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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
____________
For the Quarterly Period Ended December 31, 1996 Commission File No. 0-22656
CAPITAL SAVINGS BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1656529
(State of Incorporation) (I.R.S. Employer Identification No.)
425 Madison
Jefferson City, Missouri 65101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (573) 635-4151
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes__X__ No_____
The number of shares outstanding of the issuer's common stock, par value $.01
per share, was 1,891,800 at February 7, 1997.
Transitional Small Business Disclosure Format (check one): Yes_____ No__X__
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<PAGE>
CAPITAL SAVINGS BANCORP, INC.
FORM 10-QSB
Index
Part I. Financial Information
Item 1 Financial Statements Page
Consolidated Statements of Financial Condition as of December 31,
1996 (unaudited) and June 30, 1996 . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations for the Three Months ended
December 31, 1996 and 1995 and for the Six Months ended
December 31, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for the Six Months ended
December 31, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements (unaudited) . . . . . . 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . 8
Part II. Other Information
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2 Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3 Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . 12
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . 12
Item 5 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 12
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Exhibit 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit 27 . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .15
<PAGE>
<TABLE>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<CAPTION>
December 31, June 30,
1996 1996
ASSETS (unaudited)
<S> <C> <C>
Cash and due from depository institutions (including $ 6,453,988 $ 2,973,489
interest-earning deposits totaling $3,768,045 at
December 31, 1996 and $220,079 at June 30, 1996)
Securities available-for-sale 27,164,778 30,306,297
Securities held-to-maturity (approximate fair values of
$10,028,300 at December 31, 1996 and
$11,876,019 at June 30, 1996) 9,979,527 11,979,383
Stock in Federal Home Loan Bank 3,025,000 2,100,000
Loans receivable, net 185,000,504 166,623,231
Accrued interest receivable 1,409,300 1,401,109
Real estate owned 68,976 31,554
Premises and equipment 2,162,155 1,990,741
Other assets 422,861 547,931
_____________ _____________
Total Assets $235,687,089 $217,953,735
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Deposits $161,286,933 $152,344,791
Borrowed funds 52,000,000 42,000,000
Advances from borrowers for taxes and insurance 595,090 1,420,059
Accrued expenses and other liabilities 1,375,606 1,359,913
Income tax payable 480,844 348,046
_____________ _____________
Total liabilities 215,738,473 197,472,809
Serial preferred stock, $.01 par value;
authorized 800,000 shares; none issued - -
Common stock, $.01 par value; authorized
5,200,000 shares, issued December 31, 1996,
2,149,589; June 30, 1996, 1,211,589 12,116 12,116
Additional paid-in capital 11,797,337 11,728,171
Retained earnings, restricted 13,211,410 12,983,429
_____________ _____________
25,020,863 24,723,716
Treasury stock, at cost - 257,789 shares at
December 31, 1996 and 224,410 shares at June 30, 1996 (4,271,136) (3,550,170)
Unearned compensation-Recognition and
Retention Plan (RRP) (227,682) (31,110)
Unearned compensation - Employee Stock
Ownership Plan (ESOP) (522,729) (583,259)
Unrealized gains(losses) on securities available-for-sale,
net of effect of deferred taxes (50,700) (78,251)
_____________ _____________
Total stockholders' equity 19,948,616 20,480,926
_____________ _____________
Total liabilities and stockholders' equity $235,687,089 $217,953,735
============= =============
<FN>
See accompanying Notes to Consolidated Financial Statements (unaudited)
</FN)
</TABLE>
<PAGE>
<TABLE>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
____________ ____________ ____________ ____________
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans receivable $3,346,794 $2,922,962 $6,516,444 $5,753,497
Consumer and other loans 314,996 245,413 614,665 482,581
Investment securities held-to-maturity
and securities available-for-sale 306,275 122,221 629,158 258,537
Mortgage-backed securities 456,374 344,711 934,198 717,290
Other interest-earning assets 20,852 35,738 39,774 58,862
____________ ____________ ____________ ____________
Total Interest Income 4,445,291 3,671,045 8,734,239 7,270,767
____________ ____________ ____________ ____________
INTEREST EXPENSE:
Deposits 1,832,877 1,778,240 3,663,890 3,502,404
Borrowed funds 766,973 280,750 1,443,915 565,438
____________ ____________ ____________ ____________
Total Interest expense 2,599,850 2,058,990 5,107,805 4,067,842
____________ ____________ ____________ ____________
Net Interest Income 1,845,441 1,612,055 3,626,434 3,202,925
