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, 1998 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.
Yes X No
Issuer's revenues for the year ended June 30, 1998 (In thousands)
$10,450
Aggregate market value of the voting stock held by nonaffiliates was
approximately $31,948,080.
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, 1998
Common stock, $.01 par value 1,575,735 shares
Documents Incorporated by Reference -
Annual report to stockholders for the fiscal year ended June 30,
1998.
Proxy statement for the 1998 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, 1998, the Company
had total consolidated assets of $150.8 million, deposits of $114.5
million and stockholders' equity of $23.3 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 three 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 and borrowings. 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, consumer loan, and mortgage-backed
securities portfolio and earnings on its investment securities. The Bank's
primary sources of funds are deposits, borrowings, and principal and
interest payments on loans and mortgage-backed and related securities. At
June 30, 1998, the Bank had no brokered deposits and Federal Home Loan Bank
advances totalling $11.0 million.
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,
_______________________________________________
1996 1997 1998
_______________ _______________ _______________
Percent Percent Percent
Of Of Of
Amount Total Amount Total Amount Total
_______ _______ _______ _______ _______ _______
(Dollars in Thousands)
Mortgage loans:
One-to-four-family $61,077 73.12% $67,198 72.44% $67,562 68.30%
Multi-family 1,021 1.22 982 1.06 229 .23
Commercial real estate 7,867 9.42 8,706 9.39 10,946 11.06
Construction and land 4,218 5.05 4,834 5.21 5,865 5.93
_______ _______ _______ _______ _______ _______
Total mortgage loans 74,183 88.81 81,720 88.10 84,602 85.52
_______ _______ _______ _______ _______ _______
Consumer and other loans:
Loans on deposit 1,592 1.91 1,090 1.18 1,530 1.55
Home improvement and
education 83 .10 43 .05 5 .01
Auto loans 3,680 4.41 4,271 4.60 4,685 4.74
Commercial -
collateralized 974 1.17 1,678 1.81 3,658 3.70
Commercial - unsecured 479 .57 333 .36 505 .51
Other loans 3,230 3.86 4,215 4.54 4,457 4.50
_______ _______ _______ _______ _______ _______
Total consumer and
other loans 10,038 12.02 11,630 12.54 14,840 15.01
_______ _______ _______ _______ _______ _______
Total loans
receivable 84,221 100.83 93,350 100.64 99,442 100.53
Less:
Unearned discounts and
deferred loan fees 27 .03 14 .02 1 .00
Allowance for loan
losses 666 .80 576 .62 523 .53
_______ _______ _______ _______ _______ _______
Loans receivable, net $83,528 100.00% $92,760 100.00% $98,918 100.00%
======= ======= ======= ======= ======= =======
Mortgage-backed and
related securities:
FHLMC $ 1,469 58.62% $ 5,265 72.44% $ 3,000 18.26%
CMOs - 0.00 - 0.00 7,757 47.22
FNMA 1,029 41.06 1,993 27.42 1,843 11.22
GNMA - 0.00 - 0.00 3,622 22.05
_______ _______ _______ _______ _______ _______
Total mortgage-backed and
related securities 2,498 99.68 7,258 99.86 16,222 98.75
Net premiums 8 .32 10 .14 241 1.46
Unrealized gains (losses)
on available for sale
securities - - - - (35) (.21)
_______ _______ _______ _______ _______ _______
Net mortgage-backed and
related securities $ 2,506 100.00% $ 7,268 100.00% $16,428 100.00%
======= ======= ======= ======= ======= =======
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,
_______________________________________________
1996 1997 1998
_______________ _______________ _______________
Percent Percent Percent
Of Of Of
Amount Total Amount Total Amount Total
_______ _______ _______ _______ _______ _______
(Dollars in Thousands)
Fixed Rate Loans:
Mortgage Loans:
One-to-four family $26,574 31.55% $30,583 32.76% $30,627 30.80%
Multi-family 915 1.08 879 .94 129 .13
Commercial real
estate 7,391 8.78 8,315 8.91 10,545 10.60
Construction and land 3,963 4.71 4,587 4.91 5,865 5.90
_______ _______ _______ _______ _______ _______
Total mortgage
loans 38,843 46.12 44,364 47.52 47,166 47.43
Consumer 8,585 10.19 8,600 9.21 9,314 9.37
Commercial 1,453 1.73 1,815 1.95 3,974 4.00
_______ _______ _______ _______ _______ _______
Total fixed rate
loans 48,881 58.04 54,779 58.68 60,454 60.80
_______ _______ _______ _______ _______ _______
Adjustable Rate Loans
(ARM):
Mortgage Loans:
One-to-four-family 34,550 41.02 36,596 39.20 36,935 37.14
Multi-family 106 .13 103 .11 100 .10
Commercial real
estate 430 .51 410 .44 401 .40
Construction and
land 254 .30 247 .27 - -
_______ _______ _______ _______ _______ _______
Total mortgage
loans 35,340 41.96 37,356 40.02 37,436 37.64
Consumer - - 1,019 1.09 1,363 1.37
Commercial - - 196 .21 189 .19
_______ _______ _______ _______ _______ _______
Total adjustable
rate loans 35,340 41.96 38,571 41.32 38,988 39.20
_______ _______ _______ _______ _______ _______
Total Loans $84,221 100.00% $93,350 100.00% $99,442 100.00%
======= ======= ======= ======= ======= =======
Fixed rate mortgage-
backed and related
securities $ 2,498 100.00% $ 5,731 78.96% $ 4,427 27.29
Adjustable rate
mortgage-backed and
related securities - 0.00 1,527 21.04 11,795 72.71
_______ _______ _______ _______ _______ _______
Total mortgage-backed
and related
securities $ 2,498 100.00% $ 7,258 100.00% $16,222 100.00%
======= ======= ======= ======= ======= =======
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,
_________________________
1996 1997 1998
_______ _______ _______
(In Thousands)
Mortgage loans (gross):
At beginning of period $72,054 $74,183 $81,720
_______ _______ _______
Mortgage loans originated:
One-to-four family 25,617 30,523 33,932
Multi-family and commercial real
estate 4,549 8,711 6,082
Construction and land 6,741 8,326 8,066
_______ _______ _______
Total mortgage loans originated 36,907 47,560 48,080
_______ _______ _______
Mortgage loans purchases 117 - -
Less:
Transfer of mortgage loans to
foreclosed real estate 755 - 415
Principal repayments 28,485 35,367 36,690
Sales of one-to-four-family
mortgage loans 5,655 4,656 8,093
_______ _______ _______
At end of period $74,183 $81,720 $84,602
======= ======= =======
Consumer and other loans (gross):
At beginning of period $ 9,081 $10,038 $11,630
Consumer and other loans originated 7,701 12,045 12,505
Principal repayments (6,744) (10,453) (9,295)
Transfer to other assets - - -
_______ _______ _______
At end of period $10,038 $11,630 $14,840
======= ======= =======
Mortgage-backed and related securities
(gross):
At beginning of period $ 2,002 $ 2,506 $ 7,268
Mortgage-backed and related
securities purchased 985 5,527 13,422
Amortization and repayments (481) (765) (4,227)
Unrealized gains(losses) on AFS - - (35)
_______ _______ _______
At end of period $ 2,506 $ 7,268 $16,428
======= ======= =======
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, 1997 and 1998, 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 source of funds are deposits for lending and other
investment purposes. In addition to deposits, the Company derives funds
from loan principal repayments, which are a relatively stable source of
funds, while deposit inflows and outflows are significantly influenced by
general interest rates and money market conditions. Borrowings may be used
on a short-term basis to compensate for reductions in the availability of
funds from other sources. They may also be used on a longer term basis to
fund longer term investments and loan programs.
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 H - 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,
1997 and 1998, 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 regulations, 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
8.0%, a Tier I risk-based capital ratio of less than 4% or a
leverage ratio that is less than 4.0% 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 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
originated the same principal amount of mortgage loans in 1997 or 1998
that it originated 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
is 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 of (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, 1997 and 1998, 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 equal to a specified percentage of its net withdrawable deposit
accounts excluding accounts with maturities exceeding 1 year 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 4%. Monetary penalties may be imposed for
failure to meet these liquidity requirements. The Bank's average
liquidity ratio for June 30, 1998, was 22.02% which exceeded the then
applicable requirement. 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, 1998, the
Bank has been assigned to the well capitalized and Subgroup A
categories. This resulted in the Bank receiving the lowest assessment
rate of .061% 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, 1998, the
Association was in compliance with QTL requirement with 93.19% 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 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, 1998, the
Association had $851,000 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, 1998, dividends paid by the FHLB of
Dallas to the Association totaled $49,246.
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 $43.1 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 $43.1
million. The first $4.7 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 1998, 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, 1997, and 1998, 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, 1998, the Company had no employees. At June 30, 1998, the
Bank had 37 employees of which 32 were full-time.
ITEM 2 - DESCRIPTION OF PROPERTY
The Bank conducts its business through its main office in Columbus and
three branch offices in Columbus, Mississippi.
Date Net Book Value at Leased or
Location Acquired June 30, 1998 (1) Owned
____________________ _________ _________________ _______________
(Dollars in Thousands)
Main Office
1121 Main Street 1979 $761 Leased/Owned (2)
Columbus,
Mississippi
Branch Office
420 Alabama Street 1971 $130 Owned
Columbus,
Mississippi
Branch Office
2024 Highway 45 1987 $293 Owned
North
Columbus,
Mississippi
Branch Office
58 Center Road 1998 $622 Owned
(New Hope)
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 a branch office.
