide a "loan to facilitate," which is a loan at or below market
rates or involving terms not usually offered to other borrowers. If a loan
to facilitate is made below market rate, the Bank records a loan discount
in order to bring the yield on the loan to a market interest rate.
The Bank has made a concerted effort to reduce both the number and dollar
amount of delinquent loans and to reduce the level of REO since 1989. The
Bank continues to place a major emphasis on this area, although there is no
assurance such efforts will succeed. Delinquent loans and leases and REO
and repossessed equipment as of December 31, 1994, and December 31, 1993
are shown below:
December 31, 1994 December 31, 1993
Delinquent Loans and Leases (dollars in thousands)
(net of specific reserves)
30 to 60 days $2,583 $1,852
60 days or more and nonaccrual 3,749 2,122
Total $6,332 $3,974
REO (net of all reserves) $ None $3,055
Pursuant to management's emphasis on resolving unsatisfactory credits
through foreclosure proceedings or other actions, the Bank has commenced,
and may in the future commence, enforcement proceedings against borrowers
whose loans may not be delinquent with respect to principal or interest
payments but who may not be in compliance with other provisions of the
documents governing the loans, such as those relating to payment of taxes.
These proceedings may precipitate delinquencies or may result in REO.
CONSUMER LENDING
In 1991, the Bank began offering consumer loans for personal, family, or
household purposes such as the financing of home improvements, automobiles,
boats, vacations and education. Such loans have been originated in the
branch offices of the Bank. Competition for consumer loans comes from
other savings associations, commercial banks, credit unions and other
finance companies.
The Bank has not engaged in consumer lending for a substantial period of
time. The establishment of consumer lending programs requires additional
personnel and the development of forms, policies and procedures to be used
in the program. Consumer lending laws change rapidly and frequently and
require that someone in the program keep apprised of developments. There
can be no assurance that income from consumer loans will justify the costs
of the program or that losses will not be experienced. In addition,
consumer lending programs involve peculiar risks. As a general rule,
consumer loans experience a higher default rate than residential real
estate loans. Collateral for consumer loans (other than real estate), if
any is obtained, normally declines rapidly in value and may be difficult to
locate. The cost and expense of enforcing loan and security agreements
against an individual consumer may outweigh the likelihood of any benefit
of recovery. The mortgage lien on real estate securing consumer loans is
often subordinate to priority mortgage liens securing larger amounts of
indebtedness. The consumer lender may be required to advance monies in
amounts greater than the consumer loan in order to protect its security.
For these and other reasons there can be no assurance that the consumer
loan program will not adversely affect the Bank.
COMMERCIAL BUSINESS LENDING
The Bank has determined in recent years to offer commercial business loans
principally to small to mid-market businesses and individuals. These loans
include revolving lines of credit established for borrowers. During the
years ended December 31, 1994 and 1993, the Bank originated $9,345,000 and
$3,820,000 in commercial business loans, respectively. Such loans are
secured with business assets or, in some cases, are unsecured.
The Bank perceives two principal advantages of making commercial business
loans. First, commercial business loans assist in increasing the Bank's
short-term, variable rate asset base. These loans also generally bear
interest rates that are higher than commercial real estate loans. Second,
commercial business lending can generate depository relationships and may
lead to the sale by the Bank of other income producing products or
services. If the Merger occurs there is no assurance WMI or any of its
financial institution subsidiaries will make commercial loans, as such
loans are not currently part of the products offered by such entities.
While the Bank has made commercial business loans from time to time in past
years, it has not, until recently, offered commercial business loans on a
regular basis. Commercial business lending involves a different type of
underwriting analysis, loan monitoring and exercise of remedies than does
real estate lending. A more in depth understanding of the business being
financed and the industry involved may be required. More frequent
monitoring and analysis of the loan may be necessary. The structure of the
loan and the documentation of the loan may be more complicated and
customized. The collateral involved, if any, may be more difficult to
identify, locate, insure, manage and resell than real estate. In order to
bolster the business lending program, the Bank hired new personnel, and
trained other personnel. There can be no assurance that the benefits of
such program will outweigh the risks and costs involved.
INVESTMENT ACTIVITIES
The second principal use of the Bank's funds is to purchase certain
securities, primarily investment securities and mortgage-backed securities.
SECURITIES HELD TO MATURITY AND FEDERAL HOME LOAN BANK CAPITAL STOCK
The Bank invests in various types of liquid assets (including United States
Treasury obligations, securities of various federal agencies and certain
corporate obligations). Such investments are generally purchased by the
Bank to maintain minimum levels of liquid assets for the conducting of
business, as well as to meet minimum regulatory requirements for liquidity.
Liquidity may increase or decrease depending on the availability of funds
and comparative yields on investments in relation to the return on loans
and mortgage-backed securities. During 1994, approximately $686,000 of
securities held to maturity were purchased by the Bank to meet liquidity
needs. Mortgage-backed securities may be purchased or classified as
securities held to maturity when management determines that such securities
will be held to their final maturity. Management anticipates that such
securities will be those that are most similar to the loans that the Bank
originates for its portfolios.
Investment in FHLB capital stock is required of FHLB members and must at a
minimum be the greater of: (a) 1% of residential mortgage loans and
mortgage-backed securities, (b) 0.3% of total assets, or (c) 5% of advances
from the FHLB. At December 31, 1994, the Bank had invested $4,128,000 in
FHLB capital stock.
SECURITIES AVAILABLE FOR SALE
The Bank invests in certain mortgage-backed securities primarily as a means
of investing in residential real estate mortgage loans with adjustable
rates. Such investments are accounted for as securities available for sale
and carried on the books at fair value. At December 31, 1994, the
amortized cost of these investments was $76,958,000 and the estimated fair
value was $74,024,000.
EMPLOYEES
As of December 31, 1994, the Corporation and its subsidiaries had 166
employees, including 50 part-time employees. Employees are provided a
comprehensive program of benefits, some of which are on a contributory
basis.
OTHER AFFILIATED COMPANY
The Bank has one additional wholly owned subsidiary, Olympus Financial
Services, Inc., which is authorized to sell insurance products, including
tax deferred annuities and property and casualty insurance.
SUPERVISION AND REGULATION
OVERVIEW; LEGISLATIVE AND REGULATORY DEVELOPMENTS
The Corporation, a publicly held thrift holding company, as well as the
Bank, a federally chartered savings bank, with deposits insured by the
Federal Deposit Insurance Corporation (the "FDIC"), are subject to
extensive laws, regulations and supervision. These laws, regulations and
supervision impose restrictions on activities, minimum capital
requirements, lending and deposit restrictions, reporting and disclosure
obligations and numerous other requirements and obligations.
Many of these laws and regulations were recently enacted and promulgated.
The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")
was enacted in 1989 and the Federal Deposit Insurance Corporation
Improvement Act ("FDICIA") was enacted in 1991. A number of significant
changes applicable to the Corporation and the Bank resulted from this
legislation and from new regulations issued pursuant to FIRREA and FDICIA.
Additional regulations are to be promulgated pursuant to such legislation.
The ultimate effects of the foregoing developments cannot be predicted.
REGULATORY CAPITAL REQUIREMENTS
FIRREA mandated significant new regulatory capital requirements for thrift
institutions. Under minimum regulatory capital regulations issued by the
Director of the Office of Thrift Supervision ("OTS"), thrift institutions
are required to have "core capital" equal to no less than 3% of adjusted
total assets and "tangible capital" equal to no less than 1.5% of adjusted
total assets. The minimum tangible capital requirement will effectively
increase to 3% of adjusted total assets over a five-year "phase-in" period
ending on December 31, 1994. In addition, thrift institutions are required
to maintain "risk-based capital" equal to 8% of risk-weighted assets as of
December 31, 1994.
Consistent with increased "leverage limits" imposed by regulators of
national banks, the core capital requirement for most savings institutions
is expected to range from 4% to 5% of adjusted total assets. In December
1991 OTS directed the Bank to maintain core capital at 5% of adjusted
consolidated assets, from December 31, 1991, forward. This directive was
terminated in 1993. In 1992 the Bank's regulators urged the Bank to
maintain core capital at 7% of adjusted consolidated assets. At December
31, 1994, the Bank had actual core capital, consisting entirely of common
stockholders' equity, in the amount of approximately $38.1 million which is
equal to 9.64% of adjusted consolidated assets. There can be no assurance
that the Bank will continue to meet its core capital requirement nor can
there be any assurance the Bank's regulators will not take steps adverse to
the Bank if the Bank's core capital drops below 7%.
Tangible capital is defined as core capital less intangible assets, except
that savings institutions may include certain amounts of purchased mortgage
servicing rights in core capital subject to a maximum amount determined by
the FDIC or, under FDICIA, by the OTS. The FDIC has restricted the
percentage of purchased mortgage servicing includible in capital to a
maximum of 50% of core capital and 100% of tangible capital.
Under the risk-based capital requirement, risk weighted assets are
determined by multiplying each of an institution's assets by specified risk
weights. Certain off-balance sheet items must be converted into on-balance
sheet equivalent amounts and then multiplied by specified risk weights.
The applicable risk weights range from 0% to 100%. As of December 31,
1994, the Bank had risk weighted assets of approximately $232.1 million.
The risk-based capital requirement as of the same date was 8% of the risk
weighted assets or approximately $18.6 million. Eligible capital of the
Bank is composed of core or tier 1 capital of approximately $38.1 million
and supplementary or tier 2 capital of approximately $2.9 million for a
total risk weighted capital of approximately $41 million, or 17.7% of risk
weighted assets, exceeding the requirement by approximately $22.4 million.
The OTS has adopted a rule, to be implemented as of June 30, 1995,
incorporating an interest rate risk component into the risk-based capital
requirement for savings associations such as the Bank. Under this rule, an
institution's interest rate risk is measured by the decline in net
portfolio value ("NPV") resulting from a hypothetical 200 basis point
increase or decrease in interest rates (whichever leads to the lower NPV)
divided by the estimated economic value of its assets. An institution
would be required to make a deduction from total capital for purposes of
calculating its risk-based capital if a decline in its NPV (resulting from
a 200 basis point shock) exceeds 2 percent of its assets (expressed in
present value terms). Such an institution will be required to deduct from
its total risk-based capital an amount equal to one-half of the difference
between its measured interest rate risk and 2 percent, multiplied by the
estimated economic value of its assets. Management has analyzed the effect
of the regulation and believes that the effect of including such an
interest rate risk component in the calculation of risk-adjustment capital
will not cause the Bank to cease to be well capitalized.
The OTS also has the authority to impose higher capital requirements for
individual institutions, such as the Bank, based on an assessment of the
risk an institution presents to the deposit insurance fund or other
factors. The OTS also has the authority to raise the capital requirements
over the minimum levels set forth in FIRREA.
Pursuant to FDICIA, the OTS promulgated regulations in September 1992
specifying the levels at which a savings institution is well capitalized,
adequately capitalized, under capitalized, significantly under capitalized,
or critically under capitalized. The level of capital below which an
institution is deemed to be critically under capitalized may not be less
than 2% of total assets nor more than 65% of the required minimum level of
capital under the leverage limit. An institution is well capitalized if it
has a total risk-based capital ratio of 10% or greater, a Tier I risk-based
capital ratio of 6% or greater, and a leverage ratio of 5% or greater, and
the institution is not subject to an order, written agreement, capital
directive, or prompt corrective action directive to meet and maintain a
specific capital level for any capital measure. This categorizes the Bank
as "well capitalized."
Certain interpretive issues are presented by the new capital rules. In
many instances, these issues have not been resolved by the OTS or other
regulatory authorities. Although the Bank believes its resolution of such
issues, together with the assumptions it has used in its capital
calculations, are appropriate and reasonable, its calculations of capital
may require adjustment in the event the OTS or other regulatory authorities
adopt differing interpretations or use different assumptions.
In the event the Bank fails to comply with any of its existing or future
minimum regulatory capital requirements, it would be required to file and
implement a capital plan with the appropriate regulatory agencies, would be
subjected to restrictions on growth and the payment of dividends, could
have restrictions imposed on its ability to form new branches, invest in
service corporations and make equity risk investments, or be precluded from
issuing securities as a means of raising additional capital, among other
negative effects. Such failure could also permit the OTS to require that
the Bank subject itself to a restrictive business plan or supervisory
agreement that could impose limits on dividends or compensation of officers
and employees or impose other restrictions. Such failure could also permit
the FDIC to initiate action resulting in the termination of deposit
insurance.
The Bank's ability to attain compliance with potential future increases in
the risk-based capital requirement or the core capital requirement may be
adversely affected by unanticipated losses or lower levels of earnings, by
new or increased regulatory capital requirements, or by other factors. In
addition, there is virtually no limit on the authority of the OTS or FDIC
to take any appropriate action with respect to conditions or activities it
considers unsafe and unsound, including failure to comply with minimum
regulatory capital requirements.
QUALIFIED THRIFT LENDER
Savings institutions are subject to restrictions on permissible investments
that are generally known as Qualified Thrift Lender ("QTL") requirements.
Pursuant to FDICIA, an institution will satisfy the QTL requirements if the
institution's qualified thrift investments continue to equal or exceed 65%
of the institution's portfolio assets on a monthly average basis in nine
out of every twelve months. In general, qualified thrift investments
include loans for and securities backed by domestic residential housing.
For purposes of the QTL test, portfolio assets means total assets minus
goodwill and other intangible assets, the value of property used by the
institution to conduct its business and liquid assets held by the
institution in an amount up to a specified percentage of its total assets.
Failure to meet the requirements of the QTL test may have several
consequences for an institution and its holding company including: the
institution shall either become a bank or be subject to certain
restrictions, including (i) limitations on new investments and activities
to those permissible for national banks, (ii) branching restrictions
equivalent to those imposed on national banks, (iii) prohibition on
obtaining new FHLB advances, and (iv) dividend restrictions equivalent to
those applicable to national banks. Additionally, three years after the
institution ceases to be a QTL, the institution would be required to divest
all investments and cease all activities not permissible for national banks
and repay all FHLB advances. Within one year after an institution should
have (but does not) become, or ceases to be, a QTL, its holding company
must register as and be deemed to be a bank holding company. Such a
development would impose a number of additional activity, capital and other
restrictions on the holding company. Management believes that the Bank is
in compliance with all QTL requirements.
INTERNAL OPERATIONS REQUIREMENTS
FDICIA requires the federal regulators to promulgate regulations promoting
the safety and soundness of individual institutions by specifically
addressing, among other things: (1) internal controls, information systems
and internal audit systems; (2) loan documentation; (3) credit
underwriting; (4) interest rate exposure; (5) asset growth; (6) ratio of
classified assets to capital; (7) minimum earnings; and (8) compensation
and benefit standards for management officials. Proposed rules or notices
of rule making addressing these areas have been issued but not yet
finalized. These regulations are expected to add further to the cost of
compliance and to impose new record keeping requirements.
REGULATORY SUPERVISION
The Bank is subject to periodic examinations and to supervision by the OTS
and the FDIC. The Bank is also subject to regulations governing such
matters as mergers, establishment of branch offices and subsidiary
investments and activities, and to general investment authority under
regulations applicable to federally chartered savings banks. Any insured
institution which does not operate in accordance with or conform to OTS or
FDIC regulations, policies and directives may be sanctioned for
noncompliance. Proceedings may be instituted against any insured
institution or any director, officer, employee or person participating in
the conduct of the affairs of such institution who engages in unsafe and
unsound practices, including the violation of applicable law, regulations,
orders, agreements or similar items. If the assets of an institution are
overvalued on its books, it may be ordered to establish and maintain a
specific reserve in an amount equal to the determined overvaluation, which
may result in a charge against operations to the extent of the
overvaluation. FDIC insurance may be terminated, after notice and hearing,
upon a finding that an insured institution is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operating, does
not meet minimum regulatory capital requirements, or has violated any
applicable law, rule, regulation or order of or condition imposed by the
FDIC. FIRREA has resulted in increased costs for the Bank including
examination fees, and deposit insurance premiums. In addition, the Bank
expects reduced dividends from FHLB stock due to substantial contributions
which will be required from the Federal Home Loan Banks to fund the
Resolution Trust Corporation. Increased financial pressure on the FHLB
System may also result in higher rates on borrowings by the Bank from the
FHLB in the future. Finally, other adverse effects may result from the
application of more rigorous standards in regulatory examinations of
savings associations.
LIQUIDITY AND RESERVE REQUIREMENTS
The Director of the OTS must adopt regulations providing for a minimum
liquidity requirement for thrift institutions. The minimum liquidity
requirement must be in a range of 4% to 10% of an institution's
withdrawable accounts and borrowings payable on demand or with maturities
of one year or less. Current OTS regulations, which may be modified by the
Director of the OTS, provide that each thrift institution must maintain an
average daily balance for each calendar month of liquid assets equal to at
least 5% of the sum of its average daily balance of net withdrawable
deposit accounts plus borrowings payable in one year or less. Each thrift
institution must maintain an average daily balance for each calendar month
of short-term liquid assets equal to at least 1% of its average daily
balance of net withdrawable deposit accounts plus short-term debt.
Management believes the Bank is in compliance with these requirements.
The Bank is also subject to Federal Reserve Board reserve requirements
imposed under Regulation D. These requirements, which are subject to
change from time to time, call for minimum levels of reserves based on
amounts held in transaction accounts. The Bank was in compliance with
these reserve requirements on December 31, 1994.
INSURANCE OF ACCOUNTS
The Bank's deposits are insured by the Savings Association Insurance Fund
("SAIF") administered by the FDIC up to $100,000 per insured depositor.
Deposit insurance premiums are assessed on a risk weighted basis, as
defined by the FDIC, with well-capitalized and well-managed institutions
paying a lower percentage on deposits than institutions with deficiencies.
Currently, those institutions that pose the lowest risk of loss to SAIF pay
$0.23 per $100.00 of insured deposits, and those institutions that pose the
greatest risk of loss to SAIF pay $0.31 per $100.00 of insured deposits.
The Bank was recently assigned a risk classification assessment of $0.23
per $100.00 of insured deposits. The assignment was based on an
examination of the Bank conducted in 1994. This assessment classification
of the Bank will be reviewed semi-annually by the FDIC.
FDICIA requires the FDIC to establish regulations setting up a risk-based
deposit insurance premium schedule. In addition, the FDIC can impose
special assessments.
In early 1995, the FDIC proposed to amend its regulation on assessments to
establish a new assessment rate schedule varying between 0.04 percent of
total adjusted deposits and 0.31 percent of total adjusted deposits for
members of the Bank Insurance Fund ("BIF") to apply to the semiannual
period in which the reserve ratio of the BIF reaches the designated reserve
ratio of 1.25 percent of total insured deposits and to semiannual periods
thereafter. Based on current projections, the BIF reserve ratio is
expected to reach 1.25 percent of insured deposits between May 1 and July
31, 1995. Such a reduction in BIF assessment rates would benefit banks
whose deposits are insured by BIF and may put the Bank at a competitive
disadvantage.
ACCOUNTING AND INVESTMENTS
During the past several years, there has been an ongoing review of the
accounting principles and practices used by financial institutions for
certain types of transactions. As a result of this process, there have
been new accounting pronouncements. This review is expected to continue by
thrift and banking regulators, the SEC, the FASB, the AICPA and other
organizations, and further developments may be forthcoming.
The SEC has advocated market value accounting for financial institutions
and has urged the AICPA and the FASB to require that banks and other
financial institutions account for assets at their market value. The SEC's
position has been criticized by the Federal Reserve Board and is highly
controversial. As of December 31, 1993, the Corporation adopted SFAS No.
