SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended June 30, 1997 Commission file number 0-21688
FFBS Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 64-0828070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1121 Main Street, Columbus, Mississippi 39703
(Address of principal executive offices) (Zip Code)
(601) 328-4631
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None 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 filing requirements for the past 90 days.
Yes X No
Indicate by check mark if no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is 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-KSB or any amendment to this Form 10-KSB.
Issuer's revenues for the year ended June 30, 1997 (In thousands)
$9,454
Aggregate market value of the voting stock held by nonaffiliates was
approximately $33,206,443.
Indicate the number of shares outstanding of each of the issuers'
classes of common stock as of the latest practicable date.
Class Outstanding at June 30, 1997
Common stock, $.01 par value 1,565,595 shares
Documents Incorporated by Reference -
Annual report to stockholders for the fiscal year ended June 30,
1997.
Proxy statement for the 1997 annual meeting of stockholders.
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
FFBS Bancorp, Inc. (Company) was organized in March, 1993, at the
direction of the Board of Director's of First Federal Bank for Savings
(Bank) to acquire all of the capital stock that the Bank issued upon its
conversion from a mutual to a stock form of ownership. The Company may
acquire or organize other operating subsidiaries, including other
financial institutions, although there are currently no specific plans
regarding such activities by the Company. On June 30, 1993, the Company
acquired 100% of the outstanding common stock issued by the Bank upon
its conversion from a mutual association to a stock form of ownership.
Prior to that date, the Company conducted no other business other than
its formation and organization. The Company's primary source of income
is from its equity ownership in the Bank. At June 30, 1997, the Company
had total consolidated assets of $130.8 million, deposits of $103.8
million and stockholders' equity of $25.1 million.
The Bank descended from Columbus Building and Loan Association, which
dated back to 1892. In 1934, the Bank was organized as a federally
chartered mutual savings association headquartered in Columbus,
Mississippi. Its deposits are insured up to the maximum allowable
amount by the Federal Deposit Insurance Corporation (the "FDIC"). The
Bank primarily serves Lowndes County, Mississippi, and adjacent counties
in Mississippi and Alabama through its main office and two branch
offices in Columbus. The Bank is a community-oriented financial
institution offering a variety of financial services to meet the
financial service needs of the communities it serves. The Bank attracts
deposits from the general public and uses such deposits primarily to
originate loans secured by first mortgages on owner-occupied, one-to-
four family residences in its market area.
In addition to interest earned on loans and investments, the Bank
receives fee income for loan origination and commitments, late payments
and other miscellaneous services. Also, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the
Annual Report to Stockholders filed as Exhibit 13 hereto.
Like other institutions, the Bank is materially affected by general
economic conditions, the monetary and fiscal policies of the federal
government and the policies of the various regulatory authorities,
including the Office of Thrift Supervision (OTS) and the Board of
Governors of the Federal Reserve System ("Federal Reserve Board"). The
Bank's results of operations are largely dependent upon its net interest
income, which is the difference between (i) the interest it receives on
its loan portfolio and its investment securities portfolio and (ii) the
interest it pays on its deposit accounts. See Supplemental Statistical
Information for analysis of net interest earnings and rate/volume
analysis.
The Bank's principal business has been and continues to be attracting
retail deposits from the general public and investing those deposits,
together with funds generated from operations, primarily in one-to-four-
family loans, commercial business loans, construction loans and consumer
loans. In addition, the Bank invests in mortgage-backed and related
securities, U. S. government and federal agency securities and other
marketable securities. The Bank's revenues are derived principally from
interest on its mortgage loan and mortgage-backed securities portfolio
and earnings on its investment securities. The Bank's primary sources
of funds are deposits, principal and interest payments on loans and
mortgage-backed and related securities. At June 30, 1997, the Bank had
no brokered deposits and no FHLB-Dallas advances.
The following table sets forth the composition of the Bank's mortgage
and other loan portfolios and its mortgage-backed and related securities
in dollar amounts and in percentages at the dates indicated.
At June 30,
_______________________________________________
1995 1996 1997
_______________ _______________ _______________
Percent Percent Percent
Of Of Of
Amount Total Amount Total Amount Total
_______ _______ _______ _______ _______ _______
(Dollars in Thousands)
Mortgage loans:
One-to-four-family $60,439 75.18% $61,077 73.12% $67,198 72.44%
Multi-family 1,284 1.60 1,021 1.22 982 1.06
Commercial real estate 7,715 9.60 7,867 9.42 8,706 9.39
Construction and land 2,616 3.25 4,218 5.05 4,834 5.21
_______ _______ _______ _______ _______ _______
Total mortgage loans 72,054 89.63 74,183 88.81 81,720 88.10
_______ _______ _______ _______ _______ _______
Consumer and other loans:
Loans on deposit 1,416 1.76 1,592 1.91 1,090 1.18
Home improvement and
education 114 .14 83 .10 43 .05
Auto loans 2,793 3.47 3,680 4.41 4,271 4.60
Commercial -
collateralized 1,418 1.77 974 1.17 1,678 1.81
Commercial - unsecured 272 .34 479 .57 333 .36
Other loans 3,068 382 3,230 3.86 4,215 4.54
_______ _______ _______ _______ _______ _______
Total consumer and
other loans 9,081 11.30 10,038 12.02 11,630 12.54
_______ _______ _______ _______ _______ _______
Total loans
receivable 81,135 100.93 84,221 100.83 93,350 100.64
Less:
Unearned discounts and
deferred loan fees 39 .05 27 .03 14 .02
Allowance for loan
losses 705 .88 666 .80 576 .62
_______ _______ _______ _______ _______ _______
Loans receivable, net $80,391 100.00% $83,528 100.00% $92,760 100.00
======= ======= ======= ======= ======= =======
Mortgage-backed and
related securities:
FHLMC $ 1,718 85.51% $ 1,469 58.62% $ 5,265 72.44
CMOs 219 10.90 - 0.00 - 0.00
FNMA 65 3.24 1,029 41.06 1,993 27.42
_______ _______ _______ _______ _______ _______
Total mortgage-backed and
related securities 2,002 99.65 2,498 99.68 7,258 99.86
Net premiums 7 .35 8 .32 10 .14
_______ _______ _______ _______ _______ _______
Net mortgage-backed and
related securities $ 2,009 100.00% $ 2,506 100.00% $ 7,268 100.00
======= ======= ======= ======= ======= =======
The following table sets forth the composition of the Bank's loan
portfolio by fixed and adjustable rate at the dates indicated:
At June 30,
_______________________________________________
1995 1996 1997
_______________ _______________ _______________
Percent Percent Percent
Of Of Of
Amount Total Amount Total Amount Total
_______ _______ _______ _______ _______ _______
(Dollars in Thousands)
Fixed Rate Loans:
Mortgage Loans:
One-to-four family $27,635 34.06% $26,574 31.55% $30,583 32.76
Multi-family 981 1.21 915 1.08 879 .94
Commercial real
estate 7,222 8.90 7,391 8.78 8,315 8.91
Construction and land 2,359 2.91 3,963 4.71 4,587 4.91
_______ _______ _______ _______ _______ _______
Total mortgage
loans 38,197 47.08 38,843 46.12 44,364 47.52
Consumer 7,391 9.11 8,585 10.19 8,600 9.21
Commercial 1,690 2.08 1,453 1.73 1,815 1.95
_______ _______ _______ _______ _______ _______
Total fixed rate
loans 47,278 58.27 48,881 58.04 54,779 58.68
_______ _______ _______ _______ _______ _______
Adjustable Rate Loans
(ARM):
Mortgage Loans:
One-to-four-family 32,804 40.43 34,550 41.02 36,596 39.20
Multi-family 303 .37 106 .13 103 .11
Commercial real
estate 493 .61 430 .51 410 .44
Construction and
land 257 .32 254 .30 247 .27
_______ _______ _______ _______ _______ _______
Total mortgage
loans 33,857 41.73 35,340 41.96 37,356 40.02
Consumer - - - - 1,019 1.09
Commercial - - - - 196 .21
_______ _______ _______ _______ _______ _______
Total adjustable
rate loans 33,857 41.73 35,340 41.96 38,571 41.32
_______ _______ _______ _______ _______ _______
Total Loans $81,135 100.00% $84,221 100.00% $93,350 100.00
======= ======= ======= ======= ======= =======
Fixed rate mortgage-
backed and related
securities $ 2,002 100.00% $ 2,498 100.00% $ 5,731 78.96
Adjustable rate
mortgage-backed and
related securities - 0.00 - 0.00 1,527 21.04
_______ _______ _______ _______ _______ _______
Total mortgage-backed
and related
securities $ 2,002 100.00% $ 2,498 100.00% $ 7,258 100.00%
======= ======= ======= ======= ======= =======
The primary focus of the Bank is to originate ARM loans; however, they
are dependent upon relative customer demand as well as current and
expected future levels of interest rates. The Bank originates loans
that generally meet the Bank's underwriting standards, which are secured
by first mortgages on owner-occupied one-to-four-family residences and
commercial real estate located primarily in northeast Mississippi. The
Bank began a program of originating fixed-rate conforming loans for sale
for customers who desire the fixed-rate loan features. See Supplemental
Statistical Information for loan maturities and sensitivities to changes
in interest rates.
The following table sets forth the Bank's loan originations and loan and
mortgage-backed and related securities purchases, sales, principal
repayments and amortization of premiums and discounts for the periods
indicated.
At June 30,
_________________________
1995 1996 1997
_______ _______ _______
(In Thousands)
Mortgage loans (gross):
At beginning of period $68,018 $72,054 $74,183
_______ _______ _______
Mortgage loans originated:
One-to-four family 15,561 25,617 30,523
Multi-family and commercial real
estate 5,929 4,549 8,711
Construction and land 2,583 6,741 8,326
_______ _______ _______
Total mortgage loans originated 24,073 36,907 47,560
_______ _______ _______
Mortgage loans purchases 171 117 -
Less:
Transfer of mortgage loans to
foreclosed real estate 43 755 -
Principal repayments 18,321 28,485 35,367
Sales of one-to-four-family
mortgage loans 1,844 5,655 4,656
_______ _______ _______
At end of period $72,054 $74,183 $81,720
======= ======= =======
Consumer and other loans (gross):
At beginning of period $ 6,845 $ 9,081 $10,038
Consumer and other loans originated 9,437 7,701 12,045
Principal repayments (7,201) (6,744) (10,453)
Transfer to other assets - - -
_______ _______ _______
At end of period $ 9,081 $10,038 $11,630
======= ======= =======
Mortgage-backed and related securities
(gross):
At beginning of period $ 2,753 $ 2,002 $ 2,506
Mortgage-backed and related
securities purchased - 985 5,527
Amortization and repayments (751) (481) (765)
Sales - - -
_______ _______ _______
At end of period $ 2,002 $ 2,506 $ 7,268
======= ======= =======
The Bank provides valuation reserves for anticipated losses on loans at
a level considered adequate by management. Management performs
quarterly reviews of the Bank's loan portfolio to evaluate the adequacy
of the allowance with any adjustments being made through provisions for
loan losses. These reviews take into consideration the Bank's past due
and nonperforming loans, prior years' loss experience, economic
conditions, underlying collateral and the distribution of loans in the
portfolio by risk class. Amounts of the allowance are assigned to
specific loans and loan categories based upon these factors. Although
management believes that it uses the best information available to make
such determinations, future adjustments to reserves may be necessary,
and net income could be significantly affected, if circumstances differ
substantially from the assumptions used in making the initial
determinations. See Supplemental Statistical Information for summary of
loan loss experience.
Investment securities held by the Bank at June 30, 1996 and 1997, are
described in Note B to the consolidated financial statements and
included as part of Exhibit 13 to this annual report.
The Bank's primary sources of funds are deposits and repayments on loans
and mortgage backed and related securities. The Bank may obtain
advances from the FHLB-Dallas upon security of its capital stock of the
FHLB-Dallas and certain of its mortgage loans. Since 1982, the Bank has
utilized FHLB-Dallas advances once, and at June 30, 1997, the Bank had
no outstanding advances from the FHLB-Dallas, or any other borrowings.
The Bank offers a variety of deposit accounts having a range of interest
rates and terms. The Bank's deposits principally consist of fixed-term
certificates, regular passbook accounts, money market accounts, IRAs,
NOW accounts and commercial checking and demand (non-interest-bearing)
accounts. The flow of deposits is influenced significantly by general
economic conditions, changes in money market rates and other prevailing
interest rates and competition. The Bank relies primarily on customer
service and long-standing relationships with customers to attract and
retain these deposits. The Bank has no brokered deposits.
The Bank seeks to maintain a high level of stable core deposits by
advertising, providing reduced fees on checking accounts for senior
citizens and generally promoting checking accounts. When pricing
deposits, consideration is given to local competition, the Bank's gap
position, U. S. Treasury 90-day and six-month rates and the need for
funds. Management's strategy is to price at or just above the median
competition, contingent upon the need for funds, and to stratify the
pricing system to attract deposits and maintain a controlled gap
position.
There are no concentrations of deposits which are dependent on a
specific industry, governmental entity, etc., which if withdrawn would
significantly impact the Bank's financial condition.
Reference should be made to Note I - Deposits of the consolidated
financial statements included as part of Exhibit 13 to this annual
report for the distribution of the Bank's deposit accounts at June 30,
1996 and 1997, and the weighted average nominal interest rates.
Regulation
The Bank is a federally-chartered savings bank, the deposits of which
are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, the Bank is subject to broad
federal regulation and oversight extending to all of its operations.
The Bank is a member of the FHLB of Dallas and is subject to certain
limited regulation by the Federal Reserve Board. Also, the Bank is a
member of the Savings Association Insurance Fund (SAIF) and the deposits
of the Bank are insured by the FDIC. As a result, the FDIC has certain
regulatory and examination authority. Certain regulatory requirements
and restrictions are discussed below:
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering certain transactions such as mergers with or
acquisitions of other financial institutions. There are periodic
examinations by the OTS and the FDIC to test the Bank's compliance with
various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of
the insurance fund and depositors. The regulatory structure also gives
the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies,
including policies with respect to the classification of assets and the
establishment of adequate loan loss reserves for regulatory purposes.
Any change in such regulation, whether by the OTS, the FDIC or the
Congress could have a material adverse impact on the Company, the Bank
and their operations. The Holding Company is also required to file
certain reports and comply with the rules and regulations of the OTS,
the Securities and Exchange Commission ("SEC"), and the National
Association of Securities Dealers (NASD).
FDICIA
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") became law. While FDICIA primarily
addresses additional sources of funding for the Bank Insurance Fund
(BIF), which insures the deposits of commercial banks and savings banks,
it also imposes a number of new mandatory supervisory measures on
savings associations and banks. Some of the more significant provisions
are as follows:
a) Standards for Safety and Soundness. FDICIA requires the federal
bank regulatory agencies to prescribe, by regulation, standards for
all insured depository institutions and depository institution
holding companies relating to: (i) internal controls, information
systems and audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate risk exposure; (v) asset growth;
and (vi) compensation, fees and benefits. The compensation
standards prohibit employment contracts, compensation or benefit
arrangements, stock option plans, fee arrangements or other
compensatory arrangements that would provide excessive compensation,
fees or benefits or could lead to material financial loss. The FDICIA
also provides for enhanced federal supervision of depository
institutions based on, among other things, an institution's capital
level.
b) Prompt Corrective Regulatory Action. FDICIA establishes a system
of prompt corrective action to resolve the problems of
undercapitalized institutions. Under this system, which became
effective on December 19, 1992, the banking regulators are required
to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's
degree of capitalization. Generally, subject to a narrow
exception, FDICIA requires the banking regulator to appoint a
receiver or conservator for an institution that is critically
undercapitalized. FDICIA authorizes the banking regulators to
specify the ratio of tangible capital to assets at which an
institution becomes critically undercapitalized and requires that
ratio to be no less than 2% of assets.