ITEM 3 - LEGAL MATTERS
The Bank is a defendant in a pending case in which the plaintiff is seeking
damages growing out of an alleged breach of a lease associated with
foreclosed properties. In a related case, the Bank is a defendant in
which the plaintiff is seeking recovery of attorney fees. The cases are
being vigorously contested and management believes, based on the advice of
legal counsel, that the final resolution of these proceedings will not
have a material impact on the Company's consolidated financial position 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 symbol "FFBS" and is quoted on the Over-the-Counter Bulletin
Board.
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 $18.00 to $26.00 during
the fiscal year 1998.
C) Dividends of $2.55 per share were declared on the common stock for
the year ended June 30, 1998.
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, 1998, the Company had approximately 666 shareholders.
The Bank is 100% owned by the Company.
ITEM 6 - SELECTED FINANCIAL DATA
The information titled "Selected Financial Data" and contained on Pages
6-7 of the Company's annual report to the shareholders for the year
1998 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
___________________________________________________
1997 1998
_________________________ _________________________
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
________ ________ _______ ________ ________ _______
(Dollars in Thousands)
Assets:
Interest-earning
assets:
Mortgage loans,
net (1) $ 78,026 $ 6,507 8.34% $ 86,358 $ 7,222 8.36%
Other loans (1) 9,771 959 9.81% 10,926 1,035 9.47%
Mortgage-backed
and related
securities (1) 4,991 309 6.19% 11,969 753 6.29%
Interest-
bearing
deposits (1) 5,735 310 5.41% 6,900 380 5.51%
Investment
securities (1) 23,171 1,324 5.71% 17,280 1,011 5.85%
FHLB stock (6) 776 45 5.80% 819 49 5.98%
________ ________ ________ ________
Total interest-
earning assets 122,470 9,454 7.72% 134,252 10,450 7.78%
Non-interest-
earning assets 4,623 6,167
________ ________
Total Assets (6) $127,093 $140,419
======== ========
Liabilities and
Retained Earnings:
Interest-bearing
liabilities:
Deposits:
Passbook
accounts (2) $ 6,192 $ 175 2.83% $ 6,148 $ 171 2.78%
Now accounts (1) 12,055 194 1.61% 12,986 199 1.53%
Money market
accounts (1) 5,758 198 3.44% 5,425 205 3.78%
Certificate
accounts (1) 76,200 4,196 5.51% 83,281 4,794 5.76%
Borrowed funds 0 0 0.00% 6,536 359 5.49%
________ ________ _______ ________ ________ _______
Total interest-
bearing
liabilities 100,205 4,763 4.75% 114,376 5,728 5.01%
Other liabilities 2,022 3,101
________ ________
Total liabilities(6) 102,227 117,477
Retained earnings(6) 24,866 22,942
________ ________
Total liabilities
and retained
earnings (6) $121,093 $140,419
======== ========
Net interest
income/interest
rate spread (3) $ 4,691 2.97% $ 4,722 2.77%
======== ========
Net earning
assets/net
interest margin (4) $ 22,265 3.83% $ 19,876 3.52%
======== ========
Interest-earning
assets to
interest-bearing
liabilities 122.22% 117.38%
(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 describes the extent to which changes in
interest rates and changes in the volume of interest-related
assets and liabilities have affected the Company's interest
income and 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, 1996 June 30, 1997
Compared to Compared to
Year Ended Year Ended
June 30, 1997 June 30, 1998
______________________ ______________________
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 $ 402 $(111) $ 291 $ 699 $ 16 $ 715
Consumer and
other loans (8) 109 101 110 (34) 76
Mortgage-backed
and related
securities 166 3 169 439 5 444
Interest-bearing
deposits (7) 5 (2) 64 6 70
Investment
securities (162) 129 (33) (343) 30 (313)
FHLB stock 3 (3) 0 2 2 4
______ ______ ______ ______ ______ ______
Total 394 132 526 971 25 996
______ ______ ______ ______ ______ ______
Interest-bearing
liabilities:
Passbook
accounts $ 3 $ 4 $ 7 $ (1) $ (3) $ (4)
Now accounts 11 (20) (9) 15 (10) 5
Money market
accounts (23) ( 6) (29) (18) 25 7
Certificate
accounts 238 (7) 231 401 197 598
Borrowings - - - 359 - 359
______ ______ ______ ______ ______ ______
Total 229 (29) 200 756 209 965
______ ______ ______ ______ ______ ______
Net change in
interest income $ 165 $ 161 $ 326 $ 215 $ (184) $ 31
====== ====== ====== ====== ====== ======
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,
1997 1998
________ ________
(In Thousands)
Held-to-Maturity: (1)
U. S. Treasury and other U. S.
Government agencies $ 15,586 $ 12,691
States and political subdivisions 2,006 1,000
Mortgage-backed and related securities 7,268 5,856
Marketable equity securities
________ ________
$ 24,860 $ 19,547
======== ========
Available-for-Sale: (2)
U. S. Treasury and other U. S.
Government agencies $ - $ 1,515
Mortgage-backed and related securities - 10,572
Marketable equity securities 1,222 1,814
________ ________
$ 1,222 $ 13,901
======== ========
B. The following table sets forth the securities of debt investment
securities at June 30, 1998, 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)
Held-to-
Maturity:(1)
U.S. Treasury
and other U. S.
Government
agencies $ 4,695 5.59% $ 7,996 6.12% $ - - % $ - - %
States and
political
subdivisions - - % - - % - - % 1,000 5.00%
Mortgage Backed
and related
securities - - % 1,684 6.10% 1,515 6.60% 2,657 6.66%
_______ _____ _______ _____ ______ ______ _______ _____
$ 4,695 5.59% $ 9,680 6.12% $1,515 6.60% $ 3,657 6.21%
________ _____ _______ _____ ______ ______ _______ _____
Available-for-
Sale:(2)
U.S. Treasury
and other
U. S. Govern-
ment agencies $ - - % $ 1,515 6.66% $ - - % $ - - %
Mortgage-backed
and related
securities - - % - - % - - % 10,572 6.19%
Marketable equity
securities 1,814 5.63% - - % - - % - - %
_______ _____ _______ _____ _______ _____ _______ _____
1,814 5.63% 1,515 6.66% - - % $10,572 6.19%
_______ _____ _______ _____ _______ _____ _______ _____
Total
Securities $ 6,509 5.60% $11,195 6.19% $ 1,515 6.60% $14,229 6.20%
======= ===== ======= ===== ======= ===== ======= =====
(1) The carrying value is the amortized cost of the security at each
reporting date.
(2) The carrying value is the approximate fair value of the security at
each reporting date.
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, 1998.
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, 1998
__________________________________
Maturing
__________________________________
Within
One 1-5 Over
Type Year Years 5 Years Total
________________________ _______ _______ _______ _______
One-to-Four Family $ 8,946 $ 8,015 $50,601 $67,562
Other Mortgage Loans 1,665 3,046 12,329 17,040
Consumer and Other Loans 6,136 7,847 857 14,840
_______ _______ _______ _______
$16,747 $18,908 $63,787 $99,442
======= ======= ======= =======
Loans with:
Predetermined interest
rates $15,403 $18,180 $26,871 $60,454
Adjustable interest
rates 1,344 728 36,916 38,988
_______ _______ _______ _______
$16,747 $18,908 $63,787 $99,442
======= ======= ======= =======
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, 1998, there are no potential problem
loans except as included in the table below.
(In Thousands)
At
June 30 June 30
_______ _______
1997 1998
_______ _______
Non-accrual mortgage loans $ 0 $ 0
Non-accrual other loans 0 1
_______ _______
Total non-accrual loans 0 1
Loans 90 days or more delinquent,
and still accruing 446 1,382
_______ _______
Total non-performing loans 446 1,383
Total foreclosed real estate, net of
related allowance for losses 0 0
_______ _______
Total non-performing assets $ 446 $ 1,383
======= =======
Troubled debt restructured $ 39 $ 31
======= =======
Non-performing loans to total loans .48% 1.40%
Total non-performing assets to total assets .34% .92%
2. There were no loan concentrations in excess of 10% of total
loans at June 30, 1998.
3. There were no outstanding foreign loans at June 30, 1998.
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 for 1998 and 1997 would have been
increased/(decreased) by approximately $0 and $6,
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, 1998, 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, 1998.
