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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, 1997
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)
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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 $5,702,850.
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 16, 1997, was approximately $15.7
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 16, 1997, there were 827,897 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, 1997. Part III of Form 10-KSB - Proxy
Statement for 1997 Annual Meeting of Stockholders.
PART I
<PAGE>
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, 1997, the Company had $84.1 million of assets and
stockholders'equity of $16.0 million (or 19.1% 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 Company 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 purchase securities and
mortgage-backed securities and 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.
At September 30, 1997, at least 90% of the Bank's real estate mortgage
loans were secured by properties located in Missouri.
<PAGE> 2
The Company's revenues are derived primarily from interest earned on
securities, mortgage-backed 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.
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, 1997, the Bank's gross
loans outstanding totalled $14.5 million, of which $11.8 million or 81.5%
were one- to four-family residential mortgage loans. One- to four-family
mortgage loans were primarily fixed rate loans. At that same date,
commercial and multi-family residential real estate loans totalled $790,000,
all of which were fixed-rate loans. Also at that date, the Bank's
construction or development loans totalled $1.5 million or 10.5% of the
Bank's total loan portfolio, all of which were fixed-rate loans.
At September 30, 1997 the balance of the Bank's loans consisted of
$382,000 of loans secured by deposit accounts, which represented 2.6% 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, 1997,
mortgage-backed securities totalled $30.6 million or 36.4% of total assets and
U.S. government and agency obligations totalled $35.4 million or 42.1% 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,
1997, the maximum amount which the Bank could have lent under this limit to
any one borrower and the borrower's related entities was approximately $1.9
million. At September 30, 1997, 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
<PAGE> 3
September 30, 1997 was a $440,368 loan to one borrower secured by a
commercial building located in Perry County, Missouri. The next largest
lending relationship at September 30, 1997 was a $196,263 loan to one
borrower secured by a farm located in Perry County, Missouri.
Both of these loans were current as of September 30, 1997.
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.
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September 30,
1997 1996 1995
Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family . . . . .$11,844 81.5% $10,459 87.2% $6,711 81.1%
Multi-family. . . . . . . . . 64 .4 86 .7 108 1.3
Commercial. . . . . . . . . . 726 5.0 248 2.1 257 3.1
Construction or development 1,519 10.5 806 6.7 797 9.6
Total real estate loans . 14,153 97.4 11,599 96.7 7,873 95.1
Other Loans:
Consumer Loans:
Deposit account. . . . . . . 382 2.6 396 3.3 405 4.9
Total consumer loans. . . 382 2.6 396 3.3 405 4.9
Total loans . . . . . . . 14,535 100.0% 11,995 100.0% 8,278 100.0%
Less:
Loans in process. . . . . . . . 591 249 454
Deferred fees and discounts . 9 3 4
Allowance for losses. . . . 25 25 10
Total loans receivable, net $13,910 $11,718 $7,810
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Adjustable rate loans included in the loan portfolio amounted to $1,816,000 at
September 30, 1997.
<PAGE> 4
The following table sets forth certain information at September 30, 1997 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.
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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) . . . . . . $ 25 $382 $ 407
After 1 year through 3 years . . 82 --- 82
After 3 years through 5 years. . 190 --- 190
After 5 years through 10 years . 1,123 --- 1,123
Beyond 10 years. . . . . . . . 12,733 --- 12,733
Total gross loans . . . . $14,153 $382 $14,535
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(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, 1997 due after September 30, 1998 which have
fixed interest rates and adjustable interest rates.
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Real Estate
Mortgage Loans(1)
(Dollars in Thousands)
<S> <C>
Fixed rate . . . . . . . . . . . . . . . . . . . $12,312
Adjustable rate. . . . . . . . . . . . . . . . 1,816
Total gross loans . . . . . . . . . . . . $14,128
(1)Includes single and multi-family loans, construction, land and commercial loans.
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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, 1997, $11.8 million, or
81.5%, of the Bank's gross loan portfolio consisted of permanent loans secured by one- to
four-family residences. Approximately 80% of these loans were located in the Bank's market
area.
At September 30, 1997, 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.
Such loans aid the Bank in managing its interest rate sensitivity. However, only a limited
number of such loans have been originated by the Bank. In prior years, the Bank originated
fixed rate
<PAGE> 5
loans with terms to maturity up to 30 years and during fiscal 1997 offered fixed rate
residential mortgage loans based on a 20 year maturity. At September 30, 1997, the total
balance of one- to four-family fixed rate loans was $10.1 million or 69.7% of the Bank's gross
loan portfolio.
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, 1997, the total balance of one- to four-family
AMLs was $1.7 million, or 11.8% 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 derive 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
<PAGE> 6
September 30, 1997, the Bank had $790,000, in its multi-family and commercial real estate loan
portfolio. The Bank does not currently purchase these types of loans. These loans represented
5.4% of the Bank's gross loan portfolio.
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, 1997, the Bank had $1.5 million 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, 1997, the Bank's consumer loan portfolio totalled $382,000 or 2.6% of the
Bank's gross loan portfolio.
<PAGE> 7
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, purchase, sale and repayment activities
of the Bank for the periods indicated.
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Year Ended September 30,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate - one- to four-family . . . . $ 71 $ 586 $ 669
Total adjustable-rate. . . . . . . 71 586 669
Fixed rate:
Real estate - commercial and development 238 400 ---
Real estate - one- to four-family . . . . 4,996 4,813 2,568
Non-real estate - consumer. . . . . . . 716 685 220
Total fixed-rate . . . . . . . . . 5,950 5,898 2,788
Total loans originated . . . . . $6,021 $6,484 $3,457
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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.
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.
<PAGE> 8
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, 1997.
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Loans Delinquent For: Total Loans Delinquent
60-89 Days 90 Days and Over 60 Days and Over
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family. . . . . --- $--- ---% 1 $11 .09% 1 $11 .09%
Total . . . . . . . . . . --- $--- ---% 1 $11 .09% 1 $11 .09%
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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, 1997, 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.
<PAGE> 9
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September 30,
1997 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C>
Non-accruing loans:
One- to four-family. . . . . . . . . . . . . . . . . . $11 $--- $63
Total . . . . . . . . . . . . . . . . . . . . . . . 11 --- 63
Total non-performing assets. . . . . . . . . . . . . . . $11 $--- $63
Total as a percentage of total assets. . . . . . . . . .01% --% .08%
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Other Loans of Concern. As of September 30, 1997 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, 1997, 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
<PAGE> 10
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.
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, 1997, the Bank had a total allowance for losses on
loans of $25,000, or .17% 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>
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<CAPTION>
Year Ended
September 30,
1997 1996 1995
(Dollars in Thouands)
<S> <C> <C> <C>
Balance at beginning of period . . . . . . . . . . . $ 25 $ 10 $ 10
Net charge-offs. . . . . . . . . . . . . . . . . . . --- --- ---
Additions charged to operations. . . . . . . . . . . --- 15 ---
Balance at end of period . . . . . . . . . . . . . . $ 25 $ 25 $ 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 . . . . . . . . . . . ---% ---% ---%
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<PAGE> 11
The distribution of the Bank's allowance for losses on
loans at the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
September 30,
---- 1997 ----- -- 1996 ---- 1995
(Dollars in Thousands)
(1) (2) (3) (1) (2) (3) (1) (2) (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family $ 25 81.5% .21% $ 25 87.2% .24% $ 10 81.1% .15%
Multi-family . . . . . --- .4 --- --- .7 --- --- 1.3 ---
Commercial real estate --- 5.0 --- --- 2.1 --- --- 3.1 ---
Construction or
development. . --- 10.5 --- --- 6.7 --- --- 9.6 ---
Consumer . . . . . --- 2.6 --- --- 3.3 --- --- 4.9 ---
Unallocated --- --- --- --- --- --- --- --- ---
Total. . . . . $ 25 100.0% .21% $ 25 100.0% .24% $ 10 100.0% .15%
(1) Amount of Loan Loss Allowance
(2) Percentage of Loans in Each Category
to Total Gross Loans
(3) Percent of Allowance to Gross
Loans in Each Category
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<PAGE> 12
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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, 1997, the
Bank's liquidity ratio (liquid assets as a percentage of net withdrawable savings deposits and
current borrowings) was 22% 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.
