<TABLE>
<S>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE
REQUIRED]
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from to
Commission file number 0-25088
PERRY COUNTY FINANCIAL CORPORATION
(Name of small business issuer in its charter)
Missouri 43-1694505
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
14 North Jackson Street, Perryville, Missouri 63775
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (573) 547-4581
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the past 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 ___.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will 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. [ ]
State the issuer's revenues for its most recent fiscal year: $5,440,154.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the average of the bid and ask price of
such stock as of December 20, 1996, was approximately $13.1 million.
(The exclusion from such amount of the market value of the shares owned by any
person shall not be deemed an admission by the registrant that such person is an
affiliate of the registrant.)
As of December 24, 1996, there were 800,052 shares issued and outstanding
of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-KSB - Annual Report to Stockholders for the fiscal year ended September 30, 1996.
Part III of Form 10-KSB - Proxy Statement for 1996 Annual Meeting of Stockholders.<PAGE>
PART I
Item 1. Description of Business
General
The Company. Perry County Financial Corporation (the "Company") a Missouri
corporation, was formed in September 1994 to act as the holding company for Perry County Savings
Bank, FSB (the "Bank" or "Perry County") upon the completion of the Bank's conversion from the
mutual to the stock form (the "Conversion"). The Company received approval from the Office of
Thrift Supervision (the "OTS") to acquire all of the common stock of the Bank to be outstanding
upon completion of the Conversion. The Conversion was completed on February 10, 1995. All
references to the Company prior to February 10, 1995, except where otherwise indicated, are to the
Bank.
At September 30, 1996, the Company had $81.1 million of assets and stockholders' equity
of $15.1 million (or 18.6% of total assets).
The executive offices of the Company are located at 14 North Jackson Street, Perryville,
Missouri 63775, and its telephone number at that address is (573) 547-4581.
The activities of the Corporation itself have been limited to investments in U.S. Treasury and
Federal Agency Obligations, interest-bearing deposits at financial institutions and a note receivable
from the Bank's Employee Stock Ownership Plan. Unless otherwise indicated, all activities
discussed below are of the Bank.
The Bank. The Bank is a federally chartered stock savings association headquartered in
Perryville, Missouri. Its deposits are insured up to applicable limits, by the Federal Deposit
Insurance Corporation (the "FDIC"), which is backed by the full faith and credit of the United States.
The Bank's primary market area is Perry County, Missouri, which is serviced through its office in
Perryville, Missouri.
The principal business of the Bank consists of attracting retail deposits from the general
public and using such deposits to originate mortgage loans secured by one- to four-family residences
and, to a lesser extent, commercial, multi-family and construction real estate loans and loans
secured by deposit accounts. The Bank also invests in mortgage-backed and related securities, U.S.
Government and agency obligations and other permissible investments. At September 30, 1996, at
least 90% of the Bank's real estate mortgage loans were secured by properties located in Missouri.
The Company's revenues are derived primarily from interest earned on mortgage-backed and
related securities, securities and on mortgage loans. The Company does not originate loans to fund
leveraged buyouts, and has no loans to foreign corporations or governments. The Company only
solicits deposits in its primary market area and does not accept brokered deposits.
<PAGE>
Lending Activities
Market Area. The Company's office is located at 14 North Jackson Street in Perryville,
Missouri. Through this office, the Company currently serves primarily Perry County. Perryville,
Missouri is located approximately 80 miles south of St. Louis, Missouri. Perryville is the County
Seat of Perry County. Perry County has a population of approximately 17,000. The major
employers in Perry County are engaged in light industry and include Gilster-Mary Lee, Sabreliner
Corporation, Miraculous Medal Association, East Perry Lumber Company, NPS Corporation, TG
(USA) Corporation, Perry Crating Company and Solar Press.
General. The Bank's loan portfolio consists primarily of conventional, first mortgage loans
secured by one- to four-family residences and, to a lesser extent, consumer, multi-family and
commercial real estate loans and construction or development loans. At September 30, 1996, the
Bank's gross loans outstanding totalled $12.0 million, of which $10.5 million or 87.2% were one-
to four-family residential mortgage loans. At that same date, commercial and multi-family
residential real estate loans totalled $334,000. Also at that date, the Bank's construction or
development loans totalled $806,000 or 6.7% of the Bank's total loan portfolio, all of which were
fixed-rate loans. Adjustable-rate loans included in the loan portfolio amounted to $3,414,000 at
September 30, 1996.
At September 30, 1996 the balance of the Bank's loans consisted of $396,000 of loans
secured by deposit accounts, which represented 3.3% of the Bank's gross loan portfolio.
The Bank and the Company also invest in mortgage-backed and related securities and U.S.
government and agency obligations. At September 30, 1996, mortgage-backed securities totalled
$29.8 million or 36.7% of total assets and U.S. government and agency obligations totalled $34.3
million or 42.3% of total assets. See "Investment Activities."
All loans up to $85,000 must be approved by the Bank's President. Requests for loans
greater than $85,000 are reviewed and considered for approval by the Board of Directors on a
case-by-case basis.
The Bank's loans-to-one-borrower limit is generally limited to the greater of 15% of
unimpaired capital and surplus or $500,000. See "Regulation - Federal Regulation of Savings
Associations." At September 30, 1996, the maximum amount which the Bank could have lent under
this limit to any one borrower and the borrower's related entities was approximately $1.8 million.
At September 30, 1996, the Bank had no loans or groups of loans to related borrowers with
outstanding balances in excess of this amount. The Bank's largest lending relationship at September
30, 1996 was a $400,000 construction loan to one borrower secured by a commercial building
located in Perry County, Missouri. The next largest lending relationship at September 30, 1996 was
a $199,101 loan to one borrower secured by a farm located in Perry County, Missouri. Both of these
loans were current as of September 30, 1996.
<PAGE>
Loan Portfolio Composition. The following information concerning the composition of the
Bank's loan portfolios in dollar amounts and in percentages (before deductions for loans in process,
deferred fees and discounts and allowances for losses) as of the dates indicated.
<S>
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<TABLE>
<CAPTION>
September 30,
1996 1995 1994
Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family $10,459 87.2% $6,711 81.1% $5,231 89.7%
Multi-family 86 .7 108 1.3 128 2.2
Commercial 248 2.1 257 3.1 41 .7
Construction or development 806 6.7 797 9.6 200 3.4
Total real estate loans 11,599 96.7 7,873 95.1 5,600 96.0
Other Loans:
Consumer Loans:
Deposit account 396 3.3 405 4.9 236 4.0
Total consumer loans 396 3.3 405 4.9 236 4.0
Total loans 11,995 100.0% 8,278 100.0% 5,836 100.0%
Less:
Loans in process 249 454 10
Deferred fees and discounts 3 4 3
Allowance for losses 25 10 10
Total loans receivable, net $11,718 $7,810 $5,813
</TABLE>
<TABLE>
<S>
Adjustable rate loans included in the loan portfolio amounted to $3,414,000 at
September 30, 1996.
<PAGE>
The following table sets forth certain information at September 30, 1996 regarding the dollar
amount of principal repayments becoming due during the periods indicated for loans. The table
below does not include any estimate of prepayments which significantly shorten the average life of
all loans and may cause the Bank's actual repayment experience to differ from that shown below.
Construction loans are automatically converted to permanent loans, and are included in the related
real estate mortgage loans category.
<S>
</TABLE>
<TABLE>
<CAPTION>
Real Estate Loans Secured by
Mortgage Loans(2) Deposit Accounts Total
(Dollars in Thousands)
<S> <C> <C> <C>
Due During Years Ending:
Within 1 year(1) $ 134 $396 $ 530
After 1 year through 3 years 92 --- 92
After 3 years through 5 years 148 --- 148
After 5 years through 10 years 1,419 --- 1,419
Beyond 10 years 9,806 --- 9,806
Total gross loans $ 11,599 $396 $ 11,995
</TABLE>
(1) Includes demand loans and loans having no stated maturity.
(2) Includes single and multi-family loans, construction, land and commercial
loans.
The following table sets forth the dollar amount of all real estate
mortgage loans at September 30, 1996 due after September 30, 1997 which have
fixed interest rates and adjustable interest rates.
<TABLE>
<CAPTION>
Real Estate
Mortgage Loans(1)
(Dollars in Thousands)
<S> <C>
Fixed rate $ 8,052
Adjustable rate 3,413
Total gross loans $11,465
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<TABLE>
<S>
(1) Includes single and multi-family loans, construction, land and commercial
loans.
One- to Four-Family Residential Real Estate Lending. The Bank's primary lending activity
consists of the origination of one- to four-family residential mortgage loans secured by property
located in the Bank's primary market area. At September 30, 1996, $10.5 million, or 87.2%, of the
Bank's gross loan portfolio consisted of permanent loans secured by one- to four-family residences.
Approximately 90% of these loans were located in the Bank's market area.
At September 30, 1996, the Bank offered one- to four-family residential fixed rate loans with
loan payments (amortization) based on a 20 year maturity, but with a loan term of 3 years. In prior
years, the Bank originated fixed rate loans with terms to maturity up to 30 years.
<PAGE>
At September 30, 1996, the total balance of one- to four-family fixed rate loans was $7.1 million or 58.7% of the
Bank's gross loan portfolio. Since September 30, 1996, in order to respond to customer preferences,
the Bank has begun to offer fixed rate residential mortgage loans based on a 20 year maturity.
The Bank also offers one- to four-family residential adjustable rate mortgages ("AMLs")
which are fully amortizing loans with contractual maturities of up to 20 years. The interest rates on
substantially all of the AMLs originated by the Bank are subject to adjustment after the initial
period at one year intervals. The Bank's AML products generally carry interest rates which are reset
to a stated margin over an independent index. Increases or decreases in the interest rate of the
Bank's AMLs are generally limited to 2% at any adjustment date and 6% over the life of the loan.
The Bank's AMLs, do not contain prepayment penalties and do not produce negative amortization.
At September 30, 1996, the total balance of one- to four-family AMLs was $3.4 million, or 28.5%
of the Bank's gross loan portfolio.
The Bank evaluates both the borrower's ability to make principal and interest payments and
the value of the property that will secure the loan. Perry County also verifies the borrower's
employment history and the source of the downpayment.
The Bank generally originates residential mortgage loans with loan-to-value ratios up to
80%. The Bank does not require private mortgage insurance on its loans. As a result of the lack of
insurance, in the event of a foreclosure, the Bank is subject to a potential risk of loss on the
disposition of such property in the event of a decrease in value of the property. The Bank has,
however, had a very limited loss experience on such loans. See "Non-Performing Assets and
Classified Assets." Property securing real estate loans made by Perry County is appraised by
independent appraisers. The Bank requires evidence of marketable title and lien position on all
loans secured by real property and requires homeowners or fire and extended coverage casualty
insurance in amounts at least equal to the principal amount of the loan or the value of improvements
on the property, depending on the type of loan. The Bank may also require flood insurance to
protect the property securing its interest.
Residential mortgage loan originations are derived from a number of sources, including real
estate and mortgage broker referrals, existing borrowers and depositors, builders and walk-in
customers. Loan applications are accepted at the Bank's office.
In the past, the Bank has purchased one- to four-family residential mortgage loans secured
by property located outside its market area. The loans purchased were reviewed by the Bank prior
to purchase for compliance with its own underwriting standards. Some of these loans did, however,
exceed the 80% loan-to-value-ratio requirement (but were covered by private mortgage insurance
which reduced the Bank's exposure to no more than 80%). The Bank's purchased loans are well-
seasoned, since it has not purchased any such loans for at least five years. The Bank's purchased
residential mortgage loans have performed in a manner consistent with its originated loans.
Multi-Family and Commercial Real Estate Lending. The Bank has also engaged in a
limited amount of multi-family and commercial real estate lending in its market area. At September
30, 1996, the Bank had $334,000, in its multi-family and commercial real estate loan portfolio. The
Bank does not currently purchase these types of loans. These loans represented 2.8% of the Bank's
gross loan portfolio.
<PAGE>
The Bank's multi-family and commercial real estate loan portfolio is secured primarily by
apartment buildings. Commercial and multi-family real estate loans generally have terms that do
not exceed 20 years and are made in amounts up to 80% of the appraised value of the security
property. All of these loans have fixed rates of interest. In underwriting these loans, the Bank
currently analyzes the financial condition of the borrower (including a review of the borrower's
personal financial statements), the borrower's credit history, and the reliability and predictability of
the cash flow generated by the property securing the loan. The Bank may also require a personal
guarantee from the borrower on these loans. Appraisals on properties securing commercial real
estate loans originated by the Bank are, to the extent required by federal regulations, performed by
independent appraisers.
Multi-family and commercial real estate loans generally present a higher level of risk than
loans secured by one- to four-family residences. This greater risk is due to several factors, including
the concentration of principal in a limited number of loans and borrowers, the effect of general
economic conditions on income producing properties and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family and
commercial real estate is typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced (for example, if leases are not obtained or
renewed, or a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease
obligations), the borrower's ability to repay the loan may be impaired.
Construction Lending. At September 30, 1996, the Bank had $806,000 of construction and
development loans. Perry County offers loans to individuals for the construction of their residences
as well as to builders principally for the construction of one- to four-family residences. Currently,
such loans are offered with fixed rates of interest. Following the six month construction period,
these loans may become permanent loans.
Construction lending generally affords the Bank an opportunity to receive interest at rates
higher than those obtainable from residential lending. Nevertheless, construction lending is
generally considered to involve a higher level of credit risk than one- to four-family residential
lending since the risk of loss on construction loans is dependent largely upon the accuracy of the
initial estimate of the individual property's value upon completion of the project and the estimated
cost (including interest) of the project. If the cost estimate proves to be inaccurate, the Bank may
be required to advance funds beyond the amount originally committed to permit completion of the
project.
Consumer Lending. The Bank offers only consumer loans secured by deposit accounts. At
September 30, 1996, the Bank's consumer loan portfolio totalled $396,000 or 3.3% of the Bank's
gross loan portfolio.
The Bank lends up to 90% of the amount of the deposit and the rate is currently the greater
of 6.75% per annum or 1.5% above the certificate rate on the pledged account.
Loan Originations and Servicing
Loan originations are developed from continuing business with depositors and borrowers,
soliciting realtors and builders and walk-in customers. Loans are originated by the Bank's staff of
salaried loan officers. When the Bank originates a loan, it retains the servicing. Loan applications
are taken, processed in the administrative office of the Bank, and then submitted to the President
or the Board, as appropriate.
The Bank's ability to originate loans is dependent upon the customer demand for loans in its
market. Demand is affected by the local economy and interest rate environment.
The Bank has not sold any of its loans and does not currently contemplate doing so in the
future. While the Bank has purchased and participated in loans in the past, it does not currently
contemplate purchasing or participating in new loans.
The following table shows the loan origination activities of the Bank for the periods
indicated.
<S>
</TABLE>
<TABLE>
Year Ended September 30,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate - one- to four-family $ 586 $ 669 $ 1,139
Total adjustable-rate 586 669 1,139
Fixed rate:
Real estate - commercial 400 --- ---
Real estate - one- to four-family 4,813 2,568 366
Non-real estate - consumer 685 220 216
Total fixed-rate 5,898 2,788 582
Total loans originated $ 6,484 3,457 1,721
</TABLE>
<TABLE>
<S>
Non-Performing Assets and Classified Assets
When a borrower fails to make a required payment on a mortgage loan within 35 days of its
due date, a late notice is mailed by the Bank to the borrower. If payment is not made after the first
notice, a second notice is mailed to the borrower approximately 15 days from the date of the first
notice.
<PAGE>
If payments are over 60 days delinquent, personal contact with the borrower will be made
by a representative of the Bank to establish satisfactory payment arrangements.
Normally after the loan is 95 days past due and satisfactory payment arrangements have not
been made, the loan will be recommended by management to the Board of Directors for foreclosure.
An evaluation of the value of the security is made at that time, and an appraisal is made at the time
a property is acquired through foreclosure.
When deemed appropriate by management, Perry County may acquire the real estate by deed
in lieu of foreclosure as an alternative to a foreclosure action. The decision as to when to begin
foreclosure proceedings is based on such factors as the amount of loan in relation to the original
indebtedness, the extent of the delinquency and the borrower's ability and willingness to cooperate
in curing the delinquency. Should a foreclosure occur, the real estate is sold at public sale and may
be purchased by the Bank.
The following table sets forth the Bank's loan delinquencies by type, by amount and by
percentage of type at September 30, 1996.