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 risks 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
______________
1997 1998
______ ______
(In Thousands)
Balance at beginning of period $ 666 $ 576
Provision (benefits) for loan losses 0 5
Charge-offs:
Mortgage loans 46 0
Other loans 51 63
Recoveries:
Mortgage loans 3 1
Other loans 4 4
______ ______
Balance at end of period $ 576 $ 523
====== ======
Ratio of net charge-offs during the period
to average loans outstanding during the
period 0.11% 0.06%
Ratio of allowance for loan losses to non-
performing loans at the end of the period 129.15% 37.82%
Ratio of allowance for loan losses to net
loans receivable at the end of the period 0.62% 0.53%
Ratio of allowance for loan losses and fore-
closed real estate to total non-performing
assets at the end of the period 129.15% 37.82%
B. Allocation of the Allowance for Loan Losses
At June 30, 1997 At June 30, 1998
________________ ________________
Percent Percent
Of Of
Loans to Loans to
Total Total
Amount Loans Amount Loans
______ ________ ______ ________
At end of period allocated
to:
One-to-four family $ 305 71.99% $ 300 67.94%
Commercial real estate
and multi-family 197 10.38% 143 11.24%
Construction and land 0 5.18% 0 5.90%
Consumer and other
loans 74 12.45% 80 14.92%
______ ________ ______ ________
Total allowance $ 576 100.00% $ 523 100.00%
====== ======== ====== ========
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,
___________________________________________________
1996 1997
_________________________ __________________________
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 $10,383 10.47% 2.26% $ 9,350 9.00% 2.07%
Money market
accounts 6,057 6.11% 3.46% 5,626 5.42% 3.57%
Non-interest-
bearing checking
accounts 2,851 2.88% 0.00% 3,557 3.43% 0.00%
_______ ________ ________ _______ _________ _______
Total transaction
accounts 19,291 19.46% 2.30% 18,533 17.85% 2.13%
Regular passbook
accounts 6,330 6.38% 2.76% 6,186 5.96% 2.84%
_______ ________ ________ _______ _________ _______
Total transaction
and passbook
accounts 25,621 25.84% 2.42% 24,719 23.81% 2.31%
_______ ________ ________ _______ _________ _______
Certificate
accounts:
One-year
certificates
and under 45,931 46.33% 5.21% 44,192 42.58% 5.45%
Over one-year
thru three-year
certificates 22,512 22.70% 5.80% 29,132 28.07% 5.81%
Greater than
three-year
certificates 5,084 5.13% 6.00% 5,743 5.54% 6.29%
_______ ________ ________ _______ _________ _______
Total
certificate
accounts 73,527 74.16% 5.44% 79,079 76.19% 5.64%
_______ ________ ________ ________ ________ _______
Total Deposits $99,148 100.00% 4.66% $103,798 100.00% 4.85%
======= ======== ======== ======== ======== =======
At June 30,
_____________________________
1998
_____________________________
Weighted
Percent Average
Of Total Nominal
Amount Deposits Rate
_________ ________ ________
(Dollars in thousands)
Transaction
accounts:
Interest-bearing
checking
accounts $ 9,979 8.71% 1.94%
Money market
accounts 4,970 4.33% 3.85%
Non-interest-
bearing checking
accounts 4,817 4.21% 0.00%
________ ________ _______
Total transaction
accounts 19,766 17.25% 1.95%
Regular passbook
accounts 6,787 5.93% 2.83%
________ ________ _______
Total transaction
and passbook
accounts 26,553 23.18% 2.17%
________ ________ _______
Certificate
accounts:
One-year
certificates
and under 47,969 41.88% 5.59%
Over one-year
thru three-year
certificates 33,433 29.19% 5.95%
Greater than
three-year
certificates 6,583 5.75% 6.50%
________ ________ _______
Total
certificate
accounts 87,985 76.82% 5.79%
________ ________ _______
Total Deposits $114,538 100.00% 4.95%
======== ======== =======
B. Other categories
None
C. Foreign deposits
None
D. Time certificates of deposit of $100,000 or more and maturities
at June 30, 1998:
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 $19,795 $ 2,836 $ 4,335 $ 9,929 $ 2,695
======= ======= ======= ======= =======
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,
________________
1997 1998
_______ _______
Return on assets (net income divided by total
average assets) 1.16% 1.13%
Return on equity (net income divided by average
equity) 5.95% 6.89%
Dividend payout ratio (dividends per share
divided by net income per share) 51.55% 247.57%
Equity to asset ratio (average equity divided
by average total assets) 19.57% 16.34%
VII. Short-Term Borrowings
The Company may obtain advances from the FHLB of Dallas upon the
security of its FHLB of Dallas stock and certain of the Savings
Bank's residential mortgage loans, provided certain standards
related to creditworthiness have been met. Such advances are made
pursuant to several credit programs, each of which has its own
interest rate and range of maturities. Such advances are generally
available to meet seasonal and other withdrawals of deposit accounts
and to permit increased lending and investing.
The Company had $11.0 million in FHLB advances outstanding at
June 30, 1998. The following table sets forth the maximum month-end
balance and average balance of the Bank's FHLB advances during the
periods indicated. See also, Note I to the Consolidated Financial
Statements.
Year Ended June 30,
__________________
1998 1997
_______ _______
(Dollars in Thousands)
Maximum balance $13,402 $ 0
Average balance 6,536 0
Weighted average interest rate of
FHLB advances 5.49% 0%
The following table sets forth certain information as to the Bank's
long-term (terms to maturity in excess of 90 days) and short-term
(terms to maturity of 90 days or less) FHLB advances at the dates
indicated:
1998 1997
_______ _______
(Dollars In Thousands)
FHLB long-term advances $ 8,350 $ 0
Weighted average interest rate 5.16% 0%
FHLB short-term advances 2,611 0
Weighted average interest rate 5.57% 0%
VIII. Capital Adequacy Data of Subsidiary Bank:
At June 30, 1998
____________________________________________________
Tangible Core Risk-Based
Capital Capital Capital
________________ ________________ ________________
Amount Percent Amount Percent Amount Percent
_______ _______ _______ _______ _______ _______
First Federal $19,931 13.40% $19,931 13.40% $20,454 23.60%
OTS Require-
ment 2,232 1.50% 4,466 3.00% 6,919 8.00%
_______ _______ _______ _______ _______ _______
Excess $17,699 11.90% $15,465 10.40% $13,535 15.60%
======= ======= ======= ======= ======= =======
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, 1997 and 1998, 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, 1998, total interest-earning assets
maturing or repricing within one year exceeded total interest-bearing
liabilities maturing or repricing in the same time period by $1.7
million representing a positive cumulative one-year gap ratio of
(1.15%). Thus, during periods of falling interest rates, it is
expected that the cost of the Bank's interest-bearing liabilities
would fall more quickly than the yield on its interest-earning
assets, which would positively affect net interest income. In
periods of rising 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 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 negative interest sensitivity
gap. During 1998, interest-earning asets repricing within 1 year
increased substantially due to the purchase of adjustable-rate
mortgage-backed and related securities that were funded with
short-term advances from the FHLB, which also increased interest-
bearing liabilities repricing within 1 year.
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, 1998, 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, 1998
_______________________________________________________
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 $ 44,166 $ 15,172 $ 11,041 $ 14,223 $ 84,602
Other loans 6,159 8,019 411 251 14,840
Interest-
bearing
deposits 9,705 0 0 0 9,705
Mortgage-backed
and related
securities 11,835 1,684 1,515 1,394 16,428
Investment
securities 13,507 2,513 0 1,000 17,020
FHLB stock 0 0 0 851 851
_________ _________ __________ _________ _________
Total interest-
earning assets 85,372 27,388 12,967 17,719 143,446
_________ _________ __________ _________ _________
Less:
Unearned
discount and
deferred fees (1) 0 0 0 (1)
_________ _________ __________ _________ _________
Net interest-
earning assets 85,371 27,388 12,967 17,719 143,445
_________ _________ __________ _________ _________
Interest-bearing
liabilities:
Passbook
accounts 1,154 2,895 1,451 1,287 6,787
NOW accounts 3,692 4,284 1,215 788 9,979
Money market
accounts 3,926 807 200 37 4,970
Certificate
accounts 65,253 22,732 0 0 87,985
Borrrowings 9,611 1,350 0 0 10,961
_________ _________ __________ _________ _________
Total interest-
bearing
liabilities 83,636 32,068 2,866 2,112 120,682
_________ _________ __________ _________ _________
Interest
sensitivity gap $ 1,735 $ (4,680) $ 10,101 $ 15,607 $ 22,763
========= ========= ========== ========= =========
Cumulative
interest
sensitivity gap $ 1,735 $ (2,945) $ 7,156 $ 22,763
========= ========= ========== =========
Cumulative
interest
sensitivity gap
as a percentage
of total assets 1.15% (1.95%) 4.75% 15.09%
Cumulative net
interest-earning
assets as a
percentage of
cumulative
interest-
sensitive
liabilities 102.07% 97.45% 106.04% 118.86%
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
The information contained on Pages 2 - 7 of the Company's 1998 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 8 - 41 of the Company's 1998 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, 1998, 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, 1997 and 1998, together with the report of T. E.
Lott & Company, independent certified public accountants, dated
July 22, 1998, appearing on Pages 8 - 41 of the 1998 Company's
annual report, together with the "Five Year Summary of
Operations" on Pages 6 - 7 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 5 of the
annual report to stockholders.
13.b. Selected financial data - Pages 6 - 7 of the annual
report to stockholders.
13.c. Management's discussion and analysis of financial
condition and results of operations - Pages 2 - 5 of the
annual report to stockholders.
13.d. Consolidated financial statements - Pages 8 - 41 of the
annual report to stockholders.
14. Earnings per share - Reference is made to Note A-13 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,
1998.
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 symbol "FFBS" and is quoted on the OTC Bulletin Board. The stock
traded in a range from $18.00 to $26.00 during the fiscal year 1998, 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.b.