<PAGE> 13
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 did
not hold any CMOs at September 30, 1997. 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, 1997, the Company and Bank's investment
securities (including a $602,000 investment in the common stock of the FHLB of Des Moines)
totalled $36.0 million, or 42.8% 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 $1.9 million as of September 30, 1997, plus an additional 10% if the
investments are fully secured by readily marketable collateral. At September 30, 1997, 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.
<PAGE> 14
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,
1997 1996 1995
Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. government securities $ --- ---% $ 4,003 11.5% $ 7,491 22.8%
Federal agency obligations 35,411 98.3 30,309 86.8 24,415 74.4
Subtotal 35,411 98.3 34,312 98.3 31,906 97.2
Equity securities:
Asset management fund. . . . --- --- --- --- 322 1.0
FHLB stock . . . . . . . . . 602 1.7 602 1.7 590 1.8
Subtotal. . . . . . . . . 602 1.7 602 1.7 912 2.8
Total debt and equity
securities $36,013 100.0% $34,914 100.0% $32,818 100.0%
Other interest-earning assets:
Interest-bearing deposits
with banks $ 2,346 100.0% $ 3,081 100.0% $ 3,429 100.0%
Total . . . . . . . . . . $ 2,346 100.0% $ 3,081 100.0% $ 3,429 100.0%
Mortgage-backed securities:
GNMA . . . . . . . . . . . . $16,222 53.0% $13,348 44.8% $14,477 46.4%
FNMA . . . . . . . . . . . . 10,074 32.9 7,879 26.4 5,264 16.9
FHLMC. . . . . . . . . . . . 4,335 14.1 8,088 27.1 10,937 35.1
CMOs . . . . . . . . . . . . --- --- 504 1.7 512 1.6
Total mortgage-backed
securities $30,631 100.0% $29,819 100.0% $31,190 100.0%
</TABLE>
<TABLE>
<CAPTION>
The composition and maturities of the investment securities portfolio,
excluding FHLB stock and other equity securities, are indicated in the
following table.
September 30, 1997
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> <C> <C>
Federal agency
obligations available-
for-sale . . . $2,485 $4,665 $8,271 $19,990 $35,411 $35,558
Weighted average yield 5.15% 5.31% 7.06% 7.69% 7.05%
</TABLE>
<TABLE>
<S>
The Company and the Bank's investment securities portfolio at September 30, 1997,
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.
<PAGE> 15
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
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 at the Bank during the periods indicated.
<S>
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Opening balance. . . . . . . . . . . . . .$62,712 $ 60,178 $ 61,296
Deposits . . . . . . . . . . . . . . . . . 33,795 34,932 37,717
Withdrawals. . . . . . . . . . . . . . . .(37,673) (34,669) (40,838)
Interest credited. . . . . . . . . . . . 2,237 2,271 2,003
Ending balance . . . . . . . . . . . . . .$61,071 $ 62,712 $ 60,178
Net increase (decrease). . . . . . . . $(1,641) $ 2,534 $ (1,118)
Percent increase (decrease). . . . . . . . .(2.62)% 4.21% (1.86)%
</TABLE>
<PAGE> 16
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,
1997 1996 1995
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:
Noninterest Bearing NOW Accounts $ 177 .3% $ 117 .2% $ 82 .1%
NOW Accounts 2.25% . . . . . . . . 3,303 5.4 3,209 5.1 2,829 4.7
Passbook Accounts 2.75%. . . . . . 4,182 6.9 4,402 7.0 4,380 7.3
Money Market Accounts 4.65%, 4.02%
and 4.63% . . . . . . . . . . . . 7,349 12.0 8,380 13.4 8,673 14.4
Total Non-Certificates . . . . . . 15,011 24.6 16,108 25.7 15,964 26.5
Certificates:
2.00 - 4.00% . . . . . . . . . . 215 .3 509 .8 3,140 5.2
4.01 - 6.00% . . . . . . . . . . 30,351 49.7 40,254 64.2 29,705 49.4
6.01 - 8.00% . . . . . . . . . . 15,494 25.4 5,841 9.3 11,356 18.9
8.01 - 10.00% . . . . . . . . . . --- --- --- --- 13 ---
Total Certificates . . . . . . . . 46,060 75.4 46,604 74.3 44,214 73.5%
Total Deposits . . . . . . . . . . $61,071 100.0% $62,712 100.0% $60,178 100.0%
</TABLE>
The following table shows rate and maturity information for the
Bank's certificates of deposit as of September 30, 1997.
2.00- 4.01- 6.01- Percent
4.00% 6.00% 8.00% Total of Total
(Dollars in Thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Certificate accounts
maturing
in year ending :
September 30, 1998. . . . . . $215 $22,095 $14,495 $36,805 79.9%
September 30, 1999. . . . . . . --- 4,944 414 5,358 11.6
September 30, 2000. . . . . . . --- 2,692 495 3,187 6.9
September 30, 2001. . . . . . . --- 391 90 481 1.1
September 30, 2002. . . . . . . --- 229 --- 229 .5
Total. . . . . . . . . . . . $215 $30,351 $15,494 $46,060 100.0%
Percent of total . . . . . . .5% 65.9% 33.6% 100.0%
</TABLE>
<PAGE> 17
<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, 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 $6.5 million of advances from FHLB of Des Moines outstanding as of
September 30, 1997.
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,
1997 1996 1995
<S> <C> <C> <C>
(Dollars in Thousands)
Maximum Balance:
FHLB advances. . . . . . . . . . . . . . . $6,500 $2,500 $500
Average Balance:
FHLB advances. . . . . . . . . . . . . . . . $3,346 $ 984 $269
The following table sets forth certain information as to the Bank's borrowings at the dates
indicated.
</TABLE>
<TABLE>
<CAPTION>
September 30,
1997 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB advances. . . . . . . . . . . . . . . . . . $6,500 $2,500 $ ---
Total borrowings. . . . . . . . . . . . . . $6,500 $2,500 $ ---
Weighted average interest rate of FHLB advances. 6.0% 6.0% ---%
</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, 1997, Perry County had no subsidiaries.
<PAGE> 18
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
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 January 30, 1997. 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, 1997, Perry County's lending limit under
this restriction was $1.9 million. Perry County is in compliance with the loans-to-one-borrower
limitation.
<PAGE> 19
The OTS, as well as the other federal banking agencies, has adopted guidelines
establishing safety and soundness standards on such matters as loan underwriting and
documentation, internal controls and audit systems, interest rate risk exposure and compensation
and other employee benefits. Any institution which fails to comply with these standards must
submit a compliance plan. A failure to submit a plan or to comply with an approved plan will
subject the institution to further enforcement action. The OTS and the other federal banking
agencies have also 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.