<S>
</TABLE>
<TABLE>
<CAPTION>
Loans Delinquent For: Total Loans Delinquent
60-89 Days 90 Days and Over 60 Days and Over
Number Amount Percent Number Amount Percent Number Amount Percent
of Loan of Loan of loan
Catagory Catagory Catagory
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family 2 $23 .22% -- $--- .--% 2 $23 .22%
Total 2 $23 .22% -- $--- .--% 2 $23 .22%
</TABLE>
<TABLE>
<S>
Asset Quality. The Bank currently concentrates its lending activity primarily on one- to
four-family adjustable rate mortgage loans in Perry County, Missouri and has traditionally experienced
low non-performing asset levels. At September 30, 1996, the Bank had no non-performing assets,
which is below average for comparable institutions. See "- Allowance for Losses on Loans."
The table below sets forth the amounts and categories of non-performing assets in the Bank's
loan portfolio. Loans are placed on non-accrual status when the collection of principal and/or
interest become doubtful. For all years presented, the Bank has had no troubled debt restructurings
(which involve forgiving a portion of interest or principal on any loans or making loans at a rate
materially less than that of market rates) and no foreclosed assets. Foreclosed assets include assets
acquired in settlement of loans.
<S>
</TABLE>
<TABLE>
<CAPTION>
September 30,
1996 1995 1994
(Dollars in Thousands)
<S> <C> <C> <C>
Non-accruing loans:
One- to four-family $ --- $ 63 $ 31
<PAGE>
Total --- 63 31
Total non-performing assets $ --- $ 63 $ 31
Total as a percentage of total assets -- .08% .04%
</TABLE>
<TABLE>
<S>
Other Loans of Concern. As of September 30, 1996 there were no loans classified by the
Bank with respect to which known information about the possible credit problems of the borrowers
or the cash flows of the security properties have caused management to have some doubts as to the
ability of the borrowers to comply with present loan repayment terms and which may result in the
future inclusion of such items in the non-performing asset categories.
Classified Assets. Federal regulations provide for the classification of loans and other assets
such as debt and equity securities considered by the OTS to be of lesser quality as "substandard,"
"doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility" that the savings
association will sustain "some loss" if the deficiencies are not corrected. Assets classified as
"doubtful" have all of the weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and improbable." Assets
classified as "loss" are those considered "uncollectible" and of such little value that their
continuance as assets without the establishment of a specific loss allowance is not warranted.
When a savings association classifies problem assets as either substandard or doubtful, it
may establish general allowances for loan losses in an amount deemed prudent by management.
General allowances represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association classifies problem assets as
"loss," it is required either to establish a specific allowance for losses equal to 100% of that portion
of the asset so classified or to charge-off such amount. An association's determination as to the
classification of its assets and the amount of its valuation allowances is subject to review by the
association's District Director at the regional OTS office, who may order the establishment of
additional general or specific loss allowances.
In connection with the filing of its periodic reports with the OTS and in accordance with its
classification of assets policy, the Bank regularly reviews the loans in its portfolio to determine
whether any loans require classification in accordance with applicable regulations. On the basis of
management's review of its assets, at September 30, 1996, the Bank had no assets classified as
substandard.
Allowance for Losses on Loans. The allowance for loan losses is established through a
provision for loan losses based on management's evaluation of the risk inherent in its loan portfolio
and changes in the nature and volume of its loan activity. Such evaluation, which includes a review
of all loans of which full collectibility may not be reasonably assured, considers among other
matters, the estimated fair value (generally, the amount that could reasonably be expected to be
received in a current sale between a willing buyer and a willing seller) of the underlying collateral,
economic conditions, historical loan loss experience and other factors that warrant recognition in
providing for an adequate loan loss allowance.
<PAGE>
Although management believes that it uses the best information available to determine the
allowances, unforeseen market conditions could result in adjustments and net earnings could be
significantly affected if circumstances differ substantially from the assumptions used in making the
final determination. Future additions to the Bank's allowances will be the result of periodic loan,
property and collateral reviews and thus cannot be predicted in advance and no assurance can be
made that future additions to the allowance will not be as large or larger than those in previous
years. At September 30, 1996, the Bank had a total allowance for losses on loans of $25,000, or
.21% of total gross loans. See Note 5 of the Notes to Consolidated Financial Statements.
The following table sets forth an analysis of the Bank's allowance for loan losses.
<S>
</TABLE>
<TABLE>
<CAPTION>
Year Ended
September 30,
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of period $ 10 $ 10 $ 10
Net charge-offs --- --- ---
Additions charged to operations 15 --- ---
Balance at end of period $ 25 $ 10 $ 10
Ratio of net charge-offs during the period to
average loans outstanding during the period ---% ---% ---%
Ratio of net charge-offs during the period to
average non-performing assets ---% ---% ---%
</TABLE>
The distribution of the Bank's allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
September 30,
1996 1995
Percentage Percentage
of Loans of Loans
in Each Percent of in Each Percent of
Amount of Category Allowance to Amount of Category Allowance to
Loan Loss to Total Gross Loans in Loan Loss to Total Gross Loans in
Allowance Gross LoansEach Category Allowance Gross LoansEach Category
<S> <C> <C> <C> <C> <C> <C>
One- to four-family $ 25 87.2% .24% $ 10 81.1% .15%
Multi-family --- .7 --- --- 1.3 ---
Commercial real estate --- 2.1 --- --- 3.1 ---
Construction or
development --- 6.7 --- --- 9.6 ---
Consumer --- 3.3 --- --- 4.9 ---
Unallocated --- --- --- --- --- ---
Total $ 25 100.0% .24% $ 10 100.0% .15%
</TABLE>
<TABLE>
<CAPTION>
1994
Percentage
of Loans
in Each Percent of
Amount of Catagory Allowance to
Loan Loss to Total Gross Loan in
Allowance Gross Loans Each Category
<S> <C> <C> <C>
One- to four-family $ 10 89.7% .19%
Multi-family --- 2.2 ---
Commercial real estate --- .7 ---
Construction or
development --- 3.4 ---
Consumer --- 4.0 ---
Unallocated --- --- ---
Total $ 10 100.0% .19%
</TABLE>
<TABLE>
<S>
Investment Activities
Perry County must maintain minimum levels of investments that qualify as liquid assets
under OTS regulations. Liquidity may increase or decrease depending upon the availability of funds
and comparative yields on investments in relation to the return on loans. Historically, the Bank has
generally maintained its liquid assets above the minimum requirements imposed by the OTS
regulations and at a level believed adequate to meet requirements of normal daily activities,
repayment of maturing debt and potential deposit outflows. As of September 30, 1996, the Bank's
liquidity ratio (liquid assets as a percentage of net withdrawable savings deposits and current
borrowings) was 27%. See "Regulation - Liquidity."
Federally chartered savings institutions have the authority to invest in various types of liquid
assets, including United States Treasury obligations, securities of various federal agencies, certain
certificates of deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper, investment grade corporate debt
securities and mutual funds whose assets conform to the investments that a federally chartered
savings institution is otherwise authorized to make directly.
Generally, the investment policy of the Bank is to invest funds among various categories of
investments and maturities based upon the Bank's need for liquidity, to achieve the proper balance
between its desire to minimize risk and maximize yield, to provide collateral for borrowings, and
to fulfill the Bank's asset/liability management policies.
Mortgage-Backed Securities. The Bank first began making significant purchases of
mortgage-backed and related securities in the early 1980s as an alternative to home mortgage
originations for portfolio when management determined that such investments would produce
higher risk-adjusted yields for the Bank in light of the competition and limited consumer demand
for home mortgages in the Bank's market area. The Bank's current investment strategy emphasizes
mortgage-backed and related securities with high credit quality, high cash flow, low interest-rate
risk, high liquidity and minimal prepayment risk. The Bank has invested primarily in federal
agency securities, principally Federal Home Loan Mortgage Corporation ("FHLMC"), Government
National Mortgage Association ("GNMA") and Federal National Mortgage Association ("FNMA")
obligations and certain types of CMOs. See Note 4 of the Notes to Consolidated Financial
Statements.
The FNMA, FHLMC and GNMA certificates are modified pass-through mortgage-backed
securities that represent undivided interests in underlying pools of fixed-rate, or certain types of
adjustable rate, single-family residential mortgages issued by these government-sponsored entities.
FNMA and FHLMC provide the certificate holder a guarantee of timely payments of interest and
scheduled principal payments, whether or not they have been collected. GNMA's guarantee to the
holder of timely payments of principal and interest is backed by the full faith and credit of the U.S.
government.
A CMO is a special type of pass-through debt in which the stream of principal and interest
payments on the underlying mortgages or mortgage-backed securities is used to create classes with
different maturities and, in some cases, amortization schedules, as well as a residual interest, with
each such class possessing different risk characteristics. Management believes these securities may
represent attractive alternatives relative to other investments due to the wide variety of maturity and
repayment options available through such investments. The Bank held $504,000 of CMOs at
September 30, 1996. The Bank does not anticipate purchasing significant amounts of CMOs in the
future.
Mortgage-backed securities generally yield less than the loans that underlie such securities,
because of the cost of payment guarantees or credit enhancements that result in nominal credit risk.
In addition, mortgage-backed securities are more liquid than individual mortgage loans and may be
used to collateralize obligations of the Bank. In general, mortgage-backed securities issued or
guaranteed by FNMA and FHLMC and certain AA-rated mortgage-backed pass-through securities
are weighted at no more than 20% for risk-based capital purposes, and mortgage-backed securities
issued or guaranteed by GNMA and the SBA are weighted at 0% for risk-based capital purposes,
compared to an assigned risk weighting of 50% to 100% for whole residential mortgage loans.
These types of securities thus allow the Bank to optimize regulatory capital to a greater extent than
non-securitized whole loans.
While mortgage-backed securities carry a reduced credit risk as compared to whole loans,
such securities remain subject to the risk that a fluctuating interest rate environment, along with
other factors such as the geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect both the prepayment speed, and value, of such
securities. The adjustable rate and/or short maturity of the Bank's portfolio is designed to minimize
that risk. In contrast to mortgage-backed securities in which cash flow is received (and, hence,
prepayment risk is shared) pro rata by all securities holders, the cash flows from the mortgages or
mortgage-backed securities underlying CMOs are segmented and paid in accordance with a
predetermined priority to investors holding various tranches of such securities or obligations. A
particular tranche of CMOs may therefore carry prepayment risk that differs from that of both the
underlying collateral and other tranches. The classes of CMOs purchased by the Bank have been
in the lower risk tranche categories.
Investment Securities. At September 30, 1996, the Company and Bank's investment
securities (including a $602,000 investment in the common stock of the FHLB of Des Moines)
totalled $34.9 million, or 43.0% of its total assets. It is the Bank's general policy to purchase U.S.
Government securities and federal agency obligations and other investment securities. See Note 3
of the Notes to Consolidated Financial Statements.
OTS regulations restrict investments in corporate debt and equity securities by the Bank.
These restrictions include prohibitions against investments in the debt securities of any one issuer
in excess of 15% of the Bank's unimpaired capital and unimpaired surplus as defined by federal
regulations, which totalled $1.8 million as of September 30, 1996, plus an additional 10% if the
investments are fully secured by readily marketable collateral. At September 30, 1996, the Bank
was in compliance with this regulation. See "Regulation - Federal Regulation of Savings
Associations" for a discussion of additional restrictions on the Bank's investment activities.
The following table sets forth the composition of the Company's and Bank's investment and
mortgage-backed securities at the dates indicated.
<S>
</TABLE>
<TABLE>
<CAPTION>
September 30,
1996 1995 1994
Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. government securities $ 4,003 11.5% $ 7,491 22.8% $ 7,984 25.8%
Federal agency obligations 30,309 86.8 24,415 74.4 22,035 71.3
Subtotal 34,312 98.3 31,906 97.2 30,019 97.1
Equity securities:
Asset management fund --- --- 322 1.0 315 1.0
FHLB stock 602 1.7 590 1.8 590 1.9
Subtotal 602 1.7 912 2.8 905 2.9
Total debt and
equity securities $34,914 100.0% $32,818 100.0% $30,924 100.0%
Other interest-earning assets:
Interest-bearing
deposits with banks $ 3,081 100.0% $ 3,429 100.0% $ 827 100.0%
Total $ 3,081 100.0% $ 3,429 100.0% $ 827 100.0%
Mortgage-backed securities:
GNMA $13,348 44.8% $14,477 46.4% $13,667 43.8%
FNMA 7,879 26.4 5,264 16.9 3,891 12.5
FHLMC 8,088 27.1 10,937 35.1 12,760 40.9
CMOs 504 1.7 512 1.6 882 2.8
Total mortgage-backed
securities $29,819 100.0% $31,190 100.0% $31,200 100.0%
</TABLE>
The composition and maturities of the investment securities portfolio,
excluding FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
September 30, 1996
Less Than 1 to 5 5 to 10 Over Total Investment
1 Year Years Years 10 Years Securities
Carrying Carrying Carrying Carrying Market Amortized
Value Value Value Value Value Cost
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U.S. government securities
and federal agency
obligations available-
for-sale $5,499 $7,965 $13,120 $7,728 $34,312 $34,973
Weighted average yield 5.75% 5.17% 7.37% 7.28% 6.58%
</TABLE>
<TABLE>
<S>
The Company and the Bank's investment securities portfolio at September 30, 1996,
contained neither tax-exempt securities nor securities of any issuer with an aggregate book value
in excess of 10% of the Bank's retained earnings, excluding those issued by the U.S. government,
or its agencies.
Perry County's investments, including the mortgage-backed and related securities portfolio,
are managed in accordance with a written investment policy adopted by the Board of Directors.
Sources of Funds
General. The Bank's primary sources of funds are deposits, amortization and prepayment
of loan principal, borrowings, interest earned on or maturation of investment
securities and short-term investments, and net earnings.
Borrowings may be used on a short-term basis to compensate for seasonal reductions in
deposits or deposit inflows at less than projected levels, and may be used on a longer-term basis to
support expanded lending activities or to increase the effectiveness of the Bank's asset/liability
management program.
Deposits. Perry County offers the following types of deposit accounts: passbook savings,
demand and NOW accounts, money market deposit accounts and certificates of deposit. The Bank
only solicits deposits from its market area and does not use brokers to obtain deposits. The Bank
relies primarily on competitive pricing policies and customer service to attract and retain these
deposits.
The flow of deposits is influenced significantly by general economic conditions, changes in
money market and prevailing interest rates, and competition. The Bank currently offers competitive
rates on longer term certificates of deposit, the result of which is designed to extend the maturity
of its liabilities. The Bank believes that this will have a positive effect on its results
<PAGE>
of operations,both for asset/liability management purposes and in the event market rates of interest increase.
The variety of deposit accounts offered by the Bank has allowed it to be competitive in
obtaining funds and to respond with flexibility to changes in consumer demand. The Bank has
become more susceptible to short-term fluctuations in deposit flows, as customers have become
more interest rate conscious. Based on its experience, the Bank believes that its passbook savings,
demand and NOW accounts and certificates of deposit are relatively stable sources of deposits.
However, the ability of the Bank to attract and maintain certificates of deposit, and the rates paid
on these deposits, has been and will continue to be significantly affected by market conditions.
The following table sets forth the savings flows of the Bank during the periods indicated.
<S>
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Opening balance $ 60,178 $ 61,296 $ 61,602
Deposits 34,932 37,717 30,137
Withdrawals (34,669) (40,838) (32,118)
Interest credited 2,271 2,003 1,675
Ending balance $ 62,712 $ 60,178 $ 61,296
Net increase (decrease) $ 2,534 $ (1,118) $ (306)
Percent increase (decrease) 4.21% (1.86)% (.50)%
</TABLE>
The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Bank at the dates indicated.
<TABLE>
<CAPTION>
September 30,
1996 1995 1994
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
(Dollars in Thousands)
Transactions and
Savings Deposits:
<S> <C> <C> <C> <C> <C> <C>
Noninterest Bearing
NOW Accounts $ 117 .2% $ 82 .1% $ 59 .1%
NOW Accounts 2.25% 3,209 5.1 2,829 4.7 2,754 4.5
Passbook Accounts 2.75% 4,402 7.0 4,380 7.3 5,502 9.0
Money Market Accounts
4.02%, 4.63% and
4.07%, respectively 8,380 13.4 8,673 14.4 7,748 12.6
Total Non-Certificates 16,108 25.7 15,964 26.5 16,063 26.2
Certificates:
2.00 - 4.00% 509 .8 3,140 5.2 22,160 36.2
4.01 - 6.00% 40,254 64.2 29,705 49.4 22,391 36.5
6.01 - 8.00% 5,841 9.3 11,356 18.9 632 1.0
8.01 - 10.00% --- --- 13 --- 50 .1
Total Certificates 46,604 74.3 44,214 73.5 45,233 73.8
Total Deposits $62,712 100.0% $60,178 100.0% $61,296 100.0%
</TABLE>
The following table shows rate and maturity information for the Bank's
certificates of deposit as of September 30, 1996.
