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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-25516
CAMERON FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 43-1702410
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
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 10, 1999, was $24,696,646. (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.)
<PAGE>
As of December 10, 1999, there were issued and outstanding 2,079,779
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, 1999.
Part III of Form 10-K - Portions of the Proxy Statement for 2000 Annual
Meeting of Stockholders.
<PAGE>
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. 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 main office located at 1304 North Walnut,
Cameron, Missouri, and three branch offices located in Liberty, Maryville and
Mound City, Missouri. The Association occupied the new main office during June
1997 and the new branch office in Liberty in August 1998. At September 30, 1999,
the Company had total assets of $261.6 million, deposits of $143.7 million, and
shareholders' equity of $40.6 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
2
<PAGE>
main office located in Cameron, Missouri. The Association serves Nodaway County
through its branch office in Maryville, Missouri and Holt County through its
branch office in Mound City, Missouri, and Clay and Platte Counties through its
branch office in Liberty, Missouri. Nearly all of the Association's construction
lending is originated by the Liberty branch 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, most of which it 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, 1999, the Association's net loan portfolio totaled $221.9 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 $227,150
that meet specified criteria may be approved by any three 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.
3
<PAGE>
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, 1999, the maximum amount which the Association
could have lent to any one borrower and the borrower's related entities was
approximately $5.6 million. At September 30, 1999, 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 $4.5 million to a real estate
developer, and was secured by real estate primarily in Clay and Platte Counties,
Missouri and the personal guarantee of the borrower. At September 30, 1999,
these loans were performing in accordance with their terms. See "Regulation -
Federal Regulation of Savings Associations."
4
<PAGE>
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,
--------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ----------------- ------------------ ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family(1) $160,789 65.38% $134,416 65.08% $123,856 61.96% $109,292 62.06% $95,040 65.71%
Multi-family 7,360 2.99 2,943 1.42 4,226 2.11 2,908 1.65 3,181 2.20
Commercial 6,398 2.60 3,243 1.57 3,403 1.70 4,322 2.45 3,759 2.60
Land 14,660 5.96 11,059 5.35 8,257 4.13 9,605 5.46 4,106 2.84
Construction(2) 40,301 16.38 45,654 22.11 51,447 25.74 41,646 23.65 32,956 22.79
-------- -------- -------- -------- -------
Total real estate loans 229,508 93.31 197,315 95.53 191,189 95.64 167,773 95.27 139,042 96.14
-------- -------- -------- -------- -------
Other Loans:
Consumer and Other Loans:
Deposit account 516 0.21 621 0.30 398 0.20 533 0.30 316 0.22
Automobile 3,244 1.32 3,094 1.50 3,302 1.65 3,359 1.91 1,249 0.86
Home equity 4,429 1.80 2,937 1.42 1,904 0.95 2,718 1.54 1,327 0.92
Home improvement 1,154 0.47 1,181 0.57 1,014 0.51 873 0.50 1,387 0.96
Other(3) 7,116 2.89 1,408 0.68 2,091 1.05 847 0.48 1,308 0.90
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans 16,459 6.69 9,241 4.47 8,709 4.36 8,330 4.73 5,587 3.86
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans 245,967 100.00% 206,556 100.00% 199,898 100.00% 176,103 100.00% 144,629 100.00%
====== ====== ====== ====== ======
Less:
Loans in process 21,927 19,730 20,679 19,502 13,253
Deferred loan fees, net 529 700 805 804 642
Allowance for loan losses 1,602 1,521 1,624 1,353 994
-------- -------- -------- -------- ---------
Loans receivable, net $221,909 $184,605 $176,790 $154,444 $ 129,740
======== ======== ======== ======== =========
</TABLE>
- --------------
(1)Includes $147,000, $526,000 and $466,000 of loans held for sale at September
30, 1999, 1998 and 1997, respectively.
(2)Includes $11.5 million, $9.9 million, $6.6 million, $8.3 million and $4.4
million of construction-permanent loans on one-to four-family properties at
September 30, 1999, 1998, 1997, 1996 and 1995, respectively, $2.7 million, $0.8
million, $0.3 million and $1.4 million of construction-permanent loans on
multi-family properties at September 30, 1999, 1998, 1997 and 1996,
respectively, and $0.1 million and $70,000 of construction-permanent loans on
commercial property at September 30, 1999 and 1996, respectively.
(3) Includes $2.7 million of commercial lines of credit and commercial leases
and $2.3 million of recreational vehicle, boat and motorcycle loans at September
30, 1999.
5
<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,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ---------------- ----------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Fixed-Rate Loans:
Real estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family(1) $ 39,792 16.18% $ 27,039 13.09% $ 22,214 11.11% $ 24,312 13.81% $ 24,312 16.70%
Multi-family 2,970 1.21 152 0.07 942 0.47 986 0.56 1,028 0.71
Commercial 330 0.13 349 0.17 571 0.29 604 0.34 354 0.24
Land 9,911 4.03 5,284 2.56 5,180 2.59 6,298 3.58 2,457 1.90
Construction 31,668 12.87 41,821 20.25 50,106 25.07 35,475 20.14 30,369 21.00
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total real estate loans 84,671 34.42 74,645 36.14 79,013 25.07 67,675 38.43 58,354 40.35
Consumer and other 10,311 4.20 5,224 2.53 5,768 2.88 6,033 3.43 3,901 2.70
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total fixed-rate loans 94,982 38.62 79,869 38.67 84,781 42.41 73,708 41.86 62,255 43.05
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Adjustable-Rate Loans:
Real estate:
One- to four-family 120,997 49.19 107,377 51.98 101,642 50.85 84,980 48.26 70,894 49.01
Multi-family 4,390 1.78 2,791 1.35 3,284 1.64 1,922 1.09 2,153 1.49
Commercial 6,068 2.47 2,894 1.4 2,832 1.42 3,718 2.11 3,405 2.35
Land 4,749 1.93 5,775 2.8 3,077 1.54 3,307 1.88 1,649 1.14
Construction 8,633 3.51 3,833 1.86 1,341 0.67 6,171 3.5 2,587 1.79
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total real estate loans 144,837 58.88 122,670 59.39 112,176 56.12 100,098 56.84 80,688 55.78
Consumer and other 6,148 2.50 4,017 1.94 2,941 1.47 2,297 1.3 1,686 1.17
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total adjustable-rate loans 150,985 61.38 126,687 61.33 115,117 57.59 102,395 58.14 82,374 56.95
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans 245,967 100.00% 206,556 100.00% 199,898 100.00% 176,103 100.00% 144,629 100.00%
====== ====== ====== ====== ======
Less:
Loans in process 21,927 19,730 20,679 19,502 13,253
Deferred loan fees, net 529 700 805 804 642
Allowance for loan losses 1,602 1,521 1,624 1,353 994
-------- -------- -------- -------- --------
Loans receivable, net $221,909 $184,605 $176,790 $154,444 $129,740
======== ======== ======== ======== ========
</TABLE>
- --------------------------------
(1)Includes ARM loans aggregating $7.3 million, $2.8 million, $6.9 million and
$7.9 million at September 30, 1999, 1998, 1997 and 1996, respectively, which
have their next interest rate adjustment date five years or more from the dates
indicated.
6
<PAGE>
The following table sets forth the contractual maturity and weighted
average rates of the Association's loan portfolio at September 30, 1999. 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
-------------------------------------------------------------------------------
Multi-family and
One- to Four-Family Commercial Land Construction Consumer and Other
------------------- ----------------- ------------------ ------------------ ------------------
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Weight Amount Weight Amount Weight Amount Weight Amount Weight
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Due During Years Ending
September 30,
- -------------
2000(1) $ 366 8.58% $ 53 8.94% $ 85 8.95% $ 22,943 8.23% $ 990 9.14%
2001 803 8.37 13 9.45 98 8.75 2,502 8.29 1,429 10.17
2002 375 8.28 64 9.43 66 8.81 542 8.04 1,342 10.60
2003 and 2004 2,103 7.97 133 8.53 8,794 8.50 425 8.30 4,454 10.23
2005 to 2009 12,766 7.92 1,460 8.01 1,461 8.18 -- -- 5,844 9.65
2010 to 2024 88,366 7.79 10,857 7.95 4,035 7.97 2,453 8.05 2,313 7.53
2025 and following 56,010 7.52 1,178 7.85 121 7.58 11,436 7.65 87 11.85
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total $160,789 7.71% $ 13,758 7.97% $ 14,660 8.32% $ 40,301 8.06% $ 16,459 9.61%
======== ======== ======== ======== ========
<CAPTION>
Total
-----------------------
Weighted
Average
Amount Weight
------ ------
<S> <C> <C>
Due During Years Ending
September 30,
- -------------
2000(1) $ 24,437 8.28%
2001 4,845 8.87
2002 2,389 9.57
2003 and 2004 15,909 8.91
2005 to 2009 21,531 8.41
2010 to 2024 108,024 7.81
2025 and following 68,832 7.55
--------
Total $245,967 7.95%
========
</TABLE>
The total amount of loans due after September 30, 2000 which have fixed
interest rates is $70.6 million, while the total amount of loans due after such
date which have adjustable interest rates is $150.9 million.
7
<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, 1999, $160.8 million, or 65.4%,
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, most 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
8
<PAGE>
loans which have the interest rates below a pre-determined level into the
secondary markets, servicing released. See "Business - Originations, Purchases
and 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, 1999, the Association had $121.0 million of one- to four-family
ARM loans, or 49.2% 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.
9
<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 recently completed the construction of a building in Liberty which
has been leased to the Association and operated as a full service branch. The
Liberty loan production office has been closed. Vice President Stephen E.
Hayward is the Liberty Branch Manager. 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.
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.
10
<PAGE>
The table below presents information on the Association's construction
and land loans at September 30, 1999:
<TABLE>
<CAPTION>
Outstanding
Loan Percent of
Balance(1) Total
---------- -----
(Dollars in Thousands)
<S> <C> <C>
Speculative $24,205 44.04%
Contract 1,766 3.21
Construction/permanent 14,330 26.07
------- -----
Total construction 40,301 73.33
------- -----
Conventional land 6,025 10.96
Land A&D 8,635 15.71
------- -----
Total land 14,660 26.67
------- -----
Total construction and land $54,961 100.00%
======= ======
</TABLE>
(1) Includes loans in process.
At September 30, 1999, the Association's $40.3 million of construction
loans and $14.7 million of land loans represented 16.4% and 6.0%, respectively,
of total loans receivable. At the same time, the Association's $24.2 million of
speculative construction loans and $8.6 million of land A&D loans represented
9.8% and 3.5%, respectively, of total loans receivable. At September 30, 1998,
the Association's $30.3 million of speculative construction loans and $3.3
million of land A&D loans represented 14.7% and 1.6%, 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
11
<PAGE>
Association. At September 30, 1999, the Association had 9 borrowers for which
speculative construction and land A&D loans outstanding totaled more than $1
million. Each of the foregoing 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, 1999, the Association
had speculative construction and land A&D loans secured by properties in 51
developments of which 6 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. The
Association tracks actual disbursements compared to estimated costs by category
of expense. 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
12
<PAGE>
approval. Additionally, the Association tracks the performance of its builder
customers by 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. Multi-family construction loans also includes individual
loans secured by 5 or more single family dwellings. At September 30, 1999, the
Association had ten such loan outstanding totalling $7.3 million.
Land and Development Loans. At September 30, 1999, the Association had
total land loans of $14.7 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, 1999, $7.4 million, or 3.0%, of the
Association's loan portfolio consisted of multi-family loans and $6.4 million,
or 2.6%, of the Association's loan portfolio consisted of commercial real estate
loans. These balances reflect increases from the prior fiscal year end. At
September 30, 1998, $2.9 million, or 1.4%, of the Association's loan portfolio
consisted of multi-family loans and $3.2 million, or 1.6% of the Association's
loan portfolio consisted of commercial real estate loans. Multi-family loans
also includes individual loans secured by five or more single family dwellings.
The increase in multi-family loans in fiscal 1999 was primarily due to loans
secured by several single-family dwellings. The Association placed greater
emphasis on commercial real estate lending during fiscal 1999.
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
13
<PAGE>
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 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, 1999, the Association's largest multi-family or
commercial real estate loan was a $1.5 million loan, secured by nine
single-family dwellings located in Platte 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 and Other Lending
The Association originates a variety of consumer and other loans,
including home equity loans, automobile loans, recreational vehicle loans, boat
loans, motorcycle loans, home improvement loans, loans secured by deposit
accounts, commercial lines of credit and commercial leases, and other types of
secured and unsecured loans. At September 30, 1999, the Association had $16.5
million, or 6.7% of its loans receivable, in outstanding consumer and other
loans. The Association has recently focused on the expansion of its consumer and
other 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, 1999 the
14
<PAGE>
Association had $5.6 million or 33.9% of its consumer loan portfolio in home
equity and home improvement loans and $3.2 million in auto loans, or 19.7% of
the consumer loan portfolio. Approximately 3.8% of the consumer loans were
unsecured at September 30, 1999. The Association's commercial lines of credit
and commercial leases are made to local businesses and entities such as the
local school district and car dealers and are typically secured by inventory and
equipment.
Consumer and other 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 and other
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 and other lending, the Association's
consumer and other loans delinquent greater than 90 days as a percentage of
total consumer loans was 0.13% at September 30, 1999.
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 1-1/2% 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.
15
<PAGE>
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 1999, the Association originated
$137.9 million of loans, compared to $110.5 million and $100.6 million in fiscal
1998 and 1997, respectively. During recent years, the Association's construction
loan originations have been strong, totaling $49.2 million, $55.4 million, and
$63.5 million, or 35.7%, 50.1%, and 63.1%, of total loan originations in fiscal
1999, 1998 and 1997, 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 1999, conventional mortgage loans originated and sold into the secondary
market totaled $6.5 million.
While the Association has purchased whole loans or loan participations
from time to time, such purchases have been infrequent. In fiscal 1999, the
Association purchased one loan totaling $40,000 from individuals. 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 1999, 1998,
1997 and 1996 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,
1999, there were outstanding first mortgage loan commitments totaling $4.4
million. At that date, the Association also had $40.3 million of construction
loans of which approximately $19.0 million had not yet been disbursed.
16
<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,
----------------------------------------------------
1999 1998 1997 1996 1995
--------- ---------- --------- ---------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate - one- to four-family $ 34,001 24,148 24,074 21,063 15,226
multi-family 4,597 38 660 1,679 201
commercial 2,378 1,593 40 1,085 277
land 3,440 2,421 1,088 2,079 743
construction 13,202 10,683 9,565 9,901 4,678
Non-real estate - consumer 5,117 2,690 1,612 1,278 668
-------- ---------- --------- ---------- ----------
Total adjustable-rate 62,735 41,573 37,039 37,085 21,793
--------- ---------- --------- ---------- ----------
Fixed rate:
Real estate - one- to four-family 21,480 17,583 4,226 4,262 3,489
- commercial -- 121 48 100 --
- land 8,528 3,886 1,407 5,348 734
- construction 35,976 44,681 53,980 47,089 38,909
Non-real estate - consumer 9,160 2,654 3,905 5,735 3,010
--------- ---------- --------- ---------- ----------
Total fixed-rate 75,144 68,925 63,566 62,534 46,142
--------- ---------- --------- ---------- ----------
Total loan originations 137,879 110,498 100,605 99,619 67,935
--------- ---------- --------- ---------- ----------
Purchases:
Real estate - one- to four-family -- 52 -- 882 26
- land 40 14 -- -- --
--------- ---------- --------- ---------- ----------
Total loan purchases 40 66 -- 882 26
Mortgage-backed securities -- -- -- -- --
--------- ---------- --------- ---------- ----------
Total purchases 40 66 -- 882 26
--------- ---------- --------- ---------- ----------
Sales and Repayments:
Real estate - one- to four-family 6,512 7,916 2,731 1,531 1,102
--------- ---------- --------- ---------- ----------
Total loan sales 6,512 7,916 2,731 1,531 1,102
Principal repayments 108,445 95,989 74,079 67,496 48,508
--------- ---------- --------- ---------- ----------
Total sales and repayments 114,967 103,905 76,810 69,027 49,610
Decrease (Increase) in other items:
Loans in process (2,197) 949 (1,177) (6,249) (2,420)
Deferred fees and discounts 171 105 (1) (162) (54)
Allowance for loan losses (81) 102 (271) (359) (118)
--------- ---------- --------- ---------- ----------
Net increase $ 20,845 7,815 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
17
<PAGE>
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.