In order to equalize the deposit insurance premium schedules for BIF and SAIF insured
institutions, the FDIC imposed a one-time special assessment on all SAIF-assessable deposits
pursuant to federal legislation passed on September 30, 1996. The Company's special
assessment, which was approximately $393,000, was paid in November 1996, but accrued for
the fiscal year ended September 30, 1996. Effective January 1, 1997, the premium schedule for
BIF and SAIF insured institutions ranged from 0 to 27 basis points. However, SAIF-insured
institutions are required to pay a Financing Corporation (FICO) assessment, in order to fund the
interest on bonds issued to resolve thrift failures in the 1980s, equal to 6.48 basis points for each
$100 in domestic deposits, while BIF-insured institutions pay an assessment equal to 1.52 basis
points for each $100 in domestic deposits. The assessment for SAIF-insured institutions is
expected to be reduced to 2.43 no later than January 1, 2000, when BIF insured institutions fully
participate in the assessment. These assessments, which may be revised based upon the level
of BIF and SAIF deposits will continue until the bonds mature in the year 2017.
<PAGE> 20
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, 1997, 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, 1997, Perry County had tangible capital of $12.9 million, or 15.9%
of adjusted total assets, which is approximately $11.7 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, 1997, Perry County had no
intangibles which were subject to these tests.
At September 30, 1997, Perry County had core capital equal to $12.9 million, or 15.9%
of adjusted total assets, which is $10.5 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> 21
concentration of credit risk and the risk of non-traditional activities. At
September 30, 1997, 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, 1997.
In determining the amount of risk-weighted assets, all assets, including certain off-balance
sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based on the risk
inherent in the type of asset. For example, the OTS has assigned a risk weight of 50% for
prudently underwritten permanent one- to four-family first lien mortgage loans not more than
90 days delinquent and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by the FNMA or FHLMC.
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, 1997, Perry County had total capital of $13.0 million and risk-weighted
assets of $17.7 million; or total capital of 73.2% of risk-weighted assets. This amount was
$11.6 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> 22
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
downgraded to a Tier
<PAGE> 23
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
<PAGE> 24
ratio requirement. At September 30, 1997, Perry County was in compliance with both
requirements, with an overall liquid asset ratio of 24%.
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, 1997, 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> 25
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 1997 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. Perry County's subsidiaries are
not deemed affiliates, however; the OTS has the discretion to treat subsidiaries of savings
associations as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons are also subject to
conflict of interest regulations enforced by the OTS. These conflict of interest regulations and
other statutes also impose restrictions on loans to such persons and their related interests.
Among other things, such loans must be made on terms substantially the same as for loans to
unaffiliated individuals.
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
become subject
<PAGE> 26
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, 1997, 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> 27
As a member, Perry County is required to purchase and maintain stock in the FHLB of
Des Moines. At September 30, 1997, 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). Legislation was enacted in August
1996, which repealed the percentage of taxable income method effective January 1, 1996 for the
Bank.
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.
<PAGE> 28
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 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.
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> 29
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 eight full-time employees and two part-time employees as of September
30, 1997, 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, 1997. The office is owned by the Bank. At September 30,
1997, the Bank's premises and equipment had an aggregate net book value of $287,000.
<S>
</TABLE>
<TABLE>
<CAPTION>
Net Book Value
Year Square of Premises and
Opened Footage Equipment
Office:
<S> <C> <C> <C>
14 North Jackson Street
Perryville, Missouri 1957 4,780 $287,000
</TABLE>
<TABLE>
<S>
The Bank's accounting and record-keeping activities are maintained on an on-line basis
with an independent service bureau.
<PAGE> 30
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, 1997.
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
Page 1 of the attached 1997 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 1997 Annual Report to Stockholders are herein
incorporated by reference.
<PAGE> 31
Item 7. Financial Statements
The following information appearing in the Company's Annual Report to Stockholders
for the year ended September 30, 1997, is incorporated by reference in this Annual Report on
Form 10-KSB as Exhibit 13.
<S>
</TABLE>
<TABLE>
<CAPTION>
Pages in
Annual
Report
<S> <C>
Annual Report Section
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . 10
Consolidated Balance Sheets as of September 30, 1997 and 1996. . . . 11
Consolidated Statements of Earnings for the Years Ended September 30,
1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 12
Consolidated Statements of Stockholders' Equity for
Years Ended September 30, 1997, 1996 and 1995 . . . . . . . . . . . 13
Consolidated Statements of Cash Flows for Years Ended September 30,
1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 14
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 15 to 30
</TABLE>
<TABLE>
<S>
With the exception of the aforementioned information, the Company's Annual Report to
Stockholders for the year ended September 30, 1997, 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
None.
<PAGE> 32
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 1997,
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 1998, 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, 1997, 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 1998, a
copy of which will be filed not later than 120 days after the close of the fiscal year.
<PAGE> 33
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 1998, 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 1998, 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
(a) Exhibits
Reference Sequential
to Page Number
Prior Where Attached
Filing Exhibits are
Regulation or Exhibit 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
16 Letter re: change in certifying accountants ** Not applicable
18 Letter re: change in accounting principles None Not applicable
21 Subsidiaries of Registrant 21
22 Published report regarding matters
submitted to vote of security holders None Not applicable
23 Consents of Experts and Counsel 23
24 Power of Attorney Not required Not applicable
27 Financial Data Schedule 27
28 Information from reports furnished to state
insurance regulatory authorities None Not applicable
99 Additional Exhibits None Not applicable
<PAGE> 34
________________
* 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 1997.
<PAGE> 35
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 29, 1997 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,
Board, President and Chief Secretary and Acting Controller
Executive Officer (Chief Financial and Accounting
(Principal Executive and Operating Officer)
Officer)
Date: December 29, 1997 Date: December 29, 1997
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 29, 1997 Date: December 29, 1997
By: /s/ Thomas L. Hoeh
Thomas L. Hoeh, Director
Date: December 29, 1997
<PAGE> 36
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
December 31, 1996 $17.500 $17.000 $.00
March 31, 1997 $22.000 $17.500 $.40
June 30, 1997 $20.750 $19.000 $.00
September 30, 1997 $21.250 $20.875 $.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, 1997, the Company had approximately 400 stockholders of record (which
includes nominees for beneficial owners holding shares in "street name").
Selected Financial Highlights
<S>
</TABLE>
<TABLE>
<CAPTION>
Financial Condition Data:
At September 30,
1997 1996 1995 1994 1993
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Assets $ 84,135 81,149 76,421 69,914 68,818
Cash and cash equivalents and
securities $ 38,565 38,150 36,377 31,841 23,620
Mortgage-backed securities $ 30,631 29,819 31,190 31,200 38,457
Loans receivable, net $ 13,910 11,718 7,810 5,813 5,780
Deposits $ 61,071 62,712 60,178 61,296 61,602
Advances from FHLB $ 6,500 2,500 - 500 -
Stockholders' equity(1) $ 16,049 15,072 15,683 7,613 6,965
Full service offices open 1 1 1 1 1
</TABLE>
<TABLE>
<CAPTION>
Operating Data:
For the Year Ended September 30,
1997 1996 1995 1994 1993
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest income $ 5,533 5,295 4,839 4,320 4,712
Interest expense (3,239) (3,121) (2,859) (2,374) (2,695)
Net interest income 2,294 2,174 1,980 1,946 2,017
Provision for loan losses - (15) - - -
Net interest income after
provision for loan losses 2,294 2,159 1,980 1,946 2,017
Noninterest income 170 145 50 30 34
Noninterest expense (889) (1,552) (862) (764) (743)
Earnings before income taxes and
cumulative effect of change in
accounting principle 1,575 752 1,168 1,212 1,308
Income taxes (600) (296) (432) (452) (453)
Earnings before cumulative effect
of change in accounting
principle 975 456 736 760 855
Cumulative effect of change
in accounting principle - - - (112) -
Net earnings $ 975 456 736 648 855
Earnings per share $ 1.27 .57 (2) - -
Dividends per share $ .40 .30 .00 - -
</TABLE>
<TABLE>
<S>
(1)Stockholders' equity at September 30, 1997, 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.