115, "Accounting for Investments in Certain Debt and Equity Securities."
The Bank classified certain mortgage-backed securities as assets available
for sale, which resulted in an unrealized loss of $3,336,000, which is
recorded as a separate component of stockholders' equity at December 31,
1994. Due to the requirements of SFAS No. 115, capital levels may be more
volatile.
CERTAIN LENDING RESTRICTIONS
FIRREA generally subjects savings banks to the same loans-to-one borrower
limitations that are applicable to national banks. The new loans-to-one
borrower limitations are substantially more restrictive than the
limitations previously imposed on savings banks. Prior to the enactment of
FIRREA, a savings bank could generally lend an amount equal to its entire
regulatory capital to one borrower. With certain limited exceptions, the
maximum amount that a savings bank may now lend to one borrower (including
certain related entities of such borrower) is an amount equal to 15% of the
savings bank's unimpaired capital and unimpaired surplus, plus an
additional 10% for loans fully secured by readily marketable collateral.
Real estate is not included within the definition of "readily marketable
collateral."
FIRREA generally limits the amount that a savings bank may invest in
commercial real estate loans to 400% of capital. FIRREA does not require a
savings bank to divest itself of commercial real estate loans in excess of
such limitation acquired prior to the enactment of FIRREA.
THE COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act ("CRA") was enacted in 1977 by Congress to
eliminate the practice by some financial institutions of denying or
restricting credit for the purchase or improvement of homes in areas of a
community where the risk of loan losses is believed to be high. The Bank's
CRA compliance is monitored by the OTS. Management believes the Bank's
compliance with CRA is satisfactory.
CLASSIFICATION OF ASSETS
The Bank classifies its problem assets on the same system as used by
commercial banks. An asset is classified substandard when it has a well-
defined weakness or weaknesses. A substandard asset is one that is
inadequately protected by the net worth or paying capacity of the obligor
or by the collateral, if any. An asset is classified doubtful where some
loss seems very likely but there is still sufficient uncertainty to permit
the asset to remain on the books at its full value. The possibility of a
loss on an asset classified doubtful is high, but because of important and
reasonably specific pending factors which may work to the strengthening of
the asset, its classification as loss is deferred until its more exact
status may be determined. An asset, or a portion thereof, is classified as
loss when it is considered uncollectible and of such little value that
continuance as an asset without establishment of a specific reserve is not
warranted. Assets that do not warrant classification as substandard,
doubtful or loss, but possesses credit deficiencies or potential weaknesses
deserving management's close attention are classified as special mention.
Assets may be classified in whole or in part, and part of an asset may be
classified in one category, and part in a different category. Insured
institutions are required to self-classify their assets. These
classifications are reviewed as part of the regulatory examination process.
An institution is required to have general valuation allowances that are
adequate in light of its level of classified assets. When an asset or
portion of an asset has been classified as loss, the institution must
either charge-off 100% of the portion classified as loss or establish a
specific valuation allowance in a like amount. Specific allowances may not
be included in regulatory capital, while general reserves are included in
risk-based capital, subject to certain limitations.
RESTRICTIONS ON DISTRIBUTIONS
Capital distributions by institutions such as the Bank, including
dividends, stock repurchases, redemption of securities and cash-out mergers
are subject to restrictions tied to the institution's capital levels after
giving effect to such a transaction.
OTHER LAWS AND REGULATIONS
The Bank is subject to a wide array of other laws and regulations, both
federal and state, including, but not limited to, usury laws, the Equal
Credit Opportunity Act and Regulation B, the Electronic Fund Transfer Act
and Regulation E, the Truth-in-Lending Act and Regulation Z and the Real
Estate Settlement Procedures Act and Regulation X. The Bank is also
subject to laws and regulations that may impose liability on lenders and
owners for clean-up costs and other costs stemming from hazardous waste
located on property securing real estate loans made by lenders or on real
estate that is owned by lenders following a foreclosure or otherwise.
Although the Bank's lending procedures include measures designed to limit
lender liability for hazardous waste clean-up or other related liability,
the Bank has engaged in significant commercial lending activity and there
is some uncertainty as to the circumstances under which lenders may be held
liable for hazardous wastes.
REGULATION OF THE CORPORATION
The Corporation is subject to regulation as a savings and loan holding
company. It is required to register with the OTS and is subject to OTS
regulations, examinations and reporting requirements relating to savings
and loan holding companies. As a subsidiary of a savings and loan holding
company, the Bank is subject to certain restrictions in its dealings with
the Corporation and with other companies affiliated with the Corporation.
The Home Owners Loan Act ("HOLA") generally regulates acquisitions by a
savings and loan holding company, directly or indirectly, of certain
interests in other savings institutions (or a holding company thereof).
Savings institutions may also be subject to the Federal Change in Bank
Control Act if the provisions of HOLA do not apply.
HOLA provides generally that an insured savings institution subsidiary of a
holding company is subject to the restrictions on affiliate transactions
set forth in the Federal Reserve Act sections 23A and 23B. In addition, an
insured institution may not buy securities from an affiliate, except for
shares of stock of a subsidiary, and it may not make loans to an affiliate
engaged in a non-banking activity. The OTS can adopt additional
restrictions upon affiliate transactions. Thrift institutions are also
subject to Section 22(h) of the Federal Reserve Act, which restricts a
financial institution's ability to make loans to "insiders" (executive
officers and directors) and permits the OTS to impose additional
restrictions on loans to insiders.
HOLA authorizes the OTS or the FDIC to identify holding company activities
that present excessive risk to insured institutions, and to restrict, among
other things, dividends to the holding company and other affiliate
transactions. If the Bank were to lose its status as a QTL, the
Corporation would thereafter be treated as a bank holding company,
resulting in additional restrictions on its activities and other possible
negative effects. Reference is made to the additional information,
financial statements and footnotes thereto presented in Items 6, 7 and 8 of
this Report for additional financial information.
RECENT LEGISLATION
Federal legislation was enacted in 1994 which will repeal effective June 1,
1997, certain restrictions on the establishment of interstate branches by
national banks and state-chartered banks. In addition, one year after the
enactment of the legislation, bank holding companies will be generally
permitted to buy banks in any state. Management expects that such
legislation will primarily benefit competitors of the Bank.
The following statistical information is presented to facilitate an
understanding of the Corporation's operations.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
ANALYSIS OF INTEREST CHANGES DUE TO VOLUME AND CHANGES IN RATES (Amounts in
Thousands)
<TABLE>
<CAPTION>
1994 over 1993 1993 over 1992
Changes Due to Total Changes Due to Total
Interest-Earning Assets Volume Rate Changes Volume Rate Changes
<S> <C> <C> <C> <C> <C> <C>
Securities Held to Maturity
and Other Short-term
Investments $1,448 $(70) $1,378 $ 102 $ (339) $ (237)
Federal Funds Sold (180) 60 (120) (80) (23) (103)
Securities Available for Sale (690) 223 (467) 650 (1,720) (1,070)
Loan Receivables:
Real Estate Loans (383) (586) (969) (1,676) (2,168) (3,844)
Commercial Loans 11 140 151 (96) (96)
Other Loan Receivables (4) 1 (3) (161) 15 (146)
Total Loan Receivables (376) (445) (821) (1,933) (2,153) (4,086)
Total Interest-Earning
Assets 202 (232) (30) (1,261) (4,235) (5,496)
Interest-Bearing Liabilities
Savings Deposits 249 (127) 122 889 (1,113) (224)
Other Time Deposits 234 (249) (15) (959) (1,963) (2,922)
Advances from Federal
Home Loan Bank (761) (745) (1,506) 607 (905) (298)
Securities Sold Under
Agreements to Repurchase
and Other Borrowings 560 184 744 (1,353) (487) (1,840)
Total Interest-Bearing
Liabilities 282 (937) (655) (816) (4,468) (5,284)
Increase (Decrease) in
Interest Differential $ (80) $ 705 $ 625 $ (445) $ 233 $ (212)
</TABLE>
Note: Changes not due entirely to changes in volume or rate have been
allocated to volume.
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO
(Amounts in Thousands)
Investment Securities:
Book Value on December 31
1994 1993 1992
<S> <C> <C> <C>
U.S. Treasury and other U.S. Government agencies $ 348 $ 199 $ 200
Other investment securities<F1> 48,735 8,730 8,374
Total debt securities 49,083 8,929 8,674
Federal Home Loan Bank stock 4,128 3,858 3,357
Other equity securities 7 7 7
Total equity securities 4,135 3,865 3,364
Total Investment Securities $53,218 $12,794 $12,038
<F1> Other Securities include bonds, federal funds sold mortgage-backed
securities and securities purchased under agreements to resell.
Investments available for sale are not included in the maturity and
yield analysis.
</TABLE>
<TABLE>
<CAPTION>
Maturity and Yield Analysis of Debt Securities
December 31, 1994
Carrying Average Estimated
Value Yield<F1> Fair Value
<S> <C> <C> <C>
Due one year or less $ 3,650 6.20% $ 3,663
Due after one year through five years 10,653 5.54 10,042
Due after five years through ten years 8,767 6.36 8,028
Due after ten years 26,013 5.30 23,617
Total investment debt securities $49,083 5.61% $45,350
<F1> Average yields have been calculated using coupon rates adjusted for
amortization of premiums and discounts, not adjusted to fully taxable
equivalent.
</TABLE>
The Corporation held no single issuer of securities, excluding the U.S.
Government and U.S. Government agencies, included above in excess of 10% of
stockholders' equity of the Corporation.
<TABLE>
<CAPTION>
LOAN PORTFOLIO
(Amounts in Thousands)
Types of Loan and Balances
December 31 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Real estate - mortgage $222,562 $232,740 $234,612 $261,251 $269,342
Real estate - construction 10,952 7,046 1,910 514
Commercial 7,858 7,092 7,562 6,326 4,123
Installment loans to individuals 1,033 768 1,052 2,440 733
Other Loans 1,531 1,471 1,250 1,371 859
Lease Financing 217 1,127
Total loans and leases 243,936 249,117 246,386 272,119 276,184
Less unamortized loans fees 1,021 1,037 802 944 709
Less allowance for possible
losses 6,682 5,610 6,678 6,545 6,704
Net Loans $236,233 $242,470 $238,906 $264,630 $268,771
</TABLE>
Maturities and Sensitivity to Changes in Interest Rates
(Excluding Real Estate Mortgages, Installment Loans to Individuals and
Other Loans and Leases)
<TABLE>
<CAPTION>
1 Year 1 Year to Over
or Less 5 Years 5 Years Total
Variable Fixed Variable Fixed
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 4,144 $ 918 $ 898 $ 598 $ 1,300 $ 7,858
Real estate-
construction 10,952 10,952
</TABLE>
<TABLE>
<CAPTION>
Risk Elements
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 950 $ 2,242 $ 4,047 $ 2,823 $12,310
</TABLE>
According to the policies of the Corporation, no loans past due more than
90 days continue to accrue interest. At December 31, 1994, the Corporation
deducted from interest income $66,350 interest accrued but unpaid on
nonaccrual loans. Renegotiated loans have been insignificant.
The accrual of interest income is generally discontinued when loans become
more than 90 days past due. However, when a large commercial real estate
loan becomes 30 days or more delinquent, the prospects for curing the
delinquency are reviewed. If it does not appear that the delinquency will
be easily cured, the loan is placed on a non-accrual status prior to
becoming 90 days or more delinquent. Loans that have matured, but continue
to make principal and interest payments, are not reported as delinquent.
Potential Problem Loans and Loan Concentrations
At December 31, 1994, the Corporation has identified $8.3 million of loans
and real estate acquired in settlement of loans (net of specific
allowances) with various weaknesses or deficiencies, including present
and/or past delinquencies in payments. This compares with $13.6 million of
such assets at December 31,1993. At December 31, 1994 and 1993, real
estate loans included $318,000 and $807,000, respectively, on which the
Corporation had filed notice of default with the borrower, which begins
foreclosure proceedings, and/or where the borrower has declared bankruptcy.
Concentrations of non-residential real estate loans classified by property
type at December 31, 1994 are as follows:
Property Type Carrying Amount
Office Buildings (includes medical and bank) $15,215,000
Industrial and warehouse (includes light
industrial) 10,853,000
Retail and wholesale 27,002,000
Motel or hotel 18,469,000
Nursing home, convalescent center or hospital 10,375,000
Mobile home parks 3,682,000
Service (gas station, fast food, car wash,
convenience stores, etc.) 2,637,000
Restaurant 1,409,000
Other commercial (recreation facilities, mini-
storage, farm, hydro-electric, auto-dealers,
truck terminal and other single-use property) 11,893,000
Commercial real estate loans listed by the state in which the property is
located at December 31, 1994 are as follows:
State Book Value
Alaska $ 374,000
Arizona 2,707,000
California 36,975,000
Colorado 996,000
Idaho 16,343,000
Montana 6,074,000
New Mexico 1,752,000
Nevada 365,000
Oregon 2,270,000
Utah 33,334,000
Wyoming 346,000
Other Interest-Earning Assets
The Corporation did not have any other interest-earning assets that would
have been reportable above had they been classified as loans.
<TABLE>
<CAPTION>
Summary of Loan Loss Experience
(Amounts in Thousands)
Changes in the allowance for losses are as follows:
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $5,610 $6,678 $6,545 $6,704 $12,735
Loans charged off:
Real estate mortgage 391 73 2,208 6,883
Real estate construction
Commercial 21 45 26 799
Installment loans to
individuals 7 2 9
Other loans and leases 17 8 197 494
Total loans charged off 45 446 73 2,431 8,185
Recoveries:
Real estate mortgage 15 308 220 150
Real estate construction
Commercial 49 66 99 200 41
Installment loans to
individuals 5
Other loans and leases 5 1
Total recoveries 69 375 324 350 41
Provision charged (credited) to
expense 1,048 (997) (118) 1,922 2,113
Balance, end of year $6,682 $5,610 $6,678 $6,545 $6,704
Net charge offs to average loans 0.02% 0.18% 0.03% 0.78% 2.87%
</TABLE>
The Corporation determines the amount to be provided for loan and lease
losses on a quarterly basis, based on management's judgment as to the
adequacy of the allowance for possible losses. Various factors are
considered in making this judgment, such as the size, composition,
collateral and quality of the loan and lease portfolios; levels of
delinquent or troubled loans and leases; historical charge-off percentages;
specifically identified allocations of the reserve; the amount of the
reserve that is unallocated; and prevailing local and national economic
conditions.
The purpose of an allowance for possible loss is to recognize losses which
are probable and estimable. Allowances are established using the OTS
Classifications of Assets Regulation to determine category risk. Assets
classified pass, special mention, substandard or doubtful generally trigger
allowances categorized as general, while loss classification triggers a
specific allowance or charge off. General and specific allowances are
estimated based on the loan collateral and the factors mentioned above.
The allocation by loan category of the allowance for possible losses are as
follows at December 31, 1994:
Percent
Applicable to: Amount to Total Loans
Real Estate Mortgage $5,259 91.2%
Real Estate Construction 146 4.5
Commercial 1,247 3.2
Installment Loans for Individuals 17 .4
Other Loans 13 0.7
Total $6,682 100.0%
<TABLE>
<CAPTION>
DEPOSITS
(Amounts in Thousands)
Average Deposits and Rates
1994 1993 1992
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Interest bearing demand $ 53,520 1.81% $ 50,793 1.86% $ 42,144 2.96%
Savings 51,445 3.20 46,510 3.31 35,220 4.23
Time 197,190 4.41 191,987 4.45 213,452 5.37
Total $302,155 3.74% $289,290 3.81% $290,816 4.87%
</TABLE>
Maturity Schedule of Time Certificates of Deposit Over 100,000
Remaining Maturity December 31, 1994
3 months or less $ 6,232
3 to 6 months 2,108
6 to 12 months 2,695
Over 12 months 25,725
Total $ 36,760
RETURN ON EQUITY AND ON ASSETS
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
<S> <C> <C> <C>
Ratio of net income to average total assets 1.19% 1.64% 0.70%
Ratio of net income to average total equity 13.77% 20.83% 12.08%
Ratio of average total equity to average total assets 8.64% 7.88% 5.78%
</TABLE>
No dividends have been paid by the Corporation as of the end of the above
reported periods.
<TABLE>
<CAPTION>
SHORT-TERM BORROWINGS
(Amount in Thousands)
1994 1993 1992
Balance outstanding at December 31
(including accrued interest payable):
<S> <C> <C> <C>
Amount $20,470 $ 44,996 $ 8,465
Weighted average interest rate 6.30% 3.60% 4.82%
Average borrowing for the year:
Outstanding $27,409 $13,412 $39,548
Weighted average interest rate 5.34% 5.11% 4.26%
Largest amount outstanding at month-end $36,754 $44,996 $57,685
</TABLE>
The above short-term borrowings are securities sold under agreements to
repurchase and generally mature within three months.
Item 2. PROPERTIES
The following table sets forth certain information relating to the
ownership of the Bank's offices as of December 31, 1994:
Leased
or
Location Owned Lease Expiration Date
Executive Office
Salt Lake City, Utah
115 South Main Street Owned
Branch Offices
Salt Lake City, Utah
201 South Main Street Leased February 28, 2002; renewable for up
to two additional terms of five years
each.
Salt Lake City, Utah
4041 South 700 East Leased May 15, 2002; renewable for up to two
additional terms of five years each.
Salt Lake City, Utah
1360 South Foothill Blvd. Leased July 1999; renewable for one
additional term of five years,
subject to operator's approval.
Salt Lake City, Utah
5510 South 900 East Leased March 31, 2003; renewable for up to
two additional terms of five years
each.
Salt Lake City, Utah
3981 South Wasatch Blvd. Leased December 31, 1999; renewable for one
additional term of five years.
Sandy, Utah
7850 South 1300 East Leased June 30, 1998; renewable for up to
two additional terms of five years
each.
Ogden, Utah
2661 Washington Boulevard Owned
Ogden, Utah
4411 Harrison Boulevard Owned
Provo, Utah
310 North University Owned
Avenue
Butte, Montana (Satellite)
49 North Main & Broadway Owned
Butte, Montana
3701 Harrison Avenue Owned
The Bank occupies approximately 31,500 square feet of space in the
executive office at 115 South Main Street, Salt Lake City, Utah. The
remainder of the space (approximately 21,500 square feet) is available to
lease to others for general office purposes, 11,000 square feet of which is
currently leased. The Bank also leases space to others in its Ogden, Provo
and Butte branch offices. Each of the properties is adequate and suitable
for the purposes for which it is being used.
Item 3. LEGAL PROCEEDINGS
Richard Madsen vs. Prudential Federal Savings and Loan Association, Third
Judicial District Court of Salt Lake County, State of Utah, Civil No.
226073, filed February 1975.
This is an alleged class action seeking compensation for the use of loan
reserves for taxes and insurance. The District Court granted the Bank's
(formerly known as Prudential Federal Savings and Loan Association) motion
for summary judgment dismissing the complaint. Plaintiff appealed to the
Utah Supreme Court. The Utah Supreme Court reversed the summary judgment
on January 14, 1977, and ordered the case remanded for further proceedings.