Under the OTS final rule, generally, a savings institution that has
a total risk-based capital of less than 8.0% or a leverage ratio
that is less than 4.0% is considered to be undercapitalized. A
savings institution that has a total risk-based capital less than
6.0%, a Tier I risk-based capital ratio of less than 3% or a
leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized" and a savings institution that has
a tangible capital to assets ratio equal to or less than 2% is
deemed to be "critically undercapitalized." Generally, a capital
restoration plan must be filed with the OTS within 45 days of the
date an association receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized."
In addition, numerous mandatory supervisory actions become
immediately applicable to the institution, including, but not
limited to, restrictions on growth, investment activities, capital
distributions, and affiliate transactions. The OTS could also take
any one of a number of discretionary supervisory actions, including
the issuance of a capital directive and the replacement of senior
executive officers and directors.
c) Uniform Lending Standards. Under FDICIA, the federal banking
agencies are required to adopt uniform regulations prescribing
standards for extensions of credit that are secured by liens on
interests in real estate or made for the purpose of financing the
construction of a building or other improvements to real estate.
Under joint regulations recently adopted by the banking agencies,
which became effective March 19, 1993, savings associations must
adopt and maintain written policies that establish appropriate
limits and standards for extensions of credit that are secured by
liens or interests in real estate or are made for the purpose of
financing standards, prudent underwriting standards (including
loan-to-value limits) that are clear and measurable, loan
administration procedures, and documentation, approval and
reporting requirements. The real estate lending policies must
reflect consideration of the Interagency Guidelines for Real Estate
Lending Policies that have been adopted by the federal bank
regulators.
d) Miscellaneous. FDICIA increases the consumer lending authority of
federal associations to 35% of assets, extends the deadline for the
mandatory use of state-certified and state-licensed appraisers,
modifies the Qualified Thrift Lender (QTL) test to require 65%
rather than 70% of portfolio assets to be qualified thrift
investments and authorizes the OTS to prescribe rules for the
amount of purchased mortgage servicing rights that must be deducted
from capital for regulatory reporting purposes. FDICIA also
authorizes acquisitions of banks by savings associations on the
same terms as savings associations may be acquired by banks.
Small Business Job Protection Act
The Small Business Job Protection Act of 1996 was signed into law on
August 20, 1996. As the result of the enactment of the Small Business
Act, all savings banks and savings associations will be able to change
to a commercial bank charter, diversify their lending, or to be merged
into a commercial bank without having to recapture any of their pre-1988
tax bad debt reserve accumulations. Any tax bad debt reserves accumulated
above the 1987 level will be subject to recapture, regardless of whether
or not a particular thrift intends to change its charter, be acquired,
or diversify its activities. The recapture tax on the post-1987 tax bad
debt reserves will be paid in equal amounts over six years. If a thrift
originates the same principal amount of mortgage loans in 1997 or 1998
that it originates in the six years before, the payment of the recapture
tax may be deferred for each year. The Bank had accumulated tax reserves
of $1,600,000 as of July 1, 1988, and $2,550,000 as of June 30, 1996;
thus, resulting in tax reserves to be recaptured of $950,000. The Bank
anticipates deferring any recapture tax for two years (1997 and 1998),
the maximum deferment period, due to meeting the mortgage origination test.
Federal Securities Law
The Company filed with the SEC a registration statement under the
Securities Act, for the registration of the Common Stock to be issued
pursuant to the Conversion. Upon completion of the Conversion, the
Company's Common Stock was registered with the SEC under the Exchange
Act. The Company is subject to the information, proxy solicitation,
insider trading restrictions and other requirements under the Exchange
Act.
The registration under the Securities Act of shares of the Common Stock
to be issued in the Conversion does not cover the resale of such shares.
Shares of the Common Stock purchased by persons who are not affiliates
of the Company may be resold without registration. Shares purchased by
an affiliate of the Company are subject to the resale restrictions of
Rule 144 under the Securities Act. If the Company meets the current
public information requirements of Rule 144 under the Securities Act,
each affiliate of the Company who complies with the other conditions of
Rule 144 (including those that require the affiliate's sale to be
aggregated with those of certain other persons) will be able to sell in
the public market, without registration, a number of shares not to
exceed, in any three-month period, the greater (i) 1% of the outstanding
shares of the Company or (ii) the average weekly volume of trading in
such shares during the preceding four calendar weeks. Provision may be
made in the future by the Company to permit affiliates to have their
shares registered for sale under the Securities Act under certain
circumstances.
Regulatory Capital Requirements
The OTS capital regulations require savings institutions to meet three
capital standards: a 1.5% tangible capital standard; a 3% leverage (core
capital) ratio; and an 8% risk based capital standard. Core capital is
defined as common stockholder's equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, minority
interest in equity accounts of consolidated subsidiaries less
intangibles other than certain qualifying supervisory intangible assets
and certain purchased mortgage servicing rights. The OTS regulations
also require that, in meeting the leverage ratio, tangible and risk-
based capital standards, institutions must deduct investments in and
loans to subsidiaries engaged in activities not permissible for a
national bank. The Bank currently has no subsidiaries engaged in such
activities. At June 30, 1996 and 1997, the Bank exceeded each of its
capital requirements. See Supplemental Statistical Information -
Capital Adequacy Data of Subsidiary Bank.
On August 31, 1993, the OTS issued a final rule which sets forth the
methodology for calculating an interest rate risk ("IRR") component
which is added to the risk-based capital requirements for OTS regulated
thrift institutions. Under the final rule, savings associations with a
greater than "normal" level of interest rate exposure will be subject to
a deduction from total capital for purposes of calculating their risk-
based capital requirement. Specifically, interest rate exposure will be
measured as the decline in net portfolio value due to a 200 basis point
change in market interest rates. The interest rate risk ("IRR")
component to be deducted from total capital is equal to one-half the
difference between an institution's measured exposure and the "normal"
level of exposure, which is defined as two percent of the estimated
economic value of its assets. The final rule establishes a two quarter
"lag" between the reporting date that is used to calculate the IRR
component and the effective date of each quarter's IRR component. The
Director of the OTS may waive or defer an institution's IRR component,
but not decrease it unless it is as the result of an appeal. The OTS
intends to make an appeals process available to institutions under
certain circumstances. Recently, the OTS has postponed the interest
rate risk capital deduction in order to provide sufficient time to
implement and evaluate the OTS appeals process as well as get a better
sense of the direction that the other federal banking agencies may take
in their implementation of Section 305 of FDICIA.
Liquidity Requirements
The Bank is required to maintain an average daily balance of liquid
assets (cash, certain time deposits, bankers' acceptances, specified U.S.
Government, state or federal agency obligations, shares of certain
mutual funds and certain corporate debt securities and commercial paper)
equal to a monthly average of not less than a specified percentage of
its net withdrawable deposit accounts plus short-term borrowings. This
liquidity requirement may be changed from time to time by the OTS to any
amount within the range of 4% to 10% depending upon economic conditions
and the savings flows of member institutions, and is currently 5%. OTS
regulations also require each savings institution to maintain an average
daily balance of short-term liquid assets at a specified percentage
(currently 1%) of the total of its net withdrawable deposit accounts and
borrowings payable in one year or less. Monetary penalties may be
imposed for failure to meet these liquidity requirements. The Bank's
average long-term liquidity and short-term liquidity ratios for June 30,
1997, were 22.06% and 6.20%, respectively, which exceeded the then
applicable requirements. The Bank has never been subject to monetary
penalties for failure to meet its liquidity requirements.
Insurance of Deposit Accounts
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance
fund. The risk-related premium system (RRPS) is used to determine the
deposit insurance assessment rate. Under the RRPS, each insured
institution is assigned to one of three capital groups and to one of
three supervisory subgroups for purposes of determining an assessment
risk classification. The three capital categories based on the
institution's financial condition consist of (1) well capitalized,
(2) adequately capitalized, or (3) undercapitalized. The three
supervisory subgroups are (1) Subgroup A, (2) Subgroup B, and (3)
Subgroup C. The subgroup assignment is based upon a variety of factors
including, but not limited to, the latest supervisory examination of the
institution. For the assessment period beginning January 1, 1997, the
Bank has been assigned to the well capitalized and Subgroup A
categories. This resulted in the Bank receiving the lowest assessment
rate of .063% of deposits. However, the FDIC is authorized to raise
insurance premiums. Thus, any increase in the assessment rates could
have an impact on the Bank's earnings.
On September 30, 1996, the Deposit Insurance Funds Act of 1996 was enacted
and called for a special assessment on SAIF-assessable deposits to
capitalize the Savings Association Insurance Fund. During the fiscal year
ended June 30, 1997, the Company paid the FDIC special assessment of $599,000,
which was a charge to earnings of $376,000, net of taxes.
Qualified Thrift Lender Test
The Home Owners Loan Act ("HOLA"), as amended, requires savings
institutions to meet a qualified thrift lender ("QTL") test. If the
Association maintains an appropriate level of Qualified Thrift
Investments (primarily residential mortgages and related investments,
including certain mortgage-backed securities) ("QTIs") and otherwise
qualifies as a QTL, it will continue to enjoy full borrowing privileges
from the FHLB of Dallas. Under FDICIA, the required percentage of QTIs
was decreased from 70% to 65% of portfolio assets (defined as all assets
minus intangible assets, property used by the institution in conducting
its business and liquid assets up to 20% of total assets). Certain
assets are subject to a percentage limitation of 20% of portfolio
assets. In addition, savings associations may include shares of stock
of the Federal Home Loan Banks, FNMA and FHLMC as qualifying QTIs. The
FDICIA also amended the method for measuring compliance with the QTL
test to be on a monthly basis in nine out of every 12 months, as opposed
to on a daily or weekly average of QTIs. As of June 30, 1997, the
Association was in compliance with QTL requirement with 89.50% of its
total assets invested in Qualified Thrift Investments.
A savings association that does not meet a QTL test must either convert
to a bank charter or comply with the following restrictions on its
operations: (i) the savings associations may not engage in any new
activity or make any new investment, directly or indirectly, unless such
activity or investment is permissible for a national bank; (ii) the
branching powers of the savings association shall be restricted to those
of a national bank; (iii) the savings association shall not be eligible
to obtain any advances from its FHLB; and (iv) payment of dividends by
the savings association shall be subject to the rules regarding payment
of dividends by a national bank. Upon the expiration of three years
from the date the savings association ceases to be a QTL, it must cease
any activity and not retain any investment not permissible for a
national bank and immediately repay any outstanding FHLB advances
(subject to safety and soundness considerations).
Loans to One Borrower
Under the HOLA, as amended, savings institutions are subject to the
national bank limits on loans to one borrower. Generally, a savings
association may not make a loan or extend credit to a single or related
group of borrowers in excess of 15% of the savings association's
unimpaired capital and surplus. An additional amount may be lent, equal
to 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain
securities and bullion, but generally does not include real estate.
Dividend and Other Capital Distribution Limitations
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that
exceeds all fully phased-in capital requirements before and after a
proposed capital distribution ("Tier 1 Association") and has not been
advised by the OTS that it is in need of more than normal supervision,
could, after prior notice but without the approval of the OTS, make
capital distributions during the calendar year equal to the greater of:
(i) 100% of its net income to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the
excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year; or (ii) 75% of its net income for the
previous four quarters. Any additional capital distributions would
require prior regulatory approval. In the event the Bank's capital fell
below its fully phased-in requirement or the OTS notified it that it was
in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could
prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that
such distribution would constitute an unsafe or unsound practice.
Furthermore, under the OTS prompt corrective action regulations, which
took effect on December 19, 1992, the Bank would be prohibited from
making any capital distributions if, after the distribution, the Bank
would have (i) a total risk-based capital ratio of less than 8.0%; (ii)
a Tier 1 risk-based capital ratio of less than 4.0% or (iii) a leverage
ratio of less than 4.0%.
Federal Home Loan Bank System
The Association is a member of the FHLB of Dallas, which is one of 12
regional FHLBs that administer 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.
As a member, the Association is required to purchase and maintain stock
in the FHLB of Dallas in an amount equal to at least 1% of its aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. At June 30, 1997, the
Association had $801,900 in FHLB stock, which was in compliance with
this requirement.
As a result of FIRREA, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to
affordable housing programs through direct loans or interest subsidies
on advances targeted for community investment and low- and moderate-
income housing projects. These contributions have adversely affected
the level of FHLB dividends paid and could continue to do so in the
future. For the year ended June 30, 1997, dividends paid by the FHLB of
Dallas to the Association totaled $45,000.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction
accounts (primarily NOW and regular checking accounts). The Federal
Reserve Board regulations generally require that reserves of 3% must be
maintained against aggregate transaction accounts of $44.9 million or
less (subject to adjustment by the Federal Reserve Board) plus 10%
(subject to adjustment by the Federal Reserve Board between 8% and 14%)
against that portion of total transaction accounts in excess of $44.9
million. The first $4.4 million of otherwise reservable balances
(subject to adjustments by the Federal Reserve Board) are exempted from
the reserve requirements. The Bank is in compliance with the foregoing
requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve Board may be used to satisfy liquidity
requirements imposed by the OTS. Because required reserves must be
maintained in the form of either vault cash, a non-interest-bearing
account at a Federal Reserve Bank or a pass-through account as defined
by the Federal Reserve Board, the effect of this reserve requirement is
to reduce the Bank's interest-earning assets. FHLB System members are
also authorized to borrow from the Federal Reserve "discount window,"
but Federal Reserve Board regulations require institutions to exhaust
all FHLB sources before borrowing from a Federal Reserve Bank.
Holding Company Regulation
The Company is a nondiversified savings and loan holding company within
the meaning of the Home Owners' Loan Act (HOLA), as amended. As such,
the Company is required to register with the OTS and will be subject to
OTS regulations, examinations, supervision and reporting requirements.
In addition, the OTS has enforcement authority over the Company and any
non-savings institution subsidiaries. Among other things, this
authority permits the OTS to restrict or prohibit activities that are
determined to be a serious risk to the subsidiary savings institution.
The Bank must notify the OTS 30 days before declaring any dividend to
the Company.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring another
savings institution or holding company thereof, without prior written
approval of the OTS; acquiring or retaining, with certain exceptions,
more than 5% of a nonsubsidiary savings institution, a nonsubsidiary
holding company, or a nonsubsidiary company engaged in activities other
than those permitted by the HOLA; or acquiring or retaining control of
an institution that is not federally insured. In evaluating
applications by holding companies to acquire savings institutions, the
OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance funds, the convenience and
needs of the community and competitive factors.
As a unitary savings and loan holding company, the Company generally
will not be restricted under existing laws as to the types of business
activities in which it may engage, provided that the Bank continues to
meet OTS requirements. The HOLA limits the activities of a multiple
savings and loan holding company and any non-insured institution
subsidiaries primarily to activities permissible for bank holding
companies under Section 4(c)(8) of the BHC Act, subject to the prior
approval of the OTS, and activities authorized by OTS regulations. The
activities of savings institutions are governed by HOLA, as amended and,
in certain respects, the FDI Act. The HOLA and the FDI Act were amended
by the FIRREA, which was enacted for the purpose of resolving problem
savings institutions, establishing a new thrift insurance fund,
reorganizing the regulatory structure applicable to a savings
institution, and imposing bank-like standards on savings institutions,
and by FDICIA. The federal banking statues as amended by the FIRREA and
FDICIA (1) restrict the use of borrowed deposits by troubled savings
institutions that are not well-capitalized, (2) prohibit the acquisition
of any corporate debt security that is not rated in one of the four
highest rating categories, (3) restrict the aggregate amount of loans
secured by non-residential real estate property to 400% of capital, (4)
permit savings and loan holding companies to acquire up to 5% of the
voting shares of non-subsidiary savings institutions or savings and loan
holding companies without prior approval, (5) permit bank holding
companies to acquire healthy savings institutions and (6) require the
federal banking agencies to establish by regulation loan-to-loan value
limitations on real estate lending. However, the Bank does not have the
authority under the HOLA to make certain loans or investments, not
exceeding 5.0% of its total assets, on each of (i) non-conforming loans
(loans in excess of the specific limitations of the HOLA) and (ii)
construction loans without security for the purpose of financing what is
or is expected to be residential property. To assure repayment of such
loans, the Bank relies substantially on the borrower's general credit
standing, personal guarantees and projected future income on the
properties.
