U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] Quarterly Report Under Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998 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 1,891,400 at May 4, 1998.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
<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 March 31,
1998 (unaudited) and June 30, 1997
Consolidated Statements of Operations for the Three and Nine
Months ended March 31, 1998 and 1997(unaudited)
Consolidated Statements of Cash Flows for the Nine Months
ended March 31, 1998 and 1997 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
Exhibit 11
* Exhibit 27
* Submitted only with filing in electronic format.
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
March 31, June 30,
1998 1997
(unaudited)
ASSETS
<S> <C> <C>
Cash and due from depository institutions (including .................. $ 9,461,110 $ 7,953,414
interest-earning deposits totaling $6,390,000 at
March 31, 1998 and $4,468,000 at June 30, 1997)
Securities available-for-sale ......................................... 24,944,660 28,154,190
Securities held-to-maturity (approximate fair values of
$3,009,000 at March 31, 1998 and $9,004,000
at June 30, 1997) ................................................... 2,997,448 8,984,323
Stock in Federal Home Loan Bank ....................................... 3,025,000 3,025,000
Loans receivable, net ................................................. 187,214,480 190,202,685
Accrued interest receivable ........................................... 1,492,094 1,465,221
Real estate owned held-for-sale, net .................................. 122,948 68,898
Premises and equipment, net ........................................... 2,109,651 2,231,146
Other assets .......................................................... 482,751 433,019
------------- -------------
Total assets ..................................................... $ 231,850,142 $ 242,517,896
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits .............................................................. $ 170,997,600 $ 171,038,959
Borrowed funds ........................................................ 34,000,000 46,500,000
Advances from borrowers for taxes and insurance ....................... 813,012 1,335,474
Accrued expenses and other liabilities ................................ 1,216,994 1,352,868
Income tax payable .................................................... 1,329,492 950,407
------------- -------------
Total liabilities ................................................ 208,357,098 221,177,708
============= =============
Serial preferred stock, $.01 par value;
authorized 800,000 shares; none issued .............................. -- --
Common stock, $.01 par value:
Authorized, 5,200,000 shares; Issued, 2,149,597 ..................... 21,496 21,496
Additional paid-in capital ............................................ 12,174,273 11,910,849
Retained earnings, restricted ......................................... 15,845,868 14,122,506
Treasury Stock, at cost - 258,189 shares at
March 31, 1998 and 257,789 shares at June 30, 1997 ............... (4,276,694) (4,271,136)
Deferred compensation-Recognition and
Retention Plan (RRP) ............................................. (97,547) (171,176)
Deferred compensation - Employee Stock
Ownership Plan (ESOP) ............................................. (373,260) (461,805)
Unrealized gain (loss) on securities available-for-sale,
net of deferred taxes ............................................. 198,908 189,454
------------- -------------
Total stockholders' equity ...................................... 23,493,044 21,340,188
------------- -------------
Total liabilities and stockholders' equity ...................... $ 231,850,142 $ 242,517,896
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements (unaudited)
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ..................... $ 3,585,192 $ 3,416,230 $ 10,804,284 $ 9,932,674
Consumer and other loans ............. 400,122 316,161 1,168,300 930,826
Investment securities held-to-maturity
and securities available-for-sale .. 248,118 223,037 772,347 852,195
Mortgage-backed securities ........... 328,135 439,133 1,065,972 1,373,331
Other interest-earning assets ........ 44,905 38,651 123,115 78,425
------------ ------------ ------------ ------------
Total Interest Income .............. 4,606,472 4,433,212 13,934,018 13,167,451
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Deposits ............................. 1,948,764 1,915,399 6,011,018 5,579,289
Borrowed funds ....................... 609,268 662,529 1,881,869 2,106,444
------------ ------------ ------------ ------------
Total Interest expense ............. 2,558,032 2,577,928 7,892,887 7,685,733
------------ ------------ ------------ ------------
Net Interest Income ................ 2,048,440 1,855,284 6,041,131 5,481,718
Provision for loan losses .............. 30,000 30,000 90,000 90,000
Net interest income after
provision for loan losses .......... 2,018,440 1,825,284 5,951,131 5,391,718
------------ ------------ ------------ ------------
NONINTEREST INCOME:
Bank service charges and fees ........ 233,814 163,464 746,417 448,183
Loan servicing fees .................. 46,734 48,189 137,953 147,673
Other ................................ 471,169 131,956 804,672 260,622
Income (loss) from real estate
owned held-for-sale ................ (483) 11,665 (1,515) 9,570