SELECTED FINANCIAL DATA
Years Ended June 30,
_____________________________________________________
1998 1997 1996 1995 1994
_________ _________ _________ _________ _________
(In Thousands)
INCOME DATA
Interest income $ 10,450 $ 9,454 $ 8,929 $ 8,430 $ 7,793
Interest expense 5,728 4,763 4,563 3,854 3,339
_________ _________ _________ _________ _________
Net interest
income 4,722 4,691 4,366 4,576 4,454
Less Provision
for losses on
loans 5 0 0 (50) (52)
_________ _________ _________ _________ _________
Net interest
income after
provision for
losses on loans 4,717 4,691 4,366 4,626 4,506
_________ _________ _________ _________ _________
Non-interest
income:
Loan fees &
service
charges 243 238 192 118 164
NOW account
fees 305 301 286 238 204
Other 137 95 111 83 102
_________ _________ _________ _________ _________
Total non-
interest
income 685 634 589 439 470
_________ _________ _________ _________ _________
Other expenses:
Compensation &
benefits 1,731 1,434 1,415 1,331 1,277
Occupancy,
furniture &
equipment 191 189 173 131 123
Deposit
insurance
premiums 66 731 215 206 205
Data processing 172 149 155 146 108
Other 676 576 531 576 802
_________ _________ _________ _________ _________
Total Other
Expenses 2,836 3,079 2,489 2,390 2,515
_________ _________ _________ _________ _________
Income before
taxes 2,566 2,246 2,466 2,675 2,461
Income tax
expense 986 768 804 909 729
_________ _________ _________ _________ _________
Net Income $ 1,580 $ 1,478 $ 1,662 $ 1,766 $ 1,732
========= ========= ========= ========= =========
NET INCOME PER
SHARE
Basic $ 1.06 $ 1.00 $ 1.12 $ 1.18 $ 1.05
Diluted $ 1.03 $ .97 $ 1.09 $ 1.14 $ 1.04
FINANCIAL DATA
Shares
Outstanding 1,576 1,557 1,572 1,592 1,648
Total assets $ 150,806 $ 130,762 $ 125,228 $ 118,970 $ 116,601
Loans Recv.,net 98,918 92,760 83,528 80,391 74,009
Int-bearing
deposits &
federal funds
sold 9,705 5,059 4,223 3,421 11,719
Investment
securities 17,021 18,814 27,741 26,710 23,721
Mortgage-backed &
related
securities 16,428 7,268 2,506 2,011 2,775
Foreclosed real
estate net of
related allowance
for losses - - 555 - -
Deposits 114,538 103,798 99,148 92,576 91,510
Total
stockholders'
equity 23,254 25,142 24,638 25,141 24,361
Total number of
full service
offices 4 3 3 3 2
SELECTED RATIOS
Return on avgerage
assets 1.13% 1.16% 1.37% 1.51% 1.54%
Return on average
equity 6.89% 5.95% 6.89% 7.06% 7.13%
Capital to assets 15.42% 19.23% 19.67% 21.13% 21.08%
Efficiency ratio 52.44% 57.80% 50.23% 51.66% 51.08%
Net interest
margin 3.66% 3.93% 3.79% 4.04% 3.97%
PER SHARE DATA
Net Income:
Basic $ 1.06 $ 1.00 $ 1.12 $ 1.18 $ 1.05
Diluted $ 1.03 $ .97 $ 1.09 $ 1.14 $ 1.04
Dividends 2.55 .50 1.45 .40 .35
Book value
(end of year) $ 15.29 $ 16.97 $ 16.61 $ 16.87 $ 14.87
Average Basic
Shares
Outstanding 1,494,152 1,475,279 1,478,209 1,495,192 1,649,838
Average Diluted
Shares
Outstanding 1,530,802 1,517,542 1,526,359 1,549,214 1,669,267
EXHIBIT 13.c.
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 three 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
At June 30, 1998, the Company's total assets amounted to $150.8 million
as compared to $130.8 million at June 30, 1997, an increase of $20.0
million, or 15.3%. Total assets of the Company have increased $34.2
million, or 29.3%, over the past five years.
Loans are the Company's largest and most profitable component of
interest-earning assets. Total loans increased $6.2 million, or 6.6%,
to $98.9 million at June 30, 1998, compared to $92.8 million at June 30,
1997. The portfolio mix at June 30, 1998 consisted of 85% real estate
loans, 11% consumer loans, and 4% commercial loans. The Company prides
itself in its conservative lending policies which have consistently
produced a good asset quality. Net charge-offs were $58,000, or .06% of
average loans for the fiscal year ended June 30, 1998, which compares
favorably to its peer group. During the five years noted in the summary,
total loans have increased $24.9 million, or 33.7%.
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 $33.4 million at June 30, 1998, an increase of $7.4
million, or 28.2%, compared to June 30, 1997. The Company used advances
from the Federal Home Loan Bank to leverage the purchase of mortgage-
backed and related securities during the fiscal year ended June 30, 1998.
Advances from the Federal Home Loan Bank amounted to $11.0 million at
June 30, 1998. Mortgage-backed and related securities increased $9.2
million, or 126%, to $16.4 million at June 30, 1998 compared to June 30,
1997.
Deposits are the Company's primary source of funds to support its earning
assets. Total deposits were $114.5 million at June 30, 1998, an increase
of $10.7 million, or 10.3%, over June 30, 1997. 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 $23.0 million, or 25.1%.
At June 30, 1998, stockholders' equity totaled $23.3 million, or 15.4%, of
assets. This represents a decrease of $1.9 million, or 7.5%, compared to
June 30, 1997. The Company paid a $2.00 per share special dividend in
addition to its regular dividends for the fiscal year ended June 30, 1998.
This special dividend decreased capital $3.1 million. Net income continued
to be a strong contributor to stockholders' equity during fiscal 1998 as
the Company's net income amounted to $1.6 million.
The book value per share amounted to $15.29 per share at June 30, 1998,
with the exclusion of 55,138 unallocated shares held by the Employee Stock
Ownership Plan (ESOP) and after the payment of a special dividend of $3.1
million, or $2.00 per share. At June 30, 1997, the book value per share
was $16.97, excluding 76,176 unallocated shares held by the ESOP. At
June 30, 1996, the book value per share was $16.61, with the exclusion of
88,872 unallocated shares held by the ESOP.
RESULTS OF OPERATIONS
The Company had consolidated net earnings of $1.6 million for the fiscal
year ended June 30, 1998, representing a return on average assets of 1.13%
and diluted earnings per share of $1.03. For the fiscal year ended
June 30, 1997, the Company's net income amounted to $1.5 million with
diluted earnings per share of $.97. The lower level of earnings in fiscal
1997 was primarily the result of the one-time assessment by the Federal
Deposit Insurance Corporation (FDIC) to fully capitalize the Savings
Association Insurance Fund, which reduced earnings $376,000 after taxes.
Return on average assets, a primary measure of earnings strength, has been
above 1.1% for all five years shown in the summary.
Net interest income is the largest component of the Company's net income
and represents the income earned on interest-earning 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.
The Company's level of net interest income stabilized at $4.7 million for
fiscal 1998 and 1997. The net interest margin for fiscal 1998 was 3.66%,
a decrease from the 3.93% for fiscal 1997 due primarily to decreased
spreads. The Company's cost of funds increased at a faster pace than its
yield on average-earning assets. Average-earning assets for fiscal 1998
increased to $133.4 million from $122.5 million for fiscal 1997, an
increase of $10.9 million, or 8.9%. Despite increases in average-earning
assets for fiscal 1998, net interest income remained stable due to the
decrease in the net interest spread. During fiscal 1997, the Company's
level of net interest income increased 7.5%, or $325,000 when compared to
fiscal 1996. This increase can be attributed to a combination of the
Company's yield on average-earning assets increasing $4.3 million, and the
Company's yield on average-earning assets increasing at a faster pace than
its cost of funds.
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 $523,000 at June 30, 1998, or .53% of total loans outstanding,
which is an amount that management considers to be sufficient to protect
against potential future loan losses.
Non-interest revenues are a growing source of income representing 12.7% of
total net revenues for fiscal 1998, up from 11.9% in fiscal 1997. Total
non-interest revenues increased 7.9% to $685,000 in fiscal 1998, compared
to $634,000 in fiscal 1997. Growth occurred primarily in the other income
category for service release premiums on fixed-rate mortgage loans that
were sold. The Company sells most of the permanent fixed-rate mortgage
loans that it originates to lower interest rate risk associated with those
types of loans.
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. With the exception of 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 special assessment.
Non-interest expense decreased $244,000, or 7.9%, to $2.8 million in fiscal
1998 compared to fiscal 1997. Compensation and benefits increased
$297,000, or 20.7%, to $1.7 million due primarily to expenses associated
with the valuation of stock released from the Employee Stock Ownership
Plan, added employees for expanded branch operations, and increased
participation in benefit plans The deposit insurance premium decreased
$666,000, or 91.0% due primarily to the one-time assessment of $599,000 by
the FDIC to fully capitalize the Savings Association Insurance Fund.
General and administrative expenses were increased $100,000, or 17.3%, to
$676,000 due primarily to more advertising expenses associated with
promotion of checking accounts and the new branch, contributions, and
expenses associated with the operation of the automated teller machines.
The provision for income taxes was $986,000, $768,000, and $804,000, in
fiscal 1998, 1997, and 1996, 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 $2.6
million, $2.2 million, and $2.5 million, respectively. Nondeductible
expenses related to the excess of fair market value of allocated ESOP
shares over cost of $231,000, $184,000, and $168,000, respectively, also
affected the provision for income taxes. Deferred taxes were higher during
fiscal 1997 primarily due to timing differences associated with stock
plans. 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 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 short-term deposits and short-term
borrowings. The required minimum liquidity ratio is currently 4.0%. At
June 30, 1998, the Bank's liquidity ratio was 22.02%.