Provision for loan losses 30,000 30,000 60,000 60,000
____________ ____________ ____________ ____________
Net interest income after
provision for loan losses 1,815,441 1,582,055 3,566,434 3,142,925
____________ ____________ ____________ ____________
NONINTEREST INCOME:
Loan servicing fees 49,446 47,699 99,484 92,518
Other 227,764 148,512 413,385 269,433
Income (loss) from real estate
owned held-for-sale (3,258) 14,814 (2,095) 10,066
____________ ____________ ____________ ____________
Total noninterest income 273,952 211,025 510,774 372,017
____________ ____________ ____________ ____________
NONINTEREST EXPENSE:
Compensation and benefits 576,322 519,029 1,141,585 1,021,741
Occupancy and equipment 128,795 117,701 280,346 238,186
Federal insurance premiums 88,409 85,404 1,134,304 169,314
Other expense 421,689 301,332 844,844 591,809
____________ ____________ ____________ ____________
Total noninterest expense 1,215,215 1,023,466 3,401,079 2,021,050
____________ ____________ ____________ ____________
Income before provision for
income taxes 874,178 769,614 676,129 1,493,892
Provision for income taxes 337,627 298,043 264,356 578,739
____________ ____________ ____________ ____________
Earnings per share $0.29 $0.24 $0.22 $0.46
============ ============ ============ ============
Net Income $ 536,551 $ 471,571 $ 411,773 $ 915,153
============ ============ ============ ============
<FN>
See accompanying Notes to Consolidated Financial Statements (unaudited)
</FN>
</TABLE>
<PAGE>
<TABLE>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Six Months
Ended Ended
December 31, December 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES ______________ ______________
<S> <C> <C>
Net Income $ 411,773 $ 915,153
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred loan origination fees (9,086) (35,050)
Amortization of premiums and accretion
of discounts on mortgage-backed, investment
securities and securities held for sale 37,734 (53,707)
Depreciation 149,563 118,572
Provision for loan losses 60,000 60,000
Loss(gain) on sale of real estate
owned held for sale 0 (10,066)
Compensation Expense-RRP 15,780 28,044
Compensation Expense-ESOP 139,190 117,061
Origination of loans receivable
originated for sale to FHLMC 0 (7,913,950)
Proceeds from loans receivable
originated for sale to FHLMC 0 7,913,950
Cash provided (used) by:
Other assets 125,070 66,644
Accrued expenses and other liabilities 15,693 224,295
Income taxes payable 132,798 366,341
_____________ _____________
Net cash provided by operating activities $ 1,078,515 $ 1,797,287
_____________ ____________
<CAPTION>
CASH FLOWS FROM INVESTING ACTIVITIES
<S> <C> <C>
(Loan origination) and principal
payment on loans receivable, net ($18,677,795) ($ 4,222,633)
Principal payments on mortgage-backed securities 3,245,931 1,684,149
Purchases of:
Securities available-for-sale (1,831,000) (1,462,162)
Securities held-to-maturity (2,000,000) 0
Proceeds from maturities of:
Securities available for-sale 1,000,000 1,182,349
Securities held-to-maturity 4,000,000 1,001,916
Sales of securities available for sale 584,602 0
Purchase of Federal Home Loan Bank stock (925,000) 0
Decrease (increase) in certificates of
deposit, net 0 0
Proceeds from sale of real estate owned
held for sale 0 107,204
Cash outflows for premises and equipment (171,414) (268,654)
_____________ _____________
Net cash provided (used) by investing activities ($14,774,676) ($ 1,977,831)
_____________ _____________
<PAGE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
Six Months Six Months
Ended Ended
December 31, December 31,
1996 1995
______________ ______________
CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C>
Net increase (decrease) in deposits $ 8,942,142 $ 2,436,754
Net increase (decrease) in borrowed funds 10,000,000 2,500,000
Net increase (decrease) in advances
from borrowers for taxes and insurance (824,969) (826,384)
Acquisition of treasury stock (940,513) 0
_____________ _____________
Net cash provided (used) by
financing activities $17,176,660 $ 4,110,370
_____________ _____________
Net increase (decrease) in
cash and cash equivalents 3,480,499 3,929,826
Cash and cash equivalents at
beginning of the period 2,973,489 2,739,296
Cash and cash equivalents at
end of the period $ 6,453,988 $ 6,669,122
============= =============
<CAPTION>
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
<S> <C> <C>
Cash paid during the period for:
Interest $ 4,403,700 $ 3,386,770
Income taxes $ 148,892 $ 495,849
Non-cash transactions:
Transfers from loans receivable to
real estate owned held for sale $ 40,049 $ 89,704
Transfers from real estate owned held
for sale to loans receivable $ 0 $ 0
/TABLE
<PAGE>
<PAGE>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Generally Accepted Accounting Principles ("GAAP") for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring accruals)
necessary for a fair presentation have been included. The results of operations
and other data for the three and six months ended December 31, 1996 are not
necessarily indicative of results that may be expected for the entire fiscal
year ending June 30, 1997.