<TABLE>
<CAPTION>
2.00- 4.01- 6.01- 8.01- Total Percent
4.00% 6.00% 8.00% 10.00% of Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts
maturing in year
ending :
September 30, 1997 $509 $32,510 $2,574 $--- $35,593 76.4%
September 30, 1998 --- 4,573 2,746 --- 7,319 15.7
September 30, 1999 --- 2,869 80 --- 2,949 6.3
September 30, 2000 --- 56 355 --- 411 .9
September 30, 2001 --- 236 86 --- 322 .7
Thereafter --- 10 --- --- 10 ---
Total $509 $40,254 $5,841 $--- $46,604 100.0%
Percent of total 1.1% 86.4% 12.5% ---% 100.0%
</TABLE>
<TABLE>
<S>
Borrowings. On occasion, the Bank has used advances from the FHLB of Des Moines to
supplement its deposits when the rates are favorable. As a member of the FHLB of Des Moines,
<PAGE>
the Bank is required to own capital stock and is authorized to apply for advances. Each FHLB credit
program has its own interest rate, which may be fixed or variable, and includes a range of maturities.
The FHLB of Des Moines may prescribe the acceptable uses to which these advances may be put,
as well as limitations on the size of the advances and repayment provisions.
There were $2.5 million of advances from FHLB of Des Moines outstanding as of September
30, 1996.
The following table sets forth the maximum month-end balance and average balance of
FHLB advances, securities sold under agreements to repurchase and other borrowings for the periods
indicated.
<S>
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994
(Dollars in Thousands)
<S> <C> <C> <C>
Maximum Balance:
FHLB advances $2,500 $500 $500
Average Balance:
FHLB advances $ 984 $269 $208
</TABLE>
The following table sets forth certain information as to the Bank's
borrowings at the dates indicated.
<TABLE>
<CAPTION>
September 30,
1996 1995 1994
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB advances $2,500 $ --- $500
Total borrowings $2,500 $ --- $500
Weighted average interest rate of FHLB advances 6.0% ---% 5.4%
</TABLE>
<TABLE>
<S>
Subsidiary and Other Activities
As a federally chartered savings association, Perry County is permitted by OTS regulations
to invest up to 2% of its assets in the stock of, or unsecured loans to, service corporation
subsidiaries. The Bank may invest an additional 1% of its assets in service corporations where such
additional funds are used for inner-city or community development purposes. At September 30,
1996, Perry County had no subsidiaries.
Regulation
General. Perry County 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, Perry County is subject to broad federal regulation and oversight extending to all its
operations. Perry County is a member of the FHLB of Des Moines and is subject to certain
<PAGE>
limited regulation by the Board of Governors of the Federal Reserve System ("Federal Reserve Board").
As the savings and loan Company of Perry County, the Company also is subject to federal regulation
and oversight. The purpose of the regulation of the Company and other holding companies is to
protect subsidiary savings associations. Perry County is a member of the Savings Association
Insurance Fund ("SAIF") and the deposits of Perry County are insured by the FDIC. As a result, the
FDIC has certain regulatory and examination authority over Perry County.
Certain of these regulatory requirements and restrictions are discussed below or elsewhere
in this document.
Federal Regulation of Savings Associations. The OTS has extensive authority over the
operations of savings associations. As part of this authority, Perry County is required to file periodic
reports with the OTS and is subject to periodic examinations by the OTS and the FDIC. The last
regular OTS examination of Perry County was as of March 31, 1995. All savings associations are
subject to a semi-annual assessment, based upon the savings association's total assets, to fund the
operations of the OTS.
The OTS also has extensive enforcement authority over all savings institutions and their
holding companies, including Perry County and the Company. This enforcement authority includes,
among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal
orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may
provide the basis for enforcement action, including misleading or untimely reports filed with the
OTS. Except under certain circumstances, public disclosure of final enforcement actions by the
OTS is required.
In addition, the investment, lending and branching authority of Perry County is prescribed
by federal laws and it is prohibited from engaging in any activities not permitted by such laws. For
instance, no savings institution may invest in non-investment grade corporate debt securities. In
addition, the permissible level of investment by federal associations in loans
secured by non-residential real property may not exceed 400% of total capital, except with approval of the OTS.
Federal savings associations are also generally authorized to branch nationwide. Perry County is
in compliance with the noted restrictions.
Perry County's general permissible lending limit for loans-to-one-borrower is equal to the
greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by
certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired
capital and surplus). At September 30, 1996, Perry County's lending limit under this restriction was
$1.8 million. Perry County is in compliance with the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted guidelines establishing
safety and soundness standards on such matters as loan underwriting and documentation, internal
controls and audit systems, interest rate risk exposure and compensation and other employee
benefits. Any institution which fails to comply with these standards must submit a compliance plan.
A failure to submit a plan or to comply with an approved plan will subject the institution
<PAGE>
to further enforcement action. The OTS and the other federal banking agencies have also proposed additional
guidelines on asset quality and earnings standards. No assurance can be given as to whether or in
what form the proposed regulations will be adopted.
Insurance of Accounts and Regulation by the FDIC. Perry County is a member of the
SAIF, which is administered by the FDIC. Deposits are insured up to applicable limits by the FDIC
and such insurance is backed by the full faith and credit of the United States Government. As
insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations
of and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation or order to pose a
serious risk to the FDIC. The FDIC also has the authority to initiate enforcement actions against
savings associations, after giving the OTS an opportunity to take such action, and may terminate the
deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or
is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based system under
which all insured depository institutions are placed into one of nine categories, based upon their
level of capital and supervisory evaluation. Under the system, institutions classified as well
capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1 or core capital to risk-weighted
assets ("Tier 1 risk-based capital") of at least 6% and a risk-based capital ratio of at least 10%) and
considered healthy pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a risk-based capital ratio
of less than 8%) and considered of substantial supervisory concern pay the highest premium. Risk
classification of all insured institutions will be made by the FDIC for each semi-annual assessment
period.
On September 30, 1996, federal legislation was enacted that requires the Savings Association
Insurance Fund ("SAIF") to be recapitalized with a one-time assessment on
virtually all SAIF-insured institutions, such as the Bank, equal to 65.7 basis points on SAIF-insured deposits
maintained by those institutions as of March 31, 1995. This SAIF assessment, which was paid to
the FDIC on November 27, 1996, was approximately $393,000 and was accrued by the Company
at September 30, 1996.
As a result of the SAIF recapitalization, the FDIC has proposed to amend its regulation
concerning the insurance premiums payable by SAIF-insured institutions. Effective October 1, 1996
through December 31, 1996, the FDIC has proposed that the SAIF insurance premium
for all SAIF-insured institutions that are required to pay the Financing Corporation (FICO) obligation, such as
the Bank, be reduced to a range of 18 to 27 basis points from 23 to 31 basis points per $100 of
domestic deposits. The Bank currently qualifies for the minimum SAIF insurance premium of 23
basis points. The FDIC has also proposed to further reduce the SAIF insurance premium to a range
of 0 to 27 basis points per $100 of domestic deposits, effective January 1, 1997. Management
cannot predict whether or in what form the FDIC's final regulation may be promulgated.
<PAGE>
Regulatory Capital Requirements. Federally insured savings associations, such as Perry
County, are required to maintain a minimum level of regulatory capital. The OTS has established
capital standards, including a tangible capital requirement, a leverage ratio (or core capital)
requirement and a risk-based capital requirement applicable to such savings associations. These
capital requirements must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in excess of these
standards on individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of adjusted total assets (as
defined by regulation). Tangible capital generally includes common stockholders' equity and
retained income, and certain noncumulative perpetual preferred stock and related income. In
addition, all intangible assets, other than a limited amount of purchased mortgage servicing rights,
must be deducted from tangible capital for calculating compliance with the requirement. At
September 30, 1996, Perry County did not have any intangible assets.
The OTS regulations establish special capitalization requirements for savings associations
that own subsidiaries. In determining compliance with the capital requirements, all subsidiaries
engaged solely in activities permissible for national banks or engaged in certain other activities
solely as agent for its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable subsidiaries the debt
and equity investments in such subsidiaries are deducted from assets and capital.
At September 30, 1996, Perry County had tangible capital of $12.2 million, or 15.5% of
adjusted total assets, which is approximately $11.0 million above the minimum requirement of 1.5%
of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of adjusted total assets.
Core capital generally consists of tangible capital plus certain intangible assets, including a limited
amount of purchased credit card relationships. As a result of the prompt corrective action provisions
discussed below, however, a savings association must maintain a core capital ratio of at least 4%
to be considered adequately capitalized unless its supervisory condition is such to allow it to
maintain a 3% ratio. At September 30, 1996, Perry County had no intangibles which were subject
to these tests.
At September 30, 1996, Perry County had core capital equal to $12.2 million, or 15.5% of
adjusted total assets, which is $9.9 million above the minimum leverage ratio requirement of 3%
as in effect on that date.
The OTS risk-based requirement requires savings associations to have total capital of at
least 8% of risk-weighted assets. Total capital consists of core capital, as defined above, and
supplementary capital. Supplementary capital consists of certain permanent and maturing capital
instruments that do not qualify as core capital and general valuation loan and lease loss allowances
up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy
the risk-based requirement only to the extent of core capital. The OTS is also authorized to require
a savings association to maintain an additional amount of total capital to account for
<PAGE>
concentration of credit risk and the risk of non-traditional activities. At September 30, 1996, Perry County was
in compliance with this requirement.
Certain exclusions from capital and assets are required to be made for the purpose of
calculating total capital. Such exclusions consist of equity investments (as defined by regulation)
and that portion of land loans and nonresidential construction loans in excess
of an 80% loan-to-value ratio and reciprocal holdings of qualifying capital instruments. Perry County had no such
exclusions from capital and assets at September 30, 1996.
In determining the amount of risk-weighted assets, all assets, including certain off-balance
sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based on the risk
inherent in the type of asset. For example, the OTS has assigned a risk weight of 50% for prudently
underwritten permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination unless insured to
such ratio by an insurer approved by the FNMA or FHLMC.
The OTS has adopted a final rule that requires every savings association with more than
normal interest rate risk exposure to deduct from its total capital, for purposes of determining
compliance with such requirement, an amount equal to 50% of its interest-rate risk exposure
multiplied by the present value of its assets. This exposure is a measure of the potential decline in
the net portfolio value of a savings association, greater than 2% of the present value of its assets,
based upon a hypothetical 200 basis point increase or decrease in interest rates (whichever results
in a greater decline). Net portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter lag between
calculating interest rate risk and recognizing any deduction from capital. The rule will not become
effective until the OTS evaluates the process by which savings associations may appeal an interest
rate risk deduction determination. It is uncertain as to when this evaluation may be completed. Any
savings association with less than $300 million in assets and a total capital ratio in excess of 12%
is exempt from this requirement unless the OTS determines otherwise.
At September 30, 1996, Perry County had total capital of $12.3 million and risk-weighted
assets of $16.4 million; or total capital of 74.6% of risk-weighted assets. This amount was $10.9
million above the 8% requirement in effect on that date.
The OTS and the FDIC are authorized and, under certain circumstances required, to take
certain actions against savings associations that fail to meet their capital requirements. The OTS
is generally required to take action to restrict the activities of an "undercapitalized association"
(generally defined to be one with less than either a 4% core capital ratio, a 4% Tier 1 risked-based
capital ratio or an 8% risk-based capital ratio). Any such association must submit a capital
restoration plan and until such plan is approved by the OTS may not increase its assets, acquire
another institution, establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional restrictions that are applicable
to significantly undercapitalized associations.
<PAGE>
As a condition to the approval of the capital restoration plan, any company controlling an
undercapitalized association must agree that it will enter into a limited capital maintenance
guarantee with respect to the institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is "significantly
undercapitalized" (i.e., Tier 1 risk-based or core capital ratios of less than 3% or a risk-based capital
ratio of less than 6%) must be made subject to one or more of additional specified actions and
operating restrictions which may cover all aspects of its operations and include a forced merger or
acquisition of the association. An association that becomes "critically undercapitalized" (i.e., a
tangible capital ratio of 2% or less) is subject to further mandatory restrictions on its activities in
addition to those applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a savings association,
with certain limited exceptions, within 90 days after it becomes critically undercapitalized. Any
undercapitalized association is also subject to the general enforcement authority of the OTS and the
FDIC, including the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into a lower capital
category and impose the restrictions applicable to such category if the institution is engaged in
unsafe or unsound practices or is in an unsafe or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on Perry County may have
a substantial adverse effect on Perry County's operations and profitability. Company shareholders
do not have preemptive rights, and therefore, if the Company is directed by the OTS or the FDIC
to issue additional shares of Common Stock, such issuance may result in the dilution in the
percentage of ownership of the Company.
Limitations on Dividends and Other Capital Distributions. OTS regulations impose various
restrictions or requirements on associations with respect to their ability to pay dividends or make
other distributions of capital. OTS regulations prohibit an association from declaring or paying any
dividends or from repurchasing any of its stock if, as a result, the regulatory capital of the
association would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion.
The OTS utilizes a three-tiered approach to permit associations, based on their capital level
and supervisory condition, to make capital distributions which include dividends, stock redemptions
or repurchases, cash-out mergers and other transactions charged to the capital account (see "--Regulatory Capital Requirements").
Generally, Tier 1 associations, which are associations that before and after the proposed
distribution meet their fully phased-in capital requirements, may make capital distributions during
any calendar year equal to the greater of 100% of net income for the year-to-date plus 50% of the
amount by which the lesser of the association's tangible, core or risk-based capital exceeds its fully
phased-in capital requirement for such capital component, as measured at the beginning of the
calendar year, or the amount authorized for a Tier 2 association. However, a Tier 1 association
deemed to be in need of more than normal supervision by the OTS may be
<PAGE>
downgraded to a Tier 2 or Tier 3 association as a result of such a determination. Perry County meets the requirements for
a Tier 1 association and has not been notified of a need for more than normal supervision. Tier 2
associations, which are associations that before and after the proposed distribution meet their
current minimum capital requirements, may make capital distributions of up to 75% of net income
over the most recent four quarter period.
Tier 3 associations (which are associations that do not meet current minimum capital
requirements) that propose to make any capital distribution and Tier 2 associations that propose to
make a capital distribution in excess of the noted safe harbor level must obtain OTS approval prior
to making such distribution. Tier 2 associations proposing to make a capital distribution within the
safe harbor provisions and Tier 1 associations proposing to make any capital distribution need only
submit written notice to the OTS 30 days prior to such distribution. As a subsidiary of the
Company, Perry County will also be required to give the OTS 30 days' notice prior to declaring any
dividend on its stock. The OTS may object to the distribution during that 30-day period based on
safety and soundness concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital distribution
restrictions. The proposal eliminates the current tiered structure and the safe-harbor percentage
limitations. Under the proposal a savings association may make a capital distribution without notice
to the OTS (unless it is a subsidiary of a Company) provided that it has a CAMEL 1 or 2 rating, is
not in troubled condition (as defined by regulation) and would remain adequately capitalized (as
defined in the OTS prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the proposed distribution
but do not meet the other noted requirements must notify the OTS 30 days prior to declaring a
capital distribution. The OTS stated it will generally regard as permissible that amount of capital
distributions that do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings association may not make a capital distribution without
prior approval of the OTS and the FDIC if it is undercapitalized before, or as a result of, such a
distribution. As under the current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to whether or in what form
the regulations may be adopted.
Liquidity. All savings associations, including Perry County, are required to maintain an
average daily balance of liquid assets equal to a certain percentage of the sum of its average daily
balance of net withdrawable deposit accounts and borrowings payable in one year or less. For a
discussion of what the Bank includes in liquid assets, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital Resources." This liquid
asset ratio requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings associations. At the present time, the
minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time deposits, certain bankers
acceptances and short-term United States Treasury obligations) currently must constitute at least 1%
of the association's average daily balance of net withdrawable deposit accounts and current
borrowings. Penalties may be imposed upon associations for violations of either liquid asset ratio
<PAGE>
requirement. At September 30, 1996, Perry County was in compliance with both requirements, with
an overall liquid asset ratio of 27%.
Accounting. An OTS policy statement applicable to all savings associations clarifies and
re-emphasizes that the investment activities of a savings association must be in compliance with
approved and documented investment policies and strategies, and must be accounted for in
accordance with GAAP. Under the policy statement, management must support its classification
of and accounting for loans and securities (i.e., whether held to maturity, held for sale or trading)
with appropriate documentation. Perry County is in compliance with these amended rules.