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, 1999.
<TABLE>
<CAPTION>
Loans Delinquent For
----------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
--------------------------- --------------------------- ---------------------------
Percent Percent Percent
of of of
Loan Loan Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family 12 $ 440 0.27 % 4 $ 171 0.11 16 $ 611 0.38 %
Commercial-multifamily -- -- -- -- -- -- -- -- --
Land -- -- -- 1 63 0.46 1 63 0.46
Construction 1 152 0.38 -- -- -- 1 152 0.38
Consumer and other 6 63 0.38 3 13 0.08 9 76 0.46
-------- -------- ------- -------- -------- -------- -------- -------- --------
Total 19 $ 655 0.27 % 8 $ 247 0.10 27 $ 902 0.37 %
</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.
18
<PAGE>
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family $ 171 $ 721 $ 262 $ 638 $ 349
Multi-family -- -- -- -- --
Commercial -- 34 -- -- 5
Land 63 -- -- -- --
Construction -- 1,044 110 131 206
Consumer and other 13 -- -- -- --
------- ------- ------- ------- -------
Total non-accruing loans 247 1,799 372 769 560
------- ------- ------- ------- -------
Accruing loans delinquent 90 days or more:(2)
One- to four-family -- 870 708 653 716
Multi-family -- 7 -- -- --
Commercial -- -- -- -- --
Land -- -- -- -- --
Construction -- 450 -- -- --
Consumer and other -- 10 88 56 59
------- ------- ------- ------- -------
Total accruing loans delinquent more than 90 days -- 1,337 796 775 709
------- ------- ------- ------- -------
Total non-performing loans 247 3,136 1,168 1,478 1,335
------- ------- ------- ------- -------
Foreclosed assets:
One- to four-family 23 -- -- 70 --
Multi-family -- -- -- -- --
Commercial -- -- -- -- --
Land -- -- -- -- --
Construction -- -- -- -- --
Consumer and other -- 19 12 -- --
------- ------- ------- ------- -------
Total 23 19 12 70 --
------- ------- ------- ------- -------
Total non-performing assets $ 270 $ 3,155 $ 1,180 $ 1,548 $ 1,335
======= ======= ======= ======= =======
Total classified assets(1) $ 8,062 $11,803 $10,754 $ 7,729 $ 3,903
Total non-performing loans as a percentage 0.10 % 1.52% 0.58 % 0.84% 0.92 %
of total loans receivable
Total non-performing assets as a percentage 0.10 % 1.42% 0.56 % 0.83% 0.77 %
of total assets
Total classified assets(1) as a percentage of total 3.08 % 5.32% 5.06 % 4.15% 2.25 %
assets
Interest income that would have been recorded on $ 24 $ 92 $ 21 $ 40 $ 15
non-performing loans if current (3)
Interest income on non-performing loans included in net $ 7 $ 62 $ 13 $ 40 $ 19
income (4)
</TABLE>
- ----------------
<PAGE>
(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 whenthe 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.
19
<PAGE>
The decrease in non-performing loans during fiscal 1999 is primarily
due to increased collection efforts.
Other Loans of Concern. In addition to the non-performing loans and
foreclosed assets set forth in the preceding table, as of September 30, 1999,
there was also an aggregate of $7.8 million 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, 1999, other loans of concern consisted primarily of speculative
construction loans not repaid within the original one-year term and one- to
four-family loans. Speculative construction 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 with 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. Such loans are not classified as
non-performing since they are performing in accordance with current loan
requirements. At September 30, 1999, $5.8 million of speculative construction
loans were included in this category. Management has considered the
Association's non-performing and other loans of concern 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, the Office of Thrift
Supervision ("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,
1999, on a net basis, the Association had classified $2.3 million as
Substandard, none as Doubtful, none as Loss and $5.8 million as Special Mention.
20
<PAGE>
Classified assets at September 30, 1999 were $8.0 million, compared to
$11.8 million at September 30, 1998 and $10.8 million at September 30, 1997. The
majority of the decrease in fiscal 1999 was in the "substandard" category. At
September 30, 1999, no speculative construction loans were classified as
substandard. The decrease in 1999 is primarily due to increased collection
efforts. During fiscal 1998, delinquencies in both the speculative construction
and the one- to four-family portfolio increased. At September 30, 1998, eleven
speculative construction loans had become 90 days delinquent compared to one at
September 30, 1997. The majority of the increase in fiscal 1997 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 in 1997 to classify all speculative construction loans not
paid off during the initial 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. Such loans are not classified as nonperforming since they are
performing in accordance with current loan requirements. Speculative
construction loans classified as "special mention" were $5.8 million, $5.8
million, and $5.9 million at September 30, 1999, 1998 and 1997, respectively.
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, 1999, the Association had a
total allowance for loan losses of $1.6 million representing 628.2% of total
non-performing loans.
21
<PAGE>
The following table sets forth an analysis of the Association's
allowance for loan losses.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,521 $ 1,624 $ 1,353 $ 994 $ 876
Charge-offs:
One- to four-family -- (20) -- -- --
Multi-family -- -- -- -- --
Commercial -- -- -- -- --
Land -- -- -- -- --
Construction -- -- -- -- --
Consumer and other (5) (7) (14) (9) (2)
------- ------- ------- ------- -------
Total charge-offs (5) (27) (14) (9) (2)
------- ------- ------- ------- -------
Recoveries:
One- to four-family -- -- -- -- --
Multi-family -- -- -- -- --
Commercial -- -- -- -- --
Land -- -- -- -- --
Construction -- -- -- -- --
Consumer and other -- -- -- -- --
Total recoveries -- -- -- -- --
Net charge-offs (5) (27) (14) (9) (2)
Additions charged to operations 86 (76) 285 368 120
------- ------- ------- ------- -------
Balance at end of year $ 1,602 $ 1,521 $ 1,624 $ 1,353 $ 994
======= ======= ======= ======= =======
Ratio of net charge-offs during the year to
average loans outstanding during the year 0.002% 0.015% 0.008 % 0.006% 0.002 %
======= ======= ======= ======= =======
Ratio of allowance for loan losses to
non-performing loans at end of year 628.24% 48.50% 139.04 % 91.54% 74.46 %
======= ======= ======= ======= =======
Ratio of allowance for loan losses to total
loans receivable at end of year 0.65% 0.74% 0.81 % 0.77% 0.69 %
======= ======= ======= ======= =======
</TABLE>
22
<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>
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan 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 $ 415 $160,789 65.38% $ 357 $134,416 65.08% $ 345 $123,856 61.96%
Multi-family 21 7,360 2.99 15 2,943 1.42 21 4,226 2.11
Commercial 47 6,398 2.60 31 3,243 1.57 26 3,403 1.70
Land 313 14,660 5.96 261 11,059 5.35 209 8,257 4.13
Construction 489 40,301 16.38 673 45,654 22.11 818 51,447 25.74
Consumer and other 317 16,459 6.69 184 9,241 4.47 205 8,709 4.36
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total $ 1,602 $245,967 100.00% $ 1,521 $206,556 100.00% $ 1,624 $199,898 100.00%
======== ======== ====== ======== ======== ====== ======== ======== ======
<CAPTION>
Percent Percent
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
--------- -------- ----- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
One- to four-family $ 299 $109,292 62.06% $ 255 $ 95,040 65.71%
Multi-family 22 2,908 1.65 16 3,181 2.20
Commercial 33 4,322 2.45 28 3,759 2.60
Land 235 9,605 5.46 79 4,106 2.84
Construction 577 41,646 23.65 503 32,956 22.79
Consumer and other 187 8,330 4.73 113 5,587 3.86
-------- -------- ------ -------- -------- ------
Total $ 1,353 $176,103 100.00% $ 994 $144,629 100.00%
======== ======== ====== ======== ======== ======
</TABLE>
23
<PAGE>
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, 1999 and 1998, the Association's regulatory
liquidity ratio (liquid assets as a percentage of net withdrawable savings
deposits and current borrowings) was 11.9%, and 15.0%, respectively.
The Association has the authority to invest in various types of liquid
assets, including United States 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, 1999, the Company's
certificates of deposit in other financial institutions totaled $1.2 million, or
0.5%, of total assets and investment securities totaled $18.5million, or 7.1% of
total assets. As of such date, the Company also had a $3.6 million investment in
Federal Home Loan Bank ("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.
24
<PAGE>
The following table sets forth the composition of the Company's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------
1999 1998 1997
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 $ -- --% $ 1,994 7.66% $ 3,965 15.17%
Federal agency obligations 17,998 63.83 13,495 51.84 8,999 34.42
Municipal bonds
540 1.92 813 3.12 908 3.47
------- ------ ------- ------ ------- ------
Subtotal 18,538 65.75 16,302 62.62 13,872 53.06
FHLB stock 3,556 12.61 2,013 7.73 1,762 6.74
------- ------ ------- ------ ------- ------
Total investment securities $22,094 78.36 $18,315 70.35 $15,634 59.80
======= ===== ======= ===== ======= =====
and FHLB stock
Average remaining life of investment securities, 4.0 years 3.0 years 1.9 years
excluding FHLB stock and equity securities
Other interest-earning assets:
Cash equivalents $ 4,900 17.38% $ 3,319 12.75% $ 2,909 11.13%
Certificates of deposit in other financial
institutions 1,200 4.26 4,400 16.90 7,600 29.07
------- ------ ------- ------ ------- ------
Total investment portfolio $28,194 100.00% $26,304 100.00% $26,143 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
The composition and maturities of the investment securities portfolio,
excluding FHLB stock and equity securities, are indicated in the following
table.
<PAGE>
<TABLE>
<CAPTION>
At September 30, 1999
---------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over Total
1 Year Years Years 10 Years 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 $ -- $ -- $ -- $ -- $ -- $ --
Federal agency obligations 998 15,500 1,500 -- 17,998 17,646
Municipal bonds 105 435 -- -- 540 540
------- ------- ------- -------- ------- -------
Total investment securities $ 1,103 $15,935 $ 1,500 -- $18,538 $18,186
======= ======= ======= ======== ======= =======
Weighted average yield 6.20 % 5.83 % 6.83 % -- 5.95 %
</TABLE>
25
<PAGE>
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, 1999 was $5,000. 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.
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 $67.7 million from the FHLB of Des Moines and repaid $33.8 million of
maturing advances during fiscal 1999 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
26
<PAGE>
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, 1999, the Association had $19.8
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 liquidity position. In order
to decrease the volatility of its deposits, Cameron Savings imposes penalties on
early withdrawal on its certificates of deposit.
27
<PAGE>
The following table sets forth the savings flows at the Association
during the years indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------
1999 1998 1997
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Opening balance $ 136,622 $ 128,771 $ 123,108
Deposits 197,923 126,953 116,808
Withdrawals 196,156 124,073 115,789
Interest credited 5,348 4,971 4,644
-------- -------- --------
Ending balance $143,737 $136,622 $128,771
======== ======== ========
Net increase $ 7,115 $ 7,851 $ 5,663
======== ======== ========
Percent increase 5.2% 6.1% 4.6%
======== ======== ========
</TABLE>
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,
------------------------------------------------------------------------------
1999 1998 1997
----------------------- ------------------------ ----------------------
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 $ 9,410 6.5% $ 10,777 7.9% 12,022 9.3%
NOW accounts 0.00 - 3.00 11,525 8.0 7,583 5.5 4,362 3.4
Money market accounts 3.00 - 4.89% 12,637 8.8 8,971 6.6 5,871 4.6
-------- ----- ---------- ----- ---------- -----
Total non-certificates 33,572 23.4 27,331 20.0 22,255 17.3
-------- ----- ---------- ----- ---------- -----
Certificates:
2.00 - 3.99% 5 -- 5 -- 4 --
4.00 - 5.99% 73,853 51.4 68,744 50.3 59,510 46.2
6.00 - 7.99% 34,605 24.1 38,530 28.2 44,962 34.9
8.00 - 9.99% 1,702 1.2 2,012 1.5 2,040 1.6
-------- ----- ---------- ----- ---------- -----
Total certificates 110,165 76.6 109,291 80.0 106,516 83.0
-------- ----- ---------- ----- ---------- -----
Total deposits $143,737 100.0% $ 136,622 100.0% $ 128,771 100.0%
======== ===== ========== ===== ========== =====
</TABLE>
28
<PAGE>
The following table shows rate and maturity information for the
Association's certificates of deposit at September 30, 1999.
<TABLE>
<CAPTION>
Certificate accounts 2.00- 4.00- 5.00- 6.00- 7.00- 8.00% Percent
maturing in 3.99% 4.99% 5.99% 6.99% 7.99% or greater Total of Total
quarter ending: ---- ----- ---- ---- ---- ---------- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999 $ 5 $ 10,257 $ 5,901 $ 690 $ -- $ 248 $17,101 15.52 %
March 31, 2000 -- 12,985 4,084 228 456 398 18,151 16.48
June 30, 2000 -- 6,746 3,788 263 810 254 11,861 10.77
September 30, 2000 -- 1,242 8,316 533 1 217 10,309 9.36
December 31, 2000 -- 723 2,550 635 9 154 4,071 3.70
March 31, 2001 -- 357 4,703 377 19 151 5,607 5.09
June 30, 2001 -- 141 869 345 162 47 1,564 1.42
September 30, 2001 -- 579 703 910 130 -- 2,322 2.11
December 31, 2001 -- 579 433 363 80 -- 1,455 1.32
March 31, 2002 -- 69 600 935 27 -- 1,631 1.48
June 30, 2002 -- 33 350 905 23 -- 1,311 1.19
September 30, 2002 -- 58 680 1,210 5 25 1,978 1.80
Thereafter -- 146 6,961 22,144 3,345 208 32,804 29.78
-------- -------- -------- -------- -------- -------- -------- ------
Total $ 5 $ 33,915 $ 39,938 $ 29,538 $ 5,067 $ 1,702 $110,165 100.00 %
======== ======== ======== ======== ======== ======== ======== ======
Percent of total 0.00% 30.79% 36.25% 26.81% 4.60% 1.54% 100.00%
</TABLE>
29
<PAGE>
The following table indicates the amount of the Association's
certificates of deposit and other deposits by time remaining until maturity at
September 30, 1999.
<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 $ 14,724 $ 15,388 $ 18,504 $ 44,162 $ 92,778
Certificates of deposit of $100,000 or more 1,025 1,959 3,253 8,436 14,673
Public funds (1) 1,352 804 413 145 2,714
Total certificates of deposit $ 17,101 $ 18,151 $ 22,170 $ 52,742 $110,165
</TABLE>
- ------------
(1) Deposits from governmental and other public entities, including deposits
greater than $100,000.
