UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1997
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 0-22656
CAPITAL SAVINGS BANCORP, INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 43-1656529
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
425 Madison Street, Jefferson City, Missouri 65101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (573) 635-4151
--------------
Securities Registered Pursuant to Section 12(b) of the Act:
None
----
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
<PAGE>
State the issuer's revenues for its most recent fiscal year: $19.0 million.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average of the closing price of such
stock on the Nasdaq System as of September 12, 1997, was $27.3 million. (The
exclusion from such amount of the market value of the shares owned by any person
shall not be deemed an admission by the registrant that such person is an
affiliate of the registrant.)
As of September 22, 1997, there were issued and outstanding 1,891,800 shares of
the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II of Form 10-KSB - Annual Report to Stockholders for the fiscal year
ended June 30, 1997.
Part III of Form 10-KSB - Proxy Statement for 1997 Annual Meeting of
Stockholders.
Transitional Small Business Disclosure Format: YES ____; NO X .
<PAGE>
PART I
Item 1. Description of Business
General. Capital Savings Bancorp, Inc., ("Capital Savings" or the
"Company"), a Delaware corporation, was formed in September 1993 to act as the
holding company for Capital Savings Bank, FSB (the "Bank") upon the completion
of the Bank's conversion from the mutual to the stock form (the "Conversion").
The Company received approval from the Office of Thrift Supervision (the "OTS")
to acquire all of the common stock of the Bank to be outstanding upon completion
of the Conversion. The Conversion was completed on December 28, 1993. All
references to Capital Savings or the Company, unless otherwise indicated, at or
before December 28, 1993 refer to the Bank and its subsidiaries on a
consolidated basis. The Company's Common Stock is traded on The Nasdaq Stock
Market under the symbol "CAPS".
At June 30, 1997, the Company had $242.5 million of assets and
stockholders' equity of $21.3 million (or 8.8% of total assets).
The Bank is a federally chartered stock savings bank headquartered in
Jefferson City, Missouri. Its deposits are insured up to applicable limits by
the Federal Deposit Insurance Corporation (the "FDIC") and are backed by the
full faith and credit of the United States. The Bank, through its wholly-owned
subsidiary, Capital Savings Financial Services, Inc. ("CSFS"), offers mutual
funds, annuities and brokerage services to its customers.
The principal business of the Company consists of attracting retail
deposits from the general public and investing those funds primarily in one- to
four-family residential mortgage loans with an increasing emphasis on consumer
loans, including automobile and home equity loans. The Company also has small
amounts of commercial and multi-family real estate and residential construction
loans. See "Lending Activities." The Company purchases mortgage-backed
securities and invests in U.S. Government and agency obligations and other
permissible investments. See "Lending Activities - Originations, Purchases,
Sales and Servicing of Loans and Mortgage-Backed Securities."
The Company's revenues are derived primarily from interest on loans,
mortgage-backed securities, investments, income from service charges and loan
originations, loan servicing fee income and income from the sale of mutual
funds, annuities and brokerage services.
The Company offers a variety of deposit accounts having a wide range of
interest rates and terms, which generally include savings, checking and money
market checking accounts, and certificate accounts with varied terms. The
Company only solicits deposits in its primary market area and does not accept
brokered deposits.
The executive offices of the Company are located at 425 Madison Street,
Jefferson City, Missouri 65101, and its telephone number at that address is
(573) 635-4151.
Forward-Looking Statements
When used in this Annual Report on Form 10-KSB or future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases or other public or shareholder communications, or in oral statements
made with the approval of an authorized executive officer, the words or phrases
"will likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project", "believe" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made, and to advise readers that various factors--including regional
and national economic conditions, changes in levels of market interest rates,
credit risks of lending activities, and competitive and regulatory
factors--could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake--and specifically disclaims any
obligation--to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
Market Area
Capital Savings' primary market area covers all or a portion of Boone,
Callaway, Camden, Cole, Crawford, Franklin, Gasconade, Maries, Miller, Moniteau,
Morgan, Osage, Phelps and Pulaski counties in central Missouri, which are
serviced through its three full service offices in Jefferson City and five
additional full service offices located in California, Eldon, Fulton, Owensville
and Rolla, Missouri. The Company also maintains a limited service agency office
in Morgan County, Missouri.
The main office of the Company is in the Missouri state capital of
Jefferson City located in Cole County. The Company's market area's primary
economic livelihood is the state government, which is by far the largest
employer in the region. There also is a significant concentration of state
employees due to the presence of various campuses of the state university
system. Other major employment segments in the region include light
manufacturing, agriculture, and, in the southwestern edge of the Company's
market, tourism due to the Lake of the Ozarks region.
In June 1996, the Company opened a branch office in a supermarket
located in Jefferson City, Missouri. The Bank opened its second supermarket
branch office in Jefferson City during the Spring of 1997. Management believes
that these supermarket branch offices are an effective way to service its
customers due to their size, efficiency and convenient high traffic locations.
Lending Activities
General. Capital Savings has been, and intends to continue to be, a
community-oriented financial corporation offering a variety of financial
services to meet the needs of the communities it serves. The Company attracts
deposits from the general public and uses such deposits, together with
borrowings and other funds, to originate primarily one- to four-family
residential mortgage loans, consumer loans and residential construction loans,
and to a much lesser extent multi-family and commercial real estate loans. These
loans are originated predominantly in the Company's primary market area. The
Company also purchases a limited amount of one- to four-family and commercial
real estate loans and loan participations from other lenders generally to
supplement loan production. At June 30, 1997, the Company's net loan portfolio
totaled $190.2 million.
The Company also purchases mortgage-backed securities and invests in
U.S. Government and agency obligations and other permissible investments. See "-
Originations, Purchases and Sales of Loans and Mortgage-Backed Securities."
The Company primarily originates fixed- and adjustable rate, one- to
four-family mortgage loans. The Company focuses on the origination of
adjustable-rate mortgage ("ARM") loans and short-term consumer and other loans
for retention in its portfolio. ARM and consumer loans are originated in order
to increase the percentage of loans with more frequent repricing or shorter
maturities, and in some cases higher yields, than fixed-rate, one- to
four-family mortgage loans.
While the Company's loan portfolio consists mainly of adjustable rate
one- to four-family loans and short-term consumer loans, it also originates
fixed-rate mortgage loans in response to customer demand. See "- Loan Portfolio
Composition." The Company's general policy is to originate one- to four-family
fixed-rate mortgages with terms up to 20 years for retention in its portfolio.
Fixed-rate mortgage loans originated with terms in excess of 20 years may be
either sold without recourse in the secondary market with servicing retained or
retained in portfolio. Selling loans in the secondary market permits the Company
to generate fee income and to reduce the Company's exposure to changes in
interest rates. The Company originates loans for sale pursuant to cash sale
commitments at rates agreed to by the Federal Home Loan Mortgage Corporation
("FHLMC") in order to reduce its exposure to rising interest rates. See "- One-
to Four-Family Residential Mortgage Lending."
Real estate loans are considered and approved by the Bank's loan
committee comprised of officers of the Bank. Approval of at least two committee
members is required for all real estate loans. Consumer loan applications are
initially considered and approved at various levels of authority, depending on
the type, amount and loan to value ratio of the loan. All mortgage loans in
excess of $1.0 million require board approval.
The aggregate amount of loans that the Bank is permitted to make under
applicable federal regulations to any one borrower, including related entities,
or the aggregate amount that the Bank could have invested in any one real estate
project is generally the greater of 15% of unimpaired capital and surplus or
$500,000. See "Regulation - Federal Regulation of Savings Associations." At June
30, 1997, the maximum amount which the Bank could have lent to any one borrower
and the borrower's related entities was approximately $2.9 million. At June 30,
1997, the Bank did not have any loans or series of loans with outstanding
balances in excess of this amount. At that date, the Bank's largest lending
relationship totaled $1.3 million and consisted of 14 loan participations
secured by one- to four-family residential properties located in the State of
Missouri. The Bank had eight other lending relationships to a single borrower or
group of related borrowers at June 30, 1997 which exceeded $500,000. At June 30,
1997, these loans were all performing in accordance with their repayment terms.
<PAGE>
Loan Portfolio Composition. The following table shows the composition
of the Company's loan portfolio in dollar amounts and in percentages (before
deductions for loans in process, deferred fees and discounts and allowances for
losses) as of the dates indicated.
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------------------
1993 1994 1995
-----------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family................. $122,608 93.03% $125,376 91.76% $137,088 89.18%
Commercial.......................... 2,179 1.65 1,836 1.34 2,634 1.71
Multi-family........................ 1,117 .85 929 .68 1,618 1.05
Construction or development......... 814 .62 1,807 1.32 2,657 1.73
-------- ------ -------- ------ -------- ------
Total real estate loans.......... 126,718 96.15 129,948 95.10 143,997 93.70
-------- ------ -------- ------ -------- ------
Other Loans:
Consumer Loans:
Home equity/2nd mortgage........... 1,711 1.30 2,098 1.54 4,498 2.93
Automobile......................... 1,119 .85 2,016 1.48 3,067 2.00
Home improvement................... 236 .18 640 .47 424 .28
Deposit account.................... 706 .54 756 .55 702 .46
Student............................ 274 .21 334 .24 422 .28
Unsecured.......................... 245 .19 310 .23 270 .18
Other.............................. 786 .60 534 .39 339 .22
-------- ------ -------- ------ -------- ------
Total consumer loans............. 5,077 3.85 6,688 4.90 9,722 6.33
-------- ------ -------- ------ -------- ------
Total loans...................... 131,795 100.00% 136,636 100.00% 153,719 100.00%
====== ====== ======
Less:
Loans in process.................... 512 1,155 1,195
Deferred fees and discounts......... 123 146 167
Allowance for losses................ 425 454 514
-------- -------- --------
Total loans receivable, net...... $130,735 $134,881 $151,843
======== ======== ========
<PAGE>
<CAPTION>
June 30,
----------------------------------------------------
1996 1997
----------------------------------------------------
Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family................. $146,476 86.71% $163,586 85.23%
Commercial.......................... 5,619 3.33 5,993 3.12
Multi-family........................ 1,767 1.04 6,175 3.22
Construction or development......... 2,939 1.74 1,472 .77
-------- ------ -------- ------
Total real estate loans.......... 156,801 92.82 177,226 92.34
-------- ------ -------- ------
Other Loans:
Consumer Loans:
Home equity/2nd mortgage........... 5,279 3.12 6,761 3.52
Automobile......................... 4,071 2.41 4,799 2.50
Home improvement................... 496 .29 494 .26
Deposit account.................... 973 .58 917 .48
Student............................ 366 .22 326 .17
Unsecured.......................... 441 .26 696 .36
Other.............................. 506 .30 718 .37
-------- ------ -------- ------
Total consumer loans............. 12,132 7.18 14,711 7.66
-------- ------ -------- ------
Total loans...................... 168,933 100.00% 191,937 100.00%
====== ======
Less:
Loans in process.................... 1,485 801
Deferred fees and discounts......... 191 194
Allowance for losses................ 634 739
-------- --------
Total loans receivable, net...... $166,623 $190,203
======== ========
</TABLE>
<PAGE>
The following table shows the composition of the Company's loan
portfolio by fixed and adjustable rate at the dates indicated.
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------------------------
1993 1994 1995
----------------------- ----------------------- -----------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family.......................... $ 40,749 30.92% $ 42,076 30.80% $ 40,454 26.31%
Commercial................................... 1,129 .86 877 .64 885 .58
Multi-family................................. 172 .13 110 .08 94 .06
Construction or development.................. 814 .62 1,807 1.32 2,657 1.73
-------- ------ -------- ------ -------- ------
Total fixed-rate real estate loans......... 42,864 32.53 44,870 32.84 44,090 28.68
Consumer...................................... 3,366 2.55 4,582 3.35 6,821 4.44
-------- ------ -------- ------ -------- ------
Total fixed-rate loans..................... 46,230 35.08 49,452 36.19 50,911 33.12
-------- ------ -------- ------ -------- ------
Adjustable-Rate Loans:
Real estate:
One- to four-family(1)....................... 81,859 62.11 83,300 60.97 96,634 62.86
Commercial................................... 1,050 .80 959 .70 1,749 1.14
Multi-family................................. 945 .72 819 .60 1,524 .99
-------- ------ -------- ------ -------- ------
Total adjustable-rate real estate loans.... 83,854 63.63 85,078 62.27 99,907 64.99
Consumer...................................... 1,711 1.29 2,106 1.54 2,901 1.89
-------- ------ -------- ------ -------- ------
Total adjustable rate loans................ 85,565 64.92 87,184 63.81 102,808 66.88
-------- ------ -------- ------ -------- ------
Total loans................................ 131,795 100.00% 136,636 100.00% 153,719 100.00%
====== ====== ======
Less:
Loans in process.............................. 512 1,155 1,195
Deferred fees and discounts................... 123 146 167
Allowance for losses.......................... 425 454 514
-------- -------- --------
Total loans receivable, net................ $130,735 $134,881 $151,843
======== ======== ========
</TABLE>
- ------------------------
(1) Includes five and seven year ARM loans totaling $0, $0, $5.5 million,
$9.8 million and $28.7 million at June 30, 1993, 1994, 1995, 1996 and
1997, respectively.
<PAGE>
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------
1996 1997
------------------------ -----------------------
Amount Percent Amount Percent
-------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family.......................... $ 41,628 24.64% $ 43,238 22.53%
Commercial................................... 987 .58 2,464 1.28
Multi-family................................. 573 .34 3,633 1.89
Construction or development.................. 2,939 1.74 1,472 .77
-------- ------ -------- ------
Total fixed-rate real estate loans......... 46,127 27.30 50,805 26.47
Consumer...................................... 8,998 5.33 11,011 5.74
-------- ------ -------- ------
Total fixed-rate loans..................... 55,125 32.63 61,817 32.21
-------- ------ -------- ------
Adjustable-Rate Loans:
Real estate:
One- to four-family(1)....................... 104,848 62.06 120,349 62.70
Commercial................................... 4,632 2.74 3,529 1.84
Multi-family................................. 1,194 .71 2,542 1.32
-------- ------ -------- ------
Total adjustable-rate real estate loans.... 110,674 65.51 126,420 65.86
Consumer...................................... 3,134 1.86 3,700 1.93
-------- ------ -------- ------
Total adjustable rate loans................ 113,808 67.37 130,120 67.79
-------- ------ -------- ------
Total loans................................ 168,933 100.00% 191,937 100.00%
====== ======
Less:
Loans in process.............................. 1,485 801
Deferred fees and discounts................... 191 194
Allowance for losses.......................... 634 739
-------- --------
Total loans receivable, net................ $166,623 $190,203
======== ========
</TABLE>
- ------------------------
(1) Includes five and seven year ARM loans totaling $0, $0, $5.5 million,
$9.8 million and $28.7 million at June 30, 1993, 1994, 1995, 1996 and
1997, respectively.
<PAGE>
The following table illustrates the interest rate sensitivity of the
Company's loan portfolio at June 30, 1997. Loans which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
----------------------------------------------------------------------------------
One- to Multi-Family and Construction
Four-Family Commercial or Development
---------------------- ----------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
-------- ---- ------- ---- ------ ----
(Dollars in Thousands)
Due During
Periods Ending
June 30,
- --------------
<S> <C> <C> <C> <C> <C> <C>
1998(1)............................. $ 233 7.13% $ 205 8.97% 446 8.17%
1999................................ 331 7.69 21 9.23 --- ---
2000................................ 719 7.64 8 8.70 --- ---
2001 and 2002....................... 3,070 7.96 392 8.36 --- ---
2003 to 2007........................ 20,908 7.95 1,452 8.85 --- ---
2008 to 2012........................ 36,668 8.00 4,027 8.55 --- ---
2013 and following.................. 101,657 7.94 6,063 8.44 1,027 8.38
-------- ------- ------
Total............................. $163,586 7.95% $12,168 8.53% $1,473 8.32%
======== ======= ======
</TABLE>
- --------------------
(1) Includes demand loans, loans having no stated maturity and overdraft
loans.
<PAGE>
<TABLE>
<CAPTION>
Consumer Total
-------------------- -------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------- ---- -------- ----
(Dollars in Thousands)
Due During
Periods Ending
June 30,
- --------------
<S> <C> <C> <C> <C>
1998(1)............................. $ 1,623 9.12% $ 2,507 8.76%
1999................................ 1,971 9.14 2,323 8.94
2000................................ 2,476 9.85 3,203 9.35
2001 and 2002....................... 3,730 9.67 7,192 8.87
2003 to 2007........................ 4,143 9.87 26,503 8.30
2008 to 2012........................ 167 10.14 40,862 8.07
2013 and following.................. 600 9.92 109,347 7.98
------- --------
Total............................. $14,710 9.64% $191,937 8.12%
======= ========
</TABLE>
- --------------------
(1) Includes demand loans, loans having no stated maturity and overdraft
loans.
<PAGE>
The total amount of loans due after June 30, 1998 which have
predetermined interest rates is $59.7 million, while the total amount of loans
due after such dates which have floating or adjustable interest rates is $129.8
million.
One- to Four-Family Residential Mortgage Lending. Residential loan
originations are generated by the Company's marketing efforts, its present
customers, walk-in customers and referrals from real estate agents and builders.
The Company focuses its lending efforts primarily on the origination of loans
secured by first mortgages on owner-occupied, one- to four-family residences. At
June 30, 1997, the Company's one- to four-family residential mortgage loan
portfolio totaled $163.6 million, or approximately 85.3% of the Company's gross
loan portfolio. Approximately 9.7% of the Company's one- to four-family mortgage
loan portfolio has been purchased, generally from other financial institutions.
See "--Originations, Purchases, Sales and Servicing of Loans and Mortgage-Backed
Securities."
The Company currently offers fixed-rate and ARM loans. During the year
ended June 30, 1997, the Company originated $25.7 million of ARM loans secured
by one- to four-family residential real estate. During the same period, the
Company originated $11.9 million of fixed-rate real estate loans secured by one-
to four-family residential real estate. Substantially all the Company's one- to
four-family residential mortgage originations are in its primary market area.
See "-- Originations, Purchases, Sales and Servicing of Loans and
Mortgage-Backed Securities."
The Company currently originates one- to four-family residential
mortgage loans with terms of up to 30 years in amounts up to 95% of the
appraised value of the security property. The Company generally requires that
private mortgage insurance be obtained in an amount sufficient to reduce the
Company's exposure to 80% or less of the loan-to-value level. Interest rates
charged on fixed-rate loans are competitively priced according to market
conditions. Residential loans generally do not include prepayment penalties.
Most of the Company's fixed-rate mortgage loans conform to secondary
market standards (i.e., Federal National Mortgage Association ("FNMA") and FHLMC
standards). The Company typically retains fixed-rate loans with terms of 20
years or less for its loan portfolio. Fixed-rate mortgage loans originated with
terms in excess of 20 years may be either sold without recourse in the secondary
market with servicing retained or retained in portfolio. The Company, at times,
retains fixed-rate loans with terms in excess of 20 years for its portfolio. The
Company's decision to retain such loans depends upon the current interest rate
environment and the Company's desired ratio of fixed-rate to adjustable-rate
loans as may be consistent with its asset liability objectives. During fiscal
1997, the Bank originated $4.9 million of fixed-rate one- to four-family
residential loans with terms in excess of 20 years, all of which were retained
in portfolio.
The Company currently offers one, three, five and seven year ARM loans
with monthly principal and interest payments typically based on a 30 year
amortization schedule. These loans generally have a stated interest rate margin
over the yields on comparable U.S. Treasury securities. The three year ARM loans
adjust every three years. The five and seven year ARM loans are fixed-rate loans
for the initial stated term and then automatically convert into one year ARM
loans. These loans provide for periodic and lifetime caps over the initial rate.
As a consequence of using an initial fixed-rate and caps, the interest rates on
these loans may not be as rate sensitive as is the Company's cost of funds. The
Company's ARMs do not permit negative amortization of principal and are not
convertible into a fixed rate loan, but may be assumable in the case of a
qualified borrower. The ARM loans offered by the Company sometimes provide for
initial rates of interest below the rates which would prevail were the index
used for pricing applied initially. These loans are subject to increased risk of
delinquency or default as the higher, fully-indexed rate of interest
subsequently comes into effect; however, the Company generally qualifies
borrowers at the fully indexed rate. The Company has not experienced greater
delinquency rates on its ARM loans compared to its fixed-rate residential loans.
In underwriting one- to four-family residential real estate loans,
Capital Savings evaluates both the borrower's ability to make monthly payments
and the value of the property securing the loan. Properties securing real estate
loans made by Capital Savings are appraised by independent fee appraisers
approved by the Board of Directors. Capital Savings generally requires borrowers
to obtain an attorney's title opinion or title insurance, and fire and property
insurance (including flood insurance, if necessary) in an amount not less than
the amount of the loan. Real estate loans originated by the Company generally
contain a "due on sale" clause allowing the Company to declare the unpaid
principal balance due and payable upon the sale of the security property.
Commercial and Multi-Family Real Estate Lending. The Company also
engages in a limited amount of commercial and multi-family real estate lending
in its primary market area and purchases a limited number of whole loan and
participation interests in loans primarily from other financial institutions. At
June 30, 1997, the Company had loans secured by commercial and multi-family real
estate totaling $6.0 million and $6.2 million, respectively, which in the
aggregate represented 6.3% of the Company's gross loan portfolio compared to
4.4% of the Company's gross loan portfolio at June 30, 1996. The Company
intends, subject to market conditions, to continue to place additional emphasis
on this type of lending.
The Company's commercial and multi-family real estate loan portfolio is
secured primarily by small office buildings and apartment buildings. Commercial
and multi-family real estate loans generally have terms that do not exceed 25
years and a variety of rate adjustment features and other terms. Generally, the
loans are made in amounts up to 80% of the appraised value of the security
property. Adjustable rate commercial and multi-family real estate loans provide
for a margin over a designated index, which is generally the one year Treasury
Bill rate. In underwriting these loans, the Company currently analyzes the
financial condition of the borrower, the borrower's credit history, and the
reliability and predictability of the cash flow generated by the property
securing the loan. The Company generally requires personal guaranties of the
borrowers. Appraisals on properties securing commercial real estate loans
originated by the Company are performed by independent appraisers.
The largest multi-family real estate loan outstanding at June 30, 1997
was a $1.2 million loan participation secured by apartment buildings located in
the State of Missouri. At June 30, 1997, this loan was performing in accordance
with its terms.
Multi-family and commercial real estate loans generally present a
higher level of risk than loans secured by one- to four-family residences. This
greater risk is due to several factors, including the concentration of principal
in a limited number of loans and borrowers, the effect of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by multi-family and commercial real estate is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (for example, if leases are not obtained or
renewed, or a bankruptcy court modifies a lease term, or a major tenant is
unable to fulfill its lease obligations), the borrower's ability to repay the
loan may be impaired.