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.
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, 1998, the
Bank's tangible and core capital was 13.4%. Additionally, institutions are
required to meet a risk-based capital requirement equaling 8% of the amount
of risk-weighted assets. At June 30, 1998, the Bank's risk-based capital
was 23.6%.
REGULATORY DEVELOPMENTS
See Notes A-12 and A-13 of the Notes to Consolidated Financial Statements.
Year 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The Year 2000 issue
is the result of computer programs being written to store and process data
using two digits rather than four to define the applicable year. Computer
programs that have time sensitive coding may recognize a date using "00" as
the year 1900 rather than the year 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system
to fail.
The Bank has conducted a review of its computer systems to identify the
systems that could be affected by the Year 2000 Issue and has developed an
implementation plan to resolve the issue. The majority of the Bank's data
processing is provided by a third party service bureau. The service bureau
is actively involved in resolving Year 2000 issues and has provided the
Bank with frequent updates regarding their progress. The service bureau
has advised the Bank that it expects to have the majority of the Year 2000
issues resolved during the third quarter of 1998 to allow the Bank to test
their system for Year 2000 compliance during the fourth quarter of 1998.
The Bank presently believes that, based on the progress of the Bank's
service bureau, the Year 2000 problem will not pose significant operational
problems for the Bank's computer system. The total cost of Year 2000
projects are not estimated to be material to the financial performance of
the Company.
COMMON STOCK MARKET INFORMATION
The Company's common stock is traded in the over-the-counter market under
the symbol "FFBS" and is quoted on the OTC Bulletin Board. The stock
traded in a range from $18.00 to $26.00 per share during the fiscal year
1998, and regular 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, 1998 AND 1997
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, 1998 and
1997, 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, 1998. 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1998, in conformity with generally
accepted accounting principles.
/S/ T. E. LOTT & COMPANY
Columbus, Mississippi
July 22, 1998
FFBS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
__________________________
ASSETS 1998 1997
____________ ____________
Cash $ 4,616,045 $ 3,347,511
Interest-bearing deposits due from banks 9,705,397 5,058,945
____________ ____________
Total cash and cash equivalents 14,321,442 8,406,456
Available-for-sale securities (Note B) 13,901,495 1,221,505
Held-to-maturity securities (Note B) 19,547,537 24,860,516
Federal Home Loan Bank stock, at cost (Note E) 851,000 801,900
Loans receivable, net (Note C) 98,917,846 92,760,267
Properties and equipment (Note D) 1,906,215 1,354,677
Accrued interest receivable (Note F) 1,279,518 1,064,535
Other assets (Note G) 81,279 292,445
____________ ____________
$150,806,332 $130,762,301
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note H) $114,537,907 $103,798,255
Advances from borrowers for taxes
and insurance 286,311 277,749
Accrued interest payable on deposits 891,954 763,339
Borrowed funds (Note I) 10,961,000 -
Accrued expenses and other liabilities 875,032 781,370
____________ ____________
Total liabilities 127,552,204 105,620,713
Commitments and contingencies
(Notes N and S)
Stockholders' equity (Notes K, L, M and R):
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; 1,575,735 and
1,565,595 shares issued and outstanding
at June 30, 1998 and 1997, respectively 15,757 15,656
Additional paid in capital 15,457,458 15,371,923
Retained earnings 8,485,228 10,692,318
Unrealized gain (loss) on available-for-
sale securities (18,457) 4,789
Unearned compensation (132,250) -
Loan receivable from ESOP (551,380) (761,760)
Treasury stock, at cost (100 shares and
8,150 shares, respectively) (2,228) (181,338)
____________ ____________
Total stockholders' equity 23,254,128 25,141,588
____________ ____________
$150,806,332 $130,762,301
============ ============
The accompanying notes are an integral part of these statements.
FFBS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30,
__________________________________
1998 1997 1996
__________ __________ __________
INTEREST INCOME
Interest and fees on loans $8,257,279 $7,466,019 $7,074,289
Interest on mortgage-backed and
related securities 752,792 308,935 139,858
Interest on investment securities 1,010,587 1,323,621 1,356,933
FHLB stock dividends 49,246 45,492 45,137
Interest on federal funds sold - 10,624 60,051
Interest on deposits due from banks 380,187 298,983 252,412
__________ __________ __________
10,450,091 9,453,674 8,928,680
INTEREST EXPENSE
Interest on deposits 5,369,174 4,762,604 4,562,988
Interest on borrowed funds 359,125 - -
__________ __________ __________
Net interest income 4,721,792 4,691,070 4,365,692
Provision for losses on loans
(Note C) 5,000 - -
__________ __________ __________
Net interest income after provision
for losses on loans 4,716,792 4,691,070 4,365,692
NON-INTEREST INCOME
Loan fees and service charges 243,104 238,099 191,696
NOW account fees 304,677 301,361 285,826
Other 137,045 94,928 111,383
__________ __________ __________
684,826 634,388 588,905
NON-INTEREST EXPENSE
Compensation and benefits 1,731,289 1,433,945 1,415,254
Occupancy and equipment 190,716 189,155 172,615
Deposit insurance premium (Note L) 65,561 731,485 214,967
Data processing 171,968 148,428 155,404
Other 675,845 575,978 531,003
__________ __________ __________
2,835,379 3,078,991 2,489,243
__________ __________ __________
Income before income taxes 2,566,239 2,246,467 2,465,354
Income tax expense (Note J):
Current 968,699 618,199 733,257
Deferred 17,346 149,980 70,500
__________ __________ __________
986,045 768,179 803,757
__________ __________ __________
Net Income $1,580,194 $1,478,288 $1,661,597
========== ========== ==========
Net Income Per Share:
Basic $1.06 $1.00 $1.12
Diluted 1.03 .97 1.09
The accompanying notes are an integral part of these statements.
FFBS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized
Gain (Loss) Loan
Additional Unearned Available- Receivable
Common Paid in Retained Compen- For-Sale From Treasury
Stock Capital Earnings sation Securities ESOP Stock Total
_______ ___________ ___________ _________ __________ ___________ _________ ____________
Balance,
July 1, 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 - - - 158,700 - - - 158,700
Reduction of
ESOP loan - - - - - 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 - 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)
Purchase of
treasury stock - - - - - - (181,338) (181,338)
Cash dividends,
$.50 per share - - (772,823) - - - - (772,823)
Reduction of
ESOP loan - - - - - 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
over cost - 184,091 - - - - - 184,091
_______ ___________ ___________ _________ __________ ___________ __________ ___________
Balance,
June 30, 1997 15,656 15,371,923 10,692,318 - 4,789 (761,760) (181,338) 25,141,588
Net income - - 1,580,194 - - - - 1,580,194
Purchase of
treasury stock - - - - - - (270,332) (270,332)
Cash dividends,
$2.55 per
share - - (3,787,284) - - - - (3,787,284)
Reduction of
ESOP loan - - - - - 210,380 - 210,380
Adjustment to
unrealized
gain (loss) on
available-for-
sale securities - - - - (23,246) - - (23,246)
Stock awards - - - (158,700) - - - (158,700)
Amortization of
unearned
compensation - - - 26,450 - - - 26,450
Stock option
shares
exercised 101 (145,883) - - - - 449,442 303,660
Excess of fair
market value
of allocated
ESOP shares
over cost - 231,418 - - - - - 231,418
_______ ___________ ___________ _________ __________ ___________ __________ ___________
Balance,
June 30, 1998 $15,757 $15,457,458 $ 8,485,228 $(132,250) $ (18,457) $ (551,380) $ (2,228) $23,254,128
======= =========== =========== ========= ========== =========== ========== ===========
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,
________________________________________
1998 1997 1996
____________ ____________ ____________
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 1,580,194 $ 1,478,288 $ 1,661,597
Adjustments to reconcile
net income to net cash:
Depreciation of properties
and equipment 106,550 83,880 93,497
Amortization of unearned
compensation 26,450 - 158,700
Accretion of discount on
loans (12,270) (12,218) (10,965)
Deferred income taxes 17,346 149,980 70,500
FHLB stock dividends (49,100) (45,400) (44,900)
Provision for losses on
loans 5,000 - -
Provision for losses on
foreclosed real estate - - 10,452
Sale of loans 8,093,000 4,656,000 5,655,000
Loans originated for sale (8,093,000) (4,656,000) (5,655,000)
(Increase) decrease in
accrued interest
receivable (214,983) 61,456 (105,876)
(Increase) decrease
in other assets 45,699 164,082 (717,263)
Increase in accrued
interest payable on
deposits 128,615 68,232 97,098
Increase (decrease) in
accrued expenses and
other liabilities 5,292 (8,506) (40,049)
Excess of fair market
value of allocated ESOP
shares over cost 231,418 184,091 168,222
____________ ____________ ____________
Net cash provided by
operating activities 1,870,211 2,123,885 1,341,013
CASH FLOWS FROM INVESTING
ACTIVITIES
Decrease in other interest-
bearing deposits due from
banks - - 100,000
Loan originations (52,492,000) (54,949,000) (38,953,000)
Purchase of loans - - (117,000)
Purchase of mortgage-backed
and related securities (13,422,203) (5,522,800) (984,900)
Purchase of investment
securities (10,807,786) (5,566,627) (20,771,985)
Principal repayment of
loans 45,957,691 45,729,102 35,943,815
Principal repayments of
mortgage-backed and
related securities 4,179,436 761,533 484,290
Proceeds from calls and
maturities of investment
securities 12,650,000 14,500,000 19,744,348
Sale of foreclosed real
estate 384,000 457,539 190,501
Purchase of properties and
equipment (651,321) (343,134) (59,708)
Repayment of ESOP loan 210,380 126,960 126,960
____________ ____________ ____________
Net cash used in investing
activities (13,991,803) (4,806,427) (4,296,679)
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase in deposits 10,739,652 4,650,147 6,571,941
Increase (decrease) in
advances from borrowers
for taxes and insurance 8,562 18,647 (9,597)
Increase in borrowed funds 10,961,000 - -
Acquisition of stock (270,332) (404,180) (350,676)
Cash dividends paid (3,705,964) (776,508) (2,190,480)
Exercise of stock options 303,660 39,670 -
Net cash provided by
financing activities 18,036,578 3,527,776 4,021,188
Net increase in cash and
cash equivalents 5,914,986 845,234 1,065,522
Cash and cash equivalents at
beginning of period 8,406,456 7,561,222 6,495,700
____________ ____________ ____________
Cash and cash equivalents at
end of period $ 14,321,442 $ 8,406,456 $ 7,561,222
============ ============ ============
Cash paid during the period for:
Interest $ 5,599,684 $ 4,694,372 $ 4,465,890
Income taxes 932,500 642,000 721,692
Supplemental disclosure of
noncash activities:
Acquisition of real estate
in settlement of loans 415,385 - 755,468
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. 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, 1998 and 1997, 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.