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 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.
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.
Asset and Liability Management and Market Risk
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 and advances
from the Federal Home Loan Bank (FHLB), 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.
The Bank does not purchase derivative financial instruments or other financial instruments for trading
purposes. Further, the Bank is not subject to any foreign currency exchange rate risk, commodity price
risk or equity price risk. The Bank is subject to interest rate risk. Quantitative and qualitative
disclosures about market risk are discussed in the following paragraphs.
The Bank's principal financial objective is to achieve long-term profitability while reducing its exposure
to fluctuating interest rates. The Bank has an exposure to interest rate risk, including short-term U.S.
prime interest rates. 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 purchase of short and intermediate term securities and adjustable
rate mortgage backed securities. Although the Bank has originated adjustable rate mortgage loans
(AMLs) in the past, during the year ended September 30, 1997, the Bank originated primarily 20-year,
fixed rate loans. Management does not anticipate that either financial objectives, strategies or
instruments used to reduce its interest rate risk exposure will change significantly in the near future.
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 net cash flows from the institution's financial instruments
(assets, liabilities and off-balance sheet contracts). Loans, deposits, advances and investments are
valued taking into consideration similar maturities, related discount rates and applicable prepayment
assumptions. 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).
The following table sets forth as of September 30, 1997 the OTS estimated changes in fair value of
equity based on the indicated interest rate environments:
<S>
</TABLE>
<TABLE>
<CAPTION>
Change NPV as % of PV
(In Basis Points) Estimated Net Portfolio Value of Assets
in Interest Rates $ Amount $ Change % Change NPV Ratio BP Change
(Dollars in Thousands)
<C> <C> <C> <C> <C> <C>
+400 $ 7,208 $ (8,157) (53)% 9.71% (861)
+300 9,254 (6,111) (40)% 12.08% (624)
+200 11,348 (4,017) (26)% 14.35% (397)
+100 13,421 (1,944) (13)% 16.46% (186)
0 15,365 18.32%
(100) 17,041 1,676 11 % 19.83% 151
(200) 18,345 2,980 19 % 20.94% 262
(300) 19,671 4,306 28 % 22.02% 370
(400) 21,286 5,921 39 % 23.31% 499
</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.
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,
1997 1996 1995
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 $ 12,729 1,014 7.97% 9,825 779 7.93% 6,829 536 7.84%
Mortgage-backed
securities 29,451 1,989 6.75% 31,267 2,248 7.19% 30,688 2,141 6.98%
Securities 33,479 2,294 6.85% 33,619 2,122 6.31% 30,791 1,890 6.14%
FHLB stock 602 42 7.00% 599 43 7.25% 590 44 7.38%
Other interest
-earning assets 3,875 194 5.00% 2,381 103 4.31% 4,096 228 5.58%
Total interest
- -earning assets 80,136 5,533 6.90% 77,691 5,295 6.82% 72,994 4,839 6.63%
Interest-bearing
liabilities:
Savings deposits 4,308 118 2.74% 4,490 123 2.74% 5,438 145 2.67%
Demand and MMDA deposits 11,501 402 3.49% 11,719 426 3.63% 10,874 444 4.08%
Certificate accounts 45,983 2,520 5.48% 45,338 2,512 5.54% 44,582 2,254 5.05%
Advances from FHLB 3,346 199 5.95% 984 60 6.06% 269 16 5.95%
Total interest-bearing
liabilities $ 65,138 3,239 4.97% 62,531 3,121 4.99% 61,163 2,859 4.67%
Net interest income
before provision for
loan losses $ 2,294 2,174 1,980
Interest rate spread 1.93% 1.83% 1.96%
Net earning assets $ 14,998 15,160 11,831
Net yield on average
interest-earning assets 2.86% 2.80% 2.71%
Ratio of average
interest-earning
assets to average
interest- bearing
liabilities 123.02% 124.24% 119.34%
Rate/Volume Analysis
</TABLE>
<TABLE>
<S>
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).
<S>
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
1997 vs. 1996 1996 vs. 1995
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 $ 230 4 1 235 235 6 2 243
Mortgage-backed
securities (131) (136) 8 (259) 41 65 1 107
Securities (8) 181 (1) 172 174 53 5 232
FHLB stock - (1) - (1) 1 (1) - -
Other interest-
earning assets 65 16 10 91 (96) (52) 22 (126)
Total interest-
earning assets 156 64 18 238 355 71 30 456
Interest expense:
Deposits 12 (33) - (21) 31 185 2 218
Advances from FHLB 143 (1) (3) 139 42 - 1 43
Total interest-
bearing liabilities $ 155 (34) (3) 118 73 185 3 261
Net interest income $ 120 195
</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 and net earnings. The Bank has an agreement with the
FHLB of Des Moines to provide cash advances, should the Bank need additional funds. 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, 1997, 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
$36.8 million in certificates due within one year and $15.0 million in other deposits without specific
maturity at September 30, 1997. Management estimates that most of the deposits will be retained or
replaced by new deposits.
Total assets increased from $81.1 million at September 30, 1996 to $84.1 million at September 30,
1997. Loans receivable, net increased as the Bank continued to promote loan originations in the Bank's
market area. Accrued interest on securities and mortgage-backed securities decreased due to the timing
of interest receipts. Advances from the Federal Home Loan Bank of Des Moines were used to fund loan
growth. Other liabilities decreased due to the payment of the SAIF assessment recognized in 1996.
During 1997, treasury stock of the Company increased by $431,000. The Company repurchased
46,080 shares of common stock in the open market at an average price of $17.41 per share. Of such
shares, 21,411 shares were issued upon the exercise of stock options at $19.00 per share. While the
purchase of treasury stock may be beneficial to the Company or shareholders, the purchase of treasury
stock reduces interest-earning assets of the Company. Capital of the Bank is also reduced to the extent
treasury stock purchases are funded by dividends from the Bank to the Company.
Commitments to originate mortgage loans are legally binding agreements to lend to the Bank's
customers. Commitments at September 30, 1997 to originate mortgage loans and fund loans in
process were $662,515. Loan commitments expire in 180 days or less.
Results of Operations
Comparison of the Years Ended September 30, 1997 and September 30, 1996
Net Earnings
Net earnings for the year ended September 30, 1997 were $975,000 compared with $457,000 for the
year ended September 30, 1996. The primary reason for the increase relates to expense of $393,000
in 1996 for the special assessment for recapitalization of the Savings Association Insurance Fund
(SAIF). In addition, noninterest expense also decreased substantially due to lower compensation
expense, lower cost of management recognition plan (MRP), lower SAIF deposit insurance premium and
other expenses related to operating as a public company. Net earnings also reflect higher net interest
income, higher net gain on sale of securities and mortgage-backed securities (MBS).
Net Interest Income
Net interest income increased from $2.2 million for 1996 to $2.3 million in 1997. The interest rate
spread increased from 1.83% for 1996 to 1.93% for 1997. Interest income for 1997 was $5.5 million
compared with $5.3 million for 1996. The weighted-average yield on interest-earning assets increased
from 6.82% for 1996 to 6.90% for 1997. Average interest-earning assets also increased from $77.7
million for 1996 to $80.1 million for 1997. Interest on loans receivable increased largely as a result
of higher average loans outstanding for 1997. Management has placed renewed emphasis on
origination of loans, primarily fixed-rate loans. Interest on MBSs decreased due to a lower average yield
and balance. Interest on securities increased due to a higher yield. Interest on other interest-earning
assets increased as a result of a higher balance and yield. Components of interest-earning assets
change from time to time based on the availability, interest rates and other terms of loans, investment
and MBSs. Interest expense increased largely due to a higher average balance of FHLB advances. The
weighted-average rate on interest-bearing liabilities decreased from 4.99% for 1996 to 4.97% for
1997.