Construction Lending. The Company engages in limited amounts of
construction lending to individuals for the construction of their residences as
well as to builders for the construction of single-family homes in the Company's
primary market area. At June 30, 1997, the Company had $1.5 million of gross
construction loans, of which approximately $1.3 million were to borrowers who
indicated that they intended to live in the residence upon completion of
construction.
Construction loans to individuals for their residences are structured
to be converted to permanent loans at the end of the construction phase which
typically runs from six months to one year. These construction loans have rates
and terms which match one- to four-family loans then offered by the Company,
except that during the construction phase the borrower pays interest only. The
maximum loan-to-value ratio of owner occupied single family construction loans
is typically 80%, and in a very limited number of situations 90%. Residential
construction loans are generally underwritten pursuant to the same guidelines
used for originating permanent one- to four-family residential loans.
Construction loans are obtained primarily from builder references and
individuals who have previously borrowed from the Company, as well as from
referrals from existing customers. The application process includes a submission
to the Company of the plans and costs of the project to be constructed. These
items are used as a basis to determine the appraised value of the subject
property. Loans are based on the lesser of current appraised value or the cost
of construction (land plus building).
Consumer Lending. Capital Savings offers a variety of secured consumer
loans, including automobile, home equity, home improvement, student loans, and
loans secured by savings deposits. In addition, Capital Savings offers unsecured
consumer loans, including an overdraft checking line-of-credit. The Company
currently originates substantially all of its consumer loans in its primary
market area. The Company originates consumer loans on a direct basis where the
Company extends credit directly to the borrower. Almost all consumer loans are
made on a fixed-rate basis, except for home equity loans, which are tied to
third party indices. Management considers consumer lending to be an important
component of its business strategy and has been placing increasing emphasis on
such lending. In addition, management believes that offering consumer loan
products helps expand and create stronger ties to its existing customer base.
At June 30, 1997, the Company's consumer loan portfolio totaled $14.7
million, or 7.7% of its gross loan portfolio. At June 30, 1997, 73.1% of
consumer loans were short- and intermediate-term, fixed-rate loans and 26.9%
were adjustable rate loans.
The largest component of Capital Savings' consumer portfolio consists
of home equity and home improvement loans. Home equity and home improvement
loans secured by second mortgages, together with loans secured by all prior
liens, are generally limited to 85% or less of the appraised value of the
property securing the loan. Generally, such loans have a maximum term of up to
10 years. As of June 30, 1997, home equity and home improvement loans totaled to
$7.3 million or 3.8% of the Company's gross loan portfolio.
Automobile loans totaled $4.8 million or 2.5% of the Company's gross
loan portfolio at June 30, 1997. Automobile loans typically are made for up to
60 months for new vehicles, and up to 48 months for used vehicles. Loans secured
by automobiles are generally originated for 90% of the lesser of the retail
sales price or NADA Official Used Car Guide's Retail Price of the automobile
securing the loan. The dollar volume of new and used vehicle lending has
generally been about the same over the past several years.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The underwriting
standards employed by the Company for consumer loans include an application, a
determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed
loan. Although creditworthiness of the applicant is a primary consideration, the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.
Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans which are unsecured
or are secured by rapidly depreciable assets, such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. In addition, consumer
loan collections are dependent on the borrower's continuing financial stability,
and thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At June 30, 1997, substantially all of the Company's consumer loans
were performing in accordance with their terms. See "Non-Performing Assets and
Classified Assets." There can be no assurances, however, that delinquencies will
not occur in the future.
Originations, Purchases, Sales and Servicing of Loans and
Mortgage-Backed Securities
The Company originated $51.4 million of loans during fiscal 1997,
compared to $60.8 million and $44.5 million in fiscal 1996 and 1995,
respectively. Management attributes the higher originations during 1997 and 1996
to increased marketing efforts and increased demand in the Company's primary
lending area. The higher loan originations during fiscal 1996 were somewhat
offset by a higher level of repayments during that period. In fiscal 1997, $34.7
million of loans were repaid, compared to $41.7 million and $26.7 million in
fiscal 1996 and 1995, respectively. In periods of economic uncertainty, the
Company's ability to originate large dollar volumes of real estate loans may be
substantially reduced or restricted, with a resultant decrease in related loan
fee income and operating earnings.
Capital Savings also sells whole real estate loans without recourse to
the FHLMC. Sales of whole loans generally are beneficial to the Company since
these sales may generate income at the time of sale, produce future servicing
income, provide funds for additional lending and other investments and increase
liquidity. The Company sold whole loans in aggregate amounts of $3.5 million and
$12.3 million during the years ended June 30, 1995 and 1996, respectively. No
loans were sold during fiscal 1997 as a result of management's decision to hold
higher yielding long term loans during the period. See "Asset\Liability
Management" in the Annual Report.
When loans are sold, the Company typically retains the responsibility
for servicing the loans. The Company receives a servicing fee for performing
these services. The Company serviced for others mortgage loans amounting to
$41.9 million, $47.1 million and $41.0 million at June 30, 1995, 1996 and 1997,
respectively.
During fiscal 1995, 1996 and 1997, the Company purchased $2.7 million,
$8.3 million, and $6.0 million of loans and loan participations. The Company's
portfolio of purchased whole loans and loan participations secured by one- to
four-family residences totaled $15.8 million at June 30, 1997. Approximately
$12.9 million and $2.2 million of such loans are secured by properties located
in Missouri and Texas, respectively, with the remainder of such loans secured by
properties located throughout the United States.
Capital Savings also has a portfolio of fixed-rate and adjustable-rate
mortgage-backed securities. At June 30, 1997, mortgage-backed and related
securities totaled $23.4 million, or 11.0% of Capital Savings' total loan and
mortgage-backed and related securities portfolio. See "- Mortgage-Backed and
Related Securities."
<PAGE>
The following table shows the loan origination, purchase, sale and
repayment activities of the Company for the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------
1995 1996 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate - one- to four-family ............ $ 24,624 $ 26,275 $ 25,675
- commercial ..................... 157 867 575
- multi-family ................... 802 225 1,117
Non-real estate - consumer ................... -- -- --
-------- -------- --------
Total adjustable-rate ................ 25,583 27,367 27,367
-------- -------- --------
Fixed rate:
Real estate - one- to four-family ............ 8,613 21,541 11,872
- commercial ..................... 134 303 97
- multi-family ................... -- 86 1,513
- construction or development .... 4,342 4,720 1,761
Non-real estate - consumer ................... 5,809 6,766 8,768
-------- -------- --------
Total fixed-rate ..................... 18,898 33,416 24,011
-------- -------- --------
Total loans originated ............... 44,481 60,783 51,378
-------- -------- --------
Purchases:
Real estate - one- to four-family ............ 1,656 5,773 4,153
commercial ..................... 1,012 2,494 600
multi-family ................... -- -- 1,200
Mortgage-backed securities ................... 8,331 14,610 1,357
-------- -------- --------
Total purchases ...................... 10,999 22,877 7,310
-------- -------- --------
Sales and Repayments:
Real estate - one- to four-family sales ...... 3,466 12,287 --
Loans and mortgage-backed securities principal
repayments .................................. 29,080 46,802 40,680
-------- -------- --------
Total reductions ..................... 32,526 59,089 40,680
-------- -------- --------
Increase (decrease) in other items, net ........ (61) (314) 681
-------- -------- --------
Net increase (decrease) .............. $ 22,893 $ 24,257 $ 18,689
======== ======== ========
</TABLE>
<PAGE>
Non-Performing Assets and Classified Assets
Generally, when a borrower fails to make a required payment on real
estate secured loans and consumer loans the Company institutes collection
procedures by mailing a computer generated delinquency notice. The customer is
contacted again, by notice or telephone, when the delinquency is not promptly
cured. In most cases, delinquencies are cured promptly; however, if a loan
secured by real estate or other collateral has been delinquent for more than 60
days, a final letter is sent demanding payment and the customer is requested to
make arrangements to bring the loan current. At 90 days past due, a thirty day
foreclosure notice is sent, and if the loan is 120 days overdue, unless
satisfactory arrangements have been made, immediate repossession or foreclosure
procedures will commence.
The following table sets forth the Company's loan delinquencies by
type, by amount and by percentage of type at June 30, 1997.
<TABLE>
<CAPTION>
Loans Delinquent For:
----------------------------------------------------------- Total Delinquent
60-89 Days 90 Days and Over Loans
---------------------------- ---------------------------- ----------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family .................. 21 $1,040 .64% 9 $ 627 .38% 30 $1,667 1.02%
Commercial and
multi-family real estate ........... -- -- -- 1 46 .38 1 46 .38
Consumer ............................. 5 39 .27 3 15 .10 8 54 .37
-- ------ --- -- ------ --- -- ------ ----
Total ........................... 26 $1,079 .57 13 $ 688 .36 39 $1,767 .93
== ====== === == ====== === == ====== ====
</TABLE>
<PAGE>
The table below sets forth the amounts and categories of non-performing
assets in the Company's loan portfolio. Loans are placed on non-accrual status
when the collection of principal and/or interest become doubtful. Foreclosed
assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family ........................ $ 61 $ 34 $ 66 $ 252 $ 328
-------- -------- -------- -------- --------
Total ................................ 61 34 66 252 328
-------- -------- -------- -------- --------
Accruing loans delinquent more than 90 days:
One- to four-family ........................ 101 65 59 159 299
Commercial and multi-family real estate .... -- -- -- 48 46
Consumer ................................... 8 -- -- 4 15
-------- -------- -------- -------- --------
Total ................................ 109 65 59 211 360
-------- -------- -------- -------- --------
Foreclosed assets:
One- to four-family ........................ 62 107 93 27 55
Construction ............................... 46 14 14 14 14
Consumer ................................... -- -- -- 3 --
-------- -------- -------- -------- --------
Total ................................ 108 121 107 44 69
-------- -------- -------- -------- --------
Troubled debt restructurings ................. 1,657 1,433 -- -- --
-------- -------- -------- -------- --------
Total non-performing assets .................. $ 1,935 $ 1,653 $ 232 $ 507 $ 757
======== ======== ======== ======== ========
Total non-performing assets as a percentage of
total assets ............................... 1.19% .97% .12% .23% .31%
======== ======== ======== ======== ========
Total assets ................................. $163,060 $170,235 $186,677 $217,954 $242,518
======== ======== ======== ======== ========
</TABLE>
<PAGE>
For the year ended June 30, 1997 gross interest income which would have
been recorded had the non-accruing loans been current in accordance with their
original terms amounted to $57,000. The amount that was included in interest
income on such loans totaled $47,000.
As of June 30, 1997, except as discussed below under "Other Loans of
Concern" and "Classified Assets," there were no other loans not included in the
table above where known information about the possible credit problems of
borrowers caused management to have doubts as to the ability of the borrower to
comply with present loan repayment terms and which may result in disclosure of
such loans in the future.
Other Loans of Concern. In addition to the non-performing assets set
forth in the table above, as of June 30, 1997, there was an aggregate of
$1,079,000 in net book value of loans (21 loans aggregating $1,040,000 secured
by single family residences and 5 loans aggregating $39,000 secured by consumer
property) with respect to which known information about the possible credit
problems of the borrowers have caused management to have doubts as to the
ability of the borrowers to comply with present loan repayment terms and which
may result in the future inclusion of such items in the non-performing asset
categories. These loans have been considered in management's determination of
the adequacy of the Company's allowance for loan losses.
Classified Assets. Federal regulations provide for the classification
of loans and other assets such as debt and equity securities considered by the
OTS to be of lesser quality as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the savings institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
When a savings institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge-off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the institution's District Director at the regional OTS
office, who may order the establishment of additional general or specific loss
allowances.
In connection with the filing of its periodic reports with the OTS and
in accordance with its classification of assets policy, the Bank regularly
reviews the loans in its portfolio to determine whether any loans require
classification in accordance with applicable regulations. On the basis of
management's review of its assets, at June 30, 1997, the Bank had classified a
total of $708,000 of its assets as substandard, 46,000 as doubtful and none as
loss.
At June 30, 1997, total classified assets (including real estate
owned), totaled $754,000, or 3.5% of the Bank's capital, or .31% of the Bank's
total assets.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity, including those loans which are being specifically monitored by
management. Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters, the
loan classifications discussed above, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience, and other
factors that warrant recognition in providing for an adequate loan loss
allowance.
Real estate properties acquired through foreclosure are recorded at the
lower of cost or fair value. If fair value at the date of foreclosure is lower
than the balance of the related loan, the difference will be charged-off to the
allowance for loan losses at the time of transfer. Valuations are periodically
updated by management and if the value declines, a specific provision for losses
on such property is established by a charge to operations.
Although management believes that it uses the best information
available to determine the allowances, unforeseen market conditions could result
in adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Company's allowances will be the result
of periodic loan, property and collateral reviews and thus cannot be predicted
in advance. In addition, federal regulatory agencies, as an integral part of the
examination process periodically reviews the Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance level upon their judgment of the information available to them at the
time of their examination. At June 30, 1997, the Company had a total allowance
for loan losses of $739,000, representing 107.4% of total non-performing loans
and 97.6% of non-performing assets. See Note 3 of the Notes to Consolidated
Financial Statements.
<PAGE>
The following table sets forth an analysis of the Company's allowance
for loan losses.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period ............................. $409 $425 $454 $514 $634
Charge-offs:
Consumer ................................................. 10 -- -- -- 17
One- to four-family ...................................... 24 11 -- -- --
Multi-family ............................................. -- -- -- -- --
---- ---- ---- ---- ----
Total charge-offs .......................................... 34 11 -- -- 17
---- ---- ---- ---- ----
Recoveries:
Consumer ................................................. 3 -- -- -- 2
---- ---- ---- ---- ----
Total recoveries ........................................... 3 -- -- -- 2
---- ---- ---- ---- ----
Net charge-offs ............................................ 31 11 -- -- 15
Provisions charged to income ............................... 47 40 60 120 120
---- ---- ---- ---- ----
Balance at end of period ................................... $425 $454 $514 $634 $739
==== ==== ==== ==== ====
Ratio of net charge-offs during the period to average loans
outstanding during the period .............................. .02% .01% --% --% .01%
==== ==== ==== ==== ====
Ratio of net charge-offs during the period to average non-
performing assets .......................................... 1.21% .63% --% --% 2.69%
==== ==== ==== ==== ====
</TABLE>
<PAGE>
The distribution of the Company's allowance for loan losses at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------------ ------------------ ------------------ ------------------- -----------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family ....... $352 93.03% $366 91.76% $377 89.18% $409 86.71% $461 85.23%
Multi-family .............. 16 .85 16 .68 26 1.05 55 1.05 65 3.22
Commercial real estate .... 16 1.65 16 1.34 26 1.71 55 3.33 65 3.12
Consumer .................. 41 3.85 56 4.90 85 6.32 115 7.18 148 7.66
Unallocated ............... -- .62 -- 1.32 -- 1.74 -- 1.74 -- .77
---- ------ ---- ------ ---- ------ ---- ------ ---- ------
Total ................ $425 100.00% $454 100.00% $514 100.00% $634 100.00% $739 100.00%
==== ====== ==== ====== ==== ====== ==== ====== ==== ======
</TABLE>
<PAGE>
Investment Activities
The Bank must maintain minimum levels of investments that qualify as
liquid assets under OTS regulations. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on investments
in relation to the return on loans. Historically, the Bank has generally
maintained its liquid assets above the minimum requirements imposed by the OTS
regulations and at a level believed adequate to meet requirements of normal
daily activities, repayment of maturing debt and potential deposit outflows. As
of June 30, 1997, the Bank's liquidity ratio (liquid assets as a percentage of
net withdrawable savings deposits and current borrowings) was 7.1%. See
"Regulation - Liquidity."
Federally chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of the Company is to invest funds
among various categories of investments and maturities based upon the Company's
need for liquidity, to achieve the proper balance between its desire to minimize
risk and maximize yield, to provide collateral for borrowings, and to fulfill
the Company's asset/liability management policies.
Investment Securities. At June 30, 1997, the Company's interest-bearing
deposits in other financial institutions totaled $4.5 million or 1.8% of its
total assets, and investment securities (including a $3.0 million investment in
the common stock of the FHLB of Des Moines) totaled $16.7 million or 6.9% of its
total assets. It is the Company's general policy to purchase U.S. Government
securities and federal agency obligations, state and local government
obligations, commercial paper, short-term corporate debt securities and
overnight federal funds. The Company also has invested in mutual funds
consisting primarily of U.S. Government securities and federal agency
obligations. At June 30, 1997, the weighted average term to maturity or
repricing of the investment securities portfolio (excluding the FHLB stock and
other marketable securities) was 5.69 years.
OTS regulations restrict investments in corporate debt and equity
securities by the Bank. These restrictions include prohibitions against
investments in the debt securities of any one issuer in excess of 15% of the
Bank's unimpaired capital and unimpaired surplus as defined by federal
regulations, which totaled $2.9 million as of June 30, 1997, plus an additional
10% if the investments are fully secured by readily marketable collateral. See
"Regulation - Federal Regulation of Savings Associations" for a discussion of
additional restrictions on the Company's investment activities.
<PAGE>
The following table sets forth the composition of the Company's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------------
1995 1996 1997
-------------------- -------------------- --------------------
Carrying Percent Carrying Percent Carrying Percent
Value of Total Value of Total Value of Total
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment Securities:
U.S. government securities ...... $ 5,853 57.15% $ 799 4.98% $ -- --%
Federal agency obligations ...... 2,499 24.40 12,968 80.82 12,475 74.63
Equity securities(1) ............ 32 .31 179 1.12 1,215 7.27
------- ------ ------- ------ ------- ------
Subtotal ..................... 8,384 81.86 13,946 86.92 13,690 81.90
FHLB stock ........................ 1,857 18.14 2,100 13.08 3,025 18.10
------- ------ ------- ------ ------- ------
Total investment securities
and FHLB stock .............. $10,241 100.00% $16,046 100.00% $16,715 100.00%
======= ====== ======= ====== ======= ======
Average remaining life of
investment securities ............ 1 year 6 years 6 years
Other Interest-Earning Assets:
Interest-bearing deposits
with banks ..................... $ 269 100.00% $ 309 100.00% $ 4,468 100.00%
------- ------ ------- ------ ------- ------
Total ........................ $ 269 100.00% $ 309 100.00% $ 4,468 100.00%
======= ====== ======= ====== ======= ======
Average remaining life or term to
repricing of investment securities
and other interest-earning assets,
excluding FHLB stock ............. 1.28 years 5.26 years 5.69 years
</TABLE>
- ---------------
(1) At June 30, 1995, equity securities consisted primarily of an equity
investment in a mutual fund which contained primarily U.S. Government
securities and agency obligations. At June 30, 1996 and 1997, equity
securities consisted primarily of investments in other thrift holding
companies.
<PAGE>
The composition and maturities of the Company's investment securities
portfolio, excluding FHLB of Des Moines stock, are indicated in the following
table.
<TABLE>
<CAPTION>
June 30, 1997
------------------------------------------------------------------------------
1 Year Over 1 to 5 Over 5 to 10 Over 10 Total Investment
or less Years Years Years Securities
--------- ---------- ------------ --------- -----------------------
Carrying Carrying Carrying Carrying Amortized Market
Value Value Value Value Cost Value
-------- ---------- ------------ --------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal agency obligations...... $ 497 $4,987 $6,991 $ --- $12,444 $12,494
Equity securities............... 1,215 --- --- --- 1,047 1,215
------ ------ ------ ----- ------- -------
Total investment securities..... $1,712 $4,987 $6,991 $ --- $13,491 $13,709
====== ====== ====== ===== ======= =======
Weighted average yield.......... 1.38% 6.95% 7.75% ---% 7.00% 7.00%
</TABLE>
Except for obligations of state and local governments, the Company's
investment securities portfolio at June 30, 1997, contained neither tax-exempt
securities nor securities of any issuer with an aggregate book value in excess
of 10% of the Company's retained earnings, excluding those issued by the United
States Government, or its agencies.
Mortgage-Backed Securities. Capital Savings generally has a portfolio
of mortgage-backed securities which it holds for investment. Such
mortgage-backed securities can serve as collateral for borrowings and, through
repayments, as a source of liquidity. For information regarding the carrying and
market values of Capital Savings' mortgage-backed securities portfolio, see Note
[2] of the Notes to Consolidated Financial Statements. Under the Bank's
risk-based capital requirement, mortgage-backed securities have a risk weight of
20% (or 0% in the case of GNMA securities) in contrast to the 50% risk weight
carried by residential loans. See "- Regulation."
The following table sets forth the carrying value of the Company's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
June 30,
-------------------------------
1995 1996 1997
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Issuers:
Federal Home Loan Mortgage Corporation .... $13,703 $17,797 $14,375
Federal National Mortgage Association ..... 1,166 3,555 4,078
Government National Mortgage Association .. 3,994 6,987 4,996
------- ------- -------
Total ................................. $18,863 $28,339 $23,449
======= ======= =======
</TABLE>
<PAGE>
The following table sets forth the contractual maturities of the
Company's mortgage-backed securities at June 30, 1997. Not considered in the
preparation of the table below is the effect of prepayments, periodic principal
repayments and the adjustable-rate nature of these instruments.
<TABLE>
<CAPTION>
Due in
------------------------------------------------------------------------
After After June 30, 1997
1 Year 1 to 5 5 to 10 After 10 Balance
or less Years Years Years Outstanding
------- ------ ------- ------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation................. $ --- $2,177 $1,419 $10,779 $14,375
Federal National
Mortgage Association................. --- --- --- 4,078 4,078
Government National
Mortgage Association................. --- --- 1,009 3,987 4,996
----- ------ ------- ------- -------
Total............................. $ --- $2,177 $2,428 $18,844 $23,449
===== ====== ====== ======= =======
Weighted average yield................. --- % 6.90% 8.33% 7.23% 7.31%
</TABLE>
<PAGE>
Capital Savings' investment and mortgage-backed securities portfolios
are managed in accordance with a written investment policy adopted by the Board
of Directors of the Bank which is implemented by members of the Bank's
Investment Committee. The Investment Committee is comprised of President
Schepers and Executive Vice President Wankum.
The OTS has issued guidelines regarding management oversight and
accounting treatment for securities, including investment securities, loans,
mortgage-backed securities and derivative securities. The guidelines require
thrift institutions to reduce the carrying value of securities to the lesser of
cost or market value unless it can be demonstrated that a class of securities is
intended to be held to maturity. As of June 30, 1997, the Company held $37.1
million of mortgage-backed and investment securities, of which $28.1 million
were available for sale and the remaining balance the Company intends to hold
until maturity.
Sources of Funds
General. The Company's principal sources of funds are deposits,
borrowings, payment of principal and interest on loans and mortgage-backed
securities, interest earned on or maturation of investment securities and
short-term investments, and funds provided from operations.
Borrowings, including FHLB advances and reverse repurchase agreements,
have been used at times to compensate for seasonal reductions in deposits or
deposit inflows at less than projected levels, may be used on a longer-term
basis to support expanded lending activities, and may also be used to purchase
assets with similar repricing or maturity features.