The OTS has adopted an amendment to its accounting regulations, which may be made more
stringent than GAAP by the OTS, to require that transactions be reported in a manner that best
reflects their underlying economic substance and inherent risk and that financial reports must
incorporate any other accounting regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test. All savings associations, including Perry County, are required
to meet a qualified thrift lender ("QTL") test to avoid certain restrictions on their operations. This
test requires a savings association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out of every 12 months on
a rolling basis. Such assets primarily consist of residential housing related loans and investments.
At September 30, 1996, Perry County met the test and has always met the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to a national bank
charter, unless it requalifies as a QTL and thereafter remains a QTL. If an association does not
requalify and converts to a national bank charter, it must remain SAIF-insured until the FDIC
permits it to transfer to the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those permissible for both a savings
association and a national bank, and it is limited to national bank branching rights in its home state.
In addition, the association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association has not requalified or
converted to a national bank within three years after the failure, it must divest of all investments and
cease all activities not permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any association that
fails the QTL test is controlled by a Company, then within one year after the failure, the Company
must register as a bank Company and become subject to all restrictions on bank holding companies.
See "- Company Regulation."
Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"), every
FDIC insured institution has a continuing and affirmative obligation consistent with safe and sound
banking practices to help meet the credit needs of its entire community, including low and moderate
income neighborhoods. The CRA does not establish specific lending requirements or programs for
financial institutions nor does it limit an institution's discretion to develop the types of products and
services that it believes are best suited to its particular community, consistent with the CRA. The
CRA requires the OTS, in connection with the examination of Perry County, to
<PAGE>
assess the institution's record of meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications, such as a merger or the establishment of a branch, by Perry
County. An unsatisfactory rating may be used as the basis for the denial of an application by the
OTS.
The federal banking agencies, including the OTS, have recently revised the CRA regulations
and the methodology for determining an institution's compliance with the CRA. Due to the
heightened attention being given to the CRA in the past few years, Perry County may be required
to devote additional funds for investment and lending in its local community. Perry County was
examined for CRA compliance in 1993 and received a rating of "Satisfactory."
Transactions with Affiliates. Generally, transactions between a savings association or its
subsidiaries and its affiliates are required to be on terms as favorable to the association as
transactions with non-affiliates. In addition, certain of these transactions, such as loans to an
affiliate, are restricted to a percentage of the association's capital. Affiliates of Perry County include
the Company and any company which is under common control with Perry County. In addition, a
savings association may not lend to any affiliate engaged in activities not permissible for a bank
Company or acquire the securities of most affiliates. The OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons are also subject to conflict
of interest regulations enforced by the OTS. These conflict of interest regulations and other statutes
also impose restrictions on loans to such persons and their related interests. Among other things,
such loans must be made on terms substantially the same as for loans to unaffiliated individuals.
Company Regulation. The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register and file reports
with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has
enforcement authority over the Company and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings association.
As a unitary savings and loan holding company, the Company generally is not subject to
activity restrictions. If the Company acquires control of another savings association as a separate
subsidiary, it would become a multiple savings and loan Company, and the activities of the
Company and any of its subsidiaries (other than Perry County or any other SAIF-insured savings
association) would become subject to such restrictions unless such other associations each qualify
as a QTL and were acquired in a supervisory acquisition.
If Perry County fails the QTL test, the Company must obtain the approval of the OTS prior
to continuing after such failure, directly or through its other subsidiaries, any business activity other
than those approved for multiple savings and loan holding companies or their subsidiaries. In
addition, within one year of such failure the Company must register as, and will
<PAGE>
become subject to, the restrictions applicable to bank holding companies. The activities authorized for a bank
Company are more limited than are the activities authorized for a unitary or multiple savings and
loan Company. See "--Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring control of any other
SAIF-insured association. Such acquisitions are generally prohibited if they result in a multiple
savings and loan Company controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or in a supervisory
acquisition of a failing savings association.
Federal Securities Law. The stock of the Company is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is subject to the
information, proxy solicitation, insider trading restrictions and other requirements of the SEC under
the Exchange Act.
Company stock held by persons who are affiliates (generally officers, directors and principal
stockholders) of the Company may not be resold without registration or unless sold in accordance
with certain resale restrictions. If the Company meets specified current public information
requirements, each affiliate of the Company is able to sell in the public market, without registration,
a limited number of shares in any three-month period.
Federal Reserve System. The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their transaction accounts
(primarily checking, NOW and Super NOW checking accounts). At September 30, 1996, Perry
County was in compliance with these reserve requirements. The balances maintained to meet the
reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity
requirements that may be imposed by the OTS. See "--Liquidity."
Savings associations are authorized to borrow from the Federal Reserve Bank "discount
window," but Federal Reserve Board regulations require associations to exhaust other reasonable
alternative sources of funds, including FHLB borrowings, before borrowing from the Federal
Reserve Bank.
Federal Home Loan Bank System. Perry County is a member of the FHLB of Des Moines,
which is one of 12 regional FHLBs, that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members within its assigned
region. It is funded primarily from proceeds derived from the sale of consolidated obligations of
the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and
procedures, established by the board of directors of the FHLB, which are subject to the oversight of
the Federal Housing Finance Board. All advances from the FHLB are required to be fully secured
by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required
to provide funds for residential home financing.
<PAGE>
As a member, Perry County is required to purchase and maintain stock in the FHLB of Des
Moines. At September 30, 1996, Perry County had $602,000 in FHLB stock, which was in
compliance with this requirement.
Under federal law the FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to low- and moderately priced housing programs through
direct loans or interest subsidies on advances targeted for community investment and low- and
moderate-income housing projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions could also have an
adverse effect on the value of FHLB stock in the future. A reduction in value of Perry County's
FHLB stock may result in a corresponding reduction in Perry County's capital.
Federal and State Taxation
Savings associations such as the Bank that meet certain definitional tests relating to the
composition of assets and other conditions prescribed by the Internal Revenue Code of 1986, as
amended (the "Code"), are permitted to establish reserves for bad debts and to make annual
additions thereto which may, within specified formula limits, be taken as a deduction in computing
taxable income for federal income tax purposes. The amount of the bad debt reserve deduction for
"non-qualifying loans" is computed under the experience method. The amount of the bad debt
reserve deduction for "qualifying real property loans" (generally loans secured by improved real
estate) may be computed under either the experience method or the percentage of taxable income
method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an amount determined under
a formula based generally upon the bad debts actually sustained by the savings association over a
period of years.
The percentage of specially computed taxable income that is used to compute a savings
association's bad debt reserve deduction under the percentage of taxable income method (the
"percentage bad debt deduction") is 8%. The percentage bad debt deduction thus computed is
reduced by the amount permitted as a deduction for non-qualifying loans under the experience
method. The availability of the percentage of taxable income method permits qualifying savings
associations to be taxed at a lower effective federal income tax rate than that applicable to
corporations generally (approximately 31.3% assuming the maximum percentage bad debt
deduction).
If an association's specified assets (generally, loans secured by residential real estate or
deposits, educational loans, cash and certain government obligations) constitute less than 60% of
its total assets, the association may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period. No representation can be made as to
whether the Bank will meet the 60% test for subsequent taxable years.
Under the percentage of taxable income method, the percentage bad debt deduction cannot
exceed the amount necessary to increase the balance in the reserve for "qualifying real property
<PAGE>
loans" to an amount equal to 6% of such loans outstanding at the end of the taxable year or the
greater of (i) the amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equals the amount by which 12% of the
amount comprising savings accounts at year-end exceeds the sum of surplus, undivided profits and
reserves at the beginning of the year. Legislation was enacted in August 1996, which repealed the
percentage of taxable income method effective January 1, 1996 for the Bank.
In addition to the regular income tax, corporations, including savings associations such as
the Bank, generally are subject to a minimum tax. An alternative minimum tax is imposed at a
minimum tax rate of 20% on alternative minimum taxable income, which is the sum of a
corporation's regular taxable income (with certain adjustments) and tax preference items, less any
available exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more than 90% of alternative
minimum taxable income. For taxable years beginning after 1986 and before 1996, corporations,
including savings associations such as the Bank, are also subject to an environmental tax equal to
0.12% of the excess of alternative minimum taxable income for the taxable year (determined
without regard to net operating losses and the deduction for the environmental tax) over $2 million.
In August 1996, legislation was enacted that repeals the reserve method of accounting used
by many thrifts to calculate their bad debt reserve for federal income tax purposes. As a result, small
thrifts such as the Bank must recapture that portion of the reserve that exceeds the amount that could
have been taken under the experience method for post-1987 tax years. The legislation also requires
thrifts to account for bad debts for federal income tax purposes on the same basis as commercial
banks for tax years beginning after December 31, 1995. The recapture will occur over a six-year
period, the commencement of which will be delayed until the first taxable year beginning after
December 31, 1997, provided the institution meets certain residential lending requirements. The
management of the Company does not believe that the legislation will have a material impact on
the Company or the Bank.
The Company and the Bank file separate federal income tax returns on a calendar year basis
using the accrual method of accounting.
Missouri Taxation. Missouri-based thrift institutions, such as the Bank, are subject to a
special financial institutions tax, based on net earnings without regard to net operating loss
carryforwards, at the rate of 7% of net earnings. This tax is in lieu of all other state taxes on thrift
institutions, on their property, capital or income, except taxes on tangible personal property owned
by the Bank, contributions paid pursuant to the Unemployment Compensation law of Missouri, real
estate taxes, social security taxes, sales taxes and use taxes. In addition, Perry County is entitled to
credit against this tax all taxes paid to the State of Missouri or any political subdivision except taxes
on tangible personal property owned by the Bank and held for lease or rental to others and on real
estate, contributions paid pursuant to the Unemployment Compensation Law of Missouri, social
security taxes, sales taxes and use taxes, and taxes imposed by the Missouri Financial Institutions
Tax Law. Missouri thrift institutions are not subject to the regular state corporate income tax.
<PAGE>
Competition
Perry County faces strong competition, both in originating loans and in attracting deposits.
Competition in originating loans comes primarily from other commercial banks and savings
associations making loans secured by real estate located in the Bank's market area. The Bank
competes for loans principally on the basis of the quality of services it provides to borrowers,
interest rates and loan fees it charges, and the types of loans it originates.
The Bank attracts all of its deposits through its retail banking office, primarily from the
communities it serves. Therefore, competition for those deposits is principally from other
commercial banks, savings associations and credit unions located or doing business in the same and
surrounding communities. The Bank competes for these deposits by offering deposit accounts at
competitive rates and convenient business hours.
The Bank's primary market area is Perry County, Missouri. There are four commercial banks
and one savings association which compete for deposits and loans in Perry County.
Employees
The Bank had 10 full-time employees and 2 part-time employees as of September 30, 1996,
none of whom was represented by a collective bargaining agreement. The Bank believes that it
enjoys good relations with its personnel. There are no executive officers of the Company and the
Bank who are not directors.
Item 2. Description of Properties
The following table sets forth the location and certain additional information regarding the
Bank's office at September 30, 1996. The office is owned by the Bank. At September 30, 1996, the
Bank's premises and equipment had an aggregate net book value of $301,000.
<S>
</TABLE>
<TABLE>
<CAPTION>
Year Square Net Book Value
Opened Footage of Premises and
Equipment
<S> <C> <C> <C>
Office:
14 North Jackson Street
Perryville, Missouri 1957 4,780 $301,000
</TABLE>
<TABLE>
<S>
The Bank's accounting and record-keeping activities are maintained on an on-line basis with
an independent service bureau.
Item 3. Legal Proceedings
Currently, the Bank is not involved in any pending legal proceedings other than a routine
legal proceeding occurring in the ordinary course of business, which in the aggregate involves an
amount that is believed by management to be immaterial to the financial condition of the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the solicitation of proxies or
otherwise, during the year ended September 30, 1996.
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
Page 1 of the attached 1996 Annual Report to Stockholders is herein incorporated by
reference.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Pages 3 through 9 of the attached 1996 Annual Report to Stockholders are herein
incorporated by reference.
Item 7. Financial Statements
The following information appearing in the Company's Annual Report to Stockholders for
the year ended September 30, 1996, is incorporated by reference in this Annual Report on Form 10-KSB as Exhibit 13.
<S>
</TABLE>
<TABLE>
<CAPTION>
Pages in
Annual Report Section Annual Report
<S> <C>
Report of Independent Auditors 10
Consolidated Balance Sheets as of September 30, 1996 and 1995 11
Consolidated Statements of Earnings for the Years Ended
September 30, 1996, 1995 and 1994 12
Consolidated Statements of Stockholders' Equity for
Years Ended September 30, 1996, 1995 and 1994 13
Consolidated Statements of Cash Flows for Years Ended
September 30, 1996, 1995 and 1994 14
Notes to Consolidated Financial Statements 15-29
</TABLE>
<TABLE>
<S>
With the exception of the aforementioned information, the Company's Annual Report to
Stockholders for the year ended September 30, 1996, is not deemed filed as part of this Annual
Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Company filed a Form 8-K dated August 23, 1995 regarding a change in accountants.
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act
Directors
Information concerning Directors of the Company is incorporated herein by reference from
the definitive Proxy Statement for the Annual Meeting of Stockholders to be held in 1996, a copy
of which will be filed not later than 120 days after the close of the fiscal year.
Executive Officers
Information concerning Executive Officers of the Company is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held
in January 1997, a copy of which will be filed not later than 120 days after the close of the fiscal
year.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of the Bank's equity
securities, to file with the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and greater than
10% stockholders are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports were required, during
the fiscal year ended September 30, 1996, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10 percent beneficial owners were complied with, with the
exception of a late filing by Director S. Rozier of his initial Form 3, which omission was
subsequently corrected.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein by reference from
the definitive Proxy Statement for the Annual Meeting of Stockholders to be held in 1997, a copy
of which will be filed not later than 120 days after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial
Owners and Management
Information concerning security ownership of certain beneficial owners and management
is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1997, a copy of which will be filed not later than 120 days after the close
of the fiscal year.
Item 12. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is incorporated herein
by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held
in 1997, a copy of which will be filed not later than 120 days after the close of the fiscal year.
Item 13. Exhibits and Reports on Form 8-K
Reference Sequential
(a) Exhibits to Page Number
Prior Where Attached
Filing Exhibits Are
Regulation or Exhibits Located in
S-B Number This
Exhibit Attached Form 10-KSB
Number Document Hereto Report
3(i) Articles of Incorporation, including
amendments thereto * Not applicable
3(ii) By-Laws * Not applicable
4 Instruments defining the rights of security
holders, including debentures * Not applicable
9 Voting Trust Agreement None Not applicable
10 Executive Compensation Plans and
Arrangements
(a) Employment Contract between
Leo J. Rozier and the Bank * Not applicable
(b) 1995 Stock Option and Incentive Plan * Not applicable
(c) Recognition and Retention Plan * Not applicable
11 Statement re: computation of per share
earnings None Not applicable
13 Annual Report to Security Holders 13 Page __
16 Letter re: change in certifying
accountants ** Not applicable
18 Letter re: change in accounting
principles None Not applicable
21 Subsidiaries of Registrant 21 Page __
22 Published report regarding matters
submitted to vote of security holders None Not applicable
23 Consents of Experts and Counsel 23 Not applicable
24 Power of Attorney Not required Not applicable
27 Financial Data Schedule None Not applicable
28 Information from reports furnished
to state insurance regulatory authorities None Not applicable
99 Additional Exhibits None Not applicable
* Filed as exhibits to the Company's Form S-1 registration statement filed on October 4, 1994 (File No. 33-84786) of
the Securities Act of 1933. All of such previously filed documents are hereby incorporated herein by reference in
accordance with Item 601 of Regulation S-B.
** Filed as an exhibit to the Company's Form 8-K filed on August 23, 1995 (File No. 0-25088).
(b) Reports on Form 8-K
There were no Form 8-Ks filed by the Registrant in fiscal 1996.
SIGNATURES
In accordance with Section 13 of 15(d) of the Exchange Act, the Issuer caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
PERRY COUNTY FINANCIAL CORPORATION
Date: December 27, 1996 By: /s/ Leo J. Rozier
Leo. J. Rozier
(Duly Authorized Representative)
In accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the Issuer and in the capacities and on the dates indicated.