Federal Taxation
General. 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.
Historically, for federal income tax purposes, the Association has
reported its income and expenses on the accrual method of accounting and
has filed consolidated federal income tax returns on this basis. The
Association is subject to the rules of federal income taxation
applicable to corporations. Generally, the Code requires that all
corporations, including the Association, compute taxable income under
the accrual method of accounting. For its taxable year ending 1997, the
Association was subject to a maximum federal income tax rate of 34%.
Bad Debt Reserves. Beginning with the year ending June 30, 1997, the
Association began determining its tax bad debt reserve based upon the
six-year historical average method as provided in the Internal Revenue
Code. Previously, the Association had used the "percentage-of-taxable-
income" method. See Small Business Job Protection Act.
Earnings appropriated for bad debt reserves and deducted for federal
income tax purposes cannot be used by the Association to pay cash
dividends to the Holding Company without the payment of income taxes by
the Association at the then current income tax rate on the amount deemed
distributed, which would include the amount of any federal income taxes
attributable to the distribution. Thus, any dividends to the Holding
Company that would reduce amounts appropriated to the Association's bad
debt reserves and deducted for federal income tax purposes could create
a tax liability for the Association. The Association does not intend to
pay dividends that would result in a recapture of its bad debt reserves.
The income tax law requires the recapture of the Association's base year
tax bad debt reserves in the following cases:
1. Certain excess distributions to shareholders;
2. certain redemption of shareholders, and
3. the liquidation of the Association.
Additionally, if the Association, or its successors, should fail to qualify
as a bank, as defined by the Internal Revenue Code, it would be required to
recapture its base year tax bad debt reserves. Regulations to be written
will address the recapture requirements, if any, in the case of spin-offs,
mergers, acquisitions, and other reorganizations.
State Taxation
Mississippi Taxation. The Holding Company and the Association are
subject to the Mississippi corporate income tax and franchise tax to the
extent that such corporations are engaged in business in the State of
Mississippi or have income that is generated in the state. A franchise
tax is imposed at a rate of $2.50 per $1,000, or fractional part
thereof, of capital, surplus, undivided profits and reserves employed in
Mississippi. An income tax is imposed at a rate of 3% on the first
$5,000 of taxable income, 4% on the next $5,000 of taxable income and 5%
on taxable income in excess of $10,000. A Mississippi combination
return of corporate income and franchise tax must be filed annually.
For these purposes, "taxable income" generally means federal taxable
income, subject to certain adjustments (including the addition of
interest income on non-Mississippi state and municipal obligations and
the exclusion of interest income on U. S. Treasury obligations). The
exclusion of income on U. S. Treasury obligations has the effect of
reducing the Mississippi taxable income of savings institutions.
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Holding Company is exempted from Delaware corporate income
tax but is required to file an annual report with and pay an annual
franchise tax to the State of Delaware.
Competition
The Company and the Bank currently serve Lowndes County, Mississippi,
and adjacent counties in Mississippi and Alabama. Over this same area,
the Bank competes directly in Lowndes County with approximately 7
banking institutions and many credit unions, financial companies,
brokerage firms, mortgage companies and insurance companies. The
institution is the only savings association in the immediate area. The
slogan, "Local People with Local Interests," identifies the Bank as a
community-oriented financial institution, which management considers as
its major competitive advantage in attracting and retaining customers in
its market area.
Research and Development
For the years ended June 30, 1996, and 1997, the Company and the Bank
had no expenditures for research and development.
Dependence on Customers
The Company and the Bank are not dependent on one or a few major
customers.
Environmental Laws
Compliance with environmental laws has not had a significant impact on
the financial condition of the Company or the Bank.
Number of Employees
At June 30, 1997, the Company had no employees. At June 30, 1997, the
Bank had 34 employees of which 28 were full-time.
ITEM 2 - DESCRIPTION OF PROPERTY
The Bank conducts its business through its main office in Columbus and
two branch offices in Columbus, Mississippi.
Date Net Book Value at Leased or
Location Acquired June 30, 1997 (1) Owned
____________________ _________ _________________ _______________
(Dollars in Thousands)
Main Office
1121 Main Street 1979 $729 Leased/Owned (2)
Columbus,
Mississippi
Branch Office
420 Alabama Street 1971 $137 Owned
Columbus,
Mississippi
Branch Office
2024 Highway 45 1987 $301 Owned
North
Columbus,
Mississippi
(1) Includes value of premises and equipment.
(2) The main office building is owned by the Bank but is situated on
property that is leased from the Columbus School Board and,
pursuant to Statue, the lease has a 99 year term which is renewable
forever, subject to an upward adjustment to the rent paid. This
lease is subject to litigation which may result in an increase in
rent paid prior to the expiration date. Management does not
currently believe that any increase will have a material impact on
the Bank's financial condition or results of operations.
The Bank also owns two pieces of property in Lowndes County for the future
operation of branch offices.
ITEM 3 - LEGAL MATTERS
At June 30, 1997, the only litigation the Bank is involved with consists
of various legal actions arising in the normal course of its business.
In the opinion of management, the resolutions of these legal actions are
not expected to have a material adverse effect on the Bank's financial
condition or results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY MATTERS
None
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
A) The Company's common stock is traded in the over-the-counter market
under the NASDAQ symbol "FFBS" and is quoted on NASDAQ's National
Market System.
B) The conversion from the mutual form of ownership to a stock
institution was effective June 30, 1993. The offering price was $10
per share. The stock traded in a range from $19.75 to $24.50 during
the fiscal year 1997.
C) Dividends of $.50 per share were declared on the common stock for
the year ended June 30, 1997.
D) As described in Item 1 - Regulation, the payment of dividends are
subject to approval and/or restrictions by governmental regulations.
E) At June 30, 1997, the Company had approximately 658 shareholders.
The Bank is 100% owned by the Company.
ITEM 6 - SELECTED FINANCIAL DATA
The information titled "Selected Financial Data" and contained on Pages
5-6 of the Company's annual report to the shareholders for the year
1997 is incorporated herein by reference in response to this item.
SUPPLEMENTAL STATISTICAL INFORMATION
I. Distribution of Assets, Liabilities, and Stockholders' Equity:
Interest Rates and Interest Differential
A. Average Balance Sheets (Consolidated) and Analysis of Net
Interest Earnings:
Year Ended June 30
___________________________________________________
1996 1997
_________________________ _________________________
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
________ ________ _______ ________ ________ _______
(Dollars in Thousands)
Assets:
Interest-earning assets:
Mortgage loans, net (1) $ 73,238 $ 6,216 8.49% $ 78,026 $ 6,507 8.34%
Other loans (1) 9,858 858 8.70% 9,771 959 9.81%
Mortgage-backed and
related securities (1) 2,314 140 6.05% 4,991 309 6.19%
Interest-bearing
deposits (1) 5,863 312 5.32% 5,735 310 5.41%
Investment
securities (2) 26,149 1,357 5.19% 23,171 1,324 5.71%
FHLB stock (6) 731 45 6.16% 776 45 5.80%
________ ________ ________ ________
Total interest-
earning assets (6) 118,153 8,928 7.56% 122,470 9,454 7.72%
Non-interest-earning
assets 3,017 4,623
________ ________
Total Assets (6) $121,170 $127,093
======== ========
Liabilities and
Retained Earnings:
Interest-bearing
liabilities:
Deposits:
Passbook accounts(1) $ 6,085 $ 168 2.76% $ 6,192 $ 175 2.83%
Now accounts (1) 11,381 203 1.78% 12,055 194 1.61%
Money market
accounts (1) 6,407 227 3.54% 5,758 198 3.44%
Certificate
accounts (1) 71,776 3,965 5.52% 76,200 4,196 5.51%
Borrowed funds 0 0 0.00% 0 0 0.00%
________ ________ _______ ________ ________ _______
Total interest-
bearing
liabilities (1) 95,649 4,563 4.77% 100,205 4,763 4.75%
Other liabilities 1,369 2,022
________ ________
Total liabilities 97,018 102,227
Retained earnings (6) 24,152 24,866
________ ________
Total liabilities
and retained
earnings (6) $121,170 $127,093
======== ========
Net interest income/
interest rate spread (3) $ 4,365 2.79% $ 4,691 2.97%
======== ========
Net earning assets/
net interest margin (4) $ 22,504 3.69% $ 22,265 3.83%
======== ========
Interest-earning
assets to interest-
bearing liabilities 123.53% 122.22%
(1) Based upon or derived from daily balances.
(2) Based upon quarterly balances.
(3) Interest rate spread represents the difference
between the average rate on interest-earning
assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income
before the provision for loan losses divided by
average interest-earning assets.
(5) For the purposes of these computations, nonaccruing
loans are included in the average loan balances
outstanding.
(6) Based upon or derived from monthly balances.
B. Rate/Volume Analysis:
The following table presents the extent to which changes in
interest rates and changes in the volume of interest-earning
liabilities that have affected the Bank's interest income and
interest expense during the periods indicated. Information
is provided in each category with respect to (i) changes
attributable to changes in volume (changes in average balance
multiplied by prior average interest rate), (ii) changes
attributable to changes in rate (changes in average interest
rate multiplied by prior average balance), and (iii) the net
change. The changes attributable to the combined impact of
volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.
Year Ended Year Ended
June 30, 1995 June 30, 1996
Compared to Compared to
Year Ended Year Ended
June 30, 1996 June 30, 1997
______________________ ______________________
Increase Increase
(Decrease) in (Decrease) in
Net Interest Net Interest
Income Due to Income Due to
______________ ______________
Volume Rate Net Volume Rate Net
______ ______ ______ ______ ______ ______
(Dollars in Thousands)
Interest-earning
assets:
Mortgage loans,
net $ 273 $ 14 $ 287 $ 402 $ (111) $ 291
Consumer and
other loans 176 26 202 (8) 109 101
Mortgage-backed
and related
securities (1) 14 13 166 3 169
Interest-bearing
deposits 9 36 45 (7) 5 (2)
Investment
securities (46) (8) (54) (162) 129 (33)
FHLB stock 3 2 5 3 (3) 0
______ ______ ______ ______ ______ ______
Total 414 84 498 394 132 526
______ ______ ______ ______ ______ ______
Interest-bearing
liabilities:
Passbook
accounts $ (4) $ (7) $ (11) $ 3 $ 4 $ 7
Now accounts 27 38 65 11 (20) (9)
Money market
accounts (35) 38 3 (23) (6) (29)
Certificate
accounts 190 462 652 238 (7) 231
______ ______ ______ ______ ______ ______
Total 178 531 709 229 (29) 200
______ ______ ______ ______ ______ ______
Net change in
interest income $ 236 $ (447) $ (211) $ 165 $ 161 $ 326
====== ====== ====== ====== ====== ======
II. Investment Portfolio and Mortgage-Backed and Related Securities
A. The following table sets forth the carrying amount of investment
securities at the dates indicated:
June 30,
1996 1997
________ ________
(In Thousands)
U. S. Treasury and other U. S.
Government agencies $ 24,589 $ 15,586
States and political subdivisions 2,009 2,006
Mortgage-backed and related securities 2,506 7,268
Marketable equity securities 1,143 1,222
________ ________
$ 30,247 $ 26,082
======== ========
B. The following table sets forth the securities of debt investment
securities at June 30, 1997, and the weighted average yields of
such securities:
Maturing
_____________________________________________________
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years
_____________ _____________ ____________ ____________
Amount Yield Amount Yield Amount Yield Amount Yield
_______ _____ _______ _____ ______ _____ ______ _____
(In Thousands)
U.S. Treasury and
other U. S. Govern-
ment agencies $ 3,150 5.43% $12,436 5.96% $ - - % $ - - %
States and political
subdivisions 1,000 3.93% - - % - - % 1,007 4.14%
Mortgage-backed and
related securities 1,140 5.77% 1,845 6.03% 1,784 6.79% 2,498 6.22%
_______ _____ _______ _____ ______ _____ ______ _____
$ 5,290 5.22% $14,281 5.97% $1,784 6.79% $3,505 5.62%
======= ===== ======= ===== ====== ===== ====== =====
Tax equivalent adjustments have not been made in calculating yields on
obligations of states and political subdivisions.
III. Loan Portfolio
A. Types of Loan
Reference is made to Note C of the consolidated financial
statements.
B. Maturities and sensitivities of loans to changes in
interest rates. The following table shows the maturity
of the Association's loan portfolio at June 30, 1997.
Loans that have adjustable rates are shown as amortizing
to final maturity rather than in the period during which
the interest rates are next subject to change. The table
does not include prepayments but does reflect scheduled
principal amortization.
(In Thousands)
June 30, 1997
__________________________________
Maturing
__________________________________
Within
One 1-5 Over
Type Year Years 5 Years Total
________________________ _______ _______ _______ _______
One-to-Four Family $ 7,116 $ 7,743 $52,339 $67,198
Other Mortgage Loans 2,072 2,923 9,527 14,522
Consumer and Other Loans 5,066 5,815 749 11,630
_______ _______ _______ _______
$14,254 $16,481 $62,615 $93,350
======= ======= ======= =======
Loans with:
Predetermined interest
rates $12,470 $16,150 $26,159 $54,779
Adjustable interest
rates 1,784 331 36,456 38,571
_______ _______ _______ _______
$14,254 $16,481 $62,615 $93,350
======= ======= ======= =======
C. Non-performing Loans:
1. The following table sets forth information regarding non-
accrual loans, loans which are 90 or more delinquent and
still accruing, and foreclosed properties at the dates
indicated. At June 30, 1997, there are no potential problem
loans except as included in the table below.
(In Thousands)
At
June 30 June 30
_______ _______
1996 1997
_______ _______
Non-accrual mortgage loans $ 455 $ 0
Non-accrual other loans 40 0
_______ _______
Total non-accrual loans 495 0
Loans 90 days or more delinquent,
and still accruing 675 446
_______ _______
Total non-performing loans 1,170 446
Total foreclosed real estate, net of
related allowance for losses 558 0
_______ _______
Total non-performing assets $ 1,728 $ 446
======= =======
Troubled debt restructured $ 864 $ 39
======= =======
Non-performing loans to total loans 1.40% .48%
Total non-performing assets to total assets 1.38% .34%
2. There were no loan concentrations in excess of 10% of total
loans at June 30, 1997.
3. There were no outstanding foreign loans at June 30, 1997.
4. Loans classified for regulatory purposes or for internal
credit review purposes that have not been disclosed in the
above table do not represent or result from trends or
uncertainties that management expects will materially impact
the financial condition of the Company or its subsidiary
bank, or their future operating results, liquidity, or
capital resources.
5. If all nonaccrual loans have been current throughout their
terms, interest income 1997 and 1996 would have been
increased/(decreased) by approximately $6 and $0,
respectively.
6. Management stringently monitors assets that are classified
as non-performing. Non-performing assets include nonaccrual
loans, loans past due 90 days or more, and foreclosed
properties. Management places loans on a nonaccrual status
when it is determined that the borrower is unable to meet
his contractual obligations or when interest or principal is
90 days or more past due, unless the loan is adequately
secured by way of collateralization, guarantees, or other
security.
7. At June 30, 1997, management was not aware of any potential
problem loans not previously disclosed.
D. Other interest-bearing assets:
There were no other interest-bearing non-performing assets at
June 30, 1997.
IV. Summary of Loan Loss Experience
A. Allowance for Loan Losses:
The allowance for loan losses is established through a provision
for loan losses based on management's periodic evaluation of the
adequacy of the allowance for loan losses. Such evaluation,
which includes a review of all loans on which full collectibility
may not be reasonably assured, considers among other matters
known and inherent risk in the portfolio, prevailing market
conditions, management's judgment as to collectibility, the
estimated net realizable value of the underlying collateral,
historical loan loss experience and other factors that warrant
recognition in providing for an adequate loan loss allowance.