Deposits. Capital Savings offers a variety of deposit accounts having a
wide range of interest rates and terms. The Company's deposits consist of
statement, passbook and money market savings accounts, regular checking
accounts, and certificate accounts currently ranging in terms from 91 days to 60
months. The Company only solicits deposits from its market area and does not use
brokers to obtain deposits. The Company relies primarily on competitive pricing
policies, advertising and customer service to attract and retain these deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition.
The variety of deposit accounts offered by the Company has allowed it
to be competitive in obtaining funds and to respond with flexibility to changes
in consumer demand. The Company has become more susceptible to short-term
fluctuations in deposit flows, as customers have become more interest rate
conscious. The Company endeavors to manage the pricing of its deposits in
keeping with its asset/liability management, liquidity and profitability
objectives. Based on its experience, the Company believes that its statement,
passbook and money market savings accounts and regular checking accounts are
relatively stable sources of deposits. However, the ability of the Company to
attract and maintain certificates of deposit and the rates paid on these
deposits has been and will continue to be significantly affected by market
conditions.
<PAGE>
The following table sets forth the savings flows at the Company during
the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------
1995 1996 1997
--------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Opening balance ................ $ 143,053 $ 145,688 $ 152,345
Deposits ....................... 95,983 107,376 162,784
Withdrawals .................... (97,358) (105,733) (149,768)
Interest credited .............. 4,010 5,014 5,678
--------- --------- ---------
Ending balance ................. $ 145,688 $ 152,345 $ 171,039
========= ========= =========
Net increase (decrease) ........ $ 2,635 $ 6,657 $ 18,694
========= ========= =========
Percent increase (decrease) .... 1.84% 4.57% 12.27%
========= ========= =========
</TABLE>
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by the Company for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------------
1995 1996 1997
---------------------- ----------------------- ----------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction and Savings Deposits(1):
Savings Accounts (2.71%) .................... $ 16,957 11.64% $ 16,928 11.11% $ 17,808 10.41%
Checking Accounts (1.55%) ................... 10,113 6.94 11,804 7.75 17,719 10.36
Money Market Accounts (3.97%) ............... 7,229 4.96 7,299 4.79 11,438 6.69
-------- ------ -------- ------ -------- ------
Total Non-Certificates ...................... 34,299 23.54 36,031 23.65 46,965 27.46
-------- ------ -------- ------ -------- ------
Certificates:
0.00 - 3.99% ................................ 712 .49 219 .14 76 .04
4.00 - 5.99% ................................ 87,435 60.02 89,432 58.71 103,976 60.79
6.00 - 7.99% ................................ 23,002 15.79 26,636 17.48 20,022 11.71
8.00 - 9.99% ................................ 240 .16 27 .02 -- --
-------- ------ -------- ------ -------- ------
Total Certificates ..................... 111,389 76.46 116,314 76.35 124,074 72.54
-------- ------ -------- ------ -------- ------
Total Deposits ......................... $145,688 100.00% $152,345 100.00% $171,039 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
- ---------------
(1) Rates shown are at June 30, 1997.
<PAGE>
The following table shows rate and maturity information for the
Company's certificates of deposit as of June 30, 1997.
<TABLE>
<CAPTION>
0.00- 4.00- 6.00- 8.00- Percent
3.99% 5.99% 7.99% 9.99% Total of Total
----- -------- ------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts maturing
in quarter ending:
September 30, 1997...................... $ 25 $ 28,465 $ 5,391 $ --- $ 33,881 27.31%
December 31, 1997....................... 51 20,161 3,858 --- 24,070 19.40
March 31, 1998.......................... --- 16,552 2,412 --- 18,964 15.28
June 30, 1998........................... --- 14,413 1,693 --- 16,106 12.98
September 30, 1998...................... --- 7,788 1,076 --- 8,864 7.14
December 31, 1998....................... --- 4,029 731 --- 4,760 3.84
March 31, 1999.......................... --- 2,882 130 --- 3,012 2.43
June 30, 1999........................... --- 2,452 290 --- 2,742 2.21
September 30, 1999...................... --- 1,141 547 --- 1,688 1.36
December 31, 1999....................... --- 1,576 633 --- 2,209 1.78
March 31, 2000.......................... --- 998 621 --- 1,619 1.30
June 30, 2000........................... --- 898 941 --- 1,839 1.48
Thereafter.............................. --- 2,621 1,699 --- 4,320 3.48%
----- -------- ------- -------- -------- ------
Total.............................. $ 76 $103,976 $20,022 $ --- $124,074 100.00%
===== ======== ======= ======== ======== ======
Percent of total................... 0.06% 83.80% 16.14% 0.00%
==== ===== ===== ====
</TABLE>
<PAGE>
The following table indicates the amount of the Company's certificates
of deposit and other deposits by time remaining until maturity as of June 30,
1997.
<TABLE>
<CAPTION>
Maturity
---------------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Certificates of deposit less
than $100,000.............................. $31,226 $20,816 $29,062 $29,450 $110,554
Certificates of deposit of
$100,000 or more (1)....................... 2,112 3,406 6,044 1,958 13,520
------- ------- ------- ------- --------
Total certificates of deposit.............. $33,338 $24,222 $35,106 $31,408 $124,074
======= ======= ======= ======= ========
</TABLE>
- ---------------
(1) Deposits from governmental and other public entities totaled $6.9
million at June 30, 1997.
<PAGE>
Borrowings. Although deposits are the Company's primary source of
funds, the Company's policy has been to utilize borrowings when they are a less
costly source of funds, can be invested at a positive interest rate spread or
when the Company desires additional capacity to fund loan demand.
Capital Savings' borrowings historically have consisted of advances
from the FHLB of Des Moines. Such advances can be made pursuant to several
different credit programs, each of which has its own interest rate and range of
maturities. At June 30, 1997, the Company had $46.5 million of advances.
From time to time, Capital Savings has entered into reverse repurchase
agreements. These agreements are accounted for as borrowings by the Company and
are secured by certain of the Company's investment and mortgage-backed
securities. The lender takes possession of the securities during the period that
the reverse repurchase agreement is outstanding. The terms of the agreements
have typically ranged from 30 days to a maximum of 90 days. The proceeds of
these transactions are used to meet cash flow needs of the Company. At June 30,
1997, the Company had no repurchase agreements outstanding.
The following table sets forth the maximum month-end balance and
average balance of borrowings, consisting solely of FHLB advances, for the
periods indicated. See Note 8 of the Notes to Consolidated Financial Statements
for additional information on borrowed funds.
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------
1995 1996 1997
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Maximum Balance:
FHLB advances ............. $18,500 $42,000 $53,000
Average Balance:
FHLB advances ............. $11,513 $22,656 $49,125
</TABLE>
The following table sets forth certain information as to the Company's
borrowings, consisting of solely FHLB advances, at the dates indicated.
<TABLE>
<CAPTION>
June 30,
------------------------------------------
1995 1996 1997
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
FHLB advances ................................................ $18,500 $42,000 $46,500
======= ======= =======
Weighted average interest rate of FHLB advances............... 6.50% 5.65% 5.68%
</TABLE>
<PAGE>
Subsidiary Activities
As a federally chartered savings bank, the Bank is permitted by OTS
regulations to invest up to 2% of its assets, or $4.9 million at June 30, 1997,
in the stock of, or loans to service corporation subsidiaries. As of such date,
the net book value of the Banks' investment in its service corporation was
approximately $1.4 million. The Bank may invest an additional 1% of its assets
in service corporations where such additional funds are used for inner-city or
community development purposes and up to 50% of its total capital in conforming
loans to service corporations in which it owns more than 10% of the capital
stock. In addition to investments in service corporations, federal associations
are permitted to invest an unlimited amount in operating subsidiaries engaged
solely in activities which a federal association may engage in directly.
The Bank organized a single service corporation in 1971, which was
known as CEMO Service Corporation ("CEMO"). CEMO had a wholly-owned subsidiary,
Capital Savings Financial Services, Inc. ("CSFS") through which it offered
mutual funds, annuity and brokerage services through a registered broker-dealer
to the Company's customers and members of the general public. In July 1994, CSFS
was merged into CEMO and CEMO changed its name to Capital Savings Financial
Services, Inc. CSFS recognized net income of $29,000 during fiscal 1997.
Regulation
General. The Bank is a federally chartered savings bank, the deposits
of which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, the Bank is subject to broad federal
regulation and oversight extending to all its operations. The Bank is a member
of the FHLB of Des Moines and is subject to certain limited regulation by the
Board of Governors of the Federal Reserve System ("Federal Reserve Board"). As
the savings and loan holding company of the Bank, Capital Savings Bancorp, Inc.
also is subject to federal regulation and oversight. The purpose of the
regulation of the Company and other holding companies is to protect subsidiary
savings associations. The Bank is a member of the Savings Association Insurance
Fund ("SAIF"), which together with the Bank Insurance Fund (the "BIF") are the
two deposit insurance funds administered by the FDIC, and the deposits of the
Bank are insured by the FDIC. As a result, the FDIC has certain regulatory and
examination authority over Capital Savings.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations. The OTS has extensive
authority over the operations of savings associations. As part of this
authority, Capital Savings is required to file periodic reports with the OTS and
is subject to periodic examinations by the OTS. When these examinations are
conducted by the OTS, the examiners may require the Bank to provide for higher
general or specific loan loss reserves. The last regular OTS examination of the
Bank was as of March 18, 1996. All savings associations are subject to a
semi-annual assessment, based upon the savings association's total assets, to
fund the operations of the OTS. The Bank's OTS assessment for the fiscal year
ended June 30, 1997, was $62,340.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Company and the Bank.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of the
Bank is prescribed by federal laws and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. At June 30, 1997, the Bank was in compliance with the
noted restrictions.
The Bank's general permissible lending limit for loans-to-one-borrower
is equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
June 30, 1997, the Bank's lending limit under this restriction was approximately
$2.9 million. The Bank is in compliance with the loans-to-one-borrower
limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. A failure to submit a plan or to comply
with an approved plan will subject the institution to further enforcement
action.
Insurance of Accounts and Regulation by the FDIC. The Bank is a member
of the SAIF, which is administered by the FDIC. Deposits are insured up to
applicable limits by the FDIC and such insurance is backed by the full faith and
credit of the United States Government. As insurer, the FDIC imposes deposit
insurance premiums and is authorized to conduct examinations of and to require
reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation or
order to pose a serious risk to the SAIF or the BIF. The FDIC also has the
authority to initiate enforcement actions against savings associations, after
giving the OTS an opportunity to take such action, and may terminate the deposit
insurance if it determines that the institution has engaged in unsafe or unsound
practices or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core and Tier 1 risk-based capital ratios of less than 4% or
a risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC semi-annually.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
As is the case with the SAIF, the FDIC is authorized to adjust the
insurance premium rates for banks that are insured by the BIF of the FDIC in
order to maintain the reserve ratio of the BIF at 1.25% of BIF insured deposits.
As a result of the BIF reaching its statutory reserve ratio the FDIC revised the
premium schedule for BIF insured institutions to provide a range of .04% to .31%
of deposits. The revisions became effective in the third quarter of 1995. In
addition, the BIF rates were further revised, effective January 1996, to provide
a range of 0% to .27%. The SAIF rates, however, were not adjusted. At the time
the FDIC revised the BIF premium schedule, it noted that, absent legislative
action (as discussed below), the SAIF would not attain its designated reserve
ratio until the year 2002. As a result, SAIF insured members would continue to
be generally subject to higher deposit insurance premiums than BIF insured
institutions until, all things being equal, the SAIF attained its required
reserve ratio.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provides for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provides for the merger of the BIF and the SAIF on January 1, 1999
if no savings associations then exist. The special assessment rate has been
established at .657% of deposits by the FDIC and the resulting assessment of
$959,000 was paid in November 1996. This special assessment significantly
increased noninterest expense and adversely affected Company's and the Bank's
results of operations for the year ended June 30, 1997. As a result of the
special assessment, Bank's deposit insurance premiums was reduced to zero based
upon its current risk classification and the new assessment schedule for SAIF
insured institutions. These premiums are subject to change in future periods.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, effective October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing obligation. Although the legislation also now
requires assessments to be made on BIF-assessable deposits for this purpose,
effective January 1, 1997, that assessment will be limited to 20% of the rate
imposed on SAIF assessable deposits until the earlier of December 31, 1999 or
when no savings association continues to exist, thereby imposing a greater
burden on SAIF member institutions such as the Bank. Thereafter, however,
assessments on BIF- member institutions will be made on the same basis as
SAIF-member institutions. The rates to be established by the FDIC to implement
this requirement for all FDIC-insured institutions is uncertain at this time,
but are anticipated to be about a 6.5 basis points assessment on SAIF deposits
and 1.5 basis points on BIF deposits until BIF insured institutions participate
fully in the assessment.
Regulatory Capital Requirements. Federally insured savings
associations, such as the Bank, are required to maintain a minimum level of
regulatory capital. The OTS has established capital standards, including a
tangible capital requirement, a leverage ratio (or core capital) requirement and
a risk-based capital requirement applicable to such savings associations. These
capital requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a case
by case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. At June 30, 1997, the Bank did not have any intangible assets.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital. All of the subsidiaries of the Bank are includable
subsidiaries.
At June 30, 1997, the Bank had tangible capital of $19.0 million, or
7.9% of adjusted total assets, which is approximately $15.4 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At June 30, 1997, the Bank
had no intangibles which were subject to these tests.
At June 30, 1997, the Bank had core capital equal to $19.0 million, or
7.9% of adjusted total assets, which is $11.8 million above the minimum leverage
ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At June 30, 1997, the Bank had no
capital instruments that qualify as supplementary capital and $739,000 of
general loss reserves, which was less than 1.0% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. The Bank did not have any
exclusions from capital and assets at June 30, 1997.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.
OTS regulations also require that every savings association with more
than normal interest rate risk exposure to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings association, greater than 2% of the present value of its
assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule will not become effective until the OTS
evaluates the process by which savings associations may appeal an interest rate
risk deduction determination. It is uncertain as to when this evaluation may be
completed. Any savings association with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement unless the
OTS determines otherwise.
At June 30, 1997, the Bank had total capital of $19.8 million
(including $19.0 million in core capital and $739,000 in allowance for loan
losses) and risk-weighted assets of $119.1 million (no converted off-balance
sheet assets were included); or total capital of 16.6% of risk-weighted assets.
This amount was $10.3 million above the 8.0% requirement in effect on that date.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1 risk-based
capital ratio or an 8% risked-based capital ratio). Any such association must
submit a capital restoration plan and until such plan is approved by the OTS may
not increase its assets, acquire another institution, establish a branch or
engage in any new activities, and generally may not make capital distributions.
The OTS is authorized to impose the additional restrictions that are applicable
to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the
Bank or the Company may have a substantial adverse effect on the Company's
operations and profitability. Company shareholders do not have preemptive
rights, and therefore, if the Company is directed by the OTS or the FDIC to
issue additional shares of Common Stock, such issuance may result in the
dilution in the percentage of ownership of the Company.
Limitations on Dividends and Other Capital Distributions. OTS
regulations impose various restrictions on savings associations with respect to
their ability to make distributions of capital, which include dividends, stock
redemptions or repurchases, cash-out mergers and other transactions charged to
the capital account. OTS regulations also prohibit a savings association from
declaring or paying any dividends or from repurchasing any of its stock if, as a
result, the regulatory capital of the association would be reduced below the
amount required to be maintained for the liquidation account established in
connection with its mutual to stock conversion.
Generally, savings associations, such as the Bank, that before and
after the proposed distribution meet their capital requirements, may make
capital distributions during any calendar year equal to the greater of 100% of
net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of their net income for the most recent four quarter
period. However, an association deemed to be in need of more than normal
supervision by the OTS may have its dividend authority restricted by the OTS.
The Bank may pay dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such distribution.
Savings associations that do not, or would not meet their current minimum
capital requirements following a proposed capital distribution, however, must
obtain OTS approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period notice based on safety and soundness
concerns. See "Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association may make a
capital distribution without notice to the OTS (unless it is a subsidiary of a
holding company) provided that it has a CAMEL 1 or 2 rating, is not of
supervisory concern, and would remain adequately capitalized (as defined in the
OTS prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
the OTS 30 days prior to declaring a capital distribution. The OTS stated it
will generally regard as permissible that amount of capital distributions that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity. All savings associations, including the Bank, are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. This liquid asset ratio
requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings associations. At the
present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At June 30, 1997, the Bank was in compliance with both
requirements, with an overall liquid asset ratio of 7.1% and a short-term liquid
assets ratio of 3.5%.
Accounting. An OTS policy statement applicable to all savings
associations clarifies and re-emphasizes that the investment activities of a
savings association must be in compliance with approved and documented
investment policies and strategies, and must be accounted for in accordance with
GAAP. Under the policy statement, management must support its classification of
and accounting for loans and securities (i.e., whether held for investment, sale
or trading) with appropriate documentation. The Company is in compliance with
these amended rules.
OTS accounting regulations, which may be made more stringent than GAAP
by the OTS, require that transactions be reported in a manner that best reflects
their underlying economic substance and inherent risk and that financial reports
must incorporate any other accounting regulations or orders prescribed by the
OTS.
Qualified Thrift Lender Test. All savings associations, including the
Bank, are required to meet a qualified thrift lender ("QTL") test to avoid
certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. As an alternative, the savings association
may maintain 60% of its assets in those assets specified in Section 7701(a)(19)
of the Internal Revenue Code of 1986, as amended (the "Code"). Under either
test, such assets primarily consist of residential housing related loans and
investments. At June 30, 1997, the Bank met the test and has always met the test
since its effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), every FDIC insured institution has a continuing and affirmative
obligation consistent with safe and sound banking practices to help meet the
credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with the examination of the Bank, to assess the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications, such as a
merger or the establishment of a branch, by the Bank. An unsatisfactory rating
may be used as the basis for the denial of an application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, the Bank may be required to devote additional funds for
investment and lending in its local community. The Bank was examined for CRA
compliance in April 1996 and received a rating of "satisfactory."
Transactions with Affiliates. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on terms
as favorable to the association as transactions with non-affiliates. In
addition, certain of these transactions, such as loans to an affiliate, are
restricted to a percentage of the association's capital. Affiliates of the Bank
include the Company and any company which is under common control with the
Company or the Bank. In addition, a savings association may not lend to any
affiliate engaged in activities not permissible for a bank holding company or
acquire the securities of most affiliates. The Bank's subsidiaries are not
deemed affiliates; however, the OTS has the discretion to treat subsidiaries of
savings associations as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Holding Company Regulation. Capital Savings is a unitary savings and
loan holding company subject to regulatory oversight by the OTS. As such,
Capital Savings is required to register and file reports with the OTS and is
subject to regulation and examination by the OTS. In addition, the OTS has
enforcement authority over the Company and its non-savings association
subsidiaries which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, Capital Savings
generally is not subject to activity restrictions. If the Company acquires
control of another savings association as a separate subsidiary, it would become
a multiple savings and loan holding company, and the activities of the Company
and any of its subsidiaries (other than the Bank or any other SAIF-insured
savings association) would become subject to such restrictions unless such other
associations each qualify as a QTL and were acquired in a supervisory
acquisition.
If the Bank fails the QTL test, Capital Savings must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Company must register as, and will become
subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "--Qualified Thrift Lender Test."
Capital Savings must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law. The stock of Capital Savings is registered with
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company is subject to the information, proxy solicitation, insider
trading restrictions and other requirements of the SEC under the Exchange Act.
Capital Savings stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Company may not be resold
without registration or unless sold in accordance with certain resale
restrictions. If the Company meets specified current public information
requirements, each affiliate of the Company is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At June 30, 1997, the Bank was in compliance with these
reserve requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve Board may be used to satisfy liquidity
requirements that may be imposed by the OTS. See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System. The Bank is a member of the FHLB of Des
Moines, which is one of 12 regional FHLBs that administers the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the board of directors of the FHLB, which are
subject to the oversight of the Federal Housing Finance Board. All advances from
the FHLB are required to be fully secured by sufficient collateral as determined
by the FHLB. In addition, all long-term advances are required to provide funds
for residential home financing.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Des Moines. At June 30, 1997, the Bank had $3.0 million in FHLB stock,
which was in compliance with this requirement. In past years, the Bank has
received substantial dividends on its FHLB stock. Over the past five calendar
years such dividends have averaged 7.93% and were 7.0% for the first two
quarters of calendar 1997.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
Federal and State Taxation
Federal Taxation. Savings associations such as the Bank that met
certain definitional tests relating to the composition of assets and other
conditions prescribed by the Code, had been permitted to establish reserves for
bad debts and to make annual additions thereto which may, within specified
formula limits, be taken as a deduction in computing taxable income for federal
income tax purposes. The amount of the bad debt reserve deduction for
"non-qualifying loans" was computed under the experience method. The amount of
the bad debt reserve deduction for "qualifying real property loans" (generally
loans secured by improved real estate) was computed under either the experience
method or the percentage of taxable income method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an
amount determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.
The percentage of specially computed taxable income that was used to
compute a savings association's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") was 8%. The
percentage bad debt deduction thus computed was reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permitted qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction).
Under the percentage of taxable income method, the percentage bad debt
deduction could not exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equaled the amount by
which 12% of the amount comprising savings accounts at year-end exceeded the sum
of surplus, undivided profits and reserves at the beginning of the year.
In August 1996, legislation was enacted that repealed the reserve
method of accounting (including the percentage of taxable income method) used by
many thrift to calculate their bad debt reserve for federal income tax purposes.
Thrift institutions with $500 million or less in assets may, however, continue
to use the experience method. As a result, the Bank must recapture that portion
of the reserve that exceeds the amount that could have been taken under the
experience method for post-1987 tax years. At June 30, 1997, the Bank's
post-1987 excess reserves amounted to approximately $553,000. The recapture will
occur over a six-year period, the commencement of which will be delayed until
the first taxable year beginning after December 31, 1997, provided the
institution meets certain residential lending requirements. The Bank did not
meet these requirements for the year ended June 30, 1997, and recaptured
one-sixth of the excess reserves. The legislation also requires thrift
institutions to account for bad debts for federal income tax purposes on the
same basis as commercial banks for tax years beginning after December 31, 1995.
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings associations such as
the Bank, are also subject to an environmental tax equal to 0.12% of the excess
of alternative minimum taxable income for the taxable year (determined without
regard to net operating losses and the deduction for the environmental tax) over
$2.0 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of June 30, 1997, the Bank's Excess for tax purposes totaled
approximately $624,000.
The Company and its subsidiaries file consolidated federal income tax
returns on a fiscal year basis using the accrual method of accounting. Savings
associations, such as the Bank, that file federal income tax returns as part of
a consolidated group are required by applicable Treasury regulations to reduce
their taxable income for purposes of computing the percentage bad debt deduction
for losses attributable to activities of the non-savings association members of
the consolidated group that are functionally related to the activities of the
savings association member.