The unaudited consolidated financial statements include the amounts of Capital
Savings Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, Capital
Savings Bank, FSB (the "Bank") and the Bank's wholly-owned subsidiary, Capital
Savings Financial Services, Inc. ("CSFS") for the three and six months ended
December 31, 1996. Material intercompany accounts and transactions have been
eliminated in consolidation.
(2) Benefit Plans
The Bank established for eligible employees an Employee Stock Ownership Plan
("ESOP") in connection with its conversion from mutual to stock form (the
"Conversion"). The ESOP borrowed $938,400 from the Company and purchased 93,840
common shares issued in the Conversion, subsequently adjusted to reflect the 2-
for-1 stock split in the form of 100% stock dividend completed on November 22,
1996. The Bank is expected to make scheduled discretionary cash contributions
to the ESOP sufficient to service the amount borrowed. At December 31, 1996,
the remaining balance of the ESOP loan was $557,000 ($938,400 in proceeds from
stock issued by the Company less the principal payments made by the Bank) and is
reflected in the accompanying consolidated financial statements as a charge to
unearned compensation and a credit to common stock and paid-in capital. The
unamortized balance of unearned compensation is shown as a deduction to
stockholders' equity. The unpaid balance of the ESOP loan is eliminated in
consolidation.
The Company has established a Recognition and Retention Plan ("RRP") which may
award up to 46,920 shares of Company common stock to officers, directors and
other employees of the Company and the Bank. On December 28, 1993, 38,589
shares of common stock were awarded pursuant to the RRP. All shares were
awarded to directors and officers of the Company and the Bank, and vest at a
rate of 20% per calendar year. The number of shares were adjusted for the
November 22, 1996 stock dividend. On December 19, 1996, an additional 15,800
shares of common stock were awarded to directors, officers and certain employees
of the Company and the Bank, and also vest at a rate of 20% per calendar year
beginning January 1, 1998. The aggregate purchase price of these shares will be
amortized as compensation expense over the participants' vesting period.
<PAGE>
The Company has also adopted a stock option plan for the benefit of directors,
officers, and other key employees of the Company and the Bank. The number of
shares of common stock reserved for issuance under the stock option plan is
117,300. On December 28, 1993, options to purchase 87,388 shares of common
stock were granted to directors and certain officers of the Company and the Bank
at an exercise price of $10.00 per share. As of December 31, 1996, all options
awarded December 28, 1993 have vested. The number of shares and the exercise
price were adjusted for the November 22, 1996 stock dividend. On December 19,
1996, options to purchase 47,300 shares of common stock were granted to
directors, certain officers, and certain employees of the Company and the Bank
at an exercise price of $13.44 per share. The maximum option term cannot exceed
ten years.
(3) Earnings Per Share
Earnings per share of common stock have been determined by dividing net income
for the three and six month periods ended December 31, 1996 by the weighted
average number of shares of common stock and common stock equivalents
outstanding for those respective periods. Effective July 1, 1994 the Company
adopted Statement of Position ("SOP") 93-6, which requires recognition of
expense based upon ESOP shares committed to be released and the exclusion of
unallocated ESOP shares from earnings per share computations. Under SOP 93-6,
the number of shares considered outstanding for earnings per share purposes in
periods prior to July 1, 1994, that are no longer considered outstanding at
December 31, 1996, totalled 102,817 shares. The granted stock options are
regarded as common stock equivalents and are therefore considered in both
primary and fully diluted earnings per share calculations. All shares reflect
the 2-for-1 stock split, effective in the form of a 100% stock dividend
completed November 22, 1996.