For the
Year Ended
June 30
______________
1996 1997
______ ______
(In Thousands)
Balance at beginning of period $ 705 $ 666
Provision (benefits) for loan losses 0 0
Charge-offs:
Mortgage loans 0 46
Other loans 44 51
Recoveries:
Mortgage loans 3 3
Other loans 2 4
______ ______
Balance at end of period $ 666 $ 576
====== ======
Ratio of net charge-offs during the period
to average loans outstanding during the
period 0.50% 0.11%
Ratio of allowance for loan losses to non-
performing loans at the end of the period 56.92% 129.15%
Ratio of allowance for loan losses to net
loans receivable at the end of the period 0.80% 0.62%
Ratio of allowance for loan losses and fore-
closed real estate to total non-performing
assets at the end of the period 39.21% 129.15%
B. Allocation of the Allowance for Loan Losses
At June 30, 1996 At June 30, 1997
---------------- ----------------
Percent Percent
Of Of
Loans to Loans to
Total Total
Amount Loans Amount Loans
______ ________ ______ ________
At end of period allocated
to:
One-to-four family $ 413 74.49% $ 305 71.99%
Commercial real estate
and multi-family 180 11.09% 197 10.38%
Construction and land 0 3.22% 0 5.18%
Consumer and other
loans 112 11.20% 74 12.45%
______ ________ ______ ________
Total allowance $ 705 100.00% $ 576 100.00%
====== ======== ====== ========
V. Deposits
A. Distribution of Deposit Accounts
The following table sets forth the distribution of the Bank's
deposit accounts at the dates indicated and the weighted average
interest rates on each category of deposits presented. The Bank
does not have a significant amount of deposits from out-of-state.
Management does not believe that the use of year end balances
instead of average balances resulted in any material difference
in the information presented.
At June 30,
________________________________________________________
1995 1996
___________________________ ___________________________
Weighted Weighted
Percent Average Percent Average
Of Total Nominal Of Total Nominal
Amount Deposits Rate Amount Deposits Rate
_______ ________ ________ _______ ________ _______
(Dollars in thousands)
Transaction
accounts:
Interest-bearing
checking
accounts $ 8,256 8.92% 2.33% $10,383 10.47% 2.26%
Money market
accounts 6,325 6.83% 3.58% 6,057 6.11% 3.46%
Non-interest-
bearing checking
accounts 2,641 2.85% 0.00% 2,851 2.88% 0.00%
_______ ________ ________ _______ ________ _______
Total transaction
accounts 17,222 18.60% 2.87% 19,291 19.46% 2.30%
Regular passbook
accounts 5,951 6.43% 2.78% 6,330 6.38% 2.76%
_______ ________ ________ _______ ________ _______
Total transaction
and passbook
accounts 23,173 25.03% 2.85% 25,621 25.84% 2.42%
_______ ________ ________ _______ ________ _______
Certificate
accounts:
One-year
certificates
and under 40,811 44.08% 5.13% 45,931 46.33% 5.21%
Over one-year
thru three-year
certificates 22,788 24.62% 5.53% 22,512 22.70% 5.80%
Greater than
three-year
certificates 5,804 6.27% 6.17% 5,084 5.13% 6.00%
_______ ________ ________ _______ ________ _______
Total
certificate
accounts 69,403 74.97% 5.35% 73,527 74.16% 5.44%
_______ ________ ________ _______ ________ _______
Total Deposits $92,576 100.00% 4.64% $99,148 100.00% 4.66%
======= ======== ======== ======= ======== =======
At June 30,
_____________________________
1997
_____________________________
Weighted
Percent Average
Of Total Nominal
Amount Deposits Rate
_________ ________ _______
(Dollars in thousands)
Transaction
accounts:
Interest-bearing
checking
accounts $ 9,350 9.00% 2.07%
Money market
accounts 5,626 5.42% 3.57%
Non-interest-
bearing checking
accounts 3,557 3.43% 0.00%
________ ________ _______
Total transaction
accounts 18,533 17.85% 2.13%
Regular passbook
accounts 6,186 5.96% 2.84%
________ ________ _______
Total transaction
and passbook
accounts 24,719 23.81% 2.31%
________ ________ _______
Certificate
accounts:
One-year
certificates
and under 44,204 42.58% 5.45%
Over one-year
thru three-year
certificates 29,132 28.07% 5.81%
Greater than
three-year
certificates 5,743 5.54% 6.29%
________ ________ _______
Total
certificate
accounts 79,079 76.19% 5.64%
________ ________ _______
Total Deposits $103,798 100.00% 4.85%
======== ======== =======
B. Other categories
None
C. Foreign deposits
None
D. Time certificates of deposit of $100,000 or more and maturities
at June 30, 1997:
3 6
3 Through Through Over
Months 6 12 12
Total Or Less Months Months Months
_______ _______ _______ _______ _______
(In Thousands)
Time certificates
of deposit of
$100,000 or more $17,086 $ 3,659 $ 3,893 $ 5,837 $ 3,697
======= ======= ======= ======= =======
E. Foreign office time deposits of $100,000 or more:
Not applicable.
VI. Return on Equity and Assets
The following financial ratios are presented for analytical purposes:
June 30,
________________
1996 1997
_______ _______
Return on assets (net income divided by total
average assets) 1.37% 1.16%
Return on equity (net income divided by average
equity) 6.89% 5.95%
Dividend payout ratio (dividends per share
divided by net income per share) 133.03% 51.55%
Equity to asset ratio (average equity divided
by average total assets) 19.93% 19.57%
VII. Short-Term Borrowings
The Company had no short-term borrowings in excess of 30% of stock-
holder's equity for each of the periods reported.
VIII. Capital Adequacy Data of Subsidiary Bank:
At June 30, 1997
____________________________________________________
Tangible Core Risk-Based
Capital Capital Capital
________________ ________________ ________________
Amount Percent Amount Percent Amount Percent
_______ _______ _______ _______ _______ _______
First Federal $20,548 16.20% $20,548 16.20% $21,114 29.90%
OTS Require-
ment 1,904 1.50% 3,808 3.00% 5,655 8.00%
_______ _______ _______ _______ _______ _______
Excess $18,644 14.70% $16,740 13.20% $15,459 21.90%
======= ======= ======= ======= ======= =======
The OTS capital regulations require savings institutions to meet three
capital standards: a 1.5% tangible capital standard; a 3% leverage
(core capital) ratio; and an 8% risk-based capital standard. Core
capital is defined as common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related
surplus, minority interest in equity accounts of consolidated
subsidiaries less intangibles other than certain qualifying
supervisory intangible assets and certain purchased mortgage
servicing rights. The OTS regulations also require that, in meeting
the leverage ratio, tangible and risk-based capital standards
institutions must deduct investments in and loans to subsidiaries
engaged in activities not permissible for a national bank. The Bank
currently has no subsidiaries engaged in such activities. At June 30,
1996 and 1997, the Bank exceeded each of its capital requirements.
IX. Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities 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
anticipated, based upon certain assumptions, to mature or reprice
within a specific time period and the amount of interest-bearing
liabilities anticipated, based upon certain assumptions, to mature or
reprice within that 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. Generally, during a period
of rising interest rates, a negative gap would adversely affect net
interest income while a positive gap would result in an increase in
net interest income, while conversely during a period of falling
interest rates, a negative gap would result in an increase in net
interest income and a positive gap would negatively affect net
interest income.
Over the years the Bank has taken steps to reduce or control its gap
by emphasizing adjustable-rate loans, originating conforming fixed-
rate loans for sale, and maintaining investments with shorter terms
to maturity. At June 30, 1997, total interest-bearing liabilities
maturing or repricing within one year exceeded total interest-earning
assets maturing or repricing in the same time period by $11.3 million
representing a negative cumulative one-year gap ratio of (8.61%).
Thus, during periods of rising interest rates, it is expected that
the cost of the Bank's interest-bearing liabilities would rise more
quickly than the yield on its interest-earning assets, which would
adversely affect net interest income. In periods of falling interest
rates, the opposite effect on net interest income is expected. In
periods of substantial interest rate declines, the Bank could
experience increased prepayments of its mortgage loans which may
result in the reinvestment of such proceeds at market rates which are
lower than current rates. During 1996 the market dictated that
adjustable rate mortgages carry a longer initial time period before
the loan can reprice; thus, resulting in assets repricing much slower
than in earlier years. However, during 1997 the market dictated that
adjustable rate mortgages carry a shorter initial time period before
the loan can reprice, which resulted in these assets repricing faster
than the year before, thus decreasing the 1 year interest sensitivity
gap.
Management of the Bank believes that, given the level of capital of
the Bank and the excess of interest-earning assets over interest-
bearing liabilities, the increased net income resulting from a
mismatch in the maturity of its asset and liability portfolios
provides sufficient returns during periods of declining or stable
interest rates to justify the increased vulnerability to sudden and
unexpected increases in interest rates.
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at June 30, 1997, which
are anticipated by the Bank, based upon certain assumptions, to
reprice or mature in each of the future time periods shown. Except
as stated below, the amount of assets and liabilities shown which
reprice or mature during a particular period were determined in
accordance with the contractual terms of the assets or liability.
Loans that have adjustable interest rates are shown as being due in
the period during which the interest rates are next subject to change.
Decay rates for deposits are assumed to indicate the annual rate at
which an interest-bearing liability will be withdrawn in favor of an
account or other investment with a more favorable return. Decay
rates have been assumed for regular passbook, NOW and other checking
accounts, and money market accounts. The decay rates assumed in this
evaluation are as follows:
Annual Decay Rate
_______________________________________________
Less More
Than 1 to 3 to 5 to Than
1 Year 3 Years 5 Years 10 Years 10 Years
________ ________ ________ ________ ________
Regular Passbook 17.00% 17.00% 16.00% 14.00% 14.00%
NOW and Other
Checking 37.00% 32.00% 17.00% 17.00% 17.00%
Money Market 79.00% 31.00% 31.00% 31.00% 31.00%
The above prepayment and decay rates are those national assumptions
published by the OTS as of December 31, 1992. The assumptions used
at the dates indicated, although standardized, may not be indicative
of actual prepayments and withdrawals experienced by the Bank.
Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they
may react in different degrees to changes in market interest rates.
Also, the interest rates on certain types of assets and liabilities
may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which
restrict changes in interest rates on a short-term basis and over the
life of the asset. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. Finally,
the ability of many borrowers to service their debt may decrease in
the event of an interest rate increase.
At June 30, 1997
_______________________________________________________
More Than More Than
Within 1 Year to 5 Years To More Than
1 Year 5 Years 10 Years 10 Years Total
_________ _________ __________ _________ _________
(In Thousands)
Interest-earning
assets:
Mortgage loans $ 40,716 $ 16,478 $ 9,965 $ 14,561 $ 81,720
Other loans 5,267 5,816 295 252 11,630
Interest-
bearing
deposits 5,059 0 0 0 5,059
Mortgage-backed
and related
securities 2,691 1,845 1,784 948 7,268
Investment
securities 5,371 12,436 0 1,007 18,814
FHLB stock 0 0 0 802 802
_________ _________ __________ _________ _________
Total interest-
earning assets 59,104 36,575 12,044 17,570 125,293
_________ _________ __________ _________ _________
Less:
Unearned
discount and
deferred fees (12) (2) 0 0 (14)
_________ _________ __________ _________ _________
Net interest-
earning assets 59,092 36,573 12,044 17,570 125,279
_________ _________ __________ _________ _________
Interest-bearing
liabilities:
Passbook
accounts 1,052 2,638 1,321 1,175 6,186
NOW accounts 3,460 4,014 1,137 739 9,350
Money market
accounts 4,445 913 226 42 5,626
Certificate
accounts 61,395 17,683 1 0 79,079
_________ _________ __________ _________ _________
Total interest-
bearing
liabilities 70,352 25,248 2,685 1,956 100,241
_________ _________ __________ _________ _________
Interest
sensitivity gap $ (11,260) $ 11,325 $ 9,359 $ 15,614 $ 25,038
========= ========= ========== ========= =========
Cumulative
interest
sensitivity gap $ (11,260) $ 65 $ 9,424 $ 25,038
========= ========= ========== =========
Cumulative
interest
sensitivity gap
as a percentage
of total assets (8.61%) .05% 7.21% 19.15%
Cumulative net
interest-earning
assets as a
percentage of
cumulative
interest-
sensitive
liabilities 83.99% 100.07% 109.59% 124.98%
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
The information contained on Pages 2 - 6 of the Company's 1997 annual
report to shareholders is incorporated herein by reference in response
to this item and included in this report as Exhibit 13.c.
ITEM 8 - FINANCIAL STATEMENTS
The consolidated financial statements of the Company, together with
the report of T. E. Lott & Company, independent accountants, are set
forth on Pages 7 - 37 of the Company's 1997 annual report to shareholders
which is incorporated herein by reference and included in this report as
Exhibit 13.d.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
For the year ended June 30, 1997, the Company and its subsidiary bank
had no changes in or disagreements with its accountants concerning
accounting and financial disclosures.
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Reference is made to the captions "Security Ownership of Certain
Beneficial Owners" and "Filing of Beneficial Ownership Reports" on Page
2 and "Information with Respect to Nominees, Continuing Directors and
Executive Officers" Page 4 of the Company's proxy statement which is
incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
Reference is made to the captions "Directors' Compensation" and "Summary
Compensation Table" Pages 5 - 7 of the Company's proxy statement which
is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Reference is made to the captions "Security Ownership of Certain
Beneficial Owners" Page 2 and "Information with Respect to Nominees,
Continuing Directors and Executive Officers" Page 4 of the Company's
proxy statement which is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the caption "Transactions with Certain Related
Persons" Pages 7 - 9 of the Company's proxy statement which is
incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS AND REPORTS ON FORM 8-K
A) Documents filed as part of this report:
1. The consolidated financial statements of FFBS Bancorp, Inc., as
of June 30, 1996 and 1997, together with the report of T. E.
Lott & Company, independent certified public accountants, dated
July 18, 1997, appearing on Pages 7 - 37 of the 1997 Company's
annual report, together with the "Five Year Summary of
Operations" on Pages 5 - 6 of the annual report to shareholders
are attached as Exhibit 13.d. to this Form 10KSB Annual Report.
2. Financial Statement Schedules
Schedules not included have been omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
3. Exhibits:
1. - 2. None.
3. Articles of Incorporation and By-Laws (Reference is
made to Exhibits 3.1, 3.2 and 3.3 of the Company's
registration statement on Form S-1 filed on March 30,
1993, with the Securities and Exchange Commission - No.
33-60308).
4. - 12. None.
13. Annual report to shareholders - deemed filed herewith
only to the extent it is incorporated elsewhere herein.
13.a. Market for company's common stock - Page 4 of the
annual report to stockholders.
13.b. Selected financial data - Pages 5 - 6 of the annual report
to stockholders.
13.c. Management's discussion and analysis of financial
condition and results of operations - Pages 2 - 4 of the
annual report to stockholders.
13.d. Consolidated financial statements - Pages 7 - 37 of the
annual report to stockholders.
14. Earnings per share - Reference is made to Note R of the
consolidated financial statement which is incorporated
herein by reference.
15. - 21. None.
22. Subsidiaries of Company (IV-2).
23. - 26. None.
27. Financial Data Schedule.
28. - 29. None.
B) No reports on Form 8-K were filed during the quarter ended June 30,
1997.
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.
FFBS BANCORP, INC.
(Registrant)
By _________________________________
E. Frank Griffin, III
President and Chief Executive
Officer
By _________________________________
Sherry L. Boyd
Vice President - Controller
(Chief Financial and Accounting
Officer)
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 capacity and on the dates indicated.
________________________________ ______________________________
(Director) (Director)
________________________________
(Director)
Date:
EXHIBIT 13.a.
MARKET INFORMATION
COMMON STOCK
The Company's common stock is traded in the over-the-counter market under
the NASDAQ symbol "FFBS" and is quoted on NASDAQ's National Market
System. The stock traded in a range from $19.75 to $24.50 during the
fiscal year 1997, and dividends were declared semi-annually in June
and December.
EXHIBIT 13.b.