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
management'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, 1998 and 1997, were immaterial.
Direct loan costs and any related loan origination fees are recognized
currently as period costs and income, respectively, and do not vary
materially from the results that would be recorded using the deferral
method prescribed by FASB Statement No. 91, Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs of Leases.
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.
( Continued )
FFBS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
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 June, 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income which establishes standards for reporting and display of
comprehensive income and its components in a full set of financial
statements. Comprehensive income is defined as the change in equity during
a period for non-owner transactions and is divided into net income and
other comprehensive income. Other comprehensive income includes revenues,
expenses, gains, and losses that are excluded from earnings under current
accounting standards. This statement does not change or modify the
reporting or display in the income statement. Statement No. 130 is
effective for interim and annual periods beginning after December 31, 1997.
Comparative financial statements provided for earlier periods are required
to be classified to reflect the application of this statement.
In February, 1998, the FASB issued Statement No. 132, Employers Disclosures
About Pensions and Other Postretirement Benefits. This statement
standardizes the disclosure requirements of pensions and other
postretirement benefits. This statement does not change any measurement or
recognition provisions, and thus will not materially impact the Company.
This statement is effective for fiscal years beginning after December 15,
1997.
In June, 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting
and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in its financial statements and that those
instruments be measured at fair value. Implementation is required for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company
has not determined the impact the adoption of this statement may have on
its consolidated financial statements.
13. Net Income Per Share
The Company adopted FASB Statement No. 128, Earnings Per Share as of
December 31, 1997. Statement No. 128 superseded Accounting Principles
Board Opinion No. 15, Earnings Per Share (APB No. 15) which the Company had
followed until the adoption of Statement No. 128. This statement requires
that two earnings per share amounts be disclosed: Basic Earnings Per Share
and Diluted Earnings Per Share. Basic Earnings Per Share is calculated by
dividing net income available to common stockholders by the weighted
average number of common stock shares outstanding during the period. The
Basic Earnings Per Share computation for the Company is the same method the
Company previously used to calculate and report earnings per share under
APB No. 15. Diluted Earnings Per Share is computed by assuming the
issuance of common shares for all dilutive potential common shares
outstanding during the reporting period. Currently, the Company's only
dilutive potential common stock issuances relate to options that have been
issued under the Company's stock option and recognition and retention
plans. In computing Diluted Earnings Per Share, it is assumed that all
such dilutive stock is exercised during the reporting period at their
respective exercise prices, with the proceeds from the exercises used by
the Company to buy back stock in the open market at the average market
price in effect during the reporting period. The difference between the
number of shares assumed to be exercised and the number of shares bought
back is added to the number of weighted average common shares outstanding
during the period. The sum is used as the denominator to calculate Diluted
Earnings Per Share for the Company. As required by Statement No. 128, all
prior year earnings per share amounts have been restated and computed under
the provisions of the new standard.
The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net income per share:
1998
_____________________________________
Income Shares Per Share
(Numerator) (Denominator) Amount
___________ _____________ _________
(In Thousands, Except Per Share Amounts)
Basic EPS:
Income available to common
shareholders $ 1,580 1,494 $ 1.06
=========
Effect of dilutive stock
options - 37
___________ _____________
Diluted EPS:
Income available to common
shareholders plus assumed
exercise $ 1,580 1,531 $ 1.03
=========== ============= =========
1997
_____________________________________
Income Shares Per Share
(Numerator) (Denominator) Amount
___________ _____________ _________
(In Thousands, Except Per Share Amounts)
Basic EPS:
Income available to common
shareholders $ 1,478 1,475 $ 1.00
=========
Effect of dilutive stock
options - 43
___________ _____________
Diluted EPS:
Income available to common
shareholders plus assumed
exercise $ 1,478 1,518 $ .97
=========== ============= =========
1996
_____________________________________
Income Shares Per Share
(Numerator) (Denominator) Amount
___________ _____________ _________
(In Thousands, Except Per Share Amounts)
Basic EPS:
Income available to common
shareholders $ 1,662 1,478 $ 1.12
=========
Effect of dilutive stock
options - 51
___________ _____________
Diluted EPS:
Income available to common
shareholders plus assumed
exercise $ 1,662 1,529 $ 1.09
=========== ============= =========
14. Financial Statement Reclassification
The financial statements for prior years have been reclassified in order
to conform with the 1998 financial statement presentation. The
reclassification did not change total assets or net income.
NOTE B - SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated market values of investment securities and mortgage-backed and
related securities are as follows:
June 30, 1998
________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Description Cost Gains Losses Value
________________________ ___________ __________ __________ ___________
Held-to-Maturity:
Securities of other
U.S. Government
agencies $12,690,869 $ 7,541 $ 10,702 $12,687,708
Obligations of states
and political
subdivisions 1,000,310 - 310 1,000,000
Mortgage-backed
securities 4,839,571 49,897 - 4,889,468
REMICS 1,016,787 - 13,656 1,003,131
___________ __________ __________ ___________
$19,547,537 $ 57,438 $ 24,668 $19,580,307
=========== ========== ========== ===========
Available-for-Sale:
Securities of other
U. S. Government
agencies $ 1,507,429 $ 7,573 $ - $ 1,515,002
Mortgage-backed
securities 3,721,703 4,850 8,247 3,718,306
REMICS 6,885,437 5,965 37,732 6,853,670
Marketable equity
securities 1,814,517 - - 1,814,517
___________ __________ __________ ___________
$13,929,086 $ 18,388 $ 45,979 $13,901,495
=========== ========== ========== ===========
June 30, 1997
________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Description Cost 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
subdivisions 2,006,540 249 6,540 2,000,249
Mortgage-backed and
relatedsecurities 7,267,626 15,847 26,651 7,256,822
___________ __________ __________ ___________
$24,860,516 $ 18,120 $ 85,096 $24,793,540
=========== ========== ========== ===========
Available-for-Sale:
Marketable equity
securities $ 1,221,505 $ - $ - $ 1,221,505
The carrying values and estimated market values of investment debt
securities by contractual maturities as of June 30, 1998, 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 issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
June 30, 1998
__________________________________________________
Held-to-Maturity Available-For-Sale
________________________ ________________________
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
___________ ___________ ___________ ___________
Due in one year or
less $11,693,160 $11,690,208 $ - $ -
Due after one year
through five years 997,709 997,500 1,507,429 1,515,002
Due after ten years 1,000,310 1,000,000 - -
Mortgage-backed
securities and
REMICS 5,856,358 5,892,599 12,421,657 12,386,493
___________ ___________ ___________ ___________
$19,547,537 $19,580,307 $13,929,086 $13,901,495
=========== =========== =========== ===========
Investment securities with a carrying value of $930,000 and $925,000 at
June 30, 1998 and 1997, respectively, were pledged for various purposes as
required by law. Also, at June 30, 1998, securities with a carrying value
of $2,637,388 had been pledged as collateral on advances from the Federal
Home Loan Bank.
Mortgage-backed securities were issued or are guaranteed by an agency of
the U. S. Government. REMICS consist of securities backed by securities of
U. S. Government agencies. Although mortgage-backed and related securities
and REMICS are initially issued with a stated maturity date, the underlying
mortgage collateral may be prepaid by the mortgagee and, therefore, such
securities may not reach their maturity date. At June 30, 1998 and 1997,
there were no material concentrations of credit risk.
There were no sales of securities during the years ended June 30, 1998,
1997 and 1996.
