<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 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
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Commission file number 0-25516
CAMERON FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1702410
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1304 North Walnut, Cameron, Missouri 64429
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 632-2154
----------------------------
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 $.01 per share
--------------------------------------
(Title of class)
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
requirements for the past 90 days. YES X . NO ___.
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing price of such stock on
the Nasdaq National Market as of December 12, 1997, was $49,169,239. (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 December 12, 1997, there were issued and outstanding 2,564,305
shares of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-K - Portions of the Annual Report to
Stockholders for the fiscal year ended September 30, 1997.
<PAGE>
Part III of Form 10-K - Portions of the Proxy Statement for 1998 Annual
Meeting of Stockholders.
2
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PART I
Item 1. Description of Business
-----------------------
General
Cameron Financial Corporation ("Cameron Financial" and, with its
subsidiary, the "Company") was formed at the direction of The Cameron Savings &
Loan Association, F.A. ("Cameron Savings" or the "Association") in December 1994
for the purpose of owning all of the outstanding stock of Cameron Savings issued
upon the conversion of the Association from the mutual to the stock form (the
"Conversion"). On March 31, 1995, Cameron Financial acquired all of the shares
of the Association in connection with the completion of the Conversion. All
references to the Company, unless otherwise indicated, at or before March 31,
1995 refer to the Association and its subsidiaries on a consolidated basis. The
Company's Common Stock is quoted on the Nasdaq National Market under the symbol
"CMRN."
Cameron Savings, which was originally chartered in 1887 as a
Missouri-chartered mutual savings and loan association, is headquartered in
Cameron, Missouri. The Association amended its mutual charter to become a
federal mutual savings and loan association in 1994. Its deposits are insured up
to the maximum allowable amount by the Federal Deposit Insurance Corporation
("FDIC"). Cameron Savings serves the financial needs of its customers throughout
northwest Missouri through its new main office located at 1304 North Walnut,
Cameron, Missouri, three branch offices located in Cameron, Maryville and Mound
City, Missouri and one loan production office located in Liberty, Missouri. The
Association occupied the new main office during June 1997. At September 30,
1997, the Company had total assets of $212.5 million, deposits of $128.8
million, and shareholders' equity of $44.7 million.
Cameron Savings has been, and intends to continue to be, a
community-oriented financial institution offering financial services to meet the
needs of the market area it serves. The Association attracts deposits from the
general public and uses such funds to originate loans secured by first mortgages
on owner-occupied one- to four-family residences and construction loans in its
market area. To a lesser extent, the Association originates land, commercial
real estate, multi-family and consumer loans in its market area. See "Business -
Originations, Purchases and Sales of Loans." The Association also invests in
investment securities, interest-bearing deposits and other short-term liquid
assets. See "Business - Investment Activities."
The executive office of the Association is located at 1304 North
Walnut, Cameron, Missouri. Its telephone number at that address is (816)
632-2154.
Market Area
The Association's primary market consists of the Northwestern part of
Missouri. The Association primarily serves Clinton, Caldwell, DeKalb and Daviess
Counties, Missouri through its main office located in Cameron, Missouri. The
Association serves Nodaway County through
3
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its branch office in Maryville, Missouri and Holt County through its branch
office in Mound City, Missouri. In addition, the Association serves Clay and
Platte Counties through its loan production office in Liberty, Missouri. Nearly
all of the Association's construction lending is originated by the Association's
loan production office and is secured by properties located in the northern
suburbs of Kansas City.
Cameron, Missouri is located approximately 50 miles northeast of Kansas
City, Missouri at the intersection of Interstate 35 and U.S. Highway 36.
According to the 1990 census, Clinton, Caldwell, DeKalb and Daviess Counties had
a combined population of approximately 45,000. The primary industries in Clinton
and surrounding counties are services; governmental; finance, insurance and real
estate; and light manufacturing. Major employers in the Association's market
area include the State of Missouri Department of Corrections, Cameron Insurance
Companies, Cameron Community Hospital and the Cameron R-1 school district. The
Association also serves commuting customers to Kansas City.
Lending Activities
General. Historically, the Association originated primarily fixed-rate
long-term residential mortgage loans. Since the early 1980s, however, the
Association has emphasized, subject to market conditions, the origination for
portfolio of adjustable rate mortgage ("ARM") loans and the origination and sale
of fixed-rate loans with terms to maturity of up to 30 years. Management's
strategy has been to attempt to increase the percentage of assets in its
portfolio with more frequent repricing terms or shorter maturities. As part of
its efforts, the Association has developed a variety of ARM loan products. In
response to customer demand, however, the Association continues to originate
fixed-rate mortgage loans with terms of 30 years, which it typically sells into
the secondary market.
The Association's primary focus in lending activities is on the
origination of loans secured by first mortgages on owner-occupied, one- to
four-family residences and loans for the construction of one- to four-family
residences. In addition, in order to serve the financial needs of the families
and the communities in the Association's primary market area, Cameron Savings
also originates, to a lesser extent, land, commercial real estate, multi-family
and consumer loans. See "- Originations, Purchases and Sales of Loans." At
September 30, 1997, the Association's net loan portfolio totaled $176.8 million.
The Association maintains an established loan approval process. Loans
under $150,000 secured by real estate are reviewed and approved by any two
members of the loan committee. Real estate loans between $150,000 and $214,600
that meet specified criteria may be approved by any two members of the loan
committee. The entire Board of Directors approves all other real estate loans.
Home equity and improvement loans are approved by the loan committee and the
consumer lending department. Other consumer loans may be approved by any one
person in the consumer lending department except for signature loans over $5,000
which require the approval of two persons on the loan committee.
4
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The aggregate amount of loans that the Association is permitted to make
under applicable federal regulations to any one borrower, including related
entities, or the aggregate amount that the Association can 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 September 30, 1997, the maximum amount which the Association
could have lent to any one borrower and the borrower's related entities was
approximately $5.4 million. At September 30, 1997, the Association had no loans
with an aggregate outstanding balance in excess of this amount. The Association
has 25 borrowers or related borrowers with total loans outstanding in excess of
$1.0 million. The largest amount outstanding to any one borrower and the
borrower's related entities was approximately $3.7 million to a developer for
land acquisition and development loans and residential construction loans, and
was secured by real estate primarily in Clay and Platte Counties, Missouri and
the personal guarantee of the borrower. At September 30, 1997, these loans were
performing in accordance with their terms. See "Regulation - Federal Regulation
of Savings Associations."
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Loan Portfolio Composition. The following table sets forth the
composition of the Association's loan portfolio in dollar amounts and in
percentages (before deductions for loans in process, deferred fees and discounts
and allowances for losses) at the dates indicated. Substantially all of the
loans in process reflected in the table represent undisbursed residential
construction funding.
<TABLE>
<CAPTION>
At September 30,
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1997 1996 1995
------------------------ ----------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family(1)............... $123,856 61.96% $109,292 62.06% $95,040 65.71%
Multi-family......................... 4,226 2.11 2,908 1.65 3,181 2.20
Commercial........................... 3,403 1.70 4,322 2.45 3,759 2.60
Land................................. 8,257 4.13 9,605 5.46 4,106 2.84
Construction(2)...................... 51,447 25.74 41,646 23.65 32,956 22.79
------ ----- ------- ----- ------- -----
Total real estate loans.......... 191,189 95.64 167,773 95.27 139,042 96.14
------- ------- ------- -----
Other Loans:
Consumer Loans:
Deposit account..................... 398 0.20 533 0.30 316 0.22
Student............................. -- -- -- -- 123 0.08
Automobile.......................... 3,302 1.65 3,359 1.91 1,249 0.86
Home equity......................... 1,904 0.95 2,718 1.54 1,327 0.92
Home improvement.................... 1,014 0.51 873 0.50 1,387 0.96
Other............................... 2,091 1.05 847 0.48 1,185 0.82
----- ---- ------- ------ -------- -------
Total consumer loans............. 8,709 4.36 8,330 4.73 5,587 3.86
----- ---- ------ ------ -------- -------
Total loans...................... 199,898 100.00% 176,103 100.00% $144,629 100.00%
====== ====== ======
Less:
Loans in process..................... 20,679 19,502 13,253
Deferred loan fees, net.............. 805 804 642
Allowance for loan losses............ 1,624 1,353 994
----- -------- ---------
Loans receivable, net................ $176,790 $154,444 $129,740
======== ======== ========
</TABLE>
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(1) Includes $466,000 of loans held for sale at September 30, 1997.
(2) Includes $6.6 million, $8.3 million and $4.4 million of
construction-permanent loans at September 30, 1997, 1996 and 1995,
respectively, and $0.3 million and $1.4 million of
construction-permanent loans on multi-family properties at September
30, 1997 and 1996, respectively, and $70,000 of construction-permanent
loans on commercial property at September 30, 1996.
6
<PAGE>
The following table sets forth the composition of the Association's
loan portfolio by fixed-and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------------
1997 1996 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(1).................... $42,116 21.07% $24,312 13.81% $24,146 16.70%
Multi-family.............................. 942 0.47 986 0.56 1,028 0.71
Commercial................................ 571 0.29 604 0.34 354 0.24
Land...................................... 5,180 2.59 6,298 3.58 2,457 1.70
Construction.............................. 50,106 25.07 35,475 20.14 30,369 21.00
-------- ----- ------- ------ ------ -----
Total real estate loans................ 98,915 49.49 67,675 38.43 58,354 40.35
Consumer................................... 5,768 2.88 6,033 3.43 3,901 2.70
--------- ------ ------- ------ ------- ------
Total fixed-rate loans................. 104,683 52.37 73,708 41.86 62,255 43.05
------- ----- ------- ------ ------- -----
Adjustable-Rate Loans:
Real estate:
One- to four-family....................... 81,740 40.89 84,980 48.26 70,894 49.01%
Multi-family.............................. 3,284 1.64 1,922 1.09 2,153 1.49
Commercial................................ 2,832 1.42 3,718 2.11 3,405 2.35
Land...................................... 3,077 1.54 3,307 1.88 1,649 1.14
Construction.............................. 1,341 0.67 6,171 3.50 2,587 1.79
----- ---- ------ ------ ------- ------
Total real estate loans................ 92,274 46.16 100,098 56.84 80,688 55.78
Consumer.................................... 2,941 1.47 2,297 1.30 1,686 1.17
----- ---- ------- ------ ------- -------
Total adjustable-rate loans............ 95,215 47.63 102,395 58.14 82,374 56.95
------ ----- ------- ------ ------- -------
Total loans............................ 199,898 100.00% 176,103 100.00% 144,629 100.00%
====== ====== ======
Less:
Loans in process........................... 20,679 19,502 13,253
Deferred loan fees, net.................... 805 804 642
Allowance for loan losses.................. 1,624 1,353 994
----- ------- ----------
Loans receivable, net................... $176,790 $154,444 $129,740
======== ======== ========
</TABLE>
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(1) Includes ARM loans aggregating $6.9 million, $7.9 million and $6.3
million at September 30, 1997, 1996 and 1995, respectively, which have
their next interest rate adjustment date five years or more from the
dates indicated.
7
<PAGE>
The following table sets forth the contractual maturity and weighted
average rates of the Association's loan portfolio at September 30, 1997. Loans
which have adjustable or renegotiable interest rates are shown as maturing in
the year during which the contract is due. The schedule does not reflect the
effects of scheduled payments, possible prepayments or enforcement of
due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
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Multi-family and
One- to Four-Family Commercial Land Construction Consumer Total
--------------------- ----------------- ------------------ --------------- --------------- -----------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------ ---- ------ ---- ------ ----
(Dollars in Thousands)
Due During
Years Ending
September 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998(1) .......... $ 888 8.52% $ 793 9.75% $ 85 9.03% $40,968 9.26% $ 935 9.15% $ 43,669 9.25%
1999 ............. 230 7.77 48 9.22 6 9.41 3,662 9.39 1,019 10.54 $ 4,965 9.55
2000 ............. 297 8.14 48 8.13 211 8.54 -- -- 1,465 10.51 $ 2,021 9.90
2001 and 2002 .... 2,072 8.41 287 9.35 2,661 8.75 -- -- 3,392 9.58 $ 8,412 9.02
2003 to 2007 ..... 13,078 8.23 1,652 8.66 1,467 8.93 -- -- 1,831 10.35 $ 18,028 8.54
2008 to 2022 ..... 81,598 8.20 4,801 8.85 3,795 8.34 2,358 8.98 67 8.84 $ 92,619 8.26
2023 and following 25,693 7.84 -- -- 32 8.25 4,459 8.66 -- -- $ 30,184 7.96
-------- ------ ------ ------- ------ --------
Total ............ $123,856 8.13% $7,629 8.92% $8,257 8.59 $51,447 9.20% $8,709 9.54% $199,898 8.54%
======== ====== ====== ======= ====== ========
</TABLE>
The total amount of loans due after September 30, 1998 which have fixed
interest rates is $61.1 million, while the total amount of loans due after such
date which have adjustable interest rates is $95.1 million.
8
<PAGE>
All of the Association's lending is subject to its written underwriting
standards and loan origination procedures. Decisions on loan applications are
made on the basis of detailed applications and property valuations, if
applicable.
The Association requires evidence of marketable title and lien position
and/or appropriate title insurance or title opinions and surveys of such
properties. The Association also requires fire and extended coverage casualty
insurance in amounts at least equal to the lesser of the principal amount of the
loan or the value of improvements on the property, depending on the type of
loan. As required by federal regulations, the Association also requires flood
insurance to protect the property securing its interest if such property is
located in a designated flood area.
One- to Four-Family Residential Real Estate Lending
A primary focus of the Association's lending program has long been the
origination of long-term permanent loans secured by mortgages on owner-occupied,
one- to four-family residences. At September 30, 1997, $123.9 million, or 62.0%,
of the Association's loan portfolio consisted of permanent loans on one- to
four-family residences. Substantially all of the residential loans originated by
Cameron Savings are secured by properties located in the Association's market
area.
Historically, Cameron Savings originated for retention in its
portfolio, fixed-rate loans secured by one- to four-family residential real
estate. In the early 1980s, in order to reduce its exposure to changes in
interest rates, Cameron Savings began to emphasize the origination of ARM loans,
subject to market conditions and consumer preference. The Association originates
ARM loans for its portfolio. However, as a result of continued consumer demand
for long-term fixed-rate loans, particularly during recent periods of relatively
low interest rates, Cameron Savings has continued to originate fixed-rate loans
with terms to maturity of 15 to 30 years. During recent years, the Association's
general policy has been to sell into the secondary market, with servicing
released, fixed-rate loans with terms to maturity of 30 years. Fixed-rate loans
with terms to maturity of less than 30 years may either be retained in portfolio
or sold in the secondary market depending on the interest rate charged and the
Association's asset/liability management objectives.
In the loan approval process, Cameron Savings assesses the borrower's
ability to repay the loan, the adequacy of the proposed security, the employment
stability of the borrower and the creditworthiness of the borrower. Initially,
Cameron Savings' loan underwriters analyze the loan application and the property
involved. As part of the loan application process, qualified independent and, to
a lesser extent, staff appraisers inspect and appraise the security property.
All appraisals are subsequently reviewed by the loan committee as applicable.
The Association's loans are underwritten and documented pursuant to the
guidelines of Freddie Mac. Most of the Association's fixed-rate residential
loans have contractual terms to maturity of ten to 30 years. The Association's
decision to hold or sell these loans is based on its asset/liability management
policies and goals and the market conditions for mortgages at any period in
time. Currently, the Association originates and sells substantially all of its
fixed-rate 30-year loans into the secondary markets, servicing released. See
"Business - Originations, Purchases and
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Sales of Loans." The interest rates on loans sold are determined pursuant to
commitments to purchase from secondary market sources.
The Association offers ARM loans at rates and on terms determined in
accordance with market and competitive factors. Substantially all of the ARM
loans originated by the Association meet the underwriting standards regarding
creditworthiness of the secondary market for residential loans, but may not have
other terms that are generally acceptable to the secondary market (i.e.,
periodic interest rate cap or type of property). The Association's one- to
four-family residential ARM loans generally are fully amortizing loans with
contractual maturities of up to 30 years.
Cameron Savings presently offers several ARM products which adjust
annually after an initial period ranging from one to seven years subject to a
limitation on the annual increase of 0.5%, 1.0% or 2.0% and an overall life of
loan limitation of 5.0% or 6.0%. These ARM products utilize the weekly average
yield on one-year U.S. Treasury securities adjusted to a constant maturity of
one year plus a margin of 2.75% or 3.0%. Borrowers are generally qualified using
the fully indexed rate. ARM products held in the Association's portfolio do not
permit negative amortization of principal and carry no prepayment restrictions.
At September 30, 1997, the Association had $81.7 million of one- to four-family
ARM loans, or 40.9% of total loans.
It is Cameron Savings' present policy generally to lend up to 97% of
the lesser of the appraised value or purchase price of the property. Cameron
Savings generally requires private mortgage insurance on residential loans with
a loan-to-value ratio at origination exceeding 80% in order to reduce its
exposure to 80% or less. The Association occasionally deviates from this policy
for first-time home buyers in which the Association will provide lending
opportunities to individuals who have not been employed long enough to qualify
for private mortgage insurance but who have qualifying incomes and low debt to
income ratios.
Adjustable-rate loans decrease the risk associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrowers may rise to the extent permitted by the terms
of the loan, thereby increasing the potential for default. Also, adjustable-rate
loans have features which restrict changes in interest rates on a short-term
basis and over the life of the loan. In particular, the ARM loans originated by
the Association which have annual adjustments of 0.5% would take longer to
adjust to market rates than would many competing loans. At the same time, the
market value of the underlying property may be adversely affected by higher
interest rates.
The Association's residential mortgage loans customarily include
due-on-sale clauses giving the Association the right to declare the loan
immediately due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the property subject to the mortgage and the loan
is not repaid. The Association may enforce due-on-sale clauses in its mortgage
contracts for the purpose of increasing its loan portfolio yield.
10
<PAGE>
Construction and Land Lending
Historically, the Association has invested a significant proportion of
its loan portfolio in construction and land loans. Prompted by increased
residential development (predominately subdivisions) in the northern suburbs of
Kansas City, on July 1, 1987, the Association opened a loan production office in
Liberty, Missouri, a suburb community located northeast of Kansas City. Cameron
Financial has received approval for and is in the process of constructing a
building in Liberty which will be leased to the Association and operated as a
full service branch. Upon completion and occupancy of the new branch facility,
the loan production office will be closed. Substantially all of the
Association's construction and land loans are secured by residential properties
located in the northern suburbs of Kansas City and are originated, monitored,
and serviced by the Liberty office. Earl T. Frazier, who joined the Association
in 1981, manages the Liberty office in close consultation with the senior
management and Board of Directors. Prior to joining the Association, Mr. Frazier
was a real estate agent and, prior thereto, a residential home builder. See
"Executive Officers of the Company and the Association who are not Directors."
The Association originates five basic types of construction and land
loans:
1. "Speculative" construction loans are made to home builders for
the construction principally of one- to four-family residences
and residential development projects and, to a lesser extent,
commercial buildings and multi-family residences. Speculative
construction loans generally do not have a sale contract or
permanent loan in place for the finished home, and the
purchasers for the finished homes may be identified either
during or following the construction period.
2. "Contract" construction loans are made to builders who have a
signed contract to build a new home.
3. "Construction--permanent" loans are made to individuals who
have contracted with a builder to construct their personal
residence.
4. "Conventional" land loans are made to individuals typically to
finance agricultural land, building lots, and unimproved land.
5. "Land acquisition and development" loans ("land A&D loans")
are made to real estate developers and individuals for the
acquisition of land upon which the purchaser can then build
and for the acquisition of unimproved land upon which the
purchaser makes improvements necessary to build upon or to
sell as improved lots.
11
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The table below presents information on the Association's construction
and land loans at September 30, 1997:
<TABLE>
<CAPTION>
Outstanding Percent of
Loan Balance(1) Total
--------------- -----------
(Dollars in Millions)
<S> <C> <C>
Speculative.................................................. $40.2 67.33%
Contract..................................................... 4.6 7.71
Construction/permanent....................................... 6.6 11.06
-----
Total construction........................................ 51.4 86.10
----
Conventional land............................................ 6.0 10.05
Land A&D..................................................... 2.3 3.85
--- ----
Total land................................................ 8.3 13.90
--- -----
Total construction and land............................ $59.7 100.00%
===== ======
</TABLE>
- ---------------
(1) Includes loans in process.
At September 30, 1997, the Association's $51.4 million of construction
loans and $8.3 million of land loans represented 25.7% and 4.2%, respectively,
of total loans receivable. At the same time, the Association's $40.2 million of
speculative construction loans and $2.3 million of land A&D loans represented
20.1% and 1.2%, respectively, of total loans receivable.
Construction and land A&D lending affords the Association the
opportunity to achieve higher interest rates and fees with shorter terms to
maturity than does its single-family permanent mortgage lending. Construction
and land A&D lending, however, is generally considered to involve a higher
degree of risk than single-family permanent mortgage lending due to (i) the
concentration of principal among relatively few borrowers and development
projects, (ii) the increased difficulty at the time the loan is made of
estimating building costs and the selling price of the residence to be built,
(iii) the increased difficulty and costs of monitoring the loan, (iv) the higher
degree of sensitivity to increases in market rates of interest, and (v) the
increased difficulty of working out problem loans. Speculative construction
loans have the added risk associated with identifying an end-purchaser for the
finished home. The Association has sought to address these risks by developing
and adhering to underwriting policies, disbursement procedures, and monitoring
practices.
The Association seeks to make construction loans to those builders with
which it has a long-standing history of satisfactory performance. New builders
typically borrow from the Association in limited amounts and may borrow
additional amounts based on proven experience with the Association. At September
30, 1997, the Association had 13 borrowers for which speculative construction
and land A&D loans outstanding totaled more than $1.0 million. Each of the
foregoing
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<PAGE>
builders with speculative construction and land A&D loans totaling more than
$1.0 million have been customers of the Association for more than three years.
While substantially all of the Association's construction and land A&D
loans are secured by properties located in the northern suburbs of Kansas City,
the Association also seeks to diversify its construction and land A&D lending
risks among several development projects. At September 30, 1997, the Association
had speculative construction and land A&D loans secured by properties in 72
developments of which 9 represented an exposure to a single development of more
than $1.0 million.
One- to Four-Family Construction Loans. Loans for the construction of
one- to four-family residences are generally made for terms of six to 12 months.
The Association's loan policy includes maximum loan-to-value ratios of up to 85%
that vary by amount and type (i.e., speculative versus contract) of construction
loan. The Board of Directors may increase or decrease the maximum loan-to-value
ratio depending on borrower strength, economic conditions and other factors.
Prior to preliminary approval of a construction loan application, Association
personnel inspect the site, review the existing or proposed improvements,
identify the market for the proposed project, analyze the pro forma data and
assumptions on the project, and satisfy themselves with the experience and
expertise of the builder. After preliminary approval has been given, the
application is processed. Processing includes obtaining credit reports,
financial statements and tax returns on the borrowers and guarantors, an
independent appraisal of the project, and any other expert reports necessary to
evaluate the proposed project. The Association requires builders to designate
Cameron Savings as the beneficiary of a life insurance policy equal to the
lesser of $50,000 or 50% of the loan balance, though the Board of Directors may
require additional amounts or make other similar arrangements. Although
individual loan officers can make conditional loan commitments, all construction
loans must be approved by the Loan Committee or Board of Directors.
With few exceptions, the Association requires that construction loan
proceeds be disbursed in increments as construction progresses. To control the
disbursement process, the Association requires that builders and their
subcontractors and vendors submit invoices to the Association for payment. In
disbursing construction loan funds, the Association uses proprietary software,
for which the Association charges a per-loan fee, that tracks actual
disbursements compared to estimated costs by category of expense and provides
certain tax reports for the borrower. The Association uses this information,
along with periodic on-site inspections by Association personnel, to monitor the
progress of the project. In the event of cost overruns, depending on the
circumstances (i.e., whether due to "add-ons" not included in the original plans
or due to unanticipated changes in building costs) the Association may seek to
require the borrower to deposit funds with the Association for additional
disbursements, increase the loan amount on the basis of an increased appraisal
and disburse additional loan proceeds consistent with the original loan-to-value
ratio, or become more active in the monitoring and progress of the project.
The Association regularly monitors the accuracy of assumptions made in
its construction loan business over time. In particular, the Association tracks
the accuracy of its independent appraisers by comparing actual selling prices
with the appraised value estimated in connection with the loan approval.