SELECTED FINANCIAL DATA
Years Ended June 30,
_____________________________________________________
INCOME DATA 1997 1996 1995 1994 1993
_________ _________ _________ _________ _________
(In Thousands)
Interest income $ 9,454 $ 8,929 $ 8,430 $ 7,793 $ 7,601
Interest expense 4,763 4,563 3,854 3,339 3,971
_________ _________ _________ _________ _________
Net interest
income 4,691 4,366 4,576 4,454 3,630
Less Provision for
losses on loans 0 0 (50) (52) 224
_________ _________ _________ _________ _________
Net interest
income after
provision for
losses on loans 4,691 4,366 4,626 4,506 3,406
_________ _________ _________ _________ _________
Non-interest
income:
Loan fees &
service
charges 238 192 118 164 133
NOW account
fees 301 286 238 204 188
Other 95 111 83 102 140
_________ _________ _________ _________ _________
Total non-
interest
income 634 589 439 470 461
_________ _________ _________ _________ _________
Other expenses:
Compensation &
benefits 1,434 1,415 1,331 1,277 896
Occupancy,
furniture &
equipment 189 173 131 123 130
Deposit insurance
premiums 731 215 206 205 174
Data processing 149 155 146 108 106
Provision for real
estate losses - 10 - 295 186
Loss on
foreclosed real
estate - 8 6 5 108
Other 576 513 570 502 316
_________ _________ _________ _________ _________
Total Other
Expenses 3,079 2,489 2,390 2,515 1,916
_________ _________ _________ _________ _________
Income before
taxes 2,246 2,466 2,675 2,461 1,951
Income tax expense 768 804 909 729 678
_________ _________ _________ _________ _________
Net Income $ 1,478 $ 1,662 $ 1,766 $ 1,732 $ 1,273
========= ========= ========= ========= =========
NET INCOME PER
SHARE $ 0.97 $ 1.09 $ 1.14 $ 1.04 $ N/A
FINANCIAL DATA
Shares
Outstanding 1,577 1,572 1,592 1,648 1,587
Total assets $ 130,762 $ 125,228 $ 118,970 $ 116,601 $ 111,096
Loans Recv.,net 92,760 83,528 80,391 74,009 72,569
Int-bearing
deposits &
federal funds
sold 5,059 4,223 3,421 11,719 23,065
Investment
securities 18,814 27,741 26,710 23,721 5,999
Mortgage-backed &
related
securities 7,268 2,506 2,011 2,775 3,764
Foreclosed real
estate net of
related allowance
for losses - 555 - - 299
Deposits 103,798 99,148 92,576 91,510 87,213
Total
stockholders'
equity 25,142 24,638 25,141 24,361 22,946
Total number of
full service
offices 3 3 3 2 2
SELECTED RATIOS
Return on avgerage
assets 1.16% 1.37% 1.51% 1.54% 1.26%
Return on average
equity 5.95% 6.89% 7.06% 7.13% 13.96%
Capital to assets 19.23% 19.67% 21.13% 21.08% 20.65%
Efficiency ratio 57.80% 50.23% 51.66% 51.08% 46.83%
Net interest
margin 3.93% 3.79% 4.04% 3.97% 3.69%
PER SHARE DATA
Book value
(end of year) $ 16.97 $ 16.61 $ 16.87 $ 14.87 N/A
Earnings per share .97 1.09 1.14 1.04 N/A
Cash dividends
declared .50 1.45 .40 .35 N/A
AVERAGE COMMON
SHARES OUTSTANDING 1,475,279 1,528,840 1,545,277 1,667,267 N/A
EXHIBIT 13.b.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
FFBS Bancorp, Inc. (the "Company") was incorporated under the laws of the
State of Delaware in March 1993 to acquire all of the capital stock of
First Federal Bank for Savings (the "Bank") upon its conversion from the
mutual to stock form of ownership. The Holding Company may acquire or
organize other operating subsidiaries, including other financial
institutions, although there are currently no specific plans regarding
such activities by the Holding Company.
First Federal Bank for Savings descended from Columbus Building and Loan
Association, which dated back to 1892. In 1934, First Federal was
organized as a federally chartered mutual savings association
headquartered in Columbus, Mississippi. Its deposits are insured up
to the maximum allowable amount by the Federal Deposit Insurance
Corporation (the "FDIC"). First Federal offers a variety of financial
services to meet the financial service needs of its community through its
main office and two branch offices. The Bank attracts deposits from the
general public and uses such deposits primarily to originate loans
secured by first mortgages on owner-occupied, one-to-four family
residences in its market area.
The following discussion reviews the Company's financial condition and
results of operations. This discussion should be read in conjunction
with the consolidated financial statements included in this Annual
Report.
FINANCIAL CONDITION
The consolidated assets of the Company were $130.8 million at June 30,
1997, an increase of $5.5 million, or 4.42% over June 30, 1996. Total
assets of the Company have increased $20.0 million, or 17.70%, over the
past five years.
Significant increases occurred in loans receivable as loan growth continues
to be impressive. Loans receivable totalled $92.8 million at June 30, 1997.
The $9.2 million growth in the Company's loans outstanding represents the
most significant growth component of interest-earning assets. This 11.05%
gain is indicative of the strong loan demand that existed in the market for
most of the year and the Company's focused efforts to add to its loan
portfolio. Total loan originations in fiscal 1997 were $59.6 million, an
increase of $15.0 million, or 33.6%, over total originations of $44.6
million for fiscal 1996. The Company prides itself in its conservative
lending policies which have consistently produced a good asset quality.
During the five years noted in the summary, total loans have increased $20.2
million, or 27.8%.
The securities portfolio is utilized to provide a quality investment
alternative for available funds as well as a stable source of interest
income. Investment securities, along with mortgage-backed and related
securities, totalled $26.1 million at June 30, 1997, a decrease of $4.2
million, or 13.8%, compared to June 30, 1996. Securities were reinvested
in loans as they matured in order to partially fund the demand for loans.
Deposits are the Company's primary source of funds to support its earning
assets. Total deposits were $103.8 million at June 30, 1997, an increase
of $4.7 million, or 4.7%, over June 30, 1996. The deposit mix has remained
substantially unchanged with the exception of a slight shift toward more
time deposits. Over the five years noted in the summary, deposits have
increased $16.6 million, or 19%.
Stockholders' equity, particularly as it related to assets, has represented
a consistent strength of the Company throughout the years noted in the
summary data. At June 30, 1997, stockholders' equity amounted to $25.1
million, or 19.2% of assets. The bank subsidiary is classified as well
capitalized under the Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA).
The book value per share amounted to $16.97 per share at June 30, 1997,
with the exclusion of 76,176 unallocated shares held by the Employee Stock
Ownership Plan (ESOP). At June 30, 1996, the book value per share amounted
to $16.61, which was after the payment of $1.00 per share special dividend
and excluding 88,872 unallocated shares held by the ESOP. At June 30, 1995,
the book value per share was $16.87 with the exclusion of 101,568 unallocated
shares held by the ESOP. At June 30, 1995, the book value per share was
$16.87 with the exclusion of 101,568 unallocated shares held by the ESOP.
RESULTS OF OPERATIONS
The Company had consolidated net earnings of $1.5 million for the fiscal
year ended June 30, 1997, representing a return on average assets of 1.16%
and earnings per share of $.97. Return on average assets, a primary measure
of earnings strength, has been above $1.1% for all five years shown in the
summary. Results for the fiscal year ended June 30, 1997, were reduced
$599,000 (approximately $375,000 after taxes or $.25 per share) due to the
one-time assessment by the Federal Deposit Insurance Corporation "FDIC" to
fully capitalize the Savings Association Insurance Fund. Net income would
have been approximately $1.9 million for the year ended June 30, 1997, a
$193,000 increase, or 11.6%, over fiscal year 1996, had the Bank not been
charged with this assessment. The Company's net income of $1.7 million
for the fiscal year ended June 30, 1996, represented a decrease of $105,000,
or 5.9%, over fiscal 1995 due primarily to a decrease in net interest income.
Net interest income is the largest component of the Company's net
income and represents the income earned on interest earnings assets
less the cost of interest bearing liabilities. This major source of
income represents the earnings from the Company's primary business of
gathering funds from deposit sources and investing those funds in
loans and securities. Changes in net interest income can be broken
down into two components, the change in average earning assets and
the change in net interest spread. During the fiscal year ending
June 30, 1997, the Company's level of net interest income amounted to
$4.7 million, an increase of $325,000, or 7.5%, when compared to fiscal
1996. This increase can be attributed to the Company's yield on earning
assets increasing at a faster pace than its cost of funds. The net
interest margin for fiscal 1997 was 3.93%, an increase from the 3.79%
for fiscal 1996 due primarily to increased spreads. Average-earning
assets for fiscal 1997 increased to $122.5 million from $118.2 million
for fiscal 1996, an increase of $4.3 million, or 3.7%. Since fiscal
1993, the first year in the summary, average-earning assets have
increased $29.0 million, or 31%. During fiscal 1996, the Company's
level of net interest income dropped by 3.3% or $150,000 when compared
to fiscal 1995. This decline can be attributed to the Company's cost
of funds increasing at a faster pace than its yield on earning assets.
The Company maintains its reserve for loan losses at a level that is
considered sufficient to absorb potential losses in the loan portfolio.
The Company's provision for loan losses is utilized to replenish its
reserve for loan losses on its balance sheet. The reserve for loan
losses amounted to $576,000 at June 30, 1997, or .62% of total loans
outstanding, which is an amount that management considers to be
sufficient to protect against potential future loan losses.
Growth in non-interest related sources of income is one of the Company's
key long-term strategies. Non-interest income was $634,000 for fiscal
1997 compared to $589,000 for fiscal 1996, an increase of $45,000, or
7.7%. The significant items increasing non-interest income between 1996
and 1997 were documentation fees on loans, which increased $33,000, or
211%, and service charges on deposit accounts, which increased $16,000,
or 5.4%. Non-interest income was $589,000 for fiscal 1996 compared to
$431,000 for fiscal 1995, an increase of $158,000, or 36.6%. Loan fees
increased $50,000, or 35.3%, while NOW account fees increased $48,000,
or 20.2%.
A key measure used in the banking industry to assess the level of non-
interest expense is the efficiency ratio, which is defined as non-interest
expense divided by the sum of net interest income plus non-interest income.
The efficiency ratio measures the level of expense required to generate one
dollar of revenue. Until fiscal 1997, the efficiency ratio has been
approximately 50% for the years noted in the summary. For fiscal 1997, the
efficiency ratio rose to 57.8%, due to the impact of the FDIC one-time
assessment. Excluding the one-time assessment, the efficiency ratio for
fiscal 1997 would have been 46.6%, which would have been the lowest in the
five year summary.
Non-interest expense increased $590,000, or 23.7%, to $3.1 million in
fiscal 1997 compared to fiscal 1996. Non-interest expense included the
FDIC one-time assessment of $599,000. During fiscal 1996, total non-
interest expense amounted to $2.5 million, an increase of $168,000, or
7.3%, compared to fiscal 1995. Compensation and benefits increased
$84,000 during fiscal 1996 due primarily to the adoption of Statement of
Position 93-6 "Employer's Accounting for Employee Stock Ownership Plans."
Also contributing to the increase is non-interest expense during fiscal
1996 was an increase of $42,000 for occupancy, furniture, and equipment
expense related to the operation of another branch office.
The provision for income taxes was $768,000, $804,000, and $909,000 in
fiscal 1997, 1996, and 1995, respectively. The changes in such respective
amounts primarily reflect the fluctuations in levels of income before
income taxes of the Company during those fiscal years of $2.2 million,
$2.5 million, and $2.7 million, respectively. See Note J of the Notes to
Consolidated Financial Statements.
LIQUIDITY-ASSET/LIABILITY MANAGEMENT
A major objective of asset/liability management is to structure the
Company's assets and liabilities in such a way as to maximize and
stabilize the spread between interest earned and interest paid while
maintaining an adequate liquidity position. During each of the years
noted in the summary, the Company has maintained a consistent
asset/liability management policy, which focuses on interest rate risk
and rate sensitivity. The adherence to such a policy has an obvious
material impact on the structure of the Company's balance sheet, and,
to a degree, on its liquidity position.
The Company is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which may be varied at
the direction of the OTS depending upon economic conditions and deposit
flow, is based upon a percentage of deposits and short-term borrowings.
The required minimum liquidity ratio is currently 5.0%. At June 30,
1997, the Bank's liquidity ratio was 22.06%
The Company has experienced no problem meeting liquidity requirements
during any of the years noted in the summary and foresees no problems
meeting liquidity requirements in the future. An adequate liquidity
position enables the Company to meet cash flow requirements created by
decreases in deposits and/or other sources of funds or increases in loan
demand. The Company's traditional sources of funds from deposit
increases, maturing loans and investments, and earnings have allowed it
to consistently generate sufficient funds for liquidity needs. The
Company has no long-term debt which might represent a future demand for
liquidity.
REGULATORY CAPITAL
The banking subsidiary's current capital position is well in excess of the
minimum regulatory requirements. The regulations require institutions to
have a minimum regulatory tangible capital equal to 1.5% of total assets
and a minimum 3% leverage (core) capital ratio. At June 30, 1997, the
Bank's tangible and core capital was 16.2%. Additionally, institutions
are required to meet a risk-based capital requirement equaling 8% of the
amount of risk-weighted assets. At June 30, 1997, the Bank's risk-weighted
capital was 29.9%.
REGULATORY DEVELOPMENTS
See Note A-11 of the Notes to Consolidated Financial Statements.
COMMON STOCK MARKET INFORMATION
The Company's common stock is traded in the over-the-counter market under the
NASDAQ symbol "FFBS" and is quoted on NASDAQ's National Market System. The
stock traded in a range from $19.75 to $24.50 per share during the fiscal
year 1997, and dividends were declared semi-annually in June and December.
A special dividend of $1.00 per share was paid in August, 1995, and a $2.00
per share special dividend was paid in August, 1997.
EXHIBIT 13.d.
CONSOLIDATED FINANCIAL STATEMENTS
FFBS BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
JUNE 30, 1996 AND 1996
REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
FFBS Bancorp, Inc.
Columbus, Mississippi
We have audited the accompanying consolidated statements of financial
condition of FFBS Bancorp, Inc., and Subsidiary as of June 30, 1997 and
1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-
year period ended June 30, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
FFBS Bancorp, Inc., and Subsidiary as of June 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in
the three-year period ended June 30, 1997, in conformity with generally
accepted accounting principles.
S/T. E. Lott & Company
Columbus, Mississippi
July 18, 1997
FFBS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
__________________________
ASSETS 1997 1996
____________ ____________
Cash $ 3,347,511 $ 3,337,978
Interest-bearing deposits due from banks 5,058,945 3,673,244
Federal funds sold - 550,000
____________ ____________
Total cash and cash equivalents 8,406,456 7,561,222
Investment securities (approximate market
value of $18,758,223 at June 30, 1997,
and $27,517,628 at June 30, 1996) (Note B) 18,814,395 27,740,646
Mortgage-backed and related securities
(approximate market value of $7,256,822
at June 30, 1997, and $2,449,956 at
June 30, 1996) (Note B) 7,267,626 2,506,359
Federal Home Loan Bank stock, at cost
(Note F) 801,900 756,500
Loans receivable, net (Note C) 92,760,267 83,528,151
Properties and equipment (Note E) 1,354,677 1,095,423
Accrued interest receivable (Note G) 1,064,535 1,125,991
Foreclosed real estate, net (Note D) - 554,515
Other assets (Note H) 292,445 359,551
____________ ____________
$130,762,301 $125,228,358
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note I) $103,798,255 $ 99,148,108
Advances from borrowers for taxes and
insurance 277,749 259,102
Accrued interest payable on deposits 763,339 695,107
Accrued expenses and other liabilities 781,370 643,581
____________ ____________
Total liabilities 105,620,713 100,745,898
Commitments and contingencies (Note M)
Stockholders' equity (Notes K, L and Q):
Cumulative preferred stock, $.01 par
value, 500,000 shares authorized;
shares issued and outstanding - none - -
Common stock, $.01 par value, 2,000,000
shares authorized; 1,565,595 and
1,572,183 shares issued and outstanding
at June 30, 1997 and 1996, respectively 15,656 15,722
Additional paid in capital 15,371,923 15,253,646
Retained earnings 10,692,318 10,104,145
Unrealized gain (loss) on available-
for-sale securities 4,789 (2,333)
Loan receivable from ESOP (761,760) (888,720)
Treasury stock, at cost (8,150 shares) (181,338) -
____________ ____________
Total stockholders' equity 25,141,588 24,482,460
____________ ____________
$130,762,301 $125,228,358
============ ============
The accompanying notes are an integral part of these statements.