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
recorded in 1997. There were no non-accrual loans at September 30, 1996 compared to $11,000 at
September 30, 1997.
Noninterest Income
Noninterest income increased from $145,000 for 1996 to $170,000 for 1997. The Bank recognized
a gain on sale on investment in a data processing center of $18,000 in 1996. Net gains on sales of
securities and MBS amounted to $135,000 in 1997 compared to $96,000 in 1996. 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 decreased from $1,552,000 for 1996 to $889,000 for 1997. Legislation to
recapitalize the SAIF resulted in a charge of $393,000 in 1996. Compensation and benefits decreased
due to slightly lower salaries and substantially lower stock benefit plan expenses under the Management
recognition plan (MRP). MRP expense for the year ended September 30, 1997 was $78,000. MRP
expense for the year ended September 30, 1996 was $218,000, including $145,000 for accelerated
vesting of shares upon the death of Mrs. Patricia Rozier. The Employee Stock Ownership Plan (ESOP)
expense was $80,000 and $87,000 for 1996 and 1997, 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. SAIF deposit insurance premium decreased as
a result of a substantially lower assessment rate. Recurring SAIF premiums are expected to be 6.4
basis points of assessable deposits. Professional fees decreased due principally to initial costs
associated with establishment of stock benefit plans in 1996.
Income Taxes
Income taxes increased due to higher earnings before income taxes.
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. Interest on
mortgage-backed 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
recorded in 1995. There were no non-accrual loans at September 30, 1996 compared to $63,000 at
September 30, 1995.
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.
Income Taxes
Income taxes decreased due to lower earnings before income taxes.
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> *** START OF ANNUAL REPORT SECTION INDEX***
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, 1997 and 1996 and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years
in the period ended September 30, 1997 in conformity with generally accepted accounting principles.
MICHAEL TROKEY & COMPANY, P.C.
St. Louis, Missouri
December 5, 1997
<S>
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1997 and 1996
Assets 1997 1996
<S> <C> <C>
Cash and cash equivalents $ 2,552,167 3,236,497
Securities available for sale, at market value (amortized
cost of $35,557,757 and $34,972,835) 35,411,629 34,312,495
Federal Home Loan Bank Stock 601,500 601,500
Mortgage-backed securities available for sale, at market
value (amortized cost of $30,499,492 and $30,016,120) 30,631,091 29,818,666
Loans receivable, net 13,910,147 11,717,799
Premises and equipment, net 287,495 300,664
Accrued interest receivable:
Securities 474,971 500,824
Mortgage-backed securities 173,771 210,702
Loans receivable 60,255 52,324
Deferred tax asset - 327,557
Other assets 32,178 70,416
Total assets $ 84,135,204 81,149,444
Liabilities and Stockholders' Equity
Deposits $ 61,071,074 62,711,509
Accrued interest on deposits 122,156 130,848
Advances from FHLB of Des Moines 6,500,000 2,500,000
Advances from borrowers for taxes and insurance 158,236 146,917
Other liabilities 25,636 428,302
Accrued income taxes 87,681 159,442
Deferred income tax liability 121,821 -
Total liabilities 68,086,604 66,077,018
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 8,565 8,565
Additional paid-in capital 8,110,852 8,034,660
Common stock acquired by ESOP (547,216) (593,186)
Common stock acquired by MRP (257,269) (335,359)
Unrealized (loss) gain on securities available for sale, net (9,153) (540,409)
Treasury stock, at cost, 28,555 and 3,886 shares (499,815) (68,977)
Retained earnings - substantially restricted 9,242,636 8,567,132
Total stockholders' equity 16,048,600 15,072,426
Total liabilities and stockholders' equity $ 84,135,204 81,149,444
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 11
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
Years Ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Interest income:
Loans receivable $ 1,014,312 778,921 535,551
Mortgage-backed securities 1,989,129 2,247,890 2,141,279
Securities 2,335,572 2,165,422 1,933,622
Other interest-earning assets 193,720 102,669 228,619
Total interest income 5,532,733 5,294,902 4,839,071
Interest expense:
Deposits:
NOW 74,139 67,271 66,844
Passbook accounts 118,166 123,262 145,053
Money market deposit accounts 327,758 358,290 377,234
Certificates 2,519,594 2,511,991 2,253,938
Advances from FHLB 199,036 59,623 16,019
Total interest expense 3,238,693 3,120,437 2,859,088
Net interest income 2,294,040 2,174,465 1,979,983
Provision for loan losses - 15,000 -
Net interest income after provision
for loan losses 2,294,040 2,159,465 1,979,983
Noninterest income:
Service charges on NOW accounts 27,339 27,705 26,070
Patronage dividend - - 22,545
Gain (loss) on sale of securities available
for sale (17,010) 21,055 -
Gain on sale of mortgage-backed securities
available for sale 152,429 75,208 -
Gain on investment in data center - 17,679 -
Other 7,359 3,605 1,256
Total noninterest income 170,117 145,252 49,871
Noninterest expense:
Compensation and benefits 559,006 725,683 508,054
Occupancy expense 27,996 28,060 26,109
Equipment and data processing expense 78,592 79,876 77,792
SAIF deposit insurance premium 55,264 140,923 140,596
SAIF special assessment - 392,821 -
Other 167,922 184,673 108,935
Total noninterest expense 888,780 1,552,036 861,486
Earnings before income taxes 1,575,377 752,681 1,168,368
Income taxes:
Current 488,762 469,787 425,574
Deferred 111,444 (173,606) 7,000
Total income taxes 600,206 296,181 432,574
Net earnings $ 975,171 456,500 735,794
Net earnings per common share $ 1.27 .57 *
</TABLE>
<PAGE> 12
* Not meaningful since the common stock was issued on February 10, 1995.
See accompanying notes to consolidated financial statements.