Additionally, the Association tracks the performance of its builder customers by
13
<PAGE>
comparing actual costs with those estimated in the loan application. The
Association believes that this experience mitigates some of the risks inherent
in its construction lending.
Commercial and Multi-family Construction Loans. Occasionally, the
Association originates loans for the construction of commercial buildings and
multi-family residences on terms similar to those on one- to four-family
construction loans. At September 30, 1997, the Association had one such loan
outstanding totalling $0.3 million.
Land and Development Loans. At September 30, 1997, the Association had
total land loans of $8.3 million. In making land loans, the Association follows
similar underwriting policies as for construction loans and, to the extent
applicable (i.e., if the loan is to develop land for future building rather than
simply to acquire raw land), similar disbursement procedures. The Association
originates land loans with similar terms and at similar rates as construction
loans, except that the initial term on conventional land loans is typically five
to ten years (not to exceed 20 years) as opposed to the term of up to 12 months
that is typical of construction loans. Land A&D loans are interest-only loans,
payable semi-annually, with provisions for principal reductions as lots are
sold.
Multi-Family and Commercial Real Estate Lending
Cameron Savings also originates loans secured by multi-family and
commercial real estate. At September 30, 1997, $4.2 million, or 2.1%, of the
Association's loan portfolio consisted of multi-family loans and $3.4 million,
or 1.7%, of the Association's loan portfolio consisted of commercial real estate
loans.
Multi-family and commercial real estate loans originated by the
Association may be either fixed- or adjustable-rate loans with terms to maturity
and amortization schedules of up to 20 years. Rates on such ARM loans generally
adjust annually to specified spreads over the one-year U.S. Treasury securities
index adjusted to a constant maturity of one year, subject to annual and
life-of-loan interest rate caps. Multi-family and commercial real estate loans
are written in amounts of up to 80% of the lesser of the appraised value of the
property or the sales price.
The Association's commercial real estate portfolio consists of loans on
a variety of non-residential properties including small shopping centers,
nursing homes, small office buildings and churches. Multi-family loans generally
are secured by seven- to 36-unit apartment buildings. Appraisals on properties
which secure multi-family and commercial real estate loans are performed by an
independent appraiser designated by the Association before the loan is made. All
appraisals on multi-family and commercial real estate loans are reviewed by the
Association's management. In underwriting such loans, the Association primarily
considers the cash flows generated by the real estate to support the debt
service, the financial resources and income level of the borrower and the
Association's experience with the borrower. In addition, the Association's
underwriting procedures require verification of the borrower's credit history,
an analysis of the borrower's income, financial statements and banking
relationships, a review of the borrower's property management experience and
references, and a review of the property, including cash flow projections and
historical operating results. The Association seeks to ensure that the property
securing the loans will generate sufficient
14
<PAGE>
cash flow to adequately cover operating expenses and debt service payments. The
Association generally requires a debt service coverage ratio of 120% or more.
At September 30, 1997, the Association's largest multi-family or
commercial real estate loan of $781,000 was secured by seven 4-unit apartment
buildings located in Clay County, Missouri.
Multi-family and commercial real estate lending affords the Association
an opportunity to receive interest at rates higher than those generally
available from one- to four-family residential lending. Nevertheless, loans
secured by such properties are generally larger, more difficult to evaluate and
monitor and, therefore generally, involve a greater degree of risk than one- to
four-family residential mortgage loans. Because payments on loans secured by
commercial real estate and multi-family properties are often dependent on the
successful operation or management of the properties, repayment of such loans
may be subject to adverse conditions in the real estate market or the economy.
If the cash flow from the project is reduced, the borrower's ability to repay
the loan might be impaired. The Association has attempted to minimize these
risks by lending primarily to the ultimate user of the property or on existing
income-producing properties.
Consumer Lending
The Association originates a variety of consumer loans, including home
equity loans, automobile loans, education loans, home improvement loans, loans
secured by deposit accounts, and other types of secured and unsecured loans. At
September 30, 1997, the Association had $8.7 million, or 4.4% of its loans
receivable, in outstanding consumer loans. The Association has recently focused
on the expansion of its consumer lending portfolio as a result of the variety of
products that can be offered, the higher yields that can be obtained and the
stronger consumer demand for such products. In addition, management believes
that offering consumer loan products helps to expand the Association's customer
base and creates stronger ties to its existing customer base. Consumer loan
balances typically range from $1,000 to $50,000 and are generally repaid over
periods ranging from one to ten years. Unsecured consumer loans generally do not
exceed $10,000 and typically are repayable in monthly installment payments
within five years. The Association's consumer loans are primarily secured by
second mortgages on residential real estate, automobiles, recreational vehicles
or boats. The Association's focus in consumer lending has been the origination
of home equity and improvement loans and auto loans. At September 30, 1997 the
Association had $2.9 million or 33.5% of its consumer loan portfolio in home
equity and home improvement loans and $3.3 million in auto loans, or 37.9% of
the consumer loan portfolio. Approximately 4.3% of the consumer loans were
unsecured at September 30, 1997.
Consumer loans generally have shorter terms and higher interest rates
than first lien mortgage loans because they generally involve more credit risk
than mortgage loans as a result of the type and nature of the collateral and, in
certain cases, the absence of collateral. Consumer loans generally are dependent
on the borrower's continuing financial stability and thus are more likely to be
affected by adverse personal circumstances. Despite the risks inherent in
consumer lending, the Association's consumer loans delinquent greater than 90
days as a percentage of total consumer loans was 1.0% at September 30, 1997.
15
<PAGE>
The underwriting standards generally employed by the Association for
consumer loans include a determination of the applicant's payment history on
other debts and an assessment of the borrower's ability to meet the payments on
the proposed loan as well as existing obligations. In addition to the
creditworthiness of the applicant, the underwriting process also includes a
comparison of the value of the security in relation to the proposed loan amount.
Upon receipt of a completed consumer loan application from the prospective
borrower, a credit report is obtained, income and other information is verified
and, if necessary, additional financial information is requested.
The Association's underwriting procedures for home equity loans include
a comprehensive review of the loan application, which require a clean credit
rating and verification of stated income and other financial information. The
combined loan-to-value ratio, including prior mortgage liens, also is a
determining factor in the underwriting process. Generally, the combined
loan-to-value ratio, including prior mortgage liens, may not exceed 80% of the
underlying security property.
Loan Fees
In addition to earning interest on loans, the Association also receives
income from loan origination fees and fees related to late payments, loan
modifications, and miscellaneous activities related to loans. Income from these
activities varies from period to period with the volume and type of loans
originated.
The Association generally receives loan origination and/or commitment
fees when originating loans. Fees are generally up to 2% of the principal amount
of residential mortgage loans. In accordance with SFAS No. 91, the Association
defers loan origination and commitment fees and certain direct loan origination
costs, with the net amount amortized as an adjustment of the loan's yield. The
Association amortizes these amounts, using the level-yield method, over the
contractual life of these loans. Net deferred amounts are recorded in income
when the underlying loans are sold or paid in full. See Note 2 of Notes to
Consolidated Financial Statements.
Originations, Purchases and Sales of Loans
The Association originates real estate loans through marketing efforts,
the Association's customer base and walk-in customers. Mortgage loan
originations come from direct solicitation by the Association's loan officers
and branch managers, and from real estate brokers, builders, depositors and
walk-in customers. Loan applications are taken and processed by loan
representatives, while underwriting and document preparation functions are
performed at the Cameron Savings home office and Liberty loan production office.
When all necessary documents are obtained, the loan, depending on its size and
type, may be approved by any three members of the loan committee or the Board of
Directors.
While the Association originates both adjustable-rate and fixed-rate
loans, its ability to originate loans is dependent upon the relative customer
demand for loans in its market. In fiscal 1997, the Association originated
$100.6 million of loans, compared to $99.6 million and $67.9 million in fiscal
1996 and 1995, respectively. During recent years, the Association's construction
16
<PAGE>
loan originations have been strong, totaling $63.5 million, $57.0 million, and
$43.6 million, or 63.1%, 57.2%, and 64.2%, of total loan originations in fiscal
1997, 1996 and 1995, respectively.
Cameron Savings generally sells its 30-year fixed-rate one- to
four-family residential mortgage loans, without recourse, to secondary market
purchasers. Sales of whole loans generally are beneficial to the Association
since these sales may generate income at the time of sale, provide funds for
additional lending and other investments and increase liquidity. When loans are
sold, the Association typically does not retain the responsibility for servicing
the loans. At origination, all of the Association's mortgage loans are
immediately classified as either held for investment or held for sale. During
fiscal 1997, conventional mortgage loans originated and sold into the secondary
market totaled $2.7 million.
While the Association has purchased whole loans or loan participations
from time to time, such purchases have been infrequent. In 1997, the Association
did not purchase any loans. Any such purchases are made consistent with the
Association's underwriting standards. Most of the Association's purchased loans
are secured by property located in Missouri.
In addition, the Association may purchase mortgage-backed securities to
complement its mortgage lending activities. However, during fiscal 1997, 1996
and 1995 the Association did not purchase any mortgage-backed securities.
Loan commitments are issued as soon as possible upon completion of the
underwriting process, and mortgage loans are closed as soon as all title
clearance and other required procedures have been completed. At September 30,
1997, there were outstanding first mortgage loan commitments totaling $5.8
million. At that date, the Association also had $51.4 million of construction
loans of which approximately $20.7 million had not yet been disbursed.
17
<PAGE>
The following table shows the loan origination, purchase, sale and
repayment activities of the Association for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1997 1996 1995
---- ---- ----
(Dollars In Thousands)
Originations by type:
- ---------------------
<S> <C> <C> <C>
Adjustable rate:
Real estate - one- to four-family.................. $24,074 $21,063 $15,226
- multi-family....................... 660 1,679 201
- commercial......................... 40 1,085 277
- land............................... 1,088 2,079 743
- construction....................... 9,565 9,901 4,678
Non-real estate - consumer......................... 1,612 1,278 668
------- ------- -------
Total adjustable-rate...................... 37,039 37,085 21,793
------- ------- -------
Fixed rate:
Real estate - one- to four-family.................. 4,226 4,262 3,489
- commercial......................... 48 100 --
- land............................... 1,407 5,348 734
- construction....................... 53,980 47,089 38,909
Non-real estate - consumer......................... 3,905 5,735 3,010
------- ------- -------
Total fixed-rate............................ 63,566 62,534 46,142
------- ------- -------
Total loan originations..................... 100,605 99,619 67,935
------- ------- -------
Purchases:
- ---------
Real estate - one- to four-family.................. -- 882 26
- land................................. -- -- --
------- ------- -------
Total loan purchases........................ -- 882 26
Mortgage-backed securities......................... -- -- --
------- ------- -------
Total purchases............................. -- 882 26
------- ------- -------
Sales and Repayments:
- --------------------
Real estate - one- to four-family.................. 2,731 1,531 1,102
------- ------- -------
Total loan sales............................ 2,731 1,531 1,102
Principal repayments............................... 74,079 67,496 48,508
------- ------- -------
Total sales and repayments.................. 76,810 69,027 49,610
Increase in other items:
Loans in process................................... (1,177) (6,249) (2,420)
Deferred fees and discounts........................ (1) (162) (54)
Allowance for loan losses.......................... (271) (359) (118)
------- ------- -------
Net increase................................ $22,346 $24,704 $15,759
======= ======= =======
</TABLE>
Asset Quality
Delinquency Procedures. When a borrower fails to make a required
payment on a first mortgage loan, the Association attempts to cause the
delinquency to be cured by contacting the borrower by mail or telephone when the
loan is 20 days delinquent. A second late notice is sent after the loan is 30
days delinquent in addition to verbal contact with the borrower.
18
<PAGE>
In the event the loan payment is past due for 90 days or more, the
Association performs an in-depth review of the loan's status, the condition of
the property and circumstances of the borrower. Based upon the results of the
review, the Association may negotiate and accept a repayment program with the
borrower or, when deemed necessary, initiate foreclosure proceedings. If
foreclosed on, real property is sold at a public sale and the Association may
bid on the property to protect its interest. A decision as to whether and when
to initiate foreclosure proceedings is made by the loan service officer with the
approval of the President and is based on such factors as the amount of the
outstanding loan in relation to the original indebtedness, the extent of
delinquency and the borrower's ability and willingness to cooperate in curing
the delinquencies.
The following table sets forth the Association's loan delinquencies by
type, by amount and by percentage of type at September 30, 1997.
<TABLE>
<CAPTION>
Loans Delinquent For
-----------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
---------------------------- --------------------------- -------------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
Real Estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family........ 34 $1,159 0.94% 22 $970 0.78% 56 $2,129 1.72%
Commercial-multifamily..... -- -- -- -- -- -- -- -- --
Land....................... -- -- -- -- -- -- -- -- --
Construction............... -- -- -- 1 110 0.21 1 110 0.21
Consumer..................... 8 52 0.60 13 88 1.01 21 140 1.61
--- ------ ---- --- ------ ---- --- ------ ----
Total................... 42 $1,211 0.61% 36 $1,168 0.58% 78 $2,379 1.19%
=== ====== ==== === ====== ==== === ====== ====
</TABLE>
Non-Performing Assets. Real estate acquired in settlement of loans is
classified as real estate owned until it is sold. When property is acquired, it
is initially recorded at the lower of estimated fair value, less estimated costs
to sell, or cost. If, subsequent to foreclosure, the fair value of the real
estate acquired through foreclosure is determined to have declined based upon
periodic evaluations by management, valuation allowances are established through
a charge to income. Costs relating to the development or improvement of real
estate owned are capitalized to the extent of fair market value.
The following table sets forth the amounts and categories of the
Association's non-performing assets. Loans are placed on non-accrual status when
the collection of principal and/or interest is not probable; however, in no
event is interest accrued on loans for which interest is more than 90 days
delinquent. Foreclosed assets include assets acquired in settlement of loans.
19
<PAGE>
<TABLE>
<CAPTION>
September 30,
---------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Non-accruing loans:
One- to four-family........................................ $262 $638 $349
Multi-family............................................... -- -- --
Commercial................................................. -- -- 5
Land....................................................... -- -- --
Construction............................................... 110 131 206
Consumer................................................... -- -- --
------ ----- -----
Total non-accruing loans................................ 372 769 560
------ ----- -----
Accruing loans delinquent 90 days or more:(2)
One- to four-family........................................ 708 653 716
Multi-family............................................... -- -- --
Commercial................................................. -- -- --
Land....................................................... -- -- --
Construction............................................... -- -- --
Consumer................................................... 88 56 59
------ ----- -----
Total accruing loans delinquent more than 90 days........ 796 709 775
------ ----- -----
Total non-performing loans............................... 1,168 1,478 1,335
------ ----- -----
Foreclosed assets:
One- to four-family........................................ -- 70 --
Multi-family............................................... -- -- --
Commercial................................................. -- -- --
Land....................................................... -- -- --
Construction............................................... -- -- --
Consumer................................................... 12 -- --
------ ----- -----
Total................................................... 12 70 --
------ ----- -----
Total non-performing assets.................................. $1,180 $1,548 $1,335
====== ====== ======
Total classified assets(1)................................... $10,754 $7,729 $3,903
Total non-performing loans as a percentage
of total loans receivable.................................. 0.58% 0.84% 0.92%
Total non-performing assets as a percentage
of total assets............................................. 0.56% 0.83% 0.77%
Total classified assets(1) as a percentage of total assets... 5.06% 4.15% 2.25%
Interest income that would have been recorded on
non-performing loans if current (3)......................... $ 21 $ 40 $ 15
Interest income on non-performing loans included in
net income (4).............................................. $ 13 $ 40 $ 19
</TABLE>
- -------------------------
(1) Includes assets designated special mention.
(2) These loans are delinquent 90 days or more as to principal but not as to
interest. This can occur when the Association receives a partial payment
from a borrower which is first applied to interest due.
(3) This represents the additional interest income that would have been
collected had the loans been current.
(4) This represents the interest income actually collected on the loans.
Other Loans of Concern. In addition to the non-performing loans and
foreclosed assets set forth in the preceding table, as of September 30, 1997,
there was also an aggregate of $9.6 million
20
<PAGE>
in net book value of loans classified by the Association with respect to which
known information about the possible credit problems of the borrowers or the
cash flows of the secured properties have caused management to have some 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. At September 30, 1997, other loans of concern consisted
primarily of speculative construction and one- to four-family residential loans,
and there was one other loan of concern in excess of $250,000. A loan of
$553,000 made during fiscal year 1997 secured by the borrower's primary
residence and 10 rental properties was 30 days past due at September 30, 1997.
The loan to value ratio on the loan was 60%. Management has considered the
Association's non-performing and "of concern" assets in establishing its
allowance for loan losses.
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: Substandard,
Doubtful and Loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the savings institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of Substandard assets, with the additional characteristics that
the weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
probability of loss. An asset classified Loss is considered uncollectible and of
such little value that continuance as an asset of the institution is not
warranted. Assets classified as Substandard or Doubtful require the institution
to establish prudent general allowances for loan losses. If an asset or portion
thereof is classified as Loss, the institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified Loss, or charge-off such amount. If an institution does not agree
with an examiner's classification of an asset, it may appeal this determination
to the District Director of the OTS. Assets which do not currently expose the
savings institution to sufficient risk to warrant classification in one of the
aforementioned categories but possess weaknesses deserving management's close
attention, are required to be designated Special Mention.
On the basis of management's review of its assets, at September 30,
1997, on a net basis, the Association had classified $2.1 million as
Substandard, $0 as Doubtful, $0 as Loss and $8.7 million as Special Mention.
Classified assets at September 30, 1997 were $10.8 million, an increase
of $3.1 million over September 30, 1996. The majority of the increase was in the
"special mention" category. In an attempt to insure that internal controls
monitor all situations of possible concern, the Association's classification
policy was changed to classify all speculative construction loans not repaid
within the original one year term as special mention. These loans may not be
paid off during the initial one year due to delays in starting construction,
weather delays during construction, the inability of the new buyer to close the
purchase within the original term, or the property remaining unsold near the
original maturity date. Prior to maturity, the original loan is modified to
reflect a new maturity date one year later than the original maturity date. All
of the speculative construction loans were performing in accordance with the
loan documents as modified, including the payment of required interest payments.
Such loans are not classified as nonperforming since they are performing in
21
<PAGE>
accordance with current loan requirements. Speculative construction loans
classified as "special mention" at September 30, 1997 were $5.9 million compared
to $4.2 million at September 30, 1996 and none at September 30, 1995. Included
in the $5.9 million were 8 loans on duplex units for a total of $1.1 million.
The builder intends to keep all units as rental property and the Association
provided the construction financing only. Arrangements for permanent financing
for the properties were not completed during the initial term of the loan, and
the maturity dates were extended. As of October, 1997, the builder has arranged
for permanent financing from other sources. Interest payments on all speculative
construction loans classified as special mention as of September 30, 1997 were
current.
Allowance for Loan Losses. The allowance for estimated loan losses is
established through a provision for 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. Such evaluation, which includes a review of all loans of
which full collectibility may not be reasonably assured, considers the estimated
net realizable value of the underlying collateral, economic conditions,
historical loan loss experience and other factors that warrant recognition in
providing for an adequate allowance for loan losses.
Real estate properties acquired through foreclosure are recorded at the
lower of estimated fair value, less estimated costs to sell, or cost. 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.
While management believes that it uses the best information available
to determine the allowance for loan losses, unforeseen market conditions could
result in adjustments to the allowance for loan losses, and net earnings could
be significantly affected, if circumstances differ substantially from the
assumptions used in making the final determination.
Future additions to the Association's allowance 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 review the Association's allowance for loan
losses. Such agencies may require the Association to recognize additions to the
allowance level based upon their judgment of the information available to them
at the time of their examination. At September 30, 1997, the Association had a
total allowance for loan losses of $1.6 million representing 139.0% of total
non-performing loans.
22
<PAGE>
The following table sets forth an analysis of the Association's
allowance for loan losses.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------
1997 1996 1995
------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at beginning of year .................... $ 1,353 $ 994 $ 876
Charge-offs:
One- to four-family ........................... -- -- --
Multi-family .................................. -- -- --
Commercial .................................... -- -- --
Land .......................................... -- -- --
Construction .................................. -- -- --
Consumer ...................................... (14) (9) (2)
------- ------- -------
Total charge-offs ..................... (14) (9) (2)
------- ------- -------
Recoveries:
One- to four-family ........................... -- -- --
Multi-family .................................. -- -- --
Commercial .................................... -- -- --
Land .......................................... -- -- --
Construction .................................. -- -- --
Consumer ...................................... -- -- --
------- ------- -------
Total recoveries ........................... -- -- --
Net charge-offs ................................. (14) (9) (2)
Additions charged to operations ................. 285 368 120
------- ------- -------
Balance at end of year .......................... $ 1,624 $ 1,353 $ 994
======= ======= =======
Ratio of net charge-offs during the year to
average loans outstanding during the year ...... 0.008% 0.006% .002%
======= ======= =======
Ratio of allowance for loan losses to non-
performing loans at end of year ................. 139.04% 91.54% 74.46%
======= ======= =======
Ratio of allowance for loan losses to total loans
receivable at end of year........................ 0.81% 0.77% 0.69%
======= ======= =======
</TABLE>
23
<PAGE>
The distribution of the Association's allowance for loan losses at the
dates indicated is summarized in the following table. The portion of the
allowance allocated to each loan category does not necessarily represent the
total available for losses within that category since the total allowance is
applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ------------------------------- -------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Amount of Loan in Each
Amount of Amounts Category Amount of Amounts Category Loan Amounts Category
Loan Loss by to Total Loan Loss by to Total Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- --------- --------- -------- --------- --------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family....... $345 $123,856 61.96% $299 $109,292 62.06% $255 $95,040 65.71%
Multi-family.............. 21 4,226 2.11 22 2,908 1.65 16 3,181 2.20
Commercial ............... 26 3,403 1.70 33 4,322 2.45 28 3,759 2.60
Land ..................... 209 8,257 4.13 235 9,605 5.46 79 4,106 2.84
Construction.............. 818 51,447 25.74 577 41,646 23.65 503 32,956 22.79
Consumer.................. 205 8,709 4.36 187 8,330 4.73 113 5,587 3.86
--- ----- ---- ------ -------- ------ ----- --------- ------
Total................ $1,624 $199,898 100.00% $1,353 $176,103 100.00% $994 $144,629 100.00%
====== ======== ====== ====== ======== ====== ==== ======== ======
</TABLE>
Investment Activities
General. Cameron Savings 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 Association
has maintained liquid assets at levels above the minimum requirements imposed by
the OTS regulations and at levels believed adequate to meet the requirements of
normal operations, including potential deposit outflows. Cash flow projections
are regularly reviewed and updated to assure that adequate liquidity is
maintained. At September 30, 1997, and 1996, the Association's regulatory
liquidity ratio (liquid assets as a percentage of net withdrawable savings
deposits and current borrowings) was 8.97%, and 6.43%, respectively.
The Association has the authority to invest in various types of liquid
assets, including U.S. Treasury obligations, securities of various federal and
state agencies, certain certificates of deposit of insured banks and savings
institutions, certain bankers' acceptances, repurchase agreements and federal
funds. Subject to various restrictions, the Association may also invest its
assets in commercial paper, investment grade corporate debt securities and
mutual funds whose assets conform to the investments that a savings institution
is otherwise authorized to make directly.
Generally, the investment policy of the Association is to invest funds
among various categories of investments and maturities based upon the
Association's asset/liability management policies, investment quality and
marketability, liquidity needs and performance objectives.
Investment Securities. At September 30, 1997, the Company's
certificates of deposit in other financial institutions totaled $7.6 million, or
3.6%, of total assets and investment securities totaled
24
<PAGE>
$13.9 million, or 6.5% of total assets. As of such date, the Company also had a
$1.8 million investment in FHLB stock, satisfying its requirement for membership
in the FHLB of Des Moines. It is the Company's general policy to purchase
securities which are U.S. Government securities or federal or state agency
obligations or other issues that are rated investment grade or have credit
enhancements, except for certain municipal bonds purchased by the Association.