FFBS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30,
__________________________________
1997 1996 1995
__________ __________ __________
INTEREST INCOME
Interest and fees on loans $7,466,019 $7,074,289 $6,523,628
Interest on mortgage-backed and
related securities 308,935 139,858 127,040
Interest on investment securities 1,323,621 1,356,933 1,411,007
FHLB stock dividends 45,492 45,137 40,435
Interest on federal funds sold 10,624 60,051 72,086
Interest on deposits due from
banks 298,983 252,412 195,154
__________ __________ __________
9,453,674 8,928,680 8,369,350
INTEREST EXPENSE
Interest on deposits 4,762,604 4,562,988 3,854,017
__________ __________ __________
Net interest income 4,691,070 4,365,692 4,515,333
Provision for losses on loans
(Note C) - - (50,000)
__________ __________ __________
Net interest income after provision
for losses on loans 4,691,070 4,365,692 4,565,333
NON-INTEREST INCOME
Loan fees and service charges 238,099 191,696 141,690
NOW account fees 301,361 285,826 237,567
Other 94,928 111,383 51,910
__________ __________ __________
634,388 588,905 431,167
NON-INTEREST EXPENSE
Compensation and benefits 1,433,945 1,415,254 1,331,225
Occupancy and equipment 189,155 172,615 130,555
Deposit insurance premium
(Note K) 731,485 214,967 205,504
Loss on foreclosed real estate,
net 447 7,641 6,379
Data processing 148,428 155,404 145,907
Provision for losses on
foreclosed real estate
(Note D) - 10,452 -
Other 575,531 512,910 501,209
__________ __________ __________
3,078,991 2,489,243 2,320,779
__________ __________ __________
Income before income taxes 2,246,467 2,465,354 2,675,721
Income tax expense (Note J):
Current 618,199 733,257 768,097
Deferred 149,980 70,500 141,259
__________ __________ __________
768,179 803,757 909,356
__________ __________ __________
Net Income $1,478,288 $1,661,597 $1,766,365
========== ========== ==========
Net Income Per Share (Note R) $ .97 $ 1.09 $ 1.14
The accompanying notes are an integral part of these statements.
<TABLE>
FFBS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997 1996 AND 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized
Loss on
Additional Unearned Available- Loan
Common Paid in Retained Compen- For-Sale Receivable Treasury
Stock Capital Earnings sation Securities From ESOP Stock Total
________ ___________ ___________ _________ __________ ___________ _________ ___________
Balance,
July 1, 1994 $ 16,475 $15,755,117 $10,039,032 $(317,400) $ (10,786) $(1,142,640) $(134,483) $24,205,315
Net income - - 1,766,365 - - - - 1,766,365
Retirement of
treasury
stock (87) (86,993) (47,403) - - - 134,483 -
Purchase and
retirement of
stock (466) (465,524) (260,273) - - - - (726,263)
Cash
dividends,
$.40 per
share - - (639,306) - - - - (639,306)
Amortization
of unearned
compensation
(Note L) - - - 158,700 - - - 158,700
Reduction of
ESOP loan
(Note L) - - - - - 126,960 - 126,960
Adjustment to
unrealized
gain (loss)
on available-
for-sale
securities - - - - 10,786 - - 10,786
Excess of
fair market
value of
allocated
ESOP shares
over cost
(Note L) - 82,524 - - - - - 82,524
________ ___________ ___________ _________ __________ ___________ _________ __________
Balance,
June 30,
1995 15,922 15,285,124 10,858,415 (158,700) - (1,015,680) - 24,985,081
Net income - - 1,661,597 - - - - 1,661,597
Purchase and
retirement
of stock (200) (199,700) (150,776) - - - - (350,676)
Cash dividends,
$1.45 per
share - - (2,265,091) - - - - (2,265,091)
Amortization
of unearned
compensation
(Note L) - - - 158,700 - - - 158,700
Reduction of
ESOP loan
(Note L) - - - - - 126,960 - 126,960
Adjustment
to unrealized
gain (loss)
on available-
for-sale
securities - - - - (2,333) - - (2,333)
Excess of
fair market
value of
allocated
ESOP shares
over cost
(Note L) - 168,222 - - - - - 168,222
________ ___________ ___________ ________ __________ ___________ _________ ___________
Balance,
June 30,
1996 15,722 15,253,646 10,104,145 - (2,333) (888,720) - 24,482,460
Net income - - 1,478,288 - - - - 1,478,288
Purchase and
retirement
of stock (106) (105,444) (117,292) - - - - (222,842)
Cash
dividends,
$.50 per
share - - (772,823) - - - - (772,823)
Reduction of
ESOP loan
(Note L) - - - - - 126,960 - 126,960
Adjustment to
unrealized
gain (loss)
on available-
for-sale
securities - - - - 7,122 - - 7,122
Stock option
shares
exercised 40 39,630 - - - - - 39,670
Excess of
fair market
value of
allocated
ESOP shares
(Note L) - 184,091 - - - - - 184,091
________ ___________ ___________ ________ __________ ___________ _________ ___________
$ 15,656 $15,371,923 $10,692,318 $ - $ 4,789 $ (761,760) $(181,338) $25,141,588
======== =========== =========== ======== ========== =========== ========= ===========
The accompanying notes are an integral part of these statements.
</TABLE>
FFBS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
__________________________________________
1997 1996 1995
____________ ____________ ____________
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 1,478,288 $ 1,661,597 $ 1,766,365
Adjustments to reconcile
net income to net cash:
Depreciation of
properties and
equipment 83,880 93,497 52,020
Amortization of
unearned compensation - 158,700 158,700
Accretion of discount
on loans (12,218) (10,965) (9,971)
Deferred income taxes 149,980 70,500 141,259
FHLB stock dividends (45,400) (44,900) (40,300)
Provision for losses
on loans - - (50,000)
Provision for losses
on foreclosed real
estate - 10,452 -
Sale of loans 4,656,000 5,655,000 1,844,000
Loans originated for
sale (4,656,000) (5,655,000) (1,844,000)
(Increase) decrease in
accrued interest
receivable 61,456 (105,876) (186,248)
(Increase) decrease
in other assets 164,082 (717,263) 349,103
Increase in accrued
interest payable on
deposits 68,232 97,098 176,030
Increase (decrease) in
accrued expenses and
other liabilities (8,506) (40,049) 326,205
Excess of fair market
value of allocated ESOP
shares over cost 184,091 168,222 82,524
____________ ____________ ____________
Net cash provided by
operating activities 2,123,885 1,341,013 2,765,687
CASH FLOWS FROM INVESTING
ACTIVITIES
Decrease in other
interest-bearing
deposits due from banks - 100,000 1,376,000
Loan originations (54,949,000) (38,953,000) (31,666,000)
Purchase of loans - (117,000) (171,000)
Purchase of mortgage-
backed and related
securities (5,522,800) (984,900) -
Purchase of investment
securities (5,566,627) (20,771,985) (9,445,618)
Principal repayment of
loans 45,729,102 35,943,815 25,515,387
Principal repayments of
mortgage-backed and
related securities 761,533 484,290 764,269
Proceeds from calls and
maturities of investment
securities 14,500,000 19,744,348 6,474,104
Sale of foreclosed real
estate 457,539 190,501 -
Purchase of properties
and equipment (343,134) (59,708) (290,326)
Repayment of ESOP loan 126,960 126,960 126,960
____________ ____________ ____________
Net cash used in investing
activities (4,806,427) (4,296,679) (7,316,224)
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase in deposits 4,650,147 6,571,941 1,065,791
Increase (decrease) in
advances from borrowers
for taxes and insurance 18,647 (9,597) 18,144
Acquisition of stock (404,180) (350,676) (726,263)
Cash dividends paid (776,508) (2,190,480) (639,306)
Exercise of stock options 39,670 - -
____________ ____________ ____________
Net cash provided by (used
in) financing activities 3,527,776 4,021,188 (281,634)
____________ ____________ ____________
Net increase (decrease) in
cash and cash equivalents 845,234 1,065,522 (4,832,171)
Cash and cash equivalents
at beginning of period 7,561,222 6,495,700 11,327,871
____________ ____________ ____________
Cash and cash equivalents
at end of period $ 8,406,456 $ 7,561,222 $ 6,495,700
============ ============ ============
Cash paid during the
period for:
Interest on deposits $ 4,694,372 $ 4,465,890 $ 3,677,987
Income taxes 642,000 721,692 832,663
Supplemental disclosure
of noncash activities:
Acquisition of real
estate in settlement
of loans - 755,468 42,731
The accompanying notes are an integral part of these statements.
FFBS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES
FFBS Bancorp, Inc., (the Company), and its wholly-owned subsidiary, First
Federal Bank for Savings (the Bank), follow generally accepted accounting
principles, including, where applicable, general practices within the
thrift industry.
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements
follows.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and the Bank. Significant intercompany accounts and transactions
have been eliminated in consolidation.
2. Nature of Operations
The Company is a holding company which was formed for the purpose of
acquiring all of the capital stock of the Bank as part of the Bank's
conversion from a mutual to a federally chartered stock savings bank
on June 30, 1993. Its most significant asset is its investment in the
capital stock of the Bank.
The Bank's principal business activity is to provide deposit account
services to the general public and investing those deposits, together
with funds from operations, primarily in family residential mortgage
loans and, to a lesser extent, consumer loans, securities, and other
assets.
3. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and that affect the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
4. Securities
Investments in securities are classified in accordance with Financial
Accounting Standards Board (FASB) Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities. Statement No. 115
requires that securities be classified as either trading, available-
for-sale, or held-to-maturity. The Company and the Bank have classifed
all of its securities, with the exception of its investment in marketable
equity securities, as held-to-maturity. Marketable equity securities are
classified as available-for-sale. Management determines the appropriate
classification at the time of purchase.
Trading securities are held for resale for profit and are accounted
for at their fair values. Realized and unrealized gains and losses
are reported in earnings. At June 30, 1997 and 1996, the Company
and the Bank had no securities classified as trading.
Securities available-for-sale are carried at their fair values. Any
unrealized difference between the amortized cost and the fair value
is reported as a component of stockholders' equity, net of deferred
income taxes.
Securities classified as held-to-maturity are carried at amortized
cost and includes those securities which management has the positive
intent and the Company and the Bank have the ability to hold until
maturity.
Amortization of premiums and accretion of discounts are determined
using the level yield method. The adjusted cost of the specific
security sold is used to compute any gain or loss on securities sold.
The yield on, and recoverability of, the carrying value of mortgage-
backed and related securities may be affected by changes in interest
rates and prepayments. Management periodically evaluates the effects
of matters such as rate changes and prepayments and adjusts yields as
necessary.
5. Loans Receivable, Net
Loans receivable, net are stated at unpaid principal balances, less
the allowance for loan losses, and net deferred loan-origination
fees and discounts.
Discounts on first mortgage loans are amortized to income using the
interest method over the remaining period to contractual maturity,
adjusted for anticipated prepayments. Discounts on consumer loans
are recognized over the lives of the loans using methods that
approximate the interest method.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). The allowance for loan
losses is maintained at a level considered adequate by management.
Management performs quarterly reviews of the Bank's loan portfolio
to evaluate the adequacy of the allowance with any adjustments being
made through provisions for loan losses. These reviews take into
consideration the Bank's past due and nonperforming loans, prior
years' loss experience, economic conditions, underlying loan
collateral and the distribution of loans in the portfolio by risk
class. Amounts of the allowance are assigned to specific loans and
loan categories based upon these factors. Allowances for any
impaired loans are generally determined based on collateral values.
Although management believes the allowance for loan losses to be
adequate, ultimate losses may vary from estimates used in manage-
ment's evaluation.
Interest on loans that are contractually past due 90 or more days
is generally charged off, or an allowance is established based on
management's periodic evaluation unless the obligation is well
secured and in the process of collection. The allowance is
established by a charge to interest income equal to all interest
previously accrued. Additionally, an allowance is established for
interest on loans delinquent less than 90 days, but which in
management's opinion may become uncollectible in part or in full.
Mortgage loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated market value
in the aggregate. Mortgage loans held for sale at June 30, 1997
and 1996, were immaterial.
6. Foreclosed Real Estate
Real estate acquired in settlement of loans is reported in accordance
with AICPA Statement of Position 92-3 ("SOP 92-3") Accounting for
Foreclosed Assets. SOP 92-3 requires that other real estate be
carried at the lower of (i) fair value minus estimated cost to sell
or (ii) cost (the recorded investment in the related loan or loans
plus acquisition costs). An allowance for losses is maintained to
reflect declines, if any, in net fair values below the recorded
amounts. Additions to the allowance are charged to operations.
Costs of holding real estate acquired in settlement of loans are
reflected as expense currently. Subsequent gains or losses on
foreclosed real estate are reported in other operating income or
expenses.
7. Properties and Equipment
Properties and equipment are stated at cost less accumulated
depreciation. Depreciation is computed primarily on a straight-
line basis over the estimated useful life of each type of asset.
Expenditures for maintenance and repairs which do not materially
prolong the useful life of the assets are charged to operating
expenses as incurred, and improvements are capitalized. Gains
and losses on sale of assets are reflected in current operations.
8. Deferred Income Taxes
Deferred income taxes are accounted for in accordance with FASB
Statement No. 109, Accounting for Income Taxes. Statement No. 109
requires the asset-and-liability method of accounting for income
taxes. Under the asset-and-liability method, deferred income taxes
are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. Under
Statement No. 109, the effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the
enactment date.
9. Stock-Based Compensation
The Company and the Bank have elected not to adopt the recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation which requires a fair-value based method of accounting for
stock options and similar equity awards. The Company and the Bank
elected to continue applying Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees and related interpretations in
accounting for its stock compensation plans and, accordingly, do not
recognize compensation cost.
10. Statement of Cash Flows
For purposes of the consolidated statement of cash flows, all highly
liquid debt instruments with an original maturity of three months or
less are considered to be cash equivalents. Cash equivalents consist
of balances due from banks and federal funds sold.
11. Off-Balance Sheet Financial Instruments
In the ordinary course of business the Bank enters into off-balance
sheet financial instruments consisting of commitments to extend
credit, commercial letters of credit and commitments to purchase
securities. Such financial instruments are recorded in the financial
statements when they are exercised.
12. Accounting Pronouncements
In February, 1997, the FASB issued Statement No. 128, Earnings Per Share
which establishes new standards for computing and presenting earnings per
share and is applicable to periods ending after December 15, 1997. The
Statement replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. It also requires a dual
presentation of basic and diluted earnings per share on the face of the
income statement. The impact of the adoption of this Statement is not
expected to be material on earnings per share data.
The FASB also issued Statement No. 129, Disclosure of Information About
Capital Structure, in February, 1997. This Statement establishes standards
for disclosing information about an entity's capital structure and is
applicable to periods ending after December 15, 1997. The adoption of this
Statement will not have an impact on the consolidated financial condition
or consolidated results of operations of the Company.
13. Financial Statement Reclassification
The financial statements for prior years have been reclassified in
order to conform with the 1997 financial statement presentation.
The reclassification did not change total assets or net income.