By: /s/ Leo J. Rozier By: /s/ James K. Young
Leo J. Rozier, Chairman of the James K. Young, Director, Acting
Board, President and Chief Secretary and Acting Controller
Executive Officer (Chief Financial and Accounting
(Principal Executive and Operating Officer)
Officer)
Date: December 27, 1996 Date: December 27, 1996
By: /s/ Stephen C. Rozier By: /s/ Milton A. Vogel
Stephen C. Rozier, Director, Milton A. Vogel, Director
Assistant Vice President and
Assistant Secretary
Date: December 27, 1996 Date: December 27, 1996
By: /s/ Thomas L. Hoeh
Thomas L. Hoeh, Director
Date: December 27, 1996
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary or Percent of State of
Parent Organization Ownership Incorporation
Perry County Financial Perry County Savings 100% Federal
Corporation Bank, FSB
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference and use of our report, dated
December 6, 1996 on the consolidated financial statements of Perry County
Financial Corporation which appears in Perry County Financial Corporation's
Annual Report of Shareholders and Form 10-KSB for the year ended September 30,
1996 in Perry County's previously filed Registration Statement on Form S-8
(Registration No. 333-4168 and No. 333-4170).
Michael Trokey & Company, P.C.
St. Louis, Missouri
December 30, 1996
- -------------------------------------------------------------------------
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference and use of our report,
dated December 20, 1994, on the consolidated financial statements of Perry
County Savings Bank which appears in Perry County Financial Corporation's
Annual Report of Shareholders and Form 10-KSB for the year ended
September 30, 1996 in Perry County Financial Corporation's previously filed
Registration Statement on Form S-8 (Registration No. 333-4168 and
No. 333-4170).
Charles L. Woodward, Jr. C.P.A.
St. Louis, Missouri
December 30, 1996
<S>
</TABLE>
<TABLE>
<S>
Business of the Company and the Bank
On November 23, 1994 Perry County Savings Bank converted its charter to a federally chartered
savings bank and changed its name to Perry County Savings Bank, FSB (Bank). On February 10, 1995,
Perry County Savings Bank, FSB converted from mutual to stock form and became a wholly-owned
subsidiary of a newly formed Missouri holding company, Perry County Financial Corporation (Company).
The Company issued 856,452 shares of common stock at $10 per share in conjunction with the
offering. Net proceeds from the sale of common stock in the offering were $7,267,041, after
deduction of conversion costs of $612,319, and unearned compensation related to shares issued to
the Employee Stock Ownership Plan (ESOP). The Company retained 50% of the net conversion
proceeds, less the funds used to originate a loan to the ESOP for the purchase of shares of common
stock, and used the balance of the net proceeds to purchase all of the stock of the Bank in the
conversion.
The Company has no significant assets other than common stock of the Bank, and the loan to the
ESOP, and net proceeds retained by the Company following the conversion. The Company's principal
business is the business of the Bank. The Bank's deposit accounts are insured up to a maximum of
$100,000 by the Savings Association Insurance Fund (SAIF), which is administered by the Federal
Deposit Insurance Corporation (FDIC). The Bank's primary business, as conducted through its office
located in Perryville, Missouri, is the origination of mortgage loans secured by one- to four-family
residences located primarily in Perry County. Lending activities are funded through attraction of deposit
accounts, consisting of certificate accounts, money-market deposit accounts, savings accounts and
NOW accounts. To a lesser extent, the Bank also originates mortgage loans on commercial real estate,
construction loans on single-family residences and commercial properties, and loans secured by deposit
accounts.
Common Stock
The common stock of Perry County Financial Corporation is traded on the NASDAQ Small Cap Market
under the symbol "PCBC". The following table sets forth the market price and dividend information on
the Company's common stock:
<S>
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended High Low Dividend
<S> <C> <C> <C>
March 31, 1995 $15.250 $12.375 $.00
June 30, 1995 $15.750 $14.000 $.00
September 30, 1995 $17.250 $14.875 $.00
December 31, 1995 $19.750 $17.750 $.00
March 31, 1996 $18.750 $17.750 $.30
June 30, 1996 $17.500 $16.000 $.00
September 30, 1996 $18.500 $17.250 $.00
</TABLE>
<TABLE>
<S>
Dividend payment decisions are made with consideration of a variety of factors including earnings,
financial condition, market considerations and regulatory restrictions. Restrictions on dividend
payments are described in note 10 of the Notes to Consolidated Financial Statements.
As of December 1, 1996, the Company had approximately 470 stockholders of record (which includes
nominees for beneficial owners holding shares in "street name"). Selected Financial Highlights
<S>
<PAGE>1
Financial Condition Data:
</TABLE>
<TABLE>
<CAPTION>
At September 30,
1996 1995 1994 1993 1992
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Assets $ 81,149 76,421 69,914 68,818 68,324
Cash and cash equivalents and securities$ 38,150 36,377 31,841 23,620 17,989
Mortgage-backed and related securities $ 29,819 31,190 31,200 38,457 43,174
Loans receivable, net $ 11,718 7,810 5,813 5,780 6,038
Deposits $ 62,712 60,178 61,296 61,602 61,944
Advances from FHLB $ 2,500 - 500 - -
Stockholders' equity(1) $ 15,072 15,683 7,613 6,965 6,110
Full service offices open 1 1 1 1 1
</TABLE>
<TABLE>
<CAPTION>
Operating Data:
For the Year Ended September 30,
1996 1995 1994 1993 1992
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest income $ 5,295 4,839 4,320 4,712 5,424
Interest expense (3,121) (2,859) (2,374) (2,695) (3,577)
Net interest income 2,174 1,980 1,946 2,017 1,847
Provision for loan losses (15) - - - -
Net interest income after provision
for loan losses 2,159 1,980 1,946 2,017 1,847
Noninterest income 145 50 30 34 41
Noninterest expense (1,552) (862) (764) (743) (725)
Earnings before income taxes and
cumulative effect of change in
accounting principle 752 1,168 1,212 1,308 1,163
Income taxes (296) (432) (452) (453) (410)
Earnings before cumulative effect of
change in accounting principle 456 736 760 855 753
Cumulative effect of change
in accounting principle - - (112) - -
Net earnings $ 456 736 648 855 753
Earnings per share $ .57 (2) - - -
Dividends per share $ .30 .00 - - -
</TABLE>
<TABLE>
<S>
(1)Stockholders' equity at September 30, 1996 and 1995 includes $7,267,041 from the net proceeds of the sale of common
stock in connection with the conversion from a mutual to stock institution and formation of a holding company.
(2)Earnings per share is not meaningful since common stock was issued on February 10, 1995.
<PAGE>2
Management's Discussion and Analysis of Financial Condition and Results of Operations
The business of the Bank has been that of a financial intermediary consisting primarily of attracting
deposits from the general public and using such deposits to originate mortgage loans secured by one-
to four-family residences and, to a lesser extent, commercial real estate loans, real estate
construction loans and loans secured by deposit accounts. The Bank's revenues are derived
principally from interest earned on loans, investments, and mortgage-backed and related securities
(MBSs). The operations of the Bank are influenced significantly by general economic conditions and
by policies of financial institution regulatory agencies, including the Office of Thrift Supervision (OTS)
and the Federal Deposit Insurance Corporation (FDIC). The Bank's cost of funds is influenced by
interest rates on competing investments and general market interest rates. Lending activities are
affected by the demand for financing of real estate and other types of loans, which in turn is affected
by the interest rates at which such financing may be offered.
The Bank's net interest income is dependent primarily upon the difference or spread between the
average yield earned on MBSs, loans and securities and the average rate paid on deposits, as well
as the relative amounts of such assets and liabilities. The Bank, as other thrift institutions, is subject
to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different
times, or on a different basis, than its interest-earning assets.
Asset/Liability Management
Key components of a successful asset/liability management strategy are the monitoring and managing
of interest rate sensitivity of both the interest-earning asset and interest-bearing liability portfolios.
The Bank has employed various strategies intended to minimize the adverse effect of interest rate
risk on future operations by providing a better match between the interest rate sensitivity of its
assets and liabilities. In particular, the Bank's strategies are intended to stabilize net interest income
for the long-term by protecting its interest rate spread against increases in interest rates. Such
strategies include the origination for portfolio of one-year, adjustable-rate mortgage loans (AMLs)
secured by one- to four-family residential real estate and the origination of other types of adjustable-
rate and short-term loans with greater interest rate sensitivities than long-term, fixed-rate residential
mortgage loans.
Asset/liability management in the form of structuring cash instruments provides greater flexibility to
adjust exposure to interest rates. During periods of high interest rates, management believes it is
prudent to offer competitive rates on short-term deposits and less competitive rates for long-term
liabilities. This posture allows the Bank to benefit quickly from declines in interest rates. Likewise,
offering more competitive rates on long-term deposits during low interest rate periods allows the
Bank to extend the repricing and/or maturity of its liabilities thus reducing its exposure to rising
interest rates.
The OTS provides a net market value methodology to measure the interest rate risk exposure of thrift
institutions. This exposure is a measure of the potential decline in the net portfolio value (NPV) of
the institution based upon the effect of an assumed 200 basis point increase or decrease in interest
rates. NPV is the present value of the expected discounted cash flows from the institution's assets,
liabilities and off-balance sheet contracts. Under OTS regulations, an institution's normal level of
interest rate risk in the event of this assumed change in interest rates is a decrease in the institution's
NPV in an amount not exceeding 2% of the present value of its assets. This procedure for measuring
interest rate risk was developed by the OTS to replace the gap analysis (the difference between
interest-earning assets and interest-bearing liabilities that mature or reprice within a specific time period).
<PAGE>3
The following table sets forth as of September 30, 1996 the estimated changes in market value of
equity based on the indicated interest rate environments:
<S>
</TABLE>
<TABLE>
<CAPTION>
Change
(In Basis Points) Estimated Change In
in Interest Rates Net Portfolio Value
(Dollars in Thousands)
<C> <C> <C>
+400 $(6,368) (46) %
+300 (4,761) (34)
+200 (3,093) (22)
+100 (1,472) (11)
0 - -
-100 1,267 9
-200 2,233 16
-300 3,039 22
-400 4,030 29
</TABLE>
<TABLE>
<S>
As with any method of measuring interest rate risk, 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, expected rates of prepayments on loans and early withdrawals
from certificates could likely deviate significantly from those assumed in calculating the table. Based
on its size, the Bank is not required to comply with the OTS's risk parameters.
<PAGE>4
Average Balances, Interest and Average Yields and Rates
The following table presents for the periods indicated the total dollar amount of interest income from
average interest-earning assets and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were
made. All average balances are monthly average balances. Nonaccruing loans have been included in
the table as loans carrying a zero yield.
<S>
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994
Average Average Average
Average Yield/Average Yield/ Average Yield/
BalanceInterest Cost Balance Interest Cost BalanceInterest Cost
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 9,825 779 7.93% 6,829 536 7.84% 5,675 402 7.08%
Mortgage-backed and
related securities 31,267 2,248 7.19% 30,688 2,141 6.98% 34,004 2,269 6.67%
Securities 33,619 2,122 6.31% 30,791 1,890 6.14% 26,560 1,554 5.85%
FHLB stock 599 43 7.25% 590 44 7.38% 590 50 8.47%
Other interest-earning
assets 2,381 103 4.31% 4,096 228 5.58% 1,239 45 3.63%
Total interest-earning
assets 77,691 15,295 6.82% 72,994 4,839 6.63% 68,068 4,320 6.35%
Interest-bearing
liabilities:
Savings deposits 4,490 123 2.74% 5,438 145 2.67% 5,802 159 2.74%
Demand and MMDA deposits 11,719 426 3.63% 10,874 444 4.08% 10,699 345 3.22%
Certificate accounts 45,338 2,512 5.54% 44,582 2,254 5.05% 45,506 1,858 4.08%
Advances from FHLB 984 60 6.06% 269 16 5.95% 208 12 5.77%
Total interest-bearing
liabilities $ 62,531 3,121 4.99% 61,163 2,859 4.67% 62,215 2,374 3.81%
Net interest income
before provision for
loan losses $ 2,174 1,980 1,946
Interest rate spread 1.83% 1.96% 2.54%
Net earning assets $ 15,160 11,831 5,853
Net yield on average
interest-earning assets 2.80% 2.71% 2.86%
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 124.24% 119.34% 109.41%
</TABLE>
<PAGE>5
Rate/Volume Analysis
The following table sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes in volume (changes in volume multiplied
by prior year's rate), rates (changes in rate multiplied by prior year's
volume) and rate/volume (changes in rate multiplied by the changes in volume).
<TABLE>
<CAPTION>
Year Ended September 30,
1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Due To Increase (Decrease) Due To
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $ 235 6 2 243 82 43 9 134
Mortgage-backed and
related securities 41 65 1 107 (222) 105 (11) (128)
Securities 174 53 5 232 247 77 12 336
FHLB stock 1 (1) - - - (6) - (6)
Other interest-
earning assets (96) (52) 22 (126) 104 24 55 183
Total interest-
earning assets 355 71 30 456 211 243 65 519
Interest expense:
Deposits 31 185 2 218 (42) 533 (10) 481
Advances from FHLB 42 - 1 43 4 - - 4
Total interest-
bearing liabilities$ 73 185 3 261 (38) 533 (10) 485
Net interest income $ 195 34
</TABLE>
<TABLE>
<S>
Liquidity and Capital Resources
The Bank's principal sources of funds are cash receipts from deposits, loan repayments by borrowers,
advances from the Federal Home Loan Bank (FHLB) and net earnings. The Bank has an agreement with
the FHLB of Des Moines to provide cash advances, should the need for additional funds be required.
For regulatory purposes, liquidity is measured as a ratio of cash and certain investments to
withdrawable deposits and short-term borrowings. The minimum level of liquidity required by regulation
is presently 5%. The Bank's liquidity ratio at September 30, 1996, was substantially higher than the
required ratio. The Bank maintains a higher level of liquidity than required by regulation as a matter of
management philosophy in order to more closely match interest-sensitive assets with interest-sensitive
liabilities. The Bank has $35.6 million in certificates due within one year and $16.1 million in other
deposits without specific maturity at September 30, 1996. Management estimates that most of the
deposits will be retained or replaced by new deposits.
Total assets increased from $76.4 million at September 30, 1995 to $81.1 million at September 30,
1996. Loans receivable, net increased as the Bank continued to promote loan originations in the Bank's
market area. In December 1995, all securities and mortgage-backed securities were reclassified as
available for sale from held to maturity. Increases in deposits, primarily certificates of deposit, and
advances from the Federal Home Loan Bank of Des Moines were used to fund loan growth. Effective
October 1, 1994, the Bank adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At September
30, 1996 the effect of adoption of SFAS No. 115 resulted in a decrease in stockholders' equity of
$540,409, net of income taxes.
<PAGE>6
Commitments to originate mortgage loans are legally binding agreements to lend to the Bank's
customers. Commitments at September 30, 1996 to originate mortgage loans and fund loans in
process were $433,200. Loan commitments expire in 180 days or less.
Certain statements in this report which relate to the Company's plans, objectives or future performance
may be deemed to be forward-looking statements within the meaning of Private Securities Litigation
Act of 1995. Such statements are based on management's current expectations. Actual strategies
and results in future periods may differ materially from those currently expected because of various
risks and uncertainties. Additional discussion of factors affecting the Company's business and
prospects is contained in periodic filings with the Securities and Exchange Commission.
Results of Operations
Comparison of the Years Ended September 30, 1996 and September 30, 1995
Net Earnings
Net earnings for the year ended September 30, 1996 were $456,000 compared with $736,000 for the
year ended September 30, 1995. The primary reason for the decrease relates to expense of $393,000
for the special assessment for recapitalization of the Savings Association Insurance Fund (SAIF). In
addition, noninterest expense also increased substantially due to the cost of stock benefit plans and
other expenses related to operating as a public company. Net earnings also reflect higher net interest
income, gain on sale of securities and mortgage-backed securities (MBS) totaling $96,000, and a gain
on the sale of the Bank's interest in a data processing bureau.
Net Interest Income
Net interest income increased from $2.0 million for 1995 to $2.2 million in 1996. Although the interest
rate spread decreased from 1.96% for 1995 to 1.83% for 1996, the ratio of average interest-earning
assets to average interest-bearing liabilities increased from 119.34% in 1995 to 124.24% in 1996.
Interest income for 1996 was $5.3 million compared with $4.8 million for 1995. The weighted-average
yield on interest-earning assets increased from 6.63% for 1995 to 6.82% for 1996. Average interest-
earning assets also increased from $73.0 million for 1995 to $77.7 million for 1996. Interest on loans
receivable increased largely as a result of higher average loans outstanding for 1996. Management has
placed renewed emphasis on origination of loans. Interest on mortgage-backed and related securities
increased due to a higher average yield and a higher balance. Interest on securities increased due to
a higher balance and yield. Interest on other interest-earning assets decreased as a result of a lower
balance and yield. Interest expense increased largely due to higher interest rates and also to an increase
in the average deposit and FHLB advance balances. The weighted-average rate on interest-bearing
liabilities increased from 4.67% for 1995 to 4.99% for 1996.