In October, 1977, plaintiff amended the complaint to allege a plaintiff
class action on behalf of all mortgagors in the State of Utah against a
defendant class of all mortgage lenders in Utah, of which the Bank would be
the representative defendant. In October, 1981, plaintiff filed an amended
complaint in the matter. The amended complaint, in addition to requesting
an accounting, requests that the Bank and other members of the alleged
defendant class pay to the plaintiffs, and all other members of the
alleged plaintiff's class, profits earned from the past use of escrow
funds, annual payments in the future for the use of escrow funds, punitive
damages of $10,000,000 and 4% interest on the reserve account of each
member of the plaintiff's class or $100, whichever is more, from June 30,
1979. The trial court also denied the Bank's motion for summary judgement
and ruled that the Bank must account to plaintiff Madsen only for net
earnings, if any, made on his reserve account.
Trial of this case was held in September, 1985. At the conclusion, of the
trial, the Court directed judgment in favor of plaintiff Madsen in the
amount of $134.70. Before judgment was entered, the Bank moved for
disqualification of the trial judge, which was granted on January 16, 1986,
and was retroactive, so that all of the trial judge's orders were vacated.
Thereafter, plaintiff's petition to the Utah Supreme Court for
interlocutory review of the disqualification order was granted. During
1988, the Utah Supreme Court reversed the lower court's disqualification of
the trial judge. The case was remanded to the trial court for entry of
findings of fact and conclusions of law.
The trial court on March 22, 1990, entered its findings of fact and
conclusion law. The trial court entered judgment on April 30, 1992,
awarding $134.70 to plaintiff, plus costs of court and 10% interest from
the date of the trial to the date of judgement, plus post-judgment
interest. The judgment also orders that a special master be appointed to
survey the Bank's records to determine a feasible method for identifying
class members and for identifying records from which a computation of
damages can be made for class members. A consequence of the judgment may
be that a class of plaintiffs, whose trust deeds in favor of the Bank
contain similar language as that contained in the plaintiff's trust deed,
may recover a substantial judgment against the Bank. The trial court
certified the judgment as final and directed its entry so that an appeal
may be taken. The trial court stayed, pending appeal, that portion of the
judgment ordering that a special master be appointed to identify the
defendant class and calculate damages. Both the individual plaintiff in
this case and the Bank filed notices of appeal to the Utah Supreme Court.
The Supreme Court ruled that the appeals were premature and returned the
case to the trial court. In June, 1994, the trial court appointed a
special master to identify class members and compute damages. The trial
court ordered the Bank to pay the initial costs incurred by the master in
determining what records the Bank has available and what is the best and
most economical method of locating class members and computing damages.
The master completed his initial survey of Bank records and filed his
initial report in February, 1995. The amount of the damages that may be
awarded against the Bank cannot be determined at this time. Appeal must
await the trial court's determination of class issues.
Yvonne Webber v. Olympus Bank (Second Judicial District Court, Silver Bow
County, State of Montana, Civil No. 94-c-554).
This is a wrongful discharge suit filed on December 29, 1994. Ms.
Webber's position as a loan processor was eliminated and she was laid off
as part of a general reduction in work force. The suit seeks unspecified
damages for four years' lost wages and benefits and punitive damages for
termination allegedly in violation of Montana's Wrongful Discharge Act, the
Bank's personnel policies and public policy.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
TRADING
The common stock, $1.00 par value, of the Corporation is traded on the
National Association of Securities Dealers Automated Quotation Service
("NASDAQ") National Market System. The following table sets forth, for the
respective periods indicated, the closing prices of the common stock on the
NASDAQ National Market System, based upon actual transactions, as reported
and summarized by NASDAQ.
1994 High Low
First Quarter 15 3/4 11 1/4
Second Quarter 13 3/4 10 1/4
Third Quarter 14 3/4 13 1/4
Fourth Quarter 15 14 1/4
1993 High Low
First Quarter 9 1/2 6 1/2
Second Quarter 11 1/4 8 3/4
Third Quarter 15 10 1/2
Fourth Quarter 14 1/2 12 1/2
As of March 25, 1995, there were 11,895 record holders of the common stock.
DIVIDENDS
No dividends have been paid to stockholders since 1981, and no
determination has been made as to when, if at all, dividends may be paid to
stockholders of the Corporation in the future.
As a unitary savings and loan holding company, the Corporation's ability to
pay dividends depends in part on the dividends it receives from the Bank
and on income from other activities in which the Corporation may engage
either directly or through other subsidiaries. As a condition of the
February 1983 FHLBB approval of the reorganization in which the Bank became
a subsidiary of the Corporation, dividends paid by the Bank are limited to
net income for each year, but such dividends may be deferred to a
subsequent year. However, no dividend may be paid from net income for a
year prior to 1983 or if the payment of such dividends would reduce the
Bank's regulatory capital below the regulatory minimums set by the OTS. To
the extent dividends have been paid by the Bank to the Corporation, such
funds have been used in the conduct of the business of the Corporation.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR THE YEAR 1994 1993 1992 1991 1990
(Dollar Amounts in Thousands except Earnings and Stockholders'
Equity Per Share)
<S> <C> <C> <C> <C> <C>
Interest Income $ 27,592 $ 27,430 $ 33,109 $ 39,545 $ 48,833
Interest Expense 13,830 14,485 19,769 29,665 40,513
Net Interest Income 13,762 12,945 13,340 9,880 8,320
Provision for (Recovery of)
Loan Losses 1,048 (996) 2,038 1,922 2,113
Gain on Sale of Loans and
Investments 287 2,519 1,209 480 457
Provision for Loss on Real Estate
Acquired in Settlement of Loans 54 576 1,130 1,457 1,528
Net Income 4,711 6,343 2,835 345 858
Primary Earnings Per Share 1.45 1.97 1.06 0.14 0.34
Return on Average Equity 13.77% 20.83% 12.08% 1.57% 3.73%
Return on Beginning Equity 14.12% 23.50% 12.98% 1.60% 4.16%
Return on Average Assets 1.19% 1.64% 0.70% 0.08% 0.16%
AT YEAR END
Total Assets $392,253 $414,169 $380,480 $403,693 $450,466
Loan Receivable-Net 236,234 242,470 239,906 264,630 268,771
Securities Held to Maturity 51,912 12,713 7,058 16,414 25,174
Securities Available for Sale 74,017 132,196 103,835
Mortgage-Backed Securities 90,661 122,758
Deposits 286,599 294,561 291,651 292,713 291,580
FHLB Advances, Securities Sold
Under Agreements to Repurchase
and Other Borrowings 67,291 81,646 57,562 83,168 113,548
Stockholders' Equity 35,032 33,364 26,987 21,849 21,504
Stockholders' Equity Per Share $ 11.18 $ 10.76 $ 8.82 $ 8.57 $ 8.43
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Olympus Capital Corporation and Subsidiaries
This discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto included in this Annual Report.
The following table includes average balance information and the calculated
average rate earned or paid on assets and liabilities and is presented to
facilitate discussion of the Corporation's financial condition and results
of operations.
AVERAGE BALANCE SHEET/YIELDS AND RATES
for the Twelve Months Ended December 31, 1994, 1993 and 1992
(Unaudited)
<TABLE>
<CAPTION>
1994 1993 1992
Average Average Average Average Average Averag
ASSETS Balance Interest Rate Balance Interest Rate Balance Interest Rate
(Dollar Amounts in Thousands)
Interest-earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Held to
Maturity and Other Short
-term Investments $ 50,890 $ 2,337 4.59% $ 18,940 $ 959 5.06% $ 15,952 $ 1,196 7.50%
Federal Funds Sold 1,606 68 4.23 5,869 188 3.20 8,397 291 3.47
Securities Available for
Sale 92,721 4,806 5.18 106,048 5,273 4.97 93,051 6,343 6.82
Loan Receivables<F1>
Real Estate Loans 229,745 18,509 8.06 234,431 19,478 8.31 254,653 23,322 9.16
Commercial Loans 7,342 729 9.93 7,225 578 8.00 8,433 674 8.00
Other Loans
Receivable 2,187 199 9.10 2,241 202 9.01 4,018 348 8.66
Total Loan Receivables 239,274 19,437 8.12 243,897 20,258 8.31 267,104 24,344 9.11
Total Interest Earning
Assets 384,491 $26,648 6.93% 374,754 $26,678 7.12% 384,504 $32,174 8.37%
Other Assets, Net 11,592 11,629 21,419
Total Assets $396,083 $386,383 $405,923
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
Liabilities:
Savings Deposits $104,964 $ 2,602 2.48% $ 97,392 $ 2,480 2.55% $ 77,441 $ 2,704 3.49%
Other Time Deposits 197,191 8,528 4.32 191,898 8,543 4.45 213,375 11,465 5.37
Advances from Federal
Home Loan Bank 27,914 1,235 4.42 45,134 2,741 6.07 35,116 3,039 8.65
Securities Sold Under
Agreement to Repurchase
and Other Borrowings 27,409 1,465 5.34 16,910 721 4.26 48,665 2,561 5.26
Total Interest-Bearing
Liabilities 357,478 $13,830 3.87% 351,334 $14,485 4.12% 374,597 $19,769 5.28%
Other Liabilities 4,383 4,602 7,850
Stockholders' Equity 34,223 30,447 23,476
Total Liabilities and
Stockholders' Equity $396,084 $386,383 $405,923
Net Interest Spread 3.06% 3.00% 3.09%
Net Interest Income/
Earning Assets $12,818 3.33% $12,193 3.25% $12,405 3.23%
<F1> Loans and leases include non-accrual loans and are shown net of
unearned discount and allowance for possible losses. Interest
on loans and leases excludes fees.
</TABLE>
RESULTS OF OPERATIONS
The following table highlights results of operations and earnings per share
for the years ended December 31,
1994 1993 1992
Net income $4,711,000 $6,343,000 $2,835,000
Primary earnings per share 1.45 1.97 1.06
Fully diluted earnings per share 1.44 1.95 0.04
NET INTEREST INCOME
A significant component of the Corporation's income is net interest income.
Net interest income is the difference between interest earned on loans,
investments and other interest-earning assets ("interest income") and
interest paid on deposits and other interest-bearing liabilities ("interest
expense"). Net interest margin, expressed as a percentage, is net interest
income divided by average interest-earning assets. Changes in interest
rates, the volume and the mix of interest-earning assets and interest-
bearing liabilities, and the levels of non-performing assets affect net
interest income and net interest margin. Net interest spread is the
difference between the yield on interest-earning assets and the percentage
cost of interest-bearing liabilities.
The following table highlights net interest income for the years ended
December 31,
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Net interest income
including loan origination fees $13,762,000 $12,945,000 $13,340,000
Change from previous year 817,000 (395,000) 3,460,000
% change from previous year 6.31% (2.96%) 35.02%
Net interest spread 3.06% 3.00% 3.09%
Net interest margin 3.33% 3.25% 3.23%
Net interest margin including
loan origination fees 3.58% 3.45% 3.47%
</TABLE>
The Corporation's modest increase in the net interest margin for 1994 as
compared to 1993 and 1992 is the result of a greater proportion of earning
interest assets when compared to interest bearing liabilities, which
increased from 103% of interest bearing liability in 1992 to 105% in 1994.
Lower levels of non-performing assets have had a positive impact on the
total interest earning assets falling from $9,310,000 at the end of 1992 to
$950,000 at the end of 1994. Additionally, the effects of generally lower
interest rates experienced primarily in 1993 continued to benefit net
interest income in 1994.
The following table highlights interest income for the years ended
December 31,
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Total interest income $27,592,000 $27,430,000 $33,109,000
Change previous year 162,000 (5,679,000) (6,436,000)
% change from previous year 0.59% (17.15%) (16.28%)
Total interest income/average
interest earning assets 7.18% 7.32% 8.61%
</TABLE>
The greatest decline in interest income from 1992 to 1994 occurred in the
real estate loan portfolio. Income from real estate loans declined
$3,844,000 from 1992 to 1993 and $969,000 from 1993 to 1994 as a result of
a decline in both average balances and rates. Real estate loan average
portfolio balances declined $20,222,000 from 1992 to 1993 and $4,685,000
from 1993 to 1994. The commercial real estate portfolio average balance
outstanding declined just under $20,000,000 from 1993 to 1994. During the
first quarter of 1994, a large commercial real estate loan borrower prepaid
approximately $11,000,000 of commercial real estate loans. Until recently,
federal banking regulations prohibited the Corporation from originating
non-residential real estate loans, except to finance the sale of commercial
real estate acquired in settlement of loans (REO). Multi-family real
estate loan average balances increased $6,000,000 from 1993 to 1994, and
average outstanding balances on home equity loans increased $2,500,000 for
the same period. Average funded balances on construction loans increased
$6,700,000 from 1993 to 1994. The balance of the decline in interest in
the real estate portfolio from 1993 to 1994 was in single family real
estate loans. The average interest rate received for the real estate
portfolio fell 0.85% from 1992 to 1993 and 0.25% from 1993 to 1994.
During the year ended December 31, 1994, interest income from securities
available for sale decreased by $467,000 compared to the same period in
1993. This decline was primarily the result of a decrease in the average
balance of investments available for sale of $13,326,000 for 1994 as
compared to 1993. The interest rate earned on these investments for the
year ended December 31, 1994 was 4.58% compared to 4.62% for the same
period in 1993. During 1994, dividend income from FHLB stock declined
$230,000 compared to the same period in 1993. The dividend paid by the
FHLB for 1994, was 6.82% compared to 14.13% for 1993. During the first
quarter of 1994 the Bank reclassified to securities held to maturity
approximately $40,000,000 of mortgage backed securities previously
reported as available for sale. This reclassification was the principal
reason income from investment securities for the year ended December 31,
1994, increased by $1,486,000. During the year , the average balances of
securities held to maturity increased $27,687,000 compared to the same
period in 1993.
Interest income on commercial loan increased $152,000 for the year ended
December 31, 1994 as compared to 1993. This follows a $97,000 decrease in
interest income on commercial loans from the year of 1992 to 1993. The
increase in 1994 is primarily the result of an increase of 1.94% in the
interest rate earned on this portfolio from 1994 as compared to 1993. The
decrease from 1992 to 1993 resulted from lower average balances outstanding
for the portfolio. Interest rates on most of the loans in this portfolio
are adjustable and have adjusted higher as interest rates in general have
increased during 1994. Loan origination fees for the year ended December
31, 1994 increased $192,000 over the same period in 1993 largely
attributable to the increase in construction lending experienced in 1994.
During 1994 the Bank originated $30,491,000 construction loans, primarily
for residential housing, compared to $17,799,000 in 1993. The principal
source for loan origination fees in the prior years of 1993 and 1992 was
from residential mortgage loans originated for sale and an increased volume
of loan refinancing. Deferred net loan fees collected at origination are
recognized as income over the term of the loan or when the loans are sold
or pay-off. During 1994, the Bank funded $17,283,000 for mortgage loans
originated for sale compared to $66,228,000 during 1993 and $79,944,000 for
1992. From the portfolio of loans originated for sale, $23,450,000
principal balance was sold during 1994 compared to $66,437,000 which was
sold during 1993 and $77,898,000 which was sold during 1992.
The following table highlights interest expense for the years ended
December 31,
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Total interest expense $13,830,000 $14,485,000 $19,769,000
Change from previous year (655,000) (5,284,000) (9,896,000)
% change from previous year (4.52%) (27.73%) (33.36%)
Total interest expense/average
costing liabilities 3.87% 4.12% 5.28%
</TABLE>
Average costing liabilities declined $17,119,000 from 1992 to 1994 and the
average rate paid for such liabilities declined 1.41% for the same period.
The aggregate average balance of deposits increased $11,339,000 from 1992
to 1994 and the average rate paid for such deposits fell 1.19% for the same
period. The proposed merger with Washington Mutual Inc., has caused some
uncertainty with customers and as a result deposit balances declined during
the fourth quarter of 1994. The interest paid for all deposits increased
$107,000 from 1993 to 1994 and declined $3,146,000 from 1992 to 1993.
Advances from the Federal Home Loan Bank (FHLB) provide an additional
source of funds for the Bank, though the cost of this funding source has
generally been at interest rates higher than that paid on deposits. The
average rate paid for FHLB advances fell 4.23% from 1992 to 1994 and the
average balances of these advances declined $7,202,000. The interest paid
for FHLB advances fell $1,506,000 from 1993 to 1994 and $298,000 from 1992
to 1993. During the year ended December 31, 1993 the Bank prepaid
$25,000,000 of FHLB advances. The advances prepaid during 1993 had an
average rate of 9.48%. Such prepayments resulted in prepayment penalties,
which is reported as an extraordinary item for 1993. The average balances
of other borrowing sources increased $10,499,000 from 1993 to 1994 and
declined $31,755,000 from 1992 to 1993. During 1993, $5,100,000 of
$9,000,000 of other borrowings consisting of an industrial revenue
refunding bond liability was retired and the balance of the liability was
assumed by the purchaser of the industrial building previously held in real
estate acquired in settlement of loans. The average balance of repurchase
agreements increased $13,997,000 from 1993 to 1994. Management uses this
source of funding, together with FHLB advances, for the Corporation's
liquidity needs not funded by deposits.
PROVISION FOR LOSSES
For the year ended December 31, 1994, the Corporation recorded a provision
for loan losses of $1,048,000 as compared to a recovery of loan losses of
$996,000 for the same period in 1993. The provisions for losses for 1994
were established for loans secured by Southern California properties in
response to uncertainties caused by natural disasters and the overall
weakness of the rental market for commercial space in the region.
The recoveries of previous provisions for loan losses during 1993 were the
result of lower non-performing asset levels and the satisfactory settlement
of several troubled loans.
OTHER INCOME
Other income for the year ended 1994 was $3,731,000 as compared to
$4,553,000 and $2,500,000 for the same periods in 1993 and 1992,
respectively.
Fee income increased $964,000 from 1993 to 1994. The largest components of
fee income are loan servicing fees, fees and charges on deposits, and
prepayment fees on the pre-payment of commercial real estate loans. Loan
servicing fees increased $253,000 from 1993 to 1994, due in part to
additional purchases of mortgage servicing rights. Fees and charges
collected on deposits increased $267,000 from 1993 to 1994 and increased
$132,000 from 1992 to 1993, primarily the result of increased checking
account balances and activity. During 1994 the Bank collected $282,000 on
the prepayment of commercial real estate loans; prior years collections
were not material. Other fees collected during 1994 increased $186,000
over 1993, the result of increased merchant credit card processing by the
Bank for customers.
The Corporation earned $840,000 from real estate operations in 1994
compared to $62,000 in 1993 and a loss of $583,000 for 1992. During 1994
the Corporation received $727,000 from the settlement or disposition of
four commercial real estate properties. As of December 31, 1994 the
Corporation held no REO, there can be no assurance that other loans will
not result in REO in the future.
Gain from the sale of loans and investments decreased $2,232,000 from
$2,519,000 in 1993 to $287,000 in 1994. During 1993, the Bank sold
mortgage servicing rights on loans serviced for others at a gain of
$350,000. The balance of the decline is the result of fewer loans
originated for sale and fewer sales at a gain, both caused by higher
interest rates in 1994.
Miscellaneous income fell $332,000 from 1993 to 1994, after falling
$453,000 from 1992 to 1993. Miscellaneous income in 1992 included a tax
refund totaling $363,000. Commissions and income from the sale of
insurance products declined $318,000 from 1993 to 1994.
OTHER EXPENSES
Other expenses decreased $434,000 during 1994, following an increase of
$1,043,000 during 1993 over 1992.