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 1997, 1996 and 1995
<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, 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
Amortization of
MRP awards - - - 78,090 - - - 78,090
Cash dividends of
$.40 per share - - - - - - (299,667) (299,667)
Amortization of
ESOP awards - 40,666 45,970 - - - - 86,636
Unrealized loss
on securities
available for
sale, net - - - - 531,256 - - 531,256
Treasury stock
purchased - - - - - (802,121) - (802,121)
Exercise of
stock options - 35,526 - - - 371,283 - 406,809
Net earnings - - - - - - 975,171 975,171
Balance at
September 30,
1997 $8,565 8,110,852 (547,216) (257,269) (9,153)(499,815)9,242,636 16,048,600
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 13
<TABLE>
<CAPTION>
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended September 30, 1997, 1996 and 1995
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 975,171 456,500 735,794
Adjustments to reconcile net earnings to net cash
provided by (used for) operating activities:
Depreciation expense 14,581 14,576 14,768
Provision for loan loss - 15,000 -
ESOP expense 86,636 80,455 75,900
MRP expense 78,090 217,807 -
Amortization of premiums, discounts and
loan fees, net (58,962) (41,147) (49,514)
FHLB stock dividends - (11,800) -
Gain on sale of mortgage-backed securities
available for sale (152,429) (75,208) -
Loss (gain) on sale of securities available
for sale 17,010 (21,055) -
Dividends reinvested in Asset Management Fund - (6,907) (7,048)
Decrease (increase) in:
Accrued interest receivable 54,853 (109,846) (37,826)
Deferred tax asset 15,548 (8,693) -
Other assets 38,238 6,262 45,548
Increase (decrease) in:
Accrued interest on deposits (8,692) (24,603) 48,695
Other liabilities (402,666) 397,482 7,257
Accrued income taxes (71,761) 56,828 (10,121)
Deferred income tax liability 121,821 (164,913) (14,000)
Net cash provided by (used for)
operating activities 07,438 780,738 809,453
Cash flows from investing activities:
Loans originated, net of principal collections (2,186,712) (3,922,342) (1,947,592)
Mortgage-backed securities:
Available for sale:
Purchased (9,614,645) (6,227,075) -
Principal collections 3,767,551 5,271,977 -
Proceeds from sale 5,518,486 2,216,420 -
Held to maturity:
Purchased - - (4,222,403)
Principal collections - - 4,233,052
Securities:
Available for sale:
Purchased (14,033,931)(14,298,500) -
Proceeds from maturity 11,500,000 7,800,000 -
Proceeds from sale 1,982,990 3,810,762 -
Held to maturity and certificates of deposit:
Purchased - - (4,296,563)
Proceeds from maturity - - 2,409,952
Purchase of premises and equipment (1,412) (2,468) (6,937)
Net cash provided by (used for)
investing activities (3,067,673) (5,351,226) (3,830,491)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (1,640,435) 2,533,229 (1,117,564)
Advances from borrowers for taxes and insurance 11,319 41,154 9,993
Advances from FHLB 6,500,000 2,500,000 -
Repayment of advances from FHLB (2,500,000) - (500,000)
Net proceeds from sale of common stock - - 7,267,041
Exercise of stock options 406,809 - -
Purchase of treasury shares (802,121) (584,500) -
Dividends paid to stockholders (299,667) (237,800) -
Net cash provided by (used for)
financing activities 1,675,905 4,252,083 5,659,470
Net increase (decrease) in cash and
cash equivalents (684,330) (318,405) 2,638,432
Cash and cash equivalents at beginning of year 3,236,497 3,554,902 916,470
Cash and cash equivalents at end of year $ 2,552,167 3,236,497 3,554,902
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits $ 3,048,349 3,085,417 2,794,374
Interest on advances from FHLB 199,036 59,623 16,019
Federal income taxes 499,893 366,700 442,204
State income taxes 46,673 46,258 13,513
Noncash activity - transfer from held to maturity
to available for sale:
Securities - 32,746,005 315,245
Mortgage-backed securities $ - 31,232,845 -
</TABLE>
<TABLE>
<S>
See accompanying notes to consolidated financial statements.
<PAGE> 14
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1997 and 1996 and
Years Ended September 30, 1997, 1996 and 1995
(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 $2,345,578 and $3,081,483 at September 30, 1997 and 1996,
respectively.
c. Securities and mortgage-backed 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 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 securities for trading purposes. 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 the
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. During 1997, the Bank sold its CMOs.
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 No. 118 at September 30, 1997 or 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 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. 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.
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, 1997 and 1996 were
765,791 and 797,795, respectively. The presentation of net earnings per common share for
1995 is not meaningful since the common stock was issued on February 10, 1995.
k. Effective October 1, 1996, the Bank adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 suggests 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. The Bank has adopted the disclosure requirements
under SFAS No. 123, but will continue to recognize compensation expense for stock-based
employee compensation plans under APB No. 25.
l. The following paragraphs summarize the impact of new accounting pronouncements:
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 of liabilities and
financial assets subject to prepayment. In December 1996, the FASB issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No.
125 is effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring generally after December 31, 1996, and for certain transactions after
December 31, 1997. The provisions of SFAS No. 125 for financial assets subject to
prepayment is effective for financial assets held on or acquired after January 1, 1997. SFAS
No. 125 did not have a material impact on the financial position or results of operations of
the Bank.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share" and SFAS No. 129,
"Disclosure of Information about Capital Structure." The statements supersede APB Opinion
No. 15, amend certain other accounting pronouncements, and modify the presentation of
earnings per share. The statements are effective for financial statements for both interim
periods and years ending after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." The
statement establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose statements. It does not address recognition or
measurement issues for comprehensive income and its components. Entities are required to
classify items of other comprehensive income (including minimum pension liability adjustment
and unrealized gains and losses on securities available for sale) by their nature in the financial
statement and display the accumulated balance of other comprehensive income separately
in the equity section of the statement of financial position. The statement is effective for
fiscal years beginning after December 15, 1997. Comparative financial statements for earlier
periods are required to reflect the provisions of this statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." The statement requires that public entities report certain
information about operating segments in the financial statements. The statement also
requires disclosures about products and services, geographic areas, and major customers.
The statement supersedes SFAS No. 14 and supersedes and amends certain other accounting
pronouncements. The statement is effective for fiscal years beginning after December 15,
1997.
(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
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.
The Bank is reviewing computer applications with its outside data processing service bureau and
other software vendors to ensure operational and financial systems are not adversely affected
by "year 2000" software failures. All major customer applications are processed through the
outside service bureau. The service bureau has indicated that it expects to modify existing
programs to make them year 2000 compliant. Management of the Bank is unable to estimate
any additional expense related to this issue. Any year 2000 compliance failures could result in
additional expense to the Bank.
<S>
</TABLE>
(3) Securities:
Securities are summarized as follows:
<TABLE>
<CAPTION>
1997
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C>
Available for sale:
Debt securities - Federal
agency obligations $ 35,557,757 60,932 (207,060) 35,411,629
Weighted-average rate 7.05%
</TABLE>
<TABLE>
<CAPTION>
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>
Maturities of debt securities available for sale are summarized as follows:
1997
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $ 2,498,850 2,484,688
Due after one year through five years 4,695,681 4,665,562
Due after five years through ten years 8,296,062 8,271,000
Due after ten years through fifteen years 16,811,681 16,739,129
Due after fifteen years through twenty years 3,255,483 3,251,250
$ 35,557,757 35,411,629
</TABLE>
<TABLE>
<CAPTION>
Proceeds from sales of securities available for sale and gross realized gains and losses on these
sales are summarized as follows:
1997 1996 1995
<S> <C> <C> <C>
Proceeds from sale $ 1,982,990 3,810,762 -
Gross realized gains $ - 22,085 -
Gross realized losses (17,010) (1,030) -
Net gains (losses) $ (17,010) 21,055 -
</TABLE>
(4) Mortgage-backed Securities:
Mortgage-backed securities are summarized as follows:
<TABLE>
<CAPTION>
1997
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C>
Available for sale:
Mortgage-participation
certificates:
FHLMC $ 4,316,380 41,755 (23,326) 4,334,809
GNMA 16,140,877 121,942 (40,404) 16,222,415
FNMA 10,042,235 116,724 (85,092) 10,073,867
$ 30,499,492 280,421 (148,822) 30,631,091
Weighted-average rate 6.79%
</TABLE>
<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>
<S>
Mortgage-backed securities with a carrying value of $3,421,000 were pledged as collateral to
secure certain deposits at September 30, 1997. Adjustable-rate mortgage and balloon loans
included in mortgage-backed securities at September 30, 1997 and 1996 were approximately
$15,194,000 and $15,400,000, respectively.