Provision for Loan Losses
Provisions for loan losses are charged to earnings to bring the total allowance for loan losses to a level
considered adequate by management to provide for loan losses based on prior loss experience, known
and inherent risks in the portfolio, adverse situations which may affect the borrower's ability to repay,
the estimated value of any underlying collateral and current economic conditions. Management also
considers other factors relating to the collectibility of the Bank's loan portfolio. For the year ended
September 30, 1996 the Bank established a provision for loan losses of $15,000. No provision was
provided in 1995. There were no non-accrual loans at September 30, 1996 compared to $63,000 at
September 30, 1995.
<PAGE>7
Noninterest Income
Noninterest income increased from $50,000 for 1995 to $145,000 for 1996. The Bank recognized a
patronage dividend of $23,000 from its investment in a data processing service bureau in 1995, and
a gain on sale of the center of $18,000 in 1996. Gains on sales of securities and MBS amounted to
$96,000 in 1996, with no such gains in 1995. Gains on sales of assets are not stable sources of
income and there is no assurance that the Company will generate such gains in the future.
Noninterest expense
Noninterest expense increased from $862,000 for 1995 to $1,552,000 for 1996. Legislation to
recapitalize the SAIF resulted in a charge of $393,000 in 1996. Compensation and benefits increased
as a result of the implementation of a management recognition plan (MRP) similar to plans of other
publicly traded thrift institutions, upon approval of the stockholders of the Company in January, 1996.
MRP expense for the year ended September 30, 1996 was $217,807, including $145,000 for
accelerated vesting of shares upon the death of Mrs. Patricia Rozier. The Employee Stock Ownership
Plan (ESOP) expense was $75,900 and $80,455 for 1995 and 1996, respectively. ESOP expense is
affected by changes in the market price of the Company's stock and MRP expense is affected by
accelerated vesting of shares under the terms of the related plans. Professional and supervisory fees,
as well as other expenses, increased due principally to costs associated with operating as a public
company, including Missouri franchise fee, NASDAQ fees, annual report printing and registrar fees.
Management expects recurring expenses related to operating as a public company will stabilize in the
future.
Income Taxes
Income taxes decreased due to lower earnings before income taxes.
Comparison of the Years Ended September 30, 1995 and September 30, 1994
Net Earnings
Net earnings for the year ended September 30, 1995 was $736,000 compared with $648,000 for the
year ended September 30, 1994. The primary reason for the increase relates to expense of $112,000
for the cumulative effect of change in accounting principle in 1994. Also, net earnings increased due
to higher net interest-earning assets and higher noninterest income, which were offset by a lower
interest rate spread (the difference between weighted-average rate on all interest-earning assets and
all interest-bearing liabilities) and higher noninterest expense.
Net Interest Income
Net interest income increased by $34,000 from $1.95 million for 1994 to $1.98 million in 1995.
Average interest-earning assets increased as a result of the utilization of funds received upon
completion of the sale of stock. However, this was partially offset by the decrease in the interest rate
spread from 2.54% for 1994 to 1.96% for 1995. Interest income for 1995 was $4.8 million compared
with $4.3 million for 1994. The weighted-average yield on interest-earning assets increased from
6.35% for 1994 to 6.63% for 1995. Average interest-earning assets also increased from $68.1 million
for 1994 to $73.0 million for 1995. Interest on loans receivable increased as a result of higher average
loans outstanding for 1995, and an increase in average interest rate. Management has placed renewed
emphasis on origination of loans. Interest on mortgage-backed and related securities decreased due to
a lower average balance offset, in part, by a higher average rate. Interest on securities increased due
to higher interest rates and average balance. Interest on other interest-earning assets increased as a
result of substantially higher interest rates on overnight funds, and higher average balance. Interest
expense increased due to higher interest rates. The weighted-average rate on interest-bearing liabilities
increased from 3.81% for 1994 to 4.67% for 1995. The increase in weighted-average rate on interest-
bearing liabilities was offset, in part, by a decrease in average liabilities.
<PAGE>8
Provision for Loan Losses
Provisions for loan losses are charged to earnings to bring the total allowance for loan losses to a level
considered adequate by management to provide for loan losses based on prior loss experience, known
and inherent risks in the portfolio, adverse situations which may affect the borrower's ability to repay,
the estimated value of any underlying collateral and current economic conditions. Management also
considers other factors relating to the collectibility of the Bank's loan portfolio. For the years ended
September 30, 1995 and 1994, the Bank did not establish a provision for loan losses. The book value
of non-accrual loans at September 30, 1995 was $63,000 compared to $31,000 at September 30,
1994.
Noninterest Income
Noninterest income increased from $30,000 for 1994 to $50,000 for 1995. The Bank recognized a
patronage dividend from its investment in a data processing service bureau. While the Bank has
received nominal patronage dividends in the past, the 1995 amount reflects nonrecurring income from
the service bureau.
Noninterest Expense
Noninterest expense increased from $763,000 for the year ended September 30, 1994 to $861,000
for 1995. Compensation and benefits increased as a result of establishment of an ESOP in connection
with the sale of common stock. ESOP expense was $75,900. ESOP expense was lower than expected
since the plan was "top heavy" under the Internal Revenue Code. ESOP expense would have been
approximately $45,000 higher had the plan not been top heavy. Management expects that
compensation and benefits expense will increase in the future for stock benefit plans. ESOP expense
is affected by changes in the market price of the Company's stock, which increased substantially during
the year. Management expects that other noninterest expense will increase in the future as a result
of operating as a public company. Other expenses increased due principally to costs associated with
operating as a public company, including Missouri franchise fee, NASDAQ fees, annual report printing,
and registrar fees.
Income Taxes
Income taxes decreased due to lower earnings before income taxes.
Cumulative Effect of Change in Accounting Principle
Effective October 1, 1993, the Bank adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," which requires an asset and liability approach to financial
accounting and reporting for income taxes. The cumulative effect of the change in accounting principle
on years prior to October 1, 1993, of $112,000 was included as a charge to net earnings for the year
ended September 30, 1994.
Impact of Inflation
The consolidated financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles which require the measurement of financial
position and operating results in terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation. The primary impact of inflation on the
operations of the Bank is reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result,
interest rates, generally, have a more significant impact on a financial institution's performance than
does inflation. Interest rates do not necessarily move in the same direction or to the same extent as
the prices of goods and services. In the current interest rate environment, liquidity and the maturity
structure of the Bank's assets and liabilities are critical to the maintenance of acceptable performance
levels.
<PAGE>9
MICHAEL TROKEY & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
10411 CLAYTON ROAD
ST. LOUIS, MO 63131
(314) 432-0996
Report of Independent Auditors
The Board of Directors
Perry County Financial Corporation
Perryville, Missouri
We have audited the accompanying consolidated balance sheets of Perry County Financial Corporation
and subsidiary (Company), as of September 30, 1996 and 1995 and the related consolidated
statements of earnings, stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
The consolidated financial statements of Perry County Savings Bank (subsidiary's name prior to
reorganization) for the year ended September 30, 1994 were audited by other auditors whose report
dated December 20, 1994, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit 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 consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Perry County Financial Corporation and subsidiary as of September
30, 1996 and 1995, and the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
As discussed in notes 1 and 9 to the consolidated financial statements, the Company changed its
method of accounting for securities in 1995 and income taxes in 1994.
St. Louis, Missouri
December 6, 1996
<S>
</TABLE>
<PAGE>10
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
<S> <C> <C>
Cash and cash equivalents $ 3,236,497 3,554,902
Securities:
Available for sale, at market value (amortized cost of
$34,972,835 and $322,293) 34,312,495 326,293
Held to maturity, at amortized cost
(market value of $31,587,531) - 31,906,147
Federal Home Loan Bank Stock 601,500 589,700
Mortgage-backed and related securities:
Available for sale, at market value (amortized cost of
$30,016,120) 29,818,666 -
Held to maturity, at amortized cost
(market value of $31,379,983) - 31,189,781
Loans receivable, net 11,717,799 7,810,457
Premises and equipment, net 300,664 312,772
Accrued interest receivable:
Securities 500,824 382,683
Mortgage-backed and related securities 210,702 229,395
Loans receivable 52,324 41,926
Deferred tax asset 327,557 -
Other assets 70,416 76,678
Total assets $ 81,149,444 76,420,734
Liabilities and Stockholders' Equity
Deposits $ 62,711,509 60,178,280
Accrued interest on deposits 130,848 155,451
Advances from FHLB of Des Moines 2,500,000 -
Advances from borrowers for taxes and insurance 146,917 105,763
Other liabilities 428,302 30,820
Accrued income taxes 159,442 102,614
Deferred income tax liability - 164,913
Total liabilities 66,077,018 60,737,841
Commitments and contingencies
Stockholders' equity:
Serial preferred stock, $.01 par value; 1,000,000 shares
authorized; shares issued and outstanding - none - -
Common stock, $.01 par value; 5,000,000 shares
authorized; 856,452 shares issued and outstanding 8,565 8,565
Additional paid-in capital 8,034,660 7,962,536
Common stock acquired by ESOP (593,186) (639,160)
Common stock acquired by MRP (335,359) -
Unrealized (loss) gain on securities available for sale, net (540,409) 2,520
Treasury stock, at cost, 3,886 shares (68,977) -
Retained earnings - substantially restricted 8,567,132 8,348,432
Total stockholders' equity 15,072,426 15,682,893
Total liabilities and stockholders' equity $ 81,149,444 76,420,734
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>11
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
Years Ended September 30, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Interest income:
Loans receivable $ 778,921 535,551 402,075
Mortgage-backed and related securities 2,247,890 2,141,279 2,268,787
Securities 2,165,422 1,933,622 1,603,684
Other interest-earning assets 102,669 228,619 44,956
Total interest income 5,294,902 4,839,071 4,319,502
Interest expense:
Deposits:
NOW 67,271 66,844 63,009
Passbook accounts 123,262 145,053 159,262
Money market deposit accounts 358,290 377,234 281,796
Certificates 2,511,991 2,253,938 1,857,992
Advances from FHLB 59,623 16,019 11,840
Total interest expense 3,120,437 2,859,088 2,373,899
Net interest income 2,174,465 1,979,983 1,945,603
Provision for loan losses 15,000 - -
Net interest income after provision for loan losses 2,159,465 1,979,983 1,945,603
Noninterest income:
Service charges on NOW accounts 27,705 26,070 25,891
Patronage dividend - 22,545 468
Gain on sale of securities available for sale 21,055 - -
Gain on sale of mortgage-backed securities
available for sale 75,208 - -
Gain on investment in data center 17,679 - -
Other 3,605 1,256 3,534
Total noninterest income 145,252 49,871 29,893
Noninterest expense:
Compensation and benefits 725,683 508,054 415,332
Occupancy expense 28,060 26,109 26,367
Equipment and data processing expense 79,876 77,792 81,644
SAIF deposit insurance premium 140,923 140,596 141,487
SAIF special assessment 392,821 - -
Other 184,673 108,935 98,392
Total noninterest expense 1,552,036 861,486 763,222
Earnings before income taxes and cumulative
effect of change in accounting principle 752,681 1,168,368 1,212,274
Income taxes:
Current 469,787 446,574 418,840
Deferred (173,606) (14,000) 33,433
Total income taxes 296,181 432,574 452,273
Earnings before cumulative effect of
change in accounting principle 456,500 735,794 760,001
Cumulative effect of change in accounting principle - - 112,000
Net earnings $ 456,500 735,794 648,001
Net earnings per common share $ .57 * -
</TABLE>
* Not meaningful since the common stock was issued on February 10, 1995.
See accompanying notes to consolidated financial statements.
<PAGE>12
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Common Common Gain (Loss)
Additional Stock Stock on Securities Total
Common Paid-in Acquired Acquired Available Treasury Retained Stockholders'
Stock Capital by ESOP by MRP For Sale Stock Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1993$ - - - - - - 6,964,637 6,964,637
Net earnings - - - - - - 648,001 648,001
Balance at
September 30, 1994 - - - - - - 7,612,638 7,612,638
Net proceeds
from sale
of common stock 8,565 7,943,636 (685,160) - - - - 7,267,041
Amortization of
ESOP awards - 18,900 46,000 - - - - 64,900
Unrealized gain
on securities
available for
sale, net - - - - 2,520 - - 2,520
Net earnings - - - - - - 735,794 735,794
Balance at
September 30,
1995 8,565 7,962,536 (639,160) - 2,520 - 8,348,432 15,682,893
Shares issued
under MRP - 37,643 - (553,166) - 515,523 - -
Amortization of
MRP awards - - - 217,807 - - - 217,807
Cash dividends
of $.30 per
share - - - - - - (237,800) (237,800)
Amortization of
ESOP awards - 34,481 45,974 - - - - 80,455
Unrealized loss
on securities
available for
sale, net - - - - (542,929) - - (542,929)
Treasury stock
purchased - - - - - (584,500) - (584,500)
Net earnings - - - - - - 456,500 456,500
Balance at
September 30,
1996 $8,565 8,034,660 (593,186) (335,359)(540,409) (68,977) 8,567,132 15,072,426
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>13
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years Ended September 30, 1996, 1995 and 1994
1996 1995 1994
<S> <C>
Cash flows from operating activities:
Net earnings $ 456,500 735,794 648,001
Adjustments to reconcile net earnings to net cash
provided by (used for) operating activities:
Depreciation expense 14,576 14,768 16,253
Provision for loan loss 15,000 - -
ESOP expense 80,455 75,900 -
MRP expense 217,807 - -
Amortization of premiums, discounts
and loan fees, net (41,147) (49,514) (71,990)
FHLB stock dividends (11,800) - -
Gain on sale of mortgage-backed
securities available for sale (75,208) - -
Gain on sale of securities available for sale (21,055) - -
Dividends reinvested in Asset Management Fund (6,907) (7,048) (4,855)
Decrease (increase) in:
Accrued interest receivable (109,846) (37,826) (52,979)
Deferred tax asset (8,693) - -
Other assets 6,262 45,548 (55,429)
Increase (decrease) in:
Accrued interest on deposits (24,603) 48,695 23,593
Other liabilities 397,482 7,257 (1,595)
Accrued income taxes 56,828 (10,121) 85,760
Deferred income tax liability (164,913) (14,000) 145,433
Net cash provided by (used for)
operating activities 780,738 809,453 732,192
Cash flows from investing activities:
Loans originated, net of principal collections (3,922,342) (1,947,592) (33,475)
Mortgage-backed and related securities:
Available for sale:
Purchased (6,227,075) - -
Principal collections 5,271,977 - -
Proceeds from sale 2,216,420 - -
Held to maturity or for investment:
Purchased - (4,222,403) (3,000,812)
Principal collections - 4,233,052 10,270,815
Securities:
Available for sale:
Purchased (14,298,500) - -
Proceeds from maturity 7,800,000 - -
Proceeds from sale 3,810,762 - -
Held to maturity or for
investment and certificates
of deposit:
Purchased - (4,296,563) (11,128,968)
Proceeds from maturity - 2,409,952 1,000,000
Purchase of premises and equipment (2,468) (6,937) (5,111)
Net cash provided by (used for)
investing activities (5,351,226) (3,830,491) (2,897,551)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 2,533,229 (1,117,564) (306,048)
Advances from borrowers for taxes and insurance 41,154 9,993 347
Advances from FHLB 2,500,000 - 500,000
Repayment of advances from FHLB - (500,000) -
Net proceeds from sale common stock - 7,267,041 -
Purchase of treasury shares (584,500) - -
Dividends paid to stockholders (237,800) - -
Net cash provided by (used for)
financing activities 4,252,083 5,659,470 194,299
Net increase (decrease) in cash and cash equivalents (318,405) 2,638,432 (1,971,060)
Cash and cash equivalents at beginning of year 3,554,902 916,470 2,887,530
Cash and cash equivalents at end of year $ 3,236,497 3,554,902 916,470
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits $ 3,085,417 2,794,374 2,360,627
Interest on advances from FHLB 59,623 16,019 11,840
Federal income taxes 366,700 442,204 270,025
State income taxes 46,258 13,513 63,118
Noncash activity - transfer from held
for investment or held to maturity to
available for sale:
Securities 32,746,005 315,245 -
Mortgage-backed and related securities $ 31,232,845 - -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>14
<TABLE>
<S>
(1) Summary of Significant Accounting Policies
Perry County Savings Bank converted from a state-chartered mutual savings and loan association
to a Federally-chartered mutual savings bank, Perry County Savings Bank, FSB, on November 23,
1994. On February 10, 1995, Perry County Savings Bank, FSB (Bank) completed its conversion
from mutual to stock form and became a wholly-owned subsidiary of a newly formed Missouri
holding company, Perry County Financial Corporation (Company). The following comprise the
significant accounting policies which the Company and Bank follow in preparing and presenting
their consolidated financial statements:
a. The consolidated financial statements include the accounts of the Company and its wholly-
owned subsidiary, Perry County Savings Bank, FSB. The Company has no significant assets
other than common stock of the Bank, the loan to the ESOP, and net proceeds retained by
the Company following the conversion. The Company's principal business is the business
of the Bank. All significant intercompany accounts and transactions have been eliminated.
b. For purposes of reporting cash flows, cash and cash equivalents include cash and due from
depository institutions and interest-bearing deposits in other depository institutions with
original maturities of three months or less. Interest-bearing deposits in other depository
institutions were $3,081,483 and $3,429,385 at September 30, 1996 and 1995,
respectively.
c. Effective October 1, 1994, the Bank adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Under SFAS No. 115, securities and mortgage-backed and related
securities which the Bank has the positive intent and ability to hold to maturity are classified
as held to maturity securities and reported at cost, adjusted for amortization of premiums and
accretion of discounts over the life of the security using the interest method. Securities and
mortgage-backed and related securities not classified as held to maturity securities are
classified as available for sale securities and reported at fair value, with unrealized gains and
losses excluded from net earnings and reported in a separate component of stockholders'
equity. The Bank does not purchase securities and mortgage-backed and related securities
for trading purposes. At September 30, 1996, the effect of adopting SFAS No. 115
decreased stockholders' equity by $540,409, net of income taxes. Prior to October 1, 1994,
debt and equity securities were considered held for investment. Debt securities were carried
at cost, adjusted for amortization of premiums and accretion of discounts over the life of the
security using the interest method. Equity securities were carried at the lower of cost or
market. The cost of securities sold is determined by specific identification.