The following table sets forth the composition of the Company's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------
1997 1996 1995
---------------------- --------------------- --------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government securities......................... $3,965 15.17% $7,428 29.26% $10,833 27.62%
Federal agency obligations......................... 8,999 34.42 9,254 36.44 14,873 37.76
Municipal bonds.................................... 908 3.47 1,615 6.36 717 1.82
-------- ------ -------- ------ -------- ------
Subtotal........................................ 13,872 53.06 18,297 72.06 26,473 67.20%
FHLB stock........................................... 1,762 6.74 1,259 4.96 1,235 3.13
-------- ------ -------- ------ -------- ------
Total investment securities 80
and FHLB stock................................. $15,634 59. $19,556 77.02 $27,708 70.33%
======== ====== ======== ====== ======== ======
Average remaining life of investment securities,
excluding FHLB stock and equity securities......... 1.9 years 2.5 years 2.1 years
Other interest-earning assets:
Cash equivalents................................... $2,909 11.13% $ 3,333 13.13% $ 3,082 7.82%
Certificates of deposit in other financial
institutions...................................... 7,600 29.07 2,500 9.85 8,611 21.85
-------- ------ -------- ------ -------- ------
Total investment portfolio...................... $26,143 100.00% $25,389 100.00% $39,401 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
25
<PAGE>
The composition and maturities of the investment securities portfolio,
excluding FHLB stock and equity securities, are indicated in the following
table.
<TABLE>
<CAPTION>
At September 30, 1997
-------------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over
1 Year Years Years 10 Years Total Investment Securities
---------- ---------- ---------- --------- ---------------------------
Book Value Book Value Book Value Book Value Book Value Fair Value
---------- ---------- ---------- --------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government securities............. $1,983 $1,982 $ -- $ -- $3,965 $ 4,015
Federal agency obligations............. 1,500 7,499 -- -- 8,999 8,988
Municipal bonds........................ 96 431 381 -- 908 908
------ ------ ------- ------- ------- -------
Total investment securities............ $3,579 $9,912 $ 381 $ -- $13,872 $13,911
====== ====== ======= ======= ======= =======
Weighted average yield................. 6.08% 6.09% 4.73% --% 6.05%
</TABLE>
Mortgage-Backed Securities. From time to time, the Association
purchases mortgage-backed securities to supplement residential loan production.
The type of securities purchased is based upon the Association's asset/liability
management strategy and balance sheet objectives. The balance of all
mortgage-backed securities at September 30, 1997 was $10,000. The Company has
not and does not intend to invest in high-risk mortgage derivative securities.
The Company may determine to increase its investment in mortgage-backed
securities in order to supplement loan origination activity.
While mortgage-backed securities carry a reduced credit risk as
compared to whole loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect both the prepayment speed,
and value, of such securities.
Effective February 10, 1992, the OTS adopted the Federal Financial
Institutions Examination Council "Statement of Policy on Securities Activities"
through its Thrift Bulletin 52 (the "Bulletin"). The Bulletin requires
depository institutions to establish prudent policies and strategies for
securities transactions, describes securities trading and sales practices that
are unsuitable when conducted in an investment portfolio and sets forth certain
factors that must be considered when evaluating whether the reporting of an
institution's investments is consistent with its intent and ability to holder
such investments. The Bulletin also establishes a framework for identifying when
certain mortgage derivative products are high-risk mortgage securities that must
be reported in a "trading" or "held for sale" account. Purchases of high-risk
mortgage securities prior to the effective date of the Bulletin generally will
be reviewed in accordance with previously-existing OTS supervisory policies. The
Association believes that it currently holds and reports its securities and
loans in a manner consistent with the Bulletin. The Association also holds no
assets which management believes qualify as high-risk mortgage securities, as
defined in the Bulletin.
26
<PAGE>
Sources of Funds
General. Deposit accounts have traditionally been the principal source
of the Association's funds for use in lending and for other general business
purposes. In addition to deposits, the Association derives funds from loan
repayments, cash flows generated from operations and FHLB advances. Scheduled
loan payments are a relatively stable source of funds, while deposit inflows and
outflows and the related cost of such funds have varied. The Association
borrowed $26.0 million from the FHLB of Des Moines and repaid $3.0 million of
maturing advances during fiscal 1997 to supplement funding for loan
originations.
Deposits. The Association offers a variety of accounts, including money
market accounts, passbook savings accounts, interest and non-interest-bearing
NOW accounts and certificates of deposit accounts. Account terms vary, with
principal differences being the minimum balance required, the time period funds
must remain on deposit, fixed versus variable interest rates and the interest
rate. Maturity terms, service fees and withdrawal penalties are established by
the Association on a periodic basis. Determinations of savings rates are
predicated on funding and liquidity requirements, U.S. Treasury rates,
competition and established Association goals. As part of its asset/liability
management efforts, the Association has emphasized long-term certificates of
deposit with terms of up to ten years. At September 30, 1997, the Association
had $21.5 million of certificates of deposit with remaining maturities in excess
of five years.
The Association's deposits are obtained primarily from the areas in
which its branch offices are located, and the Association relies primarily on
customer service, marketing programs and long-standing relationships with
customers to attract and retain these deposits. Various types of advertising and
promotion to attract and retain deposit accounts also are used. The Association
does not currently solicit or currently accept brokered deposits. The
Association has been competitive in the types of accounts and interest rates it
has offered on its deposit products. The Association intends to continue its
efforts to attract deposits as a primary source of funds for supporting its
lending and investing activities. The Association advertises via radio, direct
mail and in local newspapers.
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 Association has
allowed it to be competitive in obtaining funds and to respond with flexibility
to changes in consumer demands. The Association has become more susceptible to
short-term fluctuations in deposit flows, as customers have become more interest
rate conscious. The Association manages the pricing of its deposits in keeping
with its asset/liability management, liquidity and growth objectives. Based on
its experience, the Association believes that its savings and interest and
non-interest-bearing checking accounts are relatively stable sources of
deposits. However, the ability of the Association 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.
In setting rates, Cameron Savings regularly evaluates (i) its internal
cost of funds, (ii) the rates offered by competing institutions, (iii) its
investment and lending opportunities and (iv) its
27
<PAGE>
liquidity position. In order to decrease the volatility of its deposits, Cameron
Savings imposes penalties on early withdrawal on its certificates of deposit.
The following table sets forth the savings flows at the Association
during the years indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
1997 1996 1995
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Opening balance ............................ $123,108 $121,280 $123,110
Deposits.................................... 116,808 100,960 134,651
Withdrawals................................. 115,789 103,883 141,254
Interest credited........................... 4,644 4,751 4,773
-------- -------- --------
Ending balance.............................. $128,771 $123,108 $121,280
======== ======== ========
Net increase (decrease)..................... $5,663 $1.828 $( 1,830)
====== ====== ========
Percent increase (decrease)................. 4.6% 1.5% (1.5)%
=== === =====
</TABLE>
28
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by the Association at the dates
indicated.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:
Passbook accounts 3.25 $12,022 9.3% $11,179 9.1% $ 10,415 8.6%
NOW accounts 0.00 - 3.00 4,362 3.4 5,294 4.3 5,322 4.4
Money market accounts 3.00 - 4.89% 5,871 4.6 7,494 6.1 8,091 6.7
------- ------ ------- ----- -------- -----
Total non-certificates 22,255 17.3 23,967 19.5 23,828 19.7
Certificates:
2.00 - 3.99% 4 -- 4 -- 52 --
4.00 - 5.99% 59,510 46.2 63,866 51.9 52,769 43.5
6.00 - 7.99% 44,962 34.9 33,182 27.0 42,365 34.9
8.00 - 9.99% 2,040 1.6 2,089 1.7 2,266 1.9
------- ------ ------- ----- -------- -----
Total certificates 106,516 82.7 99,141 80.5 97,452 80.3
------- ------ ------- ----- -------- -----
Total deposits $128,771 100.00% $123,108 100.00% $121,280 100.0%
======== ====== ======== ====== ======== =====
</TABLE>
29
<PAGE>
The following table shows rate and maturity information for the
Association's certificates of deposit at September 30, 1997.
<TABLE>
<CAPTION>
2.00- 4.00- 5.00- 6.00- 7.00- 8.00% Percent
3.99% 4.99% 5.99% 6.99% 7.99% or greater Total of Total
----- ----- ----- ----- ----- ---------- ----- --------
(Dollars in Thousands)
Certificate accounts
maturing in
quarter ending:
- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997.......... $4 $208 $13,912 $1,466 $111 $44 $15,745 14.78%
March 31, 1998............. -- -- 17,646 1,636 28 -- 19,310 18.13%
June 30, 1998.............. -- -- 8,619 5,479 14 -- 14,112 13.25%
September 30, 1998......... -- -- 6,949 2,022 448 -- 9,419 8.84%
December 31, 1998.......... -- -- 2,439 948 239 -- 3,626 3.40%
March 31, 1999............. -- -- 4,020 313 29 72 4,434 4.16%
June 30, 1999.............. -- -- 1,204 1,069 -- -- 2,273 2.13%
September 30, 1999......... -- -- 953 1,171 20 264 2,408 1.26%
December 31, 1999.......... -- -- 499 798 2 240 1,539 1.44%
March 31, 2000............. -- -- 1,470 272 445 391 2,578 2.42%
June 30, 2000.............. -- -- 183 253 805 227 1,468 1.38%
September 30, 2000......... -- -- 180 583 1 214 978 0.92%
Thereafter................. -- -- 1,228 23,108 3,702 588 28,626 27.89%
-- -- ----- ------ ----- --- ------ ------
Total................... $4 $208 $59,302 $39,118 $5,844 $2,040 $106,516 100.00%
== ==== ======= ======= ====== ====== ======== ======
Percent of total........ 0.00% 0.20% 55.67% 36.72% 5.49% 1.92% 100.00%
</TABLE>
The following table indicates the amount of the Association's
certificates of deposit and other deposits by time remaining until maturity at
September 30, 1997.
<TABLE>
<CAPTION>
Maturity
----------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
------- ------- ------- --------- --------
(Dollars In thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000....... $14,250 $18,174 $22,162 $43,282 $97,868
Certificates of deposit of $100,000 or more...... 498 600 1,160 4,595 6,853
Public funds (1)................................. 997 536 209 53 1,795
------- ------- ------- ------- --------
Total certificates of deposit.................... $15,745 $19,310 $23,531 $47,930 $106,516
======= ======= ======= ======= ========
</TABLE>
- ---------------
(1) Deposits from governmental and other public entities, including
deposits greater than $100,000.
30
<PAGE>
Borrowings. The Association has the ability to use advances from FHLB
of Des Moines to supplement its deposits when the rates are favorable. As a
member of the FHLB of Des Moines, the Association is required to own capital
stock and is authorized to apply for advances. Each FHLB credit program has its
own interest rate, which may be fixed or variable, and includes a range of
maturities. The FHLB of Des Moines may prescribe the acceptable uses to which
these advances may be put, as well as limitations on the size of the advances
and repayment provisions.
The Association borrowed $26.0 million under FHLB advances during 1997
to fund loan originations and meet short term cash needs. The Association repaid
$3.0 million of maturing advances during 1997. Outstanding balances at September
30, 1997 were $35.3 million.
The following tables set forth the maximum month-end balance and
average balance of FHLB advances for the periods indicated, as well as the
amount of such advances and the weighted average interest rate at the dates
indicated.
Years Ended September 30,
-----------------------------
1997 1996
---- ----
(In Thousands)
Maximum Balance
FHLB advances $ 35,250 $12,250
Average Balance
FHLB advances $ 26,173 $3,192
Years Ended September 30,
-----------------------------
1997 1996
---- ----
(Dollars In Thousands)
FHLB advances $ 35,250 $12,250
========= =======
Weighted average interest rate 6.02% 6.09%
During the last several years, loan originations have exceeded savings
inflows, loan repayments and cash provided by operations. Prior to fiscal year
1996, the excess resulted in reductions in the investment securities portfolio
and the Association's total liquidity. See "Regulation-Liquidity". To maintain
liquidity above the required minimum, it is anticipated that FHLB advances will
continue to supplement projected savings inflows and loan repayments to fund
continued loan demand.
Subsidiaries
Federal associations generally may invest up to 2% of their assets in
service corporations, plus an additional 1% of assets for community purposes. In
addition, federal associations may invest up to 50% of their total capital in
conforming loans to their service corporations in which they own more than 10%
of the capital stock. In addition, federal associations are permitted to invest
an
31
<PAGE>
unlimited amount in operating subsidiaries engaged solely in activities which a
federal association may engage in directly.
At September 30, 1997, Cameron Savings had one service corporation. The
Service Corporation was established in 1975 for the purpose of offering credit
life, disability and accident insurance to its customers. At September 30, 1997,
the Association's investment in the Service Corporation was $356,000.
REGULATION
General
Cameron Savings is a federally chartered savings and loan association,
the deposits of which are federally insured and backed by the full faith and
credit of the United States Government. Accordingly, Cameron Savings is subject
to broad federal regulation and oversight extending to all its operations.
Cameron Savings 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
Association, the Company 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. Cameron Savings is a member of the
Savings Association Insurance Fund ("SAIF") and the deposits of Cameron Savings
are insured by the FDIC. As a result, the FDIC has certain regulatory and
examination authority over Cameron Savings.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Congress is considering legislation that would consolidate the
supervision and regulation of all U.S. financial institutions in one
administrative body, expand the powers of financial institutions, and provide
regulatory relief to financial institutions. It cannot be predicted with
certainty whether or when this legislation will be enacted, or the extent to
which the Association or the Company would be affected thereby.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, Cameron Savings is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS examination of Cameron Savings and Cameron
Financial Corp. was as of June 13, 1996. When these examinations are conducted
by the OTS and the FDIC, the examiners may require Cameron Savings to provide
for higher general or specific loan loss reserves. 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 Association's OTS assessment for
the fiscal year ended September 30, 1997, was $54,000.
32
<PAGE>
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including associations and the
Company. 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 Cameron
Savings 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. The Association is in compliance with the noted
restrictions.
The Association'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 September 30, 1997, Cameron Savings' lending
limit under this restriction was $5.4 million. The Association is in compliance
with the loans-to-one-borrower limit.
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, 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. The OTS and the other federal banking
agencies have also adopted additional guidelines on asset quality and earnings
standards, which are designed to enhance early identification and resolution of
problems and problem assets.
Insurance of Accounts and Regulation by the FDIC
Cameron Savings 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 U.S. 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 FDIC.
The FDIC also has the authority to initiate enforcement actions against savings
and loan 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 or is engaging in unsafe or unsound practices or is in an unsafe or
unsound condition.
33
<PAGE>
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, ranging from .67% to .23% of
deposits, 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 core capital to risk-weighted assets of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
would pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or core capital to 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 will be made by the FDIC for each semi-annual
assessment period.
The FDIC is authorized to increase assessment rates, on a semi-annual
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.
In September 1996, Congress enacted legislation to recapitalize the
SAIF by a one-time assessment on all SAIF-insured deposits held as of March 31,
1995. The assessment was 65.7 basis points per $100 in deposits, payable on
November 27, 1996. For the Association, the assessment amounted to $800,000 (or
$509,000 when adjusted for taxes), based on the Association's deposits on March
31, 1995. In addition, beginning January 1, 1997, pursuant to the legislation,
interest payments on FICO bonds issued in the late 1980's by the Financing
Corporation to recapitalize the now defunct Federal Savings and Loan Insurance
Corporation will be paid jointly by BIF-insured institutions and SAIF-insured
institutions. The FICO assessment will be 1.29 basis points per $100 in BIF
deposits and 6.44 basis points per $100 in SAIF deposits. Beginning January 1,
2000, the FICO interest payments will be paid pro rata by banks and thrifts
based on deposits (approximately 2.4 basis points per $100 in deposits).
The legislation further provides that the BIF and SAIF will merge on
January 1, 1999 if there are no more savings associations as of that date.
Several bills have been introduced in the current Congress that would eliminate
the federal thrift charter and OTS. The bills would require that all federal
savings associations convert to national banks or state depository institutions
by specified dates and would treat all state savings associations as state banks
for purposes of federal banking laws. Subject to a narrow grandfathering, all
savings and loan holding companies would become subject to the same regulation
as bank holding companies under the pending legislative proposals. Under such
proposals, any lawful activity in which a savings association participates would
be permitted for up to two years following the effective date of its conversion
to the new charter, with two additional one-year extensions which may be granted
at the discretion of the regulator. The legislative proposals would also abolish
the OTS and transfer its functions to the federal bank regulators with respect
to the institutions and to the Federal Reserve Board with respect to the
regulation of holding companies. The Association is unable to predict whether
the legislation will be enacted or, given such uncertainty, determine the extent
to which the legislation, if enacted, would
34
<PAGE>
affect its business. The Association is also unable to predict whether the SAIF
and BIF funds will eventually be merged.
While the legislation has reduced the disparity between premiums paid
on BIF deposits and SAIF deposits, and has relieved the thrift industry of a
portion of the contingent liability represented by the FICO bonds, the premium
disparity between SAIF-insured institutions, such as the Association, and
BIF-insured institutions will continue until at least January 1, 1999. Under the
legislation, the Association anticipates that its ongoing annual SAIF premiums
will be approximately $80,000.
Regulatory Capital Requirements
Federally insured savings associations, such as the Association, 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 including retained earnings, and certain
noncumulative perpetual preferred stock and related earnings. 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. Further, the valuation allowance applicable to the write-down
of investments and mortgage-backed securities in accordance with SFAS No. 115 is
excluded from the regulatory capital calculation. At September 30, 1997, the
Association had no intangible assets or unrealized loss, net of tax under SFAS
No. 115.
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.
At September 30, 1997, the Association had tangible capital of $34.2
million, or 16.8% of adjusted total assets, which is approximately $31.1 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date.
The capital standards also require core capital of 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
35
<PAGE>
a 3% ratio. At September 30, 1997, Cameron Savings had no intangible assets
which were subject to these tests.
At September 30, 1997, Cameron Savings had core capital equal to $34.2
million, or 16.8% of adjusted total assets, which is $28.1 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 September 30, 1997, Cameron
Savings had no capital instruments that qualify as supplementary capital and
$1.6 million of general loss reserves, which was less than 1.25% 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 Association had no
exclusions from capital and assets at September 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.
On September 30, 1997, Cameron Savings had total risk-based capital of
$35.8 million (including $34.2 million in core capital and $1.6 million in
qualifying supplementary capital) and risk-weighted assets of $139.0 million
(including $3.8 million in converted off-balance sheet assets); or total capital
of 25.8% of risk-weighted assets. This amount was $24.7 million above the 8%
requirement in effect on that date.
The OTS has adopted a final rule that requires 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 provides for a two quarter
lag between
36
<PAGE>
calculating interest rate risk and recognizing any deduction from capital. Any
savings association with less than $300 million in assets and a total risk
weighted capital ratio in excess of 12% is exempt from this requirement unless
the OTS determines otherwise.
OTS regulations also authorize the OTS to require a depository
institution to maintain additional total capital to account for concentration of
credit risk or risks arising from non-traditional activities.
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
risked-based capital ratio or an 8% risk-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
Cameron Savings may have a substantial adverse effect on the Association's
operations and profitability. Holding Company shareholders do not have
preemptive rights, and therefore, if the Holding 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 Holding Company.
37
<PAGE>
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions or requirements on
associations with respect to their ability to pay dividends or make other
distributions of capital. OTS regulations prohibit an 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.
The OTS utilizes a three-tiered approach to permit associations, based
on their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account (see "--Regulatory Capital
Requirements").
Generally, Tier 1 associations, which are associations that before and
after the proposed distribution meet their fully phased-in 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
fully phased-in capital requirement for such capital component, as measured at
the beginning of the calendar year, or the amount authorized for a Tier 2
association. However, a Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association as a result of such a determination. The Association meets the
requirements for a Tier 1 association and has not been notified of a need for
more than normal supervision. Tier 2 associations, which are associations that
before and after the proposed distribution meet their current minimum capital
requirements, may make capital distributions of up to 75% of net income over the
most recent four quarter period.
Tier 3 associations (which are associations that do not meet current
minimum capital requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of the
noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
within the safe harbor provisions and Tier 1 associations proposing to make any
capital distribution need only submit written notice to the OTS 30 days prior to
such distribution. As a subsidiary of the Company, the Association will also be
required to give the OTS 30 days' notice prior to declaring any dividend on its
stock. The OTS may object to the distribution during that 30-day period based on
safety and soundness concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered structure
and the safe-harbor percentage limitations. 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 in troubled condition (as defined by regulation) 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
38
<PAGE>
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. The
Association qualifies for Tier 1 and has declared and paid dividends of
$1,652,000 to Cameron Financial Corporation during fiscal 1997.
Liquidity
All savings associations, including Cameron Savings, 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. For a discussion of what the Bank
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." 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 September 30, 1997, Cameron Savings was in compliance with
both requirements, with an overall liquid asset ratio of 8.97% and a short-term
liquid assets ratio of 6.96%.
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. Cameron Savings is in compliance with
these amended rules.
The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP by the OTS, to 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 Cameron Savings, 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
39
<PAGE>
investments on a monthly average for nine out of every 12 months on a rolling
basis. Such assets primarily consist of residential housing related loans and
investments. At September 30, 1997, the Association 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 Cameron
Savings, 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 Cameron
Savings. 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 Association may be required to devote additional
funds for investment and lending in its local community. The Association was
examined for CRA compliance in January 1995 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 Association include the Holding
Company and any company which is under common control with the Association. In
addition, a savings association
40
<PAGE>
may not lend to any affiliate engaged in activities not permissible for a bank
holding company or acquire the securities of most affiliates. The Association'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
The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, the Company 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 holding companies
and their 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, the Company 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 Association 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 Cameron Savings fails the QTL test, the Company 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."
The Company 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 the Company 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.
41
<PAGE>
Company 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 September 30, 1997, Cameron Savings 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
Cameron Savings 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, Cameron Savings is required to purchase and maintain stock
in the FHLB of Des Moines. At September 30, 1997, Cameron Savings had $1.8
million in FHLB stock, which was in compliance with this requirement. In past
years, Cameron Savings has received substantial dividends on its FHLB stock.
Over the past five fiscal years such dividends have averaged 7.63% and were 7.0%
for fiscal year 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 Cameron Savings' FHLB stock may result in a corresponding
reduction in Cameron Savings' capital.
42
<PAGE>
For the year ended September 30, 1997, dividends paid by the FHLB of
Des Moines to the Association totaled $101,000, compared to $91,000 received in
fiscal year 1996.
Federal Taxation
General. The Company and the Association report their income on a
fiscal year basis using the accrual method of accounting and are subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Association's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Association or the Company.
Bad Debt Reserve. Historically, savings institutions such as the
Association which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The Association's
deductions with respect to "qualifying real property loans," which are generally
loans secured by certain interest in real property, were computed using an
amount based on the Association's actual loss experience, or a percentage equal
to 8% of the Association's taxable income, computed with certain modifications
and reduced by the amount of any permitted additions to the non-qualifying
reserve. Due to the Association's loss experience, the Association generally
recognized a bad debt deduction equal to 8% of taxable income.
In August 1996, the provisions repealing the current thrift bad debt
rules were passed by Congress as part of "The Small Business Job Protection Act
of 1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). As of September 30, 1997,
the Association's bad debt reserve subject to recapture over a six year period
totaled approximately $288,000. The Association has established a deferred tax
liability of approximately $96,000 for this recapture. For taxable years
beginning after December 31, 1995, the Association's bad debt deduction will be
determined under the experience method using a formula based on actual bad debt
experience over a period of years or, if the Association is a "large"
association (assets in excess of $500 million) on the basis of net charge-offs
during the taxable year. The new rules allow an institution to suspend bad debt
reserve recapture for the 1996 and 1997 tax years if the institution's lending
activity for those years is equal to or greater than the institution's average
mortgage lending activity for the six taxable years preceding 1996 adjusted for
inflation. For this purpose, only home purchase or home improvements loans are
included and the institution can elect to have the tax years with the highest
and lowest lending activity removed from the average calculation. If an
institution is permitted to postpone the reserve recapture, it must begin its
six year recapture no later than the 1998 tax year. The unrecaptured base year
reserves will not be subject to recapture as long as the institution continues
to carry on the business of banking. In addition, the balance of the pre-1988
bad debt reserves continue to be subject to provisions of present law referred
to below that require recapture in the case of certain excess distributions to
shareholders.