------------ ------------ ------------ ------------
Total noninterest income ........... 751,234 355,274 1,687,527 866,048
------------ ------------ ------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)(continued)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NONINTEREST EXPENSE:
Compensation and benefits ............ 724,910 648,467 2,168,953 1,790,052
Occupancy and equipment .............. 170,748 171,166 511,942 451,512
Federal insurance premiums ........... 27,204 5,820 81,423 1,140,124
Other expense ........................ 523,901 439,120 1,515,087 1,283,964
------------ ------------ ------------ ------------
Total noninterest expense .......... 1,446,763 1,264,573 4,277,405 4,665,652
------------ ------------ ------------ ------------
Income before provision for
income taxes ..................... 1,322,911 915,985 3,361,253 1,592,114
Provision for income taxes ............. 504,081 363,237 1,312,642 627,593
------------ ------------ ------------ ------------
Net Income ................... $ 818,830 $ 552,748 $ 2,048,611 $ 964,521
============ ============ ============ ============
Net Income per share ......... $ 0.45 $ 0.31 $ 1.13 $ 0.54
============ ============ ============ ============
Net Income per share(diluted) $ 0.42 $ 0.29 $ 1.06 $ 0.51
============ ============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements (unaudited)
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Dollars in Thousands)
Nine Months Nine Months
Ended Ended
March 31, March 31,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net Income .............................................. $ 2,049 $ 965
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred loan origination fees ........ (54) (35)
Amortization of premiums and accretion
of discounts on mortgage-backed, investment
securities and securities held for sale ............. 46 49
Depreciation .......................................... 262 255
Provision for loan losses ............................. 90 90
Loss(gain) on sale of real estate
owned held for sale ................................. 0 0
Loss(gain) on sale of securities ...................... (558) (60)
Compensation Expense-RRP .............................. 66 44
Compensation Expense-ESOP ............................. 365 224
Origination of loans receivable
originated for sale to FHLMC ........................ (14,939) 0
Proceeds from loans receivable
originated for sale to FHLMC ........................ 14,939 0
Adjustments for (increases) decreases in operating assets
and increases (decreases) in operating liabilities:
Accrued interest and other assets ..................... (77) 90
Accrued expenses and other liabilities ................ (136) (70)
Income taxes payable .................................. 379 442
-------- --------
Net cash provided by operating activities ........... $ 2,432 $ 1,994
-------- --------
INVESTING ACTIVITIES
(Loan origination) and principal
payment on loans receivable, net ...................... $ 2,682 ($21,274)
Principal payments on mortgage-backed securities ........ 4,253 4,487
Purchases of:
Securities available-for-sale ...................... (3,422) (2,122)
Securities held-to-maturity ........................ 0 (2,000)
Proceeds from maturities of:
Securities available-for-sale ...................... 500 1,000
Securities held-to-maturity ........................ 6,000 4,000
Sales of securities available-for-sale .................. 2,328 785
Purchase of Federal Home Loan Bank stock ................ 0 (925)
Proceeds from sale of real estate owned held-for-sale ... 17 0
Adjustments for (increases) decreases in
premises and equipment .................... 121 (63)
-------- --------
Net cash provided (used) by investing activities ........ $ 12,479 ($16,112)
-------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements (unaudited)
<PAGE>
<TABLE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
Nine Months Nine Months
Ended Ended
March 31, March 31,
1998 1997
<S> <C> <C>
FINANCING ACTIVITIES
Net increase (decrease) in deposits ..................... ($ 41) $ 16,896
Net increase (decrease) in borrowed funds ............... (12,500) 3,000
Net increase (decrease) in advances from borrowers
for taxes and insurance ............................... (522) (433)
Acquisition of treasury stock ........................... 0 (941)
Dividends ............................................... (340) (312)
Net cash provided (used) by financing activities ... ($13,403) $ 18,210
Net increase (decrease) in cash and cash equivalents 1,508 4,092
Cash and cash equivalents at beginning of the period .... 7,953 2,973
Cash and cash equivalents at end of the period .......... $ 9,461 $ 7,065
SUPPLEMENTAL DISCLOSURES Cash paid during the year for:
Interest ............................................ $ 8,018 $ 7,093
Income taxes ........................................ $ 940 $ 269
Non-cash transactions:
Transfers from loans receivable to
real estate owned held-for-sale ................... $ 115 $ 40
Transfers from real estate owned held-
for-sale to loans receivable ...................... $ 26 $ 0
</TABLE>
See accompanying Notes to Consolidated Financial Statements (unaudited)
<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 nine months ended March 31, 1998 are
not necessarily indicative of results that may be expected for the
entire fiscal year ending June 30, 1998.