Collateralized mortgage obligations (CMOs) are mortgage derivatives and the type owned by
the Bank are classified as "low-risk" under regulatory guidelines. CMOs are subject to normal
effects of interest rate risk. The Bank does not purchase CMOs at any significant premium
over par value to limit certain prepayment risks, and purchases only CMOs issued by U.S.
government agencies in order to minimize credit risk.
<PAGE>15
d. Loans receivable, net are carried at unpaid principal balances, less loans in process, net deferred
loan fees, and allowance for losses. Loan origination and commitment fees and certain direct
loan origination costs are deferred and amortized to interest income over the contractual life
of the loan using the interest method.
e. Effective October 1, 1995, the Bank adopted the provisions of SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." Specific valuation allowances
are established for impaired loans for the difference between the loan amount and the fair
value of collateral less estimated selling costs. The Bank considers a loan to be impaired
when, based on current information and events, it is probable that the Bank will be unable
to collect all amounts due according to the contractual terms of the loan agreement on a
timely basis. The types of loans for which impairment is measured under SFAS No. 114 and
118 include nonaccrual income property loans (excluding those loans included in the
homogenous portfolio which are collectively reviewed for impairment), large, nonaccrual
single family loans and troubled debt restructurings. Such loans are placed on nonaccrual
status at the point they become contractually delinquent more than 90 days. Impairment
losses are recognized through an increase in the allowance for loan losses. There were no
impaired loans under SFAS No. 114 and 118 at September 30, 1996.
f. Allowance for losses are available to absorb losses incurred on loans receivable and represents
additions charged to expense, less net charge-offs. Increases to the allowance are charged
to the provision for loan losses. Charge-offs to the allowance are made when all, or a
portion, of the loan is confirmed as a loss based upon management's review of the loan or
through repossession of the underlying collateral. Recoveries are credited to the allowance.
The allowance for losses is established based on management's assessment of trends in the
loan portfolio and management's periodic review of the loans in the portfolio. In determining
the allowance for losses to be maintained, management evaluates current economic
conditions, past loss and collection experience, fair value of the underlying collateral and risk
characteristics of the loan portfolio. Management believes that allowance for losses on loans
receivable is adequate. The Bank is subject to periodic examination by regulatory agencies
which may require the Bank to record increases in the allowances based on their evaluation
of available information. There can be no assurance that the Bank's regulators will not
require further increases to the allowance.
g. Premises and equipment, net are carried at cost, less accumulated depreciation. Depreciation
of premises and equipment is computed using the straight-line method based on the
estimated useful lives of the related assets. Estimated lives are generally thirty to fifty years
for building and improvements, and five to ten years for furniture and equipment.
h. Interest on securities, mortgage-backed and related securities and loans receivable is accrued
as earned. Interest on loans receivable contractually delinquent more than ninety days is
excluded from income until collected.
i. The Bank changed its method of accounting for income taxes to conform with Statement of
Financial Accounting Standards No. 109. See note 9.
<PAGE>16
j. Earnings per share are based upon the weighted-average shares outstanding. ESOP shares
which have been committed to be released are considered outstanding. The weighted-
average shares outstanding during the year ended September 30, 1996 was 797,795. The
presentation of net earnings per common share for 1995 is not meaningful since the common
stock was issued on February 10, 1995.
k. The following paragraph summarizes the impact of new relevant accounting pronouncements:
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 provides that compensation
cost for stock-based employee compensation plans be measured at the grant date based on
the fair value of the award and recognized over the service period, which is usually the
vesting period. However, SFAS No. 123 also allows an institution to use the intrinsic value
based method under APB opinion No. 25. Stock-based employee compensation plans include
stock purchase plans, stock options, restricted stock and stock appreciation rights. Employee
stock ownership plans are not covered by this Statement. SFAS No. 123 is effective for
transactions entered into in fiscal years which begin after December 15, 1995, with earlier
application permitted. SFAS No. 123 is not expected to affect the Company's financial
position or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The statement focuses on the issues
of accounting for transfers and servicing of financial assets, extinguishments and liabilities
and financial assets subject to prepayment. SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after December 31,
1996. The provisions of this statement for financial assets subject to prepayment are
effective for financial assets held or acquired after January 1, 1997. SFAS No. 125 is not
expected to have a material impact on the financial position or results of operations of the
Company.
(2) Risks and Uncertainties
The Bank is a community oriented financial institution which provides traditional financial services
within the areas it serves. The Bank is engaged primarily in the business of attracting deposits
from the general public and using these funds to originate one- to four-family residential real
estate loans located primarily in Perry County, Missouri.
The consolidated financial statements have been prepared in conformity with generally accepted
accounting principles. In preparing the consolidated financial statements, management is
required to make estimates and assumptions which affect the reported amounts of assets and
liabilities as of the balance sheet dates and income and expenses for the periods covered. Actual
results could differ significantly from these estimates and assumptions.
The Bank's operations are affected by interest rate risk, credit risk, market risk and regulations by
the Office of Thrift Supervision (OTS). The Bank is subject to interest rate risk to the degree that
its interest-bearing liabilities mature or reprice more rapidly, or on a different basis, than its
interest-earning assets. The Bank uses a net market value methodology provided by the OTS to
measure its interest rate risk exposure. Net portfolio value is the expected discounted cash flows
from the institution's assets, liabilities and off-balance-sheet contracts. This exposure is a
measure of the potential decline in the net portfolio value of the Bank based upon the effect of
an assumed increase or decrease in interest rates in 100 basis point increments. Credit risk is
<PAGE>17
the risk of default on the Bank's loan portfolio that results from the borrowers' inability or
unwillingness to make contractually required payments. Market risk reflects changes in the value
of collateral underlying loans receivable and the valuation of real estate held by the Bank. The
Bank is subject to periodic examination by regulatory agencies which may require the Bank to
record increases in the allowances based on their evaluation of available information. There can
be no assurance that the Bank's regulators will not require further increases to the allowances.
<S>
</TABLE>
<TABLE>
<CAPTION>
(3) Securities:
Securities are summarized as follows:
1996
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
Debt securities -
U.S. Treasury
and Federal agency
obligations $ 34,972,835 40,518 (700,858) 34,312,495
Weighted-average rate 6.58%
</TABLE>
<TABLE>
<CAPTION>
1995
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <S> <C> <C> <C>
Available for sale:
Equity securities - Asset
Management Fund $ 322,293 4,000 - 326,293
Held to maturity:
Debt securities - U.S.
Treasury and Federal
agency obligations $ 31,906,147 110,065 (428,681) 31,587,531
Weighted-average rate 6.13%
</TABLE>
During December, 1995, the Bank transferred $32,746,005 of securities from
held to maturity to available for sale under a recent interpretation of SFAS
No. 115. The net unrealized gains of these securities at the transfer date
amounted to $18,179.
Maturities of debt securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
1996
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $ 5,498,667 5,498,688
Due after one year through five years 8,189,142 7,965,602
Due after five years through ten years 13,286,469 13,120,081
Due after ten years through fifteen years 7,998,557 7,728,124
$ 34,972,835 34,312,495
</TABLE>
<PAGE>18
U.S. Treasury securities of $2,000,000 were pledged as collateral to secure
certain deposits at September 30, 1996. Proceeds from sales of securities
available for sale and gross realized gains on these sales during 1996 were
$3,810,762 and $21,055, respectively.
(4) Mortgage-backed and Related Securities:
Mortgage-backed and related securities are summarized as follows:
<TABLE>
<CAPTION>
1996
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-participation certificates:
FHLMC $ 8,110,355 123,207 (145,791) 8,087,771
GNMA 13,398,842 130,182 (181,132) 13,347,892
FNMA 7,997,981 10,786 (130,139) 7,878,628
29,507,178 264,175 (457,062) 29,314,291
Mortgage-related derivative:
CMO 508,942 - (4,567) 504,375
$ 30,016,120 264,175 (461,629) 29,818,666
Weighted-average rate 7.04%
</TABLE>
<TABLE>
<CAPTION>
1995
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity:
Mortgage-participation certificates:
FHLMC $ 10,937,045 312,763 (69,424) 11,180,384
GNMA 14,476,626 172,779 (193,389) 14,456,016
FNMA 5,263,706 37,927 (71,175) 5,230,458
30,677,377 523,469 (333,988) 30,866,858
Mortgage-related derivative:
CMO 512,404 721 - 513,125
$ 31,189,781 524,190 (333,988) 31,379,983
Weighted-average rate 7.02%
</TABLE>
<TABLE>
<S>
During December, 1995 the Bank transferred $31,232,845 of mortgage-backed and related
securities from held to maturity to available for sale under a recent interpretation of SFAS No.
115. The net unrealized gain of these securities amounted to $380,224.
Mortgage-backed securities with a carrying value of $1,081,000 were pledged as collateral to
secure certain deposits at September 30, 1996. Adjustable-rate mortgage and balloon loans
included in mortgage-backed and related securities at September 30, 1996 and 1995 were
approximately $15,400,000 and $18,800,000, respectively.
Proceeds from sales of mortgage-backed securities available for sale and gross realized gains on
these sales during 1996 were $2,216,420 and $75,208, respectively.
<PAGE>19
(5) Loans Receivable, Net
Loans receivable, net are summarized as follows:
<S>
</TABLE>
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Real estate loans:
Single, 1-4 family units $ 10,459,062 6,711,660
Multi-family, 5 or more units 86,332 108,246
Construction 786,678 775,400
Land 19,076 21,789
Commercial 247,911 256,816
Loans secured by deposit accounts 395,931 404,817
11,994,990 8,278,728
Loans in process (248,737) (454,079)
Deferred loan fees (3,454) (4,192)
Allowance for losses (25,000) (10,000)
$ 11,717,799 7,810,457
Weighted-average rate 7.83% 7.96%
</TABLE>
Real estate construction loans at September 30, 1996, are secured primarily by
single, 1-4 family units and a commercial loan of $400,000. Adjustable-rate
loans included in the loan portfolio amounted to $3,414,063 and $5,694,820 at
September 30, 1996 and 1995, respectively.
Following is a summary of activity in allowance for losses:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C>
Balance, beginning of year $ 10,000 10,000 10,000
Provision charged to expense 15,000 - -
Balance, end of year $ 25,000 10,000 10,000
</TABLE>
There were no nonaccrual loans at September 30, 1996. The Bank ceased
recognition of interest income on loans with a carrying value of $62,857 and
$31,000 for the years ended September 30, 1995 and 1994, respectively. The
interest income not recognized on these loans for the above mentioned years
was $2,238 and $1,460.
Following is a summary of loans in excess of $60,000 to directors, executive
officers and associates of such persons for the year ended September 30, 1996:
<TABLE>
<CAPTION>
<S> <C>
Balance, September 30, 1995 $ 248,799
Additions - new director 91,500
Repayments (67,270)
Balance, September 30, 1996 $ 273,029
</TABLE>
These loans were made on substantially the same terms as those prevailing at
the time for comparable transactions with unaffiliated persons.
<PAGE>20
(6) Premises and Equipment, Net
Premises and equipment, net are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 46,972 46,972
Building and improvements 350,356 350,356
Furniture, fixtures and equipment 103,754 101,286
501,082 498,614
Less accumulated depreciation 200,418 185,842
$ 300,664 312,772
</TABLE>
Depreciation expense for the years ended September 30, 1996, 1995 and 1994
was $14,576, $14,768 and $16,253, respectively.
(7) Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
Description and interest rate 1996 1995
<S> <C> <C>
Noninterest-bearing checking $ 116,918 81,826
NOW accounts, 2.25% 3,209,200 2,829,262
Savings accounts, 2.75% 4,402,064 4,379,992
Money market deposit accounts, 4.02% and
4.63%, respectively 8,379,549 8,672,737
Total transaction accounts 16,107,731 15,963,817
Certificates:
2.75 - 3.00% 350,679 278,783
3.01 - 4.00% 157,993 2,860,878
4.01 - 5.00% 4,887,742 7,179,709
5.01 - 6.00% 35,366,234 22,525,424
6.01 - 7.00% 5,841,130 11,339,717
7.01 - 8.00% - 16,952
8.01 - 9.00% - 13,000
Total certificates, 5.47% and 5.58%, respectively 46,603,778 44,214,463
Total deposits $ 62,711,509 60,178,280
Weighted-average rate - deposits 4.91% 5.07%
</TABLE>
Certificate maturities at September 30, 1996 are summarized as follows:
<TABLE>
<S> <C>
October 1, 1996 to September 30, 1997 $ 35,592,434
October 1, 1997 to September 30, 1998 7,319,109
October 1, 1998 to September 30, 1999 2,949,155
October 1, 1999 to September 30, 2000 410,711
October 1, 2000 to September 30, 2001 322,369
October 1, 2001 to September 30, 2002 10,000
$ 46,603,778
</TABLE>
<PAGE>21
Certificates of deposits of $100,000 or more at September 30, 1996 are
summarized as follows:
<TABLE>
<S> <C>
Maturing in:
Three months or less $ 2,829,750
Over three through six months 4,441,078
Over six through twelve months 1,142,760
Over twelve months -
$ 8,413,588
</TABLE>
(8) Advances from FHLB of Des Moines
Advances from Federal Home Loan Bank of Des Moines are summarized as
follows:
<TABLE>
<CAPTION>
Interest
Maturity Date Rate Type 1996 1995
<S> <C> <S> <C> <C>
May 7, 1997 5.97% Fixed $ 2,000,000 -
May 17, 1997 5.90% Adjustable 500,000 -
$ 2,500,000 -
</TABLE>
The adjustable rate is repriced weekly based upon the Federal Reserve Bank of
New York average federal funds rate. Advances from Federal Home Loan Bank of
Des Moines were secured by FHLB stock and single-family mortgage loans of
$3,750,000.
<TABLE>
<S>
(9) Income Taxes
In computing Federal income tax, savings institutions are allowed a statutory bad debt deduction
of otherwise taxable income of 8%, subject to limitations based on aggregate loans and savings
balances. The Company and Bank file separate federal income tax returns on a calendar year
basis. The percentage of taxable income method was used for income tax purposes for 1995
and 1994. On August 20, 1996 the Small Business Job Protection Act of 1996 was signed into
law. Effective January 1, 1996, the percentage of taxable income method has been eliminated,
but the Bank will be permitted to make additions to the tax bad debt reserve using the
experience method. Under the Act, the Bank's tax bad debt reserves in excess of the 1987 tax
year level will be subject to recapture and payable in equal amounts over six years in tax years
beginning January 1, 1996 and thereafter. Savings institutions may defer the recapture of their
applicable excess tax bad debt reserves for two years if they meet a residential loan
requirement.