From 1992 to 1994 compensation expense has increased $692,000. The Bank
has opened six new branches since 1991, as well as adding commercial loan
administration personnel and residential lending personnel due to increased
demand for these services. Additionally, the increased volume of demand
deposits has required additions to the operations staff. Besides opening
six new branches, the Bank has relocated three additional branches to
larger, more convenient locations. Occupancy expense increased $12,000
from 1993 to 1994 after increasing $219,000 from 1992 to 1993. Management
believed that retail branches represented an opportunity to build low cost
core deposits and to offer the Bank's lending products and services to a
wider range of customers. The significant decline in both REO and non-
accrual loans has led to a decrease in loan and collection expense of
$426,000 from 1993 to 1994. The Bank was involved in several costly
foreclosure proceedings during 1993, most of which had been concluded
during 1993. Insurance expense, which includes Federal Deposit Insurance
Corporation (FDIC) premiums for insured deposits, declined $129,000 from
1992 to 1993. During 1993 the Bank received the final installment of its
secondary reserve credit. This credit reduced the FDIC insurance premium
$415,000 for 1993. With no such credit in 1994 insurance expense increased
$235,000 in 1994 as compared to 1993, even though the premium rate
decreased in 1994. During the year ended December 31, 1994, the Bank
recorded a $54,000 provision for the losses from REO as compared to a
$576,000 provision for losses from REO for the same period in 1993. The
reduction in the provision is a result of the decline in the level of REO.
For 1994, other operating expenses increased $41,000 compared to the same
period in 1993. During the year ended December 31, 1994, the Corporation
spent $336,000 for legal and professional services associated with the
proposed merger. Other legal fees increased $153,000 for 1994, as compared
to 1993. Most of these costs were to review strategic alternatives in
connection with an expression of interest to acquire the Corporation which
was terminated earlier in 1994.
INCOME TAXES
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," effective January 1, 1993. The
cumulative effect of adopting SFAS No. 109 on the Corporation's financial
statements was to increase income $338,000 during 1993.
In 1992, the Corporation recorded an income tax benefit of $157,000 which
resulted from a $197,000 deferred tax benefit offset by an estimate for
Federal alternative minimum tax of $40,000. The Corporation has net
operating loss carry forwards for financial statement purposes of
approximately $4,527,000 which expire in the year 2003.
ASSET/LIABILITY MANAGEMENT - INTEREST RATE RISK
A mismatch between maturities and interest rate sensitivities of assets and
liabilities results in interest rate risk. While a certain level of
interest rate risk may be unavoidable, and may at times be desirable,
management closely monitors and attempts to manage this risk. The
Corporation's general objective has been to reduce its vulnerability to
interest rate fluctuations over time. The principal strategies to achieve
this objective include (1) emphasizing originations of shorter term and
adjustable rate loans, (2) increasing core checking and other demand
deposit accounts which are less sensitive to changes in interest rates, and
(3) the use of interest rate swaps and interest rate cap agreements to
minimize the consequences of rising interest rates on short-term deposits
and borrowings.
The Corporation uses primarily two techniques in managing and measuring
interest rate risk, net interest income simulations and theoretical mark-
to-market values for interest sensitive assets and liabilities. The net
interest income simulation is a simulation of interest income and interest
expense for a twelve month period under different scenarios. An initial
scenario or base case was calculated using rates as of December 31, 1994.
Additional scenarios were computed adjusting rates both up and down. The
Corporation is negatively impacted by rising interest rates. Based on the
simulation, net interest income would decline by approximately 8% for an
increase of 200 basis points over the base rates.
Theoretical market values were also computed using December 31, 1994 market
rate information for both assets and liabilities. This provides a base
case from which additional values for assets and liabilities are computed
under varying fluctuations of the current interest rates. The net market
value of portfolio equity, which is the theoretical market values of assets
minus the theoretical market values of liabilities, as of December 31,
1994, is approximately $42.5 million. Given the same 200 basis point
increase in the base rates as discussed above, the net market value of
portfolio equity would decline by approximately 9%.
FINANCIAL CONDITION
ASSETS
Total consolidated assets at December 31, 1994, were $392,253,000, a
decrease of $21,916,000 or 5.29% from the December 31, 1993 balance of
$414,169,000. This resulted primarily from a decrease in investments of
$18,979,000.
SECURITIES HELD TO MATURITY AND LIQUIDITY MANAGEMENT
Investment securities, including federal funds sold and Federal Home Loan
Bank Capital stock, are used to provide liquidity and generate income. The
following table sets forth the carrying values of each type of investment
security held by the Corporation.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
<S> <C> <C>
Federal Funds Sold $ 1,306,000 $ 81,000
U.S. Government Securities 348,000 199,000
U.S. Government Agency Securities 6,499,000 6,498,000
Mortgage-backed Securities 40,930,000 2,151,000
Federal Home Loan Bank Stock 4,128,000 3,858,000
Total $53,211,000 $12,787,000
</TABLE>
Securities held to maturity increased $38,928,000 during 1994, while
securities available for sale decreased $58,178,000. Securities held to
maturity increased as the result of a reclassification of securities
available for sale to securities held to maturity. The Bank charged the
carrying value of the investment $462,000, with an offsetting entry to
stockholders' equity for the difference between carrying value and the fair
value at the date of reclassification. The Bank amortized $60,000 of this
unrealized holding loss reported in equity during 1994, to offset the
effect on interest income of the amortization of the discount created by
this reclassification. The reclassified securities included fixed rate,
fifteen year original maturity mortgage backed securities ("MBS"), MBS
collaterized by loans with five and seven year balloon payments and MBS
pledged as collateral for a long term letter of credit issued by the Bank.
In reassessing the classification of these assets management concluded they
bear many of the same characteristics as mortgage loans currently being
originated for the Corporation's portfolio.
The Corporation attempts to manage its liquidity position to meet the
funding needs of depositors and borrowers in a prompt and cost-effective
manner. Generally, the Corporation's liabilities have shorter maturities
than the Corporation's assets. Hence, the Corporation's ability to retain
deposits and renew advances and other borrowings can significantly affect
liquidity. During 1994, although the assets had longer scheduled
maturities, principal repayments and maturities of the assets provided
ample liquidity to fund deposit withdrawals, other maturing liabilities,
lending commitments, and capital expenditures. The Corporation believes it
has enough assets that can be converted to cash through sale or used as
collateral for borrowings to meet liquidity needs. The Bank is required by
regulation to meet minimum liquidity levels. Management believes it
continues to be in compliance with such requirements.
SECURITIES AVAILABLE FOR SALE
The Corporation categorizes as securities available for sale primarily MBS
which are of the nature of those which have been actively purchased and
sold in prior years. No purchases or sales of MBS occurred in 1994,
including MBS held as securities available for sale. The decline of
$58,178,000 from December 31, 1993 to December 31, 1994 is the result of
the reclassification mentioned above combined with the receipt of both
scheduled and unscheduled principal repayments. Securities available for
sale are recorded at market value and unrealized gains or losses are
recorded as a separate component of stockholders' equity. At December 31,
1994, the market value of these securities was $2,934,000 lower than the
carrying value. The increase in the unrealized losses on securities
available for sale is the result of the increase in interest rates
experienced since the year end 1993.
LOAN AND LEASE RECEIVABLE
Loan and lease receivables totaled $236,234,000 at December 31, 1994,
compared to $242,470,000 at December 31, 1993. The decrease in the ending
balance is primarily the result of loans originated for portfolio of
$84,742,000 during 1994 offset by principal payments (both scheduled and
unscheduled) of $86,919,000 and the decline in loans originated for sale
but unsold of $6,024,000.
Real estate loans totaled $233,068,000 at December 31, 1994, down only
slightly from December 31, 1992. This decrease is due to the amount of
loans originated to be retained in the portfolio being less than the
repayment of principal mentioned above. The Bank originates and retains
multi-family real estate loans. During 1994 the Bank originated $5,528,000
of multi-family loans, compared to $10,202,000 during 1993. The Bank also
originates construction loans primarily for single family residential
properties. Construction loan disbursements for 1994 totaled $30,491,000
as compared to $17,799,000 for 1993. The balance of real estate loan
originations are for financing of residential housing with the exception of
$4,686,000 in commercial real estate loan origination. Real estate loans
are reviewed by members of the Bank's loan committee or a direct
endorsement underwriter prior to the time a loan commitment is made, and
the loan must adhere to established underwriting standards and procedures
designed to minimize the risk of originating a loan which may later result
in default.
The following table sets forth information for the Corporation's real
estate loan originations and loan sales:
<TABLE>
<CAPTION>
December 31,
Real estate loans originated: 1994 1993
<S> <C> <C>
Residential $ 56,619,000 $ 106,824,000
Commercial 4,686,000 3,675,000
Land 293,000 12,000
Construction 30,491,000 17,799,000
Total originations $ 92,089,000 $128,310,000
Real estate loans sold $ 23,450,000 $ 66,437,000
</TABLE>
At December 31, 1994 and 1993, the Bank had extended lines of credit
totaling $7,095,000 and $10,602,000, respectively, for mortgage loan
originations. The lines of credit are used by mortgage bankers to
originate and warehouse mortgage loans. During the years ended
December 31, 1994 and 1993, the Bank disbursed $122,432,000 and
$98,938,000, respectively, on these lines of credit. These originations
are not included in the preceding table.
The Bank currently maintains $101,535,000 in outstanding commercial real
estate loans in its loan portfolio. The commercial real estate loan
portfolio is subject to significant concentrations in single industries,
single borrowers and geographical areas. A downturn in any one geographic
area, industry, or a deterioration in the financial condition of one of the
largest borrowers, could have a material adverse impact on the Corporation.
A further decline in commercial real estate values in markets where the
Corporation's commercial real estate loans are located or other unexpected
events could cause losses with the result that capital of the Bank could be
reduced below required levels.
Real estate loans held for sale totaled $446,000 at December 31, 1994. All
of these loans are fixed rate residential real estate loans which were
originated for sale in the secondary market. With the increase in interest
rates on residential real estate loans there has been a significant decline
in applications and closings for long term fixed rate mortgages, especially
to refinance an existing mortgage loan.
Commercial business loans totaled $7,858,000 at December 31, 1994, an
increase of $766,000, or 11% from December 31, 1993. Management has
allocated additional resources for the origination of commercial business
loans and growth was expected in this category of lending. Recognizing the
generally increased risks associated with commercial business lending, the
Bank originates commercial business loans in order to increase short-term
or adjustable rate assets.
Other loans receivable increased $326,000 to a total of $2,565,000 at
December 31, 1994. The balance of other loans receivable are consumer
loans, such as loans for automobiles and credit card loans. This area of
lending has experienced slow growth due to competitive pressures.
The allowance for losses on loans totaled $6,682,000 at December 31, 1994,
compared to $5,610,000 at December 31, 1993. The allowance for losses is
composed of specific allowances on particular loans and a general allowance
for the loan portfolio. As of December 31, 1994, the total of specific
allowances was $2,746,000, an increase of $1,220,000 from December 31,
1993. The general allowance totaled $3,935,000 at December 31, 1994
compared to $4,084,000 at December 31, 1993. The general allowance is
1.62% of the loan and lease portfolio at December 31, 1994, as compared to
1.66% at December 31, 1993. It is difficult to predict which, if any, of
the loans will become delinquent. The general allowance is 414% of non-
performing loans at December 31, 1994, compared to 182% of non-performing
loans at December 31, 1993. Management has closely monitored the adequacy
of the allowance for possible losses, but the continuing evolution of the
methodologies used to determine adequacy, the changing economic
environment, the changing financial condition of the Bank's largest
borrowers, and the evolving standards of the Federal Deposit Insurance
Corporation ("FDIC") and the OTS may result in further additions to the
allowance.
NON-PERFORMING ASSETS & REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Non-performing assets (principally non-accrual loans and REO) totaled
$950,000 at December 31, 1994, compared with $5,297,000 at December 31,
1993. As of December 31, 1994, non-accrual loans totaled $950,000 compared
to $2,242,000 at December 31, 1993. At December 31, 1994, non-accrual
loans consisted primarily of commercial real estate loans, commercial
installment loans and residential mortgage loans. At December 31, 1994,
real estate loans that were non-accrual totaled approximately $843,000 as
compared to $832,000 at December 31, 1993. At December 31, 1994, non-
accrual commercial installment loans totaled $97,000 as compared to
$1,408.000 at December 31, 1993.
REO (including in-substance foreclosures) totaled $3,055,000 at
December 31, 1993. The Corporation held no REO at December 31, 1994. The
REO held was sold and the Bank has provided loans on market terms to some
of these buyers. Pursuant to management's emphasis on resolving
unsatisfactory credits through foreclosure proceedings or other actions,
the Bank has commenced, and may in the future commence, enforcement
proceedings against borrowers whose loans may not be delinquent with
respect to principal or interest payments but who may not be in compliance
with other provisions of the documents governing the loans, such as those
relating to the payment of taxes. These proceedings may precipitate
delinquencies or may result in new REO.
As of December 31, 1994, the Corporation has identified approximately $8.3
million of loans (net of specific allowances) with various weaknesses or
deficiencies, including present and/or past delinquencies in payment, and
unverified or unverifiable sources of cash flow covering past and/or future
payments. This includes the $950,000 of loans that are non-accrual. The
balance of the loans, while current as to principal and interest payments,
require additional management attention and regulatory concern. This
compares with $8.6 million of such assets as December 31, 1993.
LIABILITIES
SAVINGS DEPOSITS
Deposits are the Corporation's principal source of funds. Deposits totaled
$286,599,000 at December 31, 1994, a decrease of $7,962,000 from
December 31, 1993. The decline in deposits occurred primarily in the
transaction accounts, money market deposit, checking and statement savings.
The interest rates offered by the Bank on these types of accounts have
been lagging the increased interest rates which may be available to
customers in other investment vehicles. Additionally, the announcement of
the proposed merger has caused some uncertainty with certain customers and
some accounts have been closed.
BORROWINGS
Advances from the Federal Home Loan Bank of Seattle increased $10,171,000
from 1993 to 1994. These increased funds were used to pay maturing
repurchase agreements. Securities sold under agreement to repurchase
declined $24,526,000 from 1993 to 1994. The balance of the decrease in the
repurchase agreements was funded from principal collected on securities
available for sale. Management intends to use borrowed funds only as
needed for liquidity purposes.
CAPITAL RESOURCES
For the years 1994 and 1993 employees of the Corporation exercised 33,200
and 39,500 stock options, respectively. New capital contributed to the
Corporation from such stock option exercise was $187,000 for 1994 and
$140,000 for 1993.
In connection with the insurance of savings accounts by the Savings
Association Insurance Fund ("SAIF"), the Bank is required to meet certain
minimum capital standards consisting of three separate requirements. The
capital standards consist of a tangible capital requirement of 1.5% of
tangible assets, a core or leveraged capital requirement of 3% of tangible
assets, and a risk-based capital requirement. The risk-based requirement
takes each asset and gives it a weighting of 0% to 100% based upon credit
risk as defined in the regulations of the Office of Thrift Supervision
("OTS"). The risk-based capital requirement as of December 31, 1994 and
1993 was 8% of the risk weighted assets. Eligible capital to meet this
test is composed of core or tier 1 capital and supplementary or tier 2
capital. Supplementary or tier 2 capital is composed of general loan loss
reserves up to a maximum of 1.25% of risk weighted assets.
The following is a summary of the Bank's regulatory capital at December 31,
1994:
<TABLE>
<CAPTION>
Amount
Requirements Actual Exceeding
Capital Ratio Capital Ratio Requirements
<S> <C> <C> <C> <C> <C>
Tangible $ 5,934,000 1.50% $38,144,000 9.64% $32,210,000
Core 11,869,000 3.00 38,144,000 9.64 26,275,000
Risk-based 18,565,000 8.00 40,989,000 17.66 22,424,000
</TABLE>
EFFECT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
On January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits". The Statement requires an accrual of benefits to be provided to
former or inactive employees after employment but before retirement, such
as salary continuation, severance pay, or health care benefits. The impact
of the Statement on the Corporation was not material in relation to the
consolidated financial statements.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan", as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure", issued in October 1994. SFAS Nos. 114 and 118 require
that an impaired loan be valued based on the present value of expected
future cash flows or fair value of the collateral if the loan is collateral
dependent. SFAS Nos. 114 and 118 are effective for the year beginning
January 1, 1995. The impact of SFAS Nos. 114 and 118 on the Corporation is
not expected to be material in relation to the consolidated financial
statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Olympus Capital Corporation and Subsidiaries:
We have audited the accompanying consolidated statements of financial
condition of Olympus Capital Corporation and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements
are the responsibility of the Corporation's management. Our responsibility
is to express an opinion on these 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 audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Olympus Capital
Corporation and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993
the Corporation changed its method of accounting for income taxes and
certain debt securities to conform with Statements of Financial Accounting
Standards No. 109 and No. 115, respectively.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 28, 1995
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1994 AND 1993
ASSETS 1994 1993
<S> <C> <C>
Cash on hand and in banks (Note 2) $ 7,270,735 $ 8,323,332
Federal funds sold 1,305,872 81,099
Total cash and cash equivalents 8,576,607 8,404,431
Securities available for sale, at fair value
(amortized cost of $76,958,014 in 1994 and
$132,309,298 in 1993) (Notes 3, 11, and 17) 74,024,545 132,202,765
Securities held to maturity, at cost (fair value
$44,044,573 in 1994 and $8,847,276 in 1993)
(Notes 1 and 4) 47,776,734 8,848,368
Federal Home Loan Bank Capital Stock (Note 4) 4,128,000 3,857,500
Loan receivables, net (Notes 1 and 5):
Real estate loans 233,068,121 233,316,431
Real estate loans held for sale 445,979 6,469,655
Commercial loans 7,857,681 7,091,863
Other loan receivables 2,564,544 2,238,761
Less unamortized loan fees (1,020,773) (1,036,824)
Less allowance for losses (6,681,868) (5,610,010)
Total loan receivables 236,233,684 242,469,876
Accrued interest receivable (less allowance
for uncollectible interest of $66,350 in
1994 and $99,499 in 1993) 2,343,187 2,232,629
Real estate acquired in settlement of loans,
net (Notes 1 and 6) 3,054,916
Premises and equipment, net (Note 7) 6,927,313 7,333,637
Other assets and deferred charges (Note 8) 12,242,901 5,765,291
TOTAL ASSETS $392,252,971 $414,169,413
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 9) $286,598,971 $294,560,648
Advances from Federal Home Loan Bank (Note 10) 46,820,820 36,649,913
Securities sold under agreements to repurchase
(including accrued interest payable) (Note 11) 20,470,047 44,996,245
Other liabilities and accrued expenses 3,331,123 4,599,067
Total liabilities 357,220,961 380,805,873
Commitments and contingent liabilities (Note 16)
Stockholders' equity (Notes 14 and 18):
Common stock - $1 par value; 10,000,000 shares
authorized; shares issued and outstanding:
3,132,839 in 1994 and 3,099,639 in 1993
(Note 19) 3,132,839 3,099,639
Paid-in capital 2,047,550 1,894,005
Retained earnings - substantially restricted 33,187,699 28,476,429
Net unrealized losses on securities available
for sale (Note 3) (3,336,078) (106,533)
Total stockholders' equity 35,032,010 33,363,540
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $392,252,971 $414,169,413
See notes to consolidated financial statements.