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 $67.7 million under FHLB advances during 1999
to fund loan originations and meet short term cash needs. The Association repaid
$33.8 million of maturing advances during 1999. Outstanding balances at
September 30, 1999 were $71.1 million.
30
<PAGE>
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.
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------
1999 1998 1997
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Maximum Balance
FHLB advances $71,101 $40,250 $35,250
Average Balance
FHLB advances 46,725 $37,250 $26,173
<CAPTION>
Years Ended September 30,
---------------------------------
1999 1998 1997
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
FHLB advances $71,101 $37,250 $35,250
======= ======= =======
Weighted average interest rate 5.61% 5.88% 6.02%
</TABLE>
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 unlimited amount in operating subsidiaries engaged solely in activities which
a federal association may engage in directly.
At September 30, 1999, 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, 1999,
the Association's investment in the Service Corporation was $298,000.
31
<PAGE>
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.
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 October 18, 1999. 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, 1999, was $55,000.
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
32
<PAGE>
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, 1999, Cameron Savings' lending
limit under this restriction was $5.6 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 Deposits
The FDIC is an independent federal agency that insures the
deposits, up to prescribed statutory limits, of depository institutions. The
FDIC currently maintains two separate insurance funds: the Bank Insurance Fund
and the Savings Association Insurance Fund. As insurer of Cameron Savings'
deposits, the FDIC has examination, supervisory and enforcement authority over
Cameron Savings.
Cameron Savings' accounts are insured by the Savings Association
Insurance Fund to the maximum extent permitted by law. Cameron Savings pays
deposit insurance premiums based on a risk-based assessment system established
by the FDIC. Under applicable regulations, institutions are assigned to one of
three capital groups that are based solely on the level of an institution's
capital -- "well capitalized," "adequately capitalized," and "undercapitalized"
- -- which are defined in the same manner as the regulations establishing the
prompt corrective action system, as discussed below. These three groups are then
divided into three subgroups which reflect varying levels of supervisory
concern, from those which are considered to be healthy to those which are
considered to be of substantial supervisory concern. The matrix so created
results in nine assessment risk classifications, with rates that until September
30, 1996 ranged from 0.23% for well capitalized, financially sound institutions
with only a few minor weaknesses to 0.31% for undercapitalized institutions that
pose a substantial risk of loss to the Savings Association Insurance Fund unless
effective corrective action is taken.
Under the Deposit Insurance Funds Act, which was enacted on September
30, 1996, the FDIC imposed a special assessment on each depository institution
with Savings Association
33
<PAGE>
Insurance Fund-assessable deposits which resulted in the Savings Association
Insurance Fund achieving its designated reserve ratio. As a result, the FDIC
reduced the assessment schedule for Savings Association Insurance Fund members,
effective January 1, 1997, to a range of 0% to 0.27%, with most institutions,
including Cameron Savings, paying 0%. This assessment schedule is the same as
that for the Bank Insurance Fund, which reached its designated reserve ratio in
1995. In addition, since January 1, 1997, Savings Association Insurance Fund
members are charged an assessment of .065% of Savings Association Insurance
Fund-assessable deposits to pay interest on the obligations issued by the
Financing Corporation in the 1980s to help fund the thrift industry cleanup.
Bank Insurance Fund-assessable deposits will be charged an assessment to help
pay interest on the Financing Corporation bonds at a rate of approximately .013%
until the earlier of December 31, 1999 or the date upon which the last savings
association ceases to exist, after which time the assessment will be the same
for all insured deposits.
The Deposit Insurance Funds Act also contemplates the development of a
common charter for all federally chartered depository institutions and the
abolition of separate charters for national banks and federal savings
associations. It is not known what form the common charter may take and what
effect, if any, the adoption of a new charter would have on the operation of
Cameron Savings.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of Cameron Savings.
Capital Requirements.
The OTS capital regulations require savings institutions to meet three
capital standards: a 1.5% tangible capital standard, a 3.0% leverage (core
capital) standard, and an 8.0% risk-based capital standard. Core capital is
defined as common stockholders' equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, minority interests
in equity accounts of consolidated subsidiaries less intangibles other than
certain mortgage servicing rights ("MSRs") and purchased credit card
relationships. The OTS regulations require that, in meeting the tangible, core
and risk-based capital standards, institutions generally must deduct investments
in and loans to subsidiaries engaged in activities not permissible for a
national bank. In addition, the OTS prompt corrective action regulation provides
that a savings institution that has a leverage capital ratio of less than 4.0%
(3.0% for institutions receiving the highest CAMELS examination rating) will be
deemed to be "undercapitalized" and may be subject to certain restrictions.
34
<PAGE>
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8.0%. In determining the amount of
risk-weighted assets, assets and certain off-balance sheet assets items are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3.0% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified limits, the allowance for loan losses. Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200-basis point increase or
decrease in market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk-based capital requirement. Under
the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios in excess of 12% is exempt from the
interest rate risk component, unless the OTS determines otherwise. The rule also
provides that the OTS may waive or defer an association's interest rate risk
component on a case-by-case basis. Under certain circumstances, a savings
association may request an adjustment to its interest rate risk component if it
believes that the calculated interest rate risk component, as calculated by the
OTS, overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
of the amount as calculated by the OTS. The OTS has postponed the date that the
component will first be deducted from an institution's total capital.
At September 30, 1999, the Association had tangible capital of $35.4
million, or 13.8% of adjusted total assets, which is approximately $31.6 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date. At that date, Cameron Savings had core capital equal to $35.4 million, or
13.8% of adjusted total assets, which is $25.1 million above the minimum
leverage ratio requirement of 4.0% as in effect on that date. At that date,
Cameron Savings had total risk-based capital of $37.0 million (including $35.4
million in core capital and $1.6 million in qualifying supplementary capital)
and risk-weighted assets of $170.5 million (including $7.3 million
35
<PAGE>
in converted off-balance sheet assets); or total capital of 21.7% of
risk-weighted assets. This amount was $23.4 million above the 8% requirement in
effect on that date.
Prompt Corrective Regulatory Action
Each federal banking agency is required to implement a system of prompt
corrective action for institutions that it regulates. The federal banking
agencies have promulgated substantially similar regulations to implement this
system of prompt corrective action. Under the regulations, an institution shall
be deemed to be "well capitalized" if it has a total risk-based capital ratio of
10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a
leverage ratio of 5.0% or more and is not required to meet and maintain a
specific capital level for any capital measure;"adequately capitalized" if it
has a total risk-based capital ratio of 8.0% or more, has a Tier I risk-based
capital ratio of 4.0% or more, has a leverage ratio of 4.0% or more, or 3.0%
under certain circumstances, and does not meet the definition of "well
capitalized"; "undercapitalized" if it has a total risk-based capital ratio that
is less than 8.0%, has a Tier I risk-based capital ratio that is less than 4.0%
or has a leverage ratio that is less than 4.0%, or 3.0% under certain
circumstances; "significantly undercapitalized" if it has a total risk-based
capital ratio that is less than 6.0%, has a Tier I risk-based capital ratio that
is less than 3.0% or has a leverage ratio that is less than 3.0%; and
"critically undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall face various mandatory and discretionary
restrictions on its operations.
At September 30, 1999, Cameron Savings was categorized as "well
capitalized"under the prompt corrective action regulations.
Standards for Safety and Soundness
The federal banking regulatory agencies have adopted regulatory
guidelines for all insured depository institutions relating to internal
controls, information systems and internal audit systems; loan documentation;
credit underwriting; interest rate risk exposure; asset growth; asset quality;
36
<PAGE>
earnings; and compensation, fees and benefits. The guidelines outline the safety
and soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. If the OTS determines that Cameron Savings fails to meet any standard
prescribed by the guidelines, it may require Cameron Savings to submit to the
agency an acceptable plan to achieve compliance with the standard. OTS
regulations establish deadlines for the submission and review of safety and
soundness compliance plans.
Capital Distributions
OTS regulations govern capital distributions by savings institutions,
which include cash dividends, stock repurchases and other transactions charged
to the capital account of a savings institution to make capital distributions.
Under new regulations effective April 1, 1999, a savings institution must file
an application for OTS approval of the capital distribution if either (1) the
total capital distributions for the applicable calendar year exceed the sum of
the institution's net income for that year to date plus the institution's
retained net income for the preceding two years, (2) the institution would not
be at least adequately capitalized following the distribution, (3) the
distribution would violate any applicable statute, regulation, agreement or
OTS-imposed condition, or (4) the institution is not eligible for expedited
treatment of its filings. If an application is not required to be filed, savings
institutions which are a subsidiary of a holding company, as well as certain
other institutions, must still file a notice with the OTS at least 30 days
before the board of directors declares a dividend or approves a capital
distribution.
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 4%.
Penalties may be imposed upon associations for violations of liquid
asset ratio requirement. At September 30, 1999, Cameron Savings was in
compliance with an overall liquid asset ratio of 11.9%.
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
37
<PAGE>
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 are required to meet a qualified thrift lender
test to avoid certain restrictions on their operations. A savings institution
that fails to become or remain a qualified thrift lender shall either convert to
a national bank charter or face the following restrictions on its operations.
These restrictions are: the association may not make any new investment or
engage in activities that would not be permissible for national banks; the
association may not establish any new branch office where a national bank
located in the savings institution's home state would not be able to establish a
branch office; the association shall be ineligible to obtain new advances from
any Federal Home Loan Bank; and the payment of dividends by the association
shall be under the rules regarding the statutory and regulatory dividend
restrictions applicable to national banks. Also, beginning three years after the
date on which the savings institution ceases to be a qualified thrift lender,
the savings institution would be prohibited from retaining any investment or
engaging in any activity not permissible for a national bank and would be
required to repay any outstanding advances to any Federal Home Loan Bank. In
addition, within one year of the date on which a savings association controlled
by a company ceases to be a qualified thrift lender, the company must register
as a bank holding company and follow the rules applicable to bank holding
companies. A savings institution may requalify as a qualified thrift lender if
it thereafter complies with the test.
Currently, the qualified thrift lender test requires that either an
institution qualify as a domestic building and loan association under the
Internal Revenue Code or that 65% of an institution's "portfolio assets" consist
of certain housing and consumer-related assets on a monthly average basis in
nine out of every 12 months. Assets that qualify without limit for inclusion as
part of the 65% requirement are loans made to purchase, refinance, construct,
improve or repair domestic residential housing and manufactured housing; home
equity loans; mortgage-backed securities where the mortgages are secured by
domestic residential housing or manufactured housing; Federal Home Loan Bank
stock; direct or indirect obligations of the FDIC; and loans for educational
purposes, loans to small businesses and loans made through credit cards. In
addition, the following assets, among others, may be included in meeting the
test based on an overall limit of 20% of the savings institution's portfolio
assets: 50% of residential mortgage loans originated and sold within 90 days of
origination; 100% of consumer loans; and stock issued by Freddie Mac or Fannie
Mae. Portfolio assets consist of total assets minus the sum of goodwill and
other intangible assets, property used by the savings institution to conduct its
business, and liquid assets up to 20% of the institution's total assets. At
September 30, 1999, Cameron Savings was in compliance with the qualified thrift
lender test.
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Community Reinvestment Act
Savings associations are required to follow the provisions of the
Community Reinvestment Act of 1977, which requires the appropriate federal bank
regulatory agency, in connection with its regular examination of a savings
association, to assess the savings association's record in meeting the credit
needs of the community serviced by the savings associations, including low and
moderate income neighborhoods. The regulatory agency's assessment of the savings
association's record is made available to the public. Further, an assessment is
required of any savings associations which has applied, among other things, to
establish a new branch office that will accept deposits, relocate an existing
office or merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution. Cameron Savings
received a "satisfactory" rating as a result of its most recent examination.
Activities of Associations and Their Subsidiaries
A savings association may establish operating subsidiaries to engage in
any activity that the savings association may conduct directly and may establish
service corporation subsidiaries to engage in certain pre-approved activities
or, with approval of the OTS, other activities reasonably related to the
activities of financial institutions. When a savings association establishes or
acquires a subsidiary or elects to conduct any new activity through a subsidiary
that the association controls, the savings association must notify the FDIC and
the OTS 30 days in advance and provide the information each agency may, by
regulation, require. Savings associations also must conduct the activities of
subsidiaries in accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices. Based upon that determination, the
FDIC or the OTS has the authority to order the savings association to divest
itself of control of the subsidiary. The FDIC also may determine by regulation
or order that any specific activity poses a serious threat to the Savings
Association Insurance Fund. If so, it may require that no Savings Association
Insurance Fund member engage in that activity directly.
Transactions with Affiliates
Savings associations must comply with Sections 23A and 23B of the
Federal Reserve Act relative to transactions with affiliates in the same manner
and to the same extent as if the savings association were a Federal Reserve
member bank. A savings and loan holding company, its subsidiaries and any other
company under common control are considered affiliates of the subsidiary savings
association under the Home Owners Loan Act. Generally, Sections 23A and 23B
limit the extent to which the insured association or its subsidiaries may engage
in certain covered transactions with an affiliate to an amount equal to 10% of
the institution's capital and surplus and place an aggregate limit on all
transactions with affiliates to an amount equal to 20% of capital and surplus,
and require that all transactions be on terms substantially the same, or at
least as favorable to the
39
<PAGE>
institution or subsidiary, as those provided to a non-affiliate. The
term"covered transaction" includes the making of loans, the purchase of assets,
the issuance of a guarantee and similar types of transactions.
Any loan or extension of credit by Cameron Savings to an affiliate must
be secured by collateral in accordance with Section 23A.
Three additional rules apply to savings associations. First, a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies. Second, a savings association may not purchase or invest insecurities
issued by an affiliate, other than securities of a subsidiary. Third, the OTS
may, for reasons of safety and soundness, impose more stringent restrictions on
savings associations but may not exempt transactions from or otherwise abridge
Section 23A or 23B. Exemptions from Section 23A or 23B may be granted only by
the Federal Reserve, as is currently the case with respect to all FDIC-insured
banks.
Cameron Savings' authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by those persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
loans be made on terms and conditions substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment.
Regulation O also places individual and aggregate limits on the amount of loans
Cameron Savings may make to those persons based, in part, on Cameron Savings'
capital position, and requires certain board approval procedures to be followed.
The OTS regulations, with certain minor variances, apply Regulation O to savings
institutions.
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.
Federal law and regulation generally prohibit a savings and loan
holding company, without prior OTS approval, from acquiring more than 5% of the
voting stock of any other savings association or savings and loan holding
company or controlling the assets thereof. They also prohibit, among other
things, any director or officer of a savings and loan holding company, or any
individual who owns or controls more than 25% of the voting shares of the
Company from acquiring control of any savings association not a subsidiary of a
savings and loan holding company, unless the acquisition is approved by the OTS.
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Until recently, a unitary savings and loan holding company was not
restricted as to the types of business activities in which it could engage,
provided that its subsidiary savings association continued to be a qualified
thrift lender. Recent legislation, however, restricts unitary saving and loan
holding companies not existing or applied for before May 4, 1999 to activities
permissible for a financial holding company as defined under the legislation,
including insurance and securities activities, and those permitted for a
multiple savings and loan holding company as described below. The Company has
certain grandfather rights under this legislation. Upon any non-supervisory
acquisition by the Company of another savings association as a separate
subsidiary, the Company would become a multiple savings and loan holding company
and would have extensive limitations on the types of business activities in
which it could engage. The Home Owner's Loan Act limits the activities of a
multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for the bank holding companies
under Section 4(c)(8) of the Bank Holding Company Act, provided the prior
approval of the Office of Thrift Supervision is obtained, and to other
activities authorized by Office of Thrift Supervision regulation. Multiple
savings and loan holding companies are generally prohibited from acquiring or
retaining more than 5% of a non-subsidiary company engaged in activities other
than those permitted by the Home Owners. Loan Act.