43
<PAGE>
Distributions. To the extent that the Association makes "nondividend
distributions" to the Company, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of December 31,
1987 (or a lesser amount if the Association's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in the Association's taxable income. Nondividend distributions
include distributions in excess of the Association's current and accumulated
earnings and profits, distributions in redemption of stock and distributions in
partial or complete liquidation. However, dividend paid out of the Association's
current or accumulated earnings and profits, as calculated for federal income
tax purposes, will not be considered to result in a distribution from the
Association's bad debt reserve. The amount of additional taxable income created
from an Excess Distribution is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution. Thus, if
the Association makes a "nondividend distribution," then approximately one and
one-half the times the Excess Distribution would be includable in gross income
for federal income tax purposes, assuming a 34% corporate income tax rate
(exclusive of state and local taxes). The Association does not presently intend
to pay dividends that wold result in a recapture of any portion of its tax bad
debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of the
tax bad debt reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
only 90% of AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which the Association's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). For taxable years
beginning after December 31, 1986, and before January 1, 1996, an environmental
tax of 0.12% of the excess of AMTI (with certain modification) over $2.0 million
is imposed on corporations, including the Association, whether or not an
Alternative Minimum Tax is paid.
Dividends-Received Deduction. The Company may exclude form its income
100% of dividends received from the Association as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Association will not file a consolidated tax
return, except that if the Company or the Association owns more than 20% of the
stock of a corporation distributing a dividend, then 80% of any dividends
received may be deducted.
Audits. The Association's federal income tax returns have not been
audited within the past five years.
Missouri Taxation. The State of Missouri has a corporate income tax;
however, savings and loan institutions are exempt from such tax. Missouri-based
thrift institutions, such as the Association, 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 as defined in the Missouri
statutes. This tax is a prospective tax for the privilege of the Association
exercising its corporate franchise within the state, based on its net income for
the preceding year. The tax is in lieu of all
44
<PAGE>
other state taxes on thrifts, except taxes on real estate, tangible personal
property owned by the taxpayer and held for lease or rental to others, certain
payroll taxes, and sales and use taxes.
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
Savings institutions generally face strong competition both in
originating real estate loans and in attracting deposits. Competition in
originating loans comes primarily from other savings institutions, commercial
banks and mortgage bankers who also make loans secured by real estate located in
the Association's market area. The Association competes for loans principally on
the basis of the interest rates and loan fees it charges, the types of loans it
originates and the quality of services it provides to borrowers.
The Association faces substantial competition in attracting deposits
from other savings institutions, commercial banks, securities firms, money
market and mutual funds, credit unions and other investment vehicles. The
ability of the Association to attract and retain deposits depends on its ability
to provide an investment opportunity that satisfies the requirements of
investors as to rate of return, liquidity, risk, convenient locations and other
factors. The Association competes for these deposits by offering a variety of
deposit accounts at competitive rates, convenient business hours and a
customer-oriented staff.
Employees
At September 30, 1997, the Association and its subsidiary had a total
of 52 full-time employees and 6 part-time employees. None of the Association's
employees is represented by any collective bargaining group. Management
considers its employee relations to be good.
Executive Officers of the Company and the Association who are not Directors
Ronald W. Hill. Mr. Hill, age 48, is the Vice President and Treasurer
of Cameron Savings, responsible for the supervision of the accounting
department, reporting to the regulatory authorities, and managing the
Association's liquidity position. Mr. Hill joined the Association in 1981 as
Controller and was promoted to his current position in 1988.
Stephen Hayward. Mr. Hayward, age 35, is currently the Director of
Lending of the Association. As such, he is responsible for the supervision of
all lending operations of the Association, including loan applications and loan
closings. Mr. Hayward joined the Association in 1991 as Internal Auditor and
Compliance Officer. Prior to joining the Association, Mr. Hayward was a Manager
with the accounting firm of KPMG Peat Marwick LLP in Kansas City, Missouri. Mr.
Hayward will become Branch Manager of the office in Liberty, Missouri, upon
completion of that facility.
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<PAGE>
Earl Frazier. Mr. Frazier, age 62, is currently the manager of the loan
production office in Liberty, Missouri. In that capacity, Mr. Frazier is
responsible for overseeing the lending operations, including the origination of
construction and land loans. Mr. Frazier joined the Association in 1981 as a
loan officer. Prior to joining the Association, Mr. Frazier was a real estate
agent and, prior thereto, a residential home builder.
Item 2. Description of Property
-----------------------
The Association operates from four full-service facilities and one loan
production office. Construction of the new home office building on North Walnut
Street in Cameron commenced in November, 1995. The new office opened for
business on June 23, 1997. Construction and furnishings costs totaled
approximately $4.96 million.
On November 15, 1996, the Company signed a contract to purchase
approximately four acres of land in Liberty, Missouri for use as a future branch
office. The cost of the land was $850,000. The Company intends to use
approximately one acre for the branch facility and the remainder as investment
property. A contract has been entered into for the estimated construction cost
of $1.0 million. Completion of the 7,600 square foot facility is scheduled for
May 1998. The Company will own the building and lease it to the Association.
Approval for opening the full service branch and simultaneously closing the loan
production office has been obtained from the OTS.
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The following table sets forth certain information with respect to the
offices of the Association and its subsidiary at September 30, 1997.
<TABLE>
<CAPTION>
Net Book Value
as
Approximate of
Date Square September 30,
Location Acquired Title Footage 1997
- ---------------- ---------- ------- --------- -----
<S> <C> <C> <C> <C>
Main Office
- -----------
1304 North Walnut Street 1993 Owned 25,942 $4,965,000
Cameron, MO
Branch Offices
- --------------
309 North Main Street 1977 Owned 4,040 $58,000
Cameron, MO(4)
115 East Fourth Street 1994 Leased 1,311 N/A
Maryville, MO (expires
2003)
702 State Street 1992 Leased 900 N/A
Mound City, MO (expires
2000)(1)
Loan Production Office
- ----------------------
101 Clayview Drive 1992 Leased(2) 2,296 N/A
Liberty, MO
Future Branch Office
- --------------------
A Highway(3) 1997 Owned 4.0 Acres $872,000
Liberty, MO
Former Main Office
- ------------------
123 East Third Street 1959 Owned 14,091 $9,000
Cameron, MO(5)
</TABLE>
- ----------------
(1) Subject to option to extend for three years.
(2) Lease expired in 1997 and is presently rented on a month-to-month basis
until construction of the new branch is completed.
(3) Acquired as the future site of full service branch.
(4) The North Main Street Office is scheduled to be closed in February 1998. (5)
(5) This property is currently vacant and the property is for sale.
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The Association's accounting and record-keeping activities are maintained
on-line with an independent service bureau.
Item 3. Legal Proceedings
-----------------
The Company is involved as plaintiff or defendant in various legal actions
arising in the normal course of business. While the ultimate outcome of these
proceedings cannot be predicted with certainty, it is the opinion of management,
after consultation with counsel representing the Company in the proceedings,
that the resolution of these proceedings should not have a material effect on
the Company's financial statements.
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 September 30,
1997.
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
----------------------------------------------------
Page 43 of the attached 1997 Annual Report to Shareholders is herein
incorporated by reference.
Item 6. Selected Financial Data
-----------------------
Pages 3 to 4 of the attached 1997 Annual Report to Shareholders are herein
incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
----------------------------------------------------
Pages 5 through 18 of the attached 1997 Annual Report to Shareholders are
herein incorporated by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Pages 19 through 42 of the attached 1997 Annual Report to Shareholders are
herein incorporated by reference.
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<PAGE>
Item 9. 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.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information concerning Directors of the Registrant is incorporated herein
by reference from the Corporation's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on January 26, 1998, except for
information contained under the heading "Report of the Compensation Committee"
and "Comparative Stock Performance Graph", a copy of which will be filed not
later than 120 days after the close of the fiscal year.
Item 11. Executive Compensation
----------------------
Information concerning executive compensation is incorporated herein by
reference from the Corporation's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on January 26, 1998, except for
information contained under the heading "Report of the Compensation Committee"
and "Comparative Stock Performance Graph", a copy of which will be filed not
later than 120 days after the close of the fiscal year.
Item 12. 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 Corporation's definitive
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
January 26, 1998, except for information contained under the heading "Report of
the Compensation Committee" and "Comparative Stock Performance Graph", a copy of
which will be filed not later than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Information concerning certain relationships and transactions is
incorporated herein by reference from the Corporation's definitive Proxy
Statement for the Annual Meeting of Shareholders scheduled to be held on January
26, 1998, except for information contained under the heading "Report of the
Compensation Committee" and "Comparative Stock Performance Graph", a copy of
which will be filed not later than 120 days after the close of the fiscal year.
49
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements:
-----------------------------
The following information appearing in the Registrant's Annual Report to
Shareholders for the year ended September 30, 1997, is incorporated by reference
in this Form 10-K Annual Report as Exhibit 13.
<TABLE>
<CAPTION>
Pages in
Annual
Annual Report Section Report
--------------------- ------
<S> <C>
Report of Independent Auditors....................................................................... 19
Consolidated Balance Sheets at September 30, 1997 and 1996........................................... 20
Consolidated Statements of Earnings for the Years ended September 30, 1997, 1996
and 1995.................................................................................... 21
Consolidated Statements of Stockholders' Equity for the Years ended
September 30, 1997, 1996 and 1995.................................................................. 22-23
Consolidated Statements of Cash Flows for the Years ended September 30, 1997,
1996 and 1995...................................................................................... 24-25
Notes to Consolidated Financial Statements........................................................... 26-42
</TABLE>
(a) (2) Financial Statement Schedules:
All financial statement schedules have been omitted as the information
is not required under the related instructions or is inapplicable.
50
<PAGE>
(a) (3) Exhibits:
-----------------
<TABLE>
<CAPTION>
Reference to
Regulation Prior Filing or
S-K Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
<S> <C> <C>
2 Plan of acquisition, reorganization, None
arrangement, liquidation or succession
3.1 Certificate of Incorporation *
3.2 Bylaws 3.2
4 Instruments defining the rights of *
security holders, including indentures
9 Voting trust agreement None
10.1 Severance Agreements of David G. Just *
and Ronald Hill
10.2 Employee Stock Ownership Plan *
10.3 1995 Stock Option and Incentive Plan **
10.4 Recognition and Retention Plan **
10.5 Deferred Fee Agreement *
10.6 Director Emeritus Agreement *
11 Statement re: computation of per None
share earnings
12 Statement re: computation or ratios Not required
13 Annual Report to Security Holders 13
16 Letter re: change in certifying None
accountant
18 Letter re: change in accounting None
principles
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Reference to
Regulation Prior Filing or
S-K Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
<S> <C> <C>
21 Subsidiaries of Registrant 21
22 Published report regarding matters None
submitted to vote of security holders
23 Consent of experts and counsel 23
24 Power of Attorney Not Required
27 Financial Data Schedule 27
28 Information from reports furnished to None
State insurance regulatory authorities
99 Additional exhibits None
</TABLE>
- -------------------
* Filed on December 23, 1994, as exhibits to the Registrant's Form S-1
registration statement (Registration No. 33-87900), pursuant to the Securities
Act of 1933. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-K.
** Filed December 27, 1995, as exhibits to the Registrant's Form 10-K
Annual Report for the fiscal year ended September 30, 1995. All of such
previously filed documents are hereby incorporated herein by reference in
accordance with Item 601 of Regulation S-K.
(b) Reports on Form 8-K:
-------------------------
No current reports on Form 8-K were filed by the Company during the
three months ended September 30, 1997.
52
<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.
CAMERON FINANCIAL CORPORATION
Date: December 18, 1997 By: /s/ David G. Just
----------------- -------------------------------
David G. Just
(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.
By: /s/ David G. Just By: /s/ Herschel Pickett
------------------------------------ ----------------------------
David G. Just, President Herschel Pickett
Chief Executive Officer and Director Chairman of the Board
Date: December 18, 1997 Date: December 18, 1997
---------------------------------- --------------------------
By: /s/ Kennith R. Baker By: /s/ William J. Heavner
------------------------------------ ----------------------------
Kennith R. Baker, Secretary and William J. Heavner, Director
Director
Date: December 18, 1997 Date: December 18, 1997
---------------------------------- --------------------------
By: /s/ Harold D. Lee By: /s/ William F. Barker
------------------------------------ ----------------------------
Harold D. Lee, Director William F. Barker, Director
Date: December 18, 1997 Date: December 18, 1997
---------------------------------- --------------------------
<PAGE>
By: /s/ Jon N. Crouch By: /s/ Ronald W. Hill
------------------------------------ -------------------------------
Jon N. Crouch, Director Ronald W. Hill, Vice President,
Treasurer, and Chief Financial
Officer (Principal Financial and
Accounting Officer
Date: December 18, 1997 Date: December 18, 1997
---------------------------------- -----------------------------
<PAGE>
CAMERON FINANCIAL CORPORATION
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
--------------
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix.
Section 2. Special Meetings.
----------------
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board").
Section 3. Notice of Meetings.
------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
------
At any meeting of the stockholders, the holders of at least one-third
of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy (after giving effect to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation), shall constitute a quorum for
all purposes, unless or except to the extent that the presence of a larger
number may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes, present in person
or represented by proxy (after giving effect to the provisions of Article FOURTH
of the Corporation's Certificate of Incorporation), shall constitute a quorum
entitled to take action with respect to that vote on that matter.
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present in person or by proxy constituting a quorum, then except as
otherwise required by law, those present in person or by proxy at such adjourned
meeting shall constitute a quorum, and all matters shall be determined by a
majority of the votes cast at such meeting.
Section 5. Organization.
------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the President of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. Conduct of Business.
-------------------
(a) The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
or her in order. The date and time of the opening and closing of the polls for
each matter upon which the stockholders will vote at the meeting shall be
announced at the meeting.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (i) by
or at the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal executive offices of the Corporation not less than
ninety (90) days prior to the date of the annual meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be received not later than the close of
business on the 10th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter such
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the Corporation's books, of the stockholder who proposed such
business, (iii) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such stockholder and (iv) any material
interest of such stockholder in such business. Notwithstanding anything in these
Bylaws to the contrary, no business shall be
2
<PAGE>
brought before or conducted at an annual meeting except in accordance with the
provisions of this Section 6(b). The officer of the Corporation or other person
presiding over the annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 6(b) and, if he should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
(c) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which directors are to
be elected only (i) by or at the direction of the Board of Directors or (ii) by
any stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 6(c). Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made by timely notice in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered or mailed to and received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the date of the meeting;
provided, however, that in the event that less than one hundred (100) days'
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such prior public disclosure was
made. Such stockholder's notice shall set forth (i) as to each person whom such
stockholder proposes to nominate for election or re-election as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (ii) as to
the stockholder giving the notice (a) the name and address, as they appear on
the Corporation's books, of such stockholder and (b) the class and number of
shares of the Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The officer of the Corporation or
other person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if he or
she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
3
<PAGE>
Section 7. Proxies and Voting.
------------------
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedure established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of stockholders,
the person presiding at the meeting shall appoint one or more inspectors at the
meeting. Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Each stockholder shall have one (1) vote for every share of stock
entitled to vote which is registered in his or her name on the record date for
the meeting, except as otherwise provided herein or in the Certificate of
Incorporation of the Corporation or as required by law.
Section 8. Stock List.
----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
4
<PAGE>
Section 9. Consent of Stockholders in Lieu of Meeting.
------------------------------------------
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called annual
or special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
-----------------------------------------
The business and affairs of the Corporation shall be under the
direction of its Board of Directors. The number of directors who shall
constitute the Whole Board shall be such number as the Board of Directors shall
from time to time have designated, except in the absence of such designation, in
which case the number shall be seven. The Board of Directors shall annually
elect a Chairman of the Board from among its members who shall, when present,
preside at its meetings. Furthermore, no person shall serve, or shall be
nominated to serve, as a director of the Corporation, unless such person shall
have resided within 50 miles of the Corporation's main office on a continuous
basis for two (2) years immediately prior to such person's nomination.
The directors, other than those who may be elected by the holders of
any class or series of preferred stock, shall be divided, with respect to the
time for which they severally hold office, into three classes, with the term of
office of the first class to expire at the conclusion of the first annual
meeting of stockholders, the term of office of the second class to expire at the
conclusion of the annual meeting of stockholders one year thereafter and the
term of office of the third class to expire at the conclusion of the annual
meeting of stockholders two years thereafter, with each director to hold office
until his or her successor shall have been duly elected and qualified. At each
annual meeting of stockholders, directors elected to succeed those directors
whose terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified.
Section 2. Vacancies and Newly Created Directorships.
-----------------------------------------
Subject to the rights of the holders of any class or series of
preferred stock and unless the Board of Directors otherwise determines, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
may be filled only by a majority vote of the directors then in office, though
less than a quorum, and directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires, and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the Board shall shorten the term of any
incumbent director.
5
<PAGE>
Section 3. Regular Meetings.
----------------
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
----------------
Special meetings of the Board of Directors may be called by one-third
(1/3) of the directors then in office (rounded up to the nearest whole number)
or by the Chairman of the Board or President and shall be held at such place, on
such date, and at such time as they or he or she shall fix. Notice of the place,
date, and time of each such special meeting shall be given to each director by
whom it is not waived by mailing written notice not less than five (5) days
before the meeting or by telegraphing or telexing or by facsimile transmission
of the same not less than twenty-four (24) hours before the meeting. Unless
otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Section 5. Quorum.
------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority of those present may adjourn the meeting to another place,
date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
-------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
-------------------
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
------
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(a) To declare dividends from time to time in accordance
with law;
6
<PAGE>
(b) To purchase or otherwise acquire any property,
rights or privileges on such terms as it shall determine;
(c) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(d) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(e) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(f) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers, employees
and agents of the Corporation and its subsidiaries as it may determine;
(g) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and,
(h) To adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors.
-------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
------------------------------------
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designated the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
7
<PAGE>
Section 2. Conduct of Business.
-------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
Section 3. Nominating Committee.
--------------------
The Board of Directors shall appoint a Nominating Committee of the
Board, consisting of not less than three (3) members. The Nominating Committee
shall have authority (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those directors whose terms expire at the annual meeting of
stockholders next ensuing.
ARTICLE IV - OFFICERS
Section 1. Generally.
---------
(a) The Board of Directors as soon as may be practicable after
the annual meeting of stockholders shall choose a Chairman of the Board, a
President, a Secretary and a Treasurer and from time to time may choose such
other officers as it may deem proper. The Chairman of the Board shall be chosen
from among the directors. Any number of offices may be held by the same person.
(b) The term of office of all officers shall be until the next
annual election of officers and until their respective successors are chosen,
but any officer may be removed from office at any time by the affirmative vote
of a majority of the authorized number of directors then constituting the Board
of Directors.
(c) All officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof.
Section 2. President.
---------
The President shall have general power over the management and
oversight of the administration and operation of the Corporation's business and
general supervisory power and authority over its policies and affairs. He shall
see that all orders and resolutions of the Board of Directors and of any
committee thereof are carried into effect.
8
<PAGE>
Each meeting of the stockholders and of the Board of Directors shall be
presided over by such person as has been designated by the Board of Directors
or, in his absence, by such officer or other person as is chosen at the meeting.
The Secretary or, in his absence, the General Counsel of the Corporation or such
officer as has been designated by the Board of Directors or, in his absence,
such officer or other person as is chosen by the person presiding, shall act as
secretary of each such meeting.
Section 3. Vice President.
--------------
The Vice President or Vice Presidents, if any, shall perform the duties
of the President in his absence or during his disability to act. In addition,
the Vice Presidents shall perform the duties and exercise the powers usually
incident to their respective offices and/or such other duties and powers as may
be properly assigned to them from time to time by the Board of Directors, the
Chairman of the Board or the President. A Vice President or Vice Presidents may
be designated as Executive Vice President or Senior Vice President.
Section 4. Secretary.
---------
The Secretary or an Assistant Secretary shall issue notices of
meetings, shall keep their minutes, shall have charge of the seal and the
corporate books, shall perform such other duties and exercise such other powers
as are usually incident to such offices and/or such other duties and powers as
are properly assigned thereto by the Board of Directors, the Chairman of the
Board or the President.
Section 5. Treasurer.
---------
The Treasurer shall have charge of all monies and securities of the
Corporation, other than monies and securities of any division of the Corporation
which has a treasurer or financial officer appointed by the Board of Directors,
and shall keep regular books of account. The funds of the Corporation shall be
deposited in the name of the Corporation by the Treasurer with such banks or
trust companies or other entities as the Board of Directors from time to time
shall designate. He shall sign or countersign such instruments as require his
signature, shall perform all such duties and have all such powers as are usually
incident to such office and/or such other duties and powers as are properly
assigned to him by the Board of Directors, the Chairman of the Board or the
President, and may be required to give bond, payable by the Corporation, for the
faithful performance of his duties in such sum and with such surety as may be
required by the Board of Directors.
Section 6. Assistant Secretaries and Other Officers.
----------------------------------------
The Board of Directors may appoint one or more assistant secretaries
and such other officers who shall have such powers and shall perform such duties
as are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
9
<PAGE>
Section 7. Action with Respect to Securities of Other
Corporations.
- ----------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or
any officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other Corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
---------------------
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the Chairman of the Board, Vice Chairman of the
Board, President or a Vice President, and by the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of
shares owned by him or her. Any or all of the signatures on the certificate may
be by facsimile.
Section 2. Transfers of Stock.
------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefore.
Section 3. Record Date.
-----------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
10
<PAGE>
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
--------------------------------------
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
-----------
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
-------
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier or by sending such notice by facsimile machine or other electronic
transmission. Any such notice shall be addressed to such stockholder, director,
officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails, by telegram or
mailgram or other courier or by facsimile machine or other electronic
transmission, shall be the time of the giving of the notice.
Section 2. Waivers.
-------
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
11
<PAGE>
Section 2. Corporate Seal.
--------------
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
----------------------------------------
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
-----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
------------
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
12
<PAGE>
EXHIBIT 13
CAMERON FINANCIAL CORPORATION 1997
ANNUAL REPORT TO STOCKHOLDERS.
<PAGE>
Exhibit 13
CAMERON FINANCIAL CORPORATION
Holding Company for The Cameron Savings & Loan Association, F.A.
================================================================================
December 29, 1997
To Our Stockholders:
The Board of Directors, management and staff of Cameron Financial
Corporation and its wholly-owned subsidiary, The Cameron Savings & Loan
Association, F.A., are pleased to present our third Annual Report.
The fiscal year ended September 30, 1997, was our second full year as a
public company. Net earnings increased to $2.5 million from $2.1 million the
previous year, assets increased $26 million to over $212 million and loans
receivable net increased over $22 million, continuing the controlled growth and
emphasis on real estate and consumer lending.
The Association occupied the new home office in Cameron during June 1997.
Nearly all the savings growth occurred subsequent to the move, with the
convenience and additional services available. Construction has commenced on the
branch office in Liberty, Missouri, with occupancy expected in May 1998. The
Loan Production Office will be closed and the employees will be transferred to
the loan department in the new branch office.
Your Board and management remain committed to building strong stockholder
value. The new facilities will allow the growth and customer services planned by
your Board for the future.
Thank you for your investment in Cameron Financial Corporation. We are
looking forward to a long and prosperous relationship.
Sincerely,
/s/ David G. Just
-----------------
David G. Just
President
- --------------------------------------------------------------------------------
1304 North Walnut
recycled paper P.O. Box 555 Printed with
Cameron, MO 64429 SOY INK
(816) 632-2154
<PAGE>
CAMERON FINANCIAL CORPORATION
GENERAL INFORMATION
================================================================================
Cameron Financial Corporation (the "Company") is a Delaware Corporation which is
the holding company for The Cameron Savings & Loan Association, F.A. (the
"Association"). The Company was organized by the Association for the purpose of
acquiring all of the capital stock of the Association in connection with the
conversion of the Association from mutual to stock form, which was completed on
March 31, 1995 (the "Conversion"). The only significant assets of the Company
are the capital stock of the Association, the Company's loan to an employee
stock ownership plan, and investment securities in United States government and
agency obligations. The business of the Company initially consists of the
business of the Association.
The Association, which was originally chartered in 1887 as a Missouri-chartered
mutual savings and loan association, is headquartered in Cameron, Missouri. The
Association amended its mutual charter to become a federal mutual savings and
loan association in 1994. Its deposits are insured up to the maximum allowable
amount by the Federal Deposit Insurance Corporation (FDIC). The Association
serves the financial needs of its customers throughout northwestern Missouri
through its main office located at 1304 North Walnut, Cameron, Missouri, three
branch offices located in Maryville, Cameron and Mound City, Missouri, and one
loan production office located in Liberty, Missouri.