(4) Stock Repurchase Program
As of December 31, 1996 the Company had repurchased a total of 273,589 shares of
its common stock. The repurchased shares have become treasury shares available
for general corporate purposes, including the funding of stock options and RRPs.
(5) Commitments and Contingencies
Commitments to originate mortgage loans of $1.5 million (of which $1.1 million
were adjustable-rate commitments) at December 31, 1996 represent amounts which
the Company plans to fund within the normal commitment period of sixty to ninety
days. As of December 31, 1996, the Company did not have any commitments to
purchase mortgage-backed securities.
The Company also offers home equity lines of credit to its customers. At
December 31, 1996 the outstanding lines of credit available totalled $3.9
million.
(6) Reclassification
None.
(7) Subsequent Events
The Company declared a cash dividend of 6.0 cents per share for the quarter
ended December 31, 1996. The cash dividend was payable to stockholders of
record as of January 31, 1997, and paid on February 11, 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Bank is the Company's only operating subsidiary. Unless the context
otherwise requires, all references to the Company includes the Bank and its
subsidiary.
Liquidity and Capital Resources
Liquidity is a measurement of the Company's ability to raise cash when needed
without an adverse impact on current or future earnings. The Company's most
liquid assets are cash, cash due from banks, interest-earning deposits and U.S.
Treasury Securities with maturities of two years and less. The levels of these
assets are dependent on the Company's investing, operating, and deposit
activities during any given period. At December 31, 1996, cash, cash due from
banks and interest-earning deposits, totalled $6.5 million.
The Bank is required to maintain minimum levels of liquid assets as defined by
OTS regulations. Liquid assets consist of cash, cash due from banks, interest-
earning deposits and short- and intermediate-term U.S. Government securities.
This requirement, which periodically varies depending upon economic conditions
and deposit flows, is based upon a percentage of deposits and short term
borrowing. The current required liquidity ratio is 5%. The Bank has
historically maintained a level of liquid assets in excess of this regulatory
requirement. The Bank's liquidity ratio was 6.36% at December 31, 1996.
Liquidity management for the Bank is both a daily and long term function of the
Bank's management strategy. In the event that the Bank requires funds beyond
its ability to generate them internally, additional sources of funds are
available through the use of FHLB advances and reverse repurchase agreements.
The Company's primary source of funds are deposits, proceeds from maturing
investment securities, and principal and interest payments on loans. While
maturing investment securities and the repayment of loans are relatively
predictable sources of funds, deposit flows and early loan prepayments are more
influenced by interest rates, general economic conditions and competition. From
time to time, funds are borrowed from the Federal Home Loan Bank of Des Moines
("FHLB") as an additional source of funds.
The primary investment activity of the Company is the origination of mortgage
loans. During the three months ended December 31, 1996 and 1995, the Company
originated mortgage loans in the aggregate amount of $9.6 million and $12.4
million, respectively. A more limited investment activity of the Company is the
investment of funds in U.S. Treasury securities, certificates of deposit with
other financial institutions, mortgage-backed securities and FHLB overnight
funds. During periods when the Company's loan demand is limited, the Company
may purchase loans for investment and purchase short-term investment securities
to obtain a higher yield than available in interest-earning deposits.
At December 31, 1996 the Company had outstanding loan commitments to originate
$5.4 million of loans, including $3.9 million of undisbursed home equity lines
of credit. The Company believes that it will have sufficient funds available to
meet all of these commitments. At December 31, 1996, certificates of deposits
scheduled to mature in one year or less, totalled $88.7 million. Management
believes based on its experience to date, that a significant portion of these
funds will remain with the Company.
At December 31, 1996 the Bank exceeded each of the three regulatory capital
ratio requirements. The Bank's tangible, core and risk-based capital ratios
were 7.65%, 7.65%, and 16.15%, respectively. These regulatory capital ratio
requirements at December 31, 1996 were 1.5%, 3.0%, and 8.0%, respectively.