The activities authorized by the Federal Reserve Board as permissible
for bank holding companies also must be approved by the OTS prior to being
engaged in by a multiple savings and loan holding company.
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."
Federal Securities Law
The stock of the Company is registered with the Securities and Exchange
Commission ("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.
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.
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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, 1999, 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, 1999, Cameron Savings had $3.6
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 6.94% and were
6.34% for fiscal year 1999.
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.
For the year ended September 30, 1999, dividends paid by the FHLB of
Des Moines to the Association totaled $153,000, compared to $130,000 received in
fiscal year 1998.
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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. The new rules eliminated 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, 1999, the Association's bad debt reserve subject to recapture over
a six year period totaled approximately $240,000. The Association has
established a deferred tax liability of approximately $82,000 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 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.
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
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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 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
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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, 1999, the Association and its subsidiary had a total
of 67 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 50, 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 37, is the Branch Manager of the
office in Liberty, Missouri. 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.
Earl Frazier. Mr. Frazier, age 64, was the manager of the loan
production office in Liberty, Missouri. In that capacity, Mr. Frazier was
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. Mr. Frazier retired from
the Association effective January 31, 1999.
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Item 2. Description of Property
-----------------------
The Association operates from four full-service facilities. The
following table sets forth certain information with respect to the offices of
the Association and its subsidiary at September 30, 1999.
<TABLE>
<CAPTION>
Approximate Net Book Value as
Date Square of September 30,
Location Acquired Title Footage 1999
-------- -------- ----- ------- ----
<S> <C> <C> <C> <C>
Main Office 1993 Owned 25,942 $4,126,000
1304 North Walnut Street
Cameron, MO
Branch Offices
115 East Fourth Street 1994 Leased 1,311 7,000
Maryville, MO (expires 2003)
702 State Street 1992 Leased 900 3,000
Mound City, MO (expires
2000)(1)
1580 A Highway 1997 Owned 7700 1,136,000
Liberty, MO
Additional Property
309 North Main Street 1997 Owned 4,040 49,000
Cameron, MO (2)
</TABLE>
- ----------------
(1) Subject to option to extend for three years.
(2) This property is currently leased to a third party through December 31,
1999.
The Association's accounting and record-keeping activities are maintained
in house with a client-server, PC based system.
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,
1999.
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PART II
-------
Item 5. Market for the Registrant's Common Stock and Related Security Holder
--------------------------------------------------------------------
Matters
-------
Page 43 of the attached 1999 Annual Report to Shareholders is herein
incorporated by reference.
Item 6. Selected Financial Data
-----------------------
Pages 3 to 4 of the attached 1999 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 17 of the attached 1999 Annual Report to Shareholders are
herein incorporated by reference.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Pages 18 through 42 of the attached 1999 Annual Report to Shareholders are
herein incorporated by reference.
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 24, 2000, 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 24, 2000, except for
information contained under the heading "Report of the Compensation
47
<PAGE>
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 24, 2000, 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
24, 2000, 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.
48
<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, 1999, is incorporated by reference
in this Form 10-K Annual Report as Exhibit 13.
Pages in
Annual
Annual Report Section Report
--------------------- ------
Report of Independent Auditors 18
Consolidated Balance Sheets at September 30, 1999 and 1998 19
Consolidated Statements of Earnings for the Years ended
September 30, 1999, 1998 and 1997 20
Consolidated Statements of Stockholders' Equity for the Years ended 21
September 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years ended September
30, 1999, 1998 and 1997 22-23
Notes to Consolidated Financial Statements 24-42
(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.
49
<PAGE>
(a) (3) Exhibits:
------------------
Reference to
Regulation Prior Filing or
S-K Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
2 Plan of acquisition, reorganization, None
arrangement, liquidation or succession
3.1 Certificate of Incorporation *
3.2 Bylaws ***
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 *
10.7 Severance Agreement of Stephen D. Hayward ****
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
50
<PAGE>
Reference to
Regulation Prior Filing or
S-K Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
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
- -------------------
* 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.
*** Filed December 29, 1997, as exhibits to the Registrant's Form 10-K
Annual Report for the fiscal year ended September 30, 1997. Such previously
filed document is hereby incorporated herein by reference in accordance with
Item 601 of Regulation S-K.
**** Filed December 29, 1998, as exhibits to the Registrant's Form 10-K
Annual Report for the fiscal year ended September 30, 1998. Such previously
filed document is 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, 1999.
51
<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 27, 1999 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/Dennis E. Marshall
---------------- ---------------------
David G. Just, President Dennis E. Marshall
Chief Executive Officer and Director Director
Date: December 27, 1999 Date: December 27, 1999
----------------- -----------------
By: /s/Kennith R. Baker By: /s/ William J. Heavner
------------------- ----------------------
Kennith R. Baker, Secretary and William J. Heavner, Director
Director
Date: December 27, 1999 Date: December 27, 1999
----------------- -----------------
By: /s/Harold D. Lee By: /s/William F. Barker
---------------- --------------------
Harold D. Lee, Director William F. Barker, Director
Date: December 27, 1999 Date: December 27, 1999
----------------- -----------------
<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 27, 1999 Date: December 27, 1999
----------------- -----------------
CAMERON FINANCIAL CORPORATION
1999
ANNUAL
REPORT
[GRAPHIC-CFC LOGO]
<PAGE>
Table of Contents
Page
President's Message 1
General Information 2
Selected Consolidated Financial Information and Other Data of the Company 3
Management's Discussion and Analysis of Financial Condition and
Results of Operations 5
Consolidated Financial Statements 18
Stockholder Information 43
Corporate Information 44
<PAGE>
[LETTERHEAD CAMERON FINANCIAL CORPORATION]
Holding Company for The Cameron Savings & Loan Association, F.A.
- --------------------------------------------------------------------------------
December 28, 1999
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 fifth annual report.
The fiscal year ended September 30, 1999 was eventful. The Association
completed its second full year in the new home office building in Cameron
and its first full year in the new full-service branch office in Liberty,
Missouri. The Cameron Savings and Loan Service Corporation's Specialized
Investments Division, a full-service brokerage office, also completed its
first year. These events have positioned the Association for future growth
opportunities.
The 1999 fiscal year was also filled with challenges. Declining interest
rates with narrowing spreads, the related mortgage refinancing activity,
the additional overhead of a new office, the startup costs of a new
venture, preparation for the Year 2000 event, and conversion from an
out-sourced data processing to an in-house system all contributed to a
reduction of net earnings to $1.9 million from $2.3 million reported the
previous year. Diluted earnings per share were $0.95 for both fiscal 1999
and fiscal 1998. During the fiscal year, 298,553 shares of Cameron
Financial Corporation common stock were repurchased. Growth accelerated
during the year. Assets increased $40 million to nearly $262 million, net
loans receivable increased more than $37 million to nearly $222 million,
and deposits increased over $7 million to nearly $144 million.
The Association has made its preparation for Year 2000. Y2K mission
critical areas were tested and renovated or replaced. Y2K and disaster
contingency plans were updated and tested. Testing and updating are
scheduled to continue through critical dates of the new millennium.
Your Board and management remain committed to building strong shareholder
value. The additional products and facilities that have been installed have
come at a cost, but have also positioned the Association for opportunities
in the future. We continue to be a financial institution that emphasizes
financial relationships, and we are committed to our customers and to the
communities we serve.
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
P.O. Box 555
Cameron, MO 64429
(816) 632-2154
<PAGE>
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, the branch office building in Liberty, Missouri, and
investment securities in United States government 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-charted
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. The Federal Deposit Insurance Corporation (FDIC)
insures its deposits up to the maximum allowable amount. The Association serves
the financial needs of its customers throughout northwestern Missouri through
its main office located at 1304 North Walnut, Cameron, Missouri, and three
branch offices located in Liberty, Maryville, and Mound City.
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 Federal Home Loan Bank (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>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
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 the Annual Report.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected financial condition data:
Total assets $ 261,553 221,521 212,504 186,346 173,077
Loans receivable, net 221,909 184,605 176,790 154,444 129,740
Investment securities 18,543 16,309 13,882 18,310 26,490
Cash and cash equivalents 4,900 3,319 2,909 3,783 3,315
Certificates of deposit in other financial
institutions 1,200 4,400 7,600 2,500 8,611
Savings deposits 143,737 136,622 128,771 123,108 121,280
FHLB advances 71,101 37,250 35,250 12,250 --
Total stockholders' equity 40,624 43,473 44,667 46,815 48,727
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(In thousands, except share information)
<S> <C> <C> <C> <C> <C>
Selected operations data:
Total interest income $ 17,643 17,057 15,989 13,921 12,289
Total interest expense 9,992 9,404 8,179 6,679 6,317
----------- ----------- ----------- ----------- -----------
Net interest income 7,651 7,653 7,810 7,242 5,972
Provision for loan losses 86 (76) 285 368 120
----------- ----------- ----------- ----------- -----------
Net income after provision
for loan losses 7,565 7,729 7,525 6,874 5,852
----------- ----------- ----------- ----------- -----------
Loan fees and deposit service charges 341 235 162 130 131
Gain (loss) on sales of investment
securities 5 -- -- -- (4)
Other income 140 107 57 92 100
----------- ----------- ----------- ----------- -----------
Total noninterest income 486 342 219 222 227
----------- ----------- ----------- ----------- -----------
Total noninterest expense 4,909 4,390 3,670 3,772 2,503
Earnings before income taxes 3,142 3,681 4,074 3,324 3,576
Income taxes 1,205 1,384 1,564 1,214 1,272
----------- ----------- ----------- ----------- -----------
Net earnings $ 1,937 2,297 2,510 2,110 2,304
=========== =========== =========== =========== ===========
Net earnings per share:
Basic $ 0.95 0.97 0.99 0.77 0.83
Diluted 0.95 0.95 0.98 0.77 0.83
=========== =========== =========== =========== ===========
</TABLE>
(Footnotes on the following page)
3
<PAGE>
<TABLE>
<CAPTION>
As of and for the year ended September 30,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Selected financial ratios and other data:
Performance ratios:
Return on total assets (ratio of earnings
to average total assets) 0.83 % 1.05 1.25 1.20 1.45
Return on equity (ratio of earnings to
average equity) 4.71 5.11 5.48 4.43 6.62
Interest rate spread (1):
Average during period 2.66 2.70 2.93 2.78 2.71
End of period 2.46 2.57 2.62 2.71 2.35
Net interest margin (2) 3.46 3.69 4.08 4.23 3.84
Dividend payout ratio 41.05 29.47 28.87 36.36 8.43
Ratio of noninterest expense to average
total assets 2.10 2.02 1.83 2.14 1.57
Ratio of noninterest income to average
total assets 0.21 0.16 0.11 0.13 0.14
Ratio of average interest-earning assets
to average interest-bearing liabilities 117.72 121.97 126.82 137.06 127.79
Efficiency ratio (5) 60.37 54.91 45.71 50.54 40.35
=========== =========== =========== =========== ===========
Asset quality ratios:
Nonperforming loans to total loans
receivable at end of period 0.10 1.52 0.58 0.84 0.92
Allowance for loan losses to non-
performing loans 628.24 48.50 139.04 91.54 74.46
Allowance for loan losses to total loans
receivable 0.65 0.74 0.81 0.77 0.69
Nonperforming assets to total assets at
end of period 0.10 1.42 0.56 0.83 0.77
Classified assets to total assets (3) 3.08 5.32 5.06 4.15 2.26
Ratio of net charge-offs to average
loans receivable 0.002 0.015 0.008 0.006 0.002
=========== =========== =========== =========== ===========
Capital ratios (4):
Equity to total assets at end of period 15.53 19.59 21.03 25.12 28.15
Average equity to average assets 17.61 20.61 22.88 27.06 21.96
=========== =========== =========== =========== ===========
Other data:
Number of full-service offices 4 4 4 3 3
Number of loan production offices -- -- 1 1 1
Real estate loan originations (in
thousands) $ 123,602 105,220 95,088 92,606 64,257
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
(1) Interest rate spread represents the difference between weighted average
yield on interest earning assets and the weighted average rate on
interest-bearing liabilities.
(2) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(3) Includes assets designated as Special Mention.
(4) 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."
(5) The efficiency ratio represents total noninterest expense divided by net
interest income and total noninterest income, excluding gain on sale of
investments.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report on Form 10-K may contain certain forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations, and business of the Company that are subject to various factors
which could cause actual results to differ materially from these estimates.
These factors include, but are not limited to, general economic conditions,
changes in interest rates, deposit flows, loan demand, real estate values, and
competition; changes in accounting principles, policies, or guidelines; changes
in legislation or regulations; and other economic, competitive, governmental,
regulatory, and technical factors affecting the Company's operations pricing,
products, and services.
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 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 operations 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. 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 commissions from sales by the Association's
service corporation. In September 1988, the Association's service corporation
started a full service brokerage service. This will allow the Association to
compete more effectively with other financial services companies. Noninterest
expense consists primarily of employee compensation, occupancy expense, data
processing, federal insurance premiums, advertising, real estate-owned
operations, and other expenses. The Company's operating results are
significantly affected by general economic and competitive conditions, in
particular, changes in market interest rates, government policies, and actions
by regulatory authorities.
Financial Condition
Total assets increased $40.0 million, or 18.07%, to $261.6 million at September
30, 1999 from $221.5 million at September 30, 1998. The increase was primarily
due to an increase of $37.3 million in net loans receivable and an $1.5 million
increase in FHLB stock, which was funded by an increase in FHLB advances of
$33.9 million and an increase of $7.1 million in savings deposits.
<PAGE>
Net loans receivable increased by $37.3 million, or 20.21%, to $221.9 million at
September 30, 1999 from $184.6 million at September 30, 1998 primarily due to a
$26.4 million increase in one- to four-family permanent mortgage loans and a
$7.2 million increase in consumer loans, net of loans in process. The increase
in mortgage loans reflects $30.0 million and the increase in consumer loans
reflects $7.2 million.
Investment securities, certificates of deposits in other financial institutions,
and cash equivalents increased $615,000, or 2.56%, to $24.6 million at September
30, 1999 from $24.0 million at September 30, 1998.
5
<PAGE>
Savings deposits increased $7.1 million, or 5.21%, to $143.7 million at
September 30, 1999 from $136.6 million at September 30, 1998. Of the $7.1
million increase in deposits, $5.9 million, or 83.10%, occurred at the new
branch office located in Liberty, Missouri, which opened in August 1998. FHLB
advances increased $33.9 million, or 90.88%, to $71.1 million at September 30,
1999 from $37.3 million at September 30, 1998.
Total stockholders' equity decreased by $2.8 million, or 6.55%, to $40.6 million
at September 30, 1999 from $43.5 million at September 30, 1998. Earnings for the
year provided a $1.9 million increase, which was offset by the purchase of
298,553 shares of treasury stock for $4.6 million, the declaration of dividends
of $772,000, and the amortization of the Recognition and Retention Plan (RRP)
and unearned employee stock ownership plan (ESOP) shares, aggregating $631,000.