</TABLE>
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
1994 1993 1992
INTEREST INCOME:
<S> <C> <C> <C>
Real estate loans $18,509,034 $19,478,265 $23,322,006
Securities available for sale 4,805,748 5,272,572 6,342,758
Securities held to maturity 2,129,294 643,174 1,107,940
Equity securities 275,574 504,137 378,958
Commercial loans 729,371 577,706 674,721
Other loans and contracts 198,995 201,490 347,441
Loan origination fees 944,132 752,201 935,025
Total 27,592,148 27,429,545 33,108,849
INTEREST EXPENSE:
Deposits (Note 9) 11,129,805 11,022,544 14,168,612
Advances from Federal Home Loan
Bank (Note 10) 1,235,492 2,740,926 3,039,131
Securities sold under agreements to repurchase (Note 11) 1,464,737 721,302 2,561,556
Total 13,830,034 14,484,772 19,769,299
NET INTEREST INCOME 13,762,114 12,944,773 13,339,550
Provision for (recovery of) loan losses
(Note 5) 1,048,461 (996,412) 2,037,707
NET INTEREST INCOME AFTER PROVISION FOR
(RECOVERY OF) LOAN LOSSES 12,713,653 13,941,185 11,301,843
OTHER INCOME:
Fees 2,376,944 1,413,207 1,391,491
Income (loss) from real estate
operations 839,591 61,584 (582,802)
Unrealized loss on investments
available for sale (Note 3) (562,261)
Gain on sale of loans and investments
(Notes 3, 4, and 5) 286,718 2,519,020 1,209,224
Miscellaneous 227,757 559,659 1,044,825
Total 3,731,010 4,553,470 2,500,477
OTHER EXPENSES:
Compensation and employee expense
(Notes 19 and 20) 5,770,257 5,439,399 5,078,634
Occupancy (Note 16) 2,197,823 2,185,436 1,966,359
Advertising 413,634 375,326 295,078
Loan and collection expense 50,486 476,930 123,533
Insurance expense 927,816 693,069 821,943
Provision for (Recovery of) losses:
Real estate acquired in settlement
of loans (Note 6) 54,000 575,560 1,130,201
Other accounts receivable (200) 61,058 289,475
Other operating expenses 2,319,575 2,360,172 1,419,058
Total 11,733,391 12,166,950 11,124,281
INCOME BEFORE INCOME TAXES, EXTRAORDINARY
ITEM, AND CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE 4,711,272 6,327,705 2,678,039
INCOME TAX EXPENSE (BENEFIT) (Note 12):
Current 40,000
Deferred (196,761)
Total NONE NONE (156,761)
INCOME BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE 4,711,272 6,327,705 2,834,800
EXTRAORDINARY ITEM -
FHLB advance prepayment penalty
(Note 10) (322,807)
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE (Notes 1 and 12) 337,878
NET INCOME $ 4,711,272 $ 6,342,776 $ 2,834,800
EARNINGS PER SHARE (Note 17):
PRIMARY:
Income per share of common stock
before extraordinary item and
cumulative effect of a change
in accounting principle $ 1.45 $ 1.96 $ 1.06
Extraordinary item (.10)
Cumulative effect of a change in
accounting principle (Note 1) .11
Earnings per share of common stock $ 1.45 $ 1.97 $ 1.06
FULLY DILUTED:
Income per share of common stock
before extraordinary item and
cumulative effect of a change
in accounting principle $ 1.44 $ 1.94 $ 1.04
Extraordinary item (.10)
Cumulative effect of a change in
accounting principle (Note 1) .11
Earnings per share of common stock $ 1.44 $ 1.95 $ 1.04
</TABLE>
See notes to consolidated financial statements.
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
Net
Unrealized
Loss on
Securities
Common Paid-in Retained Available Total
Stock Capital Earnings For Sale (Note 14)
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992 $2,550,139 $19,298,853 $21,848,992
Issuance of common stock (Note 14) 510,000 $1,793,230 2,303,230
Net income 2,834,800 2,834,800
BALANCE, DECEMBER 31, 1992 3,060,139 1,793,230 22,133,653 26,987,022
Issuance of common stock (Note 18) 39,500 100,775 140,275
Net decrease in fair value of
securities available for sale
(Notes 1 and 3) $ (106,533) (106,533)
Net income 6,342,776 6,342,776
BALANCE, DECEMBER 31, 1993 3,099,639 1,894,005 28,476,429 (106,533) 33,363,540
Issuance of common stock (Note 18) 33,200 153,545 186,745
Net change in net unrealized loss on
securities available for sale
(Notes 1 and 3) (3,229,545) (3,229,545)
Net income 4,711,270 4,711,270
BALANCE, DECEMBER 31, 1994 $3,132,839 $2,047,550 $33,187,699 $(3,336,078) $35,032,010
See notes to consolidated financial statements.
</TABLE>
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Interest received $ 26,413,490 $ 26,434,708 $ 34,075,609
Fees and commissions received 4,580,802 2,828,343 2,185,135
Income (loss) from real estate operations 839,591 1,584 (582,802)
Loans originated or purchased for resale (17,283,270) (66,228,074) (79,943,643)
Proceeds from sale of loans originated or
purchased for resale 23,450,467 66,436,848 77,897,537
Miscellaneous income received 177,955 1,030,959 2,024,324
Interest paid (13,794,099) (15,248,131) (20,327,638)
Cash paid for services to suppliers and employees (8,573,037) (8,336,568) (6,657,617)
Cash paid for other expenses (2,231,368) (1,645,382) (2,228,429)
Income taxes paid (7,213)
Net cash provided by operating activities 13,580,531 5,274,287 6,435,263
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of securities held to maturity 550,000 10,450,000 5,153,500
Proceeds from sale of securities held to maturity 6,952,437 2,620,082
Purchase of securities held to maturity (686,161) (16,661,900) (10,385,706)
Principal collected on securities held to maturity 2,682,395 354,801 2,268,164
Proceeds from sale of securities available for sale 137,781,224
Purchase of securities available for sale (183,220,432) (28,788,003)
Principal collected on securities available for sale 13,299,480 11,461,598 21,484,572
Principal collected on loans 86,918,606 69,151,779 52,970,550
Proceeds from sale of loans 902,225 4,168,441
Loans originated or purchased (84,742,041) (76,099,514) (33,716,496)
Proceeds from sale of real estate 89,020 8,266,008 9,137,748
Capital expenditures for premises and equipment (249,047) (2,215,264) (729,284)
Purchases of other assets (7,843,912) (3,467,329) (797,166)
Net cash provided by (used in) investing activities 10,018,340 (36,344,367) 23,386,402
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (7,961,677) 2,835,068 (1,062,709)
Proceeds from advances from Federal Home Loan Bank 220,000,000 152,258,200 30,696,000
Principal payments on advances from Federal Home Loan Bank (209,829,093) (155,608,287) (20,696,000)
Net proceeds (repayment) of securities sold under
agreements to repurchase (24,480,363) 36,626,668 (43,896,328)
Proceeds from (repayment of) other borrowings (1,342,307) (8,853,977) 7,641,989
Proceeds from issuance of common stock 186,745 140,275 2,303,230
Net cash provided by (used in) financing activities (23,426,695) 27,397,947 (25,013,818)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 172,176 (3,672,133) 4,807,847
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,404,431 12,076,564 7,268,717
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,576,607 $ 8,404,431 $ 12,076,564
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 4,711,272 $ 6,342,776 $ 2,834,800
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 652,166 716,298 682,455
Deferred income tax benefit (196,761)
Cumulative effect of a change in accounting principle (337,878)
Provision for (recovery of) loan losses 1,048,461 (996,412) 2,037,707
Provision for loss on real estate acquired in settlement
of loans 54,000 575,560 1,130,201
Recoveries 196,689 345,323
Unrealized loss on securities available for sale 562,261
Gain on sale of loans and investments (286,718) (2,519,020) (1,209,224)
Net loans originated or purchased for resale 6,167,197 208,774 (841,307)
(Gain) loss on sale of real estate (38,790) (102,282) 970
Discount/premium amortization on securities available for
sale and held to maturity 174,595 134,913 1,459,464
Federal Home Loan Bank stock dividends (270,500) (500,100) (375,900)
Amortization on unearned discounts on loans (4,249) (8,706)
Net rentals on operating leases (32,141)
Provision for loss on and decline in value of other assets 61,058 323,086
Decrease in other liabilities (25,184) (56,501)
Increase in accrued interest receivable (110,560) 126,800 826,927
Increase (decrease) in interest payable 35,935 (440,552) (558,339)
(Increase) decrease in prepaid expenses 1,405,092 895,892 (157,815)
Increase (decrease) in deferred fees and commissions 45,788 448,425 (141,381)
Increase (decrease) in accrued expenses (7,407) 492,779 (189,856)
Total adjustments 8,869,259 (1,068,489) 3,600,463
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 13,580,531 $ 5,274,287 $ 6,435,263
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
<S> <C> <C> <C>
Loans transferred to real estate acquired in settlement of loans $ 1,165,609 $ 4,138,973 $ 4,223,816
Loan originations to facilitate the sale of real estate acquired
in settlement of loans $ 4,100,000 $ 1,757,642 $ 1,225,000
Securities transferred to securities held to maturity from securities
available for sale (net of $462,185 unrealized loss included
in stockholders' equity in 1994). $42,401,856 None None
See notes to consolidated financial statements.
</TABLE>
OLYMPUS CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Olympus Capital Corporation (the "Corporation"), a savings and loan
holding company, provides a full range of financial services to
individual and corporate customers through its primary subsidiary,
Olympus Bank, a Federal Savings Bank (the "Bank"). The Corporation is
subject to the regulations of certain federal agencies and undergoes
periodic examinations by those agencies.
Basis of Financial Statement Presentation - The consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles including those applicable to the savings and loan
industry. In preparing such financial statements, management is
required to make estimates and judgments that effect the carrying
amounts of assets and liabilities as of the balance sheet date and
revenues and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are
particularly subject to change relate to the determination of the
allowance for possible loan losses and the valuation of real estate
acquired in settlement of loans. Management obtains independent
appraisals of properties to assist in the determination of the allowance
for losses on loans, leases, and real estate owned.
Principles of Consolidation - The consolidated financial statements
include those of the Corporation and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Securities Available for Sale - Effective December 31, 1993, the
Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (Statement No. 115). Pursuant to Statement No. 115,
investments available for sale are recorded at fair value, with net
unrealized gains or losses excluded from income and reported as a
separate component of stockholders' equity. Gains or losses on
investments available for sale are determined on the specific
identification method and are included in income when realized.
Investments available for sale include securities for which the
Corporation has entered into a commitment to sell the securities as well
as securities to be held for indefinite periods of time that management
intends to use as part of its asset/liability management strategy and
that may be sold in response to changes in interest rates, prepayment
risk, or other factors.
Securities Held to Maturity - Investments securities are carried at
amortized cost, based on management's intent and ability to hold such
securities to maturity. Discounts are accreted or premiums amortized
using the interest method over the life of the security. Gains or
losses on sales of securities are determined based on the specific
identification method.
Interest Rate Exchange and Interest Rate Cap Agreements - The
Corporation enters into interest rate exchange agreements as a means of
managing interest rate exposure. The floating rates associated with
these exchanges are reset on a quarterly basis. The effect on interest
costs is recognized currently over the term of such agreements.
Interest rate cap agreements are purchased to reduce the Corporation's
exposure to rising interest rates which would increase the cost of
floating rate liabilities. Costs are amortized over the life of the
agreements and benefits are recognized when realized. Interest rate
swaps are matched against certificates of deposit and repurchase
agreements and net periodic settlement amounts are recognized in income
currently.
Real Estate Acquired in Settlement of Loans (REO) - Properties acquired
in settlement of loans and loans considered in substance foreclosures
are carried at the lower of cost or fair value less estimated selling
costs. Costs relating to the development and improvement of property
are capitalized, whereas those relating to holding the property are
expensed.
Premises and Equipment - Premises and equipment are stated at cost.
Depreciation and amortization of office buildings and related equipment
are computed on a straight-line method over the estimated useful lives
ranging from 20 to 50 years for buildings, 5 to 35 years for leasehold
improvements, and 3 to 25 years for furniture and equipment.
Maintenance and repairs are expensed as incurred. Additions and major
renewals and betterments are capitalized. In addition, the Corporation
leases certain of its branch facilities under operating leases.
Securities Sold Under Agreements to Repurchase - Securities sold under
agreements to repurchase are accounted for as financing transactions and
are recorded at the amount at which the securities will be reacquired,
including accrued interest. Securities sold under agreements to
repurchase are entered into only with securities brokers which are
registered with the Securities and Exchange Commission, are members in
good standing of the National Association of Securities Dealers, Inc.,
and are primary dealers in U.S. Government securities or are agencies of
the federal government. Collateralization limits, based on market
values, range from 101% to 110%, depending on maturity.
Allowance for Losses on Loan Receivables - Allowance for losses on loan
receivables are established to recognize losses which are, in the
opinion of management, probable and estimable. Allowance for losses are
established on the loan portfolio based on past experience and
calculated as a percentage of the portfolio. Delinquent and adversely
classified loans are analyzed and additional allowance for losses
established based on historical losses and estimates of the fair value
of the collateral. While management uses the best information available
on which to base estimates, future adjustments to the allowance may be
necessary if economic conditions differ substantially from the
assumptions used for the purposes of analysis. Restructuring of a loan
results in the establishment of a loss allowance based on the fair value
of the collateral. In addition, various regulatory agencies routinely
examine the Corporation's financial statements as part of their legally
prescribed oversight of the savings and loan industry. As an integral
part of their examination process, the regulatory agencies review the
allowance for losses. Such agencies may require additions to the
allowance based on their evaluation of information available at the time
of their examination.
Non-Refundable Loan Origination Fees - Loan origination fees and certain
direct loan origination costs are deferred. For loans held for
investment, such fees are amortized over the life of the loan using the
interest method as an adjustment of yield. Net deferred loan fees are
included in the calculation of the gain or loss on the sale of loans.
Income Taxes - In February 1992, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (Statement No. 109). Effective January 1,
1993, the Corporation and its subsidiaries adopted the provisions of
Statement No. 109 and recognized a cumulative effect of a change in
accounting principle adjustment of $337,878. The change in accounting
for income taxes had no effect on income before income taxes in 1993.
The Corporation has recorded net deferred tax assets which are offset by
a valuation allowance for the expected future tax consequences of events
that have been recognized in different periods for financial statement
purposes than for income tax purposes.
The Bank has qualified under provisions of the Internal Revenue Code
which permit it to deduct from taxable income an allowance for bad debts
based on a percentage of taxable income before such deduction. Retained
earnings at December 31, 1994 and 1993 include earnings of approximately
$26,100,000 and $25,200,000, respectively, representing such bad debt
deductions for which no provision for Federal income taxes has been
made. If the deducted amounts are used at a future time for any purpose
other than to absorb such losses, tax liabilities will be incurred by
the Bank at the Federal income tax rates in effect at that time. In the
future, if the Bank does not meet the Federal income tax requirements
necessary to permit it to deduct an allowance for bad debts, the
Corporation's effective Federal income tax rate could increase.
Purchased Servicing Rights - The Corporation capitalizes the cost of
acquiring rights to service mortgage loans and amortizes such costs in
proportion to and over the period of estimated net servicing income.
Such rights are included in other assets. The Corporation's carrying
values of acquired servicing rights and the amortization thereon are
periodically evaluated in relation to estimated future net servicing
revenues. Such carrying values are adjusted, if necessary, based upon
management's estimate of remaining cash flows on a disaggregated
discounted basis. Such estimates may vary from the actual remaining
cash flows due to prepayments of the underlying mortgage loans and
increases in servicing costs.
Accrued Interest Receivable - Interest earned but uncollected on loans
and investments is accrued. Generally, the recognition of income on a
loan is suspended and previously accrued interest is reversed when
payments become more than 90 days delinquent.
Statements of Cash Flows - For purposes of the statements of cash flows,
the Corporation considers cash on hand, amounts due from banks, federal
funds sold, and United States Treasury Bills purchased as part of cash
management activities with an original maturity less than 90 days to be
cash equivalents. Also, for purposes of the statements of cash flows,
loan originations and principal collected on loans includes rollovers of
loans.
Other - Certain reclassification have been made in the prior year's
financial statements to conform to classifications adopted in the
current year.
2. RESTRICTED CASH
In connection with loans serviced for others, the Corporation collects
loan payments which may include principal, interest, taxes and insurance
from borrowers and remits such collections, less a servicing fee, to the
lender or for payment of taxes and insurance. At December 31, 1994,
there were $6,872,000 in unremitted collections or restricted funds.
3. SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities available for
sale are as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Estimated
Amortized Cost Gains Losses Fair
December 31, 1994 Value
<S> <C> <C> <C> <C>
U.S. Government Agency fixed rate
mortgage-backed securities $ 98,447 $ 4,566 $ 103,013
U.S. Government Agency variable
rate mortgage-backed securities 47,124,241 $ (2,640,020) 44,484,221
Non-agency variable rate mortgage-
backed securities 29,728,253 (298,015) 29,430,238
Equity Securities 7,073 7,073
Total $ 76,958,014 $ 4,566 $ (2,938,035) $ 74,024,545
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1993 Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government Agency fixed rate
mortgage-backed securities $ 29,714,294 $ (323,745) $ 29,390,549
U.S. Government Agency variable
rate mortgage-backed securities 64,701,617 $ 34,932 64,736,549
Non-agency variable rate mortgage
backed securities 37,886,314 182,280 38,068,594
Equity Securities 7,073 7,073
Total $132,309,298 $ 217,212 $ (323,745) $132,202,765
</TABLE>
At December 31, 1994, the net unrealized loss on securities available
for sale of $2,933,469 was recorded to reduce the carrying value of the
investments on an aggregate basis to their estimated fair values.
Pursuant to the adoption of SFAS No. 115, such adjustment was excluded
from income and shown as a separate component of stockholders' equity.
The amortized cost and estimated fair value of securities available
for sale at December 31, 1994 by contractual maturity are shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties. The maturities of
mortgage-backed securities are estimated based on the contractual
maturities of the underlying loans.
Estimated
Amortized Cost Fair Value
Due after ten years $ 76,950,941 $ 74,017,472
Equity Securities 7,073 7,073
Total $ 76,958,014 $ 74,024,545
Proceeds, gross gains, and gross losses from sales of investment
available for sale were as follows for the year ended December 31, 1993:
Proceeds $137,781,224
Gross Realized gains $ 2,807,672
Gross realized losses (2,482,636)
Net realized gains $ 325,036
There were no sales of securities available for sale during 1994.
At December 31, 1994, mortgage-backed securities totaling $1,682,570
were pledged to interest rate swap agreements. Additionally, mortgage-
backed securities totaling $22,367,583 as of December 31, 1994, have
been sold under agreements to repurchase (see Note 11).
4. SECURITIES HELD TO MATURITY AND FEDERAL HOME LOAN BANK
CAPITAL STOCK
The amortized cost and estimated fair values of securities held to
maturity are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1994 Cost Gains Losses Value
<S> <C> <C> <C> <C>
Federal Home Loan Bank variable
rate notes $ 1,505,328 $ (109,323) $ 1,396,005
Federal National Mortgage
Association variable rate notes 3,493,055 (193,915) 3,299,140
Student Loan Marketing Association
variable rate notes 1,500,000 (6,345) 1,493,655
U.S. Government Agency fixed rate
mortgage-backed securities 26,121,115 (2,342,898) 23,778,217
U.S. Government Agency variable
rate mortgage-backed securities 12,768,678 (1,093,328) 11,675,350
Utah Housing mortgage-backed
securities 45,000 $ 346 45,346
Real estate mortgage investment
conduit 1,995,457 11,403 2,006,860
U.S. Treasury securities 348,101 1,899 350,000
Total securities held to maturity $47,776,734 $13,648 $(3,745,809) $44,044,573
December 31, 1993
Federal Home Loan Bank variable rate notes $ 1,506,937 $ (7,387) $ 1,499,550
Federal National Mortgage
Association variable rate note 3,491,220 (10,695) 3,480,525
Student Loan Marketing Association
Variable rate note 1,500,000 $ 3,000 1,503,000
Utah Housing Mortgage-backed
securities 160,000 160,000
Real estate mortgage investment
conduit 1,990,955 15,246 2,006,201
U.S. Treasury securities 199,256 (1,256) 198,000
Total securities held to maturity $ 8,848,368 $18,246 $(19,338) $ 8,847,276
</TABLE>
The amortized cost and estimated fair value of investment debt
securities at December 31, 1994 by contractual maturity are shown below.