NOTE B - SECURITIES
The carrying values and estimated market values of investment
securities and mortgage-backed and related securities are as
follows:
June 30, 1997
_______________________________________________
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Description Value Gains Losses Value
_______________________ ___________ ___________ ___________ ___________
Held-to-Maturity:
Securities of other
U.S. Government
obligations $15,586,350 $ 2,024 $ 51,905 $15,536,469
Obligations of states
and political sub-
divisions 2,006,540 249 6,540 2,000,249
Mortgage-backed and
related securities 7,267,626 15,847 26,651 7,256,822
___________ ___________ ___________ ___________
Total held-to-
maturity
securities 24,860,516 18,120 85,096 24,793,540
Available-for-Sale:
Marketable equity
securities 1,221,505 - - 1,221,505
___________ ___________ ___________ ___________
Total securities $26,082,021 $ 18,120 $ 85,096 $26,015,045
=========== =========== =========== ===========
June 30, 1996
_______________________________________________
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Description Value Gains Losses Value
_______________________ ___________ ___________ ___________ ___________
Held-to-Maturity:
U. S. Treasury
securities $ 2,011,521 $ 1,438 $ 5,094 $ 2,007,865
Securities of other
U.S. Government
obligations 22,577,276 411 217,879 22,359,808
Obligations of states
and political
subdivisions 2,008,600 3,686 5,580 2,006,706
Mortgage-backed and
related securities 2,506,359 992 57,395 2,449,956
___________ ___________ ___________ ___________
Total held-to-
maturity securities 29,103,756 6,527 285,948 28,824,335
Available-for-Sale:
Marketable equity
securities 1,143,249 - - 1,143,249
___________ ___________ ___________ ___________
Total securities $30,247,005 $ 6,527 $ 285,948 $29,967,584
=========== =========== =========== ===========
Investment securities with a carrying value of $925,000 and $968,200 at
June 30, 1997 and 1996, were pledged for various purposes as required by
law.
The carrying values and estimated market values of investment debt
securities by contractual maturities as of June 30, 1997, are shown below.
The equity securities have been excluded from the maturity table because
they do not have contractual maturities associated with debt securities.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
June 30, 1997
_______________________
Estimated
Carrying Market
Value Value
___________ ___________
Due in one year or less $ 4,149,880 $ 4,142,061
Due after one year through five years 12,436,470 12,394,657
Due after ten years 1,006,540 1,000,000
___________ ___________
17,592,890 17,536,718
Mortgage-backed and related securities 7,267,626 7,256,822
___________ ___________
$24,860,516 $24,793,540
=========== ===========
The carrying values of mortgage-backed and related securities are
summarized as follows:
June 30,
___________________________________________
1997 1996
______________________ ____________________
Estimated Estimated
Carrying Market Carrying Market
Description Value Value Value Value
_________________ __________ ___________ _________ __________
FNMA certificates $2,014,775 $2,007,796 $1,013,115 $ 984,402
FNMA REMIC - - 20,371 20,290
FHLMC certificates 5,252,851 5,249,026 1,472,873 1,445,264
__________ __________ __________ __________
$7,267,626 $7,256,822 $2,506,359 $2,449,956
========== ========== ========== ==========
Mortgage-backed and related securities were issued or are guaranteed by
an agency of the U. S. Government. Although mortgage-backed and related
securities are initially issued with a stated maturity date, the under-
lying mortgage collateral may be prepaid by the mortgagee and, therefore,
such securities may not reach their maturity date. At June 30, 1997 and
1996, there were no material concentrations of credit risk.
There were no sales of securities during the years ended June 30, 1997,
1996 and 1995.
NOTE C - LOANS RECEIVABLE, NET
Loans receivable, net are summarized as follows:
(In Thousands)
June 30,
__________________
1997 1996
________ ________
Mortgage Loans
Principal balances:
One-to-four family residential $ 67,198 $ 61,077
Multi-family 982 1,021
Commercial real estate 8,706 7,867
Construction and land 4,834 4,218
________ ________
Total mortgage loans 81,720 74,183
________ ________
Consumer and Other Loans
Principal balances:
Loans on deposit accounts 1,090 1,592
Home improvement and education 43 83
Automobile 4,271 3,680
Commercial - collateralized 1,678 974
Commercial - unsecured 333 479
Other 4,215 3,230
________ ________
Total consumer and other loans 11,630 10,038
________ ________
Total loans receivable 93,350 84,221
Less unearned discount and deferred loan fees 14 27
Less allowance for loan losses 576 666
________ ________
Loans receivable, net $ 92,760 $ 83,528
======== ========
Activity in the allowance for loan losses is as follows:
(In Thousands)
Years Ended
June 30,
1997 1996 1995
____ ____ ____
Balance at beginning of period $666 $705 $803
Additions:
Provision for losses on loans - - (50)
Recoveries 7 5 4
____ ____ ____
673 710 757
Deductions:
Loans charged off 97 44 52
____ ____ ____
Balance at end of period $576 $666 $705
==== ==== ====
The Bank adopted FASB Statement No. 114, Accounting by Creditors for
Impairment of a Loan and Statement No. 118, Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures as of
July 1, 1995. These Statements require that loans determined to be
impaired be measured based on the present value of expected future
cash flows or, as a practical expedient, on the loan's observable
market price or the fair value of the collateral if the loan is
collateral dependent. If the measurement of the impaired loan is
less than the recorded investment in the loan, a valuation allowance
is recorded. The Bank had previously determined its allowance for
loan losses using methods similar to those prescribed in the
statements. The Bank's loan portfolio consists principally of family
residential mortgage loans and consumer installment loans, which are
exempt from the requirements of the Statements if evaluated
collectively, as is done by the Bank. As a result, the adoption of
these Statements had no impact on the consolidated financial
statements, and at June 30, 1997 and 1996, any loans designated as
impaired were not significant.
Loans receivable delinquent are as follows:
(In Thousands)
June 30,
1997 1996
______ ______
Past due 30-89 days and still accruing $6,511 $5,836
Past due 90 days or more and still accruing 446 675
______ ______
6,957 6,511
Nonaccrual loans - 495
______ ______
$6,957 $7,006
====== ======
If interest on nonaccrual loans had been recognized at the original
interest rates, the effect on consolidated net income in each of the
three years ended June 30, 1997, would not have been material.
The Bank is not committed to lend additional funds to borrowers of
impaired or nonaccrual loans.
NOTE D - FORECLOSED REAL ESTATE
Activity in the allowance for losses on foreclosed real estate is as
follows:
(In Thousands)
Years Ended
June 30,
1997 1996 1995
______ ______ ______
Beginning balance $ - $ - $ -
Provision charged to operations - 10 -
Losses charged to allowance - - -
______ ______ ______
Ending balance $ - $ 10 $ -
====== ====== ======
NOTE E - PROPERTIES AND EQUIPMENT
Properties and equipment consist of the following:
June 30,
1997 1996
__________ __________
Land $ 518,789 $ 331,217
Buildings 1,139,652 1,047,587
Furniture and equipment 571,195 522,597
__________ __________
2,229,636 1,901,401
Less accumulated depreciation 874,959 805,978
__________ __________
$1,354,677 $1,095,423
========== ==========
Depreciation expense totaled $83,880, $93,497, and $52,020 for the years
ended 1997, 1996 and 1995, respectively.
NOTE F - FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the Federal Home Loan Bank system. Investment
in stock of a Federal Home Loan Bank is required by law of every
federally chartered savings bank. No ready market exists for the
stock, and it has no quoted market value; therefore, the stock is
assumed to have a market value which is equal to its cost.
NOTE G - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consisted of interest accrued on the
following:
June 30,
1997 1996
__________ __________
Loans $ 821,643 $ 732,947
Mortgage-backed and related securities 37,512 13,419
Investment securities 205,380 379,625
__________ __________
$1,064,535 $1,125,991
========== ==========
NOTE H - OTHER ASSETS
Other assets consist of the following:
June 30,
______________________
1997 1996
__________ __________
Recognition and retention plans contribution $ 158,700 $ 158,700
Organization costs 6,767 13,534
Prepaid income taxes 45,724 25,335
Prepaid expenses and other assets 81,254 161,982
__________ __________
$ 292,445 $ 359,551
========== ==========
NOTE I - DEPOSITS
Approximate deposit balances by interest rates are summarized as
follows:
($ In Thousands)
June 30,
___________________________________________________
1997 1996
__________________________ ________________________
Weighted Weighted
Percent Average Percent Average
Of Total Nominal Of Total Nominal
Amount Deposits Rate Amount Deposits Rate
_______ ________ ________ _______ ________ ________
Demand accounts:
Checking $ 3,557 3.43% 0.00% $ 2,851 2.88% 0.00%
NOW 9,350 9.00% 2.07% 10,383 10.47% 2.26%
Savings 6,186 5.96% 2.84% 6,330 6.38% 2.76%
Money market 5,626 5.42% 3.57% 6,057 6.11% 3.46%
_______ ________ ________ _______ ________ ________
24,719 23.81% 2.31% 25,621 25.84% 2.42%
_______ ________ ________ _______ ________ ________
Certificate
accounts:
Maturing 0-3
months 17,486 16.85% 5.33% 20,250 20.42% 5.36%
Maturing 3-6
months 16,288 15.69% 5.53% 15,573 15.71% 5.36%
Maturing 6-12
months 27,621 26.61% 5.59% 24,842 25.06% 5.45%
Maturing 1-2
years 12,374 11.92% 6.01% 10,291 10.38% 5.54%
Maturing 2-3
years 2,886 2.78% 6.27% 1,763 1.78% 5.87%
Maturing 3-4
years 1,948 1.88% 6.37% 652 .66% 6.53%
Maturing over
4 years 476 .46% 6.70% 156 .15% 5.95%
_______ ________ ________ _______ ________ ________
79,079 76.19% 5.64% 73,527 74.16% 5.44%
_______ ________ ________ _______ ________ ________
Total deposits $103,798 100.00% 4.85% $99,148 100.00% 4.66%
======= ======= ======== ======= ======== ========
A summary of certificate accounts by interest rate follows:
June 30, 1997 June 30, 1996
___________________________ __________________________
Average Average
Interest Rate Number Balance Balance Number Balance Balance
_______________ ______ ___________ ________ ______ ___________ _______
Less than 3.00% 11 $ 338,000 $ 30,727 14 $ 394,000 $28,143
3.01% - 4.00% - - - 3 60,000 20,000
4.01% - 5.00% 1,054 14,654,000 13,903 1,119 18,354,000 16,402
5.01% - 6.00% 1,787 49,926,000 27,938 1,756 46,398,000 26,423
6.01% - 7.00% 283 13,383,000 47,290 228 7,455,000 32,697
7.01% - 8.00% 11 778,000 70,727 12 866,000 72,167
______ ___________ ________ ______ ___________ _______
3,146 $79,079,000 $ 25,136 3,132 $73,527,000 $23,476
====== =========== ======== ====== =========== =======
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was approximately $17,086,000 and $13,755,000
at June 30, 1997 and 1996, respectively.
Interest expense on deposits is summarized as follows:
(In Thousands)
Years Ended
June 30,
______________________
1997 1996 1995
______ ______ ______
NOW accounts $ 194 $ 203 $ 222
Savings 175 168 179
Money market 198 227 228
Certificate accounts 4,196 3,965 3,225
______ ______ ______
$4,763 $4,563 $3,854
====== ====== ======
NOTE J - INCOME TAXES
The provision for federal income taxes differs from that computed at
the statutory 34 percent federal corporate tax rate as follows:
Years Ended
June 30,
__________________
1997 1996 1995
____ ____ ____
Federal income tax rates 34% 34% 34%
Change in taxes resulting from:
Nontaxable income (5%) (3%) (4%)
State income tax, net 1% 2% 2%
Excess of fair market value of
allocated ESOP shares over cost 3% 2% 1%
Other 1% (2%) 1%
____ ____ ____
34% 33% 34%
==== ==== ====
The sources of timing differences and the resulting deferred income tax
expense (benefit) follow:
(In Thousands)
Years Ended
June 30,
1997 1996 1995
____ ____ ____
Provision for losses on loans
and foreclosed real estate $ 59 $ 51 $105
Discount accretion 5 (10) 10
Installment sale - - (5)
Stock option plans 59 - -
Depreciation 8 15 6
FHLB stock 17 17 15
Other, net 2 (2) 10
____ ____ ____
$150 $ 71 $141
==== ==== ====
Significant components of the net deferred income tax asset (liability)
included in other liabilities at June 30, 1997 and 1996, are as follows:
1997 1996
_________ _________
Deferred income tax assets:
Stock options $ - $ 59,195
Other - 870
_________ _________
Total deferred income tax assets - 60,065
_________ _________
Deferred income tax liabilities:
Premises and equipment 30,235 22,117
Allownace for loan losses 140,920 82,266
Securities 8,030 5,840
Loans 28,504 24,485
FHLB stock 124,060 107,126
_________ _________
Total deferred income tax liabilities 331,749 241,834
_________ _________
Net deferred income tax liability $(331,749) $(181,769)
========= =========
In October, 1996, Congress passed the Small Business Job Protection Act
("the Act") which included a provision repealing the tax bad debt reserve
method that had been available to thrift institutions in determining
income subject to income tax. Because of the repeal, institutions must
recapture the post-1987 tax bad debt reserve into taxable income over a
six-year period. The recapture can be deferred for a two year period if
the institution meets a residential loan portfolio test. The Bank
satisfies the residential loan portfolio requirements and is expected to
recapture the tax bad debt reserve of $954,000 over a six-year period
beginning in the year ended June 30, 1999. The recapture will not have
an effect on net income since the related tax expense has been accrued.
The pre-1988 tax bad debt reserve that is not recaptureable under the
Act is subject to recapture at a later date only if certain events occur.
These events include, but are not limited to, a conversion to a type of
institution that is not a commercial bank. Management does not
anticipate engaging in any transaction that would require recapture of
its pre-1988 tax bad debt reserve of approximately $1,600,000.
NOTE K - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the consolidated financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weighing, and other factors.
To ensure capital adequacy, quantitative measures have been established
by the Bank's primary regulator, the Office of Thrift Supervision (OTS).
Current OTS standards require that the Bank maintain tangible capital
(as defined) equal to at least 1.5% of tangible assets, core capital
(as defined) equal to at least 3% of adjusted tangible assets, and
risk-based capital (as defined) equal to at least 8% of risk-weighted
assets. Management believes, as of June 30, 1997, that the Company and
the Bank exceed all capital adequacy requirements.
At June 30, 1997, the Bank was categorized by regulators as well-
capitalized under the regulatory framework for prompt corrective
action. A financial institution is deemed to be well-capitalized
if it has total risk-based capital of 10% or more, has a Tier 1
risk-based capital ratio of 6% or more, and has a Tier 1 leverage
capital ratio of 5% or more. At June 30, 1997, the Bank's capital
exceeded all of the capital standards of a well-capitalized
institution. There are no conditions or anticipated events that,
in the opinion of management, would change the category.
The Bank's actual capital amounts and ratios at June 30, 1997 and
1996, are presented in the following table. No amount was deducted
from capital for interest-rate risk exposure.
($ In Thousands)
June 30, 1997 June 30, 1996
______________ ______________
Amount Ratio Amount Ratio
_______ _____ _______ _____
Tangible capital $20,548 16.2% $19,080 15.9%
Core/leverage capital 20,548 16.2% 19,080 15.9%
Tier 1 risk-based capital 21,114 29.9% 19,665 30.1%
Total risk-based capital 21,114 29.9% 19,665 30.1%
Regulations also include restrictions on loans to one borrower, on
certain types of investments and loans, on loans to officers,
directors, and principal shareholders, on brokered deposits and on
transactions with affiliates.
To qualify under the Qualified Thrift Lender (QTL) test, approximately
65% of assets must be maintained in housing related finance and other
specified areas. If the QTL test is not met, limits are placed on
growth, branching, new investments, FHLB advances, and dividends or
the Bank must convert to a commercial bank charter.
In September, 1996, banking legislation was enacted requiring that all
institutions with SAIF (Savings Association Insurance Fund) deposits pay
a one-time special assessment. This assessment was $598,653 and is
included in deposit insurance premiums in the statement of income for the
year ended June 30, 1997.