The tax returns of the Bank and its subsidiary have been audited by the
IRS for the years ended June 30, 1988, 1989 and 1990 and have executed a closing
agreement with the IRS with respect to these periods. The Company's tax returns
have never been audited by the IRS. In the opinion of management, any
examination of still open returns (including returns of subsidiaries and
predecessors of, or entities merged into, the Company) would not result in a
deficiency which could have a material adverse effect on the financial condition
of the Company and its consolidated subsidiaries.
Missouri Taxation. Missouri-based thrift institutions, such as the
Bank, are subject to a special financial institutions tax, based on net income
without regard to net operating loss carryforwards, at the rate of 7% of net
income. This tax is in lieu of all other state taxes on thrift institutions, on
their property, capital or income, except taxes on tangible personal property
owned by the Bank and on real estate, contributions paid pursuant to the
Unemployment Compensation law of Missouri, social security taxes, sales taxes
and use taxes. In addition, the Bank is entitled to credit against this tax all
taxes paid to the State of Missouri or any political subdivision except taxes on
tangible personal property owned by the Bank and held for lease of rental to
others and on real estate, contributions paid pursuant to the Unemployment
Compensation Law of Missouri, social security taxes, sales and use taxes, and
taxes imposed by the Missouri Financial Institutions Tax Law. Missouri thrift
institutions are not subject to the regular state corporate income tax.
Delaware Taxation. As a Delaware holding company, the Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Company is also
subject to an annual franchise tax imposed by the State of Delaware.
Competition
Capital Savings faces strong competition, both in originating real
estate and other loans and in attracting deposits. Competition in originating
real estate loans comes primarily from other commercial banks, savings
associations, mortgage brokers and credit unions making loans secured by real
estate located in the Company's market area. Commercial banks, credit unions and
finance companies provide vigorous competition in consumer lending. The Company
competes for real estate and other loans principally on the basis of the quality
of services it provides to borrowers, interest rates and loan fees it charges,
and the types of loans it originates.
The Company attracts all of its deposits through its branch and limited
service offices, primarily from the communities in which those offices are
located; therefore, competition for those deposits is principally from other
commercial banks, savings associations, credit unions and brokerage firms
located in the same communities. The Company competes for these deposits by
offering a variety of deposit accounts at competitive rates, convenient business
hours and branch locations with interbranch deposit and withdrawal privileges.
The Company primarily serves all or a portion of Boone, Callaway,
Camden, Cole, Crawford, Franklin, Gasconade, Maries, Miller, Moniteau, Morgan,
Osage, Phelps and Pulaski counties in Missouri. There are 35 commercial banks, 7
savings institutions, other than Capital Savings, and 15 credit unions which
compete for deposits and loans in Capital Savings' primary
market area.
Employees
At June 30, 1997, the Company and its subsidiary had a total of 83
employees, including six part-time employees. The Company's employees are not
represented by any collective bargaining group. Management considers its
employee relations to be good.
Executive Officers of the Company and the Bank Who Are Not Directors
The following information as to the business experience during the past
five years is supplied with respect to executive officers of the Company and the
Bank who do not serve on either the Company's or the Bank's Board of Directors.
There are no arrangements or understandings between the persons named and any
other person pursuant to which such officers were selected.
Charles Wm. Clark - Mr. Clark, Age 54, is the Bank's Senior Vice
President - Savings and Deposits. Mr. Clark is primarily responsible for the
supervision and operation of Capital Savings' deposit operations. Mr. Clark
joined Capital Savings in 1970 as a Vice President. In 1986 he became head of
savings and deposits, and was appointed Senior Vice President in 1992. In
addition, Mr. Clark serves as a Director of CSFS.
Shannon C. Britt - Mr. Britt, Age 38, serves as Vice President -
Lending Operations, and is responsible for the overall administration of lending
services offered by the Bank, including compliance with lending policies and
regulations, development of loan programs, underwriting of loans and
collections. Mr. Britt joined Capital Savings in 1990 as Internal
Auditor/Compliance Officer and was appointed Vice President in 1992. Prior to
joining Capital Savings, Mr. Britt had served as a lending officer with another
Missouri financial institution since 1983. Mr. Britt received a B.S. in Business
Administration degree from Southeast Missouri State University.
Item 2. Description of Property
The Company conducts its business at its main office and two
supermarket branches in Jefferson City, Missouri, and five other locations in
its primary market area. In addition, the Company maintains one limited service
agency office in its primary market area.
The Company owns its main office and four of its branch offices; the
remaining three branch offices and the limited service agency office are leased.
The total net book value of the Company's premises and equipment (including
land, building and leasehold improvements and furniture, fixtures and equipment)
at June 30, 1997 was $2.2 million. See Note 6 of Notes to Consolidated Financial
Statements.
Capital Savings will continue to expand and improve its current
facilities as needed. During April 1997, the Bank opened its second supermarket
branch facility in Jefferson City, Missouri. Management believes that these
supermarket branch offices are an effective way to service its customers due to
their size, efficiency and convenient high traffic locations.
The Company maintains an on-line data base with a service bureau
servicing financial institutions. The net book value of the data processing and
computer equipment utilized by the Company at June 30, 1997 was $127,000.
Item 3. Legal Proceedings
Capital Savings is involved, from time to time, as plaintiff or
defendant in various legal actions arising in the normal course of their
businesses. While the ultimate outcome of these proceedings cannot be predicted
with certainty, it is the opinion of management, after consultation with counsel
representing Capital Savings in the proceedings, that the resolution of these
proceedings should not have a material effect on Capital Savings's results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended June 30, 1997.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Page 41 of the attached 1997 Annual Report to Stockholders is
incorporated herein by reference.
Item 6. Management's Discussion and of Operation
Pages 4 through 14 of the attached 1997 Annual Report to Stockholders
are incorporated herein by reference.
Item 7. Financial Statements
The following information appearing in the Company's Annual Report to
Stockholders is incorporated herein by reference.
Annual Report Section Pages in Annual Report
- --------------------- ----------------------
Independent Accountants' Report 15
Consolidated Statements of Financial Condition as of 16
June 30, 1996 and 1997
Consolidated Statements of Income for Years Ended 17
June 30, 1995, 1996 and 1997
Consolidated Statements of Changes in Stockholders' Equity 18-19
for Years Ended June 30, 1995, 1996 and 1997
Consolidated Statements of Cash Flows for Years Ended 20-21
June 30, 1995, 1996 and 1997
Notes to Consolidated Financial Statements 22-40
With the exception of the aforementioned information, the Company's
Annual Report to Stockholders for the year ended June 30, 1997, is not deemed
filed as part of this Annual Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors
Information concerning Directors of the Company is incorporated herein
by reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in October 1997, a copy of which will be filed not later
than 120 days after the close of the fiscal year.
Executive Officers
Information regarding the business experience of the executive officers
of the Company and the Bank who are not directors is contained in Part I of this
Form 10-KSB and incorporated herein by reference.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal years ended June 30, 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10 percent beneficial owners were complied with.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in October 1997, a copy of which will be filed not later
than 120 days after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in October 1997, a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
Item 12. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
is incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in October 1997, a copy of which will
be filed not later than 120 days after the close of the fiscal year.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index to Exhibits
(b) Reports on Form 8-K: No reports on Form 8-K were filed
during the three-month period ended June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAPITAL SAVINGS BANCORP, INC.
Date: September 25, 1997 By: /s/ Larry V. Schepers
------------------ -----------------------------------------
Larry V. Schepers, Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Larry V. Schepers /s/ Frank A. Sloan
- ----------------------------------------- -------------------------------
Larry V. Schepers, Chairman of the Board, Frank A. Sloan, Director
President and Chief Executive Officer
(Principal Executive Officer)
Date: September 25, 1997 Date: September 25, 1997
------------------ ------------------
/s/ Ralph J. Kalberloh /s/ Wayne R. Walquist
- ----------------------------------------- -------------------------------
Ralph J. Kalberloh, Director Wayne R. Walquist, Director
Date: September 25, 1997 Date: September 25, 1997
------------------ ------------------
/s/ Arthur F. Wankum /s/ Joseph E. Forck
- ----------------------------------------- -------------------------------
Arthur F. Wankum, Director, Executive Vice Joseph E. Forck, Director and
President and Chief Financial Officer Senior Vice President
(Principal Financial and Accounting Officer)
Date: September 25, 1997 Date: September 25, 1997
------------------ ------------------
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Document
------ --------
3 The Articles of Incorporation and Bylaws, filed on September 24,
1993 as exhibits 3.1 and 3.2, respectively, to Registrant's
Registration Statement on Form S-1 (File No. 33-69372), are
incorporated herein by reference.
4 Registrant's Specimen Stock Certificate, filed on September 24, 1993
as Exhibit 4 to Registrant's Registration Statement on Form S-1
(File No. 33-69372), is incorporated herein by reference.
10.1 Employment Agreements between the Bank and Larry V. Schepers, filed
on September 24, 1993 as Exhibit 10.2 to Registrant's Registration
Statement on Form S-1 (File No. 33-69372), is incorporated herein by
reference.
10.2 Registrant's Employee Stock Ownership Plan, filed on September 24,
1993 as Exhibit 10.3 to Registrant's Registration Statement on Form
S-1 (File No. 33-69372), is incorporated herein by reference.
10.3 Registrant's 1994 Stock Option and Incentive Plan, filed on
September 24, 1993 as Exhibit 10.1 to Registrant's Registration
Statement on Form S-1 (File No. 33-69372), is incorporated herein by
reference.
10.4 Registrant's Recognition and Retention Plan, filed on September 24,
1993 as Exhibit 10.4 to Registrant's Registration Statement on Form
S-1 (File No. 33-69372), is incorporated herein by reference.
10.5 Registrant's Executive Salary Continuation Agreement, filed as
Exhibit 10.4 to Registrant's Report on Form 10-KSB for the fiscal
year ended June 30, 1995 (File No. 0-22656), are incorporated herein
by reference.
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Accountants
27 Financial Data Schedule (electronic filing only)
Exhibit 13
Annual Report to Security Holders
<PAGE>
1997 ANNUAL REPORT
CAPITAL SAVINGS
BANCORP, INC.
<PAGE>
TABLE OF CONTENTS
President's Message................................................. 1
Selected Consolidated Financial Information......................... 2
Management's Discussion and Analysis of Financial
Condition and Results of Operation................................ 5
Consolidated Financial Statements................................... 20
Stockholder Information............................................. 55
Corporate Information............................................... 57
<PAGE>
FROM YOUR PRESIDENT
September 23, 1997
Dear Fellow Shareholders:
On behalf of the Board of Directors and management of Capital Savings
Bancorp, Inc. and its subsidiary Capital Savings Bank, FSB, we are pleased to
share with you the results of the Company's performance for the fiscal year
ended June 30, 1997.
The Company experienced significant increases in both earnings and
asset growth. Net income for the twelve months ended June 30, 1997 was $1.6
million or $.82 per share. This included the impact of the one-time assessment
to recapitalize the Savings Association Insurance Fund. Excluding the special
assessment, net income for the twelve months would have been $2.1 million or
$1.13 per share, as compared to $1.9 million or $.94 per share for the same
period in 1996, a 21.3% increase in earnings per share.
Total assets increased $24.5 million to $242.5 million at June 30,
1997, an 11.2% increase. The growth in assets was attributable primarily to a
14.2% or $23.6 million increase in the loan portfolio. This growth was funded by
an $18.7 million or 12.3% increase in deposits and a $4.5 million or 10.7%
increase in Federal Home Loan Bank advances.
Our totally free checking account program produced tremendous results
this past year, with an increase of over 6,000 new accounts and $5.9 million in
checking account deposits. In April of this year we also opened our second
supermarket branch, offering convenient banking services to our customers seven
days-a-week.
Our Board and management team remains committed to the continued growth
of the Company, the enhancement of banking services for our customers, and an
increase in value to you, our shareholder.
Thank you for your continued confidence in Capital Savings Bancorp,
Inc.
Sincerely,
/s/Larry V. Schepers
- --------------------
Larry V. Schepers
Chairman of the Board and President
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
At June 30,
---------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(In Thousands)
Selected Financial Condition Data:
<S> <C> <C> <C> <C> <C>
Total assets......................................... $163,060 $170,235 $186,677 $217,954 $242,518
Loans receivable, net................................ 130,735 134,881 151,843 166,623 190,203
Mortgage-backed securities........................... 15,408 12,932 18,863 28,339(1) 23,449(1)
Investment securities................................ 4,481 15,219 10,241(2) 16,046(2) 16,715(2)
Deposits............................................. 151,382 143,054 145,688 152,345 171,039
Total borrowings..................................... 1,000 5,200 18,500 42,000 46,500
Stockholders' equity................................. 8,207 19,604 19,697 20,481 21,340
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(In Thousands, Except Per Share Data)
Selected Operations Data:
<S> <C> <C> <C> <C> <C>
Total interest income................................ $12,463 $11,138 $12,737 $14,996 $17,727
Total interest expense............................... 7,109 5,673 6,562 8,445 10,365
------- ------- ------- ------- -------
Net interest income................................ 5,354 5,465 6,175 6,551 7,362
Provision for loan losses............................ 48 40 60 120 120
------- ------- ------- ------- -------
Net interest income after provision
for loan losses................................... 5,306 5,425 6,115 6,431 7,242
------- ------- ------- ------- -------
Loan servicing fees and service charges............. 174 172 177 189 197
Income (Loss) from real estate owned held for sale... 425 140 7 29 (2)
Other noninterest income............................. 481 415 596 611 1,040
------- ------- ------- ------- -------
Total noninterest income........................... 1,080 727 780 829 1,235
------- ------- ------- ------- -------
Total noninterest expense and income taxes........... 4,202 4,380 5,113 5,400 6,927
------- ------- ------- ------- -------
Net income......................................... $ 2,184 $ 1,772 $ 1,782 $ 1,860 $ 1,550
======= ======= ======= ======= =======
Earnings Per Share................................... n/a n/a $ 0.85(3) $ 0.94(3) $ 0.82(3,4)
Dividends Per Share.................................. n/a n/a $ .15(3) $ .17(3) $ .23(3)
- 2 -
<PAGE>
(1) At June 30, 1996 and 1997, all mortgage-backed securities were
classified as available-for-sale. For all other dates presented all
mortgage-backed securities were classified as held-to-maturity. See Note 2 of
the Notes to Consolidated Financial Statements contained herein.
(2) Includes $5.9 million, $2.0 million and $4.7 million of investment
securities classified as available-for-sale at June 30, 1995, 1996, and 1997,
respectively. For the other dates presented all investment securities were
classified as held-to-maturity. See Note 2 of the Notes to Consolidated
Financial Statements contained herein.
(3) Earnings Per Share and Dividends Per Share are presented to reflect the
2-for-1 stock split, effective in the form of a 100% stock dividend, completed
November 22, 1996.
(4) Excluding the one-time Savings Association Insurance Fund ("SAIF")
assessment, earnings per share would have been $1.13. See Note 16 of the Notes
to Consolidated Financial Statements contained herein.
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Selected Financial Ratios and Other Data:
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on assets (ratio of net income
to average total assets)..................................... 1.33% 1.07% 1.00% .94% .67%(1)
Interest rate spread information:
Average during period....................................... 3.27 3.10 2.96 2.85 2.94
End of period............................................... 3.24 3.17 2.81 2.89 2.88
Net interest margin (2)...................................... 3.38 3.41 3.55 3.40 3.27
Return on stockholders' equity (ratio of
net income to average equity).............................. 30.70 12.74 8.92 9.10 7.61(1)
Ratio of operating expense (excluding
gain/loss on sale of real estate owned)
to average total assets.................................... 1.91 2.11 2.27 2.13 2.54(1)
Quality Ratios:
Non-performing assets to total assets at
end of period............................................... 1.19 .97 .12 .23 .31
Allowance for loan losses to non-
performing loans............................................ 23.26 29.63 411.27 136.93 107.41
Equity Ratios:
Stockholders' equity to total assets
at end of period............................................ 5.03 11.52 10.55 9.40 8.80
Average stockholders' equity to average
assets...................................................... 4.31 8.40 11.17 10.32 8.74
Ratio of average interest-earning assets
to average interest-bearing liabilities..................... 1.03 1.09 1.12 1.12 1.07
Number of full service offices................................ 6 6 6 6 8
Number of limited service offices............................. 5 4 4 3 1
- --------
(5) Includes impact of the one-time SAIF assessment of approximately
$959,000. Excluding the impact of the SAIF assessment the following ratios would
have been as follows: Return on Assets .92%, Return on Equity 10.52%, and the
Ratio of operating expense to average total assets 2.12%. See Note 16 of the
Notes to Consolidated Financial Statements contained herein.
(6) Net interest income divided by average interest earning assets.
</TABLE>
- 4 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Capital Savings Bancorp, Inc. (and with its subsidiary, the "Company")
is a Delaware corporation organized on September 22, 1993 for the purpose of
becoming the holding company of Capital Savings Bank, FSB (the "Bank"). The
principal business of the Company consists primarily of attracting deposits from
the general public and using such deposits to originate mortgage loans secured
by one- to four-family residences and, to a lesser extent, one- to four-family
residential construction, multi-family and commercial real estate loans and
consumer loans. The Company also uses these funds to purchase loans secured by
one- to four-family residences and, to a lesser extent, multifamily and
nonresidential properties. The Company also purchases mortgage-backed
securities, U.S. government and federal agency obligations and other permissible
securities.
The Company's results of operations are primarily dependent upon the
difference (or "spread") between the average yield earned on loans,
mortgage-backed securities and investments and the average rate paid on deposits
and borrowings, as well as the relative amounts of such assets and liabilities.
The interest rate spread is affected by regulatory, economic and competitive
factors that influence interest rates, loan demand and deposit flows. The
Company, like other thrift institutions, is subject to interest-rate risk to the
degree that its interest-earning assets mature or reprice at different times, or
on a different basis, than its interest-bearing liabilities.
The Company's results of operation are also affected by, among other
things, provision for loan losses, loan servicing income, fee income and other
service charges, subsidiary income, operating expenses and income taxes. The
Company's operating expenses principally consist of employee compensation and
benefits, occupancy expenses, federal deposit insurance premiums and other
general and administrative expenses.
The Company is significantly affected by prevailing economic conditions
including federal monetary and fiscal policies, as well as by federal regulation
of financial institutions. Deposit balances are influenced by a number of
factors including interest rates paid on competing personal investments and the
level of personal income and savings within the institution's market area.
Lending activities are influenced by consumer demand for housing as well as
competition from other lending institutions. The primary sources of funds for
lending activities include deposits, loan payments, borrowings and funds
provided from operations.
Financial Condition
June 30, 1997 compared to June 30, 1996. The Company's total assets
increased $24.5 million, or 11.2%, to $242.5 million at June 30, 1997 from
$218.0 million at June 30, 1996. The increase was primarily attributable to a
$23.6 million increase in loans receivable offset by a $4.9 million decrease in
mortgage-backed securities. The asset growth was funded through an increase in
deposits of $18.7 million and an increase in advances from the Federal Home Loan
Bank of Des Moines (the "FHLB") of $4.5 million.
- 5 -
<PAGE>
Net loans receivable increased $23.6 million, or 14.2%, to $190.2
million at June 30, 1997 from $166.6 million at June 30, 1996. Loan growth was
primarily the result of increased originations, which were due to an increase in
marketing efforts and increase in demand in the Company's primary lending
market. In addition, the Company purchased approximately $6.0 million of loans
secured by properties in the state of Missouri. During fiscal 1997, the Company
originated and purchased $41.7 million of one- to four-family residential
mortgage loans as compared to $53.6 million of such mortgage loans during fiscal
1996.
Deposits increased $18.7 million, or 12.3%, to $171.0 million at June
30, 1997 from $152.3 million at June 30, 1996. This increase was comprised of
$7.8 million in time deposits, $5.0 million in savings deposits and $5.9 million
in demand deposits.
Advances from the FHLB increased $4.5 million, or 10.7%, to $46.5
million at June 30, 1997 from $42.0 million at June 30, 1996. The advances have
terms of up to five years at both variable and fixed interest rates and were
primarily used to finance growth in loans receivable. At June 30, 1997 the
average cost of advances was .11% higher than the weighted average cost of the
Company's certificates of deposit.
June 30, 1996 compared to June 30, 1995. The Company's total assets
increased $31.3 million, or 16.8% to $218.0 million at June 30, 1996 from $186.7
million at June 30, 1995. The increase was primarily attributable to a $14.8
million increase in loans receivable, a $9.5 million increase in mortgage-backed
securities, and a $5.4 million increase in investment securities as a result of
the Company's efforts to leverage its capital and increase net interest income.
The increases were funded primarily by FHLB advances and to a lesser extent by
increased deposits.
Deposits increased $6.7 million, or 4.6%, to $152.3 million at June 30,
1996 from $145.7 million at June 30, 1995. The increase in deposits was
primarily attributed to an increase in certificates of deposit of $4.9 million
and a $1.7 million increase in demand deposits. FHLB advances increased $23.5
million to $42.0 million at June 30, 1996 from $18.5 million at June 30, 1995.
The advances, which have maturities from 1 month to 5 years, were primarily used
to fund loan growth.
Results of Operations
The Company's results of operations depend primarily on the level of
its net interest income and non-interest income and its control of operating
expenses. Net interest income depends upon the volume of interest-earning assets
and interest-bearing liabilities and the interest rates earned or paid on them.
The Company's noninterest income consists primarily of fees charged on
transaction accounts and the origination of loans which help to offset the costs
associated with establishing and maintaining these deposits and loan accounts.
In addition, noninterest income is derived from the activities of the Bank's
wholly owned subsidiary which engages in the sale of various insurance and
investment products.
- 6 -
<PAGE>
Comparison of Fiscal Years Ended June 30, 1997 and June 30, 1996
General. The Company's net income decreased $310,000, or 16.7%, to $1.6
million for the year ended June 30, 1997 from $1.9 million for the year ended
June 30, 1996. Exclusive of the one-time SAIF assessment of $959,000 and the
related income tax effect, net income for fiscal 1997 would have approximated
$2.2 million, or an increase of $290,000 from the year ended June 30, 1996. The
Company had an increase in net interest income and non-interest income partially
offset by an increase in non-interest expense.
Net Interest Income. Net interest income before the provision for loan
losses totaled $7.4 million for fiscal 1997 compared to $6.6 million for fiscal
1996, representing an increase of 12.4%. The increase was due primarily to an
increase in the average balance of interest-earning assets. The average net
interest rate spread increased to 2.94% for the year ended June 30, 1997 from
2.85% for the year ended June 30, 1996. This .09% increase was attributed to
assets repricing at an increased rate as a result of generally higher market
interest rates.
Interest income increased $2.7 million to $17.7 million for the year
ended June 30, 1997 from $15.0 million for the year ended June 30, 1996. The
increase in interest income was primarily attributed to a $32.4 million, or
16.8%, increase in average interest-earning assets, primarily loans receivable.