Expected maturities may differ from contractual maturities because
borrowers have the right to call or prepay obligations with or without
call or prepayment penalties.
Estimated
Carrying Fair
Value Value
Due less than one year $ 2,343,558 $ 2,356,860
Due after one year through five years 10,652,720 10,042,430
Due after five years through ten years 8,766,880 8,027,739
Due after ten years 26,013,576 23,617,544
Total securities held to maturity $47,776,734 $44,044,573
There were no sales of securities held to maturity during 1994.
Proceeds, gross gains, and gross losses from sales of securities held to
maturity for the year ended December 31, 1993, and 1992, were as
follows:
1993 1992
Proceeds $ 6,952,437 $ 2,620,082
Gross gains None None
Gross losses (11,910) (28,750)
Net losses $ (11,910) $ (28,750)
Investment in Federal Home Loan Bank capital stock is required of
Federal Home Loan Bank members and represents the greater of: a) 1% of
residential mortgage loans and mortgage-backed securities, b) 0.3% of
total assets, or c) 5% of advances from the Federal Home Loan Bank. At
December 31, 1994, investment securities with a carrying value of
$7,251,031 are pledged as collateral to letters of credit (see Note 16).
Investment securities totaling $4,128,000 and $3,857,500 were pledged on
advances from the Federal Home Loan Bank of Seattle at December 31, 1994
and 1993, respectively.
5. LOAN RECEIVABLES
Real estate loan receivables consist of the following:
December 31,
1994 1993
Real estate loans:
Residential $130,690,937 $ 117,664,808
Commercial 101,535,281 119,187,768
FHA and VA loans 10,698,163 9,966,800
Equity line-of-credit loans 9,094,844 6,506,411
Land acquisition loans 236,494 55,335
Total 252,255,716 253,381,122
Less:
Undisbursed portion of
loans-in-process 18,865,920 19,689,718
Unearned discount on loans
and contracts purchased 321,675 374,973
Net real estate loans $233,068,121 $233,316,431
These loans are collateralized by liens on real property. The balances
of participation loans serviced for others at December 31, 1994 and 1993
were approximately $808,258,000 and $354,238,000, respectively.
Generally, fixed rate residential real estate loans currently originated
by the Corporation are sold in the secondary market.
A Federally-chartered savings bank's aggregate non-residential real
estate loans may not exceed 400% of its capital as determined under the
capital standards provisions of FIRREA. The Bank is federally-chartered
and subject to this limitation. FIRREA does not require divestiture of
any loan that was lawful when it was originated. At December 31, 1994,
the Bank was in compliance with the 400% limitation. Additionally,
FIRREA prohibits origination after August 9, 1989 of loans to one
borrower in excess of 15% of capital, except for loans not to exceed
$500,000 or to facilitate the sale of real estate acquired in settlement
of loans. The 15% limitation results in a dollar limitation of
approximately $5,722,000 at December 31, 1994. The Bank has not
originated a loan since August 9, 1989 which was in violation of this
limitation.
The Corporation originates and purchases both adjustable and fixed
interest rate loans. At December 31, 1994, the composition of these
loans is as follows:
<TABLE>
<CAPTION>
Fixed Rate Adjustable Rate
Average
Term to Term to Rate
Interest Maturity Adjustment
Rate Book Value (Years) Book Value
<S> <C> <C> <C> <C>
Less than 8.00% $29,932,000 11 1 mo. - 1 yr. $133,955,000
8.00 - 8.99% 19,611,000 11 1 yr. - 3 yr. 10,816,000
9.00 - 9.99% 16,377,000 10 3 yr. - 5 yr. 20,832,000
10.00 - 10.99% 17,684,000 9
11.00% and above 2,207,000 11
Non-accrual 145,000 Non-accrual 697,000
Total $85,956,000 Total $166,300,000
</TABLE>
The adjustable rate loans have interest rate adjustment limitations and
are generally indexed to current market indices. Future market factors
may affect the correlation of the interest rate adjustment with the
rates paid on the deposits that have been primarily utilized to fund
these loans.
Non-accrual real estate loans, principally loans past due more than 90
days, totaled approximately $842,000 and $2,242,000 at December 31, 1994
and 1993, respectively. If non-accrual loans had been current in
accordance with their stated terms, approximately $66,000, $99,000, and
$163,000 in interest income would have been recorded in 1994, 1993, and
1992, respectively.
Concentration of commercial real estate loans listed by property type at
December 31, 1994 are as follows:
Property Type Book Value
Office buildings (includes medical and bank) $15,214,626
Industrial and warehouse (includes light industrial) 10,853,101
Retail and wholesale 27,001,836
Motel or hotel 18,468,830
Nursing home, convalescent center, or hospital 10,375,336
Mobile home parks 3,682,228
Service (gas station, fast food, car wash, convenience
stores, etc.) 2,637,101
Restaurant 1,408,863
Other commercial (recreation facilities, mini-storage,
farm, hydro-electric, auto-dealers, truck terminal,
and other single-use property) 11,893,360
Commercial real estate loans listed by the state in which the property
is located at December 31, 1994 are as follows:
State Book Value
Alaska $ 373,527
Arizona 2,706,956
California 36,974,999
Colorado 996,143
Idaho 16,342,584
Montana 6,074,481
New Mexico 1,752,162
Nevada 364,992
Oregon 2,269,530
Utah 33,333,773
Wyoming 346,134
Additionally, the Corporation has 86 commercial real estate and multi-
family loans with book values in excess of $500,000 at December 31,
1994. Multiple loans to 22 different borrowers range in total value, to
each borrower, from $324,787 to $8,106,156.
Changes in the allowance for losses on loan receivables are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance, January 1 $5,610,010 $ 6,677,783 $ 6,545,377
Provision (recovery) charged
(credited) to expense 1,048,461 (996,412) 2,037,707
Recoveries of amounts previously
charged to allowance 68,370 375,205 323,406
Charge-offs (44,973) (446,566) (2,228,707)
Balance, December 31 $6,681,868 $ 5,610,010 $ 6,677,783
</TABLE>
6. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired in settlement of loans is net of an allowance for
losses that may be incurred in disposing of the real estate. Changes in
the allowances are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance, January 1 $ 350,000 $ 1,851,129 $ 2,937,828
Provision charged to expense 54,000 575,560 1,130,201
Recoveries 122,260
Charge-offs (404,000) (2,076,689) (2,339,160)
Balance, December 31 $ None $ 350,000 $ 1,851,129
</TABLE>
7. PREMISES AND EQUIPMENT
The cost of premises and equipment and related accumulated depreciation
and amortization are as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Land $ 1,076,318 $ 1,076,318
Buildings and leasehold improvements 9,227,394 9,178,689
Furniture and equipment 3,499,459 3,311,399
Total 13,803,171 13,566,406
Accumulated depreciation and amortization (6,875,858) (6,232,769)
Net premises and equipment $ 6,927,313 $ 7,333,637
</TABLE>
8. OTHER ASSETS AND DEFERRED CHARGES
Other assets and deferred charges consist of the following:
December 31,
1994 1993
Purchased mortgage servicing rights $ 9,347,786 $ 4,016,773
Prepaid expenses 218,568 398,993
Other assets and deferred charges 2,676,547 1,349,525
Total $12,242,901 $ 5,765,291
Amortization expense related to purchased mortgage servicing rights for
the years ended December 31, 1994, 1993 and 1992 was $1,185,877,
$825,295 and $219,496, respectively, including a $257,414 adjustment for
permanent impairment recorded in 1993.
9. DEPOSITS
Deposits are classified by type and interest rate as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Average Average
Rate Amount Rate Amount
<S> <C> <C> <C> <C>
Money market deposit accounts 3.40% $16,308,826 2.83% $ 21,863,517
Checking accounts 0.92 33,336,563 0.89 35,450,467
Other demand 1,510,084 1,205,291
Statement savings 3.24 46,430,069 3.17 49,515,070
Certificates:
3 month 3.58 1,106,425 2.93 1,745,826
6 month 3.74 45,170,461 3.26 54,804,732
8 month 4.16 2,688,962 3.44 2,785,973
1 year 3.78 31,679,222 3.75 43,247,614
18 month 4.01 1,365,188 4.30 1,172,139
2 year 4.28 11,586,989 4.75 14,150,806
3 year 5.01 28,011,573 5.52 22,674,999
4 year 6.36 12,017,564 6.56 3,588,874
5 year 5.87 20,185,165 6.43 27,035,779
Retirement trust 3.75 9,532,824 3.90 12,321,210
Other 5.94 22,780,102
Jumbo (over $100,000) 4.25 2,888,954 3.53 2,998,351
Total certificates 4.64 189,013,429 4.31 186,526,303
Total deposits 3.89% $286,598,971 3.59% $294,560,648
</TABLE>
As of December 31, 1994, certificates totaling $93,116,000 mature in one
year or less, $31,343,000 mature after one year through three years and
$64,554,000 mature after three years. The Corporation pays a variable
rate on an interest swap agreement with a notional amount of
$10,000,000. This swap has been matched against long-term certificates
of deposit and effectively converts its interest payments from a fixed
rate to a variable rate. The agreement expires in March, 2004. The
effect of the swap, which was entered into during 1994, was to decrease
interest expense by $162,710.
Interest expenses on deposits consists of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
<S> <C> <C> <C>
Money market deposit and checking $ 958,819 $ 937,537 $ 1,245,751
accounts
Statement savings 1,638,337 1,541,555 1,453,115
Certificates 8,532,649 8,543,452 11,469,746
Total interest expense $11,129,805 $11,022,544 $14,168,612
</TABLE>
10. ADVANCES FROM FEDERAL HOME LOAN BANK (FHLB)
Advances from FHLB consist of the following:
<TABLE>
<CAPTION>
Maturity Interest December 31,
Date Rate 1994 1993
<C> <C> <C> <C>
1994 3.13-3.50% $26,500,000
1995 3.98-6.8% $46,500,000 10,000,000
2008 5.828-6.93% 320,820 149,913
Total $46,820,820 $36,649,913
</TABLE>
During the year ended December 31, 1993, the Corporation prepaid
$25,000,000 of advances from the FHLB. Such prepayments resulted in
prepayment penalties of $322,807 for the year ended December 31, 1993.
The prepayment penalty is shown as an extraordinary item in the
Consolidated Statements of Operations for the year ended December 31,
1993.
11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Short-term borrowings of mortgage-backed securities sold under
agreements to repurchase substantially identical securities are as
follows:
December 31,
1994 1993
Balance outstanding (including
accrued interest payable):
Amount $20,470,047 $ 44,996,245
Weighted average interest rate 6.30% 3.60%
Average borrowing for the year:
Outstanding $27,408,698 $13,412,159
Weighted average interest rate 5.34% 5.11%
Largest amount outstanding at
any month-end $36,754,221 $44,996,245
Mortgage-backed securities sold under agreements to repurchase
substantially identical securities are as follows:
December 31, 1994
<TABLE>
<CAPTION>
Securities Sold
Accrued
Term to Interest Carrying Fair Interest Liability
Maturity Rate Value (1) Value Receivable Balance
<S> <C> <C> <C> <C> <C>
Less than 30 days 5.77-6.15% $11,417,812 $10,731,379 $ 71,419 $10,493,383
30 days to 60 days 6.30% 8,235,273 7,847,968 41,176 7,526,014
Five years to ten
years 5.72-8.875% 2,714,498 2,620,848 13,572 2,450,650
Total $22,367,583 $21,200,195 $126,167 $20,470,047
</TABLE>
December 31, 1993
<TABLE>
<CAPTION>
Securities Sold
Accrued
Term to Interest Carrying Fair Interest Liability
Maturity Rate Value <F1> Value Receivable Balance
<S> <C> <C> <C> <C> <C>
Less than 30 days 3.16-3.41% $19,501,623 $19,698,089 $103,275 $19,086,206
30 days to 60 days 3.43% 24,795,308 24,518,596 133,842 23,459,389
Five years to ten yrs. 5.72-8.875% 2,616,027 2,652,519 10,813 2,450,650
Total $46,912,958 $46,869,204 $247,930 $44,996,245
<F1> excludes accrued interest receivable
</TABLE>
The mortgage-backed securities underlying the agreements were delivered
to the primary dealers who arranged the transactions. The dealers may
have sold, loaned, or otherwise disposed of such securities to other
parties in the normal course of their operations and have agreed to
resell to the Corporation substantially identical securities at the
maturities of the agreements.
The Corporation pays a fixed rate of 8% on an interest rate swap
agreement with a notional principal amount of $5,000,000 at
December 31, 1994 and 1993. This swap has been matched against
securities sold under agreements to repurchase and effectively converts
its interest payments from a variable rate to a fixed rate. The
agreement expires in July 1995. The effect of swaps for the years
ended December 31, 1994, 1993 and 1992 was to increase interest expense
by $171,827, $169,486, and $473,115, respectively. Securities totaling
$453,000 are pledged as collateral on this agreement as of December 31,
1994.
12. INCOME TAXES
As discussed in Note 1, the Corporation adopted SFAS No. 109, "Accounting
for Income Taxes" effective January 1, 1993.
Deferred tax assets and liabilities as of December 31, 1994 and 1993
consisted of the following items:
<TABLE>
<CAPTION>
1994 1993
Assets:
<S> <C> <C>
Provision for loan losses $ 2,500,201 $ 2,252,267
Unrealized losses, securities available for sale 1,244,357 39,737
Net operating loss carry forward 1,653,990 3,265,135
AMT credit 311,529 168,598
Other 437,226 296,715
Total deferred tax assets 6,147,303 6,022,452
Liabilities:
Depreciation 345,600 344,813
Accrual to cash conversion 102,184 143,706
FHLB stock dividend 850,920 750,024
Other 47,948 75,683
Total deferred tax liabilities 1,346,652 1,314,226
Net deferred tax asset 4,800,651 4,708,226
Valuation allowance (4,800,651) (4,708,226)
Net NONE NONE
</TABLE>
If the valuation allowance, related to the $1,244,357 unrealized losses
on securities available for sale shown above as a deferred tax asset, is
reversed the future tax benefit will be reflected with corresponding
increases or decreases to the net unrealized losses on securities
available for sale in stockholders' equity rather than in the statement
of operations.
Income tax expense (benefit) differed from the amount computed by
applying the Federal statutory rate to income taxes for the years ended
December 31, 1994, 1993, and 1992 as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
<S> <C> <C> <C>
Federal income tax expense at statutory rate $ 1,606,410 $ 2,041,665 $ 910,533
Increases (decreases) in taxes resulting
from:
Statutory bad debt deduction (458,145) (885,318) (1,757,654)
Tax exempt income (76,596) (111,197) (91,419)
Net loss on sale and provision for loss on
real estate owned 682,682
Provision for loss on qualifying real
estate loans and non-qualifying loans 58,246
Alternative minimum tax 40,000
Net operating loss carry forward used to
offset existing deferred tax credits (196,761)
Limitation in tax benefit due to net
operating loss 181,632
Reduction in valuation allowance 92,425 (1,045,150)
Utilization of net operating loss carry
forward (1,204,620)
Other 40,526 15,980
Total NONE NONE $(156,761)
</TABLE>
The deferred tax benefit of $196,761 recorded in 1992 results from a
change in the estimated timing difference related to FHLB stock which
management expects to reverse in the years prior to the expiration of
the Corporation's net operating loss carry forward.
At December 31, 1994, the Corporation has net operating loss carry
forwards for federal income tax purposes of approximately $4,527,000
which expire in the year 2003. Of the federal tax loss carry
forward, approximately $280,000 is attributed to certain items, the
future benefit of which would be reflected in stockholders' equity
when it is realized, rather than in the statement of operations.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by
the Corporation using available market information and appropriate
valuation methodologies. However, considerable judgment is required
to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amount the Corporation could realize in a current
market exchange. The use of different assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
The fair value of financial instruments were as follows:
<TABLE>
<CAPTION>
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets
<S> <C> <C> <C> <C>
Cash and cash equivalent $ 8,577,000 $ 8,577,000 $ 8,404,000 $ 8,404,000
Securities available for sale 74,024,000 74,024,000 132,203,000 132,203,000
Investment securities held to maturity 47,777,000 44,045,000 8,848,000 8,847,000
Federal Home Loan Bank Capital Stock 4,128,000 4,128,000 3,858,000 3,858,000
Loan receivables, exclusive of allowance
for losses 242,916,000 236,856,000 248,080,000 253,747,000
Loan servicing for others 9,348,000 12,326,000 4,017,000 4,035,000
TOTAL FINANCIAL ASSETS $386,770,000 $379,956,000 $405,410,000 $411,094,000
Financial liabilities
Deposits $286,599,000 $272,264,000 $294,561,000 $296,999,000
Advances from the FHLB 46,821,000 46,741,000 36,650,000 36,588,000
Securities sold under agreement to
repurchase 20,335,000 20,180,000 44,815,000 45,790,000
TOTAL FINANCIAL LIABILITIES $353,755,000 $339,185,000 $376,026,000 $379,377,000
Interest rate exchange agreement:
Designated against short-term
borrowings and deposits $ (35,000) $ (31,000) $ (41,000) $ (243,000)
Designated against long-term deposits 41,000 (905,000)
Interest rate cap agreement:
Designated against short-term
borrowings and deposits 37,000 21,000 85,000
Commitments to extend credit (124,000) (366,000) (195,000) (404,000)
TOTAL OFF-BALANCE FINANCIAL INSTRUMENTS $ (81,000) $ (1,281,000) $ (151,000) $ (647,000)
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument:
Cash and cash equivalents: The carrying amount represented fairvalue.
Securities available for sale: Fair values were based on quoted
market prices or dealer quotes. If a quoted market price was not
available, fair value was estimated using quoted market prices for
similar securities.
Securities held to maturity: Fair values were based on quoted market
prices or dealer quotes. If a quoted market price was not available,
fair value was estimated using quoted market prices for similar
securities.
Loans receivable: Single family residential fixed-rate and
adjustable-rate loans were priced using a Monte Carlo discounted cash
flow method. All other loans were priced using a static discount
cash flow method. The discount rates and prepayment assumptions used
were those published by the Office of Thrift Supervision (the "OTS").
Deposits: The fair value of checking accounts, statement savings and
money market deposit accounts was the amount payable on demand at the
reporting date less the value that accrued to the Corporation when
depositors roll over the deposits at interest rate below those
available in the wholesale market, estimated by comparing the outcome
if depositors do not roll over the deposits less the outcome if the
depositors do roll them over upon maturity. For time deposits, the
fair value was determined using a static discount cash flow method,
less the intangible value described for checking accounts above. The
discount rate was equal to the rate generally available nationally on
such accounts as published by the OTS.
Advances from the FHLB: These were valued using the static
discounted cash flow method. The discount rate was equal to the rate
currently offered on similar borrowings as of the reporting dates.