Proceeds from sales of mortgage-backed securities available for sale and gross realized gains and
losses on these sales are summarized as follows:
<S>
</TABLE>
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Proceeds from sale $ 5,518,486 2,216,420 -
Gross realized gains $ 192,362 82,474 -
Gross realized losses (39,933) (7,266) -
Net gains (losses) $ 152,429 75,208 -
</TABLE>
(5) Loans Receivable, Net
Loans receivable, net are summarized as follows:
<TABLE>
1997 1996
<S> <C> <C>
Real estate loans:
Single, 1-4 family units $ 11,843,536 10,459,062
Multi-family, 5 or more units 63,881 86,332
Construction 1,417,816 786,678
Land 101,012 19,076
Commercial 726,403 247,911
Loans secured by deposit accounts 382,104 395,931
14,534,752 11,994,990
Loans in process (590,515) (248,737)
Deferred loan fees (9,090) (3,454)
Allowance for losses (25,000) (25,000)
$ 13,910,147 11,717,799
Weighted-average rate 7.93% 7.83%
</TABLE>
Real estate construction loans at September 30, 1997, are secured
primarily by single, 1-4 family units. Adjustable-rate loans
included in the loan portfolio amounted to $1,815,632 and
$3,414,063 at September 30, 1997 and 1996, respectively.
Following is a summary of activity in allowance for losses:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C>
Balance, beginning of year $ 25,000 10,000 10,000
Provision charged to expense - 15,000 -
Balance, end of year $ 25,000 25,000 10,000
</TABLE>
<TABLE>
<S>
Nonaccrual loans at September 30, 1997 were $10,896. 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 for the year ended September 30, 1995. The interest income not recognized
on these loans for 1995 was $2,238.
Following is a summary of loans in excess of $60,000 to directors and executive officers for the
year ended September 30, 1997:
<S>
</TABLE>
<TABLE>
<S> <C>
Balance, September 30, 1996 $ 273,029
Repayments (11,628)
Balance, September 30, 1997 $ 261,401
</TABLE>
These loans were made on substantially the same terms as those
prevailing at the time for comparable transactions with unaffiliated
persons.
(6) Premises and Equipment, Net
Premises and equipment, net are summarized as follows:
<TABLE>
1997 1996
<S> <C> <C>
Land $ 46,972 46,972
Building and improvements 350,356 350,356
Furniture, fixtures and equipment 105,166 103,754
502,494 501,082
Less accumulated depreciation 214,999 200,418
$ 287,495 300,664
</TABLE>
Depreciation expense for the years ended September 30, 1997, 1996 and
1995 was $14,581, $14,576 and $14,768, respectively.
(7) Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
Description and interest rate 1997 1996
<S> <C> <C>
Noninterest-bearing checking $ 176,565 116,918
NOW accounts, 2.25% 3,303,438 3,209,200
Savings accounts, 2.75% 4,181,871 4,402,064
Money market deposit accounts, 4.65% and
4.02%, respectively 7,348,850 8,379,549
Total transaction accounts 15,010,724 16,107,731
Certificates:
2.75 - 3.00% 178,777 350,679
3.01 - 4.00% 36,359 157,993
4.01 - 5.00% 1,678,702 4,887,742
5.01 - 6.00% 28,672,118 35,366,234
6.01 - 7.00% 15,494,394 5,841,130
Total certificates, 5.68% and 5.47%,
respectively 46,060,350 46,603,778
Total deposits $ 61,071,074 62,711,509
Weighted-average rate - deposits 5.15% 4.91%
</TABLE>
Certificate maturities at September 30, 1997 are summarized as follows:
<TABLE>
<S> <C>
October 1, 1997 to September 30, 1998 $ 36,805,073
October 1, 1998 to September 30, 1999 5,357,763
October 1, 1999 to September 30, 2000 3,186,794
October 1, 2000 to September 30, 2001 481,139
October 1, 2001 to September 30, 2002 229,581
$ 46,060,350
</TABLE>
Certificates of deposits of $100,000 or more at September 30, 1997 are
summarized as follows:
<TABLE>
<S> <C>
Maturing in:
Three months or less $ 2,443,484
Over three through six months 2,595,711
Over six through twelve months 2,199,640
Over twelve months 15,000
$ 7,253,835
</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 1997 1996
<S> <C> <S> <C> <C>
May 7, 1997 5.97% Fixed $ - 2,000,000
May 17, 1997 5.90% Adjustable - 500,000
November 7, 1997 6.11% Fixed 2,000,000 -
May 29, 1998 6.19% Fixed 1,500,000 -
June 25, 1998 5.86% Fixed 1,000,000 -
September 10, 1998 5.83% Fixed 2,000,000 -
$ 6,500,000 2,500,000
</TABLE>
<TABLE>
<S>
The adjustable rate was 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 $9,750,000.
(9) Income Taxes
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 calendar year 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 was 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.
The components of the net deferred tax asset (liability) are summarized as follows:
<S>
</TABLE>
<TABLE>
1997 1996
<S> <C> <C>
Deferred tax asset:
Allowance for loan losses $ 9,250 9,250
Unrealized loss on securities and MBS
available for sale 5,376 317,384
SAIF special assessment - 146,002
Book over tax ESOP and MRP expense, net 37,752 29,120
Deferred tax asset 52,378 501,756
Deferred tax liability:
Tax bad debt reserves arising
after December 31, 1987 (169,833) (169,833)
FHLB stock dividend (4,366) (4,366)
Deferred tax liability (174,199) (174,199)
Net deferred tax asset (liability) $ (121,821) 327,557
</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:
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ 408,526 419,995 370,350
State 54,310 49,792 55,224
462,836 469,787 425,574
Deferred:
Federal 119,857 (151,474) 7,050
State 17,513 (22,132) (50)
137,370 (173,606) 7,000
$ 600,206 296,181 432,574
</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, 1997, 1996 and 1995 to earnings before taxes as a
result of the following:
<S>
</TABLE>
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Expected income tax expense at Federal tax rate $ 535,628 255,912 397,245
ESOP compensation expense 13,827 11,723 -
State income tax, net of Federal tax benefit 48,083 18,294 36,415
Other 2,668 10,252 (1,086)
$ 600,206 296,181 432,574
Effective tax rate 38.1% 39.3% 37.0%
</TABLE>
<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 Bank is subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can result in certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy guidelines, the Bank
must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's
capital amounts and classifications are also subject to quantitative judgments by the regulators
about components, risk-weightings and other factors. At September 30, 1997, the Bank met
all capital adequacy requirements.
The Bank is also subject to the regulatory framework for prompt corrective action. The most
recent notification from the regulatory agencies categorized the Bank as well capitalized. To be
categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-
based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or
events since the dates of the aforementioned notifications that management believes have
changed the Bank's category.
The Bank's actual and required capital amounts and ratios at September 30, 1997 are as follows:
<S>
</TABLE>
<TABLE>
<CAPTION>
Minimum Required Minimum Required
for Capital to be "Well
Actual Adequacy Capitalized"
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated stockholders'
equity $ 16,049
Stockholders' equity of
the Company not
available for
regulatory capital
purposes $ (3,105)
Unrealized loss on
securities available
for sale, net $ 2
Tangible capital $ 12,946 15.9% $ 1,224 1.5%
General valuation
allowance $ 25
Total capital to risk-
weighted assets $ 12,971 73.2% $ 1,418 8.0% $ 1,772 10.0%
Tier 1 capital to risk-
weighted-assets $ 12,946 73.0% $ 709 4.0% $ 1,063 6.0%
Tier 1 capital to total
assets $ 12,946 15.9% $ 2,449 3.0% $ 4,081 5.0%
</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. ESOP expense for 1997, 1996 and 1995 was $86,636,
$80,455 and $75,900, respectively.
<S>
</TABLE>
<TABLE>
The number of ESOP shares at September 30, 1997 were as follows:
<S> <C>
Allocated shares 8,640
Shares released for allocation 4,597
Unreleased shares 54,722
Total ESOP shares 67,959
</TABLE>
<TABLE>
<S>
The fair value of unreleased ESOP shares based on market price of the Company's stock was
$1,142,000 at September 30, 1997.