Interest expense increased $2.0 million, or 22.7%, to $10.4 million for
the year ended June 30, 1997 from $8.4 million for the year ended June 30, 1996.
The increase was due to a $39.0 million increase in the average balance of
interest-bearing liabilities, primarily FHLB advances. The average rate paid on
interest-bearing liabilities remained at 4.93% during fiscal years 1996 and
1997.
Provision for Loan Losses. The provision for loan losses was $120,000
for the years ended June 30,1997 and 1996. The allowance for loan losses
increased to $739,000, or .39% of total loans at June 30, 1997, compared to
$634,000 or .38% of total loans at June 30, 1996. The increase in the allowance
for loan losses was primarily reflective of the $23.6 million or 14.2% increase
in the Company's loan portfolio.
The Company maintains allowances for loan losses based on management's
analysis of its loan portfolio, the amount of non-performing assets, and general
economic conditions. The Company continues to monitor and adjust its allowance
for loan losses as management's analysis of its loan portfolio and economic
conditions dictate. Future additions to the Company's allowance for loan losses
and any change in the related ratio of the allowance for loan losses to
non-performing loans are dependent upon the economy, changes in real estate
values and interest rates. In addition, federal regulators may require
additional reserves as a result of their examination of the Company. The
allowance for loan losses reflects what the Company currently believes is an
adequate level of reserves, although there can be no assurance that future
losses will not exceed the estimated amounts, thereby adversely affecting future
results of operations. See "Use of Estimates" under Note 1 of the Notes to
Consolidated Financial Statements herein.
- 7 -
<PAGE>
The Company's total nonperforming assets (which include non-accrual
loans, accruing loans more than 90 days delinquent, and real estate owned)
increased by $253,000 to $760,000, or .31% of total assets, at June 30, 1997
from $507,000, or .23% of total assets, at June 30, 1996. At June 30, 1997, the
Bank's allowance for loan losses to non-performing loans was 107.4% as compared
to 136.9% at June 30, 1996.
Noninterest Income. Noninterest income increased $406,000 or 49.0%, to
$1.2 million for the year ended June 30, 1997 from $829,000 for the year ended
June 30, 1996. Noninterest income consists primarily of bank service charges and
fees, loan servicing income, income from the Bank's financial services
subsidiary, and net gain (loss) on the sales of securities. The increase in
noninterest income during fiscal 1997 was due to increases in bank service
charges, and from the gain on sale of securities, offset by a decrease in the
commission income of the Bank's financial services subsidiary. Bank service
charges increased $431,000 for the year ended June 30, 1997 to $691,000 from
$260,000 for the previous year. The increase was attributable to the increase in
number of checking accounts added in the past year. Management intends to
continue marketing of the checking account program.
Noninterest Expense. Noninterest expense increased $1.7 million to $5.9
million for the year ended June 30, 1997 from $4.2 million for the year ended
June 30, 1996. Excluding the SAIF assessment of $959,000, non-interest expense
increased $730,000, or 17.3% to $5.0 million when compared to the prior year.
See Note 16 of the Notes to Consolidated Financial Statements herein. The
majority of the increase was attributable to an increase in compensation and
benefits of $364,000 which included the cost of employees hired in connection
with the opening of a supermarket branch during April 1997. An increase in
office occupancy, advertising, data processing and other non-interest expenses
were due in part to the marketing of the checking account promotion and the
opening of a new supermarket branch facility.
Provision for Income Taxes. Income tax expenses decreased by $161,000
to $1.0 million for the year ended June 30, 1997 from $1.2 million for the year
ended June 30, 1996. The decrease was due to the decrease in taxable income.
Comparison of Fiscal Years Ended June 30, 1996 and June 30, 1995
General. The Company's net income increased by $78,000 or 4.4% to $1.9
million for the year ended June 30, 1996 from $1.8 million for the year ended
June 30, 1995. The increase was due to increases in net interest income and
noninterest income, offset by increases in noninterest expense and the provision
for income taxes.
Net Interest Income. Net interest income before provision for loan
losses increased by $377,000 or 6.1%, to $6.6 million for the year ended June
30, 1996 from $6.2 million for the year ended June 30, 1995. The increase was
due primarily to an increase in the average balance of interest-earning assets.
The average net interest spread declined, however, from 2.96% for the fiscal
year ended June 30, 1995 to 2.85% for the period ended June 30, 1996. The
decline was attributable to deposits and borrowings repricing upward at a
greater rate than interest-earning assets as a result of general market
increases in interest rates.
- 8 -
<PAGE>
Interest income increased $2.3 million, or 17.7%, to $15.0 million for
the year ended June 30, 1996 compared to $12.7 million for the year ended June
30, 1995. The increase in interest income was primarily attributable to a $16.0
million or 9.1% increase in average interest-earning assets due to the growth in
the one- to four-family mortgage loans, commercial loans, consumer loans, and
the mortgage-backed securities portfolio.
Interest expense increased $1.9 million or 28.7%, to $8.4 million for
the year ended June 30, 1996 from $6.6 million for the year ended June 30, 1995.
The increase was primarily due to the average balance of interest-bearing
liabilities increasing $16.8 million or 10.9% from $154.5 million to $171.4
million and, to a lesser extent, a 68 basis point increase in the average cost
of funds. The $16.8 million increase was primarily the result of an increase in
the balance of FHLB advances and certificate accounts. Interest expense on
deposits increased $1.2 million while interest expense on borrowed funds
increased $638,000.
Provision for Loan Losses. The provision for loan losses was $120,000
for the year ended June 30, 1996, as compared to $60,000 in 1995. The provisions
increased allowance for loan losses to $634,000 or .38% of total loans at June
30, 1996, compared to $514,000 or .34% of total loans at June 30, 1995.
The Company's total nonperforming assets increased by $275,000 to
$507,000 or .23% of total assets at June 30, 1996 from $232,000 or .12% at June
30, 1995. The net loan portfolio increased by $14.8 million during the same
period.
Noninterest Income. Noninterest income increased $49,000 or 6.3%, to
$829,000 for the period ended June 30, 1996 from $780,000 for the year ended
June 30, 1995. The increase in noninterest income during fiscal 1996 was due to
increases in income from real estate owned held for sale, gain on sale of
securities and service charges, offset by a decrease in the earnings of the
Bank's financial services subsidiary.
Noninterest Expense. Noninterest expense increased $165,000 to $4.2
million for the fiscal year ended June 30, 1996 from $4.1 million for the fiscal
year ended June 30, 1995. The increase in noninterest expense was due primarily
to an increase in occupancy and equipment expenses and an increase in
advertising expenses, partially offset by a decrease in compensation and
benefits. Office occupancy and equipment expenses increased $91,000 to $511,000
for the year ended June 30, 1996 from $420,000 for the year ended June 30, 1995
due, in part, to relocation and expansion of the Rolla, Missouri facility and
relocation of the Jefferson City mall facility to a supermarket facility.
Provision for Income Taxes. Income tax expense increased by $122,000 to
$1.2 million for the fiscal year ended June 30, 1996 from $1.1 million for the
fiscal year ended June 30, 1995. The increase was due to the increase in taxable
income and the Company's effective tax rate in fiscal 1996. The Company's
effective tax rate increased to 38.8% in the year ended June 30, 1996 from 37.2%
for the fiscal year ended June 30, 1995.
- 9 -
<PAGE>
Average Balances, Interest Rates and Yields
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the total dollar amount of interest expense on average
interest-bearing liabilities and the resultant rates. No tax equivalent
adjustments were made. Non-accruing loans have been included in the table as
loans carrying a zero yield.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------------
1995 1996
-------------------------------------- --------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable1................................... $143,429 $10,807 7.53% $157,222 $ 12,715 8.09%
Mortgage-backed securities.......................... 16,471 1,103 6.70% 22,905 1,602 6.99%
Investment securities............................... 13,344 603 4.52% 8,344 419 5.02%
FHLB stock.......................................... 1,857 144 7.75% 1,921 136 7.08%
Other............................................... 1,595 80 5.02% 2,347 124 5.28%
-------- ------- -------- -------
Total interest-earning
assets(1)...................................... $176,696 12,737 7.21% $192,739 14,996 7.78%
======== ------ ======== ------
Interest-Bearing Liabilities:
Demand and checking deposits........................ $ 18,270 426 2.33% $ 17,799 381 2.14%
Savings deposits.................................... 17,336 495 2.86% 16,146 465 2.88%
Certificate accounts................................ 107,415 4,937 4.60% 114,769 6,257 5.45%
FHLB advances....................................... 11,513 704 3.84% 22,656 1,342 5.92%
--------- ------- -------- --------
Total interest-bearing
liabilities.................................... $154,534 6,562 4.25% $171,370 8,445 4.93%
======== ------- ======== --------
Net interest income.................................. $ 6,175 $ 6,551
======= ========
Net interest rate spread............................. 2.96% 2.85%
==== ====
Net earning assets................................... $ 22,162 $ 21,369
======== =======
Net yield on average
interest-earning assets............................. 3.49% 3.40%
==== ====
Average interest-earning
assets to average interest-
bearing liabilities................................. 1.14x 1.12x
==== ====
</TABLE>
- 10-
<PAGE>
<TABLE>
<CAPTION>
1997
--------------------------------------
Average Interest
Outstanding Earned/ Yield/
Balance Paid Rate
------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-Earning Assets:
Loans receivable1................................... $181,057 $14,719 8.13%
Mortgage-backed securities.......................... 26,166 1,784 6.82%
Investment securities............................... 13,229 927 7.01%
FHLB stock.......................................... 2,765 198 7.16%
Other............................................... 1,962 99 5.05%
-------- -------
Total interest-earning
assets()....................................... $225,179 17,727 7.87%
======== ------
Interest-Bearing Liabilities:
Demand and checking deposits........................ $ 24,362 561 2.30%
Savings deposits.................................... 17,048 458 2.69%
Certificate accounts................................ 119,802 6,576 5.49%
FHLB advances....................................... 49,125 2,770 5.64%
-------- -------
Total interest-bearing
liabilities.................................... $210,337 10,365 4.93%
======== -------
Net interest income.................................. $ 7,362
========
Net interest rate spread............................. 2.94%
====
Net earning assets................................... $ 14,842
========
Net yield on average
interest-earning assets............................. 3.27%
====
Average interest-earning
assets to average interest-
bearing liabilities................................. 1.07x
========
- --------
(1) Calculated net of deferred loan fees, loan discounts, loans in process
and loss reserves.
</TABLE>
- 11 -
<PAGE>
Rate/Volume Analysis
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase related to
higher outstanding balances and that due to the levels and volatility of
interest rates. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii)
changes in rate (i.e., changes in rate multiplied by old volume). For purposes
of this table, changes attributable to both rate and volume which cannot be
segregated have been allocated proportionately to the change due to volume and
the change due to rate.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------
1995 vs. 1996 1996 vs. 1997
---------------------------------- -----------------------------------
Increase Increase
(Decrease) Total (Decrease) Total
Due to Increase Due to Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable ........... $ 1,115 $ 793 $ 1,908 $ 1,938 $ 66 $ 2,004
Mortgage-backed securities . 450 49 499 222 (40) 182
Investment securities ...... (264) 75 (189) 403 167 570
Certificates of deposit .... -- (3) (3) -- -- --
Other ...................... 40 4 44 (19) (6) (25)
------- ------- ------- ------- ------- -------
Total interest-earning
assets ................ $ 1,341 $ 918 $ 2,259 $ 2,544 $ 187 $ 2,731
======= ======= ======= ======= ======= =======
Interest-bearing liabilities:
Demand and checking
deposits .................. $ (10) $ (35) $ (45) $ 151 $ 29 $ 180
Savings deposits ........... (34) 4 (30) 24 (31) (7)
Certificate accounts ....... 401 919 1,320 276 43 319
FHLB advances .............. 660 (22) 638 1,493 (65) 1,428
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities ........... $ 1,017 $ 866 $ 1,883 $ 1,944 $ (24) $ 1,920
======= ======= ======= ======= ======= =======
Net interest income ......... $ 376 $ 811
======= =======
</TABLE>
- 12 -
<PAGE>
Interest Rate Spread
The Company's results of operations are determined primarily by net
interest income and, to a lesser extent, fee income, miscellaneous income and
operating expenses. Net interest income is determined by the interest rate
spread between the yields earned on its interest-earning assets and the rates
paid on interest-bearing liabilities and by the relative amounts of
interest-earning assets and interest-bearing liabilities.
The following table sets forth the weighted average yield earned and
rate paid on the Company's interest-earning assets and interest-bearing
liabilities.
<TABLE>
<CAPTION>
At June 30,
--------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average yield on:
Loans receivable...................................... 7.66% 8.02% 8.12%
Mortgage-backed securities............................ 6.50% 7.18% 6.83%
Investment securities................................. 5.59% 7.10% 6.64%
Other interest-earning assets......................... 5.62% 4.92% 5.17%
Combined weighted average yield on
interest-earning assets.......................... 7.43% 7.84% 7.83%
Weighted average rate paid on:
Savings deposits...................................... 2.75% 2.79% 2.70%
Demand and checking deposits.......................... 2.17% 2.14% 2.55%
Certificates.......................................... 5.24% 5.48% 5.57%
Borrowings............................................ 6.50% 5.65% 5.68%
Combined weighted average rate paid
on interest-bearing liabilities.................. 4.75% 4.93% 4.95%
Spread................................................. 2.68% 2.91% 2.88%
</TABLE>
Asset/Liability Management
The goal of the Company's asset/liability management strategy is to
maximize and stabilize net interest income for the long term while protecting
its interest rate spread against significant changes in interest rates. The
Company has employed various strategies intended to minimize the adverse effect
of interest rate risk on future operations by attempting to match the interest
rate sensitivity of its assets and liabilities and by expanding its activities
which are not directly dependent on interest rate spreads.
In managing its asset/liability mix, the Company, at times, depending
on the relationship between long-and short-term interest rates, market
conditions and consumer preference, may place somewhat greater emphasis on
maximizing its net interest margin than on strictly matching the interest rate
sensitivity of its assets and liabilities. Management believes that the
increased net income which may result from an acceptable mismatch in the actual
- 13 -
<PAGE>
maturity or repricing of its assets and liability portfolios can, during periods
of declining or stable interest rates, provide sufficient returns to justify the
increased exposure to sudden and unexpected increases in interest rates which
may result from such a mismatch. The Company has established limits, which may
change from time to time, on the level of acceptable interest-rate risk. There
can be no assurances, however, that in the event of an adverse change in
interest rates the Company's efforts to limit interest rate risk will be
successful.
The primary elements of the Company's asset/liability strategy include
(i) retaining all adjustable-rate, and a limited amount of fixed-rate loans for
portfolio depending upon the current interest rate environment, (ii) purchasing
fixed-rate mortgage-backed securities with short- to intermediate-term effective
lives and adjustable-rate mortgage-backed securities and (iii) emphasizing the
solicitation of savings, checking and longer term deposits. In this regard, the
Company focuses its lending efforts toward offering competitively priced
adjustable-rate and fixed-rate loan products. The Company's mortgage lending
strategy has been to retain all one-, three- and five-year adjustable-rate loans
and retain fixed-rate loans of 20 years or less in term. In addition, depending
upon the Company's desired ratio of fixed-rate to adjustable-rate loans,
consistent with its asset liability objectives, the Company retains or sells in
the secondary market all the remaining fixed rate loans with servicing retained,
without recourse. There were no loans held for sale as of June 30, 1997.
Generally, the investment policy of the Company is to invest funds
among various categories of investments and maturities based upon the Company's
need for liquidity, to achieve the proper balance between its desire to minimize
risk and maximize yield, to provide collateral for borrowings, and to fulfill
the Company's asset/ liability management policies. Investments generally
include U.S. government, federal agency and mortgage-backed securities.
The Company's cost of funds responds to changes in interest rates due
to the relatively short-term nature of its deposit portfolio. Consequently, the
results of operations are influenced by the levels of short-term interest rates.
The Company offers a range of maturities on its deposit products at competitive
rates and monitors the maturities on an ongoing basis.
The Company emphasizes and promotes its statement savings, money market
and checking accounts and, subject to market conditions, certificates of deposit
with maturities of six months through five years, principally from its primary
market area. The Company has continued its aggressive marketing campaign for
checking accounts during the fiscal year 1997 and as a result has added 6,000
new accounts and $5.9 million in deposits. The passbook, statement savings and
checking accounts tend to be less susceptible to rapid changes in interest rates
than certificates of deposits.
Net Portfolio Value
Management utilizes a report provided by the Office of Thrift
Supervision ("OTS") as one of the analytical tools to ascertain the interest
rate sensitivity of the Bank's portfolio and therefore the effects of
fluctuating interest rates on net interest income. The OTS provides a Net
Portfolio Value ("NPV") approach to the quantification of interest rate risk.
This approach calculates the difference between the present value of expected
cash flows from assets and the present value of expected cash flows from
liabilities, as well as cash flows from off-balance sheet contracts.
- 14 -
<PAGE>
Under OTS regulations, an institution's "normal" level of interest rate
risk in the event of an assumed change in interest rates is a decrease in the
institution's NPV in an amount not exceeding 2% of the present value of its
assets. Thrift institutions with greater than "normal" interest rate exposure
must take a deduction from their total capital available to meet their risk
based capital requirement. The amount of that deduction is one-half of the
difference between (a) the institution's actual calculated exposure to a 200
basis point interest rate increase or decrease (whichever results in the greater
pro forma decrease in NPV) and (b) its "normal" level of exposure which is 2% of
the present value of its assets. The regulation, however, will not become
effective until the OTS evaluates the process by which savings associations may
appeal an interest rate risk deduction determination. It is uncertain as to when
this evaluation may be completed. The Bank due to its asset size and level of
risk-based capital is exempt from this requirement. Notwithstanding the
foregoing, utilizing this measuring concept, as of June 30, 1997, a change in
interest rates of positive 200 basis points would have resulted in a 2.08%
decrease (as a percentage of the net present value of the Bank's assets) in the
Bank's NPV while a change in interest rates of negative 200 basis points would
have resulted in a .31% increase (as a percentage of the net present value of
the Bank's assets) in the Bank's NPV. Accordingly, a deduction to risk-based
capital would have been required as of June 30, 1997 if the regulation applied
to the Bank. However, even if such deduction was applied, the Bank would still
be considered "well capitalized" under current regulatory guidelines.
Presented below, as of June 30, 1997, is an analysis of the Bank's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts in the yield curve, in 100 basis point increments, up and down
400 basis points in accordance with OTS regulations. As illustrated in the
table, NPV is more sensitive to rising rates than declining rates. This occurs
principally because, as rates rise, the market value of fixed-rate loans
declines due to both the rate increase and slowing prepayments. When rates
decline, the Bank generally does not experience a significant rise in market
value for these loans because borrowers presumably prepay the higher interest
rate loans.
<TABLE>
<CAPTION>
Net Portfolio Value
Change in
Interest Rates Estimated Estimated NPV as Amount of Percentage
(Basis Points) NPV Percentage of Assets Change Change
- -------------- --- -------------------- ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
+400 $13,496 5.88% $(14,335) (52)%
+300 17,826 7.58 (10,005) (36)
+200 21,849 9.09 (5,982) (21)
+100 25,278 10.31 (2,553) (9)
--- 27,831 11.17 --- ---
-100 29,020 11.52 1,189 4
-200 29,082 11.47 1,251 4
-300 29,531 11.56 1,700 6
-400 30,652 11.87 2,821 10
</TABLE>
- 15 -
<PAGE>
Management reviews the OTS measurements on a quarterly basis. In
addition to monitoring selected measures on NPV, management also monitors
effects on net interest income resulting from increases or decreases in rates.
This measure is used in conjunction with NPV measures to identify excessive
interest rate risk.
Certain shortcomings are inherent in the method of analysis presented
in the foregoing tables. For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable-rate mortgage
loans, have features which restrict changes in interest rates on a short-term
basis and over the life of the asset. Further, in the event of a change in
interest rates, prepayments and early withdrawal levels would likely deviate
significantly from those assumed in calculating the tables. Finally, the ability
of many borrowers to service their debt may decrease in the event of an interest
rate increase.
Liquidity and Capital Resources
The Company's principal sources of funds are deposits, amortization and
prepayment of loan principal (including mortgage-backed securities), sales or
maturities of investment securities, mortgage-backed securities and short-term
investments and operations. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and early loan repayments
are more influenced by interest rates, general economic conditions and
competition. The Company has been selective with regard to deposit rates on
certain savings products and, when necessary, has supplemented deposits with
longer term and/or less expensive alternative sources of funds, such as FHLB
advances.
Federal regulations historically have required the Bank to maintain
minimum levels of liquid assets. The required percentage has varied from time to
time based upon economic conditions and savings flows and is currently 5% of net
withdrawable savings deposits plus borrowings payable on demand or in one year
or less, during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U.S. Government, government agency
and corporate securities and other obligations generally having remaining
maturities of less than five years. The Bank has historically maintained its
liquidity ratio at levels in excess of those required. At June 30, 1997 the
Bank's liquidity ratio was 7.1%.
The Company's primary sources of funds consist of deposits, and
amortization of principal and interest payments on loans and mortgage-backed
securities. Other potential sources of funds available to the Company include
borrowings from the FHLB of Des Moines and reverse repurchase agreements. The
Company uses its liquid resources principally to meet on-going commitments, to
fund maturing certificates of deposit and deposit withdrawals, to invest, to
fund existing and future loan commitments, to maintain liquidity and to meet
operating expenses. The Company anticipates that it will have sufficient funds
available to meet current loan commitments. At June 30, 1997 the Company had
outstanding commitments to extend credit totaling $6.7 million (including $4.7
million in available lines of credit). Management believes that loan repayments
and other sources of funds will be adequate to meet the Company's foreseeable
liquidity needs.
- 16 -
<PAGE>
The primary investing activity of the Company is the origination of
loans and, when loan demand is down, the purchase of mortgage-backed securities.
During the years ended June 30, 1995, 1996 and 1997 the Company originated and
purchased loans totalling $47.1 million, $69.1 million, and $57.3 million,
respectively. Purchases of loans totaled $2.7 million, $8.3 million and $6.0
million in fiscal years 1995, 1996 and 1997, respectively. To supplement
adjustable-rate loan products, adjustable-rate mortgage-backed securities are
utilized from time to time as a secondary investing activity. Purchases of
mortgage-backed securities during the years ended June 30, 1995, 1996 and 1997
totaled $8.3 million, $14.6 million and $1.4 million, respectively.
The primary source of funding for the Company is deposits. For the year
ended June 30, 1997 the Company had a net increase of $18.7 million as compared
to a net increase of $6.7 million for fiscal 1996 and a net increase of $2.6
million for fiscal 1995. Management attributes the substantial increase in
deposits to the Company's aggressive marketing campaign. Another source of funds
is borrowing from the FHLB. At June 30, 1997 the Company had $46.5 million of
FHLB advances.