<PAGE>
Changes in Financial Condition
Total assets increased $17.7 million, or 8.1%, to $235.7 million at December 31,
1996 from $218.0 million at June 30, 1996. The growth was primarily attributed
to an increase in the Company's loan portfolio. Loans receivable increased
$18.2 million, or 10.9%, to $184.8 million at December 31, 1996 from $166.6
million at June 30, 1996. The asset increase was primarily funded with an
increase in borrowed funds and a growth in deposits.
Total liabilities increased $18.2 million, or 9.3%, to $215.7 million at
December 31, 1996 from $197.5 million at June 30, 1996. Deposits increased $8.9
million, or 5.9%, to $161.2 million at December 31, 1996 from $152.3 million at
June 30, 1996 due primarily to an $8.2 million increase in short-term deposits,
including $4.8 million in public funds, during the period. Borrowed funds
increased $10.0 million, or 23.8%, during the same period to $52.0 million from
$42.0 million, primarily to provide additional funds for loan originations, loan
purchases, and purchases of securities.
Stockholder's equity decreased $532,000, or 2.6%, to $19.9 million at December
31, 1996 from $20.5 million at June 30, 1996. The decrease was primarily a
result of the repurchase of the Company's common stock completed in September
offset by net income of $412,000 for the six months ended December 31, 1996.
Interest Rate Sensitivity
The Bank has employed various strategies intended to minimize the adverse effect
of interest rate risk on future operations of the Bank and the Company by
attempting to match the interest rate sensitivity of its assets and liabilities
and by expanding its activities, such as checking account services, financial
services and other noninterest income areas, which are not directly dependent on
interest rate spreads. The Bank's strategies are intended to stabilize net
interest income for the long-term by protecting its interest rate spread against
changes in interest rates.
The Board of Directors of the Bank has appointed an Asset/Liability Committee.
It is the responsibility of this committee to manage the interest rate
sensitivity of the Bank's balance sheet in order to minimize large fluctuations
in the net income of the Bank. The Bank utilizes adjustable rate mortgages
("ARM's"), adjustable rate mortgage backed securities and consumer loans to
provide repricing opportunities more closely matched within the time frames in
which its deposits are repriced. The committee is charged with the
responsibility to manage interest rate risk while remaining sensitive to the
Board's policy that credit risk not be substituted for interest rate risk. As a
result of these efforts, approximately 61% of the Bank's mortgage loan and
mortgage backed security portfolio as of December 31, 1996, consisted of ARMs
and adjustable rate mortgage backed securities, and approximately 6.4% of the
Bank's total loan portfolio consisted of consumer loans.
Results of Operations
General
The Company's results of operations depend primarily on the level of its net
interest income and noninterest income and the level of its 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,
respectively.
<PAGE>
The Company's net income increased $65,000, or 13.8%, to $537,000 for the three
months ended December 31, 1996 compared to net income of $472,000 for the same
period in 1995. For the six months ended December 31, 1996, net income was
$412,000 compared to $915,000 for the same period in 1995. The reduction in
earnings for the six month period was due to the payment of the one-time SAIF
special assessment of $592,000 or $.63 per share, after tax. Net income,
without the SAIF assessment, for the six months ended December 31, 1996 was $1.0
million, an increase of $89,000 or 9.7% over the same period in 1995.
Interest Income
Interest income increased $774,000, or 21.1%, to $4.4 million for the three
months and $1.5 million, or 20.1%, for the six months ended December 31, 1996
from $3.7 million and $7.3 million for the same periods in 1995, respectively.
The increase in interest income was due primarily to an increase in volume of
loans and investment securities. Interest income on loans receivable increased
$424,000, or 14.5%, for the three months and $763,000, or 13.3%, for the six
months ended December 31, 1996. This increase reflects an increase in loans
receivable at December 31, 1996 which were approximately $29.0 million greater
than at December 31, 1995. Interest from investment securities increased
$184,000, or 150.6%, for the three months and $371,000, or 143.4%, for the six
months ended December 31, 1996. The improvement was due to a $6.2 million
increase in the Company's balance of investment securities to $14.1 million at
December 31, 1996 from $7.9 million at December 31, 1995.