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.
During 1997, 21,411 shares of common stock were issued under the stock option plan. At
September 30, 1997 and 1996, there were 49,387 and 70,798 shares outstanding,
respectively. At September 30, 1997 there were 9,877 shares exercisable. The Bank has
estimated the fair value of awards granted under its stock option plan utilizing the Black-Scholes
pricing model. Had the Company determined compensation expense based on the fair value of
its stock options at the grant date under SFAS No. 123, the Company's net earnings and net
earnings per common share would have been reduced to the proforma amounts indicated below:
<S>
</TABLE>
<TABLE>
1997 1996
<S> <S> <S>
Reported net earnings $ 975,171 456,500
Proforma net earnings $ 897,800 358,607
Reported net earnings per common share $ 1.27 .57
Proforma net earnings per common share $ 1.17 .45
</TABLE>
<TABLE>
<S>
The fair value of each stock option granted during 1996 was $5.47, using a risk-free interest rate
of 5.49%, expected volatility of 34%, expected dividend yield of 4% and expected life of the
stock options of 7 years.
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 Plan provides for accelerated vesting under certain
circumstances. MRP expense for 1997 and 1996 was $78,090 and $217,807, respectively.
(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, 1997 to originate mortgage loans and fund loans in process
were $662,515 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.
(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>
<CAPTION>
BALANCE SHEETS
September 30,
Assets 1997 1996
<S> <C> <C>
Cash and cash equivalents $ 692,824 271,564
Securities available for sale 1,788,500 2,708,188
ESOP note receivable 585,363 616,799
Accrued interest receivable 29,094 35,627
Other assets 14,726 57,122
Investment in subsidiary 12,944,137 11,751,045
Total assets $ 16,054,644 15,440,345
Liabilities and Stockholders' Equity
Accrued interest payable $ - 8,919
Advance from subsidiary - 355,000
Other liabilities 6,044 4,000
Total liabilities 6,044 367,919
Stockholders' equity 16,048,600 15,072,426
Total liabilities and stockholders'
equity $ 16,054,644 15,440,345
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
Period from
Year Ended February 10, 1995
September 30, to September 30,
1997 1996 1995
<S> <C> <C> <C>
Equity in earnings of the Bank $ 547,705 331,735 635,138
Dividend from Bank 342,581 - -
Interest income 200,861 267,135 162,502
Interest expense (3,196) (8,919) -
Loss on sale of securities
available for sale (5,000) - -
Other income 76 - -
Other expenses (62,404) (66,001) (3,471)
Income taxes (45,452) (67,450) (58,375)
Net earnings $ 975,171 456,500 735,794
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
Period from
Year Ended February 10, 1995
September 30,to September 30,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 975,171 456,500 735,794
Adjustments to reconcile net earnings to net
cash provided by (used for) operating
activities:
Equity in earnings of the Bank (890,286) (331,735) (635,138)
Dividend from Bank 342,581 - -
Loss on sale of securities available
for sale 5,000 - -
Other, net 12,337 (8,209) (37,650)
Net cash provided by (used for)
operating activities 444,803 116,556 63,006
Cash flows from investing activities:
Loan to ESOP - - (685,160)
Principal collected on loan to ESOP 31,436 29,442 38,919
Purchase of common stock of Bank - - (3,976,100)
Purchase of securities held to maturity - - (2,800,000)
Purchase of securities available for sale - (1,800,000) -
Securities available for sale - matured - 1,800,000 -
Securities available for sale - sold 995,000 - -
Net cash provided by (used for)
investing activities 1,026,436 29,442 (7,422,341)
Cash flows from financing activities:
Proceeds from sale of common stock - - 7,952,201
Advance from Bank - 355,000 -
Repayment of advance from Bank (355,000) - -
Exercise of stock options 406,809 - -
Treasury stock purchased (802,121) (584,500) -
Dividends paid (299,667) (237,800) -
Net cash provided by (used for)
financing activities (1,049,979) (467,300) 7,952,201
Net increase (decrease) in cash and
cash equivalents 421,260 (321,302) 592,866
Cash and cash equivalents at beginning
of period 271,564 592,866 -
Cash and cash equivalents at end of period $ 692,824 271,564 592,866
</TABLE>
(15) Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Non-trading instruments and
nonderivatives:
Cash and cash equivalents $ 2,552,167 2,552,167 3,236,497 3,236,497
Securities available for sale 35,411,629 35,411,629 34,312,495 34,312,495
Stock in FHLB of Des Moines 601,500 601,500 601,500 601,500
Mortgage-backed securities
available for sale 30,631,091 30,631,091 29,818,666 29,818,666
Loans receivable, net 13,910,147 14,016,251 11,717,799 11,543,233
Deposits 61,071,074 61,083,000 62,711,509 61,677,509
Advances from FHLB of
Des Moines 6,500,000 6,502,000 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.
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 value of certificates of deposit and advances from FHLB of Des Moines is computed at
fixed spreads to treasury securities with similar maturities.<PAGE>
CORPORATE INFORMATION
<PAGE> 15-30
OFFICERS
LEO J. ROZIER
chairman of the board
and president
JAMES K. YOUNG
secretaryDIRECTORS
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 (573) 547-4581
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 21, 1998, 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, MISSOURI 63375-1334.
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
MICHAEL TROKEY & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
10411 CLAYTON ROAD
ST. LOUIS, MO 63131
(314) 432-0996
We hereby consent to the incorporation by reference and use of our report, dated December
5, 1997, 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, 1997 in Perry County Financial Corporation's previously filed
Registration Statement on Form S-8 (Registration No. 333-4168 and 333-4170).
Michael Trokey &
Company, P.C.
St. Louis, Missouri
December 29, 1997
<S>
</TABLE>
[ARTICLE] 9
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[CASH] 206,589
[INT-BEARING-DEPOSITS] 2,345,578
[FED-FUNDS-SOLD] 0
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 66,042,720
[INVESTMENTS-CARRYING] 0
[INVESTMENTS-MARKET] 0
[LOANS] 13,910,147
[ALLOWANCE] 25,000
[TOTAL-ASSETS] 84,135,204
[DEPOSITS] 61,071,074
[SHORT-TERM] 6,500,000
[LIABILITIES-OTHER] 515,530
[LONG-TERM] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 8,565
[OTHER-SE] 16,040,035
[TOTAL-LIABILITIES-AND-EQUITY] 84,135,204
[INTEREST-LOAN] 1,014,312
[INTEREST-INVEST] 4,324,701
[INTEREST-OTHER] 193,720
[INTEREST-TOTAL] 5,532,733
[INTEREST-DEPOSIT] 3,039,657
[INTEREST-EXPENSE] 3,238,693
[INTEREST-INCOME-NET] 2,294,040
[LOAN-LOSSES] 0
[SECURITIES-GAINS] 135,419
[EXPENSE-OTHER] 888,780
[INCOME-PRETAX] 1,575,377
[INCOME-PRE-EXTRAORDINARY] 975,171
[EXTRAORDINARY] 975,171
[CHANGES] 0
[NET-INCOME] 975,171
[EPS-PRIMARY] 1.27
[EPS-DILUTED] 1.27
[YIELD-ACTUAL] 2.86
[LOANS-NON] 0
[LOANS-PAST] 0
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 0
[CHARGE-OFFS] 0
[RECOVERIES] 0
[ALLOWANCE-CLOSE] 25,000
[ALLOWANCE-DOMESTIC] 25,000
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 25,000
</TABLE>