The Association has been, and intends to continue to be, a community-oriented
financial institution offering financial services to meet the needs of the
market area it serves. The Association attracts deposits from the general public
and uses such funds together with FHLB advances to originate loans secured by
first mortgages on owner-occupied one- to four-family residences and
construction loans in its market area. To a lesser extent, the Association
originates land, commercial real estate, multifamily and consumer loans in its
market area.
2
<PAGE>
CAMERON FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY
================================================================================
Set forth below are selected consolidated financial and other data of the
Company. The financial data is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements and Notes thereto
presented elsewhere in this Annual Report.
================================================================================
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets $ 212,504 $ 186,346 $ 173,077 $ 144,821 $ 142,334
Loans receivable, net 176,790 154,444 129,740 113,981 110,023
Mortgage-backed securities 10 13 17 20 29
Investment securities 13,872 18,297 26,473 16,309 11,850
Cash and cash equivalents 2,909 3,783 3,315 1,072 1,584
Certificates of deposit in other financial 7,600 2,500 8,611 10,221 16,054
institutions
Savings deposits 128,771 123,108 121,280 123,110 122,378
FHLB advances 35,250 12,250 - - -
Total stockholders' equity 44,667 46,815 48,727 19,267 17,740
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended September 30,
------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
(In thousands, except share information)
<S> <C> <C> <C> <C> <C>
Selected Operations Data:
Total interest income $ 15,989 $ 13,921 $ 12,289 $ 10,662 $ 11,100
Total interest expense 8,179 6,679 6,317 5,710 6,203
- -------------------------------------------------------------------------------------------------------------------
Net interest income 7,810 7,242 5,972 4,952 4,897
Provision for loan losses 285 368 120 252 9
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 7,525 6,874 5,852 4,700 4,888
- -------------------------------------------------------------------------------------------------------------------
Loan and deposit service charges 162 130 131 136 140
(Loss) gain on sales of investment securities - - (4) 7 -
Other income 57 92 100 43 46
- -------------------------------------------------------------------------------------------------------------------
Total noninterest income 219 222 227 186 186
- -------------------------------------------------------------------------------------------------------------------
Total noninterest expense 3,670 3,772 2,503 2,443 1,942
- -------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative effect
of a change in accounting principle 4,074 3,324 3,576 2,443 3,132
Income taxes 1,564 1,214 1,272 894 1,180
Cumulative effect of a change in accounting for
income taxes (1) - - - - 289
- -------------------------------------------------------------------------------------------------------------------
Net earnings $ 2,510 $ 2,110 $ 2,304 $ 1,549 $ 2,241
- -------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.97 0.77 0.83 - -
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 2,578,957 2,740,759 2,784,906 - -
- -------------------------------------------------------------------------------------------------------------------
(Footnotes on the following page)
</TABLE>
3
<PAGE>
================================================================================
<TABLE>
<CAPTION>
At or For the Year Ended September 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of earnings before
cumulative effect of a change in accounting 1.25% 1.20% 1.45% 1.08% 1.39%
principle to average total assets)
Return on equity (ratio of earnings before
cumulative effect of a change in accounting 5.48% 4.43 6.62 8.26 11.62
principle to average equity)
Interest rate spread (2):
Average during period 2.93% 2.78 2.71 2.89 2.92
End of period 2.62% 2.71 2.35 2.67 2.55
Net interest margin (3) 4.08% 4.23 3.84 3.50 3.54
Dividend payout ratio 28.87% 36.36 8.43 - -
Ratio of noninterest expense to average total
assets 1.83% 2.14 1.57 1.70 1.39
Ratio of noninterest income to average total
assets 0.11% 0.13 0.14 0.13 0.13
Ratio of average interest-earning assets to
average interest-bearing liabilities 126.82% 137.06 127.79 115.12 113.88
- -------------------------------------------------------------------------------------------------------------------
Quality Ratios:
Nonperforming loans to total loans receivable
at end of period 0.58% 0.84 0.92 0.97 2.03
Allowance for loan losses to nonperforming
loans 139.04% 91.54 74.46 71.51 26.64
Allowance for loan losses to total loans
receivable 0.81% 0.77 0.69 0.69 0.54
Nonperforming assets to total assets at end of 0.56% 0.83 0.77 0.85 1.86
period
Classified assets to total assets (4) 5.06% 4.15 2.26 2.93 5.14
Ratio of net charge-offs to average loans
receivable .008% .006 .002 0.01 0.02
- -------------------------------------------------------------------------------------------------------------------
Capital Ratios (5):
Equity to total assets at end of period 21.03% 25.12 28.15 13.30 12.46
Average equity to average assets 22.88% 27.06 21.96 13.06 11.99
- -------------------------------------------------------------------------------------------------------------------
Other Data:
Number of full-service offices 4 3 3 3 3
Number of loan production offices 1 1 1 1 1
Real estate loan originations (in thousands) $95,088 $92,606 $64,257 $54,474 $41,748
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Association adopted Statement of Financial Accounting Standards
("SFAS") No. 109 during the year ended September 30, 1993.
(2) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average rate on
interest-bearing liabilities.
(3) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(4) Includes assets designated as Special Mention.
(5) For a discussion of the Association's regulatory capital ratios, see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources."
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Cameron Financial Corporation ("Cameron Financial" and, with its subsidiary, the
"Company"), was formed in December 1994 by The Cameron Savings & Loan
Association, F.A. (the "Association"), to become the holding company of the
Association. The acquisition of the Association by Cameron Financial was
consummated on March 31, 1995, in connection with the Association's conversion
from the mutual to the stock form (the "Conversion"). All references to the
Company prior to March 31, 1995, except where otherwise indicated, are to the
Association and its subsidiary on a consolidated basis.
The Company's results of operation depend primarily on its level of net interest
income, which is the difference between interest earned on interest-earning
assets, consisting primarily of mortgage loans and other investments, and the
interest paid on interest-bearing liabilities, consisting primarily of deposits
and FHLB advances. Net interest income is a function of the Company's "interest
rate spread," which is the difference between the average yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities, as well as a function of the average balance of interest-earning
assets as compared to interest-bearing liabilities. The interest rate spread is
affected by regulatory, economic and competitive factors that influence interest
rates, loan demand and deposit flows. The Company, like other financial
institutions, is subject to interest-rate risk to the degree that its
interest-earning assets mature or reprice at different times, or on a different
basis, than its interest-bearing liabilities. The Company's operating results
are also affected by the amount of its noninterest income, including loan fees
and service charges and other income, which includes commission from sales of
insurance by the Association's service corporation. Noninterest expense consists
primarily of employee compensation, occupancy expense, data processing, federal
insurance premiums, advertising, real estate owned operations and other
operating expense. The Company's operating results are significantly affected by
general economic and competitive conditions, in particular, the changes in
market interest rates, government policies and actions by regulatory
authorities.
FINANCIAL CONDITION
Total assets increased $26.2 million, or 14.06%, to $212.5 million at September
30, 1997 from $186.3 million at September 30, 1996. The increase was primarily
due to an increase in Federal Home Loan Bank (FHLB) advances of $23.0 million
and an increase in savings deposits of $5.7 million. These funds were used to
finance a $22.3 million increase in net loans receivable and a $3.5 million
increase in fixed assets.
Net loans receivable increased by $22.3 million, or 14.47%, to $176.8 million at
September 30, 1997 from $154.4 million at September 30, 1996 due primarily to a
$14.6 million increase in one- to four-family permanent mortgage loans and an
$8.6 million increase in short-term construction loans, net of loans in process.
Investment securities, certificates of deposits in other financial institutions
and cash equivalents decreased $200,000, or 0.08%, to $24.4 million at September
30, 1997 from $24.6 million at September 30, 1996.
Savings deposits increased $5.7 million, or 4.60%, to $128.8 million at
September 30, 1997 from $123.1 million at September 30, 1996. Of the $5.7
million increase in deposits, $4.8 million, or 84.2% of the increase, occurred
after the opening of the new home office in Cameron on June 23, 1997. During
that time period, the Association opened 594 new certificate accounts and 366
new checking or savings accounts. FHLB advances increased $23.0 million, or
187.76%, to $35.25 million at September 30, 1997 from $12.25 million at
September 30, 1996.
Total stockholders' equity decreased $2.1 million, to $44.7 million at September
30, 1997 from $46.8 million at September 30, 1996. Earnings for the year
provided a $2.5 million increase, which was offset by the purchase of 287,602
shares of treasury stock for $4.7 million, declaration of dividends of $699,000
and the amortization of RRP and unearned ESOP shares.
5
<PAGE>
The Association's capital exceeds all of the capital requirements imposed by
FIRREA. OTS regulations provide that an institution that exceeds all capital
requirements before and after a proposed capital distribution and, like the
Association, has not been notified of a need for more than normal supervision
could, after prior notice but without approval by the OTS, make capital
distributions during the calendar year of up to 100% of its net income to date
during the calendar year plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its capital requirements) at
the beginning of the calendar year. Any additional capital distributions would
require prior regulatory approval.
The Association declared and paid dividends of $1,652,000 to Cameron Financial
in fiscal year 1997. The Association has also notified OTS of its plans to
declare an additional $566,000 dividend to Cameron Financial in mid-December
1997. Those dividends approximate the Association's net income from July 1, 1996
through September 30, 1997.
RESULTS OF OPERATIONS
The Company's results of operations depend primarily on the level of its net
interest income and noninterest income and its control of operating expenses.
Net interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
The Company's noninterest income consists primarily of fees charged on
transaction accounts and fees charged for delinquent payments received on
mortgage and consumer loans. In addition, noninterest income is derived from the
activities of the Association's wholly-owned subsidiary, which engages in the
sale of various insurance products.
The schedule on the following page presents, for the periods indicated, the
total dollar amount of interest income from average interest-earning assets and
the resultant yields, as well as the total dollar amount of interest expense on
average interest-bearing liabilities and resultant rates. The average yields
include loan fees which are considered adjustments to yields. The amount of
interest income resulting from the recognition of loan fees was $490,000,
$397,000 and $321,000 for the years ended September 30, 1997, 1996 and 1995,
respectively. No tax-equivalent adjustments were made. All average balances are
monthly average balances. Management does not believe that the use of monthly
balances instead of daily balances has caused a material difference in the
information presented. Non-accruing loans have been included as loans carrying a
zero yield.
6
<PAGE>
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $167,051 $ 14,535 8.70 $141,896 $ 12,181 8.58
Mortgage-backed securities 11 1 9.09 15 2 13.33
Investment securities 15,696 975 6.21 21,955 1,319 6.01
Certificates of deposit 5,036 285 5.66 3,525 225 6.38
Other interest-bearing deposits 2,382 92 3.86 2,572 103 4.00
Federal Home Loan Bank (FHLB) stock 1,454 101 6.95 1,254 91 7.26
-------- -------- ---- -------- -------- -----
Total interest-earning assets (1) 191,630 15,989 8.34 171,217 13,921 8.13
-------- ---- -------- -----
Noninterest earning assets 8,659 4,954
-------- --------
Total average assets $200,289 $176,171
======== ========
Interest-bearing liabilities:
Passbook accounts $ 10,834 346 3.19 $ 10,710 348 3.25
NOW and money market accounts 12,498 348 2.78 12,915 364 2.82
Certificates 101,596 5,889 5.80 98,102 5,780 5.89
FHLB advances 26,173 1,596 6.10 3,192 187 5.86
-------- -------- ---- -------- -------- -----
Total interest-bearing liabilities 151,101 8,179 5.41 124,919 6,679 5.35
-------- ---- -------- -----
Noninterest bearing liabilities 3,356 3,587
-------- --------
Total average liabilities $154,457 $128,506
======== ========
Net interest income $ 7,810 $ 7,242
======== ========
Net interest rate spread (2) 2.93% 2.78%
==== ====
Net interest-earning assets $ 40,529 $ 46,298
======== ========
Net interest margin (3) 4.08% 4.23%
==== ====
Average interest-earning assets to average
interest-bearing liabilities 126.82% 137.06%
======== ========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------
1995
---------------------------------
Average Interest
Outstanding Earned/ Yield/
Balance Paid Rate
------- ---- ----
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $122,970 $ 10,472 8.52
Mortgage-backed securities 18 2 11.11
Investment securities 20,771 1,190 5.73
Certificates of deposit 8,278 484 5.85
Other interest-bearing deposits 2,063 50 2.42
Federal Home Loan Bank (FHLB) stock 1,235 91 7.37
-------- -------- -----
Total interest-earning assets (1) 155,335 12,289 7.91
-------- -----
Noninterest earning assets 3,855
--------
Total average assets $159,190
========
Interest-bearing liabilities:
Passbook accounts $ 12,458 426 3.42
NOW and money market accounts 14,758 418 2.83
Certificates 94,031 5,454 5.80
FHLB advances 308 19 6.17
-------- -------- -----
Total interest-bearing liabilities 121,555 6,317 5.20
-------- -----
Noninterest bearing liabilities 2,675
--------
Total average liabilities $124,230
========
Net interest income $ 5,972
========
Net interest rate spread (2) 2.71
=====
Net interest-earning assets $ 33,780
========
Net interest margin (3) 3.84
=====
Average interest-earning assets to average
interest-bearing liabilities 127.79%
========
</TABLE>
(1) Calculated net of deferred loan fees and discounts, loans in process and
loss reserves.
(2) Net interest rate spread represents the difference between the average yield
on interest-earning assets and the average rate on interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
7
<PAGE>
The following schedule presents the weighted average yields earned on loans,
investments and other interest-earning assets, and the weighted average rates
paid on deposits and FHLB advances and the resultant interest rate spreads at
the dates indicated:
================================================================================
<TABLE>
<CAPTION>
At September 30,
--------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average yield on:
Loans receivable 8.54% 8.48% 8.32%
Mortgage-backed securities 10.31 10.48 10.59
Investment securities 6.05 6.20 5.88
Certificates of deposit in other financial institutions 6.15 5.85 6.37
Other interest-bearing deposits 4.95 3.69 4.23
FHLB stock 7.00 7.25 7.00
Combined weighted average yield on interest-earning
assets 8.22 8.11 7.76
- ------------------------------------------------------------------------------------------------------------------
Weighted average rate paid on:
Passbook accounts 3.25 3.25 3.25
NOW and money market accounts 3.16 2.84 2.84
Certificates 5.96 5.89 5.99
FHLB advances 6.02 6.09 -
Combined weighted average rate paid on interest-
bearing liabilities 5.60 5.40 5.41
- ------------------------------------------------------------------------------------------------------------------
Spread 2.62 2.71% 2.35%
==================================================================================================================
</TABLE>
Rate/Volume Analysis
The schedule on the following page presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the changes
due to changes in outstanding balances and those due to changes in interest
rates. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (i.e., changes in volume multiplied by prior interest rate) and (ii)
changes in rate (i.e., changes in rate multiplied by prior volume). For purposes
of this table, changes attributable to both rate and volume, which cannot be
segregated, have been allocated proportionately to the changes due to volume and
the changes due to rate.
8
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Year Ended September 30,
1997 vs. 1996 1996 vs. 1995
------------------------------- ----------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
--------------- Increase --------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 2,182 $ 172 $ 2,354 $ 1,634 $ 75 $ 1,709
Mortgage-backed securities (1) - (1) - - -
Investment securities (389) 45 (344) 70 59 129
Certificates of deposit in other
financial institutions 82 (22) 60 (308) 49 (259)
Other interest-bearing deposits (8) (3) (11) 14 39 53
FHLB stock 15 (5) 10 1 (1) -
- ---------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,881 187 2,068 1,411 221 1,632
- ---------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Passbook accounts 4 (6) (2) (58) (20) (78)
NOW and money market accounts (11) (5) (16) (53) (1) (54)
Certificates 200 (91) 109 240 86 326
FHLB advances 1,393 16 1,409 169 (1) 168
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,586 (86) 1,500 298 64 362
- ---------------------------------------------------------------------------------------------------------------------
Net interest income $ 295 $ 273 $ 568 $ 1,113 $ 157 $ 1,270
=====================================================================================================================
</TABLE>
Comparison of Operating Results for the Years Ended September 30, 1997 and 1996
General. Net earnings for the year ended September 30, 1997 increased by
$400,000, or 18.96%, to $2.5 million, or $0.97 per share, from $2.1 million, or
$0.77 per share, for the year ended September 30, 1996. The increase was
primarily due to the combined effects of a $600,000 increase in net interest
income, an $83,000 decrease in the provision for loan loss and a $102,000
decrease in noninterest expense offset by a $350,000 increase in income tax and
a $3,000 decrease in noninterest income. For the years ended September 30, 1997
and 1996, the returns on average assets were 1.25% and 1.20%, respectively,
while the returns on average equity were 5.48% and 4.43%, respectively.
Net Interest Income. For the year ended September 30, 1997, net interest income
increased by $600,000 to $7.8 million from $7.2 million for 1996. This reflects
an increase of $2.1 million in interest income to $16.0 million from $13.9
million and an increase of $1.5 million in interest expense to $8.2 million from
$6.7 million. The increase in interest income was primarily due to an increase
in total interest-earning assets and an increase in average yields on
interest-earning assets. The increase in interest expense was due to increased
interest-bearing liabilities.
Interest Income. Interest income for the year ended September 30, 1997 increased
$2.1 million to $16.0 million from $13.9 million for the year ended September
30, 1996. The $20.4 million increase in average interest-earning assets resulted
in an increase in interest income of $1.9 million. The increase in average yield
on interest-earning assets provided $187,000 additional interest income in
fiscal 1997.
Interest income on loans increased $2.4 million, or 19.33%, to $14.5 million
from $12.2 million for the year ended September 30, 1996. Interest income on
investment securities, certificates of deposits and other interest bearing
deposits decreased $285,000, or 16.4%, to $1.5 million from $1.7 million for the
year ended September 30, 1996. Interest income on loans increased due to
increased average balances and increased yields on those balances. Decreases in
average balances of investment securities, certificates of deposit and other
interest bearing deposits offset increased yields on those items. This was the
result of the changing mix of assets with higher concentration of assets in
loans.
9
<PAGE>
Interest Expense. Interest expense for the year ended September 30, 1997
increased $1.5 million to $8.2 million from $6.7 million for the year ended
September 30, 1996. The increase was due to increased average balances
outstanding on interest-bearing liabilities. Depositors continued their
preference for higher rate certificates rather than lower rate passbook, NOW or
money market deposit accounts. Average balances in certificates of deposit
increased $3.5 million to $101.6 million for the year ended September 30, 1997
from $98.1 million for the prior fiscal year. Average passbook, NOW and money
market deposit account balances decreased $293,000 to $23.3 for the fiscal year
ended September 30, 1997, from $23.6 million for the prior fiscal year. Interest
expense on FHLB advances increased to $1.6 million for the year ended September
30, 1997 from $187,000 for the prior year. The Association borrowed $26.0
million and repaid maturing advances of $3.0 million in fiscal 1997 which
resulted in FHLB advances of $35.25 million at September 30, 1997 compared to
$12.25 million at September 30, 1996.
Provision for Loan Losses. The Association maintains a program for establishing
general loan loss reserves by classifying various components of the loan
portfolio by potential risk. Management reviews the composition of the loan
portfolio monthly and adjusts the valuation allowance. In addition, the Internal
Auditor reviews the general valuation allowance on a quarterly basis and reports
the findings to the Board of Directors. During the year ended September 30,
1997, the Association charged $285,000 against earnings as a provision for loan
losses compared to $368,000 for the year ended September 30, 1996. This resulted
in an allowance for loan losses of $1.6 million, or 0.81% of total loans
receivable at September 30, 1997, compared to $1.4 million or 0.77% of total
loans receivable at September 30, 1996. The ratio was increased during fiscal
1997 due to increased consumer loans and construction loans. Consumer loans
increased to $8.7 million from $8.3 million and construction loans increased to
$51.4 million from $41.6 million. The fiscal 1997 net charge-offs against
general valuation allowances totaled $14,000 and the net charge-offs for fiscal
1996 were $9,000. While the Association has not experienced any significant
charge-offs in the past three years, the decision was made to increase the
allowance for loan losses based on a more refined evaluation process which, in
management's view, more fully recognizes the changing composition of the
Association's loan portfolio and the risk associated with different types of
loans.
The Association had $2.1 million in loans classified as substandard, doubtful or
loss at September 30, 1997, compared to $2.3 million at September 30, 1996.
Management will continue to monitor its allowances for loan losses and make
future additions to the allowance through provision for loan losses as economic
conditions dictate. Although the Association maintains its allowance for loan
losses at a level which it considers to be adequate to provide for potential
losses, there can be no assurance that future losses will not exceed estimated
amounts or that additional provisions for loan losses will not be required in
future periods.
Noninterest Income. For the year ended September 30, 1997, noninterest income
was $219,000, compared to $222,000 for the year ended September 30, 1996. Loan
fees and deposit service charges, which consist primarily of late charges on
loans receivable and service charges on transaction accounts and ATM charges,
were $162,000 and $130,000 for fiscal 1997 and 1996, respectively. Late charges
on loans were $76,000 for fiscal 1997 compared to $61,000 for fiscal 1996. The
increase is primarily due to the increase in the number of loans outstanding.
Service charges on transaction accounts were $74,000 and $55,000 for fiscal 1997
and 1996, respectively. The increase is due to increased checking accounts that
pay a flat monthly fee and an increase in the fees charged for related items
such as return item charges. ATM fees, which were effective with the
installation of the Association's first two ATMs in the Cameron and Maryville
offices in June 1997, were $2,000. Commissions from insurance sales by the
Association's service corporation were $17,000 and $22,000 for fiscal 1997 and
1996, respectively. Gains on the sale of loans originated for sale were $23,000
and $17,000 for fiscal 1997 and 1996, respectively. A patronage dividend of
$8,000 was received in 1997 from a cooperative service bureau, compared to
$40,000 in 1996.
10
<PAGE>
Noninterest expense. Noninterest expense decreased $102,000, or 2.7%, to $3.7
million for the year ended September 30, 1997 from $3.8 million for the year
ended September 30, 1996. Compensation, payroll taxes and fringe benefits
expense increased $507,000 in fiscal 1997 compared to 1996. Expenses associated
with the RRP plan were $274,000 for fiscal 1997 compared to $186,000 for fiscal
1996. The plan was approved in January 1996, and was only in effect for a
portion of fiscal 1996. ESOP expenses increased to $465,000 for fiscal 1997 from
$426,000 for 1996. The increase was due to higher average monthly price for
shares of the Company's common stock in 1997 compared to 1996. Cash compensation
increased $312,000 in fiscal 1997 to $1.5 million from $1.2 million in 1996. The
increase was due to an increase in the number of employees and raises to
existing employees. There were fifty-five full time equivalent employees at
September 30, 1997 compared to forty-five at September 30, 1996. Payroll taxes
and other fringe benefits increased $57,000 due to increased compensation and
payroll taxes due to the first year's vesting of the RRP. In accordance with
SFAS No. 91, the Association defers certain direct loan origination and
modification costs and amortizes these costs as adjustment to yield. The
Association has deferred $15,000 less in compensation costs for fiscal 1997 than
1996. Occupancy expense increased $209,000 in fiscal 1997 to $418,000 from
$209,000 in 1996. Of the $418,000 of occupancy expense for the fiscal year,
$170,000 was incurred in the quarter ended September 30, 1997, the first full
quarter the new home office was occupied. The increase was primarily due to
increased depreciation and increased taxes on the new home office opened in June
1997. Depreciation also increased due to new equipment for the new home office.
Although occupancy expenses are up significantly as a result of the new office
in Cameron, the increase in deposits attributed to the opening of the new office
is also up substantially. Between the opening of the office on June 23, 1997 and
September 30, 1997, the Association opened 960 new deposit accounts and deposits
increased by $4.8 million. Data processing expenses increased $17,000 to
$168,000 for fiscal 1997 compared to $151,000 for fiscal 1996. The increase was
due to the increased number of accounts processed and increased charges for
additional on-line work stations. Federal insurance premiums decreased $965,000
to $117,000 from $1.1 million for 1996. The decrease was due to the special SAIF
assessment of $800,000 in fiscal 1996. Advertising expenses increased $65,000 to
$146,000 for fiscal 1997 compared to $81,000 for fiscal 1996. The increased was
due primarily to increased advertising for new deposit products and promotional
items for the opening of the new home office. Other operating expenses increased
to $649,000 for fiscal 1997 from $585,000 in fiscal 1996. The increase was
primarily due to increased expenses for legal services, new checking accounts,
office supplies, telephones and postage.