NOTE C - LOANS RECEIVABLE, NET
Loans receivable, net are summarized as follows:
(In Thousands)
June 30,
__________________
1998 1997
________ ________
Mortgage Loans
Principal balances:
One-to-four family residential $ 67,562 $ 67,198
Multi-family 229 982
Commercial real estate 10,946 8,706
Construction and land 5,865 4,834
________ ________
Total mortgage loans 84,602 81,720
________ ________
Consumer and Other Loans
Principal balances:
Loans on deposit accounts 1,530 1,090
Home improvement and education 5 43
Automobile 4,685 4,271
Commercial - collateralized 3,658 1,678
Commercial - unsecured 505 333
Other 4,457 4,215
________ ________
Total consumer and other loans 14,840 11,630
________ ________
Total loans receivable 99,442 93,350
Less unearned discount 1 14
Less allowance for loan losses 523 576
________ ________
Loans receivable, net $ 98,918 $ 92,760
======== ========
Activity in the allowance for loan losses is as follows:
(In Thousands)
Years Ended
June 30,
______________________
1998 1997 1996
______ ______ ______
Balance at beginning of period $ 576 $ 666 $ 705
Additions:
Provision for losses on loans 5 - -
Recoveries 7 7 5
______ ______ ______
588 673 710
Deductions:
Loans charged off 65 97 44
______ ______ ______
Balance at end of period $ 523 $ 576 $ 666
====== ====== ======
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. At June 30, 1998 and 1997,
any loans designated as impaired were not significant.
Loans receivable delinquent are as follows:
(In Thousands)
June 30,
______________
1998 1997
______ ______
Past due 30-89 days and still accruing $6,727 $6,511
Past due 90 days or more and still accruing 1,382 446
______ ______
8,109 6,957
Nonaccrual loans 1 -
______ ______
$8,110 $6,957
====== ======
NOTE D - PROPERTIES AND EQUIPMENT
Properties and equipment consist of the following:
June 30,
__________________________
1998 1997
____________ ____________
Land $ 536,775 $ 518,789
Buildings 1,696,486 1,139,652
Furniture and equipment 634,136 571,195
____________ ____________
2,867,397 2,229,636
Less accumulated depreciation 961,182 874,959
____________ ____________
$ 1,906,215 $ 1,354,677
============ ============
Depreciation expense totaled $106,550, $83,880, and $93,497 for the years
ended 1998, 1997 and 1996, respectively.
NOTE E - 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 F - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consisted of interest accrued on the following:
June 30,
__________________________
1998 1997
____________ ____________
Loans $ 998,295 $ 821,643
Mortgage-backed and related securities 68,200 37,512
Investment securities 213,023 205,380
____________ ____________
$ 1,279,518 $ 1,064,535
============ ============
NOTE G - OTHER ASSETS
Other assets consist of the following:
June 30,
__________________________
1998 1997
____________ ____________
Organization costs $ - $ 6,767
Prepaid income taxes 7,500 45,724
Prepaid expenses and other assets 73,779 239,954
____________ ____________
$ 81,279 $ 292,445
============ ============
NOTE H - DEPOSITS
Approximate deposit balances by interest rates are summarized as follows:
($ In Thousands)
June 30,
______________________________________________________
1998 1997
__________________________ ___________________________
Percent Weighted Percent Weighted
Of Average Of Average
Total Nominal Total Nominal
Amount Deposits Rate Amount Deposits Rate
________ ________ ________ ________ ________ _________
Demand accounts:
Checking $ 4,817 4.21% 0.00% $ 3,557 3.43% 0.00%
NOW 9,979 8.71% 1.94% 9,350 9.00% 2.07%
Savings 6,787 5.93% 2.83% 6,186 5.96% 2.84%
Money market 4,970 4.33% 3.85% 5,626 5.42% 3.57%
________ ________ ________ ________ ________ _________
26,553 23.18% 2.17% 24,719 23.81% 2.31%
________ ________ ________ ________ ________ _________
Certificate
accounts:
Maturing
0 - 3 months 16,204 14.15% 5.56% 17,486 16.85% 5.33%
Maturing
3 - 6 months 18,826 16.44% 5.69% 16,288 15.69% 5.53%
Maturing 6 - 12
months 30,223 26.39% 5.74% 27,621 26.61% 5.59%
Maturing 1 - 2
years 16,407 14.32% 5.99% 12,374 11.92% 6.01%
Maturing 2 - 3
years 3,507 3.06% 6.37% 2,886 2.78% 6.27%
Maturing 3 - 4
years 2,321 2.03% 6.28% 1,948 1.88% 6.37%
Maturing over
4 years 497 .43% 6.93% 476 .46% 6.70%
________ ________ ________ ________ ________ _________
87,985 76.82% 5.79% 79,079 76.19% 5.64%
________ ________ ________ ________ ________ _________
Total deposits $114,538 100.00% 4.95% $103,798 100.00% 4.85%
======== ======== ======== ======== ======== =========
A summary of certificate accounts by interest rate follows:
June 30, 1998 June 30, 1997
__________________________ __________________________
Average Average
Interest Rate Number Balance Balance Number Balance Balance
__________________ ______ __________ _______ ______ ___________ _______
Less than 3.00% 7 $ 65,000 $ 9,234 11 $ 338,000 $30,727
4.01% - 5.00% 388 6,329,000 16,311 1,054 14,654,000 13,903
5.01% - 6.00% 2,423 59,588,000 24,593 1,787 49,926,000 27,938
6.01% - 7.00% 422 20,857,000 49,424 283 13,383,000 47,290
7.01% - 8.00% 12 1,146,000 95,483 11 778,000 70,727
______ ___________ _______ ______ ___________ _______
3,252 $87,985,000 $27,056 3,146 $79,079,000 $25,136
====== =========== ======= ====== =========== =======
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was approximately $19,043,000 and $17,086,000 at June 30, 1998
and 1997, respectively.
Interest expense on deposits is summarized as follows:
(In Thousands)
Years Ended
June 30,
1998 1997 1996
______ ______ ______
NOW accounts $ 199 $ 194 $ 203
Savings 171 175 168
Money market 205 198 227
Certificate accounts 4,794 4,196 3,965
______ ______ ______
$5,369 $4,763 $4,563
====== ====== ======
NOTE I - BORROWED FUNDS
Borrowed funds consist solely of FHLB advances. Fixed-rate advances
(bearing interest rates from 5.00% to 5.973%) consist of the following at
June 30, 1998, by scheduled maturity:
Year Due Amount
________ ___________
1998 $ 2,611,000
1999 450,000
2000 900,000
2008 7,000,000
___________
$10,961,000
===========
The $7,000,000 advance is a short option advance and has a first call
option date of March, 1999, and quarterly call option dates until the
maturity date of March, 2008.
The FHLB advances are secured by FHLB stock, a blanket pledge of
residential mortgage loans and certain U. S. Government agency securities.
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,
______________________
1998 1997 1996
______ ______ ______
Federal income tax rates 34% 34% 34%
Change in taxes resulting from:
Nontaxable income (2%) (5%) (3%)
State income tax, net 1% 1% 2%
Excess of fair market value of
allocated ESOP shares over cost 3% 3% 2%
Other 2% 1% (2%)
______ ______ ______
38% 34% 33%
====== ====== ======
The sources of timing differences and the resulting deferred income tax
expense (benefit) follow:
(In Thousands)
Years Ended
June 30,
______________________
1998 1997 1996
______ ______ ______
Provision for losses on loans
and foreclosed real estate 20 $ 59 $ 51
Discount accretion (24) 5 (10)
Stock option plans (10) 59 -
Depreciation 13 8 15
FHLB stock 18 17 17
Other, net - 2 (2)
______ ______ ______
$ 17 $ 150 $ 71
====== ====== ======
Significant components of the net deferred income tax liability included
in other liabilities at June 30, 1998 and 1997, are as follows:
1998 1997
_________ _________
Deferred income tax assets:
Stock options $ 9,866 $ -
Unrealized gain (loss) on available-
for-sale securities 10,725 -
_________ _________
Total deferred income tax assets 20,591 -
Deferred income tax liabilities:
Premises and equipment 42,795 30,235
Allowance for loan losses 160,597 140,920
Securities 13,624 8,030
Loans - 28,504
FHLB stock 142,374 124,060
_________ _________
Total deferred income tax liabilities 359,390 331,749
_________ _________
Net deferred income tax liability $(338,799) $(331,749)
========= =========
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 approximately $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 transactions that would require recapture
of its pre-1988 tax bad debt reserve of approximately $1,600,000.
NOTE K - TREASURY STOCK
In February, 1994, the Company's Board of Directors authorized the
purchase of Company common stock under a Stock Repurchase Program.
Shares repurchased are retired or held in treasury and reserved for
reissuance to satisfy the exercise of stock options.
During the years ended June 30, 1998, 1997, and 1996, the Company
repurchased 12,176, 18,705, and 19,990 shares, respectively. These
shares were repurchased at an average cost of $22.20, $21.85, and $17.54
per share, respectively.
During the year ended June 30, 1998, the Company reissued 20,226 shares
of common stock from treasury stock with a cost basis of $449,442. These
shares were issued upon the exercise of stock options by employees or
directors. During the years ended June 30, 1997 and 1996, the Company
retired 10,555 and 19,990 treasury shares, respectively.
NOTE L - 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 total assets, and risk-based
capital (as defined) equal to at least 8% of risk-weighted assets.
Management believes, as of June 30, 1998, that the Company and the Bank
exceed all capital adequacy requirements.
At June 30, 1998, 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, 1998, 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, 1998 and 1997,
are presented in the following table. No amount was deducted from capital
for interest-rate risk exposure.