Interest Expense
Interest expense increased $541,000, or 26.3%, to $2.6 million for the three
months and $1.0 million, or 25.6%, to $5.1 million for the six months ended
December 31, 1996 from $2.1 million and $4.1 million for the same periods in
1995, respectively. The increases were due primarily to an increase in the
average level of borrowed funds and deposits from the previous periods. The
weighted average rate paid on deposits decreased 2 basis points to 4.74% for the
three months and increased 3 basis points to 4.74% for the six months ended
December 31, 1996. The weighted average rate paid on borrowed funds decreased
47 basis points to 5.54% for the three months and 47 basis points to 5.57% for
the six months ended December 31, 1996.
Net Interest Income
Net interest income increased $233,000, or 14.5%, and $424,000, or 13.2%, for
the three and six months ended December 31, 1996 compared to the same periods in
1995, respectively, due to an increase in assets, principally loans and
mortgage-backed securities. The Bank's net interest margin (interest income less
interest expense, expressed as a percentage of average interest-earning assets)
decreased to 3.26% for the three months and to 3.28% for the six months ended
December 31, 1996 from 3.46% and 3.47% for the same periods in 1995,
respectively.
Provision for Loan Losses
The provision for loan losses is a result of management's periodic analysis of
the adequacy of the allowance for loan losses. The provision for loan losses
was $30,000 and $60,000 for both the three and six months ended December 31,
1996 and 1995. At December 31, 1996 the Company's allowance for loan losses
totaled $690,000, or .37% of the total loan portfolio and 119.2% of total non-
performing assets.
<PAGE>
Management establishes an allowance for loan losses based on an analysis of risk
factors in the loan portfolio. This analysis includes the evaluation of
concentrations of credit, past loss experience, current economic conditions,
amount and composition of the loan portfolio, estimated fair value of underlying
collateral, loan commitments outstanding, delinquencies, and other factors.
Because the Company's extremely low loan loss experience during its history,
management also considers the loan loss experience of similar portfolios in
comparable lending markets. Accordingly, the calculation of the adequacy of the
allowance for loan losses is not based solely on the level of non-performing
assets.
Management will continue to monitor the allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions and loan portfolio quality dictate. Although the Company
maintains its allowance for loan losses at a level which it considers to be
adequate to provide for losses, there can be no assurance that future losses
will not exceed estimated amounts or that additional provisions for loan losses
will not be required in future periods. In addition, the determination as to
the amount of its allowance for loan losses is subject to review by the Bank's
regulators, as part of their examination process, which may result in the
establishment of an additional allowance based upon their judgment of the
information available to them at the time of their examination.
Noninterest Income
Noninterest income, consisting primarily of loan servicing income and fee income
from checking accounts increased by $63,000, or 29.8%, to $274,000 during the
three months and $139,000, or 37.3%, to $511,000 during the six months ended
December 31, 1996. The increases were primarily attributed to increases in
other noninterest income consisting primarily of checking account fee income
which increased $102,000 to $160,000 for the quarter and $172,000 to $285,000
for the six months ended December 31, 1996 from the same respective periods in
1995.
Noninterest Expense
Noninterest expense consists primarily of compensation and benefits, occupancy
and equipment, federal insurance premiums, and service bureau charges.
Noninterest expense was $1.2 million for the three months ended December 31,
1996 compared to $1.0 million for the same period in 1995, an increase of
$192,000 or 18.7%. The increase was mostly attributed to the increases in
compensation and benefits and other expenses. Compensation and benefits
increased $57,000 , or 11.0%, and $120,000, or 11.7%, for the three and six
months ended December 31, 1996, in connection with the increase of 7 full time
equivalent employees. Other expenses, which increased $120,000, or 39.9%, and
$253,000 or 42.8%, for the three and six months respectively, consist primarily
of marketing expenses related to the Company's new, aggressive checking account
program. Noninterest expense for the six months ended December 31, 1996 was
$3.4 million, including the non-recurring SAIF assessment of $959,000.
Noninterest expense without the SAIF assessment was $2.4 million for the six
months ended December 31, 1996, compared to $2.0 million for the same period in
1995, an increase of $421,000 or 20.8%.
Income Tax
The provision for income taxes increased $40,000 for the three months ended
December 31, 1996 over the same period in 1995 due to higher pre-tax income.
The provision for income taxes decreased $503,000 to $264,000 for the six months
ended December 31, 1996 compared to the same period in 1995, due to lower pre-
tax income relating primarily to the one-time SAIF assessment in the period.