Securities sold under agreements to repurchase: These were valued
using the static discounted cash flow method. The discount rate was
equal to the rate currently offered on similar borrowings as of the
reporting dates.
Derivative instruments: The market value for interest rate exchange
agreement was determined using a static discounted cash flow method.
The market value for interest rate cap agreement was determined using
a Black option valuation formula.
Commitments to Extend Credit: The fair
value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreement and the present credit
worthiness of the counterparties. For fixed rate loan commitments,
fair value also considers the difference between current levels of
interest rates and the committed rates. The fair value of letters of
credit is based on fees currently charged for similar agreements or
on the estimated costs to terminate them or otherwise settle the
obligations with counterparties.
Limitations: The fair value estimates are made at a discrete point
in time based on relevant market information about the financial
instruments. Because no market exists for a significant portion of
the Corporation's financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial
instruments, and such other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant
judgments and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
In addition, the fair value estimates are based on existing on and
off 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.
Significant assets and liabilities that are not considered financial
assets or liabilities include the mortgage banking operation,
deferred tax credits, other assets, and premises and equipment. In
addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair
value estimates and have not been considered in many of the
estimates.
14. STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL REQUIREMENTS
In connection with the insurance of savings accounts by the Savings
Association Insurance Fund ("SAIF"), the Bank is required to meet
certain minimum capital standards consisting of three separate
requirements. The capital standards consist of a tangible capital
requirement of 1.5% of tangible assets, a core or leverage capital
requirement of 3% of tangible assets, and a risk-based capital
requirement. The risk-based requirement takes each asset and gives
it a weighting of from 0% to 100% based upon credit risk as defined
in the regulations of the Office of Thrift Supervision ("OTS"). The
risk-based capital requirement as of December 31, 1994 and 1993 was
8% of the risk weighted assets. Eligible capital to meet this test
is composed of core or tier 1 capital and supplementary or tier 2
capital. Supplementary or tier 2 capital is composed of general loan
loss reserves up to a maximum of 1.25% of risk weighted assets.
The FDIC Improvement Act of 1991 ("FDICA") required each federal
banking agency to implement prompt corrective actions for
institutions that it regulates. In response to this requirement, the
OTS adopted final rules, effective December 19, 1992, based upon
FDICIA's five capital tiers: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized.
The rules provide that a savings association is "well capitalized" if
its total risk-based capital ratio is 10% or greater, its tier 1
risk-based capital ratio is 6% or greater, its leverage ratio is 5%
or greater, and the institution is not subject to a capital
directive.
As used herein, total risk-based capital ratio means the ratio of
total capital to risk-weighted assets, tier 1 risk-based capital
ratio means the ratio of core capital to risk-weighted assets, and
leverage ratio means the ratio of core capital to adjusted total
assets, in each case as calculated in accordance with current OTS
capital regulations. Under these new regulations, the Bank is deemed
to be "well capitalized".
The following is a summary of the Bank's regulatory capital at
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
Amount
Requirement Actual Exceeding
Capital Ratio Capital Ratio Requirement
December 31, 1994
<S> <C> <C> <C> <C> <C>
Tangible $ 5,934,000 1.50% $38,144,000 9.64% $32,210,000
Core 11,869,000 3.00 38,144,000 9.64 26,275,000
Risk-based 18,565,000 8.00 40,989,000 17.66 22,424,000
December 31, 1993
Tangible $ 6,207,000 1.50% $32,731,000 7.91% $26,524,000
Core 12,415,000 3.00 32,731,000 7.91 20,316,000
Risk-based 20,060,000 8.00 35,877,000 14.27 15,817,000
</TABLE>
At periodic intervals, both the Office of Thrift Supervision (OTS)
and Federal Deposit Insurance Corporation ("FDIC") routinely examine
the Bank's financial statements as part of their legally prescribed
oversight of the savings and loan industry. Based on these
examinations, the regulators can direct that the Bank's financial
statements be adjusted in accordance with their findings.
A future examination by the OTS or FDIC could include a review of
certain transactions or other amounts reported in the Bank's 1994
financial statements. In light of FIRREA and the uncertain
regulatory environment in which the Bank now operates, the extent, if
any, to which a forthcoming regulatory examination may ultimately
result in adjustments to the 1994 financial statements cannot
presently be determined.
The OTS issued a final regulation effective, June, 1995, adding an
interest rate risk component to its risk-based capital standard. The
regulation will require a savings institution to maintain capital in
an amount equal to one-half the difference between the institution's
measured interest rate risk and 2% of the market value of the
institution's assets. Interest rate risk is to be measured on the
market value of its assets, based on a hypothetical 200 basis point
change in interest rates. The credit risk component of the risk-
based capital standard will remain unchanged at 8% of risk-weighted
assets. Institutions with measured interest rate risk less than or
equal to 2% will not be required to maintain additional capital. The
Bank's management believes that, based on the Bank's interest rate
risk profile, no additional risk-based capital would have been
required at December 31, 1994.
On November 19, 1992, the Corporation sold 510,000 shares of its
common stock under a private placement memorandum. The net proceeds
received on the sale of stock were $2,303,230.
As a unitary savings and loan holding company, the Corporation's
ability to pay dividends depends in part on the dividends it receives
from the Bank and on income from other activities in which the
Corporation may engage either directly or through other subsidiaries.
As a condition of the February 1983 Federal Home Loan Bank Board
approval of the reorganization in which the Bank became a subsidiary
of the Corporation, dividends paid by the Bank are limited to net
income for each year, but such dividends may be deferred to a
subsequent year. However, no dividend may be paid from net income
for a year prior to 1983 or if the payment of such dividends would
reduce the Bank's regulatory capital below the regulatory minimums
set by the OTS.
15. INTEREST RATE RISK
A mismatch between maturities and interest rate sensitivities of
assets and labilities results in interest rate risk. While a certain
level of interest rate risk may be unavoidable, and may at times be
desirable, it is important to monitor and manage this risk. The
Corporation's general objective has been to reduce its vulnerability
to interest rate fluctuations over time. The principal strategies to
achieve this objective include emphasizing originations of shorter
term and adjustable rate loans and growing core checking and other
demand deposit accounts which are less sensitive to changes in
interest rates. In addition, management constantly examines the
value of extending the effective maturities of liabilities or
shortening the effective maturity of assets through the use of
interest rate swaps and interest rate cap agreements.
As described in Notes 9 and 11, the Corporation utilizes interest
rate swaps to reduce its interest rate risk exposure. Interest rate
caps with a notional amount of $12,000,000 are utilized to reduce the
Corporation's exposure to rising interest rates on short-term
borrowings.
The Corporation uses various techniques in managing and measuring
interest rate risks, including net interest income simulations,
theoretical mark-to-market values for interest sensitive assets and
liabilities, and gap analysis.
16. COMMITMENTS AND CONTINGENT LIABILITIES
On July 22, 1994, the Corporation and the Bank signed an Agreement
for Merger with Washington Mutual Savings Bank ("WMSB") and its
subsidiary Washington Mutual Federal Savings Bank ("WMFSB"). WMSB
was subsequently involved in a reorganization that resulted in the
formation of a holding company, Washington Mutual, Inc., a Washington
Corporation ("WMI") that succeeded to the interests of WMSB. In
January 1995 the Corporation, the Bank, WMI, Washington Mutual Bank
and WMFSB signed an Amended and Restated Agreement for Merger (the
"Agreement') which replaced the previously executed Agreement for
Merger. Pursuant to the Agreement and upon satisfaction of certain
conditions, the Corporation will be merged with and into WMI (the
"Merger") and each share of the Corporation's common stock will be
exchanged for $15.50 worth of WMI common stock, based on the average
closing price for a period preceding the effective date of the
merger. However, if the average price of WMI common stock falls
below $18.00, WMI may elect to purchase up to 49% of the
corporation's common stock with cash. There can be no assurance that
such purchase or merger will occur. Pending the Merger or
termination of the Agreement, the Corporation and the Bank have
agreed to certain restrictions on their operations. The Corporation
has also entered into a Stock Option Agreement pursuant to which WMI
has an option to purchase up to 9.9% of the Corporation's common
stock under certain conditions. Management anticipates the merger
will occur in the second quarter of 1995.
The Corporation is a defendant in an action seeking punitive damages
of $10,000,000 and challenging the practice of not paying interest on
advances from borrowers for taxes and insurance, and in various other
actions in connection with its lending activities. Management does
not believe that the Corporation will sustain material future losses
from this contingency, although the amount of the damages that may be
awarded against the Bank cannot be determined at this time.
At December 31, 1994 and 1993, the Corporation and its subsidiaries
were involved in various claims and litigation occurring in the
ordinary course of business. In the opinion of management and its
legal counsel, potential liabilities arising from these claims, if
any, will not have a material effect on the consolidated financial
statements of the Corporation and its subsidiaries.
During 1986, the Corporation issued an irrevocable, collateralized
Letter of Credit supporting the payment of principal and interest on
$9,000,000 of Sandy City, Utah variable rate demand industrial
development revenue refunding bonds. During the second quarter of
1993, $5,100,000 of the bond was retired and the principal obligation
for repayment was assumed by the purchaser of the industrial building
previously held as real estate owned. Payment of any sums disbursed
under the letter of credit is secured by deeds of trust on the real
property and improvements with respect to which the bonds were
issued. At December 31, 1994, the Corporation has approximately
$7,251,000 in mortgage-backed securities held by the Bond Trustee to
assure its performance of obligations under the Letter of Credit
which expires on August 15, 2004.
At December 31, 1994, the Corporation had approximately $30,933,000
in unused lines of credit which have been granted to customers in the
normal course of business, as well as $10,590,000 in single-family
mortgage loan applications. The Corporation uses the same credit
policies in making commitments to extend credit as they do for loans
to similar customers.
The Bank leases certain branch facilities under long-term operating
lease arrangements. Consolidated rent expense on the above operating
leases was approximately $248,000, $233,000, and $183,000 for the
years ended December 31, 1994, 1993, and 1992, respectively. The
following represents the Bank's future commitments under such leases:
Year Ending December 31:
1995 $ 208,893
1996 209,944
1997 216,487
1998 216,392
1999 192,105
Thereafter 362,345
Total $ 1,406,166
17. EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock are based on the following
weighted average number of shares outstanding:
1994 1993 1992
Primary 3,258,616 3,223,742 2,674,297
Fully diluted 3,272,771 3,255,226 2,716,003
Primary per share amounts are computed after including the effect,
if dilutive, of stock options outstanding using the treasury
stock method.
Fully diluted per share amounts are computed using the greater of
the dilutive effects of average or quarter-end stock prices.
18. STOCK OPTIONS
In July 1988, the Board of Directors of the Corporation adopted a
non-qualified stock option plan ("1988 Plan") which authorized the
Corporation to grant options to purchase up to 250,000 shares of
common stock pursuant to the 1988 Plan.
Changes in stock options are as follows:
Price Range
1994 Shares Per Share
Granted 30,500 $11.00
Expired None
Exercised 33,200 3.25-11.50
Outstanding and exercisable at
December 31 230,300 3.25-11.50
1993
Granted 10,000 $11.50
Expired None
Exercised 39,500 3.25-5.63
Outstanding and exercisable at
December 31 233,000 3.25-11.50
1992
Granted 80,000 $5.50-5.63
Expired None
Exercised None
Outstanding and exercisable at
December 31 262,500 3.25-5.63
19. EMPLOYEE BENEFIT PLANS
In accordance with the term's of the Corporation's Cash Incentive
Plan, upon consummation of the Merger discussed in Note 16, certain
senior officers of the Corporation will be entitled to receive an
amount equal to two percent of the greater of (i) the fair market
value of the issued and outstanding Olympus Common Stock or (ii) the
tangible net worth of Olympus, in either case on the date immediately
prior to the Merger which amount in total is estimated to be
approximately $1,050,000.
The Employee Stock Bonus Plan (the "Bonus Plan"), qualified under
Section 401(a) of the Internal Revenue Code, provides that each full-
time salaried employee of the Corporation and/or its subsidiaries who
has attained the age of 21 and has completed 12 consecutive months of
employment during which he/she has received credit for at least 1,000
hours of service is entitled to participate in the Bonus Plan
commencing on the January 1 or July 1 immediately following when such
qualifications are met, provided he/she is employed on that date.
Under the terms of the plan, participating employees may contribute,
and the Board of Directors may authorize the Corporation to match a
certain portion of such contribution. Employees may elect to have
their own contributions invested in either (i) the Corporation's
common stock, or (ii) a certificate of deposit or savings account
from the Bank. Employer contributions are invested in the
Corporation's common stock. During 1994, 1993, and 1992, the
Corporation and its subsidiaries contributed $86,929, $74,717, and
$111,502, respectively, to the Bonus Plan.
The Corporation and its wholly-owned subsidiaries provide a non-
contributory retirement plan (the "Retirement Plan"), qualified under
Section 401(a) of the Internal Revenue Code, for the benefit of
qualified employees. Each full-time salaried employee who has
attained the age of 21 and has completed 12 consecutive months of
employment during which he/she has received credit for at least 1,000
hours of service is entitled to participate in the Retirement Plan
commencing on January 1 or July 1 immediately following when such
qualifications are met. Under the Retirement Plan, the Corporation
and its subsidiaries make a monthly pension contribution equal to 6%
of each eligible employee's monthly base compensation. In addition,
the Corporation and its subsidiaries are allowed, but not required,
to make a profit sharing contribution based on base compensation to
the Retirement Plan, provided that in no event shall the profit
sharing contribution and the aggregate contributions under the Bonus
Plan during any year exceed 15% of the total payroll of eligible
employees of the Retirement Plan. In any year, aggregate
contributions under the Retirement Plan and aggregate contributions
under the Bonus Plan may not exceed the lesser of 25% of the eligible
employee's base compensation or $30,000. During 1994, 1993, and
1992, the Corporation and its subsidiaries contributed $149,906,
$133,387, and $149,000, respectively, to the Retirement Plan.
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 106, "Employer's Accounting for
Postretirement Benefits Other Than Pensions". The Statement requires
an accrual of postretirement benefits (such as health care benefits)
during the years an employee provides services. The Corporation
provides limited life insurance benefits to certain employees during
their employment and retirement. As of December 31, 1994, the total
future actuarial obligation under this plan totals $509,000, and such
amount has been fully funded in a separate trust.
On January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits". The Statement requires an accrual of
benefits to be provided to former or inactive employees after
employment but before retirement, such as salary continuation,
severance pay, or health care benefits. The impact of the Statement
on the Corporation was not material in relation to the consolidated
financial statements.
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the quarterly results of operations.
This information should be read in conjunction with the Discussion of
Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
December 31, 1994 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
<S> <C> <C> <C> <C>
Interest income $7,099,135 $7,014,768 $6,748,882 $6,729,363
Interest expense 3,702,828 3,499,893 3,310,413 3,316,900
Provision for (recovery of) losses 22,129 136,517 21,055 868,760
Gain on sale of loans and
investments 7,810 38,066 51,798 189,044
Net income 1,389,095 1,280,565 1,012,224 1,029,388
Earnings per common share -
primary 0.42 0.39 0.31 0.32
Earnings per common share -
fully diluted 0.42 0.39 0.31 0.32
December 31, 1993
Interest income $6,871,322 $6,578,913 $6,967,922 $7,011,388
Interest expense 3,352,957 3,611,357 3,703,033 3,817,425
Provision for losses (152,870) (459,443) (421,940) 37,841
Gain on sale of loans and
investments 349,822 1,190,644 745,016 233,538
Income before extraordinary
items and cumulative effect of a
change in accounting principle 1,484,786 1,804,042 1,703,466 1,335,411
Net income 1,484,851 1,481,235 1,703,466 1,673,224
Earnings per common share before
extraordinary items and cumulative
effect of a change in accounting
principle 0.46 0.56 0.53 0.42
Earnings per common share -
primary 0.46 0.46 0.53 0.53
Earnings per common share -
fully diluted 0.46 0.46 0.53 0.52
</TABLE>
21. EFFECT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In May 1993, the Financial Accounting Standards Board issued SFAS
No.114, "Accounting by Creditors for Impairment of a Loan", as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures", issued in October 1994.
SFAS Nos. 114 and 118 require that an impaired loan be valued based on
the present value of expected future cash flows or fair value of
the collateral if the loan is collateral dependent. SFAS Nos. 114
and 118 are effective for the year beginning January 1, 1995. The
impact of SFAS Nos 114 and 118 on the Corporation is not expected
to be material in relation to the consolidated financial statements.
22. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY
Condensed financial information of the parent company only is as
follows:
BALANCE SHEET AS OF DECEMBER 31, 1994 AND 1993
1994 1993
ASSETS:
Cash and savings on deposit primarily with
subsidiary savings and loan $ 266,990 $ 163,294
Investment in subsidiaries:
Savings and loan and subsidiaries 34,807,872 33,116,325
Others 143,377
Total $ 35,074,862 $ 33,422,996
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities, accounts payable, and
accrued expenses $ 42,852 $ 59,456
Stockholders' equity:
Common stock (3,132,839 shares issued in
1994 and 3,099,639 shares issued in 1993) 3,132,839 3,099,639
Paid-in capital 2,047,550 1,894,005
Retained earnings - substantially
restricted 33,187,699 28,476,429
Net unrealized losses on securities
available for sale (3,336,078) (106,533)
Total stockholders' equity 35,032,010 33,363,540
Total $35,074,862 $33,422,996
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1994, 1993, AND 1992
1994 1993 1992
<S> <C> <C> <C>
INCOME:
Income from subsidiaries:
Interest $ 3,212 $ 1,331 $ 11,348
Other 83,875 113,625 99,500
Other 21,653 11,284
Total 108,740 114,956 122,132
EXPENSES:
Compensation and other employee expense 130,841 120,211 114,500
Occupancy 1,688
Provision for losses 70,010
Other 44,344 54,734 4,007
Total 175,185 176,633 188,517
LOSS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES (66,445) (61,677) (66,385)
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 4,777,717 6,404,453 2,901,185
NET INCOME $4,711,272 $6,342,776 $2,834,800
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED DECEMBER 31, 1994, 1993, AND 1992
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 4,711,272 $ 6,342,776 $ 2,834,800
Adjustments to reconcile net income to net cash
used in operating activities:
Undistributed income of subsidiaries (4,777,717) (6,404,453) (2,901,185)
Provision for possible credit losses 70,010
Decrease (increase) in receivables
from subsidiaries 16,597 (12,567)
Decrease in other assets 1,807
Increase (decrease) in accounts
payable and accrued expenses (16,604) 42,769 (232)
Total adjustments (4,794,321) (6,345,087) (2,842,197)
Net cash used in operating activities (83,049) (2,311) (7,397)
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends received from subsidiary 90,000 115,000
Capital contribution to subsidiary (75,000) (2,478,404)
Net cash provided by (used in)
investing activities None 15,000 (2,363,404)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 186,745 140,275 2,303,230
Net cash provided by financing activities 186,745 140,275 2,303,230
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 103,696 152,964 (67,571)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 163,294 10,330 77,901
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 266,990 $ 163,294 $ 10,330
</TABLE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Director Title of Class
Since
DIRECTORS SERVING UNTIL 1995 ANNUAL MEETING
Class I
A. Blaine Huntsman 58 1988 Common Stock
DIRECTORS SERVING UNTIL 1996 ANNUAL MEETING
Class II
Richard N. Hokin 54 1982 Common Stock
James K. Loebbecke 58 1992 Common Stock
R. Gibb Marsh 46 1992 Common Stock
DIRECTORS SERVING UNTIL 1997 ANNUAL MEETING
Class III
Richard G. Price 67 1972 Common Stock
Ramon E. Johnson 59 1990 Common Stock
K. John Jones 41 1993 Common Stock
THE DIRECTORS
A. Blaine Huntsman was elected Vice Chairman of the Board of
Directors of the Corporation and Chief Executive Officer of the Corporation
in July 1988, Chairman of the Board of Directors in December 1988 and
served as President of the Corporation from August 1989 to 1993. He was
elected a director of Olympus Bank in July 1988 and Chairman of the Board
of Directors in August 1989. He also served as President of Olympus Bank
from August 1989 to January 1991. Mr. Huntsman was Professor of Finance at
the University of Utah from 1972 to 1988 (but was on leave for significant
periods of time during such years to pursue various business activities),
and served as Dean of the Graduate School of Business and College of
Business from 1975 to 1980. He was co-founder and Chairman of the Board of
Huntsman Container Corporation (a manufacturer of polystyrene containers)
and of Huntsman-Christensen Corporation (a real estate construction and
development firm). Mr. Huntsman received his Ph.D. in Economics from the
University of Pennsylvania (Wharton School) in 1968. He served as a
director of Dean Witter Reynolds Organization, Inc. from 1978 until its
acquisition by Sears in 1982 and was a director of Arcata Corporation
principal business from 1978 to 1982. He currently serves as a director of
Geneva Steel, a Utah corporation engaged in steel manufacturing and of
Zions Co-operative Mercantile Institution (a retailing company serving the
intermountain area), and of Kahler Corporation, a hotel operator.