The Association's capital level exceeds all of the capital requirements imposed
by federal law. The Office of Thrift Supervision (OTS) regulations generally
provide that an institution before and after a proposed capital distribution
remains well-capitalized and, like the Association has not been notified of a
need for more than normal supervision, could, after prior notice, but without
approval by OTS, make capital distributions during the calendar year of up to
100% of its net income to date during the calendar year plus retained net income
for the two prior years. Any additional capital distribution would require prior
regulatory approval.
The Association declared and paid dividends to the Company of $1,837,000 in
fiscal year 1999. The Association has also notified OTS of its plan to declare
an additional $364,000 dividend to Cameron Financial in December 1999. Those
dividends approximate the Association's net income from July 1, 1998 through
September 30, 1999. Those funds will be available to the Company to use for
stock repurchases, dividends to the Company's shareholders, and for other
corporate purposes.
Results of Operations
The Company's results of operations depend primarily on the level of net
interest income and noninterest income and its control of operating expense. 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 underwriting fees on
loans, fees charged on transaction accounts, and fees charged for delinquent
payments received on mortgage and consumer loans. In addition, noninterest
income is derived from activities of the Association's wholly owned subsidiary,
which engages in the sale of various insurance and other investment 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 yield. The amount of
interest income resulting from recognition of loan fees was $400,000, $516,000,
and $490,000 for the years ended September 30, 1999, 1998 and 1997,
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. Nonaccruing loans have been included as loans carrying a
zero yield.
6
<PAGE>
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------------------------------------------
1999 1998
--------------------------------- -----------------------------------
Average Interest Interest Average Interest 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) $ 197,639 16,355 8.28 % $ 180,671 15,523 8.59 %
Investment securities 16,858 983 5.83 15,553 951 6.11
Certificates of deposit 2,338 118 5.05 6,430 356 5.54
Other interest bearing deposits 2,147 35 1.63 2,531 97 3.83
FHLB stock 2,393 152 6.35 1,936 130 6.71
-------- -------- --------- -------
Total interest-earning assets (1) 221,375 17,643 7.97 207,121 17,057 8.24
-------- ------ ------- -----
Noninterest earning assets 12,058 11,115
--------- ---------
Total average assets $ 233,433 $ 218,236
========= =========
Passbook accounts $ 11,251 367 3.26 $ 10,437 347 3.32
NOW and money market accounts 20,070 707 3.52 14,234 465 3.27
Certificates 109,727 6,189 5.64 107,814 6,342 5.88
FHLB advances 47,005 2,729 5.81 37,327 2,250 6.03
--------- ------- --------- --------
Total interest-bearing liabilities 188,053 9,992 5.31 169,812 9,404 5.54
-------- ------ -------- -----
Noninterest bearing liabilities 4,262 3,141
--------- ---------
Total average liabilities $ 192,315 $ 172,953
========= =========
Net interest income $ 7,651 $ 7,653
======== ========
Net interest rate spread (2) 2.66 % 2.70 %
======= =====
Net interest-earning assets $ 33,322 $ 37,309
========= =========
Net interest margin (3) 3.46 % 3.69 %
======= ======
Average interest-earning assets to
average interest-bearing liabilities 117.72 % 121.97 %
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------
1997
------------------------------------
Average Interest Interest
outstanding earned/ yield/
balance paid rate
------- ---- ----
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $ 167,051 14,535 8.70
Investment securities 15,707 976 6.21
Certificates of deposit 5,036 285 5.66
Other interest bearing deposits 2,382 92 3.86
FHLB stock 1,454 101 6.95
--------- -------
Total interest-earning assets (1) 191,630 15,989 8.34
------- -------
Noninterest earning assets 8,659
---------
Total average assets $ 200,289
=========
Passbook accounts $ 10,834 346 3.19
NOW and money market accounts 12,498 348 2.78
Certificates 101,596 5,889 5.80
FHLB advances 26,173 1,596 6.10
--------- -------
Total interest-bearing liabilities 151,101 8,179 5.41
------- -------
Noninterest bearing liabilities 3,356
---------
Total average liabilities $ 154,457
=========
Net interest income $ 7,810
=======
Net interest rate spread (2) 2.93
====
Net interest-earning assets $ 40,529
==========
Net interest margin (3) 4.08
=====
Average interest-earning assets to
average interest-bearing liabilities 126.82%
======
</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 spread at the
dates indicated.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average yield on:
Loans receivable 7.80 % 8.35 8.54
Investment securities 5.93 6.04 6.07
Certificates of deposit in other financial
institution 5.45 5.80 6.15
Other interest-bearing deposits 2.24 4.89 4.95
FHLB stock 6.35 6.75 7.00
---- ---- ----
Combined weighted average yield on
interest-earning assets 7.68 8.06 8.22
---- ---- ----
Weighted average rate paid on:
Passbook accounts 3.25 3.26 3.25
NOW and money market accounts 3.39 3.58 3.16
Certificates 5.56 5.87 5.96
FHLB advances 5.61 5.88 6.02
---- ---- ----
Combined weighted average rate paid
on interest-bearing liabilities 5.22 5.49 5.60
---- ---- ----
Spread 2.46 % 2.57 2.62
==== ==== ====
</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 change 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,
--------------------------------------------------------------------
1999 vs.1998 1999 vs.1998
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 ........................... $1,352 (520) 832 1,174 (186) 988
Investment securities ...................... 71 (39) 32 (10) (15) (25)
Certificates of deposit in other ........... (209) (29) (238) 77 (6) 71
Other interest-bearing deposits ............ (12) (50) (62) 6 (1) 5
FHLB stock ................................. 28 (6) 22 32 (3) 29
------ ------ ------ ------ ------ ------
Total interest-earning assets 1,230 (644) 586 1,279 (211) 1,068
------ ------ ------ ------ ------ ------
Interest-bearing liabilities
Passbook accounts .......................... 26 (6) 20 (13) 14 1
NOW and money market accounts .............. 205 37 242 52 65 117
Certificates ............................... 117 (270) (153) 370 83 453
FHLB advances .............................. 558 (79) 479 671 (17) 654
------ ------ ------ ------ ------ ------
Total interest-bearing
liabilities ............. 906 (318) 588 1,080 145 1,225
------ ------ ------ ------ ------ ------
Net interest income ......... $ 324 (326) (2) 199 (356) (157)
====== ====== ====== ====== ====== ======
</TABLE>
Comparison of Operating Results for the Years Ended September 30, 1999 and 1998
General. Net earnings for the year ended September 30, 1999 decreased by
$360,000, or 15.67%, to $1.9 million, or $0.95 per diluted share, from $2.3
million, or $0.95 per diluted share, for the year ended September 30, 1998. The
decrease was primarily due to a $2,000 decrease in net interest income, a
$162,000 increase in the provision for loan losses, and a $519,000 increase in
noninterest expense offset by a $144,000 increase in noninterest income and a
decrease of $179,000 in income tax expense. For the years ended September 30,
1999 and 1998, the return on average assets was 0.83% and 1.05%, respectively,
while the return on average equity was 4.71% and 5.11%, respectively.
Net Interest Income. Net interest income was unchanged at $7.6 million for both
years ended September 30, 1999 and 1998. This reflects an increase of $586,000
in total interest income to $17.6 million from $17.1 million and an increase of
$588,000 in total interest expense to $9.9 in fiscal 1999 million from $9.4
million in fiscal 1998. The increase in interest income was primarily due to an
increase in the average balance of interest-earning assets offsetting a decrease
in average yields on interest-earning assets. The increase in interest expense
was due to an increase in the average balance of interest-bearing liabilities
offsetting the decrease in the average rates paid on interest-bearing
liabilities.
<PAGE>
Interest Income. Interest income for the year ended September 30, 1999 increased
$586,000 to $17.6 million from $17.1 million in 1998. Increased average balances
of interest-earning assets generally offset decreased yields on those assets.
Interest income on loans increased $832,000, or 5.36%, to $16.4 million for the
year ended September 30, 1999 from $15.5 million for the prior year. Interest
income on investment securities, certificates of deposit, and other
interest-bearing deposits decreased $246,000, or 16.04%, to $1.3 million from
$1.5 million for the year ended September 30, 1998. Interest income on loans
increased due to increased balances in loans offsetting decreased average
yields. Interest income on investment securities, certificates of deposit, and
other interest-bearing deposits decreased due to decreased average balances and
decreased yields on those items.
9
<PAGE>
Interest Expense. Interest expense for the year ended September 30, 1999
increased $588,000 to $9.9 million from $9.4 million for the year ended
September 30, 1998. The increase was due to increased average balances
outstanding on interest-bearing liabilities offsetting lower average rates on
those items. Interest expense on FHLB advances and other borrowed money
increased to $2.7 million for the year ended September 30, 1999 from $2.3
million for the prior year. Average balances outstanding of FHLB advances were
$47.0 million in fiscal 1999 compared to $37.3 million in fiscal 1998.
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,
1999, the Association charged $86,000 against earnings as a provision for loan
losses compared to a credit to earnings with a $76,000 negative provision for
loan losses during the year ended September 30, 1998. The credit to earnings for
fiscal 1998 was primarily due to a decrease in speculative construction loans.
During fiscal 1998, speculative construction loans decreased $9.9 million to
$30.3 million. During fiscal 1999, speculative construction loans decreased $6.1
million to $24.2 million. During fiscal 1999, land acquisition and development
loans increased to $8.6 million from $3.3 million at September 30, 1998. In
addition, the total loan portfolio increased to $246.0 million at September 30,
1999 from $206.6 million at September 30, 1998. The Association's allowance for
loan losses were $1.6 million, or 0.65%, of total loans receivable at September
30, 1999 compared to 0.74% of total loans receivable at September 30, 1998. The
fiscal 1999 charge-offs totaled $5,000 and the net charge-offs for fiscal 1998
were $27,000.
The Association had $2.2 million in loans classified as substandard, doubtful,
or loss at September 30, 1999 compared to $3.5 million at September 30, 1998.
The decrease was primarily due to a decrease in delinquent construction loans
and increased collection efforts throughout the year.
Management will continue to monitor its allowance for loan losses and make
future adjustments to the allowance through provisions for loan losses as
economic conditions dictate. Although the Association maintains its allowance
for loan losses at a level which it considers adequate to provide for potential
losses, there can be no assurances 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, 1999, noninterest income
was $486,000, an increase of $144,000, or 42.1%, compared to $342,000 for the
year ended September 30, 1998. Loan fees and deposit service charges, which
consist primarily of late charges on loans receivable, underwriting fees,
service charges on transaction accounts, and ATM fees, were $341,000 and
$235,000 in fiscal 1999 and 1998, respectively. Underwriting fees were $52,000
in fiscal 1999 compared to $25,000 in fiscal 1998. Service charges on
transaction accounts were $156,000 and $108,000 in fiscal 1999 and 1998,
respectively. The increase is primarily due to increased checking accounts that
pay a flat monthly fee and increased number of items returned on accounts. ATM
fees were $17,000 and $9,000 in fiscal 1999 and 1998, respectively. Two of the
<PAGE>
Association's five ATMs were installed during 1998 and one was installed in
1999. Late charges on loans were $85,000 for fiscal 1999 compared to $83,000 for
fiscal 1998. For the year ended September 30, 1999, other income was $145,000
compared to $107,000 for the year ended September 30, 1998. The increase was due
to $34,000 of commissions for the sale of investment products by the
Association's service corporation for fiscal 1999. No such commissions were
earned in fiscal 1998.
10
<PAGE>
Noninterest expense. Noninterest expense increased $519,000 to $4.9 million for
the year ended September 30, 1999 from $4.4 million for the prior year.
Compensation, payroll taxes, and fringe benefits expense increased $222,000 in
fiscal 1999 to $2.8 million compared to $2.6 million in fiscal 1998. Cash
compensation increased $343,000 in fiscal 1999 to $2.0 million from $1.7 million
in 1998. The increase was due to an increase in the number of employees and
salary increases to existing employees. During the Association's conversion to a
new core data processing system, the Association incurred approximately $38,000
in overtime expense for training and conversion. The Association had seventy
full-time equivalent employees at September 30, 1999 compared to sixty-seven at
September 30, 1998. Eight employees were hired in connection with the new branch
office opened in August 1998. Payroll taxes and fringe benefits increased
$54,000 due to the increased number of employees and increased compensation.
ESOP expenses decreased $159,000 to $369,000 for fiscal 1999 from $528,000 for
fiscal 1998, due to a lower average monthly price of the Company's common stock
in fiscal 1999 compared to fiscal 1998. Occupancy expense increased $143,000 in
fiscal 1999 to $765,000 from $622,000 in 1998. The increase was primarily due to
increased depreciation and taxes on the new branch office opened in August 1998.
Depreciation also increased due to additional data processing equipment. Data
processing expenses increased $71,000 to $263,000 for fiscal 1999 compared to
$192,000 for fiscal 1998. The increase was primarily due to the Association's
conversion to a new core data processing system in June 1999. Federal insurance
premiums increased to $94,000 in fiscal 1999 from $82,000 in fiscal 1998.
Advertising expense increased $2,000 to $150,000 for fiscal 1999 compared to
$148,000 for fiscal 1998. Other operating expenses increased to $854,000 for
fiscal 1999 compared to $789,000 for fiscal 1998. The increase was primarily due
to increased loan expenses due to increased lending volume; telephone expenses
due to communication lines between offices; travel and training expenses due to
the data processing conversion; and checking account expense due to increased
new accounts.
Income Taxes. Income taxes decreased to $1.2 million for fiscal 1999 from $1.4
million for fiscal 1998. The decrease was due to a decrease in taxable income
for 1999 compared to 1998. The effective tax rate for 1999 was 38.4% compared to
37.6% for 1998.
Comparison of Operating Results for the Years Ended September 30, 1998 and 1997
General. Net earnings for the year ended September 30, 1998 decreased by
$213,000, or 8.49%, to $2.3 million, or $0.95 per diluted share, from $2.5
million, or $0.98 per diluted share, for the year ended September 30, 1997. The
decrease was primarily due to the combined effects of a $157,000 decrease in net
interest income and a $720,000 increase in noninterest expense offset by a
$361,000 decrease in the provision for loan losses, a $123,000 increase in
noninterest income and a $180,000 decrease in income tax expense.
For the years ended September 30, 1998 and 1997, the return on average assets
was 1.05% and 1.25%, respectively, while the return on average equity was 5.11%
and 5.48%, respectively.
Net Interest Income. For the year ended September 30, 1998, net interest income
decreased by $157,000 to $7.7 million from $7.8 million in 1997. This reflects
an increase of $1.1 million in interest income to $17.1 million from $16.0
million and an increase of $1.2 million in interest expense to $9.4 million from
$8.2 million. The increase in interest income was primarily due to an increase
in total interest-earning assets offsetting a decrease in average yields on
interest-earning assets. The increase in interest expense was due to increased
interest-bearing liabilities and the average rate paid on interest-bearing
liabilities.
<PAGE>
Interest Income. Interest income for the year ended September 30, 1998 increased
to $1.1 million to $17.1 million from $16.0 million for the year ended September
30, 1997. The $15.5 million increase in average interest-earning assets resulted
in an increase in interest income of $1.3 million. The decrease in average yield
on interest-earning assets decreased interest income by $211,000 in fiscal 1998.
Interest income on loans increased $988,000, or 6.80%, to $15.5 million from
$14.5 million for the year ended September 30, 1997. Interest income on
investment securities, certificates of deposit, and other interest-bearing
deposits increased $80,000, or 5.50%, to $1.53 million from $1.45 million for
the year ended September 30, 1997. Interest income on loans increased due to
increased average balances in loans offsetting decreased average yields.