<PAGE>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
Part II -- Other Information
Item 1 Legal Proceedings
Not applicable.
Item 2 Changes in Securities
Not applicable.
Item 3 Default upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
(a) On October 24, 1996, Capital Savings Bancorp, Inc. held its Third
Annual Meeting of Stockholders.
(b) At the meeting, Frank A. Sloan and Arthur F. Wankum were elected
for terms to expire in 1999.
Directors Joseph E. Forck, Ralph J. Kalberloh, Larry V. Schepers
and Wayne R. Walquist are continuing their respective term of
office as directors of the Corporation.
(c) Stockholders voted on the following matters:
(i) The election of the following directors of the Corporation;
VOTES: FOR WITHHELD
Arthur F. Wankum 832,516 17,025
Frank A. Sloan 832,441 17,100
(ii) The ratification of the appointment of Williams-Keepers as
independent auditors of the Corporation for the fiscal year
ending June 30, 1997.
VOTES: FOR AGAINST ABSTAIN
828,166 16,990 4,385
Item 5 Other Information
None.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement re: computation of per share earnings
Exhibit 27 - Financial Data Schedule
(b) On October 31, 1996 a report was filed on Form 8-K of a press
release dated October 25, 1996 describing the 2-for-1 stock split
in the form of 100% stock dividend.
<PAGE>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARIES
Signatures
Pursuant to the requirement 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.
______________________________
(Registrant)
Date: February 14, 1997 /s/ Larry Schepers
____________________________________________________
Larry Schepers
President and Chief Executive Officer
(Duly Authorized Officer)
Date: February 14, 1997 /s/ Arthur Wankum
____________________________________________________
Arthur Wankum
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT 11
Statement re: Computation of Per Share Earnings
Three Months Six Months
Ended Ended
Dec.31, 1996 Dec.31, 1996
____________ ____________
1. Net income $ 536,551 $ 411,773
============ ============
2. Weighted average common shares outstanding* 1,689,832 1,710,542
3. Common stock equivalents due to
dilutive effect of:
Recognition and Retention Plan 92,978 92,978
Stock Options 98,139 89,536
4. Total weighted average common shares
and equivalents outstanding for primary
earnings per share computation 1,880,949 1,893,056
============ ============
5. Primary earnings per share* $ 0.29 $ 0.22
============ ============
6. Weighted average common shares and
equivalents outstanding 1,880,949 1,880,949
7. Additional dilutive shares using the
higher of the end of the period market
value versus average market value for
the period utilizing the treasury stock
method regarding stock options 2,197 10,800
8. Total weighted average common shares
and equivalents outstanding for fully
diluted earnings per share computation 1,883,146 1,903,856
============ ============
9. Fully diluted earnings per share $ 0.28 $ 0.22
============ ============
* The weighted average common shares outstanding has been computed in
accordance with SOP 93-6, which requires the exclusion of ESOP shares, totaling
102,817 at December 31, 1996 that have not been committed to be released, from
earnings per share computations. All shares above reflect the 2-for-1 stock
split, effective in the form of a 100% stock dividend completed November 22,
1996.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,685,943
<INT-BEARING-DEPOSITS> 3,768,045
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,164,778
<INVESTMENTS-CARRYING> 13,004,527
<INVESTMENTS-MARKET> 13,053,300
<LOANS> 185,000,504
<ALLOWANCE> 690,000
<TOTAL-ASSETS> 235,687,089
<DEPOSITS> 161,286,933
<SHORT-TERM> 37,000,000
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<LONG-TERM> 15,000,000
0
0
<COMMON> 12,116
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<INTEREST-INVEST> 1,563,356
<INTEREST-OTHER> 39,774
<INTEREST-TOTAL> 8,734,239
<INTEREST-DEPOSIT> 3,663,890
<INTEREST-EXPENSE> 5,107,805
<INTEREST-INCOME-NET> 3,626,434
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,401,079
<INCOME-PRETAX> 646,129
<INCOME-PRE-EXTRAORDINARY> 411,773
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 411,773
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
<YIELD-ACTUAL> 7.84
<LOANS-NON> 200,000
<LOANS-PAST> 307,000
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 664,000
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<ALLOWANCE-CLOSE> 690,000
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