Liquidity management is both a daily and long-term responsibility of
management. The Company adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) the projected amount
of loans held for sale by the Company, (iii) expected deposit flows, (iv) yields
available on interest-earning deposits, and (v) the objective of its asset/
liability management program. Excess liquidity is invested generally in
interest-earning overnight deposits and other short-term government and agency
obligations. If the Company requires funds beyond its ability to generate them
internally, it has significant borrowing capacity with the FHLB.
Certificates of deposit scheduled to mature in one year or less at June
30, 1997 totaled approximately $93.0 million, or 54.4% of the Company's total
deposits, reflecting consumer preference for short-term investments as a result
of the relatively low interest rate environment. Based on the levels of
retention of such deposits in the recent past, management believes that a
significant portion of such deposits will remain with the Company.
At June 30, 1997 stockholders' equity was $21.3 million, or 8.8% of
assets. The Company has acquired a total of 273,589 shares of its outstanding
common stock through its previously announced stock repurchase plans. During the
year ended June 30, 1997, 15,800 shares were issued for the Company's RRP. At
June 30, 1997, the Company held 257,789 common shares in treasury.
Regulatory Capital
Federally insured savings institutions are required to maintain a
minimum level of regulatory capital. The OTS has established capital standards,
including a tangible capital requirement, a leverage ratio (or core capital)
requirement and a risk-based capital requirement applicable to such savings
institutions. These capital requirements must be generally as stringent as the
comparable capital requirements for national banks. The OTS is authorized to
impose capital requirements in excess of these standards on individual
institutions on a case-by-case basis.
- 17 -
<PAGE>
At June 30, 1997 the Bank had tangible and core capital of $19.0
million and $19.0 million, or 7.9% and 7.9% of adjusted total assets,
respectively, which were approximately $15.4 million and $11.8 million above the
minimum requirements of 1.5% and 3.0%, respectively, of the adjusted total
assets in effect on that date. On June 30, 1997 the Bank had risk-based capital
of $19.8 million (including $19.0 million in core capital), or 16.6% of
risk-weighted assets of $119.1 million. This amount was $10.3 million above the
8.0% requirement in effect on that date. Under current regulatory guidelines the
Bank was classified as well-capitalized.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
most industrial companies, however, nearly all the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a greater
impact on the Company's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
Impact of New Accounting Standards
In February 1997 the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held common
stock. This statement simplifies the standards for computing EPS previously
found in APB Opinion No. 15 "Earnings Per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. This Statement is effective for financial statements for
both interim and annual periods ending after December 15, 1997.
In June 1997 the FASB issued SFAS No. 130 "Reporting Comprehensive
Income." This Statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This Statement requires
that an enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. This
Statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
- 18 -
<PAGE>
Forward-Looking Statements
When used in this Annual Report to Stockholders or future filings by
the Company with the Securities and Exchange Commission (the "Commission"), in
the Company's press releases or other public or shareholder communications, or
in oral statements made with the approval of an authorized executive officer,
the words or phrases "will likely result", "are expected to", "will continue",
"is anticipated", "estimate", "project", "believe" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made, and to advise readers that various
factors-including regional and national economic conditions, changes in levels
of market interest rates, credit risks of lending activities, acceptance of new
products, and competitive and regulatory factors-could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from those anticipated or projected. Additional
risks and factors are detailed from time to time in the Company's reports filed
with the Commission, including the report on Form 10-KSB for the year ended June
30, 1997.
The Company does not undertake-and specifically disclaims any
obligation-to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
- 19 -
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of
Capital Savings Bancorp, Inc. and Subsidiary
We have audited the accompanying consolidated statements of financial condition
of Capital Savings Bancorp, Inc. (Company) and subsidiary as of June 30, 1996
and 1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1997. These financial statements are the responsibility of the
Company'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, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the consolidated financial
position of Capital Savings Bancorp, Inc., and subsidiary as of June 30, 1996
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended June 30, 1997, in conformity with generally
accepted accounting principles.
As discussed in the Notes to Consolidated Financial Statements, the Company
changed its method of accounting for compensation expense for the employee stock
ownership plan in 1995 and for impaired loans in 1996.
/s/Williams-Keepers
-------------------
Williams-Keepers
August 1, 1997
- 20 -
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1996 and 1997
1996 1997
-------------- --------------
ASSETS
<S> <C> <C>
Cash and due from depository institutions .............................. $ 2,973,489 $ 7,953,414
Securities available-for-sale (Note 2) ................................ 30,306,297 28,154,190
Securities held-to-maturity (Note 2) ................................... 11,979,383 8,984,323
Stock in Federal Home Loan Bank (Note 2) ............................... 2,100,000 3,025,000
Loans receivable, net (Note 3) ........................................ 166,623,231 190,202,685
Accrued interest receivable (Note 4) .................................. 1,401,109 1,465,221
Real estate owned held-for-sale, net (Note 5) ......................... 31,554 68,898
Premises and equipment, net (Note 6) .................................. 1,990,741 2,231,146
Other assets ........................................................... 547,931 433,019
-------------- --------------
Total assets ......................................... $ 217,953,735 $ 242,517,896
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 7) ..................................................... $ 152,344,791 $ 171,038,959
Borrowed funds (Note 8) ............................................... 42,000,000 46,500,000
Advances from borrowers for taxes and insurance ........................ 1,420,059 1,335,474
Accrued expenses and other liabilities ................................. 1,359,913 1,352,868
Income taxes payable (Note 9) ......................................... 348,046 950,407
-------------- --------------
Total liabilities .................................... 197,472,809 221,177,708
-------------- --------------
Stockholders' equity
Common stock, $.01 par value:
Authorized, 5,200,000 shares; 1,211,593 and 2,149,597 shares
issued, respectively .......................................... 12,116 21,496
Additional paid-in-capital ............................................. 11,728,171 11,910,849
Retained earnings, restricted (Notes 10, 15) .......................... 12,983,429 14,122,506
-------------- --------------
24,723,716 26,054,851
Deferred compensation - Recognition and Retention Plan (RRP) (Note 11) (31,110) (171,176)
Deferred compensation - Employee Stock Ownership
Plan (ESOP) (Note 11) ............................................. (583,259) (461,805)
Treasury stock (Note 12) .............................................. (3,550,170) (4,271,136)
Unrealized (loss) gain on securities available-for-sale, net of deferred
taxes (Note 2) .................................................... (78,251) 189,454
-------------- --------------
Total stockholders' equity ........................... 20,480,926 21,340,188
-------------- --------------
Total liabilities and stockholders' equity ........... $ 217,953,735 $ 242,517,896
============== ==============
The notes to financial statements are an integral part of these statements.
</TABLE>
- 21 -
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1995, 1996, and 1997
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME Loans receivable:
Mortgage loans ......................................... $ 10,090,912 $ 11,705,699 $ 13,441,561
Consumer and other loans ............................... 716,301 1,009,967 1,278,322
Investment securities ...................................... 743,628 554,688 1,124,587
Mortgage-backed securities ................................. 1,102,694 1,602,268 1,784,025
Other interest - earning assets ............................ 82,982 123,668 98,557
------------ ------------ ------------
Total interest income ............................. 12,736,517 14,996,290 17,727,052
------------ ------------ ------------
INTEREST EXPENSE
Deposits ................................................... 5,858,009 7,103,060 7,594,956
Borrowed funds ............................................. 703,686 1,341,871 2,769,628
------------ ------------ ------------
Total interest expense ............................ 6,561,695 8,444,931 10,364,584
------------ ------------ ------------
Net interest income ............................... 6,174,822 6,551,359 7,362,468
PROVISION FOR LOAN LOSSES (Note 3) ............................. 60,000 120,000 120,000
------------ ------------ ------------
Net interest income after provision for loan losses 6,114,822 6,431,359 7,242,468
------------ ------------ ------------
NON-INTEREST INCOME
Bank service charges and fees .............................. 181,461 260,145 691,158
Commission income .......................................... 446,214 286,767 190,677
Loan servicing fees ........................................ 177,320 188,391 196,933
Net (loss) gain on the sale of securities (Note 2) ......... (67,178) 23,971 83,422
Other (Note 13) ........................................... 42,112 69,362 72,707
------------ ------------ ------------
Total non-interest income ......................... 779,929 828,636 1,234,897
------------ ------------ ------------
NON-INTEREST EXPENSE
Compensation and benefits .................................. 2,097,333 2,078,560 2,442,125
Occupancy and equipment .................................... 420,053 511,253 575,530
Federal insurance premiums (Note 16) ....................... 332,508 340,994 1,166,656
Other (Note 13) ........................................... 1,207,546 1,292,098 1,727,071
------------ ------------ ------------
Total non-interest expense ........................ 4,057,440 4,222,905 5,911,382
------------ ------------ ------------
Income before provision for income taxes .......... 2,837,311 3,037,090 2,565,983
PROVISION FOR INCOME TAXES (Note 9) ............................ 1,055,772 1,177,403 1,016,047
------------ ------------ ------------
Net income ........................................ $ 1,781,539 $ 1,859,687 $ 1,549,936
============ ============ ============
Net income per share of common stock (Note 1) .... $ 0.85 $ 0.94 $ 0.82
============ ============ ============
Weighted average shares outstanding (Note 1) ...... 2,102,458 1,976,324 1,896,676
============ ============ ============
The notes to financial statements are an integral part of these statements.
</TABLE>
-22 -
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended June 30, 1995, 1996 and 1997
Common
Stock Deferred Deferred
---------------------- Additional Retained Compensation Compensation
Shares Amount Paid-in Capital Earnings RRP ESOP
------ ------ --------------- -------- --- ----
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 ....... 1,211,593 $ 12,116 $11,564,124 $ 9,979,100 $(209,676) $(850,425)
Compensation expense
recognized for RRP ......... -- -- -- -- 134,742 --
Compensation expense
recognized for ESOP ......... -- -- 59,757 -- -- 136,794
Acquisition of treasury stock -- -- -- -- -- --
Net change in unrealized loss
on securities available-for-
sale, net of deferred taxes . -- -- -- -- -- --
Dividends .................... -- -- -- (309,556) -- --
Net income ................... -- -- -- 1,781,539 -- --
---------- -------- ----------- ----------- --------- ---------
Balance, June 30, 1995 ....... 1,211,593 12,116 11,623,881 11,451,083 (74,934) (713,631)
Compensation expense
recognized for RRP ......... -- -- -- -- 43,824 --
Compensation expense ......... .
recognized for ESOP ........ -- -- 104,290 -- -- 130,372
Acquisition of treasury stock -- -- -- -- -- --
Net change in unrealized loss
on securities available-for-
sale, net of deferred taxes -- -- -- -- -- --
Dividends .................... -- -- -- (327,341) -- --
Net income ................... -- -- -- 1,859,687 -- --
---------- -------- ----------- ----------- --------- ---------
Balance, June 30, 1996 ....... 1,211,593 12,116 11,728,171 12,983,429 (31,110) (583,259)
</TABLE>
- 23 -
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended June 30, 1995, 1996 and 1997
(continued)
Unrealized
(Loss) Gain
on Securities
Available-for-
Treasury Stock Sale, Net Total
-------------- --------- -----
<S> <C> <C> <C>
Balance, June 30, 1994 ....... $ (811,906) $(79,435) $ 19,603,898
Compensation expense
recognized for RRP ......... -- -- 134,742
Compensation expense
recognized for ESOP ......... -- -- 196,551
Acquisition of treasury stock (1,770,004) -- (1,770,004)
Net change in unrealized loss
on securities available-for-
sale, net of deferred taxes . -- 59,857 59,857
Dividends .................... -- -- (309,556)
Net income ................... -- -- 1,781,539
----------- -------- -----------
Balance, June 30, 1995 ....... (2,581,910) (19,578) 19,697,027
Compensation expense
recognized for RRP ......... -- -- 43,824
Compensation expense
recognized for ESOP ........ -- -- 234,662
Acquisition of treasury stock (968,260) -- (968,260)
Net change in unrealized loss
on securities available-for-
sale, net of deferred taxes -- (58,673) (58,673)
Dividends .................... -- -- (327,341)
Net income ................... -- -- 1,859,687
----------- -------- -----------
Balance, June 30, 1996 ....... (3,550,170) (78,251) 20,480,926
The notes to financial statements are an integral part of these statements.
</TABLE>
- 24 -
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended June 30, 1995, 1996 and 1997
Common
Stock Deferred Deferred
---------------------- Additional Retained Compensation Compensation
Shares Amount Paid-in Capital Earnings RRP ESOP
------ ------ --------------- -------- --- ----
<S> <C> <C> <C> <C> <C> <C>
Treasury stock issued
for RRP ..................... -- -- (7,205) -- (212,352) --
Compensation expense
recognized for RRP .......... -- -- -- -- 72,286 --
Compensation expense
recognized for ESOP ......... -- -- 189,883 -- -- 121,454
Acquisition of treasury stock . -- -- -- -- -- --
Stock split effected in the
form of a stock dividend ...... 938,004 9,380 -- (9,380) -- --
Net change in unrealized (loss)
gain on securities available-
for-sale, net of deferred taxes -- -- -- -- -- --
Dividends ..................... -- -- -- (401,479) -- --
Net income .................... -- -- -- 1,549,936 -- --
----------- --------- ----------- ----------- ----------- ---------
Balance, June 30, 1997 ........ 2,149,597 $ 21,496 $11,910,849 $14,122,506 $ (171,176) $(461,805)
=========== ========= =========== =========== =========== =========
</TABLE>
- 25 -
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended June 30, 1995, 1996 and 1997
(continued)
Unrealized
(Loss) Gain
on Securities
Available-for-
Treasury Stock Sale, Net Total
-------------- --------- -----
<S> <C> <C> <C>
Treasury stock issued
for RRP ..................... 219,557 -- --
Compensation expense
recognized for RRP .......... -- -- 72,286
Compensation expense
recognized for ESOP ......... -- -- 311,337
Acquisition of treasury stock . (940,523) -- (940,523)
Stock split effected in the
form of a stock dividend ...... -- -- --
Net change in unrealized (loss)
gain on securities available-
for-sale, net of deferred taxes -- 267,705 267,705
Dividends ..................... -- -- (401,479)
Net income .................... -- -- 1,549,936
----------- --------- -----------
Balance, June 30, 1997 ........ $(4,271,136) $ 189,454 $21,340,188
=========== ========= ===========
The notes to financial statements are an integral part of these statements.
</TABLE>
- 26 -
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1995, 1996, and 1997
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income .................................................. 1,781,539 1,859,687 1,549,936
Adjustments to reconcile net income to net cash provided by
operating activities:
Federal Home Loan Bank stock dividends .................. -- (37,400) --
Amortization of deferred loan origination fees .......... (37,203) (75,244) (49,203)
Amortization of premiums and accretion of discounts on
securities held-to-maturity and
securities available-for-sale ......................... (129,475) (63,790) 57,393
Depreciation ............................................ 223,565 260,692 312,489
Provision for loan losses ............................... 60,000 120,000 120,000
Gain on sale of real estate owned held-for-sale ......... -- (32,701) (1,150)
Loss (gain) on sale of securities ....................... 67,178 (23,971) (83,422)
Gain on sale of premises and equipment .................. -- -- (13,057)
Compensation expense - RRP .............................. 134,742 43,824 72,286
Compensation expense - ESOP ............................. 196,551 234,662 311,337
Loans receivable originated for sale to
Federal Home Loan Mortgage Corporation (FHLMC) ........ (3,466,010) (12,286,702) --
Proceeds from loans receivable originated for sale
to FHLMC .............................................. 3,466,010 12,286,702 --
Adjustments for (increases) decreases in operating assets and
increases (decreases) in operating liabilities:
Accrued interest and other assets ....................... (554,920) (396,826) 50,800
Accrued expenses and other liabilities .................. 356,377 359,018 (7,045)
Income taxes payable .................................... (46,067) 145,296 433,922
----------- ----------- -----------
Net cash provided by operating activities .......... 2,052,287 2,393,247 2,754,286
----------- ----------- -----------
INVESTING ACTIVITIES
(Loan origination) and principal payment on loans
receivable, net .................................... (16,984,728) (14,946,200) (23,746,650)
Purchases of:
Securities available-for-sale ...................... (1,992,713) (16,609,565) (4,618,784)
Securities held-to-maturity ........................ (9,441,218) (14,357,959) (3,604,940)
Proceeds from maturity of:
Securities available-for-sale ...................... 9,783 11,412,394 6,758,227
Securities held-to-maturity ........................ 3,625,387 3,484,601 6,600,000
Sales of securities available-for-sale .................. 6,996,162 1,023,971 474,837
Purchase of Federal Home Loan Bank stock ................ -- (205,600) (925,000)
Decrease in certificates of deposit, net ................ 1,290,000 -- --
Proceeds from sale of real estate owned held-for-sale ... 13,686 217,193 60,205
Purchase of premises and equipment ...................... (232,284) (907,483) (583,896)
Proceeds from sale of premises and equipment ............ -- -- 44,059
----------- ----------- -----------
Net cash (used) by investing activities ............ (16,715,925) (30,888,648) (19,541,942)
----------- ----------- -----------
</TABLE>
- 27 -
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years Ended June 30, 1995, 1996, and 1997
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increases in deposits .................................. 2,634,203 6,656,705 18,694,168
Net increases in borrowed funds ............................ 13,300,000 23,500,000 4,500,000
Net increase (decrease) in advances from borrowers for
taxes and insurance ...................................... 76,248 (131,510) (84,585)
Acquisition of treasury stock .............................. (1,770,004) (968,260) (940,523)
Dividends .................................................. (309,556) (327,341) (401,479)
------------ ------------ ------------
Net cash provided by financing activities ............. 13,930,891 28,729,594 21,767,581
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents .. (732,747) 234,193 4,979,925
Cash and cash equivalents, beginning of year ............... 3,472,043 2,739,296 2,973,489
------------ ------------ ------------
Cash and cash equivalents, end of year ..................... $ 2,739,296 $ 2,973,489 $ 7,953,414
============ ============ ============
SUPPLEMENTAL DISCLOSURES Cash paid during the year for:
Interest .............................................. $ 6,316,101 $ 8,307,454 $ 10,362,053
Income taxes .......................................... $ 1,044,645 $ 1,105,931 $ 582,125
Non-cash transactions:
Transfers from loans receivable to real estate owned
held for sale ....................................... $ -- $ 121,003 $ 96,399
Treasury stock issued as deferred
compensation - RRP .................................. $ -- $ -- $ 219,557
Par value of common stock issued due to stock split ... $ -- $ -- $ 9,380
Transfer from securities held-to-maturity to securities
available-for-sale .................................. $ -- $ 20,288,431 $ --
</TABLE>
- 28 -
<PAGE>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Capital Savings Bancorp, Inc. (Company) is a Delaware
corporation incorporated on September 22, 1993, for the purpose of becoming the
holding company of Capital Savings Bank, FSB (Bank). The Bank was formerly known
as Capital Savings and Loan Association, prior to its conversion from a
state-chartered mutual savings association to a federally-chartered stock
savings bank. On December 28, 1993, the Bank converted from a mutual to a stock
form of ownership, and the Company completed its initial public offering with
one-half of the net proceeds used to acquire all of the issued and outstanding
capital stock of the Bank.
The Bank provides a variety of financial services to individuals and corporate
customers through its home office in Jefferson City, Missouri and its various
branch locations in the central Missouri area. The Bank's primary deposit
products are interest-bearing checking and savings accounts and certificates of
deposit. Its primary lending products are one- to four- family residential and
consumer loans.
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of Capital Savings Bancorp, Inc., and its wholly owned
subsidiary Capital Savings Bank, FSB, and the Bank's wholly owned subsidiary
Capital Savings Financial Services, Inc. All significant intercompany
transactions and balances are eliminated in the consolidation.
Regulation: The Bank is subject to examination and regulation by the Office of
Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC).
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans. In connection
with the determination of the allowances for losses on loans, management obtains
independent appraisals for significant properties.
A majority of the Bank's loan portfolio consists of one- to four- family
residential and consumer loans in the Central Missouri area. The Central
Missouri economy is dependent upon state government, light manufacturing,
agriculture, education, medical, insurance and retail. Accordingly, the ultimate
collectibility of a substantial portion of the Bank's portfolio is susceptible
to changes in local market conditions.
While management uses available information to recognize losses on loans, future
changes to the allowance may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for losses on
loans. Such agencies may require the Bank to make changes to the allowance based
on their judgments about information available to them at the time of their
examination.
- 29 -
<PAGE>
Cash and Cash Equivalents: Cash and cash equivalents are defined as those
amounts in the consolidated statements of financial condition caption "Cash and
due from depository institutions." Cash and cash equivalents include cash and
other highly liquid instruments having an original maturity of three months or
less. For purposes of the consolidated statements of cash flows, the Company
does not include liquid debt instruments or certificates of deposit as cash
equivalents. Cash and due from depository institutions include interest-bearing
accounts totaling approximately $309,000 and $4,468,000 at June 30, 1996 and
1997, respectively.
Investment in Securities: Investments in debt and equity securities are
classified as follows:
- - Trading Securities. Investment securities held principally for resale in
the near term and mortgage-backed securities held for sale in conjunction
with the Company's mortgage banking activities are classified as trading
securities and recorded at their fair values. Unrealized gains and losses
on trading securities are included in other income. There were no trading
securities held at June 30, 1996 or 1997.
- - Securities held-to-maturity. Investment securities for which the Company
has the positive intent and ability to hold to maturity are reported at
cost, adjusted for amortization of premiums and accretion of discounts
which are recognized in interest income using the interest method over
the period to maturity.
- - Securities available-for-sale. Securities available for sale consist of
investment securities not classified as trading securities or as
securities held-to-maturity, and are recorded at fair value. Unrealized
holding gains and losses, net of tax, on securities available-for-sale
are reported as a net amount in a separate component of stockholders'
equity until realized.
Any declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary
result in write-downs of the individual securities to their fair value. The
related write-downs are included in earnings as realized losses. Gains and
losses on the sale of securities are determined using the
specific-identification method.
Loans Receivable: Loans receivable that management has the intent and ability to
hold until maturity or pay-off are reported at their outstanding principal
balances adjusted for any charge-offs, the allowance for loan losses, any
deferred fees or costs on originated loans and unamortized premiums or discounts
on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan. Discounts and
premiums on purchased loans are amortized to income using the interest method
over the remaining period to contractual maturity, adjusted for anticipated
prepayments. Commitment fees and costs relating to commitments, the likelihood
of exercise of which is remote, are recognized over the commitment period on a
straight-line basis. If the commitment is subsequently exercised during the
commitment period, the remaining unamortized commitment fee at the time of
exercise is recognized over the life of the loan as an adjustment of yield.
- 30 -
<PAGE>
Uncollectible interest on loans is charged off or an allowance is established
based on management's periodic evaluation. The allowance is established by a
charge to interest income equal to all interest previously accrued and
outstanding. Income is subsequently recognized only to the extent that cash
payments are received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments is back to normal, in which case
the loan is returned to accrual status.
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management utilizes a systematic, documented
approach in determining the appropriate level of the allowance for loan losses.