Increases in average balances of investment securities, certificates of deposit,
and other interest-bearing deposits offset decreased yields on those items.
11
<PAGE>
Interest Expense. Interest expense for the year ended September 30, 1998
increased $1.2 million to $9.4 million from $8.2 million for the year ended
September 30, 1997. The increase was due to increased average balances
outstanding on interest-bearing liabilities and slightly higher average rates
paid on those liabilities. Interest expense on FHLB advances increased to $2.3
million for the year ended September 30, 1998 from $1.6 million for the prior
year. The Association borrowed $15.0 million and repaid maturing advances of
$13.0 million in fiscal 1998 that resulted in FHLB advances of $37.3 million at
September 30, 1998 compared to $35.3 million at September 30, 1997.
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. At September 30, 1998, the Association's
speculative construction loans of $30.3 million represented 14.7% of total loans
receivable. At September 30, 1997, the Association's speculative construction
loans of $40.2 million represented 20.1% of total loans receivable. The
reduction of $9.9 million, or 24.6%, in speculative construction loans during
fiscal 1998 reduced considerably the risk profile of the Association's loan
portfolio. This reduction in risk in the overall loan portfolio allowed the
Association to credit earnings with a $76,000 negative provision for loan losses
during fiscal 1998 that compared to a charge of $285,000 for the year ended
September 30, 1997. This resulted in an allowance for loan losses of $1.5
million, or 0.74%, of total loans receivable at September 30, 1998 compared to
0.81% of total loans receivable at September 30, 1997. The fiscal 1998 net
charge-offs totaled $27,000 and the net charge-offs for fiscal 1997 were
$14,000.
The Association had $3.5 million in loans classified as substandard, doubtful,
or loss at September 30, 1998 compared to $2.1 million at September 30, 1997.
The increase was almost entirely due to an increase in delinquent construction
loans. During fiscal 1998, the loan service officer was transferred to the loan
origination department and a new loan service officer was hired. In August 1998,
the new loan service officer resigned unexpectedly. A replacement was not able
to start until early November 1998. Due to the absence of qualified personnel
during that time period, loan delinquencies increased. One construction loan was
substandard at September 30, 1997, compared to eleven at September 30, 1998.
Management will continue to monitor its allowance for loan losses and make
future adjustments 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, 1998, noninterest income
was $342,000 compared to $219,000 for the year ended September 30, 1997. Loan
fees and deposit service charges, which consist primarily of late charges on
loans receivable, underwriting fees, service charges on transaction accounts,
and ATM fees, were $235,000 and $162,000 for fiscal 1998 and 1997, respectively.
Underwriting fees were $25,000 in fiscal 1998 with no similar fees in 1997. Late
charges on loans were $83,000 for fiscal 1998 compared to $76,000 for fiscal
1997. The increase is primarily due to the increase in the number of loans
<PAGE>
outstanding. Service charges on transaction accounts were $108,000 and $74,000
for fiscal 1998 and 1997. The increase is due to increased checking accounts
that pay a flat monthly fee and increased number of items returned on accounts.
ATM fees were $9,000 and $2,000 for fiscal 1998 and 1997, respectively. The
Association's first two ATMs were installed in June 1997. At September 30, 1998,
there were four installed. Gains on the sale of loans originated for sale were
$73,000 and $23,000 for fiscal 1998 and 1997, respectively. The increase was
primarily due to the increased numbers of loans sold in the current year.
12
<PAGE>
Noninterest Expense. Noninterest expense increased $720,000, to $4.4 million for
the year ended September 30, 1998 from $3.7 million for the prior year.
Compensation, payroll taxes, and fringe benefit expense increased $385,000 in
fiscal 1998 compared to 1997. Cash compensation increased $240,000 in fiscal
1998 to $1.7 million from $1.5 million in 1997. The increase was due to an
increase in the number of employees and raises to existing employees. There were
sixty-seven full time equivalent employees at September 30, 1998 compared to
fifty-five at September 30, 1997. Payroll taxes and other fringe benefits
increased $86,000 due to the increased number of employees and increased
compensation. ESOP expenses increased to $528,000 for fiscal 1998 compared to
$465,000 for 1997. The increase was due to higher average monthly price for
shares of the Company's common stock in fiscal 1998 compared to fiscal 1997.
Occupancy expense increased $204,000 in fiscal 1998 to $622,000 from $418,000 in
1997. The increase was primarily due to increased depreciation and increased
taxes on the new home office opened in June 1997 and the new branch office
opened in August 1998. Depreciation also increased due to new equipment for the
new home and branch offices. Although occupancy expenses increased significantly
as a result of the two new offices, the deposits attributed to the new offices
also increased substantially. Data processing expenses increased $24,000 to
$192,000 for fiscal 1998 compared to $168,000 for fiscal 1997. The increase was
due to an increased number of accounts processed and increased charges for
additional on-line workstations. Federal insurance premiums decreased $35,000 to
$82,000 for fiscal 1998 compared to $117,000 for fiscal 1997. The decrease is
primarily due to reduced premiums after the special Savings Association
Insurance Fund ("SAIF") assessment paid in 1997. Advertising expense increased
$2,000 to $148,000 for fiscal 1998 compared to $146,000 in fiscal 1997. Other
operating expense increased to $787,000 for fiscal 1998 compared to $649,000 in
fiscal 1997. The increase was primarily due to increased expenses for office
supplies, telephones, new checking accounts, and loan expense.
Income Taxes. Income taxes decreased to $1.4 million for fiscal 1998 from $1.6
million for fiscal 1997. The decrease was due to a decrease in taxable income
for 1998 compared to 1997. The effective tax rate for 1998 was 37.6%, compared
to 38.4% for 1997.
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.
<PAGE>
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 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.
At September 30, 1999, 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 $34.0 million, representing a cumulative
negative one-year gap ratio of 13.0% to total assets. 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.
13
<PAGE>
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 1999 have changed when
compared to fiscal year 1998. 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 mortgage 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 instruments 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, 1999, 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>
<TABLE>
<CAPTION>
Present Value Estimates by Interest Rate Scenario
Calculated at September 30, 1999
-300 -200 -100 0 +100 +200 +300
basis basis basis basis basis basis basis
points points points points points points points
--------- --------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans and securities $ 223,842 220,386 216,747 212,140 206,516 200,359 194,034
Nonmortgage loans 11,068 10,862 10,664 10,473 10,290 10,113 9,943
Cash, deposits, and securities 22,870 22,744 22,610 22,067 21,641 21,088 20,559
Other assets 11,880 12,161 12,723 13,594 14,441 15,238 15,985
--------- --------- --------- --------- --------- --------- ---------
Total assets 269,660 266,153 262,744 258,274 252,888 246,798 240,521
--------- --------- --------- --------- --------- --------- ---------
Deposits 152,649 149,812 147,130 144,587 142,180 139,899 137,736
Borrowings 75,758 74,117 72,544 71,034 69,586 68,195 66,859
Other liabilities 3,719 3,718 3,717 3,716 3,715 3,714 3,714
--------- --------- --------- --------- --------- --------- ---------
Total liabilities . 232,126 227,647 223,391 219,337 215,481 211,808 208,309
--------- --------- --------- --------- --------- --------- ---------
Off-balance sheet positions 434 296 170 30 (141) (335) (541)
--------- --------- --------- --------- --------- --------- ---------
Net portfolio value $ 37,968 38,802 39,523 38,967 37,266 34,655 31,671
========= ========= ========= ========= ========= ========= =========
$ change from base $ (999) (165) 556 -- (1,701) (4,312) (7,296)
========= ========= ========= ========= ========= ========= =========
NPV ratio 14.08 % 14.58 15.04 15.09 14.74 14.04 13.17
========= ========= ========= ========= ========= ========= =========
Board NPV ratio limits 12.00 % 13.00 14.00 N/A 14.00 13.50 13.00
========= ========= ========= ========= ========= ========= =========
</TABLE>
Computation 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 in which they
reprice, they may react differently to changes in market interest rates.
Additionally, adjustable-rate mortgages have features that restrict changes in
interest rates in a short-term basis and over the life of the asset. The
<PAGE>
proportion of adjustable-rate loans could reduce 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, 1999 and 1998,
the Association originated loans for portfolio in the amounts of $132.4 million
and $102.6 million, respectively. Purchases of loans during the fiscal years
ended September 30, 1999 and 1998 were $40,000 and $66,000, respectively. The
Association also originates loans for sale. For the fiscal years ended September
30, 1999 and 1998, the Association originated $5.5 million and $7.9 million,
respectively, of mortgage loans for sale. For the fiscal years ended September
30, 1999 and 1998, these activities were funded primarily by principal
repayments of $108.5 million and $96.0 million, respectively, proceeds from the
sale of loans of $5.9 million and $8.0 million, respectively, and FHLB advances
of $67.7 million and $15.0 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
banker's acceptances, certain corporate debt securities and highly rated
commercial paper, securities of certain mutual funds, and specific U. S.
government, state, or federal agency obligations) of not less than 4.0% 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 11.9%
and 15.0%, respectively, at September 30, 1999 and 1998.
The Company's most liquid assets are cash and cash equivalents, which include
short-term investments. The levels of those assets are dependent on the
operating, financing, lending, and investment activities during any given
period. At September 30, 1999 and 1998, cash and cash equivalents were $4.9
million and $3.3 million, respectively. The increase in cash and cash
equivalents in 1999 compared to 1998 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, 1999 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. If the Association
requires funds beyond its ability to generate them internally, additional
sources of funds are available through FHLB of Des Moines advances. The
Association borrowed $67.7 million in FHLB advances and repaid $33.8 million of
maturing advances in fiscal year 1999. During 1998, the Association borrowed
$15.0 million in FHLB advances and repaid $13.0 million in maturing FHLB
advances. During the last several years, loan originations have exceeded savings
inflows, loan repayments, and cash provided by operations. 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, 1999, the Association had outstanding loan commitments of $4.4
million, unused lines of credit of $5.0 million, and undisbursed loans in
process of approximately $21.9 million. The Association anticipates it will have
sufficient funds available to meet its current loan commitments, including
applications received and in process prior to issuance of firm commitments.
Certificates of deposit that are scheduled to mature in one year or less at
September 30, 1999 were $57.4 million. Management believes that a significant
portion of such deposits will remain with the Association.
<PAGE>
At September 30, 1999, the Association had tangible capital of $35.4 million, or
13.8%, of total adjusted assets, which is approximately $31.6 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date. The
Association had core capital of $35.4 million, or 13.8%, of adjusted total
assets, which is $25.1 million above the minimum leverage ratio of 3.0% in
effect on that date. The Association had total risk-based capital of $37.0
million and total risk-weighted assets of $170.5 million, or total capital of
21.7% of risk-weighted assets. This was $23.4 million above the 8.0% requirement
in effect on that date.
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 calculations using the Year 2000 date. Should the
Company's mission critical systems fail in the Year 2000, the Company would have
difficulty in processing transactions for loan and deposit customers, which
could cause significant damage to the Company's important customer
relationships.
16
<PAGE>
As of September 30, 1999, the Association had successfully completed testing of
all mission critical computer systems. The renovation, testing, and
implementation of all nonmission critical applications are also approaching
completion with only the Association's voice mail system requiring further
attention.
The Association is requiring its computer systems and software vendors to
represent that the products are, or will be, Year 2000 compliant. Major
suppliers and vendors have been requested to provide the Association with their
progress in becoming Year 2000 compliant. Responses and progress of vendors are
being monitored.
The Association has an ongoing program to inform customers of the Year 2000
problem and the progress the Association is making in becoming Year 2000
compliant. The Association has reviewed customer relationships and does not
believe potential Year 2000 problems of customers will have a material affect on
the Association. The Association has developed a cash and currency plan to
ensure that the Association has adequate funds on hand to meet cash requirements
of customers during late 1999 and early 2000.
For the year ended September 30, 1999, Year 2000 costs did not exceed $100,000.
This estimate to become Year 2000 compliant is exclusive of the $425,000
necessary to purchase the new core processing system and related hardware.
The Association has prepared a contingency plan that focuses on the courses of
action required under different failure scenarios ranging from system failure to
telecommunications failure. The plan details who are responsible for initiating
action in each scenario and the required action to be pursued. The plan includes
operating procedures for all departments if the core applications are not
available. Some testing of the plan has occurred. Additional testing and
training is scheduled. Testing of the contingency plan to date has not disclosed
any material concerns.
Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, in June 1998. SFAS No. 133,
as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.
Management believes that the adoption of these accounting standards will not
significantly affect the Company's consolidated financial statements.
17
<PAGE>
[LETTERHEAD KPMG]
1000 Walnut, Suite 1600
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,
1999 and 1998 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, 1999. 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, 1999
and 1998 and the results of their operations and their cash flows for
each of the years in the three-year period ended September 30, 1999, in
conformity with generally accepted accounting principles.