($ In Thousands)
June 30, 1998 June 30, 1997
________________ _________________
Amount Ratio Amount Ratio
_______ _______ _______ _______
Tangible capital $19,931 13.4% $20,548 16.2%
Core/leverage capital 19,931 13.4% 20,548 16.2%
Tier 1 risk-based capital 19,931 23.0% 20,548 29.1%
Total risk-based capital 20,454 23.6% 21,114 29.9%
The minimum amounts of capital and ratios as established by regulations for
capital adequacy purposes at June 30, 1998 and 1997, were as follows:
($ In Thousands)
June 30, 1998 June 30, 1997
________________ ________________
Amount Ratio Amount Ratio
_______ _______ _______ _______
Tangible capital $ 2,232 1.5% $ 1,904 1.5%
Core/leverage capital 4,466 3.0% 3,808 3.0%
Total risk-based capital 6,919 8.0% 5,655 8.0%
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 M - 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, 1997, 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 1998,
1997 and 1996, 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 compensation, 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 Contribution" which can be made at the
discretion of the Board of Directors. The expense for the plan included in
the accompanying financial statements was $36,062, $23,940, and $11,205 for
the years ended June 30, 1998, 1997 and 1996, 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. The Bank
has adopted Statement of Position 93-6 (SOP 93-6), Employers' 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 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, 1998, 1997 and 1996, totaled $425,032,
$311,052, and $295,180, respectively. The ESOP shares as of June 30, 1998
and 1997, were as follows:
June 30,
______________________
1998 1997
__________ __________
Allocated shares 50,784 38,088
Shares released for allocation 21,038 12,696
Unreleased shares 55,138 76,176
__________ __________
Total ESOP shares 126,960 126,960
========== ==========
Fair value of unreleased shares at June 30 $1,323,310 $1,866,312
========== ==========
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 were awarded and have vested. During the year ended June 30, 1998,
the remaining 15,870 shares were awarded. These shares vest in equal
amounts over a three-year period. The cost of the shares purchased by the
plan is considered to be unearned compensation at the time of the award and
compensation is earned ratably over the vesting term. Expense for these
plans was $26,450 in 1998, $ -0- in 1997, and $158,700 in 1996.
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, 1998 and 1997, 17,193 and
3,967, respectively, were exercised at the option price of $10 per share.
Unexercised options totaled 26,448 shares at June 30, 1998.
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 during the year ended June 30, 1998, 13,172 were
exercised at the option price of $10 per share. Unexercised options
totaled 39,516 shares at June 30, 1998.
FASB Statement No. 123, Accounting for Stock Based Compensation requires a
fair value method of accounting for stock-based compensation arrangements.
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, 1998, 1997,
and 1996, there would have been no significant impact on pro forma net
income or net income per share.
NOTE N - 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 at June 30, 1998, are (in
thousands):
Unused lines of credit $ 1,182
Mortgage construction loans 2,665
Commitments to extend credit secured by
mortgages on dwelling units:
Adjustable rate 1,033
Fixed rate 910
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 6.75% to 7.50%.
NOTE O - CONCENTRATION OF CREDIT RISK
Over ninety-five 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, 1998, the Company and the Bank had deposits with financial
institutions in excess of federally insured limits by approximately
$12,700,000. Of this amount, approximately $10,200,000 was on deposit at
The Federal Home Loan Bank of Dallas, an instrumentality of the U. S.
Government.
NOTE P - 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 $1,896,327 at June 30, 1998, and
$869,067 at June 30, 1997, 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 Q - FINANCIAL INSTRUMENTS
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 of demand deposit accounts (i.e.,
interest-bearing and noninterest-bearing checking accounts and money market
and regular savings accounts) are equal to the face amount. The fair value
of fixed-rate time deposits is estimated using a discounted cash flow
calculation that applies interest rates offered by the Corporation as of
the measurement date to a schedule of aggregate contractual maturities of
such deposits as of the same dates.
Borrowed Funds: The fair value of borrowings is based on the discounted
value of contractual cash flows using as discount rates the rates that were
available to the Bank at June 30, 1998, for similar borrowings.
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, 1998 and
1997, are as follows (in thousands):
1998 1997
____________________ ___________________
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
_________ _________ _________ _________
Financial assets:
Cash and cash
equivalents $ 14,321 $ 14,321 $ 8,406 $ 8,406
Investment securities 33,449 33,482 26,082 26,015
Federal Home Loan Bank
stock 851 851 802 802
Loans, net of allowance 98,918 100,238 92,760 93,168
Financial liabilities:
Deposits 114,538 114,866 103,798 103,403
Borrowed funds 10,961 10,555 - -
Financial instruments 5,790 5,790 2,841 2,841
NOTE R - 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 S - LEGAL PROCEEDINGS
The Bank is a defendant in a pending case in which the plaintiff is seeking
damages growing out of an alleged breach of a lease associated with
foreclosed properties. In a related case, the Bank is a defendant in which
the plaintiff is seeking recovery of attorney fees. The cases are being
vigorously contested and management believes, based on the advice of legal
counsel, that the final resolution of these proceedings will not have a
material impact on the Company's consolidated financial position or results
of operations.
NOTE T - CONDENSED PARENT COMPANY STATEMENTS
Balance sheets as of June 30, 1998 and 1997, and statements of income and
cash flows for the years then ended, of FFBS Bancorp, Inc. (parent company
only) are presented below.
Balance Sheets June 30,
________________________
1998 1997
___________ ___________
Assets:
Cash $ 257,168 $ 396,399
Interest-bearing deposit due from banks 1,119,998 2,275,485
Investment securities 1,747,357 1,500,000
Investment in First Federal Bank for
Savings 19,697,019 20,553,810
Other assets 905,306 805,255
___________ ___________
$23,726,848 $25,530,949
=========== ===========
Liabilities and Stockholders' Equity:
Dividend payable $ 472,720 $ 389,361
Stockholders' equity 23,254,128 25,141,588
___________ ___________
$23,726,848 $25,530,949
=========== ===========
Years Ended
June 30,
________________________
1998 1997
___________ ___________
Statements of Income
Income:
Dividends from subsidiary bank $ 2,500,000 $ -
Interest on investment securities 109,051 153,816
Other 114,308 137,634
___________ ___________
2,723,359 291,450
Expense 60,001 51,458
Income before income taxes and equity
in undistributed earnings of subsidiary 2,663,358 239,992
Income taxes expense (benefit) (8,250) 67,250
___________ ___________
Income before equity in undistributed
earnings of subsidiary 2,671,608 172,742
Equity in undistributed earnings of
subsidiary (1,091,414) 1,305,546
___________ ___________
Net Income $ 1,580,194 $ 1,478,288
=========== ===========
Years Ended
June 30,
________________________
1998 1997
___________ ___________
Statements of Cash Flows
Cash flows from operating activities:
Net income $ 1,580,194 $ 1,478,288
Equity in earnings of subsidiary 1,091,414 (1,305,546)
Other, net (256,713) 45,741
___________ ___________
Net cash provided by operating activities 2,414,895 218,483
Cash flows from investing activities:
Repayment on ESOP loan 210,380 126,960
Purchase of securities (1,747,357) (1,491,126)
Proceeds from maturities of securities 1,500,000 4,000,000
___________ ___________
Net cash provided by (used in) investing
activities (36,977) 2,635,834
Cash flows from financing activities:
Exercise of stock options 303,660 39,670
Treasury stock acquisition (270,332) (404,180)
Cash dividends paid (3,705,964) (784,445)
___________ ___________
Net cash used in financing activities (3,672,636) (1,148,955)
___________ ___________
Net increase (decrease) in cash and cash
equivalents (1,294,718) 1,705,362
___________ ___________
Cash and cash equivalents at beginning
of period 2,671,884 966,522
___________ ___________
Cash and cash equivalents at end of
period $ 1,377,166 $ 2,671,884
=========== ===========
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-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,616,045
<INT-BEARING-DEPOSITS> 9,705,397
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,901,495
<INVESTMENTS-CARRYING> 19,547,537
<INVESTMENTS-MARKET> 19,580,307
<LOANS> 99,440,846
<ALLOWANCE> 523,000
<TOTAL-ASSETS> 150,806,332
<DEPOSITS> 114,537,907
<SHORT-TERM> 2,611,000
<LIABILITIES-OTHER> 2,053,297
<LONG-TERM> 8,350,000
0
0
<COMMON> 15,757
<OTHER-SE> 23,238,371
<TOTAL-LIABILITIES-AND-EQUITY> 150,806,332
<INTEREST-LOAN> 8,257,279
<INTEREST-INVEST> 1,763,379
<INTEREST-OTHER> 429,433
<INTEREST-TOTAL> 10,450,091
<INTEREST-DEPOSIT> 5,369,174
<INTEREST-EXPENSE> 5,728,299
<INTEREST-INCOME-NET> 4,721,792
<LOAN-LOSSES> 5,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,835,379
<INCOME-PRETAX> 2,566,239
<INCOME-PRE-EXTRAORDINARY> 2,566,239
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,580,194
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 3.66
<LOANS-NON> 1,000
<LOANS-PAST> 1,382,000
<LOANS-TROUBLED> 31,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 576,000
<CHARGE-OFFS> 63,000
<RECOVERIES> 5,000
<ALLOWANCE-CLOSE> 523,000
<ALLOWANCE-DOMESTIC> 523,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