Management's approach, which provides for general and specific allowances, is
based, among other factors, on the Bank's past loan loss and collection
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
On July 1, 1995 the Bank adopted SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures (an amendment of SFAS No. 114).
The adoption of these statements did not have a material effect on the Bank's
financial condition or operating results for 1996. These pronouncements consider
a loan to be impaired when it is probable a creditor will be unable to collect
all amounts due-both principal and interest-according to the contractual terms
of the loan agreement. Such pronouncements also require that impaired loans be
measured based on the present value of expected future cash flows or at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. If the value computed is less than the recorded value
of the loan, a valuation allowance is recorded for the difference. The entire
change in valuation allowance is reported as a component of the provision for
loan losses expense.
Management applies its normal loan review procedures in determining when a loan
is impaired. Management considers impaired loans to be all loans classified as
substandard, doubtful, or loss except for smaller balance homogeneous loans
which are collectively evaluated for impairment. Impaired loans are charged off
when deemed to be uncollectible by management.
Management has elected to continue to use its existing nonaccrual methods for
recognizing interest income on impaired loans.
Real Estate Owned Held-for-Sale: Real estate properties acquired through, or in
lieu of, loan foreclosure and held-for-sale are initially recorded at fair value
at the date of foreclosure establishing a new cost basis. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value less cost to sell. Revenue
and expenses from operations and changes in the valuation allowance are included
in gain or loss on foreclosed real estate.
Premises and Equipment: Land is carried at cost. Buildings and furniture,
fixtures, and equipment are carried at cost, less accumulated depreciation and
amortization. Buildings and furniture, fixtures and equipment are depreciated
using the straight-line method over the estimated useful lives of the assets.
The costs of leasehold improvements are amortized using the straight-line method
over the terms of the related leases.
- 31 -
<PAGE>
Employee Stock Ownership Plan: Stock acquired for the Company's ESOP is recorded
as deferred compensation, which is a reduction to stockholders' equity. ESOP
shares are considered uncommitted until such time the shares are released
(committed) to the ESOP trustee for distribution to the plan's participants. As
the committed shares are released, compensation expense is recognized for the
then fair value of the stock and deferred compensation for the committed shares
is reduced by the amount of the shares' acquisition cost. Any difference between
the acquisition cost and the then fair value is credited or charged to
additional paid-in capital. Dividends paid on uncommitted ESOP shares are
recognized as compensation expense, and dividends paid on allocated shares are
recognized as a reduction of retained earnings.
Only committed shares are considered outstanding for earnings per share
calculations.
Earnings per share: Earnings per share of common stock have been computed on the
basis of the weighted average number of shares of common stock outstanding,
including committed ESOP shares and granted stock options. Treasury stock and
uncommitted ESOP shares are excluded from the weighted average number of common
shares outstanding. Because the Company issued a stock split during 1997,
earnings per share and the weighted average number of common shares outstanding
during 1995 and 1996 have been restated to reflect the stock split.
Income Taxes: Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Advertising: The Company expenses the production costs of advertising as
incurred.
- 32 -
<PAGE>
2. INVESTMENT SECURITIES
The amortized cost and fair values of investment securities at June 30 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
1996 Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Held-to-Maturity ................. $11,979,383 $ -- $ 103,364 $11,876,019
=========== =========== =========== ===========
Available-for-Sale
U.S. government and federal
agencies ............... $ 1,800,000 $ 600 $ 12,869 $ 1,787,731
Mortgage-backed securities 28,454,657 152,984 268,201 28,339,440
Equity securities ......... 179,126 -- -- 179,126
----------- ----------- ----------- -----------
$30,433,783 $ 153,584 $ 281,070 $30,306,297
=========== =========== =========== ===========
<CAPTION>
Gross Gross
1997 Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Held-to-Maturity
U.S. government and federal
agency $ 8,984,323 $ 26,849 $ 7,652 $ 9,003,520
=========== =========== ======== ===========
Available-for-Sale
U.S. government and federal
agencies $ 3,460,094 $ 33,617 $ 3,220 $ 3,490,491
Mortgage-backed securities 23,338,732 233,406 123,368 23,448,770
Equity securities 1,046,706 168,233 10 1,214,929
----------- ----------- -------- -----------
$27,845,532 $ 435,256 $126,598 $28,154,190
=========== =========== ======== ===========
</TABLE>
On December 28, 1995, pursuant to a transfer grace period allowed by Financial
Accounting Standards Board, the Bank transferred securities held-to-maturity
with a book value of $20,288,431 to the securities available-for-sale
classification. Such transfer resulted in an increase of $171,614 in the
unrealized gain on securities available-for-sale reported as a separate
component of equity.
- 33 -
<PAGE>
Gross realized gains and losses on sales of securities available-for-sale for
the year ended June 30 were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Gross realized gains $ 3,261 $ 28,876 $ 83,422
Gross realized losses (70,439) (4,905) -
-------- --------- ----------
Net realized (losses) gains $(67,178) $ 23,971 $ 83,422
======== ========= ========
Gross unrealized gains $ 153,584 $ 435,256
Gross unrealized losses (281,070) (126,598)
--------- ----------
Net unrealized (losses) gains (127,486) 308,658
Deferred tax asset (liability) (Note 9) 49,235 (119,204)
--------- ----------
Unrealized (loss) gain on securities
available-for-sale, net of deferred
taxes $ (78,251) $ 189,454
========= ==========
</TABLE>
The amortized cost and fair value of investment securities held-to-maturity and
available-for-sale at June 30, 1997, by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because securities
may be called or prepaid with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities held-to-maturity Securities available-for-sale
Amounts maturing in: Amortized Cost Fair Value Amortized Cost Fair Value
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
One year or less ........... $ -- $ -- $ 500,000 $ 496,781
After one through five years 4,987,110 4,991,830 -- --
After five through ten years 3,997,213 4,011,690 2,960,094 2,993,711
----------- ----------- ----------- -----------
8,984,323 9,003,520 3,460,094 3,490,492
Mortgage-backed securities . -- -- 23,338,732 23,448,769
Other stock, at cost ....... -- -- 1,046,706 1,214,929
----------- ----------- ----------- -----------
$ 8,984,323 $ 9,003,520 $27,845,532 $28,154,190
=========== =========== =========== ===========
</TABLE>
The investment in FHLB stock of $2,100,000 and $3,025,000 at June 30, 1996 and
1997, respectively, is recorded at cost, considered a restricted asset, and
pledged as collateral security for indebtedness to the Federal Home Loan Bank of
Des Moines (FHLB).
The Company has pledged government and mortgage-backed securities to secure
deposits of certain customers which exceeded the maximum insurance or those not
covered by the Savings Association Insurance Fund (SAIF) and to secure advances
from the FHLB. At June 30, 1996 and 1997, these pledged assets had a carrying
value of $26,428,446 and $25,466,173, respectively.
- 34 -
<PAGE>
3. LOANS
Loans receivable at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Mortgage loans (principally conventional):
One- to four-family residences .......... $ 146,475,588 $ 163,585,999
Multi-family ............................ 1,767,511 6,174,708
Commercial .............................. 5,618,792 5,992,921
Construction ............................ 2,939,526 1,472,620
------------- -------------
156,801,417 177,226,248
Less:
Loans in process ..................... 1,484,711 800,519
Net deferred loan-origination fees ... 191,446 194,255
------------- -------------
Net mortgage loans ............. 155,125,260 176,231,474
------------- -------------
Consumer and other loans:
Automobile .............................. 4,070,933 4,799,107
Loan on savings ......................... 973,150 917,077
Home equity and second mortgage ......... 5,774,683 7,254,621
Student ................................. 366,377 326,367
Unsecured ............................... 441,073 695,740
Other ................................... 505,842 717,668
------------- -------------
Total consumer and other loans . 12,132,058 14,710,580
------------- -------------
Total loans receivable ......... 167,257,318 190,942,054
Less allowance for loan losses ................. 634,087 739,369
------------- -------------
Loans receivable, net .......... $ 166,623,231 $ 190,202,685
============= =============
</TABLE>
Activity in the allowance for loan losses is summarized as follows for the years
ended June 30:
<TABLE>
<CAPTION>
1995 1996 1997
---------- --------- ----------
<S> <C> <C> <C>
Balance, beginning of year $ 454,087 $ 514,087 $ 634,087
Provision charged to income 60,000 120,000 120,000
Charge-offs - - (17,419)
Recoveries - - 2,701
---------- --------- ----------
Balance, end of year $ 514,087 $ 634,087 $ 739,369
========== ========= ==========
</TABLE>
- 35 -
<PAGE>
The following information relates to impaired loans as of, and for the years
ended, June 30:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Recorded investment in impaired loans for which there is no need for
a valuation allowance, based upon the measure of the loan's fair value of
underlying collateral $ 299,971 $ 673,550
=========== ===========
Average recorded investment in impaired loans during the year $ 196,383 $ 690,740
=========== ===========
Interest income recognized for cash payments received on impaired loans
during the year $ 21,239 $ 45,203
=========== ===========
</TABLE>
Loans to officers and directors approximated $256,000 and $272,000 at June 30,
1996 and 1997, respectively.
Mortgage loans serviced for the Federal Home Loan Mortgage Corporation (FHLMC)
are not included in the accompanying consolidated statements of financial
condition. The unpaid principal balances of these loans at June 30 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Mortgage loan portfolio serviced for FHLMC $ 47,147,792 $ 41,015,652
============ ============
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $175,000 and $307,000 at June 30, 1996 and 1997,
respectively.
4. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at June 30 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Investment securities ................ $ 443,980 $ 412,579
Loans receivable ..................... 957,129 1,052,642
---------- ----------
$1,401,109 $1,465,221
========== ==========
</TABLE>
- 36 -
<PAGE>
5. REAL ESTATE OWNED HELD-FOR-SALE
Real estate owned held-for-sale at June 30 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Real estate owned held-for-sale, acquired by
foreclosure $ 43,618 $ 80,962
Allowance for losses (12,064) (12,064)
--------- ---------
Real estate owned held-for-sale, net $ 31,554 $ 68,898
========= =========
</TABLE>
Income from real estate owned held-for-sale for the years ended June 30 is as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Income (expenses) of real estate owned held-for-sale $ 6,573 $ (3,716) $ (2,856)
Gain on sale of real estate owned held-for-sale .... -- 32,701 1,150
-------- -------- --------
$ 6,573 $ 28,985 $ (1,706)
======== ======== ========
</TABLE>
There was no activity in the allowance for losses for real estate owned
held-for-sale for each of the three years in the period ended June 30, 1997.
6. PREMISES AND EQUIPMENT
Premises and equipment at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Land ............................................. $ 395,187 $ 364,186
Buildings ........................................ 1,859,725 1,900,845
Leasehold improvements ........................... 158,147 502,125
Furniture, fixtures and equipment ................ 753,788 770,164
Automobiles ...................................... 15,614 45,601
---------- ----------
3,182,461 3,582,921
Less accumulated depreciation and amortization ... 1,191,720 1,351,775
---------- ----------
$1,990,741 $2,231,146
========== ==========
</TABLE>
- 37 -
<PAGE>
Depreciation expense for the years ended June 30, 1995, 1996, and 1997 totaled
$223,565, $260,692 and $312,489, respectively.
The Bank is obligated under operating leases on real and personal property at
several of its locations. Rental expense for all operating leases for the years
ended June 30, 1995, 1996, and 1997 approximated $36,000, $51,000 and $78,000,
respectively.
Future minimum rental commitments under noncancellable leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 59,600
1999 56,850
2000 58,850
2001 60,850
2002 67,850
Thereafter 720,650
-------------
$ 1,024,650
=============
</TABLE>
7. DEPOSITS
Deposits at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Demand deposits .................. $ 11,803,558 $ 17,718,981
Savings deposits ................. 24,226,441 29,246,156
Time deposits .................... 116,314,792 124,073,822
------------ ------------
$152,344,791 $171,038,959
============ ============
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $8,358,000 and $13,520,469 at June
30, 1996 and 1997, respectively.
At June 30, 1997, scheduled maturities of time deposits were as follows:
<TABLE>
<CAPTION>
Amount
-------------
<S> <C>
1998 $ 93,021,339
1999 19,378,130
2000 7,354,667
2001 3,258,618
2002 and thereafter 1,061,068
-------------
$ 124,073,822
=============
</TABLE>
- 38 -
<PAGE>
8. BORROWED FUNDS
Borrowed funds at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------ -------------
<S> <C> <C>
Advances from FHLB $ 42,000,000 $ 46,500,000
============ =============
</TABLE>
Information concerning advances from FHLB is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Average balance during the year .............. $22,655,800 $49,125,000
Average interest rate at year end ............ 5.65% 5.68%
Maximum month end balance during the year .... $42,000,000 $53,000,000
=========== ===========
Mortgage-backed securities pledged for the
agreement at year end:
Carrying value ........................ $23,110,216 $ 5,965,879
Estimated fair value .................. $23,048,009 $ 6,159,455
</TABLE>
At June 30, 1997, advances from the FHLB are scheduled to mature in the
following fiscal years:
<TABLE>
<CAPTION>
<S> <C>
1998 $34,500,000
1999 3,000,000
2000 6,000,000
2001 3,000,000
-----------
$46,500,000
===========
</TABLE>
The Bank has signed a blanket pledge agreement with the FHLB under which it can
draw advances of unspecified amounts from the FHLB. The Bank must hold an
unencumbered portfolio of eligible one- to four-family residential mortgages
with a book value of not less than 150% of the indebtedness.
- 39 -
<PAGE>
9. INCOME TAXES
The Company and its subsidiary file consolidated federal income tax and
individual state tax returns on a fiscal year basis. Historically, the Bank was
allowed a special bad-debt deduction based on a percentage of taxable income (8
percent for 1995 and 1996) or on specified experience formulas. The Bank used
the percentage method in 1995 and 1996. Recent legislation repealed the
percentage of taxable income method of computing bad debt deductions for tax
years beginning after December 31, 1995. Effective for fiscal 1997, the Bank is
required to compute its bad debt deduction based on specified experience
formulas.
Generally accepted accounting principles allow an exception for providing a
deferred tax liability on bad debt reserves for tax purposes of qualified thrift
lenders such as the Bank that arose in fiscal years beginning before June 30,
1988. Such bad debt reserve for the Bank amounted to approximately $624,000 with
an income tax effect of $243,000 at June 30, 1997. This bad debt reserve would
become taxable if the Bank does not maintain certain qualifying assets as
defined, if the reserve is charged for other than bad debt losses, or if the
Bank does not maintain its thrift charter.
Recent legislation will require the Bank to be subject to tax of approximately
$230,000 on post - 1987 bad debt reserves. Such tax will be payable over a six
to seven year period beginning in fiscal 1997 and is included in deferred tax
liabilities in the accompanying consolidated statements of financial condition.
Federal income taxes payable at June 30 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Current .................................... $124,030 $569,216
Deferred ................................... 224,016 381,191
-------- --------
Federal income taxes payable ............... $348,046 $950,407
======== ========
</TABLE>
The consolidated provision (benefit) for income taxes consisted of the following
for the years ended June 30:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal:
Current $ 884,690 $ 1,087,128 $ 886,107
Deferred 38,519 (74,209) (11,265)
State:
Current 132,563 164,484 141,205
----------- ----------- -----------
$ 1,055,772 $ 1,177,403 $ 1,016,047
=========== =========== ===========
</TABLE>
- 40 -
<PAGE>
The reasons for the differences between the statutory federal income tax rates
and the effective tax rates are summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rates ....... 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State income taxes ................ 4.7% 5.4% 5.5%
Other ............................. (1.5)% (0.6)% 0.1%
---- ---- ----
37.2% 38.8% 39.6%
==== ==== ====
</TABLE>
The tax effects of temporary differences between the financial reporting basis
and income tax basis of assets and liabilities that are included in the net
deferred tax liability at June 30 relate to the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Cash/accrual differences $ 302,445 $ 311,897
Interest and fees on loans 74,474 75,759
Unrealized loss on securities available-for-sale 49,235 -
Other 5,535 1,489
---------- ----------
Total deferred tax assets 431,689 389,145
---------- ----------
Deferred tax liabilities:
Allowance for losses on loans and real estate
owned held-for-sale 437,911 353,104
FHLB stock dividends 207,252 207,252
Unrealized gain on securities available-for-sale - 119,204
Compensation programs 10,542 90,776
---------- ----------
Total deferred tax liabilities 655,705 770,336
---------- ----------
Net deferred tax liability $(224,016) $(381,191)
========== ==========
</TABLE>
- 41 -
<PAGE>
10. REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. The regulations require the Bank to meet specific
capital adequacy guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classifications
are also subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Tangible, Tier I, and Risk-based capital (as defined in the
regulations). Management believes, as of June 30, 1997, the Bank meets all
capital adequacy requirements to which it is subject.
As of June 30, 1997, the most recent notification from the OTS categorized the
Bank as well-capitalized under the regulatory framework for prompt corrective
action. A well-capitalized institution significantly exceeds the required
minimum level for each relevant capital measure. There are no conditions or
events since that notification that management believes have changed the
institution's category.
During fiscal 1997, the Bank received OTS approval to distribute to the Company
on a quarterly basis dividends equal to one-half of the Bank's net income.
- 42 -
<PAGE>
<TABLE>
<CAPTION>
(dollars in thousands)
To Be Well Capitalized
Minimum For Capital For Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ------------------- ---------------------
Ratio Amount Ratio Amount Ratio Amount
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1996:
Stockholders' equity, and ratio to
total assets ...................... 8.7% $ 18,838
====
Unrealized loss on securities
available-for-sale ................ 78
--------
Tangible capital, and ratio to
adjusted total assets ............. 8.7% $ 18,916 1.5% $ 3,266
==== ======== ==== ========
Tier 1 (core) capital, and ratio to
adjusted total assets ............. 8.7% $ 18,916 3.0% $ 6,533 5.0% $ 10,888
==== ======== ==== ======== ==== ========
Tier 1 capital, and ratio to risk-
weighted assets ................... 17.9% $ 18,916 6.0% $ 6,349
==== ==== ========
Allowance for loan and lease losses .. 646
--------
Total risk-based capital, and ratio to
risk-weighted assets .............. 18.5% $ 19,562 8.0% $ 8,465 10.0% $ 10,581
==== ======== ==== ======== ==== ========
Total assets ......................... $217,684
========
Adjusted total assets ................ $217,763
========
Risk-weighted assets ................. $105,809
========
</TABLE>
- 43 -
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)
To Be Well Capitalized
Minimum For Capital For Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ------------------- ---------------------
Ratio Amount Ratio Amount Ratio Amount
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997:
Stockholders' equity, and ratio to
total assets ......................... 7.9% $ 19,127
====
Unrealized gain on securities
available-for-sale ................... (86)
---------
Tangible capital, and ratio to
adjusted total assets ................ 7.9% $ 19,041 1.5% $ 3,618
==== ========= ==== =========
Tier 1 (core) capital, and ratio to
adjusted total assets ................ 7.9% $ 19,041 3.0% $ 7,236 5.0% $ 12,060
==== ========= ==== ========= ==== =========
Tier 1 capital, and ratio to risk-
weighted assets ...................... 16.0% $ 19,041 6.0% $ 7,148
==== ========= ===== =========
Allowance for loan and lease losses .. 739
---------
Total risk-based capital, and ratio to
risk-weighted assets ................. 16.6% $ 19,780 8.0% $ 9,530 10.0% $ 11,913
==== ========= ==== ========= ===== =========
Total assets ......................... $ 241,283
=========
Adjusted total assets ................ $ 241,197
=========
Risk-weighted assets ................. $ 119,125
=========
</TABLE>
11. EMPLOYEE BENEFITS
Pension Plan: All Company employees who are twenty-one years of age and have
been employees for at least one year are included in a trusteed, defined benefit
pension plan. The benefits contemplated by the plan are funded through payments
to the Financial Institutions Retirement Fund, which operates as a
multi-employer plan and does not report relative plan assets and actuarial
liabilities of the individual participating institutions. The cost of funding is
charged to current operations. Net pension cost totaled $ -0- for each of the
years ended June 30, 1995, 1996 and 1997. As of July 1, 1987 the plan was fully
funded and all employer contributions were suspended until further notice from
the plan administrator. Administrative fees are still paid while the plan is in
full funding.
- 44 -
<PAGE>
Employee Stock Ownership Plan: In conjunction with the Bank's conversion, the
Company formed an ESOP which covers substantially all employees with more than
one year of employment, have completed 1,000 hours of service, and who have
attained the age of 21. The ESOP borrowed $938,400 from the Company and
purchased common shares equal to 8% of the total number of shares issued in the
conversion. The ESOP debt is secured by shares of the Company. The Bank will
make scheduled discretionary contributions to the ESOP sufficient to service the
debt. At June 30, 1996 and 1997, the balance outstanding on this debt was
$615,825 and $498,525. As the debt is paid down, the number of shares to be
released from serving as collateral is computed as the ratio of the current
principal plus interest to the total original principal plus interest to be
paid. Deferred compensation relating to the ESOP was $583,259 and $461,805 at
June 30, 1996 and 1997, respectively, and is reported as a reduction of
stockholders' equity. Compensation expense totaled $256,958 and $337,334 in 1996
and 1997, respectively, which included dividends paid on uncommitted ESOP shares
totaling $22,296 and $25,997 in 1996 and 1997, respectively.
The following is a summary of ESOP shares at June 30. Amounts for 1996 have been
restated to reflect the stock split issued in 1997.
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Allocated shares 46,224 75,080
Committed-to-be-released shares 26,074 24,749
Uncommitted shares 115,382 90,633
----------- ----------
Total ESOP shares 187,680 190,462
=========== ==========
Fair value of uncommitted shares $ 2,076,876 $3,260,940
=========== ==========
</TABLE>
ESOP participants entitled to a distribution have the right to demand such
distribution in the form of the Company's common stock. In the event that the
Company's common stock is not readily tradeable on an established market,
participants are entitled to require that the Company repurchase the common
stock under a fair valuation formula, as provided by governmental regulations.
Recognition and Retention Plan: In conjunction with the Bank's conversion, the
Company formed an RRP which was authorized to award 4% of the total shares of
common stock issued in the conversion. As of June 30, 1996 and 1997, the Company
has awarded a total of 77,168 and 92,986 shares of common stock, respectively,
to directors and employees in key management positions in order to provide them
with a proprietary interest in the Company in a manner designed to encourage
such employees to remain with the Company. As of June 30, 1997, a total of 854
common shares remain available to be awarded under the Plan.
Deferred compensation, representing the shares' fair market value at the date of
award, is charged to income on an accelerated basis over the five year vesting
period as the Bank's directors and employees perform the related future
services. The unamortized balance of $31,110 and $171,176 as of June 30, 1996
and 1997, respectively, is reflected as a reduction of stockholders' equity. The
Company recognized $43,824 and $72,286 as compensation and benefits expense
relating to this plan for the years ended June 30, 1996 and 1997, respectively.