Income Taxes. Income taxes increased to $1.56 million for fiscal 1997 from $1.21
million in fiscal 1996. The increase was due to an increase in taxable income
for 1997 as compared to 1996.
Comparison of Operating Results for the Years Ended September 30, 1996 and 1995
General. Net earnings for the year ended September 30, 1996 decreased by
$194,000, or 8.42%, to $2.1 million, or $0.77 per share, from $2.3 million, or
$0.83 per share, for the year ended September 30, 1995. The decrease was
primarily due to the combined effects of a $1.3 million increase in net interest
income and a $58,000 decrease in income taxes offset by a $248,000 increase in
the provision for loan loss, a $5,000 decrease in noninterest income and a $1.3
million increase in noninterest expense. For the years ended September 30, 1996
and 1995, the returns on average assets were 1.20% and 1.45%, respectively,
while the returns on average equity were 4.43% and 6.62%, respectively.
A provision in the Omnibus Appropriations Bill passed by Congress and signed by
President Clinton on September 30, 1996 included an anticipated special
assessment to recapitalize the Savings Association Insurance Fund (SAIF). The
65.7 cents per $100 of qualifying accounts as of March 31, 1995 created a
pre-tax expense of $800,000 to the Association. Without the SAIF assessment, net
income would have been $2.6 million, return on average assets would have been
1.49%, return on average equity would have been 5.49% and earnings per share
would have been $.96 for the fiscal year ended September 30, 1996.
The recapitalization of SAIF is anticipated to reduce the future deposit
insurance premiums from 23 cents per $100 of deposits to 6.4 cents per $100 of
deposits. The 6.4 cent premium is projected for the years 1997 through 1999,
then decreasing further to 2.4 cents from 2000 until 2017, assuming a merger of
SAIF and the Bank Insurance Fund (BIF).
11
<PAGE>
Net Interest Income. For the year ended September 30, 1996, net interest income
increased by $1.3 million to $7.2 million from $6.0 million for 1995. This
reflects an increase of $1.6 million in interest income to $13.9 million from
$12.3 million and an increase of $362,000 in interest expense to $6.7 million
from $6.3 million. The increase in interest income was primarily due to an
increase in total interest-earning assets and a change in asset mix with a
higher percentage of loans as compared to investment securities. The increase in
interest expense was due to increased interest-bearing liabilities and increased
rates paid.
Interest Income. Interest income for the year ended September 30, 1996 increased
$1.6 million to $13.9 million from $12.3 million for the year ended September
30, 1995. The $15.9 million increase in average interest-earning assets resulted
in an increase in interest income of $1.4 million. The increase in average yield
on interest-earning assets provided $221,000 additional interest income in
fiscal 1996.
Interest income on loans increased $1.7 million, or 16.32%, to $12.2 million
from $10.5 million for the year ended September 30, 1995. Interest income on
investment securities, certificates of deposit and other interest-bearing
deposits decreased $77,000, or 4.24%, to $1.6 million from $1.7 million for the
year ended September 30, 1995. Interest income on loans increased due to
increased average balances and increased yields on those balances. Decreases in
average balances of investment securities, certificates of deposit and other
interest-bearing deposits offset increased yields on those items. This was the
result of the changing mix of assets with higher concentration of assets in
loans.
Interest Expense. Interest expense for the year ended September 30, 1996
increased $362,000 to $6.7 million from $6.3 million for the year ended
September 30, 1995. The increase was due to increased average balances
outstanding on interest-bearing liabilities and an increase in the average rate
paid on certificates of deposit. Depositors continued their transfer of funds
from passbook and checking accounts to higher rate certificates. Average
balances in certificates of deposit increased $4.1 million to $98.1 million for
the year ended September 30, 1996 from $94.0 million for the prior fiscal year.
Average noncertificate balances decreased $3.6 million to $23.6 million from
$27.2 million for the prior fiscal year. Interest expense on FHLB advances
increased to $187,000 for the year ended September 30, 1996 from $19,000 for the
prior year. The Association borrowed $12.3 million in fiscal 1996 compared to
$2.0 million for part of fiscal 1995.
Provision for Loan Losses. The Association maintains a program for establishing
general loan loss reserves by classifying various components of the loan
portfolio by potential risk. Management reviews the composition of the loan
portfolio monthly and adjusts the valuation allowance. In addition, the Internal
Auditor reviews the general valuation allowance on a quarterly basis and reports
the findings to the Board of Directors. During the year ended September 30,
1996, the Association charged $368,000 against earnings as a provision for loan
losses compared to $120,000 for the year ended September 30, 1995. This resulted
in an allowance for loan losses of $1.4 million, or 0.77% of total loans
receivable at September 30, 1996, compared to $994,000, or 0.69% of total loans
receivable at September 30, 1995. The ratio increased during fiscal 1996 due to
increased land and development loans, consumer loans, construction loans and
one- to four-family loans. Land and development loans increased to $9.6 million
from $4.1 million, consumer loans increased to $8.3 million from $5.6 million,
construction loans increased to $41.6 million from $33.0 million, and one- to
four-family loans increased to $109.3 million from $95.0 million. Net
charge-offs totaled $9,000 and $2,000 in 1996 and 1995, respectively. While the
Association has not experienced any significant charge-offs in the past three
years, the allowance for loan losses has been increased to recognize the
changing composition of the Association's loan portfolio and the risk associated
with different types of loans.
The Association had $2.3 million in loans classified as substandard, doubtful or
loss at September 30, 1996, compared to $1.8 million at September 30, 1995.
12
<PAGE>
Noninterest Income. For the year ended September 30, 1996, noninterest income
was $222,000 compared to $227,000 for the year ended September 30, 1995. Loan
service charges, which consist primarily of late charges on loans receivable,
were $61,000 and $58,000 for fiscal 1996 and 1995, respectively. The increase is
primarily due to the increase in the number of loans outstanding. Service
charges on transaction accounts were $55,000 and $58,000 for fiscal 1996 and
1995, respectively. The decrease is due to fewer NOW accounts and a
corresponding decline in the service charges associated with the maintenance of
such accounts. Commissions from insurance sales by the Association's service
corporation were $22,000 and $24,000 for fiscal 1996 and 1995. Gains on the sale
of loans originated for sale were $17,000 and $19,000 for fiscal 1996 and 1995,
respectively. There were no gains or losses on sales of equity securities in
fiscal 1996 compared to a net loss of $4,000 in fiscal 1995. A patronage
dividend of $40,000 was received in 1996 from a cooperative service bureau
compared to $52,000 in 1995.
Noninterest Expense. Noninterest expense increased $1.3 million, or 50.7%, to
$3.8 million for the year ended September 30, 1996 from $2.5 million for the
year ended September 30, 1995. Compensation, payroll taxes and fringe benefits
expense increased $220,000 in fiscal 1996 compared to 1995. Expenses associated
with the RRP adopted January 29, 1996 were $186,000. There was no related
expense in 1995. ESOP expenses increased $122,000 for fiscal 1996 to $425,000.
The increase was due to more shares allocated and a higher average monthly price
in 1996 compared to 1995. Cash compensation increased $89,000 in fiscal 1996 to
$1.24 million from $1.15 million in 1995. The increase was due to more
employees, raises to existing employees and an increase in incentive bonuses.
Payroll taxes and other fringe benefits increased $19,000 due to increased
compensation. In accordance with SFAS No. 91, the Association defers certain
direct loan origination and modification costs and amortizes these costs as an
adjustment to yield. The Association has deferred $100,000 more in compensation
costs for fiscal 1996 than 1995. In fiscal 1995, the Association accrued bonus
expense of $94,000. There was no related expense in fiscal 1996. Occupancy
expense increased $22,000 in fiscal 1996 to $209,000 from $187,000 in 1995. The
increase was primarily due to increased depreciation on new equipment during the
year. Federal insurance premiums increased $799,000 to $1.1 million from
$283,000 for 1995. The increase was primarily due to the special SAIF
assessment. Other operating expenses increased to $585,000 for fiscal 1996 from
$390,000 in fiscal 1995. The increase was primarily due to increased expenses as
a publicly-owned stock institution.
Income Taxes. Income taxes decreased to $1.2 million for fiscal 1996 from $1.3
million in fiscal 1995. The decrease was due to a decrease in taxable income for
1996 as compared to 1995.
Asset and Liability Management - Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets are interest rate sensitive and by monitoring an
institution's interest rate sensitivity "gap." An asset or liability is said to
be interest rate sensitive within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap is defined as
the difference between the amount of interest-earning assets and
interest-bearing liabilities maturing or repricing within a specific time
period. A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income while a positive gap would tend to positively affect
net interest income. During a period of falling interest rates, a negative gap
would tend to positively affect net interest income while a positive gap would
tend to negatively affect net interest income.
The Association's strategy in recent years has been to reduce its exposure to
interest rate risk by better matching the maturities or repricing schedules of
its interest rate sensitive assets and liabilities. This strategy has been
implemented by originating adjustable rate mortgage loans, short term
construction loans and other variable rate or short-term loans, as well as by
purchasing short-term investments. The Association seeks to lengthen the
maturities of its deposits by promoting longer-term certificates with
substantial penalties for early withdrawal. Maturities of new FHLB advances are
scheduled to compliment the current gap position. The Association does not
solicit negotiated high-rate jumbo certificates of deposit or brokered deposits.
13
<PAGE>
At September 30, 1997, the Company's total interest-bearing liabilities maturing
or repricing within one year exceeded interest-earning assets maturing or
repricing in the same period by $4.0 million, representing a cumulative negative
one-year gap ratio of 1.9%. The Association has established an Asset-Liability
Management Committee (ALCO) which is responsible for reviewing the Association's
asset-liability policies. The ALCO meets monthly and reports to the Board of
Directors on interest rate risks and trends, as well as liquidity and capital
ratios and requirements.
Market Risk Management
Market risk is the risk of loss arising from adverse changes in market prices
and rates. The Association's market risk is comprised primarily of interest rate
risk resulting from its core banking activities of lending and deposit taking.
Interest rate risk is the risk that changes in market interest rates might
adversely affect the Association's net interest income or the economic value of
its portfolio of assets, liabilities and off-balance sheet contracts. Management
continually develops and applies strategies to mitigate this risk. Management
does not believe that the Association's primary market risk exposures and how
those exposures are managed in fiscal year 1997 have changed when compared to
fiscal year 1996. Market risk limits have been established by the board of
directors based on the Association's tolerance for risk.
The Association primarily relies on the OTS Net Portfolio Value (NPV) Model to
measure its susceptibility to interest rate changes. NPV is defined as the
present value of expected net cash flows from existing assets minus the present
value of expected net cash flows from existing liabilities plus or minus the
present value of net expected cash flows from existing off-balance sheet
contracts after various assumed instantaneous, parallel shifts in the yield
curve, both upward and downward.
The NPV model uses an option-based pricing approach to value one to four family
mortgages, mortgages serviced by or for others, and firm commitments to buy,
sell or originate mortgages. This approach makes use of an interest rate
simulation program to generate random interest rate paths that, in conjunction
with a prepayment model, are used to estimate mortgage cash flows. Prepayment
options and interest rate caps and floors contained in mortgages and
mortgage-related securities introduce significant uncertainty in estimating the
timing of cash flows for these instruments that warrant the use of this
sophisticated methodology. All other financial instruments are valued using a
static discounted cash flow method. Under this approach, the present value is
determined by discounting the cash flows the instrument is expected to generate
by yields currently available to investors from an instrument of comparable risk
and duration.
The following table sets forth the present value estimates for major categories
of financial instruments of the Association at September 30, 1997, as calculated
by the OTS NPV model. The table shows the present value of the instruments under
rate shock scenarios of -300 basis points to +300 basis points in increments of
100 basis points.
14
<PAGE>
================================================================================
Present Value Estimates by Interest Rate Scenario
Calculated at September 30, 1997
<TABLE>
<CAPTION>
-300 bp -200 bp -100 bp 0 bp +100 bp +200 bp +300 bp
- ------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans and securities $ 183,621 $ 181,623 $ 179,670 $ 177,125 $ 173,681 $ 169,602 $ 165,203
Nonmortgage loans 5,875 5,814 5,755 5,696 5,640 5,585 5,530
Cash, deposits and securities 16,728 16,584 16,445 16,300 16,150 16,004 15,862
Other assets 9,126 9,262 9,586 10,193 10,791 11,351 11,872
- ------------------------------------------------------------------------------------------------------------------
Total assets 215,350 213,283 211,456 209,314 206,262 202,542 198,467
- ------------------------------------------------------------------------------------------------------------------
Deposits 135,937 133,307 130,819 128,464 126,223 124,101 122,086
Borrowings 38,944 38,265 37,607 36,969 36,352 35,754 35,173
Other liabilities 3,496 3,495 3,495 3,494 3,494 3,493 3,492
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 178,377 175,067 171,921 168,927 166,069 163,348 160,751
- ------------------------------------------------------------------------------------------------------------------
Off-balance sheet positions 795 624 469 294 68 (186) (453)
- ------------------------------------------------------------------------------------------------------------------
Net portfolio value $ 37,768 $ 38,840 $ 40,004 $ 40,681 $ 40,261 $ 39,008 $ 37,263
- ------------------------------------------------------------------------------------------------------------------
$ change from base (2,913) (1,841) (677) - (420) (1,673) (3,418)
Percent change from base (7) (5) (2) 0 (1) (4) (8)
Percent change - Board limit (10) (5) (5) 0 (10) (20) (30)
</TABLE>
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit runoffs, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the Association may undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in both
the computation of NPV and in an analysis of the maturing and repricing of
interest-earning assets and interest-bearing liabilities. Although certain
assets and liabilities may have similar maturities or periods within which they
will reprice, they may react differently to changes in market interest rates.
Additionally, adjustable-rate mortgages have features which restrict changes in
interest rates on short-term basis and over life of the asset. The proportion of
adjustable-rate loans could be reduced in future periods if market interest
rates would decrease and remain at lower levels for a sustained period, due to
increased refinance activity. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate significantly
from those assumed in the table. Finally, the ability of many borrowers to
service their adjustable-rate debt may decrease in the event of a sustained
interest rate increase.
Liquidity and Capital Resources
The Association's primary sources of funds are deposits, repayments on and sale
of loans, FHLB advances, the maturity of investment securities and interest
income. Although maturity and scheduled amortization of loans are relatively
predictable sources of funds, deposit flows and prepayments on loans are
influenced significantly by general interest rates, economic conditions and
competition.
15
<PAGE>
The primary investing activity of the Association is the origination of loans to
be held for investment. For the fiscal years ended September 30, 1997 and 1996,
the Association originated loans for portfolio in the amounts of $97.9 million
and $98.1 million, respectively. Purchases of loans during the fiscal years
ended September 30, 1997 and 1996 were none and $882,000, respectively. The
Association also originates loans for sale. For the fiscal years ended September
30, 1997 and 1996, the Association originated $3.1 million and $1.5 million,
respectively, of mortgage loans for sale. For the fiscal years ended September
30, 1997 and 1996, these activities were funded primarily by principal
repayments of $74.1 million and $67.5 million, respectively, proceeds from the
sale of loans of $2.7 million and $1.5 million, respectively, and FHLB advances
of $26.0 million and $12.3 million, respectively.
The Association is required to maintain minimum levels of liquid assets under
OTS regulations. Savings institutions are required to maintain an average daily
balance of liquid assets (including cash, certain time deposits, certain
bankers' acceptances, certain corporate debt securities and highly rated
commercial paper, securities of certain mutual funds and specified U. S.
government, state or federal agency obligations) of not less than 5.0% of its
average daily balance of net withdrawable accounts plus short-term borrowings.
It is the Association's policy to maintain its liquidity portfolio in excess of
regulatory requirements. The Association's eligible liquidity ratios were 8.97%
and 6.43%, respectively, at September 30, 1997 and 1996.
The Company's most liquid assets are cash and cash equivalents, which include
short-term investments. The levels of these assets are dependent on the
operating, financing, lending and investment activities during any given period.
At September 30, 1997 and 1996, cash and cash equivalents were $2.9 million and
$3.8 million, respectively. The decrease in cash and cash equivalents in 1997
compared to 1996 results primarily from sources of cash receipts and the use of
cash to fund loans and investments. The principal components of cash provided
during the fiscal year ended September 30, 1997 were FHLB advances and loan
repayments. Additional sources of cash included maturing investments, sales of
loans and deposit activity.
Liquidity management for the Company is both an ongoing and long-term function
of the asset/liability management strategy. Excess Association funds generally
are invested in overnight deposits at the FHLB of Des Moines. Should the
Association require funds beyond its ability to generate them internally,
additional sources of funds are available through FHLB of Des Moines advances.
The Association borrowed $26.0 million in FHLB advances and repaid $3.0 million
of maturing FHLB advances in fiscal year 1997. During 1996, the Association
borrowed $12.3 million in FHLB advances. During the last several years, loan
originations have exceeded savings inflows, loan repayments and cash provided by
operations. Prior to fiscal year 1996, the excess resulted in reductions of the
investment securities portfolio and total liquidity. To maintain liquidity above
the required minimum, it is anticipated that FHLB advances will continue to
supplement projected savings inflows and loan repayments to fund continued loan
demand.
At September 30, 1997, the Association had outstanding loan commitments of $5.8
million, unused lines of credit of $2.3 million, and undisbursed loan funds in
process of approximately $20.7 million. Construction of the new full service
branch in Liberty, MO is scheduled to begin soon. A contract has been entered
into for the construction of the branch office, with estimated costs of $1.0
million. Completion of the 7,600 square foot facility is scheduled for April
1998. The Association anticipates it will have sufficient funds available to
meet its current loan commitments, including loan applications received and in
process prior to issuance of firm commitments and building costs. Certificates
of deposit which are scheduled to mature in one year or less at September 30,
1997 were $58.6 million. Management believes that a significant portion of such
deposits will remain with the Association.
At September 30, 1997, the Association had tangible capital of $34.2 million, or
16.8% of total adjusted assets, which is approximately $31.1 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date. The
Association had core capital of $34.2 million, or 16.8% of adjusted total
assets, which is $28.1 million above the minimum leverage ratio of 3.0% in
effect on that date. The Association had total risk-based capital of $35.8
million and total risk-weighted assets of $139.0 million, or total capital of
25.8% of risk-weighted assets. This was $24.7 million above the 8.0% requirement
in effect on that date.
16
<PAGE>
The Year 2000 Issue
The Association has an ongoing program designed to ensure that its operational
and financial systems will not be adversely affected by Year 2000 software
failures, due to processing errors arising from calculations using the Year 2000
date.
The Association has nearly completed assessment of its computer hardware Year
2000 compliance and testing of such hardware operating systems is approximately
fifty percent complete. However, the Associations has not yet determined the
cost, which will be expensed as incurred, of evaluating its computer software or
databases, or of making any modifications required to correct any Year 2000
problems.
The Association is requiring its computer systems and software vendors to
represent that the products are, or will be, Year 2000 compliant, and has
planned a program for testing of compliance. It is recognized that any Year 2000
failure could result in additional expense to the Association.
Recent Accounting Developments
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," was effective for all transfers and servicing
of financial assets and extinguishments of liabilities occurring after December
31, 1996. This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings.
Under the financial-components approach, after a transfer of financial assets,
an entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished. The financial-components
approach focuses on the assets and liabilities that exist after the transfer.
Many of these assets and liabilities are components of financial assets that
existed prior to the transfer. If a transfer does not meet the criteria for a
sale, the transfer is accounted for as a secured borrowing with pledge of
collateral. The adoption of this statement did not have a material effect on the
consolidated financial statements.
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125," defers the effective date for transfers and servicing of
financial assets and extinguishments of liabilities related to secured
borrowings, repurchase agreements and similar instruments occurring after
December 31, 1996 to those occurring after December 31, 1997.
SFAS No. 128, "Earnings per Share," will be adopted by the Company for the
interim period ending December 31, 1997. This statement established standards
for computing and presenting earnings per share (EPS) and applies to entities
with publicly held common stock or potential common stock. This statement
simplifies the standards for computing EPS previously found in APB Opinion No.
15, "Earnings per Share," and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Management believes adoption of SFAS Nos. 127 and 128 will not have a material
effect on the financial position or results of operations, nor will adoption
require additional capital resources.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which requires entities presenting a complete set of financial statements to
include details of comprehensive income that arise in the reporting period.
Comprehensive income consists of net earnings or loss for the current period and
other comprehensive income--expenses, gains and losses that bypass the statement
of earnings and are reported in a separate component of equity, i.e., unrealized
gains and losses on certain investment securities. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997.
17
<PAGE>
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which required the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased costs of
the Association's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Association are monetary. As a result, interest
rates have a greater impact on the Association's performance than do the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the price of goods and services.