/s/KPMG LLP
-----------
KPMG LLP
November 12, 1999
Kansas City, Missouri
18
<PAGE>
<TABLE>
<CAPTION>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1999 and 1998
Assets 1999 1998
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 4,900,000 3,319,000
Certificates of deposit in other financial institutions 1,200,000 4,400,000
Investment securities held-to-maturity (estimated fair value of
$18,186,000 in 1999 and $16,467,000 in 1998) (notes 3 and 6) 18,538,000 16,302,000
Mortgage-backed securities held-to-maturity 5,000 7,000
Loans receivable, net (notes 4 and 7) 221,909,000 184,605,000
Accrued interest receivable:
Loans and mortgage-backed securities 1,523,000 1,346,000
Investment securities 268,000 229,000
Office properties and equipment, net (note 5) 7,748,000 7,861,000
Stock in Federal Home Loan Bank (FHLB) of Des Moines, at cost 3,556,000 2,013,000
Deferred income taxes (note 8) 74,000 155,000
Other assets (note 9) 1,832,000 1,284,000
-------------- -------------
$ 261,553,000 221,521,000
============== =============
Liabilities and Stockholders' Equity
Liabilities:
Savings deposits (note 6) $ 143,737,000 136,622,000
Borrowings from the FHLB (note 7) 71,101,000 37,250,000
Advance payments by borrowers for property taxes and insurance 2,244,000 1,903,000
Accrued interest payable on savings deposits 158,000 180,000
Accrued expenses and other liabilities 3,491,000 1,901,000
Current income taxes payable 198,000 192,000
-------------- -------------
Total liabilities 220,929,000 178,048,000
-------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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 30,163,000 30,058,000
Retained earnings, substantially restricted (note 8) 27,385,000 26,220,000
Unearned employee benefits (note 9) (1,483,000) (1,947,000)
Treasury stock; 944,749 shares in 1999 and 646,196 shares in 1998
of common stock at cost (15,471,000) (10,888,000)
-------------- -------------
Total stockholders' equity 40,624,000 43,473,000
Commitments (notes 4 and 11)
-------------- -------------
$ 261,553,000 221,521,000
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended September 30, 1999, 1998, and 1997
1999 1998 1997
------------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans $ 16,355,000 15,523,000 14,535,000
Investment securities 983,000 950,000 975,000
Mortgage-backed securities -- 1,000 1,000
Certificates of deposit and other 305,000 583,000 478,000
------------- ---------- ----------
Total interest income 17,643,000 17,057,000 15,989,000
------------- ---------- ----------
Interest expense:
Savings deposits (note 6) 7,263,000 7,154,000 6,583,000
Borrowed money 2,729,000 2,250,000 1,596,000
------------- ---------- ----------
Total interest expense 9,992,000 9,404,000 8,179,000
------------- ---------- ----------
Net interest income 7,651,000 7,653,000 7,810,000
Provision for loan losses (note 4) 86,000 (76,000) 285,000
------------- ---------- ----------
Net interest income after provision for loan losses 7,565,000 7,729,000 7,525,000
------------- ---------- ----------
Noninterest income:
Loan and deposit service charges 341,000 235,000 162,000
Other income 145,000 107,000 57,000
------------- ---------- ----------
Total noninterest income 486,000 342,000 219,000
------------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Noninterest expense:
Compensation, payroll taxes, and fringe benefits (note 9) 2,779,000 2,557,000 2,172,000
Occupancy expense 765,000 622,000 418,000
Data processing 263,000 192,000 168,000
Federal deposit insurance premiums 94,000 82,000 117,000
Advertising 150,000 148,000 146,000
Other operating expenses 858,000 789,000 649,000
------------- ---------- ----------
Total noninterest expense 4,909,000 4,390,000 3,670,000
------------- ---------- ----------
Earnings before income taxes 3,142,000 3,681,000 4,074,000
Income taxes (note 8) 1,205,000 1,384,000 1,564,000
------------- ---------- ----------
Net earnings $ 1,937,000 2,297,000 2,510,000
============= =========== ===========
Earnings per share:
Basic $ 0.95 0.97 0.99
============= =========== ===========
Diluted $ 0.95 0.95 0.98
============= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended September 30, 1999, 1998, and 1997
Additional Unearned
Common paid-in Retained employee Treasury
stock capital earnings benefits stock Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 $ 30,000 29,622,000 22,756,000 (3,082,000) (2,511,000) 46,815,000
----------- ----------- ----------- ----------- ----------- -----------
Amortization of Recognition and
Retention Plan (RRP), net of forfeitures -- -- -- 274,000 -- 274,000
Net earnings -- -- 2,510,000 -- -- 2,510,000
Dividend declared ($.28 per share) -- -- (699,000) -- -- (699,000)
Allocation of employee stock ownership
plan (ESOP) shares -- 182,000 -- 284,000 -- 466,000
Purchase 287,602 shares of treasury stock -- -- -- -- (4,699,000) (4,699,000)
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1997 30,000 29,804,000 24,567,000 (2,524,000) (7,210,000) 44,667,000
Amortization of RRP, net of forfeitures -- -- -- 309,000 (89,000) 220,000
Net earnings -- -- 2,297,000 -- -- 2,297,000
Dividend declared ($.28 per share) -- -- (644,000) -- -- (644,000)
Allocation of ESOP shares -- 259,000 -- 268,000 -- 527,000
Purchase 181,346 shares of treasury stock -- -- -- -- (3,667,000) (3,667,000)
Exercise of stock options to acquire
5,027 shares of common stock -- (5,000) -- -- 78,000 73,000
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1998 30,000 30,058,000 26,220,000 (1,947,000) (10,888,000) 43,473,000
Amortization of RRP, net of forfeitures -- -- -- 300,000 (38,000) 262,000
Net earnings -- -- 1,937,000 -- -- 1,937,000
Dividend declared ($.39 per share) -- -- (772,000) -- -- (772,000)
Allocation of ESOP shares -- 117,000 -- 252,000 -- 369,000
Purchase 298,553 shares of treasury stock -- -- -- -- (4,645,000) (4,645,000)
Award of RRP (note 9) -- (12,000) -- (88,000) 100,000 --
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1999 $ 30,000 30,163,000 27,385,000 (1,483,000) (15,471,000) 40,624,000
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended September 30, 1999, 1998, and 1997
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,937,000 2,297,000 2,510,000
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 406,000 309,000 137,000
Provision for loan losses 86,000 (76,000) 285,000
Provision for losses on real estate owned 1,000 -- 3,000
Amortization of RRP and allocation of
ESOP shares 631,000 747,000 740,000
Deferred income taxes 81,000 381,000 75,000
Gain on sales of real estate owned (2,000) (8,000) (4,000)
Loss on sale of properties and equipment 1,000 -- --
Amortization of deferred loan fees (402,000) (499,000) (490,000)
Proceeds from sales of loans held for sale 5,943,000 7,989,000 2,693,000
Origination of loans held for sale (5,491,000) (7,976,000) (3,137,000)
Gain on sale of loans held for sale (72,000) (73,000) (23,000)
Changes in assets and liabilities:
Accrued interest receivable (216,000) (157,000) (122,000)
Other assets (525,000) (83,000) 68,000
Accrued interest payable (22,000) 43,000 (4,000)
Accrued expenses and other liabilities 1,488,000 417,000 (483,000)
Current income taxes payable 6,000 (209,000) 87,000
--------------- --------------- ---------------
Net cash provided by operating activities 3,850,000 3,102,000 2,335,000
--------------- --------------- ---------------
Cash flows from investing activities:
Net increase in loans receivable (37,645,000) (7,107,000) (21,673,000)
Purchase of loans receivable (40,000) (66,000) --
Mortgage-backed securities principal repayments 2,000 3,000 3,000
Maturities of investment securities held-to-maturity 9,769,000 11,595,000 6,456,000
Purchase of investment securities held-to-maturity (11,999,000) (13,996,000) (2,000,000)
Purchase of FHLB stock (1,543,000) (251,000) (503,000)
Net proceeds from sales of real estate owned 297,000 -- --
Additions and improvements to real estate owned (2,000) -- --
Purchase of office properties and equipment, net (300,000) (1,793,000) (3,700,000)
--------------- --------------- ---------------
Net cash used in investing activities $ (41,461,000) (11,615,000) (21,417,000)
--------------- --------------- ---------------
</TABLE>
(Continued)
22
<PAGE>
<TABLE>
<CAPTION>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
Years ended September 30, 1999, 1998, and 1997
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in NOW, passbook, and
money market demand amounts $ 6,241,000 5,076,000 (1,712,000)
Net increase in certificate accounts 874,000 2,775,000 7,375,000
Net increase in advance payments by borrowers
for taxes and insurance 341,000 131,000 43,000
Proceeds from FHLB advances 67,700,000 15,000,000 26,000,000
Repayment of FHLB advances (33,849,000) (13,000,000) (3,000,000)
Dividends paid (670,000) (665,000) (699,000)
Issuance of common stock under stock option plan -- 73,000 --
Purchase of treasury stock (4,645,000) (3,667,000) (4,699,000)
------------ ------------ ------------
Net cash provided by financing activities 35,992,000 5,723,000 23,308,000
------------ ------------ ------------
Net (decrease) increase in cash (1,619,000) (2,790,000) 4,226,000
Cash and cash equivalents at beginning of year 7,719,000 10,509,000 6,283,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 6,100,000 7,719,000 10,509,000
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 1,118,000 1,216,000 1,401,000
============ ============ ============
Cash paid during the year for interest $ 10,014,000 9,361,000 8,168,000
============ ============ ============
Supplemental schedule of noncash investing and financing activities:
Conversion of loans to real estate owned $ 488,000 244,000 --
============ ============ ============
Conversion of real estate owned to loans $ 171,000 487,000 51,000
============ ============ ============
Dividends declared and payable $ 247,000 150,000 168,000
============ ============ ============
Issuance of unearned RRP shares $ 88,000 -- --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(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. The Company utilized a portion of the net proceeds to
acquire all of the common stock issued by the Association in
connection with its conversion. 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 consolidated 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
consolidated balance sheets include interest earning
deposits of $3,610,000 and $2,483,000 at September 30,
1999 and 1998, respectively.
<PAGE>
(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
stockholders' equity. At September 30, 1999 and 1998, all
of the Company's and Association's investment and
mortgage-backed securities are classified as
held-to-maturity.
24 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
Gain or loss on the sale of securities is recognized using
the specific identification method.
(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.
<PAGE>
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.
25 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(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,
1999 and 1998, loans held for sale totaled $146,000 and
$526,000, respectively.
(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 consolidated 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.
<PAGE>
(j) Earnings Per Share
The Company presents basic and diluted earnings per share.
Basic earnings per share excludes dilution and is computed
by dividing net income by the weighted average number of
common shares outstanding. Diluted earnings per share
reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock.
26 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
The shares used in the calculation of basic and diluted
earnings per share are shown below:
<TABLE>
<CAPTION>
For the years ended
September 30,
--------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Average basic common shares outstanding 2,032,793 2,370,540 2,534,098
Common stock equivalents - stock options -- 45,021 20,564
--------- --------- ---------
Average diluted common shares outstanding 2,032,793 2,415,561 2,554,662
========= ========= =========
</TABLE>
(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.
(l) New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No.
133, Accounting for Derivative Instruments and Hedging
Activities, in June 1998. SFAS No. 133, as amended by SFAS
No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB
Statement No. 133, establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and
for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those
instruments at fair value. This statement is effective for
all fiscal quarters of fiscal years beginning after June
15, 2000.
Management believes that the adoption of these accounting
standards will not significantly affect the Company's
consolidated financial statements.
27 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(3) Investment Securities
A summary, by maturity dates, of investment securities
held-to-maturity at September 30, 1999 follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
United States government and
agency obligations maturing
in less than one year $ 998,000 5,000 -- 1,003,000
United States government and
agency obligations maturing
after one year but within five
years 15,500,000 2,000 (349,000) 15,153,000
United States government and
agency obligations maturing
after five years but within ten
years 1,500,000 -- (10,000) 1,490,000
Privately issued bonds maturing
in 2002 540,000 -- -- 540,000
----------- ----------- ----------- -----------
Total $18,538,000 7,000 (359,000) 18,186,000
=========== =========== =========== ===========
</TABLE>
<PAGE>
A summary, by maturity dates, of investment securities
held-to-maturity at September 30, 1998 follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
United States government and
agency obligations maturing
in less than one year $ 4,994,000 29,000 -- 5,023,000
United States government and
agency obligations maturing
after one year but within five
years 8,995,000 100,000 -- 9,095,000
United States government and
agency obligations maturing
after five years but within ten
years 1,500,000 6,000 -- 1,506,000
Privately issued bonds maturing
in 2002 813,000 30,000 -- 843,000
----------- ----------- ----- -----------
Total $16,302,000 165,000 -- 16,467,000
=========== =========== ===== ===========
</TABLE>
28 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(4) Loans Receivable
Loans receivable at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Residential real estate loans:
One-to-four family $160,642,000 133,890,000
Multifamily 7,360,000 2,943,000
Held for sale 146,000 526,000
Construction loans, primarily single family 40,302,000 45,654,000
Land 14,660,000 11,059,000
Commercial real estate 6,398,000 3,243,000
Consumer loans 16,459,000 9,241,000
------------ ------------
Total loans receivable 245,967,000 206,556,000
Less:
Loans in process 21,926,000 19,730,000
Deferred loans fees, net 530,000 700,000
Allowance for loan losses 1,602,000 1,521,000
------------ ------------
$221,909,000 184,605,000
============ ============
</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, 1999, the Association was committed to originate loans receivable
aggregating approximately $4,407,000, including fixed-rate loan
commitments of approximately $1,727,200, with interest rates ranging
from 7.75% to 9.26%. At September 30, 1999, commitments to sell loans
were $59,000. There were no commitments to buy loans.
<PAGE>
At September 30, 1999 and 1998, the Association had loans of $584,000
and $597,000, respectively, to various directors, officers, and their
families. During 1999, $140,000 of new loans were made and repayments
totaled $153,000. These loans are made subject to the same interest
rates and underwriting standards used to originate loans to other
borrowers of the Association.
29 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
The following is a summary of activity in the allowance for loan losses
for the years ended September 30:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 1,521,000 1,624,000 1,353,000
Provision for loan losses 86,000 (76,000) 285,000
Charge-offs, net of recoveries (5,000) (27,000) (14,000)
----------- ----------- -----------
Balance at end of year $ 1,602,000 1,521,000 1,624,000
=========== =========== ===========
</TABLE>
Loans delinquent ninety days or more at September 30, 1999 and 1998 were
approximately $247,000 and $3,136,000, respectively, including
nonaccrual loans of approximately $247,000 and $1,799,000, respectively.
Interest that would have been recognized on nonaccrual loans under their
original terms but for which an allowance has been established amounted
to $24,000 and $92,000 at September 30, 1999 and 1998, respectively. The
amount that was included in income on such loans was $7,000 and $62,000
for the years ended September 30, 1999 and 1998, respectively. Impaired
loans, exclusive of nonaccrual loans, were insignificant in amount, and,
accordingly, the disclosures required by SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, as amended, are not presented
herein.
(5) Office Properties and Equipment
At September 30, 1999 and 1998, office properties and equipment
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Land $1,270,000 1,270,000
Buildings and improvements 5,677,000 5,655,000
Furniture, fixtures, and equipment 1,734,000 1,479,000
---------- ----------
8,681,000 8,404,000
Less accumulated depreciation 933,000 543,000
---------- ----------
$7,748,000 7,861,000
========== ==========
</TABLE>
30 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(6) Savings Deposits
Savings deposits at September 30, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
Rate Amount Percent Amount Percent
---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Balance by interest rate:
NOW and super NOW accounts 0-2.75% $ 11,525,000 8.0 % $ 7,583,000 5.5 %
Passbook accounts 3.25% 9,410,000 6.5 10,777,000 7.9
Money market demand accounts 3.00-4.89% 12,637,000 8.8 8,971,000 6.6
------------ ----- ----------- -----
33,572,000 23.3 27,331,000 20.0
------------ ----- ----------- -----
Certificate accounts 0-3.99% 5,000 -- 5,000 --
4.00-4.99% 33,915,000 23.6 153,000 0.1
5.00-5.99% 39,938,000 27.8 68,591,000 50.3
6.00-6.99% 29,538,000 20.6 33,201,000 24.3
7.00-7.99% 5,067,000 3.5 5,329,000 3.9
8.00-8.99% 1,602,000 1.1 1,834,000 1.3
9.00% 100,000 0.1 178,000 0.1
------------ ----- ----------- -----
110,165,000 76.7 109,291,000 80.0
------------ ----- ------------ -----
$143,737,000 100.0 % $136,622,000 100.0 %
============ ====== ============ =======
Weighted average interest rate on
savings deposits at September 30 5.03 % 5.35 %
======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1999 1998
------------------------- ----------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Contractual maturity of certificate accounts:
Under 12 months $ 57,422,000 52.1 % $ 57,496,000 52.6 %
12 to 24 months 13,564,000 12.3 13,452,000 12.3
24 to 36 months 6,375,000 5.8 6,495,000 6.0
36 to 48 months 6,583,000 6.0 4,059,000 3.7
48 to 60 months 6,387,000 5.8 6,274,000 5.7
Over 60 months 19,834,000 18.0 21,515,000 19.7
------------ ----- ------------ -----
$110,165,000 100.0 % $109,291,000 100.0 %
============ ===== ============ =====
</TABLE>
31 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
The components of interest expense on savings deposits are as
follows for the years ended September 30:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
NOW, super NOW, passbook, and money market $1,074,000 810,000 696,000
Certificate accounts 6,189,000 6,344,000 5,887,000
---------- ---------- ----------
$7,263,000 7,154,000 6,583,000
========== ========== ==========
</TABLE>
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was approximately $16,811,000 and $13,804,000
at September 30, 1999 and 1998, respectively. The amount by which
individual certificates of deposit exceed $100,000 are not insured by
the Federal Deposit Insurance Corporation (FDIC). The Association has
pledged investment securities with an amortized cost of approximately
$7,740,000 and $5,090,000 at September 30, 1999 and 1998, respectively,
as additional security on certain certificate accounts.