- 45 -
<PAGE>
Stock Option and Incentive Plan: In conjunction with the Bank's conversion, the
Company established a stock option and incentive plan for the benefit of
directors and employees of the Company and Bank. The plan became effective upon
its adoption by the Board of Directors of the Company and approval of the plan
by the stockholders' of the Company in October, 1994. The number of authorized
but unissued shares reserved under the plan is 234,600. Granted stock options
are regarded as common stock equivalents and are considered in earnings per
share calculations. At June 30, 1996 and 1997, no options have been exercised
nor stock issued for this plan.
The stock options may be either incentive stock options or nonqualified stock
options. Incentive stock options can be granted only to participants who are
employees of the Company or its subsidiaries. The exercise price of an incentive
stock option must not be less than the market value of the Company's stock on
the date of the grant. All options expire no later than 10 years from the date
of grant. The options vest at the rate of 33 1/3% per year over a three-year
period.
A summary of the status of the plan at June 30, 1996 and 1997, and changes
during the years then ended is presented below:
<TABLE>
<CAPTION>
1996 1997
------------------------------- -------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
--------- ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 163,046 $ 5.00 163,046 $ 5.00
Granted - - 47,300 13.44
Exercised - - - -
Forfeited - - - -
--------- --------
Outstanding, end of year 163,046 5.00 210,346 6.90
========= ========
Options exercisable, end of year 108,697 163,046
========= ========
</TABLE>
The fair value of each option granted is estimated on the date of the grant
using the Black Scholes pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Dividends per share $ 0.170 $ 0.225
Risk-free interest rate 6.60% 6.36%
Expected life of options 5 years 5 years
Weighted-average fair value of options
granted during the year - $ 4.00
</TABLE>
- 46 -
<PAGE>
The following table summarizes information about stock options under the plan
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- ----------------------------
Range of Number Remaining Number Exercise
Exercise Prices Outstanding Contractual Life Exercisable Price
--------------- ----------- ---------------- ----------- -----
<S> <C> <C> <C> <C>
$ 5.00 163,046 6.50 years 163,046 $ 5.00
$ 13.44 47,300 9.50 years - -
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plans, and no compensation cost has been recognized for the plan. Had
compensation cost for the Company's plan been determined based on the fair value
at the grant dates using Statement of Financial Accounting Standards No. 123,
the Company's net income would have decreased by approximately $26,000 for 1996
and $31,000 for 1997, and earnings per share would have decreased by $.02 for
1996 and 1997, respectively. The effects of applying this statement for either
recognizing compensation cost or providing pro forma disclosures are not likely
to be representative of the effects on reported net income for future years
because options vest over several years.
Executive Employment and Salary Continuation Agreements: Under an employment
agreement with the President and Chief Executive Officer, the Company and the
Bank will provide severance payments in the event of an involuntary termination
of employment in connection with a change in control of the Company, as defined
in the contract. If the employment of the President and Chief Executive Officer
were to be terminated as of June 30, 1997 pursuant to a change in control, he
would be entitled to receive a severance payment amounting to approximately
$391,000.
On November 1, 1994, the Bank executed a salary continuation agreement with the
President and Chief Executive Officer to provide monthly post-retirement
payments under terms defined in the agreement. The agreement also specifies
provisions for benefits in the events of death, disability, or termination prior
to retirement. The Bank recognized approximately $28,000 as compensation and
benefits expense relating to this agreement for each of the years ended June 30,
1996 and 1997, respectively.
12. TREASURY STOCK
The Company acquired 114,050 shares, 51,900 shares and 49,179 shares of its
common stock on the open market to be held in treasury during the years ended
June 30, 1995, 1996, and 1997, respectively. The Company paid $13.625 to $19.625
per common stock share to acquire the stock and carries the stock at cost.
During the year ended June 30, 1997, 15,800 shares were issued pursuant to
awards under the Company's RRP. At June 30, 1996 and 1997, the Company held
224,410 and 257,789 common shares in treasury, respectively.
- 47 -
<PAGE>
13. OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income and expense amounts are summarized as follows for the
years ended June 30:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Other noninterest income:
Loan late charges ......................... $ 31,796 $ 33,923 $ 46,609
Net income (loss) from real estate owned
held-for-sale (Note 5) ................. 6,573 28,985 (1,706)
Other miscellaneous ....................... 3,743 6,454 27,804
----------- ----------- -----------
$ 42,112 $ 69,362 $ 72,707
=========== =========== ===========
Other noninterest expense:
Printing, postage, stationery, and supplies $ 202,722 $ 240,339 $ 367,273
Telephone ................................. 52,545 56,998 64,195
Insurance and surety bond ................. 56,666 44,760 62,042
Supervisory examinations .................. 53,627 55,147 65,086
Professional fees ......................... 142,418 107,984 90,008
Data processing ........................... 209,658 233,202 297,483
Advertising expense ....................... 222,927 304,340 493,983
Other operating expense ................... 266,983 249,328 287,001
----------- ----------- -----------
$ 1,207,546 $ 1,292,098 $ 1,727,071
=========== =========== ===========
</TABLE>
14. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit. Those instruments involve, to
varying degrees, elements of credit and interest risk in excess of the amount
recognized in the Consolidated Statements of Financial Condition. The
contractual amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend funds for a loan to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates. The Company
evaluates each customer's creditworthiness and related collateral on a
case-by-case basis.
- 48 -
<PAGE>
The Company's exposure to market loss in the event of future changes in market
prices rendering these financial instruments less valuable is represented by the
contractual amount of the instruments.
The Company's exposure to accounting loss on these financial instruments is a
combination of the credit and market risk described above.
The Company does not require collateral or other security to support financial
instruments with credit risk.
The Company is not committed to lend additional funds to debtors whose loans
have been modified.
At June 30, 1997, the Company had approximate outstanding commitments to
originate loans of $1,997,000. Fixed-rate loan commitments were $808,000 in
first mortgage loans committed at interest rates ranging from 7.625% to 8.375%.
Variable-rate loan commitments were $1,189,000 in first mortgage loans with
interest rates ranging from 6.25% to 8%.
The Company also offers home equity and other lines of credit for its customers.
At June 30, 1997, the outstanding lines of credit available totaled
approximately $4,726,000.
Fair value estimates, methods and assumptions for the Company's financial
instruments are set forth below, as of June 30:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1997
----------------------- -----------------------
Carrying Fair Carrying Fair
ASSETS Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and due from depository institutions .. $ 2,973 $ 2,973 $ 7,953 $ 7,953
Securities available-for-sale .............. 30,306 30,306 28,154 28,154
Securities held-to-maturity ................ 11,979 11,876 8,984 9,004
Stock in FHLB .............................. 2,100 2,100 3,025 3,025
Mortgage loans ............................. 155,125 156,707 176,231 178,114
Consumer loans ............................. 12,132 12,169 14,711 14,714
Accrued interest receivable ................ 1,401 1,401 1,465 1,465
LIABILITIES
Savings and transaction accounts ........... 36,030 36,030 46,965 46,965
Certificates of deposit .................... 116,315 116,566 124,074 124,099
Borrowed funds ............................. 42,000 41,787 46,500 46,345
All other liabilities ...................... 3,128 3,128 3,639 3,639
</TABLE>
Cash and Due from Depository Institutions: The carrying amounts of cash and due
from depository institutions approximate their fair value.
Securities Available-for-Sale and Securities Held-to-Maturity: Fair values for
securities are based on market prices from published sources or dealer quotes
for like or similar securities.
- 49 -
<PAGE>
Stock in FHLB: This stock is considered a restricted asset and its carrying
value is a reasonable estimate of fair value.
Mortgage Loans: The fair value of mortgage loans is calculated by using
discounted cash flow analysis with discount rates based on secondary market
sources. The majority of real estate loans are residential. Mortgage loans are
segregated by fixed and adjustable interest terms. Fair values for impaired
loans are estimated using discounted cash flow analysis.
Consumer Loans: The fair value of consumer loans is calculated by using
discounted cash flow analysis based upon the current market for like
instruments.
Accrued Interest Receivable: The carrying value approximates fair value.
Savings and Transaction Accounts: Savings and transaction deposits, payable on
demand or with maturities of 90 days or less, have a fair value equal to book
value.
Certificates of Deposit: The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar maturities.
Borrowed Funds: The carrying value of short term borrowings maturing in 90 days
or less approximates fair value. The fair value of borrowings having a maturity
greater than 90 days is estimated by discounting the future cash flows using
rates currently offered for other similar maturities.
All Other Liabilities: The carrying value approximates fair value.
Off-Balance-Sheet Instruments: The fair value of a loan commitment and a letter
of credit is determined based on the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreement and
the present creditworthiness of the counter parties. Neither the fees earned
during the year on these instruments nor their value at year-end are significant
to the Company's consolidated financial position.
Limitations: Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument. The
valuation techniques employed above involve uncertainties and are affected by
assumptions used and judgements regarding prepayments, credit risk, discount
rates, cash flows and other factors. Changes in assumptions could significantly
affect the reported fair value.
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. For example, the Company has a mortgage
servicing portfolio that contributes net fee income annually. The mortgage
servicing portfolio is not considered a financial instrument and its value has
not been incorporated into the fair value estimates. Also, the fair value
estimates do not include the benefit that results from the low-cost funding
provided by the deposit liabilities compared to the cost of borrowing funds in
the market.
- 50 -
<PAGE>
15. CONVERSION TO STOCK OWNERSHIP
On June 24, 1993, the Board of Directors of the Bank adopted a plan of
conversion pursuant to which the Bank converted from a state-chartered mutual
association to a federal-chartered stock institution with the concurrent
formation of the holding company which acquired all of the common stock of the
Bank. In addition to common stock, the Company was also authorized to issue
800,000 shares of $.01 par value preferred stock. At June 30, 1996 and 1997, no
shares of preferred stock have been issued.
As part of the conversion, the Bank established a liquidation account for the
benefit of eligible depositors who continued to maintain their deposit accounts
in the Bank after the conversion. In the unlikely event of a complete
liquidation of the Bank, and only in such event, each eligible depositor will be
entitled to receive a liquidation distribution from the liquidation account in
the proportionate amount of the then-current adjusted balance for deposit
accounts held, before distribution may be made with respect to the Bank's
capital stock. The Bank may not declare or pay a cash dividend to the Company
on, or repurchase any of, its capital stock if the effect thereof would cause
the retained earnings of the Bank to be reduced below the amount required for
the liquidation account. Except for such restrictions, the existence of the
liquidation account does not restrict the use or application of retained
earnings.
The Bank's capital exceeds all of the fully phased-in capital requirements
imposed by OTS. OTS regulations provide that an institution that exceeds all
fully phased-in capital requirements before and after a proposed capital
distribution and, like the Bank, has not been notified of a need for more than
normal supervision could, after prior notice but without approval by the OTS,
make capital distributions during the calendar year of up to 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar year. Any
additional capital distributions would require prior regulatory approval.
Unlike the Bank, the Company is not subject to these regulatory restrictions on
the payment of dividends to its stockholders. However, the source of future
dividends may depend upon dividends from the Bank.
16. RECAPITALIZATION OF THE SAVINGS ASSOCIATION INSURANCE FUND (SAIF)
On September 30, 1996, legislation was enacted to recapitalize the SAIF which
required savings institutions with SAIF insured deposits to pay a one time
special assessment of 65.7 cents per $100 of deposits at March 31, 1995. The
Bank's special assessment amounted to approximately $959,000 and is included in
non-interest expense in the consolidated statement of income for the year ended
June 30, 1997. Subsequent to the special assessment, the Bank's SAIF assessment
rate on deposits decreased from 23 cents to approximately 6.5 cents per $100 of
deposits.
- 51 -
<PAGE>
17. PARENT COMPANY FINANCIAL INFORMATION
The following tables present condensed financial information of the parent
company, Capital Savings Bancorp, Inc.
<TABLE>
<CAPTION>
Condensed Statements of Financial Condition
June 30, 1996 and 1997
(Dollars in thousands)
1996 1997
------- -------
<S> <C> <C>
ASSETS
Cash and due from depository institutions .............. $ 647 $ 361
Securities available-for-sale .......................... 179 1,215
Investment in subsidiary ............................... 18,838 19,127
Other assets ........................................... 849 707
------- -------
Total assets ................................... $20,513 $21,410
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities .................................... $ 32 $ 70
Stockholders' equity ................................... 20,481 21,340
------- -------
Total liabilities and stockholders' equity ..... $20,513 $21,410
======= =======
<CAPTION>
Condensed Statements of Income
For the years ended June 30, 1995, 1996 and 1997
(Dollars in thousands)
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Income
Income from securities available-for-sale ....... $ 112 $ 54 $ 14
Other interest .................................. 61 64 55
Gain on sale of securities available-for-sale ... -- -- 76
------- ------- -------
173 118 145
------- ------- -------
Expenses
Compensation and benefits ....................... 135 44 72
Other ........................................... 155 87 123
------- ------- -------
290 131 195
------- ------- -------
(Loss) before income taxes and equity in undistributed
earnings of subsidiary ............................. (117) (13) (50)
Benefit from income taxes ............................ 38 3 16
Equity in undistributed earnings of subsidiary ....... 1,861 1,870 1,584
------- ------- -------
Net income ........................................... $ 1,782 $ 1,860 $ 1,550
======= ======= =======
</TABLE>
- 52 -
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
For the years ended June 30, 1995, 1996 and 1997
(Dollars in thousands)
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income .................................................. $ 1,782 $ 1,860 $ 1,550
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of subsidiary ........... (1,861) (1,870) (1,584)
Loss (gain) on sale of securities ........................ 23 -- (76)
Compensation expense - RRP ............................... 135 44 72
Change in other assets ................................... (70) (54) (40)
Change in other liabilities .............................. 28 4 38
------- ------- -------
Net cash provided (used) by operating activities ... 37 (16) (40)
------- ------- -------
Cash Flows From Investing Activities
Dividends from Capital Savings Bank, FSB .................... -- -- 1,770
Purchases of securities available-for-sale .................. -- (1,379) (960)
Sale / maturity of securities available-for-sale ............ 1,960 2,692 169
(Increase) decrease in certificates of deposit .............. 300 -- --
------- ------- -------
Net cash provided by investing activities .......... 2,260 1,313 979
------- ------- -------
Cash Flows From Financing Activities
Acquisition of treasury stock ............................... (1,770) (968) (941)
Payment received on loan to ESOP (other asset) .............. 138 117 117
Dividends paid .............................................. (310) (327) (401)
------- ------- -------
Net cash (used) by financing activities ............ (1,942) (1,178) (1,225)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 355 119 (286)
Cash and cash equivalents, beginning of period .............. 173 528 647
------- ------- -------
Cash and cash equivalents, end of period .................... $ 528 $ 647 $ 361
======= ======= =======
Supplemental Disclosure of Non-Cash Transactions
Treasury stock issued as deferred ...........................
compensation - RRP ....................................... $ -- $ -- $ 220
Par value of common stock issued due to stock split ......... $ -- $ -- $ 9
</TABLE>
- 53 -
<PAGE>
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly data for fiscal year 1997 are presented below:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
September December 31, March 31, June 30,
30, 1996 1996 1997 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income ............................. $ 4,289 $ 4,445 $ 4,433 $ 4,560
Total interest expense ............................ (2,508) (2,600) (2,578) (2,679)
------- ------- ------- -------
Net interest income ............................... 1,781 1,845 1,855 1,881
Provision for loan losses ......................... (30) (30) (30) (30)
------- ------- ------- -------
Net interest income after provision for loan losses 1,751 1,815 1,825 1,851
Total noninterest income .......................... 237 274 355 370
Total noninterest expense ......................... (2,186) (1,215) (1,264) (1,248)
------- ------- ------- -------
Income (loss) before income taxes ................. (198) 874 916 973
(Provision) benefit for income taxes .............. 73 (337) (363) (388)
------- ------- ------- -------
Net income (loss) ................................. $ (125) $ 537 $ 553 $ 585
======= ======= ======= =======
Earnings (loss) per share ......................... $ (0.07) $ 0.29 $ 0.29 $ 0.31
======= ======= ======= =======
</TABLE>
- 54 -
<PAGE>
CAPITAL SAVINGS BANCORP, INC.
STOCKHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of stockholders will be held at 9:00 a.m., Thursday, October
30, 1997, at the Capitol Plaza Hotel located at 415 W. McCarty Street, Jefferson
City, Missouri.
STOCK LISTING
The Company's stock is traded on the Nasdaq National Market under the symbol
"CAPS".
PRICE RANGE OF COMMON STOCK
The table below shows the price range of common stock for each quarter of fiscal
years 1997 and 1996. This information, provided by the Nasdaq, is presented to
reflect the 2-for-1 stock split completed November 22, 1996. These prices do not
represent actual transactions and do not include retail mark-ups, mark-downs or
commissions.
FISCAL 1997 High Low Dividends
- -----------
First Quarter $11.25 $ 9.00 $0.045
Second Quarter $14.75 $11.13 $0.06
Third Quarter $14.75 $12.75 $0.06
Fourth Quarter $18.75 $12.75 $0.06
FISCAL 1996
First Quarter $ 9.13 $ 8.25 $0.04
Second Quarter $ 9.38 $ 8.63 $0.04
Third Quarter $ 9.50 $ 8.88 $0.045
Fourth Quarter $ 9.75 $ 8.88 $0.045
Dividend payment decisions are made based on a variety of factors including
earnings, financial condition, market considerations and regulatory
restrictions. Restrictions on dividend payments are described in Notes 10 and 15
of the Notes to Consolidated Financial Statements included in this report.
As of September 10, 1997, the Company had approximately 950 stockholders of
record(including approximately 315 persons or entities holding stock in nominee
or street name through various brokerage firms) and 1,891,800 outstanding shares
of common stock.
SHAREHOLDERS AND GENERAL INQUIRIES TRANSFER AGENT
David V. Meyer Register and Transfer Company
Capital Savings Bancorp, Inc. 10 Commerce Drive
425 Madison Street Cranford, New Jersey 07016
Jefferson City, Missouri 65101 (908) 272-8511
(573) 635-4151
- 55 -
<PAGE>
ANNUAL AND OTHER REPORTS
The Company is required to file an annual report on Form 10-KSB for its fiscal
year ended June 30, 1997 with the Securities and Exchange Commission. Copies of
the Company's annual and quarterly reports may be obtained without charge by
contacting:
David V. Meyer
Capital Savings Bancorp, Inc.
425 Madison Street
Jefferson City, Missouri 65101
(573) 635-4151
- 56 -
<PAGE>
CAPITAL SAVINGS BANCORP, INC.
CORPORATE INFORMATION
COMPANY AND BANK ADDRESS
425 Madison Street Telephone: (573) 635-4151
Jefferson City, Missouri 65101 Fax: (573) 636-4122
DIRECTORS OF THE BOARD
Larry V. Schepers
Chairman of the Board, President and Chief
Executive Officer of Capital Savings
Bancorp, Inc. and Capital Savings Bank, FSB
Jefferson City, Missouri
Ralph J. Kalberloh
Retired Executive Vice President of the Missouri
Automobile Dealer's Association
Consultant for Northwood University of
Midland, Michigan
Frank A. Sloan
Active Emeritus Agent associated with Bankers
Life and Casualty
Jefferson City, Missouri
Wayne R. Walquist
Chairman of the Board, President and
founder of the Family Benefit Life Insurance
Jefferson City, Missouri
Arthur F. Wankum
Executive Vice President and Chief Financial
Officer of Capital Savings Bancorp, Inc. and
Capital Savings Bank, FSB
Jefferson City, Missouri
Joseph E. Forck
Senior Vice President of Capital Savings
Bank, FSB
Jefferson City, Missouri
CAPITAL SAVINGS BANCORP, INC. OFFICERS
Larry V. Schepers
Chairman of the Board, President and
Chief Executive Officer
Marilyn Curtit
Corporate Secretary
Arthur F. Wankum
Executive Vice President and
Chief Financial Officer
- 57 -
<PAGE>
CAPITAL SAVINGS BANK, FSB OFFICERS
Larry V. Schepers
Chairman of the Board, President and
Chief Executive Officer
Joseph E. Forck
Senior Vice President
Shannon C. Britt
Vice President - Lending Operations
Arthur F. Wankum
Executive Vice President and
Chief Financial Officer
Charles Wm. Clark
Senior Vice President
Marilyn Curtit
Corporate Secretary
INDEPENDENT AUDITORS
Williams-Keepers LLP
107 Adams Street
Jefferson City, Missouri 65101
SPECIAL COUNSEL
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005
- 58 -
Exhibit 21
Subsidiaries of the Registrant
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of
Percentage Incorporation
of or
Parent Subsidiary Ownership Organization
------ ---------- --------- ------------
<S> <C> <C> <C>
Capital Savings Bancorp, Inc. Capital Savings Bank, FSB 100% Federal
Capital Savings Bank, FSB Capital Savings Financial 100% Missouri
Services, Inc.
</TABLE>
The financial statements of Capital Savings Bancorp, Inc. are
consolidated with those of its subsidiaries.
Exhibit 23
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to the incorporation by reference in the Registration Statement
#33-89062 of the Capital Savings Bancorp, Inc. 1993 Stock Option and Incentive
Plan on Form S-8 of our report dated August 1, 1997, contained in this annual
report on Form 10-KSB of Capital Savings Bancorp, Inc. for the year ended June
30, 1997.
/s/ Williams-Keepers LLP
Williams-Keepers LLP
Jefferson City, Missouri
September 25, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,485,414
<INT-BEARING-DEPOSITS> 4,468,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,154,190
<INVESTMENTS-CARRYING> 12,009,323
<INVESTMENTS-MARKET> 12,028,520
<LOANS> 190,202,685
<ALLOWANCE> 739,369
<TOTAL-ASSETS> 242,517,896
<DEPOSITS> 171,038,959
<SHORT-TERM> 34,500,000
<LIABILITIES-OTHER> 3,638,749
<LONG-TERM> 12,000,000
0
0
<COMMON> 21,946
<OTHER-SE> 21,318,692
<TOTAL-LIABILITIES-AND-EQUITY> 242,517,896
<INTEREST-LOAN> 14,719,883
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<INTEREST-OTHER> 98,557
<INTEREST-TOTAL> 17,727,052
<INTEREST-DEPOSIT> 7,594,956
<INTEREST-EXPENSE> 10,364,584
<INTEREST-INCOME-NET> 7,362,468
<LOAN-LOSSES> 120,000
<SECURITIES-GAINS> 83,422
<EXPENSE-OTHER> 5,911,382
<INCOME-PRETAX> 2,565,983
<INCOME-PRE-EXTRAORDINARY> 2,565,983
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,549,936
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.81
<YIELD-ACTUAL> 7.87
<LOANS-NON> 328,000
<LOANS-PAST> 360,000
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 634,087
<CHARGE-OFFS> 17,419
<RECOVERIES> 2,701
<ALLOWANCE-CLOSE> 739,369
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<ALLOWANCE-FOREIGN> 0
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</TABLE>