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 nine months ended March 31, 1998. 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 March 31, 1998, the
remaining balance of the ESOP loan was $411,000 ($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 March 31, 1998, 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
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. The Company adopted SFAS 128 in the
quarter ended December 31, 1997. Treasury stock and uncommitted ESOP
shares are excluded from weighted average number of common shares
outstanding.
(4) Stock Repurchase Program
As of March 31, 1998 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 $1.9 million (of which
$650,000 were adjustable-rate commitments) at March 31, 1998 represent
amounts which the Company plans to fund within the normal commitment
period of sixty to ninety days. As of March 31, 1998, 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 March 31, 1998 the lines of credit totalled $9.8 million, of which
$4.2 million was outstanding and $5.6 million was committed but not
outstanding.
(6) Subsequent Events
The Company declared a cash dividend of 6.0 cents per share for the
quarter ended March 31, 1998. The cash dividend is payable to
stockholders of record as of May 8, 1998, and will be paid on May 18,
1998.
<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.
On November 25, 1997, the Company announced that it had entered into a
definitive agreement to be acquired by Union Planters Corporation, a bank
holding company based in Memphis, Tennessee. Pursuant to the agreement and
subject to approval by Capital Savings' shareholders and certain regulatory
authorities, shareholders of Capital Savings will receive approximately .3812
shares of Union Planters stock for each share of Capital Savings stock held in a
tax-free exchange which is scheduled to close during the early part of the third
calendar quarter of 1998.
Forward-Looking Statements
Except for the historical information contained herein, the matters discussed in
this 10-QSB may be deemed to be forward-looking statements that involve risks
and uncertainties, including changes in economic conditions in the Company's
market area, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in the Company's market area and competition.
Actual strategies and results in future periods may differ materially from those
currently expected. These forward-looking statements represent the Company's
judgement as of the date of this report. The Company disclaims however, any
intent or obligation to update these forward-looking statements.
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 March 31, 1998, cash, cash due from banks
and interest-earning deposits, totalled $5.5 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 4%. The Bank has
historically maintained a level of liquid assets in excess of this regulatory
requirement. The Bank's liquidity ratio was 5.81% at March 31, 1998. 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.
<PAGE>
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 nine months ended March 31, 1998 and 1997, the Company
originated mortgage loans in the aggregate amount of $39.0 million and $30.0
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 March 31, 1998 the Company had outstanding loan commitments to originate $7.5
million of loans, including $5.6 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 March 31, 1998, certificates of deposits
scheduled to mature in one year or less, totalled $85.7 million. Management
believes based on its experience to date, that a significant portion of these
funds will remain with the Company.
At March 31, 1998 the Bank exceeded each of the three regulatory capital ratio
requirements. The Bank's tangible, core and risk-based capital ratios were
8.76%, 8.76%, and 17.81%, respectively. These regulatory capital ratio
requirements at March 31, 1998 were 1.5%, 3.0%, and 8.0%, respectively.
Changes in Financial Condition
Total assets decreased $10.7 million, or 4.4%, to $231.8 million at March 31,
1998 from $242.5 million at June 30, 1997. Securities held-to-maturity,
consisting primarily of callable agency securities, decreased $6.0 million or
66.6% to $3.0 million from $9.0 million at June 30, 1997 due to securities being
called prior to maturity. Securities available-for-sale decreased $3.2 million,
or 11.4%, to $24.9 million. Loans receivable decreased $3.0 million, or 1.6%, to
$187.2 million at March 31, 1998 from $190.2 million at June 30, 1997.