NOTE L - EMPLOYEE BENEFITS AND STOCK OPTIONS
The Bank participates in a multiemployer, noncontributory defined
benefit pension plan for substantially all of its full-time employees
by being a member of the Financial Institutions Retirement Fund, a
non-profit, tax-exempt pension trust which is administered by a Board
of Directors comprised of presidents of FHLB and officers of various
participating associations. The Fund invests the contributions made
to it and, under its Comprehensive Retirement Program, it pays out
retirement, disability and death benefits. The multiemployer plan's
assets exceed the actuarially computed value of vested benefits at
June 30, 1996, the most recent valuation date. There is no unfunded
liability for past service. Plan benefits are fully vested after
five years of service and are based on an employee's years of service
and a percentage of the employee's average salary, using the five
highest consecutive years preceding retirement. The Bank's funding
policy is to make contributions to the plan equal to the amount
accrued as pension expense. The plan was fully funded for 1997, 1996
and 1995; and accordingly, no contributions were made.
The Bank also provides a profit sharing plan with a (401-K) provision
which allows eligible employees to defer up to 15% of their compensa-
tion, as defined, by making a contribution to the plan. The plan
allows the Bank to make a matching contribution equal to the deferred
compensation of the participants, but not in excess of 50% of each
participant's contribution and also provides for an "Excess Contri-
bution" which can be made at the discretion of the Board of Directors.
The expense for the plan included in the accompanying financial
statements was $23,940, $11,205 and $12,416 for the years ended
June 30, 1997, 1996 and 1995, respectively.
The Bank has an Employee Stock Ownership Plan (ESOP) for eligible
employees. Upon formation, the ESOP borrowed $1,269,600 from the
Company to purchase 126,960 shares of Company common stock. The ESOP
shares were pledged as collateral for the debt. The loan obligation
is considered unearned employee benefit expense and, as such, is
recorded as a reduction of the Company's stockholders' equity. Both
the loan obligation and the unearned benefit expense are reduced by the
amount of any loan repayments made by the ESOP. Cash contributions to
the ESOP are determined based on its total debt service less any
dividends paid on ESOP shares. All dividends paid on the shares held
by the ESOP are used to service the debt. The Bank has adopted Statement
of Position 93-6 (SOP 93-6), Employer's Accounting for Employee Stock
Ownership Plans. As the debt is repaid, shares are released from
collateral and allocated to qualified employees, based on the proportion
of debt service paid for the year. As shares are released from
collateral, an expense is recorded equal to the current fair market
value of the shares, and the shares become outstanding for earnings per
share computations. Dividends on allocated ESOP shares are recorded as a
reduction of retained earnings, while dividends on unallocated shares
are recorded as a reduction of debt. The tax benefit of tax-deductible
dividends are reported as a reduction of income tax expense. ESOP
expense for the years ended June 30, 1997, 1996 and 1995, totaled
$311,052, $295,180, and $209,484, respectively. The ESOP shares as of
June 30, 1997 and 1996, were as follows:
June 30,
______________________
1997 1996
__________ __________
Allocated shares 38,088 25,392
Shares released for allocation 12,696 12,696
Unreleased shares 76,176 88,872
__________ __________
Total ESOP shares 126,960 126,960
========== ==========
Fair value of unreleased shares at June 30 $1,866,312 $2,066,274
The Company has various stock option plans covering specified employees
and outside directors of the Company and the Bank. Under the 1993
Incentive Stock Option Plan (the "Option Plan"), 79,350 of authorized
but unissued shares of common stock have been reserved for issuance to
specified employees of the Company and its subsidiary bank. The Option
Plan is administered by a committee of outside directors. The Option
Plan authorizes the grant of (i) options to purchase Company Common
Stock intended to qualify as incentive stock options, (ii) options that
do not so qualify ("non-statutory options") and (iii) limited rights
which are exercisable only upon a change in control of the Company.
The exercise price is at least 100% of the fair market value at the time
of the grant of the underlying common stock. Options become exercisable
in whole or in part at such times (no later than 10 years from the date
of grant) as the committee determines. In 1993, options to purchase
47,608 shares were granted, and during the year ended June 30, 1997,
3,967 were exercised.
The 1993 Stock Option Plan for Outside Directors (the "Directors'
Option Plan") of the Company and its subsidiary provides for the
granting of 79,350 shares of Common stock shares. Authorized but
unissued shares or treasury shares may be used to satisfy an exercise
of an option, resulting in an increase in the number of shares
outstanding. The exercise price per share of each option is equal to
the fair market value of the shares of Common Stock on the date the
option is granted. All options granted expire upon the earlier of 10
years following the date of grant or one year following the date the
optionee ceases to be a director. In 1993, 52,688 shares were granted,
and at June 30, 1997, none had been exercised.
The Bank has established Recognition and Retention Plans as a method
of providing directors of the Bank with a proprietary interest in the
Company in a manner designed to encourage such persons to remain
with the Bank. The terms of each Plan are identical, only the
participants vary. Awards to directors are fixed and are granted
in the form of shares of Common Stock to be held in trust. Awards
are nontransferable and nonassignable. When shares become vested and
are actually distributed in accordance with the Plans, the participants
also receive amounts equal to any accrued dividends with respect thereto.
Upon establishment of the plans in 1993, 63,480 shares of Company common
stock were made available, of which 47,610 shares have been awarded and
are vested. For each of the two years ended June 30, 1996, $158,700 was
reported as expense. No expense was reported for the year ended June 30,
1997.
FASB Statement No. 123, Accounting for Stock Based Compensation requires
a fair value method of accounting for stock-based compensation arrange-
ments. However, the adoption of the fair value method was not required,
and if Statement No. 123 had been adopted for the years ended June 30,
1997 and 1996, there would have been no impact on pro forma net income
or net income per share. No shares were granted during these years,
and Statement No. 123 pro forma disclosure requirements are applicable
to awards granted in fiscal years beginning after December 15, 1994.
However, the pro forma effect upon net income and net income per share
may not be representative of that to be expected in future years.
NOTE M - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit and standby letters of credit. These instruments
involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the statements of
financial condition.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual notational amount of these instruments. The Bank uses
the same credit policies in making commitments and conditional
obligations as it does for balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Standby
letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a
customer to a third party. The credit risk involved in issuing
letters of credit is essentially the same as that involved in
extending loans to customers.
Approximate contract or notational amounts of financial instruments
whose contract amounts represent credit risk are:
June 30,
______________________
1997 1996
__________ __________
Commitments to extend credit secured by
mortgages on dwelling units:
Adjustable rate $ 857,850 $ 873,400
Fixed rate 1,983,394 946,433
Commitments to extend other credit - -
The commitments to originate fixed rate mortgage loans represent amounts
the Bank plans to fund within a period of 60 to 120 days. These
commitments were made with interest rates ranging from 7.875% to 8.50%.
NOTE N - CONCENTRATION OF CREDIT RISK
Ninety-eight percent of the Bank's loans and commitments have been
granted to customers in the Bank's market area. Generally, such
customers are also depositors of the Bank. The concentrations of
credit by type of loan are set forth in Note C. The distribution
of commitments to extend credit approximates the distribution of
loans outstanding.
At June 30, 1997, the Company and the Bank had deposits with financial
institutions in excess of federally insured limits by approximately
$6,939,000. Of this amount, approximately $4,989,000 was on deposit
at The Federal Home Loan Bank of Dallas, an instrumentality of the U. S.
Government.
NOTE O - RELATED PARTY TRANSACTIONS
In the normal course of business, the Bank makes loans to its directors
and executive officers and to companies in which they have a significant
ownership interest. These loans, totaling $869,067 at June 30, 1997,
and $321,498 at June 30, 1996, are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons.
NOTE P - FINANCIAL INSTRUMENTS
At June 30, 1996, the Company and its subsidiary adopted FASB Statement
No. 107, Disclosures About Fair Value of Financial Instruments. The
Statement requires disclosure of fair value information about financial
instruments, whether or not recognized in the financial statement. In
cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instruments. Statement No. 107
excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Company and its subsidiary. The carrying amounts presented are the
amounts at which the financial instruments are reported in the
consolidated financial statements.
The following methods and assumptions were used in estimating fair
value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
statement of financial condition for cash and cash equivalents
approximate those assets' fair value.
Investment securities (including mortgage-backed securities): Fair
values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair values for other loans (for example, fixed rate
commercial real estate and rental property mortgage loans and
commercial and industrial loans) are estimated using discounted cash
flow analysis, based on interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.
Loan fair value estimates include judgments regarding future expected
loss experience and risk characteristics.
Deposits: The fair values disclosed for demand deposits (for example,
interest-bearing checking accounts) are, by definition, equal to the
amount payable on demand at the reporting date (that is, their
carrying amounts). The fair values for certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule
of aggregated contractual maturities on such time deposits.
Off-Balance Sheet Financial Instruments: Off-balance sheet
instruments consist of any commitments to extend credit, letters
of credit, etc. Generally, these commitments have a term of 30
to 120 days. Management is of the opinion the estimated fair
value is not significantly different than the contractual or
notational amounts.
The estimated fair values of the financial instruments at June 30,
1997 and 1996, are as follows:
1997 1996
_________________________ ________________________
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
____________ ____________ ___________ ___________
Financial assets:
Cash and cash
equivalents $ 8,406,456 $ 8,406,456 $ 7,561,222 $ 7,561,222
Investment
securities 18,814,395 18,758,223 27,740,646 27,517,628
Mortgage-backed
securities 7,267,626 7,256,822 2,506,359 2,449,956
Federal Home Loan
Bank stock 801,900 801,900 756,500 756,500
Loans, net of
allowance 92,760,267 93,168,412 83,528,151 84,139,507
Financial liabilities:
Deposits 103,798,255 103,402,600 99,148,108 99,361,405
Commitments to extend
credit 2,841,244 2,841,244 1,819,833 1,819,833
NOTE Q - CONVERSION TO STOCK FORM OF OWNERSHIP
On June 30, 1993, the Bank converted from a federally-chartered mutual
institution to a federally-chartered stock savings bank with 100% of
the stock of the Bank issued to the Company which was formed in
connection with the conversion. Sources of cash flow to the Company
are dependent upon earnings from investment of net proceeds retained
by it in the conversion and any dividends received from the Bank.
At conversion, the Bank established a liquidation account in an amount
equal to the total net worth of the Bank as of the date of the latest
balance sheet contained in the final offering circular. Each eligible
account holder will be entitled to a proportionate share of this
account in the event of a complete liquidation of the Bank, and only
in such event. This share will be reduced if the account holders'
deposit falls below the amount on the dates of record and will cease
to exist if the account is closed. The liquidation account is not
increased despite any increase after conversion in the related
deposit balance of an eligible account holder.
The Bank may not declare or pay cash dividends on any of its stock
if the effect thereof would cause the Bank's net worth to be reduced
below the amount required for federal regulatory capital requirements.
The Company, as a Delaware Corporation, is subject to Delaware law
which limits dividends to an amount equal to the excess of the Company's
net assets over its statutory capital or, if there is no excess, to its
net profits for the current and/or immediately preceding fiscal year.
NOTE R - NET INCOME PER SHARE
Net income per share is computed on the basis of the weighted average
shares of common stock outstanding plus common stock equivalents arising
from the effect of stock options, using the treasury stock method. The
following is a reconciliation of the weighted average number of shares
of common stock actually outstanding with the number of shares used in
the computation of net income per share. Total shares outstanding for
fully diluted income per share computations were not significantly
different.
1997 1996 1995
__________ __________ __________
Weighted number of shares
actually outstanding 1,475,279 1,478,209 1,495,192
Common stock equivalent
(stock options) 43,180 50,631 54,022
__________ __________ __________
Total shares 1,518,459 1,528,840 1,549,214
========== ========== ==========
NOTE S - CONDENSED PARENT COMPANY STATEMENTS
Balance sheets as of June 30, 1997 and 1996, and statements of income
and cash flows for the years then ended, of FFBS Bancorp, Inc. (parent
company only) are presented below.
June 30,
Balance Sheets ________________________
1997 1996
Assets: ___________ ___________
Cash $ 396,399 $ 416,522
Interest-bearing deposit due
from bank 2,275,485 -
Federal funds sold - 550,000
Investment securities 1,500,000 4,008,874
Investment in First Federal Bank
for Savings 20,509,549 19,041,705
Other assets 805,255 979,158
___________ ___________
$25,486,688 $24,996,259
=========== ===========
Liabilities and Stockholders' Equity:
Accounts payable $ - $ -
Dividend payable 389,361 393,046
Other liabilities - 1,200
Stockholders' equity 25,097,327 24,602,013
___________ ___________
$25,486,688 $24,996,259
=========== ===========
Statements of Income
Income:
Dividend income $ - $ 1,500,000
Interest on investment securities 153,816 180,286
Other 137,634 120,992
___________ ___________
291,450 1,801,278
Expense 51,458 52,361
___________ ___________
Income before income taxes and equity
in undistributed earnings of
subsidiary 239,992 1,748,917
Income taxes 67,250 36,352
___________ ___________
Income before equity in undistributed
earnings of subsidiary 172,742 1,712,565
Equity in undistributed earnings of
subsidiary 1,305,546 -
Equity in dividends in excess of
earnings - (50,968)
___________ ___________
Net Income $ 1,478,288 $ 1,661,597
=========== ===========
Statements of Cash Flows
Cash flows from operating activities:
Net income $ 1,478,288 $ 1,661,597
Equity in earnings of subsidiary (1,305,546) -
Equity in subsidiary dividends
received in excess of earnings - 50,968
Decrease in other assets 46,941 14,459
Increase (decrease) in accounts
payable (1,200) (2,760)
___________ ___________
Net cash provided by operating
activities 218,483 1,724,264
Cash flows from investing activities:
Repayment on ESOP loan 126,960 126,960
Purchase of securities (1,491,126) (986,126)
Proceeds from maturities of
securities 4,000,000 1,000,000
___________ ___________
Net cash provided by investing
activities 2,635,834 140,834
Cash flows from financing activities:
Exercise of stock options 39,670 -
Treasury stock acquisition (404,180) (350,676)
Cash dividends paid (784,445) (2,226,804)
___________ ___________
Net cash used in financing activities (1,148,955) (2,577,480)
___________ ___________
Net increase (decrease) in cash and
cash equivalents 1,705,362 (712,382)
Cash and cash equivalents at beginning
of period 966,522 1,678,904
___________ ___________
Cash and cash equivalents at end of
period $ 2,671,884 $ 966,522
=========== ===========
EXHIBIT 22 - SUBSIDIARIES OF THE COMPANY
First Federal Bank for Savings located in Columbus, Mississippi,
and a federally chartered savings association is a wholly-owned
subsidiary of FFBS Bancorp, Inc., and is included in the
consolidated financial statements.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,347,511
<INT-BEARING-DEPOSITS> 5,058,945
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,221,505
<INVESTMENTS-CARRYING> 24,860,516
<INVESTMENTS-MARKET> 24,793,540
<LOANS> 93,336,267
<ALLOWANCE> 576,000
<TOTAL-ASSETS> 130,762,301
<DEPOSITS> 103,798,255
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,822,458
<LONG-TERM> 0
0
0
<COMMON> 15,656
<OTHER-SE> 25,125,932
<TOTAL-LIABILITIES-AND-EQUITY> 130,762,301
<INTEREST-LOAN> 7,466,019
<INTEREST-INVEST> 1,632,556
<INTEREST-OTHER> 355,099
<INTEREST-TOTAL> 9,453,674
<INTEREST-DEPOSIT> 4,762,604
<INTEREST-EXPENSE> 4,762,604
<INTEREST-INCOME-NET> 4,691,070
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,444,603
<INCOME-PRETAX> 2,246,467
<INCOME-PRE-EXTRAORDINARY> 2,246,467
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,478,288
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
<YIELD-ACTUAL> 3.93
<LOANS-NON> 0
<LOANS-PAST> 446,000
<LOANS-TROUBLED> 39,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 666,000
<CHARGE-OFFS> 97,000
<RECOVERIES> 7,000
<ALLOWANCE-CLOSE> 576,000
<ALLOWANCE-DOMESTIC> 576,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