Effective October 1, 1993, the Bank adopted SFAS No. 109, "Accounting for Income Taxes,"
which requires an asset and liability approach to financial accounting and reporting for income
taxes. Deferred income tax assets and liabilities are computed for differences between the
financial statement and tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount that will more likely than not be
realized. Income tax expense is the tax payable or refundable for the period plus or minus the
net change in the deferred tax assets and liabilities. The cumulative effect of the change in
accounting principle for income taxes of $112,000 on years prior to October 1, 1993, is
included as a reduction of net earnings for the year ended September 30, 1994.
<PAGE>22
The components of the net deferred tax asset (liability) are summarized as
follows:
<S>
</TABLE>
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax asset:
Allowance for loan losses $ 9,250 3,400
Unrealized loss on securities
and MBS available for sale 317,384 -
SAIF special assessment 146,002 -
Book over tax ESOP and MRP expense, net 29,120 3,000
Deferred tax asset 501,756 6,400
Deferred tax liability:
Tax bad debt reserves arising after
December 31, 1987 (169,833) (169,833)
FHLB stock dividend (4,366) -
Unrealized gain on securities and
MBS available for sale - (1,480)
Deferred tax liability (174,199) (171,313)
Net deferred tax asset (liability) $ 327,557 (164,913)
</TABLE>
<TABLE>
<S>
The provisions of SFAS No. 109 require the Bank to establish a liability for the tax effect of the
tax bad debt reserves over amounts at December 31, 1987. The Bank's tax bad debt reserves
at December 31, 1987 are approximately $1,354,000. The estimated deferred tax liability on
such amount is approximately $460,000, which has not been recorded in the accompanying
consolidated financial statements. If these tax bad debt reserves are used for other than loan
losses, the amount used will be subject to Federal income taxes at the then prevailing corporate
rate.
<S>
</TABLE>
<TABLE>
<CAPTION>
Income taxes are summarized as follows:
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $ 419,995 370,350 359,207
State 49,792 55,224 59,633
469,787 425,574 418,840
Deferred:
Federal (151,474) 7,050 33,433
State (22,132) (50) -
(173,606) 7,000 33,433
$ 296,181 432,574 452,273
</TABLE>
<TABLE>
<S>
Total income tax expense is different than the amounts computed by applying the federal rate of
34% in the years ending September 30, 1996, 1995 and 1994 to earnings before taxes and
cumulative effect of change in accounting for income taxes as a result of the following:
<S>
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Expected income tax expense at Federal tax rate $ 255,912 397,245 412,173
ESOP compensation expense 11,723 - -
State income tax, net of Federal tax benefit 18,294 36,415 36,965
Other 10,252 (1,086) 3,135
$ 296,181 432,574 452,273
Effective tax rate 39.3% 37.0% 37.4%
</TABLE>
<PAGE>23
<TABLE>
<S>
(10) Stockholders' Equity and Regulatory Capital
On February 10, 1995, Perry County Savings Bank, FSB converted from mutual to stock form and
became a wholly-owned subsidiary of a newly formed Missouri holding company, Perry County
Financial Corporation. The Company issued 856,452 shares of common stock at $10 per share
in conjunction with the offering. Net proceeds from the sale of common stock in the offering
were $7,267,041, after deduction of conversion costs of $612,319, and unearned
compensation related to shares issued to the Employee Stock Ownership Plan. The Company
retained 50% of the net conversion proceeds, less the funds used to originate a loan to the
Bank's ESOP for the purchase of shares of common stock, and used the balance of the net
proceeds to purchase all of the stock of the Bank in the conversion.
Deposit account holders and borrowers do not have voting rights in the Bank. Voting rights were
vested exclusively with the stockholders of the holding company. Deposit account holders
continue to be insured by the SAIF. A liquidation account was established at the time of
conversion in an amount equal to the capital of the Bank as of the date of the latest balance
sheet contained in the final prospectus. Each eligible account holder or supplemental eligible
account holder is 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
holder's or supplemental eligible account holder's deposit balance falls below the amounts on
the date of record and will cease to exist if the account is closed. The liquidation account will
never be increased despite any increase in the related deposit balance.
An OTS regulation restricts the Bank's ability to make capital distributions, including paying
dividends. The regulation provides that an institution meeting its capital requirements, both
before and after its proposed capital distribution, may generally distribute the greater of (1) 75%
of its net earnings for the prior four quarters or (2) 100% of its net earnings to date during the
calendar year, plus the amount that would reduce by one-half its surplus capital ratio (defined
as the percentage by which the institution's capital-to-asset ratio exceeds the ratio of its capital
requirements to its assets) at the beginning of the calendar year without prior supervisory
approval. The regulation provides more significant restrictions on payment of dividends in the
event that the capital requirements are not met.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) requires that
savings institutions maintain "core capital" of at least 3% of adjusted total assets. Under
proposals currently being evaluated by the Office of Thrift Supervision (OTS), a savings
institution's core capital requirement could be increased to between 4% and 5% of adjusted
total assets. Core capital is defined to include stockholders' equity among other components.
Savings institutions also must maintain "tangible capital" of not less than 1.5% of the Bank's
adjusted total assets. "Tangible capital" is defined, generally, as core capital minus any
"intangible assets." All of the Bank's capital is tangible.
In addition to requiring compliance with the core and tangible capital standards, FIRREA and the
OTS regulation also require that savings institutions satisfy a risk-based capital standard. The
minimum level of such capital is based on a credit risk component and is calculated by
multiplying the value of each asset (including off-balance sheet commitments) by one of four
risk factors. The four risk categories range from zero for cash to 100% for certain delinquent
loans and repossessed property. Savings institutions must maintain an 8.0% risk-based capital
level. As of September 30, 1996, the Bank met all capital requirements.
<PAGE>24
The following table presents the Bank's capital position relative to its regulatory capital
requirements at September 30, 1996:
<S>
</TABLE>
<TABLE>
<CAPTION>
Regulatory Capital
Tangible Core Risk-Based
<S> <C> <C> <C>
Stockholders' equity per consolidated
financial statements $ 15,072,426 15,072,426 15,072,426
Stockholders' equity of the Company not
available for regulatory capital purposes (3,321,381) (3,321,381) (3,321,381)
GAAP capital, as adjusted 11,751,045 11,751,045 11,751,045
Unrealized loss on securities available
for sale, net 482,569 482,569 482,569
General valuation allowance - - 25,000
Regulatory capital 12,233,614 12,233,614 12,258,614
Regulatory capital requirement (1,183,892) (2,367,783) (1,314,720)
Regulatory capital - excess $ 11,049,722 9,865,831 10,943,894
Regulatory capital ratio 15.50% 15.50% 74.59%
Regulatory capital requirement (1.50) (3.00) (8.00)
Regulatory capital ratio - excess 14.00% 12.50% 66.59%
</TABLE>
<TABLE>
<S>
(11) Employee Benefits
The Company established a tax-qualified employee stock ownership plan (ESOP) in connection
with the conversion from mutual to stock form. The Plan covers substantially all employees
who have attained age 21 and completed one year of service. The ESOP purchased 68,516
shares of the Company's common stock at $10 per share with a loan from the Company. The
Bank makes semi-annual contributions to the ESOP equal to the ESOP's debt service less
dividends on unallocated ESOP shares used to repay the ESOP loan. Dividends on allocated
ESOP shares will be paid to participants of the ESOP. The ESOP shares are pledged as collateral
on the ESOP loan. The Plan provides that shares are released from collateral and allocated to
participating employees based on the proportion of loan principal and interest repaid and
compensation of the participants. Since the Plan was considered a top heavy plan under the
Internal Revenue Code, actual shares released were less than allowed under the Plan.
The purchase of shares of the ESOP was recorded in the consolidated financial statements through
a credit to common stock and additional paid-in capital with a corresponding charge to a contra
equity account for the unreleased shares. The Bank reports compensation expense equal to the
average fair value of the ESOP shares committed to be released. Dividends on allocated ESOP
shares are charged to stockholders' equity. Dividends on unallocated ESOP shares are recorded
as a reduction to the ESOP loan. The ESOP expense for 1996 and 1995 was $80,455 and
$75,900, respectively.
<S>
</TABLE>
<TABLE>
The number of ESOP shares at September 30, 1996 were as follows:
<CAPTION>
<S> <C>
Allocated shares 4,600
Shares released for allocation 4,597
Unreleased shares 59,319
Total ESOP shares 68,516
</TABLE>
<PAGE>25
<TABLE>
<S>
The fair value of unreleased ESOP shares based on market price of the Company's stock was
$1,067,000 at September 30, 1996.
On January 16, 1996, the stockholders of Perry County Financial Corporation ratified the 1995
Stock Option and Incentive Plan (Stock Option Plan). Of the 85,645 shares reserved for
issuance under the Stock Option Plan, 70,798 shares were awarded in January, 1996, and the
remainder are available for future awards. The stock options were awarded at $19 per share
which was equal to the market value of the Company's common stock at the date of grant. At
September 30, 1996 there were 21,411 shares exercisable.
On January 16, 1996, the stockholders ratified the Management Recognition and Retention Plan
(MRP). Of the 34,258 shares reserved for issuance under the MRP, 29,114 shares were
awarded in January, 1996, to directors, executive officers and employees and the remainder
are available for future awards. Compensation expense in the amount of the fair market value
of the common stock at the date of grant is recognized pro rata over a five year period following
the date of grant of the award. The MRP expense for 1996 was $217,807.
(12) 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 generally
include commitments to originate mortgage loans. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount recognized in the
balance sheet. The Bank's maximum exposure to credit loss in the event of nonperformance
by the borrower is represented by the contractual amount and related accrued interest receivable
of those instruments. The Bank minimizes this risk by evaluating each borrower's
creditworthiness on a case-by-case basis. Generally, collateral held by the Bank consists of a
first or second mortgage on the borrower's property. The amount of collateral obtained is based
upon an appraisal of the property. The Bank offers adjustable-rate loans and fixed-rate loans.
Commitments at September 30, 1996 to originate mortgage loans and fund loans in process
were $433,200 expiring in 180 days or less.
(13) Financial Instruments with Concentrations of Credit Risk
The Bank originates residential real estate loans, and to a lesser extent, commercial real estate
loans, primarily to customers located in Perry County, Missouri.
<PAGE>26
(14)Condensed Parent Company Only Financial Statements
The following condensed balance sheets and condensed statements of earnings and cash flows
for Perry County Financial Corporation should be read in conjunction with the consolidated
financial statements and the notes thereto.
<S>
</TABLE>
<TABLE>
BALANCE SHEETS
<CAPTION>
September 30,
Assets 1996 1995
<S> <C> <C>
Cash and cash equivalents $ 271,564 592,866
Securities available for sale 2,708,188 -
Securities held to maturity - 2,800,000
ESOP note receivable 616,799 646,241
Accrued interest receivable 35,627 38,061
Other assets 57,122 -
Investment in subsidiary 11,751,045 11,606,136
Total assets $ 15,440,345 15,683,304
Liabilities and Stockholders' Equity
Accrued interest payable $ 8,919 -
Advance from subsidiary 355,000 -
Other liabilities 4,000 411
Total liabilities 367,919 411
Stockholders' equity 15,072,426 15,682,893
Total liabilities and stockholders' equity $ 15,440,345 15,683,304
</TABLE>
<TABLE>
STATEMENTS OF EARNINGS
<CAPTION> Period from
Year Ended February 10, 1995
September 30, to September 30,
1996 1995
<S> <C> <C>
Equity in earnings of the Bank $ 331,735 635,138
Interest income 267,135 162,502
Interest expense (8,919) -
Other expenses (66,001) (3,471)
Income taxes (67,450) (58,375)
Net earnings $ 456,500 735,794
</TABLE>
<PAGE>27
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> Period from
Year Ended February 10, 1995
September 30, to September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 456,500 735,794
Adjustments to reconcile net earnings to net cash
provided by (used for) operating activities:
Equity in earnings of Bank (331,735) (635,138)
Other, net (8,209) (37,650)
Net cash provided by (used for)
operating activities 116,556 63,006
Cash flows from investing activities:
Loan to ESOP - (685,160)
Principal collected on loan to ESOP 29,442 38,919
Advance from subsidiary 355,000 -
Purchase of common stock of Bank - (3,976,100)
Purchase of securities held to maturity - (2,800,000)
Purchase of securities available for sale
or held to maturity (1,800,000) -
Securities available for sale - matured 1,800,000 -
Treasury stock purchased (584,500) -
Dividends paid (237,800) -
Net cash provided by (used for)
investing activities 437,858 (7,422,341)
Cash flows from financing activities - proceeds from
sale of common stock - 7,952,201
Net increase (decrease) in cash and cash equivalents (321,302) 592,866
Cash and cash equivalents at beginning of period 592,866 -
Cash and cash equivalents at end of period $ 271,564 592,866
</TABLE>
<TABLE>
(16) Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments at September 30,
1996, are summarized as follows:
<CAPTION>
Carrying Fair
Amount Value
Non-trading instruments and nonderivatives:
<S> <C> <C>
Cash and cash equivalents $ 3,236,497 3,236,497
Securities available for sale 34,312,495 34,312,495
Stock in FHLB of Des Moines 601,500 601,500
Mortgage-backed securities
available for sale 29,818,666 29,818,666
Loans receivable, net 11,717,799 11,543,233
Deposits 62,711,509 61,677,509
Advances from FHLB of Des Moines $ 2,500,000 2,501,000
</TABLE>
<TABLE>
<S>
The following methods and assumptions were used in estimating the fair values of financial
instruments:
Cash and cash equivalents are valued at their carrying amounts due to the relatively short period
to maturity of the instruments.
Fair values of securities and mortgage-backed securities are based on quoted market prices or, if
unavailable, quoted market prices of similar securities.
<PAGE>28
Stock in FHLB of Des Moines is valued at cost, which represents redemption value and
approximates fair value.
Fair values are computed for each loan category using market spreads to treasury securities for
similar existing loans in the portfolio and management's estimates of prepayments.
Deposits with no defined maturities, such as NOW accounts, savings accounts and money market
deposit accounts, are valued at the amount payable on demand at the reporting date.
The fair values of certificates of deposit and advances from FHLB of Des Moines are computed at
fixed spreads to treasury securities with similar maturities.
(17)SAIF Special Assessment
On September 30, 1996 the Deposit Insurance Funds Act of 1996 was signed into law. Under
the Act, the FDIC will collect from savings institutions in November, 1996 a special assessment
of 65.7 basis points of SAIF assessable deposits at March 31, 1995. The SAIF special
assessment of $392,821 was charged to operations during the year ended September 30, 1996.
The statute provides that the assessment is deductible for tax purposes in the year when paid.
Accordingly, the SAIF special assessment will be deductible for tax return purposes for the
calendar year 1996. The FDIC has issued a proposed rule on revised risk-based assessment
schedules for SAIF members. Under the proposed rule, the Association anticipates for the fiscal
year ended September 30, 1997, a regular SAIF premium of 4.5 basis points of SAIF assessable
deposits for the period October 1, 1996 through December 31, 1996 and an annualized 6.4
basis points thereafter.<PAGE>
CORPORATE INFORMATION
<PAGE>29
OFFICERS
LEO J. ROZIER
chairman of the board
and president
JAMES K. YOUNG
acting secretary
DIRECTORS
LEO J. ROZIER
chairman of the board
and president
STEPHEN C. ROZIER
assistant vice-president
MILTON A. VOGEL
retired owner/operator of
automobile agency
Perryville, Missouri
JAMES K. YOUNG
retired owner/operator of
funeral home
Perryville, Missouri
THOMAS L. HOEH
attorney
Perryville, Missouri
CORPORATE OFFICES
14 North Jackson Street
Perryville, Missouri 63775
Telephone (314) 547-4581<PAGE>
LEGAL COUNSEL
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue N.W.
Washington, D.C. 20005
STOCK TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
AUDITORS
Michael Trokey & Company, P.C.
Certified Public Accountants
10411 Clayton Road
St. Louis, Missouri 63131
ANNUAL MEETING
The annual meeting of Perry County Financial Corporation will be held January 29, 1997 at 9:30 a.m.,
at the Walnut Room, American Legion Hall, 98 Grand Avenue, Perryville, Missouri.
FORM 10-KSB
A COPY OF FORM 10-KSB, INCLUDING FINANCIAL STATEMENT SCHEDULES AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON
WRITTEN REQUEST TO THE SECRETARY, PERRY COUNTY FINANCIAL CORPORATION, 14 NORTH JACKSON STREET,
PERRYVILLE, MO 63375-1334.
<PAGE>30
<S>
</TABLE>