Total liabilities decreased $12.8 million, or 5.8%, to $208.4 million at March
31, 1998 from $221.2 million at June 30, 1997. Borrowed funds decreased $12.5
million, or 26.9%, during the same period to $34.0 million from $46.5 million.
Deposits remained stable at $171.0 million at March 31, 1998.
Stockholder's equity increased $2.2 million, or 10.1%, to $23.5 million at March
31, 1998 from $21.3 million at June 30, 1997. The increase was primarily a
result of net income of $2.0 for the nine months ended March 31, 1998.
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
<PAGE>
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 65% of the Bank's mortgage loan and
mortgage-backed security portfolio as of March 31, 1998, consisted of ARMs and
adjustable rate mortgage-backed securities, and approximately 9.1% 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.
The Company's net income increased $266,000, or 48.1% to $819,000 for the three
months ended March 31, 1998 compared to net income of $553,000 for the same
period in 1997. Net income for the nine months ended March 31, 1998 increased
$1.1 million from $965,000. The increases in net income for both periods were
due to increases in net interest income and noninterest income. The net income
for the nine month period ended March 31, 1997 was reduced due to the payment of
the one-time SAIF special assessment of $592,000, after tax, made on September
30, 1996.
Interest Income
Interest income increased $173,000, or 3.9%, to $4.6 million for the three
months and $767,000, or 5.8%, to $13.9 million for the nine months ended March
31, 1998 from $4.4 million and $13.2 million for the same periods, respectively,
in 1997. The increases in interest income were due primarily to an increase in
volume of loans. Interest income on mortgage loans receivable increased
$169,000, or 5.0%, and $872,000, or 8.8%, for the three and nine months ended
March 31, 1998, respectively. Interest from mortgage-backed securities decreased
$111,000, or 25.3%, for the three months and 307,000 or 22.4% for the nine
months ended March 31, 1998. The decrease was primarily due to a $5.7 million
decrease in the Company's balance of mortgage-backed securities to $19.2 million
at March 31, 1998 from $24.9 million at March 31, 1997.
<PAGE>
Interest Expense
Interest expense decreased $20,000, or 0.8%, for the three months ended March
31, 1998, due primarily to the reduction of the balance of borrowed funds for
the period. Interest expense for the nine months ended March 31, 1998 increased
$207,000 over the same period of the prior year. The 2.7% increase for the nine
month period was primarily the result of an increase in the level of deposits
from the previous period. Average deposits for the nine months ended March 31,
1998 was $170.8 million compared with $159.3 million for the same period ended
March 31, 1997.
Net Interest Income
Net interest income, after provision for loan losses, for the three and nine
months ended March 31, 1998 increased $193,000 and $559,000, respectively, over
the same periods of the prior year. This represents increases of 10.6% and
10.4%, respectively, and is primarily attributed to an increase in loans and an
increase in the Bank's net interest margin. Net interest margin (interest income
less interest expense, expressed as a percentage of average interest-earning
assets) increased to 3.57% for the three months and 3.47% for the nine months
ended March 31, 1998 from 3.23% and 3.27%, respectively, for the same periods in
1997.
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 for the three months and $90,000 for the nine months ended March 31,
1998 and 1997. At March 31, 1998 the Company's allowance for loan losses totaled
$811,000, or .43% of the total loan portfolio and 106.6% of total non-performing
loans.
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 of 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.
<PAGE>
Noninterest Income
Noninterest income, consisting primarily of gains on sale of equity securities,
bank service charges and fees and loan servicing income increased by $396,000,
or 111.5%, to $751,000 for the three months ended March 31, 1998. Noninterest
income increased $821,000, or 94.9% to $1.7 million for the nine months ended
March 31, 1998. These increases were primarily attributed to gains on sale of
equity securities of $414,000 and $558,000 for the three and nine month periods,
respectively. In addition, checking account fee income increased $70,000, or
43.0%, for the three months and $298,000, or 66.5%, for the nine months ended
March 31, 1998 compared to the same respective periods in the prior year.