Richard N. Hokin has been Chairman of Intermountain Industries, Inc.,
Boise, Idaho, since 1984. Intermountain's principal subsidiary,
Intermountain Gas Company, distributes natural gas in southern Idaho. Mr.
Hokin is also managing general partner of Century Partners, a private
investment partnership, organized in 1967, which holds approximately 9.7%
of the outstanding common stock of the Corporation. Mr. Hokin has been a
director of the Corporation and Olympus Bank since 1982.
Richard G. Price has been engaged in the automotive business since
1952 and was the President and a director of Time Distributors, a
distributor of automotive parts in Salt Lake City, Utah and Boise, Idaho,
for twenty-five years prior to his retirement in 1990. Mr. Price has been
a director of the Corporation and Olympus Bank since 1972.
Ramon E. Johnson has been a Professor of Finance at the University of
Utah since 1966. He received his Ph.D. in finance from the University of
Wisconsin in 1966. Mr. Johnson is a Chartered Financial Analyst and
belongs to several professional societies, including the Financial
Management Association. He was a member of the Consumer Advisory Council
for the Federal Reserve Board from 1987 to 1989, and is currently a member
of the Utah State Board of Financial Institutions. In 1983, he served as a
member of the task force for Current Value Accounting for the Federal Home
Loan Bank Board. In addition to his teaching and research activities, Mr.
Johnson has been a consultant for several financial institutions and public
utility companies in Salt Lake City, Utah, as well as the Utah State
Legislative Auditor General. Mr. Johnson has been a director of the
Corporation and Olympus Bank since 1990.
James K. Loebbecke has been a Professor of Accounting at the
University of Utah since 1980. Prior to 1980 he was a partner in the
accounting firm of Touche Ross & Co. in its New York office. Mr. Loebbecke
has authored several books and articles on the subjects of auditing and
other accounting issues and is a member of several professional societies,
including the American Institute of Certified Public Accountants. In
addition to his teaching and research duties, Mr. Loebbecke is a principal
in Norman/Loebbecke Associates, financial and litigation consultants, where
he performs services as an expert witness in business and accounting-
related litigation. Mr. Loebbecke has been a director of the Corporation
and Olympus Bank since 1992.
R. Gibb Marsh has been employed by the Corporation, or one of its
subsidiaries, since June of 1972. Mr. Marsh was elected President and
Chief Operating Officer of Olympus Bank in May 1993. He was elected
President of the Corporation in August 1993. Prior to his election as
President of Olympus Bank, Mr. Marsh was the Chief Credit Officer for the
Corporation and Olympus Bank with principal responsibility for loan
origination and underwriting, loan servicing and special asset management.
Mr. Marsh has held many positions during his 21 year tenure with Olympus
Bank. He has been a director of the Corporation and Olympus Bank since
1992.
K. John Jones has been employed by the Corporation, or one of its
subsidiaries, since February 1979. Mr. Jones has been a Senior Vice
President of the Corporation since 1987. He was elected as Chief Financial
Officer in 1989. Mr. Jones is also the Secretary and Treasurer of the
Corporation and Olympus Bank. His services to the Corporation and Olympus
Bank have been in the areas of interest rate risk management, investment
securities, commercial real estate underwriting and internal auditing. On
July 29, 1993 he was appointed to the Board of Directors of the Corporation
and Olympus Bank.
Executive Officers
The executive officers of the Corporation are as follows:
Name Age Officer Positions
Since*
A. Blaine 58 1988 Director, Chairman of the Board, Chief
Huntsman Executive Officer of the Corporation
and a Director and Chairman of the
Board and Chief Executive Officer of
Olympus Bank
R. Gibb Marsh 46 1977 President and Chief Operating Officer
of the Corporation and Olympus Bank
K. John Jones 41 1987 Senior Vice President, Chief Financial
Officer, Secretary and Treasurer of the
Corporation and Olympus Bank
Gary L. Matern 51 1990 Senior Vice President of the
Corporation and Olympus Bank
Kathy K. Hale 47 1987 Senior Vice President of the
Corporation and Olympus Bank
* Indicates the period of time during which such persons have served as
officers of the Corporation or Olympus Bank.
There is no family relationship between any of the directors or
executive officers. All officers are elected annually by the Board of
Directors to serve until they are removed by the Board of Directors or
until their successors have been duly elected and qualified.
For information concerning the positions and background of A. Blaine
Huntsman, see "The Directors" above.
For information concerning the positions and background of R. Gibb
Marsh, see "The Directors" above.
For information concerning the positions and background of K. John
Jones, see "The Directors" above.
Gary L. Matern has been an employee and executive officer of the
Corporation and the Bank since July 1990. From 1988 to 1990 he was an
Account Manager for Systematics Inc. of Little Rock, Arkansas, and from
1964 to 1988 he was Vice President and Cashier for First Interstate Bank of
Utah, N.A.
Kathy K. Hale has been an employee of the Corporation and Olympus
Bank since 1976 and an executive officer of the Corporation since January
1987.
Item 11. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning
the compensation paid or accrued by the Corporation and its subsidiaries,
to or on behalf of the Corporation's Chief Executive Officer and the only
other executive officers of the Corporation whose compensation exceeded
$100,000 (hereafter referred to as the "Named Executive Officers") for the
fiscal years ending December 31, 1992, 1993, and 1994.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
Other All
Annual Securities Other
Compen- Restricted Underlying LTIP Compen-
Name & Principal Salary Bonus sation Stock Options/ Payouts sation
Position Year ($) ($) ($) Awards ($) SARs (#) ($) ($)<F1>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. Blaine Huntsman 1994 $213,005 $ 4,500 - - - - $15,356
Chairman & CEO 1993 $182,200 - - - - - $14,897
1992 $182,200 - - - - - $20,004
-
R. Gibb Marsh 1994 $108,767 $42,517 - - 10,000 - $ 8,701
Director, President, 1993 $ 88,000 $36,379 - - - - $ 7,141
COO 1992 $ 88,000 $ 3,000 - - 20,000 - $10,560
<F1> The amounts shown in this column are the annual employer
contributions to the non-contributory retirement plan and
the employee stock bonus plan.
</TABLE>
Stock Options
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential
Realized Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term
Number of
Securities % of Total
Underlying Options/
Options/ SARs
SARs Granted to Exercise or
Granted Employees Base Price Expiration
Name (#) in Fiscal ($/Sh) Date 5% ($) 10% ($)
Year
<S> <C> <C> <C> <C> <C> <C>
A. Blaine Huntsman - - - - - -
R. Gibb Marsh 10,000 33% $ 11.00 25-May-04 $ 69,200 $175,300
</TABLE>
Option Exercises
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options and/or SARs during
the fiscal year and unexercised options and SARs held as of the end of the
fiscal year.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
Number of Value of
Unexercised Unexercised
Options/SARs In-the-Money
at FY-End Options/SARs
(#) at FY-End<F1>
($)
Shares Value
Acquired Realized Exercisable Exercisable(E)/
Name on Exercise ($) (E)/ Unexercisable
(#) Unexercisable (U)
(U)
A. Blaine Huntsman - - 125,000 (E) $1,365,625 (E)
R. Gibb Marsh 1,500 $12,930 28,500 (E) $204,608 (E)
<F1> The price of a share of the Corporation's common stock as reported
by NASDAQ on December 31, 1994 was $14.63. The value of unexercised
options is the difference between the exercise price and the price of a
share as of December 31, 1994.
In 1994 directors were paid $1,500 for each quarter they served as a
director of the Corporation, $250 for each quarter that they chaired a
committee of the Board with the exception of the audit committee whose
chair receives $625 for each quarter. Each director also receives $750
fee for each day spent in Board meetings and a $500 fee for each day spent
in committee meetings. All directors are also reimbursed by the
Corporation for their out-of-pocket travel and related expenses incurred
in attending all Board and committee meetings.
Employment Contracts and Termination of Employment Agreements
The Corporation has entered into a Deferred Compensation Agreement
(the "Agreement") with A. Blaine Huntsman in connection with Mr. Huntsman's
employment as Chief Executive Officer and President of the Corporation.
The Agreement provides that a general ledger account (the "Deferred
Compensation Account") shall be established with $1,250 being credited
thereto on the first day of each month commencing on August 1, 1988 and
continuing until the termination of Mr. Huntsman's employment with the
Corporation. The Deferred Compensation Account has been established solely
for accounting and record keeping purposes and there may be no actual
assets or property in such account. Any amount credited to the Deferred
Compensation Account will (solely for accounting purposes) be invested in
investments that are approved by Mr. Huntsman. Upon termination of Mr.
Huntsman's employment, the Corporation shall pay to him or his designated
beneficiary (in the event of death) the fair market value of the Deferred
Compensation Account as of the date of termination in five equal annual
installments. Each installment shall include the earnings on the remaining
balance until the Deferred Compensation Account shall have been paid out in
full. At no time shall Mr. Huntsman have any property interest whatsoever
in any specific asset of the Corporation as a result of the Agreement.
The Board of Directors adopted a cash incentive plan in 1993 that provides
for additional compensation to be paid to R. Gibb marsh, K. John Jones,
Gary L. Matern and Kathy K. Hale, in the event of a "change in control" of
the Corporation or Olympus Bank if such officers are still employees and
officers of Olympus Bank at the date immediately prior to such change in
control. The amount of additional compensation to be paid to such
executive officers, as a group, shall be equal to 2% of the greater of (i)
the fair market value of the issued and outstanding common stock of the
Corporation on the date immediately prior to the change in control, or (ii)
the "tangible net worth" of the Corporation immediately prior to the
change in control. Under the terms of the cash incentive plan, R. Gibb
Marsh, K. John Jones, Gary L Matern and Kathy K. Hale would be entitled to
receive 31%, 23%, 23% and 23%, respectively, of such additional
compensation distributed under the cash incentive plan. The amount Mr.
Marsh will be entitled to under the cash incentive plan as a result of the
proposed merger with WMI is $322,717.
In addition, the exercisability of certain options granted to the Named
Executive Officers will be accelerated under the terms of the Stock Option
Plan in the event that the Corporation, its shareholders, or both, enter
into a written agreement to dispose of all or substantially all of the
assets or stock of the Corporation by means of a sale, merger,
consolidation, reorganization, liquidation or similar transaction. The
excerisability of all options have been accelerated as a result of the
proposed merger with WMI.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Percent of
Total Shares
Outstanding<F1>
Name Shares Options Total
A. Blaine Huntsman 120,936<F2> 125,000 245,936 7.5%
Richard N. Hokin 304,000<F3> - 304,000 9.7%
James K. Loebbecke 2,000 - 2,000 *
R. Gibb Marsh 10,200 28,500 38,700 1.2%
Richard G. Price 100 - 100 *
Ramon E. Johnson 703 - 713 *
K. John Jones 7,202 18,500 25,702 *
All directors and
executive officers
as a group (9 persons) 456,399 205,600 661,999 19.8%
Century Partners
800 Post Road
Darien, CT 06820 304,000<F3> - 304,000 9.7%
Charter National
Life Insurance Co.
8301 Maryland Ave.
St Louis, MO 63105 85,900<F4> - 85,900 2.7%
LNC Investment, Inc.
529 East South Temple
Salt Lake City, UT 84102 453,991<F4> - 453,991 14.5%
Evergreen Investments, LTD.
1910 East 3060 South
Salt Lake City, UT 84106 120,936<F2> - 120,936 3.9%
* Less than one percent.
<F1> The above table does not include shares held for the account of the
indicated persons and group by the Employee Stock Bonus Plan which on
November 30, 1994 held 130,656 shares.
<F2> Includes 46,536 shares owned by Mr. Huntsman and 74,400 shares owned
by Evergreen Investments, LTD., a limited partnership, in which Mr.
Huntsman is a limited partner with a 37% ownership interest. Mr
Huntsman and Evergreen Investment, LTD. could be deemed to be members
of a "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act, which owns 5% or more of the common stock of
Olympus. This information was obtained from a Form 4 filed with the
Securities and Exchange Commission on or about March 7, 1994.
<F3> The general managing partner of Century Partners, a New York limited
partnership, is Mr. Hokins, who is currently a director.
<F4> These persons could be deemed to be members of a "group' as that term
is used in Section 13(d) of the Securities Exchange Act which owns 5%
or more of the common stock of Olympus. This information was
obtained from a Schedule 13D filed with the Securities and Exchange
Commission on or about July 21, 1994.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1994, certain directors and executive officers of the
Corporation were indebted to Olympus Bank. These loans were made by
Olympus Bank in the ordinary course of its business and were made on
substantially the same terms, including interest rate and collateral, at
those prevailing at the time for comparable transactions with other
customers of Olympus Bank and do not involve more than the normal risk of
collectability or present unfavorable features.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements. The following are included in Part II of
this Report:
Independent Auditors' Report
Consolidated Statements of Financial Condition at December 31,
1994 and 1993
Consolidated Statements of Operations for each of the Three
Years Ended in the Period December 31, 1994
Consolidated Statements of Cash Flow for each of the Three
Years Ended in the Period December 31, 1994
Consolidated Statements of Stockholders' Equity for each of the
Three Years Ended in the Period December 31, 1994
Notes to Consolidated Financial Statements
Financial Statements Schedules. All schedules are omitted because of
the absence of conditions under which they are required or because
the required information is given in the financial statements or
notes thereto.
Exhibits. For the information with respect to this Item, see the
Index to Exhibits attached to this Report.
Reports on Form 8-K. No reports were filed in the last quarter of 1994.
Separate Financial Statements of Registrant. Separate financial
statements of the registrant are included in the Notes to
Consolidated Financial Statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(b) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
By: A. Blaine Huntsman
A. Blaine Huntsman, Chairman of the Board,
Chief Executive Officer
Dated: March 29, 1995
Pursuant to the requirements of the Securities Exchange Act of the
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated:
A. Blaine Huntsman Chairman of the Board, Chief March 29, 1995
A. Blaine Huntsman Executive Officer and Director
(priciple executive officer)
Richard N. Hokin Director March 29, 1995
Richard N. Hokin
Ramon E. Johnson Director March 29, 1995
Ramon E. Johnson
Richard G. Price Director March 29, 1995
Richard G. Price
James K. Loebbecke Director March 29, 1995
James K. Loebbecke
R. Gibb Marsh President of the March 29, 1995
R. Gibb Marsh Corporation and Director
K. John Jones Senior Vice President March 29, 1995
K. John Jones Chief Financial Officer
Secretary/Treasurer and
Director (priciple financial officer)
Brad J. Foley Vice President and Controller March 29, 1995
Brad J. Foley (Controller)
Olympus Capital Corporation
Reg. S-K
Exhibits No. Index of Exhibits
(2) Incorporated by reference to Appendix A to Washington Mutual,Inc.
Registration statement on Form S-4 filed with the Commission on
March 24, 1995, Registration No. 33-57413.
(3) (i) Incorporated by reference to Form 10-K filed March 31, 1994,
for the fiscal year ended December 31, 1993, File No. 0-11130.
(3) (ii) Incorporated by reference to Form 10-K filed March 31, 1994,
for the fiscal year ended December 31, 1993, File No. 0-11130.
(4) Not Applicable
(9) Not Applicable
(10) (iii)
(A) Management contracts regarding deferred compensation and
stock options incorporated by reference to Form 10-K
filed March 31, 1994, for the fiscal year ended December
31, 1993, File No. 0-11130.
(11) Statement of Per Share Earnings
Refer to registrant's Consolidated Financial Statements, Part
II, Item 8 of this filing.
(12) Not Applicable
(13) Not Applicable
(16) Not Applicable
(18) Not Applicable
(21) The significant subsidiaries of Olympus Capital Corporation are
as follows:
Jurisdiction of
Name Incorporation
Olympus Bank, A Federal Savings Bank United States
Olympus Financial Services, Inc. Utah
(22) Not Applicable
(23) Consent of Independent Public Accountants
(24) Not Applicable
(27) Financial Data Schedule
(28) Not Applicable
(99) Not Applicable
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 1 to
Registration No. 33-57413 of Washington Mutual, Inc. on Form S-4 and in
Registration Statement Nos. 33-56948 and 33-69670 of Olympus Capital
Corporation in Form S-8 of our report dated February 28, 1995, appearing in
this Annual Report on Form 10-K of Olympus Capital Corporation for the year
ended December 31, 1994.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 28, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 7,270,735
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,305,872
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,024,545
<INVESTMENTS-CARRYING> 47,776,734
<INVESTMENTS-MARKET> 44,044,573
<LOANS> 243,936,325
<ALLOWANCE> 6,681,868
<TOTAL-ASSETS> 392,252,971
<DEPOSITS> 286,598,971
<SHORT-TERM> 64,519,397
<LIABILITIES-OTHER> 3,331,123
<LONG-TERM> 2,771,470
<COMMON> 3,132,839
0
0
<OTHER-SE> 31,899,171
<TOTAL-LIABILITIES-AND-EQUITY> 392,252,971
<INTEREST-LOAN> 20,381,532
<INTEREST-INVEST> 2,129,294
<INTEREST-OTHER> 5,081,322
<INTEREST-TOTAL> 27,592,148
<INTEREST-DEPOSIT> 11,129,805
<INTEREST-EXPENSE> 13,830,034
<INTEREST-INCOME-NET> 13,762,114
<LOAN-LOSSES> 1,048,461
<SECURITIES-GAINS> 286,718
<EXPENSE-OTHER> 11,733,391
<INCOME-PRETAX> 4,711,272
<INCOME-PRE-EXTRAORDINARY> 4,711,272
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,711,272
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.44
<YIELD-ACTUAL> .036
<LOANS-NON> 950,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 11,383,325
<LOANS-PROBLEM> 8,300,000
<ALLOWANCE-OPEN> 5,610,000
<CHARGE-OFFS> 45,000
<RECOVERIES> 69,000
<ALLOWANCE-CLOSE> 6,682,000
<ALLOWANCE-DOMESTIC> 6,682,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