18
<PAGE>
KPMG Peat Marwick LLP
1000 Walnut, Suite 1600 Telephone 816 474 6480 Telefax 816 556 9652
P.O. Box 13127
Kansas City, MO 64199
Independent Auditors' Report
The Board of Directors
Cameron Financial Corporation:
We have audited the accompanying consolidated balance sheets of Cameron
Financial Corporation and subsidiary (the Company) as of September 30, 1997 and
1996 and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the years in the three-year period ended September
30, 1997 These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cameron Financial
Corporation and subsidiary as of September 30, 1997 and 1996 and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
November 21, 1997
19
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1997 and 1996
<TABLE>
<CAPTION>
==============================================================================================================
Assets 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 2,909,000 3,783,000
Certificates of deposit in other financial institutions 7,600,000 2,500,000
Investment securities held-to-maturity (estimated fair value of
$13,911,000 in 1997 and $18,249,000 in 1996) (note 3) 13,872,000 18,297,000
Mortgage-backed securities held-to-maturity 10,000 13,000
Loans receivable, net (notes 4 and 8) 176,790,000 154,444,000
Accrued interest receivable:
Loans and mortgage-backed securities 1,268,000 1,090,000
Investment securities 150,000 206,000
Office properties and equipment, net (note 6) 6,406,000 2,874,000
Stock in Federal Home Loan Bank (FHLB) of Des Moines, at cost 1,762,000 1,259,000
Deferred income taxes (note 9) 536,000 611,000
Other assets (notes 5 and 10) 1,201,000 1,269,000
- --------------------------------------------------------------------------------------------------------------
$ 212,504,000 186,346,000
- --------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------------------------
Liabilities:
Savings deposits (note 7) $ 128,771,000 123,108,000
Borrowings from the FHLB (note 8) 35,250,000 12,250,000
Advance payments by borrowers for property taxes and insurance 1,772,000 1,729,000
Accrued interest payable on savings deposits 137,000 141,000
Accrued expenses and other liabilities 1,506,000 1,989,000
Current income taxes payable (note 9) 401,000 314,000
- --------------------------------------------------------------------------------------------------------------
Total liabilities 167,837,000 139,531,000
- --------------------------------------------------------------------------------------------------------------
Stockholders' equity (notes 1 and 2):
Serial preferred stock, $.01 par; 2,000,000 shares authorized;
none issued or outstanding -- --
Common stock, $.01 par; 10,000,000 shares authorized;
3,026,928 shares issued 30,000 30,000
Additional paid-in capital 29,804,000 29,622,000
Retained earnings, substantially restricted (note 9) 24,567,000 22,756,000
Unearned employee benefits (note 10) (2,524,000) (3,082,000)
Treasury stock; 464,850 shares in 1997 and
177,248 shares in 1996 of common stock at cost (7,210,000) (2,511,000)
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 44,667,000 46,815,000
- --------------------------------------------------------------------------------------------------------------
Commitments (notes 4 and 12)
- --------------------------------------------------------------------------------------------------------------
$ 212,504,000 186,346,000
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended September 30
<TABLE>
<CAPTION>
=====================================================================================================================
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $14,535,000 12,181,000 10,472,000
Investment securities 975,000 1,319,000 1,190,000
Mortgage-backed securities 1,000 2,000 2,000
Certificates of deposit and other 478,000 419,000 625,000
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 15,989,000 13,921,000 12,289,000
- ---------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits (note 7) 6,583,000 6,492,000 6,298,000
Borrowed money 1,596,000 187,000 19,000
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 8,179,000 6,679,000 6,317,000
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 7,810,000 7,242,000 5,972,000
Provision for loan losses (note 4) 285,000 368,000 120,000
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 7,525,000 6,874,000 5,852,000
- ---------------------------------------------------------------------------------------------------------------------
Noninterest income:
Loan and deposit service charges 162,000 130,000 131,000
Loss on sale of investment securities -- -- (4,000)
Other income 57,000 92,000 100,000
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest income 219,000 222,000 227,000
- ---------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Compensation, payroll taxes and fringe
benefits (note 10) 2,172,000 1,665,000 1,445,000
Occupancy expense 418,000 209,000 187,000
Data processing 168,000 151,000 129,000
Federal deposit insurance premiums (note 11) 117,000 1,082,000 283,000
Advertising 146,000 81,000 67,000
Other operating expenses 649,000 584,000 392,000
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest expense 3,670,000 3,772,000 2,503,000
- ---------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 4,074,000 3,324,000 3,576,000
Income taxes (note 8) 1,564,000 1,214,000 1,272,000
- ---------------------------------------------------------------------------------------------------------------------
Net earnings $ 2,510,000 2,110,000 2,304,000
- ---------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.97 0.77 0.83
- ---------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 2,578,957 2,740,759 2,784,906
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended September 30
<TABLE>
<CAPTION>
============================================================================================================================
Net
Additional unrealized loss
Common paid-in Retained on marketable
stock capital earnings equity securities
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1994 $ -- -- 19,291,000 (24,000)
Adoption of SFAS No. 115 -- -- -- 24,000
Sale of common stock, net of offering costs of $821,000 30,000 29,418,000 -- --
Unearned ESOP shares -- -- -- --
Net earnings -- -- 2,304,000 --
Dividend declared ($.07 per share) -- -- (197,000) --
Allocation of ESOP shares -- 58,000 -- --
Change in gain (loss) on available for sale securities -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 30,000 29,476,000 21,398,000 --
Adoption of Recognition and
Retention Plan (RRP) (note 10) 1,000 1,398,000 -- --
Amortization of RRP, net of forfeitures -- -- -- --
Net earnings -- -- 2,110,000 --
Dividend declared ($.28 per share) -- -- (752,000) --
Allocation of ESOP shares -- 124,000 -- --
Purchase 271,223 shares of treasury stock -- -- -- --
Retirement 93,975 shares of treasury stock (1,000) (1,376,000) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 30,000 29,622,000 22,756,000 --
Amortization of RRP, net of forfeitures -- -- -- --
Net earnings -- -- 2,510,000 --
Dividend declared ($.28 per share) -- -- (699,000) --
Allocation of ESOP shares -- 182,000 -- --
Purchase 287,602 shares of treasury stock -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $ 30,000 29,804,000 24,567,000 --
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended September 30
<TABLE>
<CAPTION>
==========================================================================================================================
Net gain
(loss) on Unearned
available-for- employee Treasury
sale securities benefits stock Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1994 -- -- -- 19,267,000
Adoption of SFAS No. 115 2,000 -- -- 26,000
Sale of common stock, net of offering costs of $821,000 -- -- -- 29,448,000
Unearned ESOP shares -- (2,422,000) -- (2,422,000)
Net earnings -- -- -- 2,304,000
Dividend declared ($.07 per share) -- -- -- (197,000)
Allocation of ESOP shares -- 245,000 -- 303,000
Change in gain (loss) on available for sale securities (2,000) -- -- (2,000)
- --------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 -- (2,177,000) -- 48,727,000
Adoption of Recognition and
Retention Plan (RRP) (note 10) -- (1,399,000) -- --
Amortization of RRP, net of forfeitures -- 193,000 (7,000) 186,000
Net earnings -- -- -- 2,110,000
Dividend declared ($.28 per share) -- -- -- (752,000)
Allocation of ESOP shares -- 301,000 -- 425,000
Purchase 271,223 shares of treasury stock -- -- (3,881,000) (3,881,000)
Retirement 93,975 shares of treasury stock -- -- 1,377,000 --
- --------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 -- (3,082,000) (2,511,000) 46,815,000
Amortization of RRP, net of forfeitures -- 274,000 -- 274,000
Net earnings -- -- -- 2,510,000
Dividend declared ($.28 per share) -- -- -- (699,000)
Allocation of ESOP shares -- 284,000 -- 466,000
Purchase 287,602 shares of treasury stock -- -- (4,699,000) (4,699,000)
- --------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 -- (2,524,000) (7,210,000) 44,667,000
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended September 30
<TABLE>
<CAPTION>
==============================================================================================================
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,510,000 2,110,000 2,304,000
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 137,000 50,000 7,000
Provision for loan losses 285,000 368,000 120,000
Provision for losses on real estate owned 3,000 -- --
Amortization of RRP and allocation of ESOP shares 740,000 611,000 303,000
Deferred income taxes 75,000 (403,000) 64,000
(Gain) loss on sales of real estate owned (4,000) (3,000) 1,000
Loss on sales of assets -- -- 5,000
Stock dividend received on FHLB stock -- (24,000) --
Amortization of deferred loan fees (490,000) (397,000) (321,000)
Proceeds from sales of loans held for sale 2,693,000 1,549,000 1,121,000
Origination of loans held for sale (3,137,000) (1,450,000) (1,184,000)
Gain on sale of loans held for sale (23,000) (17,000) (19,000)
Changes in assets and liabilities:
Accrued interest receivable (122,000) (49,000) (307,000)
Other assets 68,000 333,000 (118,000)
Accrued interest payable (4,000) (14,000) 29,000
Accrued expenses and other liabilities (483,000) 1,003,000 118,000
Current income taxes payable 87,000 24,000 133,000
- --------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 2,335,000 3,691,000 2,256,000
- --------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net increase in loans receivable (21,673,000) (23,938,000) (15,451,000)
Purchase of loans receivable -- (882,000) (26,000)
Mortgage-backed securities principal repayments 3,000 4,000 3,000
Maturities of investment securities held-to-maturity 6,456,000 12,751,000 2,560,000
Purchase of investment securities held-to-maturity (2,000,000) (4,541,000) (14,528,000)
Proceeds from sale of investment securities
available-for-sale -- -- 1,870,000
Purchase of FHLB stock (503,000) -- --
Net (increase) decrease in certificates of deposit in
other financial institutions -- 991,000 5,050,000
Net proceeds from sales of real estate owned -- 2,000 --
Purchase of life insurance policies -- -- (1,270,000)
Additions and improvements to real estate owned -- (7,000) --
Purchase of office properties and equipment (3,700,000) (2,259,000) (126,000)
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $(21,417,000) (17,879,000) (21,918,000)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
24
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
=========================================================================================================================
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
<S> <C> <C> <C>
Proceeds from sale of common stock, net of costs of issuance $ -- -- 27,026,000
Net (decrease) increase in NOW, passbook and money
market demand amounts (1,712,000) 139,000 (7,864,000)
Net increase in certificate accounts 7,375,000 1,689,000 6,034,000
Net increase in advance payments by borrowers
for taxes and insurance 43,000 101,000 149,000
Proceeds from Federal Home Loan Bank advances 26,000,000 12,250,000 2,500,000
Repayment of Federal Home Loan Bank advances (3,000,000) -- (2,500,000)
Dividends paid (699,000) (762,000) --
Purchase of treasury stock (4,699,000) (3,881,000) --
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 23,308,000 9,536,000 25,345,000
- -------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash 4,226,000 (4,652,000) 5,683,000
Cash and cash equivalents at beginning of year 6,283,000 10,935,000 5,252,000
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 10,509,000 6,283,000 10,935,000
=========================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 1,401,000 1,594,000 1,061,000
=========================================================================================================================
Cash paid during the year for interest $ 8,168,000 6,505,000 6,268,000
=========================================================================================================================
Supplemental schedule of noncash investing and financing activities:
Conversion of loans to real estate owned $ -- 121,000 63,000
=========================================================================================================================
Conversion of real estate owned to loans $ 51,000 59,000 63,000
=========================================================================================================================
Dividends declared and payable $ 168,000 186,000 197,000
=========================================================================================================================
Issuance of unearned ESOP shares $ -- -- 2,422,000
=========================================================================================================================
Issuance of unearned RRP shares $ -- 1,399,000 --
=========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
================================================================================
(1) Conversion and Acquisition of the Association by the Company
Cameron Financial Corporation (the "Company") was incorporated in
December 1994 for the purpose of becoming the savings and loan holding
company of The Cameron Savings & Loan Association, F.A. (the
"Association") in connection with the Association's conversion from a
federally chartered mutual savings and loan to a federally chartered
stock savings and loan. Pursuant to its Plan of Conversion, on March 31,
1995, the Company issued and sold 3,026,928 shares of its common stock,
in a subscription and community offering to the Association's depositors
and borrowers, the Company's employee stock ownership plan and the
general public. Total proceeds of the offering, net of costs and funding
the ESOP, were approximately $27,026,000. The Company utilized
$14,724,000 of the net proceeds to acquire all of the common stock
issued by the Association in connection with its conversion. The
remaining proceeds were retained by the Company and invested in
government and agency securities.
The acquisition of the Association by the Company was accounted for in a
manner similar to the pooling-of-interests method. Accordingly, the
accounting basis of the assets, liabilities and equity accounts of the
Association remained the same as prior to the conversion and acquisition
and were not adjusted to their fair values, and no purchase accounting
adjustments were recorded. All intercompany accounts and transactions
are eliminated in consolidation.
In order to grant priority to eligible account holders in the event of
future liquidation, the Association, at the time of conversion
established a liquidation account in the amount equal to the
Association's capital as of September 30, 1994 ($19,291,000). In the
event of the future liquidation of the Association, eligible account
holders and supplemental eligible account holders who continue to
maintain their deposit accounts shall be entitled to receive a
distribution from the liquidation account. The total amount of the
liquidation account will be decreased as the balance of the eligible
account holders and supplemental eligible account holders is reduced
subsequent to the conversion, based on an annual determination of such
balances. The Association may not declare or pay a cash dividend to the
Company on, or repurchase any of its common stock if the effect thereof
would cause the retained earnings of the Association to be reduced below
the amount required for the liquidation account. Except for such
restrictions, the existence of the liquidation account does not restrict
the use or application of the Association's retained earnings.
(2) Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
For purposes of the statements of cash flows, all short-term investments
with a maturity of three months or less at date of purchase are
considered cash equivalents. Cash and cash equivalents reflected on the
balance sheet include interest earning deposits of $2,448,000 and
$3,333,000 at September 30, 1997 and 1996, respectively.
(b) Investment Securities
The Company and the Association classify their investment securities as
held-to-maturity, available-for-sale or trading. Held-to-maturity
securities are recorded at amortized cost adjusted for amortization of
premiums and accretion of discounts that are recognized in income using
the interest method over the period to maturity. Available-for-sale and
trading securities are recorded at fair value. Adjustments to record
available-for-sale securities at fair value are reflected, net of tax,
in equity. At September 30, 1997 and 1996, all of the Company's and
Association's investment and mortgage-backed securities are classified
as held-to-maturity.
Gain or loss on the sale of securities is recognized using the specific
identification method.
26
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(c) Provisions for Losses on Loans and Interest Receivable
Provision for losses on loans receivable are based upon management's
estimate of the amount required to maintain an adequate allowance for
losses, relative to the risks in the loan portfolio. The estimate is
based on reviews of the portfolio, including assessment of the carrying
value of the loans to the estimated net realizable value of the related
underlying collateral, considering past loss experience, current
economic conditions and such other factors which, in the opinion of
management, deserve current recognition. The Association is subject to
the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities. As an integral part of
those examinations, the various regulatory agencies periodically review
the Association's allowance for loan losses. Such agencies may require
the Association to recognize changes to the allowance based on their
judgments about information available to them at the time of their
examination.
Accrual of interest income on loans is discontinued for those loans with
interest more than ninety days delinquent or sooner if management
believes collectibility of the interest is not probable. Management's
assessment of collectibility is primarily based on a comparison of the
estimated value of underlying collateral to the related loan and accrued
interest receivable balances.
A loan is considered impaired when it is probable a creditor will be
unable to collect all amounts due both principal and interest -
according to the contractual terms of the loan agreement. When measuring
impairment, the expected future cash flows of an impaired loan are
required to be discounted at the loan's effective interest rate.
Impairment may also be measured by reference to an observable market
price, if one exists, or the fair value of the collateral for a
collateral-dependent loan. Regardless of the historical measurement
method used, the Association measures impairment based on the fair value
of the collateral when the creditor determines foreclosure is probable.
Additionally, impairment of a restructured loan is measured by
discounting the total expected future cash flows at the loan's effective
rate of interest as stated in the original loan agreement.
The Association applies the methods described above to multifamily real
estate loans, commercial real estate loans and restructured loans.
Smaller balance, homogeneous loans, including one- to four-family
residential and construction loans and consumer loans, are collectively
evaluated for impairment.
(d) Deferred Loan Fees and Costs
Mortgage loan origination fees and direct mortgage loan origination
costs are deferred and the net fee or cost is recognized in earnings
using the interest method over the contractual life of the loan. Direct
loan origination costs for other loans are expensed, as such costs are
not material in amount.
(e) Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or fair value. Net unrealized losses
are recognized through a valuation allowance by charges to income. At
September 30, 1997, loans held for sale totaled $466,000. At September
30, 1996, there were no loans held for sale.
27
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(f) Real Estate Owned
Real estate owned includes real estate acquired through, or in lieu of,
loan foreclosure and is carried at the lower of cost or estimated fair
value less estimated cost to sell. Revenue and expenses from operations
and the provision for losses on real estate owned are included in other
operating expense in the accompanying consolidated statements of
earnings.
(g) Office Properties and Equipment
Office properties and equipment are recorded at cost, less accumulated
depreciation. Depreciation is provided on office properties and
equipment using the straight-line method over the estimated useful lives
of the related assets.
(h) Stock in Federal Home Loan Bank (FHLB)
The Association is a member of the FHLB system. As a member, the
Association is required to purchase and hold stock in the FHLB of Des
Moines in an amount equal to the greater of (a) 1% of unpaid residential
loans at the beginning of each year, (b) 5% of FHLB advances, or (c) .3%
of total assets. The Association's investment in such stock is recorded
at cost.
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the difference between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(j) Earnings Per Share
Earnings per share is based upon the weighted average common and common
equivalent shares outstanding, less treasury shares and unallocated ESOP
shares. Stock options and the shares awarded under the RRP (see note 10)
are regarded as common stock equivalents and are therefore considered in
both primary and fully diluted earnings per share calculations. Common
stock equivalents are computed using the treasury stock method.
For 1995, earnings per share is based upon the total number of common
shares outstanding after the conversion and acquisition described above
and are presented as if those shares had been outstanding for the entire
year. The 1995 computation does not reflect the pro forma effect of any
investment income that would have been earned if the net proceeds from
conversion had been received at the beginning of the year.
(k) Use of Estimates
Management of the Association has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
28
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(l) New Account Pronouncements
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," was effective for all
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. This statement provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control.
It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings.
Under the financial-components approach, after a transfer of financial
assets, an entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial
assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets
and liabilities that exist after the transfer. Many of these assets and
liabilities are components of financial assets that existed prior to the
transfer. If a transfer does not meet the criteria for a sale, the
transfer is accounted for as a secured borrowing with pledge of
collateral. The adoption of this statement did not have a material
effect on the consolidated financial statements.
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125," defers the effective date for transfers and
servicing of financial assets and extinguishments of liabilities related
to secured borrowings, repurchase agreements and similar instruments
occurring after December 31, 1996 to those occurring after December 31,
1997.
SFAS No. 128, "Earnings per Share," will be adopted by the Company for
the interim period ending December 31, 1997. This statement establishes
standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common
stock. This statement simplifies the standards for computing EPS
previously found in APB Opinion No. 15, "Earnings per Share," and makes
them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation.
Management believes adoption of SFAS Nos. 127 and 128 will not have a
material effect on the financial position or results of operations, nor
will adoption require additional capital resources.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which requires entities presenting a complete set of financial
statements to include details of comprehensive income that arise in the
reporting period. Comprehensive income consists of net earnings or loss
for the current period and other comprehensive income--expenses, gains,
and losses that bypass the statement of earnings and are reported in a
separate component of equity, i.e., unrealized gains and losses on
certain investment securities. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997.
29
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(3) Investment Securities
A summary, by maturity dates, of investment securities held-to-maturity
at September 30, 1997 follows:
<TABLE>
<CAPTION>
=================================================================================================================
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States government and agency obli-
gations maturing in less than one year $ 3,483,000 14,000 (7,000) 3,490,000
United States government and agency
obligations maturing after one year
but within five years 9,481,000 51,000 (19,000) 9,513,000
United States government and agency
obligations maturing after five
years but within ten years - - - -
- ----------------------------------------------------------------------------------------------------------------
Privately issued bonds maturing in:
2001 908,000 - - 908,000
- -----------------------------------------------------------------------------------------------------------------
Total $ 13,872,000 65,000 (26,000) 13,911,000
=================================================================================================================
A summary, by maturity dates, of investment securities held-to-maturity
at September 30, 1996 follows:
- -----------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
- -----------------------------------------------------------------------------------------------------------------
United States government and agency obli-
gations maturing in less than one year $ 3,988,000 16,000 (1,000) 4,003,000
United States government and agency
obligations maturing after one year
but within five years 12,194,000 41,000 (122,000) 12,113,000
United States government and agency
obligations maturing after five
years but within ten years 500,000 - (4,000) 496,000
Privately issued bonds maturing in:
2001 615,000 41,000 - 656,000
2005 1,000,000 - (19,000) 981,000
- -----------------------------------------------------------------------------------------------------------------
Total $ 18,297,000 98,000 (146,000) 18,249,000
=================================================================================================================
</TABLE>
Proceeds from the sale of investment securities for the year ended
September 30, 1995 totaled $1,870,000, and resulted in gross realized
losses of $53,000 and gross realized gains of $49,000. There were no
sales of investment securities in the years ended September 30, 1996 and
1997.
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(4) Loans Receivable
Loans receivable at September 30 are summarized as follows:
<TABLE>
<CAPTION>
============================================================================================
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Residential real estate loans:
One- to four-family $123,390,000 109,292,000
Multifamily 4,226,000 2,908,000
Held for sale 466,000 --
Construction loans, primarily single family 51,447,000 41,646,000
Land 8,257,000 9,605,000
Commercial real estate 3,403,000 4,322,000
Consumer loans 8,709,000 8,330,000
- --------------------------------------------------------------------------------------------
Total loans receivable 199,898,000 176,103,000
Less:
Loans in process 20,679,000 19,502,000
Deferred loans fees, net 805,000 804,000
Allowance for loan losses 1,624,000 1,353,000
- --------------------------------------------------------------------------------------------
$176,790,000 154,444,000
============================================================================================
</TABLE>
The Association grants residential and commercial real estate and other
consumer and commercial loans primarily in its lending territory which
includes Clay, Platte, and Clinton Counties in Missouri and contiguous
counties. Although the Association has a diversified loan portfolio, a
substantial portion of its borrowers' ability to repay their loans is
dependent upon economic conditions in the Association's lending
territory.
The Association makes contractual commitments to extend credit which are
subject to the Association's credit monitoring procedures. At September
30, 1997, the Association was committed to originate loans receivable
aggregating approximately $5,807,000, including fixed-rate loan
commitments of approximately $1,466,000, with interest rates ranging
from 7.75% to 9.0%. At September 30, 1997, commitments to sell loans
were $828,000. There were no commitments to buy loans.
At September 30, 1997 and 1996, the Association had loans of $604,000
and $725,000, respectively, to various directors, officers and their
families. During 1997, $74,000 of new loans were made and repayments
totaled $181,000. These loans are made subject to the same interest
rates and underwriting standards used to originate loans to other
borrowers of the Association.
31
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
The following is a summary of activity in the allowance for loan losses
for the years ended September 30:
<TABLE>
<CAPTION>
=================================================================================================
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 1,353,000 994,000 876,000
Provision for loan losses 285,000 368,000 120,000
Charge-offs (14,000) (9,000) (2,000)
- -------------------------------------------------------------------------------------------------
Balance at end of year $ 1,624,000 1,353,000 994,000
- -------------------------------------------------------------------------------------------------
</TABLE>
Loans delinquent ninety days or more at September 30, 1997 and 1996 were
approximately $1,010,000 and $1,478,000, respectively, including
nonaccrual loans of approximately $372,000 and $769,000, respectively.
Interest that would have been recognized on nonaccrual loans under their
original terms but for which an allowance has been established amounted
to $21,000 and $40,000 at September 30, 1997 and 1996, respectively. The
amount that was included in income on such loans was $13,000 and $40,000
for the years ended September 30, 1997 and 1996, respectively.
(5) Real Estate Owned
At September 30, 1996, the Association had $70,000 in real estate owned
included in other assets in the accompanying balance sheet. At September
30, 1997, the Association had no real estate owned.
(6) Office Properties and Equipment
At September 30, 1997 and 1996, office properties and equipment
consisted of the following:
<TABLE>
<CAPTION>
==================================================================================================
1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $1,278,000 428,000
Buildings and improvements 4,736,000 127,000
Furniture, fixtures and equipment 649,000 427,000
Construction in progress 22,000 2,105,000
- --------------------------------------------------------------------------------------------------
6,685,000 3,087,000
Less accumulated depreciation 279,000 213,000
- --------------------------------------------------------------------------------------------------
$6,406,000 2,874,000
==================================================================================================
</TABLE>
32
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
The Association completed construction on its new home office building
in Cameron, Missouri in June 1997. Total project costs of the new
building was $4,619,000. In January 1997, the Company purchased a parcel
of land for $850,000 in Liberty, Missouri for the purpose of building a
branch office, which the Association will lease as a branch location,
and for the development and sale of the adjoining lots. It is expected
that the construction costs of the new branch will be $1,000,000 with
completion expected in April 1998. The Company plans to fund the
construction of the Liberty office with existing short-term investment
securities and cash provided from operations.
(7) Savings Deposits
Savings deposits at September 30, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
===================================================================================================================
1997 1996
------------------------ ------------------------
Rate Amount Percent Amount Percent
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance by interest rate:
NOW and super NOW
accounts 0-3.00% $ 4,362,000 3.4% $ 5,294,000 4.3%
Passbook accounts 3.25 12,022,000 9.3 11,179,000 9.1
Money market demand
accounts 3.00-4.89 5,871,000 4.6 7,494,000 6.1
- -------------------------------------------------------------------------------------------------------------------
22,255,000 17.3 23,967,000 19.5
- -------------------------------------------------------------------------------------------------------------------
Certificate accounts 0-3.99 4,000 - 4,000 -
4.00-4.99 208,000 .2 1,280,000 1.0
5.00-5.99 59,302,000 46.1 62,586,000 50.8
6.00-6.99 39,118,000 30.3 25,793,000 21.0
7.00-7.99 5,844,000 4.5 7,389,000 6.0
8.00-8.99 1,868,000 1.5 1,923,000 1.6
9.00 172,000 .1 166,000 .1
- -------------------------------------------------------------------------------------------------------------------
106,516,000 82.7 99,141,000 80.5
- -------------------------------------------------------------------------------------------------------------------
$128,771,000 100.0% $123,108,000 100.0%
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Weighted average interest rate on
savings deposits at September 30 5.49% 5.33%
===================================================================================================================
1997 1996
------------------------ ------------------------
Amount Percent Amount Percent
- -------------------------------------------------------------------------------------------------------------------
Contractual maturity of certificate accounts:
<S> <C> <C> <C> <C>
Under 12 months $ 58,586,000 55.0 $ 49,547,000 50.0%
12 to 24 months 12,741,000 12.0 18,131,000 18.3
24 to 36 months 6,563,000 6.2 6,383,000 6.4
36 to 48 months 3,449,000 3.2 4,506,000 4.5
48 to 60 months 3,660,000 3.4 2,851,000 2.9
Over 60 months 21,517,000 20.2 17,723,000 17.9
- -------------------------------------------------------------------------------------------------------------------
$106,516,000 100.0 $ 99,141,000 100.0%
===================================================================================================================
</TABLE>
33
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
===================================================================================================================
The components of interest expense on savings deposits are as follows for the years ended September 30:
===================================================================================================================
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NOW, super NOW, passbook and money market $ 696,000 691,000 844,000
Certificate accounts 5,886,000 5,801,000 5,454,000
- -------------------------------------------------------------------------------------------------------------------
$6,582,000 6,492,000 6,298,000
===================================================================================================================
</TABLE>
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was approximately $8,248,000 and $9,119,000 at
September 30, 1997 and 1996, respectively. The amount by which
individual certificates of deposit exceed $100,000 are not insured by
the Federal Deposit Insurance Corporation. The Association has pledged
investment securities with an amortized cost of approximately $3,795,000
and $3,170,000 at September 30, 1997 and 1996, respectively, as
additional security on savings deposits.