Noninterest Expense
Noninterest expense consists primarily of compensation and benefits, occupancy
and equipment, federal insurance premiums, and data processing service bureau
charges. Noninterest expense for the three months ended March 31, 1998 increased
$182,000, or 14.4% and decreased $388,000, or 8.3%, for the nine months ended
March 31, 1998 compared to the same periods, respectively, in 1997. However,
exclusive of the one-time SAIF assessment, non-interest expense for the nine
months would have increased by $571,000, or 15.4%. The increases were primarily
attributed to increases in the costs of personnel, occupancy, and technology
enhancements and the costs associated with the aggressive marketing of the
checking account program.
The Bank has reviewed computer applications with its outside data processor and
other vendors to ensure operational and financial systems are not adversely
affected by Year 2000 software failures. All major customer applications are
processed by the Bank's data processor. The processor and other vendors have
begun to modify existing programs to make them Year 2000 compliant. Management
of the Bank does not anticipate any additional expense related to this issue at
this time. Any Year 2000 compliance failures could result in additional expense
to the Bank.
Income Tax
The provision for income taxes increased $141,000 and $685,000 for the three and
nine month periods ended March 31, 1998, respectively, over the same periods in
1997 due to higher pre-tax income. The increase in provision for income taxes in
the nine months ended March 31, 1998 related primarily to the one-time SAIF
assessment in the nine months ended March 31, 1997.
<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 Defaults upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
None.
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*
*Submitted only with filing in electronic format.
<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: May 11, 1998 /s/ Larry Schepers
-------------------
Larry Schepers
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 11, 1998 /s/ Arthur Wankum
------------------
Arthur Wankum
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 11
Statement re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, 1998 March 31, 1998
---------------- ----------------
<S> <C> <C>
1. Net income $ 818,830 $ 2,048,611
================ ================
2. Weighted average common shares
outstanding* 1,720,340 1,714,237
3. Contingently issuable shares:
Recognition and Retention Plan 92,378 92,378
4. Total weighted average common shares and contingently issuable shares
outstanding for basic earnings per share computation 1,812,718 1,806,615
5. Earnings per share* $ 0.45 $ 1.13
================ ================
6. Weighted average common shares and contingently issuable shares
outstanding 1,812,718 1,806,615
7. Dilutive shares utilizing the treasury stock method(average market
price) regarding stock options 139,541 131,669
8. Total weighted average common shares outstanding for diluted earnings
per share computation 1,952,259 1,938,284
9. Earnings per common share - assuming
dilution $ 0.42 $ 1.06
================ ================
</TABLE>
* The weighted average common shares outstanding has been computed in accordance
with SOP 93-6, which requires the exclusion of ESOP shares, totaling 72,923 at
March 31, 1998 that have not been committed to be released, from earnings per
share computations.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,071
<INT-BEARING-DEPOSITS> 6,390
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,945
<INVESTMENTS-CARRYING> 2,997
<INVESTMENTS-MARKET> 3,009
<LOANS> 187,214
<ALLOWANCE> 811
<TOTAL-ASSETS> 231,850
<DEPOSITS> 170,998
<SHORT-TERM> 25,000
<LIABILITIES-OTHER> 3,359
<LONG-TERM> 9,000
0
0
<COMMON> 21
<OTHER-SE> 23,472
<TOTAL-LIABILITIES-AND-EQUITY> 231,850
<INTEREST-LOAN> 11,973
<INTEREST-INVEST> 1,838
<INTEREST-OTHER> 123
<INTEREST-TOTAL> 13,934
<INTEREST-DEPOSIT> 6,011
<INTEREST-EXPENSE> 7,893
<INTEREST-INCOME-NET> 6,041
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 558
<EXPENSE-OTHER> 4,277
<INCOME-PRETAX> 3,361
<INCOME-PRE-EXTRAORDINARY> 3,361
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,049
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.06
<YIELD-ACTUAL> 7.92
<LOANS-NON> 368
<LOANS-PAST> 393
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 739
<CHARGE-OFFS> 25
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 811
<ALLOWANCE-DOMESTIC> 811
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