32 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(7) FHLB Advances
The Association had the following debt outstanding from the FHLB of
Des Moines at September 30, 1999:
$2,000,000 advance, interest at 5.36%, due October 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
$10,000,000 advance, interest at 5.433%, due September 2000 10,000,000
$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
$8,000,000 advance, interest at 5.42%, due January 2008,
callable January 2003 8,000,000
$2,000,000 advance, interest at 5.13%, due April 2008,
callable April 1999 2,000,000
$2,000,000 advance, interest at 5.40%, due April 2008,
callable April 2001 2,000,000
$3,000,000 advance, interest at 5.63%, due April 2008,
callable April 2003 3,000,000
$3,000,000 advance, interest at 4.83%, due January 2009,
callable January 2004 3,000,000
$3,000,000 advance, interest at 5.29%, due March 2009,
callable March 2004 3,000,000
$1,000,000 advance, interest at 5.00%, due June 2009,
callable June 2000 1,000,000
$4,000,000 advance, interest at 5.71%, due June 2009,
callable June 2002 4,000,000
$3,000,000 advance, interest at 5.99%, due July 2009,
callable July 2004 3,000,000
$3,000,000 advance, interest at 5.60%, due July 2009,
callable July 2002 3,000,000
$5,000,000 advance, interest at 5.03%, due July 2009,
callable July 2000 5,000,000
$3,000,000 advance, interest at 5.66%, due January 2014 2,913,000
$3,000,000 advance, interest at 6.10%, due March 2014 2,938,000
------------
$ 71,101,000
============
The advances from the FHLB are collateralized by first mortgage loans.
33 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
Scheduled maturities of FHLB advances are as follows:
Year ending
September 30,
-------------
2000 $ 21,250,000
2001 4,000,000
2002 3,000,000
2003 --
2004 --
Thereafter 42,851,000
---------------
$ 71,101,000
(8)Income Taxes ===============
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Federal State Total
---------- ----------- -----------
<S> <C> <C> <C>
Year ended September 30, 1999:
Current $1,000,000 124,000 1,124,000
Deferred 67,000 14,000 81,000
---------- ---------- ----------
$1,067,000 138,000 1,205,000
========== ========== ==========
Year ended September 30, 1998:
Current $ 890,000 113,000 1,003,000
Deferred 338,000 43,000 381,000
---------- ---------- ----------
$1,228,000 156,000 1,384,000
========== ========== ==========
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
========== ========== ==========
</TABLE>
34 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
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
------------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Expected federal income tax rate 34.0 % 34.0 34.0
State taxes, net of federal tax benefit 2.9 2.7 2.6
Other, net 1.5 0.9 1.8
------- ------- --------
Effective income tax rate 38.4 % 37.6 38.4
======= ======= ========
</TABLE>
Temporary differences which give rise to a significant portion of
deferred tax assets and liabilities at September 30, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C>
Accrued compensation $ 337,000 298,000
Allowance for loan losses 559,000 506,000
Other 15,000 53,000
--------- ---------
Deferred income tax asset 911,000 857,000
--------- ---------
Loan origination fees, net of deferred costs (209,000) (209,000)
FHLB dividends (186,000) (186,000)
Accrued and prepaid expenses (6,000) (20,000)
Federal and state taxes related to reversing temporary differences (8,000) (8,000)
Accrued interest on loans originated prior to September 25, 1985 (9,000) (14,000)
Depreciation of fixed assets (419,000) (265,000)
--------- ---------
Deferred income tax liability (837,000) (702,000)
--------- ---------
Net deferred income tax asset, included in other
assets $ 74,000 155,000
========= =========
</TABLE>
<PAGE>
There was no valuation allowance for deferred tax assets at September
30, 1999 or 1998. 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.
35 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
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, 1998, 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, 1998 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.
(9) 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, 1999, 1998, and 1997
amounted to $39,000, $40,000, and $32,000, respectively. The Association
purchased life insurance policies to fund its obligations under the plan
in October 1994, which are included in other assets. The cash surrender
value of such policies at September 30, 1999 and 1998 was $1,186,000 and
$1,141,000, respectively.
Employee Stock Ownership Plan (ESOP)
All employees meeting age and service requirements are eligible to
participate in the ESOP. Under the terms of the ESOP, contributions are
allocated to participants using a formula based upon compensation.
Participants vest over five years.
<PAGE>
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 sheets. For
the years ended September 30, 1999, 1998, and 1997, 25,504, 27,226, and
28,215 shares were allocated to participants, respectively. The fair
value of such shares, $369,000, $527,000, and $466,000, respectively,
were charged to expense. The fair value of the remaining 106,238
unallocated shares at September 30, 1999 aggregated $1,368,000.
36 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
Recognition and Retention Plan (RRP) and Stock Option Plan
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 and January 1999, the Company awarded 95,675 and 6,053
shares with a market value of $1,399,000 and $88,000, respectively.
These shares have been reflected as unearned employee benefits in the
accompanying consolidated balance sheets. Participants vest over five
years. As the awards vest, the cost of such shares are included in
compensation expense. The amortization of the RRP awards during 1999,
1998, and 1997 was $300,000, $309,000, and $274,000, respectively. The
unamortized cost of the RRP awards at September 30, 1999 and 1998 was
$411,000 and $623,000, 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 and January 1999, the
Company awarded options to acquire 186,323 and 15,134 shares of stock,
respectively. 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 and $14.54). During 1998, options to acquire 5,027
shares were exercised. The options vest over the five years following
the date of grant. At September 30, 1999, 100,184 options were
exercisable.
The Company applies Accounting Principles Board (APB) No. 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 fair value method required by SFAS No. 123 had been used
to measure compensation cost for stock options granted:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Net income - as reported $ 1,937,000 2,297,000
============== ============
Net income - pro forma $ 1,887,000 2,247,000
============== ============
Basic earnings per share - as reported $ 0.95 0.97
============== ============
Basic earnings per share - pro forma $ 0.93 0.95
============== ============
</TABLE>
<PAGE>
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.
37 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(10) 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 4% 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.
The Association met all regulatory capital requirements at September 30,
1999, 1998, and 1997. The Association's actual and required capital
amounts and ratios as of September 30, 1999 were as follows:
<TABLE>
<CAPTION>
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) $ 35,411 13.76 % $ 3,861 1.50 % $ -- -- %
Tier 1 leverage (core) capital
(to adjusted tangible assets) 35,411 13.76 10,296 4.00 12,869 0.50
Risk-based capital
(to risk-weighted assets) 37,005 21.70 13,641 8.00 17,051 10.00
Tier 1 leverage risk-based capital
(to risk-weighted assets) 35,411 20.77 -- -- 10,230 6.00
</TABLE>
<PAGE>
(11) 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, 1999 based on
then current economic conditions, risk characteristics of the various
financial instruments, and other subjective factors.
38 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
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:
o Cash and cash equivalents and certificates of deposit - The
carrying amounts approximate fair value because of the short
maturity of these instruments.
o 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.
o 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.
o 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.
o Accrued interest - The carrying amount of accrued interest
is assumed to be its carrying value because of the
short-term nature of these items.
o Stock in the FHLB - The carrying amount of such stock is
estimated to approximate fair value.
o 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.
o 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.
39 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
Fair value estimates of the Association's financial instruments as of
September 30, 1999 are set forth below:
<TABLE>
<CAPTION>
Carrying Estimated
amount fair value
------------ -------------
<S> <C> <C>
Cash and cash equivalents and certificates of deposit $ 6,100,000 6,100,000
============ ============
Investment securities $ 18,538,000 18,186,000
============ ============
Mortgage-backed securities $ 5,000 5,000
============ ============
Loans receivable, net of loans in process $221,909,000 220,490,000
============ ============
Accrued interest receivable $ 1,791,000 1,791,000
============ ============
Stock in the FHLB $ 3,556,000 3,556,000
============ ============
Deposits:
Money market and NOW deposits $ 24,162,000 24,162,000
Passbook accounts 9,410,000 9,410,000
Certificate accounts 110,165,000 108,796,000
------------ ------------
Total deposits $143,737,000 142,368,000
============ ============
FHLB advances $ 71,101,000 71,034,000
============ ============
Accrued interest payable $ 158,000 158,000
============ ============
</TABLE>
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
<PAGE>
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.
40 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(12) Parent Company Condensed Financial Statements
<TABLE>
<CAPTION>
Condensed Balance Sheets
September 30, 1999 and 1998
1999 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 1,325,000 2,924,000
Investment securities held-to-maturity 998,000 2,990,000
Investment in Association 35,411,000 34,826,000
ESOP loan receivable 1,211,000 1,453,000
Office properties and equipment, net 1,970,000 1,993,000
Accrued interest receivable 17,000 27,000
Other (37,000) (42,000)
------------ ------------
Total assets $ 40,895,000 44,171,000
============ ============
Dividends payable 260,000 150,000
Other liabilities 11,000 548,000
------------ ------------
Total liabilities 271,000 698,000
Stockholders' equity 40,624,000 43,473,000
------------ ------------
Total liabilities and stockholders' equity $ 40,895,000 44,171,000
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Income Statements
Years ended September 30, 1999 and 1998
1999 1998
----------- -----------
<S> <C> <C>
Dividend income $ 1,837,000 2,128,000
Interest income 286,000 565,000
Expense (279,000) (293,000)
----------- -----------
Income before equity in undistributed
earnings of the Association 1,844,000 2,400,000
Equity in undistributed earnings of the Association 93,000 (103,000)
----------- -----------
Net income $ 1,937,000 2,297,000
=========== ===========
</TABLE>
41 (Continued)
<PAGE>
CAMERON FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Years ended September 30, 1999 and 1998
1999 1998
----------- -----------
<S> <C> <C>
Cash provided by operations:
Net earnings $ 1,937,000 2,297,000
Depreciation and amortization (21,000) (29,000)
Change in accrued interest receivable 10,000 22,000
Change in other assets (5,000) 57,000
Change in other liabilities (537,000) 469,000
Undistributed earnings of subsidiary, net 93,000 103,000
----------- -----------
Cash provided by operations 1,477,000 2,919,000
----------- -----------
Cash used by investing activities:
Proceeds from ESOP note receivable 242,000 242,000
Purchase of office properties and equipment -- (1,121,000)
Maturities of investment securities held-to-maturity 1,997,000 3,000,000
----------- -----------
Cash provided by investing activities 2,239,000 2,121,000
----------- -----------
Cash used in financing activities:
Purchase of treasury stock (4,645,000) (3,667,000)
Dividends paid (670,000) (665,000)
Issuance of common stock under stock option plan -- 73,000
----------- -----------
Cash used in financing activities (5,315,000) (4,259,000)
----------- -----------
Net (decrease) increase in cash (1,599,000) 781,000
Cash and cash equivalents at beginning of period 2,924,000 2,143,000
----------- -----------
Cash and cash equivalents at end of period $ 1,325,000 2,924,000
=========== ===========
</TABLE>
Dividends paid by the Company are primarily provided through Association
dividends paid to the Company. At September 30, 1999, the Company had
declared dividends of $260,000 which had not been paid as of year-end.
During 1999, the Association paid dividends of $1,837,000 to the Company.
42
<PAGE>
STOCKHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Stockholders will be held at 4:00 p.m., Cameron, Missouri
time, on January 24, 2000, 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 and dividends declared for each
quarter during the last three years was as follows:
Fiscal Year 1997 High Low Dividends
---------------- ---- --- ---------
First Quarter $ 16.2500 14.500 0.070
Second Quarter 17.0000 15.500 0.070
Third Quarter 18.0000 15.500 0.070
Fourth Quarter 19.5000 17.000 0.070
============ ====== =====
Fiscal Year 1998
----------------
First Quarter $ 21.2500 18.500 0.070
Second Quarter 21.0000 19.130 0.070
Third Quarter 23.0000 18.630 0.070
Fourth Quarter 17.7500 15.250 0.070
============ ====== =====
Fiscal Year 1999
----------------
First Quarter $ 17.1250 14.500 0.070
Second Quarter 16.0000 13.500 0.070
Third Quarter 14.1250 11.875 0.125
Fourth Quarter 14.3125 12.875 0.125
============ ====== =====
A $.125 per share dividend was declared by the Board of Directors on September
16, 1999, payable October 25, 1999 to stockholders of record on October 8, 1999.
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, 1999, there were 2,079,779 shares of Cameron Financial
Corporation common stock issued and outstanding (including unallocated ESOP
shares) and there were 441 registered holders of record.
<PAGE>
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, 1999, 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.
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
Harold D. Lee
Chairman of Cameron Financial
Corporation, and
The Cameron Savings and Loan
Association, F.A.
Retired Owner, Lee Auto & Tractor
NAPA Dealership
David G. Just
President of Cameron Financial
Corporation and
The Cameron Savings & Loan
Association, F.A.
Kennith R. Baker
Agent, State Farm Insurance
William J. Heavner
Owner, Red X Motors
Jon N. Crouch
Manager, Cameron Memorial Airport
Owner, Crouch Aviation
Retired Frontier and Continental
Airlines Captain
William F. Barker, DDS
Owner, Barker Dental Clinic
Dennis E. Marshall
Farmer
Cameron Financial Corporation Executive Officers
David G. Just
President and Chief Executive Officer
Ronald W. Hill
Vice President and Treasurer
<PAGE>
The Cameron Savings & Loan Association, F.A. Executive Officers
David G. Just
President and Chief Executive Officer
Stephen D. Hayward
Vice-President, Manager,
Liberty Branch Office
Ronald W. Hill
Vice President and Treasurer
Independent Auditors
KPMG LLP
1000 Walnut, Suite 1600
Post Office Box 13127
Kansas City, Missouri 64199
Special Counsel
Luse, Lehman, Gorman, Pomerenk & Schick, PC
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
44
<TABLE>
<CAPTION>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
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>
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 12, 1999, relating to the consolidated balance sheets of
Cameron Financial Corporation and subsidiaries as of September 30, 1999 and
1998, 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, 1999, which report appears in the September 30, 1999 annual report on Form
10-K of Cameron Financial Corporation.
/s/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP
Kansas City, Missouri
December 27, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,900,000
<INT-BEARING-DEPOSITS> 1,200,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 18,543,000
<INVESTMENTS-MARKET> 18,190,000
<LOANS> 247,569,000
<ALLOWANCE> 1,602,000
<TOTAL-ASSETS> 261,553,000
<DEPOSITS> 143,737,000
<SHORT-TERM> 71,101,000
<LIABILITIES-OTHER> 6,091,000
<LONG-TERM> 0
0
0
<COMMON> 30,000
<OTHER-SE> 40,564,000
<TOTAL-LIABILITIES-AND-EQUITY> 261,553,000
<INTEREST-LOAN> 16,355,000
<INTEREST-INVEST> 983,000
<INTEREST-OTHER> 305,000
<INTEREST-TOTAL> 17,634,000
<INTEREST-DEPOSIT> 7,263,000
<INTEREST-EXPENSE> 9,992,000
<INTEREST-INCOME-NET> 7,651,000
<LOAN-LOSSES> 86,000
<SECURITIES-GAINS> 5,000
<EXPENSE-OTHER> 4,909,000
<INCOME-PRETAX> 3,142,000
<INCOME-PRE-EXTRAORDINARY> 3,142,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,937,000
<EPS-BASIC> 0.95
<EPS-DILUTED> 0.95
<YIELD-ACTUAL> 7.68
<LOANS-NON> 247,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,807,000
<ALLOWANCE-OPEN> 1,521,000
<CHARGE-OFFS> 5,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,602,000
<ALLOWANCE-DOMESTIC> 1,602,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