(8) FHLB Advances
The Association had the following debt outstanding from the Federal Home
Loan Bank of Des Moines at September 30, 1997:
<TABLE>
<CAPTION>
===================================================================================================================
<S> <C> <C>
$3,000,000 advance, interest at 5.78%, due October 1997 $ 3,000,000
$2,000,000 advance, interest at 5.49%, due February 1998 2,000,000
$5,000,000 advance, interest at 5.628%, due April 1998 5,000,000
$1,000,000 advance, interest at 5.860%, due July 1998 1,000,000
$2,000,000 advance, interest at 6.21%, due September 1998 2,000,000
$3,000,000 advance, interest at 6.070%, due January 1999 3,000,000
$1,000,000 advance, interest at 6.75%, due July 1999 1,000,000
$2,000,000 advance, interest at 6.4%, due September 1999 2,000,000
$2,000,000 advance, interest at 6.19%, due January 2000 2,000,000
$5,000,000 advance, interest at 5.55%, due June 2000 5,000,000
$1,000,000 advance, interest at 6.46%, due October 2000 1,000,000
$1,250,000 advance, interest at 5.79%, due December 2000 1,250,000
$1,000,000 advance, interest at 6.36%, due January 2001 1,000,000
$1,000,000 advance, interest at 7.01%, due July 2001 1,000,000
$2,000,000 advance, interest at 6.49%, due December 2001 2,000,000
$1,000,000 advance, interest at 6.43%, due January 2002 1,000,000
$1,000,000 advance, interest at 6.61%, due October 2002 1,000,000
$1,000,000 advance, interest at 6.57%, due December 2002 1,000,000
- -------------------------------------------------------------------------------------------------------------------
$35,250,000
===================================================================================================================
</TABLE>
The advances from the FHLB are collateralized by first mortgage loans.
34
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Scheduled maturities of FHLB advances are as follows:
- --------------------------------------------------------------------------------
Year ending September 30,
1998 $13,000,000
1999 6,000,000
2000 9,250,000
2001 4,000,000
2002 3,000,000
- --------------------------------------------------------------------------------
$35,250,000
================================================================================
(9) Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
=================================================================================================================
Federal State Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended September 30, 1997:
Current $1,355,000 134,000 1,489,000
Deferred 42,000 33,000 75,000
- -----------------------------------------------------------------------------------------------------------------
$1,397,000 167,000 1,564,000
=================================================================================================================
Year ended September 30, 1996:
Current 1,440,000 177,000 1,617,000
Deferred (351,000) (52,000) (403,000)
- -----------------------------------------------------------------------------------------------------------------
$1,089,000 125,000 1,214,000
=================================================================================================================
Year ended September 30, 1995:
Current $1,088,000 120,000 1,208,000
Deferred 47,000 17,000 64,000
- -----------------------------------------------------------------------------------------------------------------
$1,135,000 137,000 1,272,000
=================================================================================================================
</TABLE>
The reasons for the differences between the effective tax rates and the
expected federal income tax rate of 34% are as follows:
<TABLE>
<CAPTION>
===================================================================================================================
Percentage of earnings
before income taxes
-------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected federal income tax rate 34.0% 34.0 34.0
State taxes, net of federal tax benefit 2.6 2.3 2.5
Other, net 1.8 0.1 (0.9)
- -------------------------------------------------------------------------------------------------------------------
Effective income tax rate 38.4% 36.4 35.6
===================================================================================================================
</TABLE>
35
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
===================================================================================================================
Temporary differences which give rise to a significant portion of deferred tax assets and liabilities at
September 30, 1997 and 1996 are as follows:
===================================================================================================================
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued and prepaid expenses $ - 295,000
Accrued compensation 305,000 283,000
Allowance for loan losses 548,000 457,000
Other 8,000 -
- -------------------------------------------------------------------------------------------------------------------
Deferred income tax asset 861,000 1,035,000
- -------------------------------------------------------------------------------------------------------------------
Loan origination fees, net of deferred costs (40,000) (123,000)
FHLB dividends (186,000) (186,000)
Accrued and prepaid expenses (12,000) -
Federal and state taxes related to reversing temporary differences (56,000) (69,000)
Accrued interest on loans originated prior to September 25, 1985 (18,000) (25,000)
Depreciation of fixed assets (13,000) (13,000)
Other - (8,000)
- -------------------------------------------------------------------------------------------------------------------
Deferred income tax liability (325,000) (424,000)
- -------------------------------------------------------------------------------------------------------------------
Net deferred income taxes $ 536,000 611,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
There was no valuation allowance for deferred tax assets at September
30, 1997 or 1996. Management believes that it is more likely than not
that the results of future operations will generate sufficient taxable
income to realize the deferred tax assets.
Prior to 1996, savings institutions that met certain definitional tests
and other conditions prescribed by the Internal Revenue Code were
allowed to deduct, within limitations, a bad debt deduction under either
of two alternative methods: (i) a deduction based on a percentage of
taxable income (most recently 8%), or (ii) a deduction based upon actual
loan loss experience (the Experience Method). On August 20, 1996, the
President signed the Small Business Job Protection Act (the Act) into
law. The Act repealed the bad debt deduction based on a percentage of
taxable income effective for taxable years beginning after December 31,
1995. The Association, therefore, will be limited to the use of the bad
debt deduction computed under the Experience Method for its year ended
September 30, 1997, the first period affected by the Act. The
Association's base year tax bad debt reserve balance of approximately
$4.6 million as of September 30, 1997, will, in future years, be subject
to recapture in whole or in part upon the occurrence of certain events,
such as a distribution to stockholders in excess of the Association's
current and accumulated earnings and profits, a redemption of shares or
upon a partial or complete liquidation of the Association. The
Association does not intend to make distributions to stockholders that
would result in recapture of any portion of its base year bad debt
reserve. Since management intends to use the reserve only for the
purpose for which it was intended, a deferred tax liability of
approximately $1.6 million has not been recorded.
36
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(10) Benefit Plans
Pension and Retirement Plans
The Association has a supplemental retirement plan to provide members of
the Board of Directors with supplemental retirement, disability and
death benefits. The Plan provides benefits for directors or their
beneficiaries after they have completed service to the Association. The
annual benefits are equal to the number of years of service on the board
times $500, paid monthly for ten years following retirement. Expense
under the plan for the years ended September 30, 1997, 1996 and 1995
amounted to $32,000, $29,000 and $24,000, respectively. The Association
purchased life insurance policies to fund its obligations under the plan
in October 1994, which are included in other assets.
Employee Stock Ownership Plan (ESOP)
All employees meeting age and service requirements are eligible to
participate in an ESOP. Under the terms of the ESOP, contributions are
allocated to participants using a formula based upon compensation.
Participants vest over five years.
In connection with the conversion described in note 1, the ESOP
purchased 242,154 shares of Company common stock. The remaining
unamortized cost of such shares purchased is reflected as unearned
employee benefits in the accompanying consolidated balance sheet. On
September 30, 1997, 1996 and 1995, 28,215, 30,605 and 24,330 shares were
allocated to participants, respectively. The fair value of such shares,
$466,000, $425,000 and $303,000, respectively, were charged to expense.
The fair value of the remaining unallocated shares at September 30,
1997, 1996, and 1995 aggregated $3,060,000, $2,761,000 and $3,158,000,
respectively.
Stock Option and Recognition and Retention Plan
The shareholder approved the adoption of a stock option plan and a
recognition and retention plan (RRP) in January 1996.
Under the RRP, common stock aggregating 121,077 shares may be awarded to
certain officers and directors of the Company or the Association. In
January 1996, the Company awarded 95,675 shares with a market value of
$1,399,000. These shares have been reflected as unearned employee
benefits in the accompanying consolidated balance sheet. Participants
vest over five years. As the awards vest, they are reflected as
compensation expense. The amortization of the RRP awards during 1997 and
1996 was $274,000 and $193,000, respectively. The unamortized cost of
the RRP awards at September 30, 1997 and 1996 was $932,000 and
$1,206,000, respectively.
Under the stock option plan, options to acquire 302,692 shares of the
Company's common stock may be granted to certain officers and directors
of the Company or the Association. In January 1996, the Company awarded
options to acquire 186,323 shares of stock. The options enable the
recipients to purchase stock at an exercise price equal to the fair
market value of the stock at the date of the grant ($14.56). The options
vest over the five years following the date of grant. No stock options
were exercised by recipients during 1997 and 1996.
37
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
The Company applies APB 25 and related interpretations in accounting for
the stock option plan. Accordingly, no compensation expense has been
recognized in the accompanying consolidated financial statements. SFAS
No. 123 requires pro forma disclosures for companies that do not adopt
its fair value method of accounting for stock-based employee
compensation. Accordingly, the following pro forma information presents
net income and earnings per share as if the Standard's fair value method
had been used to measure compensation cost for stock options granted.
================================================================================
1997 1996
- --------------------------------------------------------------------------------
Net income as reported $2,510,000 2,110,000
Pro forma net income 2,460,000 2,071,000
Earnings per share as reported .97 .77
Pro forma earnings per share .95 .76
- --------------------------------------------------------------------------------
The fair value of options granted of $2.20 was estimated using the
following weighted-average information: risk-free interest rate of 5.5%,
expected life of four years, expected volatility of stock price of 6%
and expected dividends of 1.5% per year.
(11) Federal Deposit Insurance Premiums
The deposits of the Association are presently insured by the Savings
Association Insurance Fund (SAIF), which together with the Bank
Insurance Fund (BIF), are the two insurance funds administered by the
FDIC. In the third quarter of 1995, the FDIC lowered the premium
schedule for BIF-insured institutions in anticipation of the BIF
achieving its statutory reserve ratio. The reduced premium created a
significant disparity in deposit insurance expense, causing a
competitive advantage for BIF members. Legislation enacted on September
30, 1996 provided for a one-time special assessment of .657% of the
Association's SAIF insured deposits at March 31, 1995. The purpose of
the assessment is to bring the SAIF to its statutory reserve ratio.
Based on the above formula, the Association's SAIF assessment of
$800,000 was recorded in the 1996 consolidated financial statements.
(12) Regulatory Capital Requirements
The Financial Institution Reform, Recovery and Enforcement Act of 1989
(FIRREA) and the capital regulations of the OTS promulgated thereunder
require institutions to have a minimum regulatory tangible capital equal
to 1.5% of total assets, a minimum 3% leverage capital ratio and a
minimum 8% risk-based capital ratio. These capital standards set forth
in the capital regulations must generally be no less stringent than the
capital standards applicable to national banks. FIRREA also specifies
the required ratio of housing-related assets in order to qualify as a
savings institution.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) established additional capital requirements which require
regulatory action against depository institutions in one of the
undercapitalized categories defined in implementing regulations.
Institutions such as the Association, which are defined as well
capitalized, must generally have a leverage (core) capital ratio of at
least 5%, a Tier 1 risk-based capital ratio of at least 6% and a total
risk-based capital ratio of at least 10%. FDICIA also provides for
increased supervision by federal regulatory agencies, increased
reporting requirements for insured depository institutions and other
changes in the legal and regulatory environment for such institutions.
38
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
===============================================================================================================
The Association met all regulatory capital requirements at September 30, 1997, 1996 and 1995. The
Association's actual and required capital amounts and ratios as of September 30, 1997 were as follows:
===============================================================================================================
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
--------------------- ------------------ -------------------
Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital
(to tangible assets) $34,186,000 16.81% $ 3,051,000 1.5% $ - - %
Tier I leverage (core) capital
(to adjusted tangible assets) 34,186,000 16.81 6,102,000 3.0 10,170,000 5.0
Risk-based capital
(to risk-weighted assets) 35,784,000 25.75 11,119,000 8.0 13,899,000 10.0
Tier I leverage risk-based capital
(to risk-weighted assets) 34,186,000 16.81 - - 12,204,000 6.0
===============================================================================================================
</TABLE>
(13) Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
and SFAS No. 119, "Disclosures About Derivative Financial Instruments
and Fair Value of Financial Instruments," require disclosure of
estimated fair values of financial instruments, both assets and
liabilities recognized and not recognized in the consolidated financial
statements. Fair value estimates have been made as of September 30, 1997
based on then current economic conditions, risk characteristics of the
various financial instruments and other subjective factors.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable
to estimate that value:
Cash and Cash Equivalents and Certificates of Deposit
The carrying amounts approximate fair value because of the short
maturity of these instruments.
Investment Securities and Mortgage-backed Securities
The fair values of investment securities and mortgage-backed
securities are estimated based on published bid prices or bid
quotations received from securities dealers.
Certificates of Deposit in Other Financial Institutions
The fair values of certificates of deposit are estimated based on
the static discounted cash flow approach using rates currently
offered for deposits of similar remaining maturities.
Loans Receivable
The fair values of loans receivable are estimated using the
option-based approach. Cash flows consist of scheduled principal,
interest and prepaid principal. Loans with similar characteristics
were aggregated for purposes of these calculations.
39
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Accrued Interest
The carrying amount of accrued interest is assumed to be its
carrying value because of the short-term nature of these items.
Stock in the FHLB
The carrying amount of such stock is estimated to approximate fair
value.
Deposits
The fair values of deposits with no stated maturity are deemed to
be equivalent to amounts payable on demand. The fair values of
certificates of deposit are estimated based on the static
discounted cash flow approach using rates currently offered for
deposits of similar remaining maturities.
FHLB Advances
The fair values of FHLB advances are estimated based on discounted
values of contractual cash flows using the rates currently
available to the Association for advances of similar remaining
maturities. The carrying amount of the advances under the line of
credit approximates fair value due to the short maturity.
Fair value estimates of the Association's financial instruments as of
September 30, 1997 are set forth below:
<TABLE>
<CAPTION>
===================================================================================================================
Carrying Estimated
amount fair value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents and certificates of deposit $ 10,509,000 10,509,000
===================================================================================================================
Investment securities $ 13,872,000 13,911,000
===================================================================================================================
Mortgage-backed securities $ 10,000 10,000
===================================================================================================================
Loans receivable, net of loans in process $176,790,000 180,765,000
===================================================================================================================
Accrued interest receivable $ 1,418,000 1,418,000
===================================================================================================================
Stock in the FHLB $ 1,762,000 1,762,000
===================================================================================================================
Deposits:
Money market and NOW deposits $ 10,233,000 10,233,000
Passbook accounts 12,022,000 12,022,000
Certificate accounts 106,516,000 106,203,000
- -------------------------------------------------------------------------------------------------------------------
Total deposits $128,771,000 128,458,000
===================================================================================================================
FHLB Advances $ 35,250,000 35,241,000
===================================================================================================================
Accrued interest payable $ 137,000 137,000
===================================================================================================================
</TABLE>
40
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Association's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Association's financial instruments,
fair value estimates are based on judgments regarding future loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates. Fair value
estimates are based on existing balance sheet financial instruments
without attempting to estimate the value of anticipated future business
and the value of assets and liabilities that are not considered
financial instruments.
(14) Parent Company Condensed Financial Statements
<TABLE>
<CAPTION>
Condensed Balance Sheets
September 30, 1997 and 1996
===================================================================================================================
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 2,143,000 2,630,000
Investment securities held-to-maturity 5,965,000 9,443,000
Investment in Association 34,186,000 32,928,000
ESOP loan receivable 1,695,000 1,937,000
Office properties and equipment, net 872,000 -
Accrued interest receivable 49,000 -
Other 15,000 97,000
- -------------------------------------------------------------------------------------------------------------------
Total assets $44,925,000 47,035,000
===================================================================================================================
Dividends payable $ 179,000 199,000
Other liabilities 79,000 21,000
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 258,000 220,000
Stockholders' equity 44,667,000 46,815,000
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $44,925,000 47,035,000
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Income Statements
Years ended September 30, 1997 and 1996
===================================================================================================================
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dividend income $ 1,652,000 2,248,000
Interest income 753,000 969,000
Expense (414,000) (510,000)
- -------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of Association 1,991,000 2,707,000
Equity in undistributed earnings (loss) of the Association 519,000 (597,000)
- -------------------------------------------------------------------------------------------------------------------
Net income $ 2,510,000 2,110,000
===================================================================================================================
</TABLE>
41
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Condensed Statements of Cash Flows
Years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
==============================================================================================================
1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by operations:
Net earnings $2,510,000 2,110,000
Amortization (21,000) (31,000)
Change in accrued interest receivable (49,000) -
Change in other assets 82,000 104,000
Change in other liabilities 38,000 (40,000)
Undistributed (earnings) loss of subsidiary, net (519,000) 597,000
- ---------------------------------------------------------------------------------------------------------------
Cash provided by operations 2,041,000 2,740,000
- ---------------------------------------------------------------------------------------------------------------
Cash used by investing activities:
Purchase of investment securities held-to-maturity - (2,042,000)
Proceeds from ESOP note receivable 242,000 241,000
Purchase of office properties and equipment (872,000) -
Maturities of investment securities held-to-maturity 3,500,000 4,000,000
- ---------------------------------------------------------------------------------------------------------------
Cash provided by investing activities 2,870,000 2,199,000
- ---------------------------------------------------------------------------------------------------------------
Cash provided by financing activities:
Purchase of treasury stock 4,699,000) (3,881,000)
Dividends paid (699,000) (752,000)
- ---------------------------------------------------------------------------------------------------------------
Cash used in financing activities 5,398,000) (4,633,000)
- ---------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash $ (487,000) 306,000
===============================================================================================================
Cash and cash equivalents at beginning of period $2,630,000 2,324,000
===============================================================================================================
Cash and cash equivalents at end of period $2,143,000 2,630,000
===============================================================================================================
</TABLE>
Dividends paid by the Company are primarily provided through Association
dividends paid to the Company. At September 30, 1997, the Company had
declared dividends of $179,000 which had not been paid as of year-end.
During 1997, the Association paid dividends of $1,652,000 to the
Company.
42
<PAGE>
CAMERON FINANCIAL CORPORATION
STOCKHOLDER INFORMATION
================================================================================
Annual Meeting
The Annual Meeting of Stockholders will be held at 4:00 p.m., Cameron, Missouri
time, on January 26, 1998, in the Community Room of The Cameron Savings & Loan
Association, F.A., 1304 North Walnut Street, Cameron, Missouri 64429.
Stock Listing
Cameron Financial Corporation common stock is traded on the National Association
of Securities Dealers, Inc. National Market under the symbol "CMRN."
Price Range of Common Stock
The per share price range of the common stock for each quarter since conversion
was as follows:
<TABLE>
<CAPTION>
====================================================================================================================
Fiscal Year 1995 High Low Dividends
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Third Quarter $12.13 $10.50 $ -
Fourth Quarter $15.50 $11.38 $ .07
Fiscal Year 1996
- --------------------------------------------------------------------------------------------------------------------
First Quarter $14.75 $13.50 $ .07
Second Quarter $15.25 $13.75 $ .07
Third Quarter $14.50 $13.50 $ .07
Fourth Quarter $15.25 $13.50 $ .07
Fiscal Year 1997
- --------------------------------------------------------------------------------------------------------------------
First Quarter $16.25 $14.50 $ .07
Second Quarter $17.00 $15.50 $ .07
Third Quarter $18.00 $15.50 $ .07
Fourth Quarter $19.50 $17.00 $ .07
====================================================================================================================
</TABLE>
A $.07 per share dividend was declared by the Board of Directors on September
23, 1997, payable October 27, 1997 to stockholders of record on October 10,
1997. The stock price information set forth in the table above was provided by
the National Association of Securities Dealers, Inc., Automated Quotation
System.
At December 10, 1997, there were 2,564,305 shares of Cameron Financial
Corporation common stock issued and outstanding (including unallocated ESOP
shares) and there were 527 registered holders of record.
Shareholders and General Inquiries Transfer Agent
David G. Just, President Registrar and Transfer Co.
Cameron Financial Corporation 10 Commerce Drive
1304 North Walnut Street Cranford, New Jersey 07016
Cameron, Missouri 64429
(816) 632-2154
43
<PAGE>
Annual and Other Reports
A copy of Cameron Financial Corporation's Annual Report on Form 10-K for the
year ended September 30, 1997, as filed with the Securities and Exchange
Commission, may be obtained without charge by contacting David G. Just,
President and Chief Executive Officer, Cameron Financial Corporation, 1304 North
Walnut Street, Cameron, Missouri 64429.
44
<PAGE>
CAMERON FINANCIAL CORPORATION
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
Company and Association Address
1304 North Walnut Street Telephone: (816) 632-2154
Cameron, Missouri 64429 Fax: (816) 632-2157
Directors of the Board
Herschel Pickett William J. Heavner
Chairman of Cameron Financial Owner, Red X Motors
Corporation, and
The Cameron Savings and Loan Harold D. Lee
Association, F.A., and retired Retired Owner, Lee Auto & Tractor
CEO of The Cameron Savings & NAPA Dealership
Loan Association, F.A.
Jon N. Crouch
David G. Just Manager, Cameron Memorial Airport
President of Cameron Financial Owner, Crouch Aviation
Corporation and Retired Frontier and Continental
The Cameron Savings & Loan Airlines Captain
Association, F.A.
William F. Barker, DDS
Kennith R. Baker Owner, Barker Dental Clinic
Agent, State Farm Insurance
Cameron Financial Corporation Executive Officers
David G. Just Ronald W. Hill
President and Chief Executive Officer Vice President and Treasurer
The Cameron Savings & Loan Association, F.A. Executive Officers
David G. Just Ronald W. Hill
President and Chief Executive Officer Vice President and Treasurer
Stephen D. Hayward Earl T. Frazier
Director of Lending Manager, Liberty Loan Production
Office
Independent Auditors Special Counsel
KPMG Peat Marwick LLP Luse, Lehman, Gorman, Pomerenk & Schick, PC
1000 Walnut, Suite 1600 5335 Wisconsin Avenue, N.W.
Post Office Box 13127 Suite 400
Kansas City, Missouri 64199 Washington, D.C. 20015
45
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of
Percentage of Incorporation
Parent Subsidiary Ownership or Organization
------ ---------- --------- ---------------
<S> <C> <C> <C>
Cameron Financial Corporation The Cameron Savings & Loan 100% Federal
Association, F.A.
The Cameron Savings & Loan The Cameron Savings and Loan 100% Missouri
Association, F.A. Service Corporation
</TABLE>
<PAGE>
Exhibit 23
ACCOUNTANT'S CONSENT
The Board of Directors
Cameron Financial Corporation
We consent to incorporation by reference in the registration statements (Nos.
333-20563 and 333-20643) on Form S-8 of Cameron Financial Corporation of our
report dated November 21, 1997, relating to the consolidated balance sheets of
Cameron Financial Corporation and subsidiaries as of September 30, 1997 and
1996, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the years in the three-year period ended September
30, 1997, which report appears in the September 30, 1997 annual report on Form
10-K of Cameron Financial Corporation.
KPMG Peat Marwick LLP
Kansas City, Missouri
December 23, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form 10-K
and is qualified in its entirety by reference to such Form 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 461,000
<INT-BEARING-DEPOSITS> 10,048,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 13,882,000
<INVESTMENTS-MARKET> 13,921,000
<LOANS> 178,414,000
<ALLOWANCE> 1,624,000
<TOTAL-ASSETS> 212,504,000
<DEPOSITS> 128,771,000
<SHORT-TERM> 35,250,000
<LIABILITIES-OTHER> 3,816,000
<LONG-TERM> 0
0
0
<COMMON> 30,000
<OTHER-SE> 44,637,000
<TOTAL-LIABILITIES-AND-EQUITY> 212,504,000
<INTEREST-LOAN> 14,535,000
<INTEREST-INVEST> 975,000
<INTEREST-OTHER> 479,000
<INTEREST-TOTAL> 15,989,000
<INTEREST-DEPOSIT> 6,583,000
<INTEREST-EXPENSE> 8,179,000
<INTEREST-INCOME-NET> 7,810,000
<LOAN-LOSSES> 285,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,670,000
<INCOME-PRETAX> 4,074,000
<INCOME-PRE-EXTRAORDINARY> 4,074,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,510,000
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
<YIELD-ACTUAL> 8.34
<LOANS-NON> 262,000
<LOANS-PAST> 796,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 9,574,000
<ALLOWANCE-OPEN> 1,353,000
<CHARGE-OFFS> 14,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,624,000
<ALLOWANCE-DOMESTIC> 1,624,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
