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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, 1998
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
(State or other jurisdiction of incorporation
or organization)
43-1694505
(I.R.S. Employer Identification No.)
14 North Jackson Street, Perryville, Missouri 63775
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (573) 547-4581
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X . NO ___.
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ X ]
State the issuer's revenues for its most recent fiscal year:
$6,009,193.
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 1, 1998, was approximately
$14.0 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 1, 1998, there were 810,897 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, 1998.
Part III of Form 10-KSB - Proxy Statement for 1998 Annual Meeting of
Stockholders.
<PAGE>2
PART I
Item 1. Description of Business
General
The Company. Perry County Financial Corporation (the
"Company") a Missouri corporation, was formed in September 1994
to act as the holding company for Perry County Savings Bank, FSB
(the "Bank" or "Perry County") upon the completion of the Bank's
conversion from the mutual to the stock form (the "Conversion").
The Company received approval from the Office of Thrift
Supervision (the "OTS") to acquire all of the common stock of the
Bank to be outstanding upon completion of the Conversion. The
Conversion was completed on February 10, 1995. All references to
the Company prior to February 10, 1995, except where otherwise
indicated, are to the Bank.
At September 30, 1998, the Company had $96.8 million of
assets and stockholders' equity of $16.9 million (or 17.4% 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, construction,
development and multi-family real estate loans and loans secured
by deposit accounts. At September 30, 1998, at least 90% of the
Bank's real estate mortgage loans were secured by properties
located in Missouri.
The Company's revenues are derived primarily from interest
earned on 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.
Impact of the Year 2000
The Company has conducted a comprehensive review of its
computer systems to identify applications that could be affected
by the "Year 2000" issue, and has developed an implementation
plan to address the issue. Much of the Company's data processing
is accomplished with third party vendors, consequently the
Company is very dependent on those vendors to conduct its
business. The Company has already contacted each vendor to
request time tables for year 2000 compliance and expected costs,
if any, to be passed along to the Company. To date, the Company
has been informed that its primary service providers anticipate
that all reprogramming efforts will be completed by December 31,
1998, allowing the Company adequate time for testing. Certain
other vendors have not yet responded; however, the Company will
pursue other options if it appears that these vendors will be
unable to comply. Management does not expect these costs to have
a significant impact on its financial position or results of
operations, however, there can be no assurance that the vendors
systems will be Year 2000 compliant; consequently, the Company
could incur incremental costs to convert to another vendor. The
Company identified certain of its hardware and software that
would not be Year 2000 compliant and purchased new equipment
and software amounting to $63,000, in 1998.
<PAGE>3
Forward-Looking Statements
When used in this Form 10-KSB and in future filings by the
Company with the Securities and Exchange Commission (the "SEC"),
in the Company's press releases or other public or shareholder
communications, and in oral statements made with the approval of
an authorized executive officer, the words or phrases "will
likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project" or similar expressions are
intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to risks and uncertainties, including
but not limited to changes in economic conditions in the
Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the
Company's market area and competition, all or some of which could
cause actual results to differ materially from historical
earnings and those presently anticipated or projected. The
Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the
date made and are subject to the above-stated qualifications in
any event. The Company wishes to advise readers that the factors
listed above could affect the Company's financial performance and
could cause the Company's actual results for future periods to
differ materially from any opinions or statements expressed with
respect to future periods in any current statements.
The Company does not undertake-and specifically declines any
obligation-to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
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, 1998, the Bank's gross loans outstanding
totaled $16.0 million, of which $13.5 million or 84.4% 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
totaled $769,000, all of which were fixed-rate loans. Also at
that date, the Bank's construction and development loans totaled
$1.3 million or 7.9% of the Bank's total loan portfolio, all of
which were fixed-rate loans.
At September 30, 1998, the balance of the Bank's loans
consisted of $454,000 of loans secured by deposit accounts, which
represented 2.8% 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, 1998, mortgage-backed securities totaled
$34.1million or 35.3% of total assets and U.S. government and
agency obligations totaled $33.3 million or 34.4% 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.
<PAGE>4
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, 1998, the maximum amount which
the Bank could have lent under this limit to any one borrower and
the borrower's related entities was approximately $2.1 million.
At September 30, 1998, the Bank had no loans or groups of loans
to related borrowers with outstanding balances in excess of this
amount. The Bank's largest lending relationship at September 30,
1998 was a $390,000 loan to one borrower secured by a commercial
building located in Perry County, Missouri. The next largest
lending relationship at September 30, 1998 was a $193,000 loan to
one borrower secured by a farm located in Perry County, Missouri.
Both of these loans were current as of September 30, 1998.
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.
September 30,
1998 1997 1996
Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
Real Estate Loans:
One- to four-family $13,496 84.4% $11,844 81.5 $10,459 87.2%
Multi-family 42 .3 64 .4 86 .7
Commercial 727 4.6 726 5.0 248 2.1
Construction or
development 1,269 7.9 1,519 10.5 806 6.7
Total real estate
loans 15,534 97.2 14,153 97.4 11,599 96.7
Other Loans:
Consumer Loans:
Deposit account
454 2.8 382 2.6 396 3.3
Total consumer
loans 454 2.8 382 2.6 396 3.3
Total loans 15,988 100.0% 14,535 100.0% 11,995 100.0%
Less:
Loans in process 190 591 249
Deferred fees and 9 9 3
Allowance for losses 25 25 25
Total loans
receivable, net $15,764 $13,910 $11,718
Adjustable rate loans included in the loan portfolio
amounted to $1,013,000 at September 30, 1998.
The following table sets forth certain information at
September 30, 1998 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.
Real Estate Loans
Mortgage Secured by Total
Loans(2) Deposit
Accounts
(Dollars in
Thousands)
Due During Years
Ending:
Within 1 year(1) $ 3 $ 454 $457
After 1 year through 3 80 --- 80
years
After 3 years through 135 --- 135
5 years
After 5 years through 1,095 --- 1,095
10 years
Beyond 10 years 14,221 --- 14,221
Total gross $15,534 $454 $15,988
loans
(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, 1998, due after September
30, 1999, which have fixed interest rates and adjustable interest
rates.
<PAGE>5
Real Estate
Mortgage
Loans(1)
(Dollars in
Thousands)
Fixed rate $14,518
Adjustable rate 1,013
Total gross loans $15,531
(1) Includes single and multi-family loans, construction, land
and commercial loans.
One- to Four-Family Residential Real Estate Lending. The
Bank's primary lending activity consists of the origination of
one- to four-family residential mortgage loans secured by
property located in the Bank's primary market area. At September
30, 1998, $13.5 million, or 84.4%, of the Bank's gross loan
portfolio consisted of permanent loans secured by one- to
four-family residences. Approximately 90% of these loans were
located in the Bank's market area.
At September 30, 1998, the Bank offered one- to four-family
residential fixed rate loans with loan payments (amortization)
based on a 25 year maturity, but with a loan term of 20 years.
In prior years, the Bank originated
fixed rate loans with terms to maturity up to 30 years and during
fiscal 1998 offered fixed rate residential mortgage loans based
on a 20 year maturity. At September 30, 1998, the total balance
of one- to four-family fixed rate loans was $12.5 million or
78.4% 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, 1998, the total balance of one- to four-family
AMLs was $1.0 million, or 6.0% 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
September 30, 1998, the Bank had $769,000, in its multi-family
and commercial real estate loan portfolio. The Bank does not
currently purchase these types of loans. These loans represented
4.9% 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
<PAGE>6
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, 1998, the Bank had
$1.3 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 only consumer loans offered by the
Bank are loans secured by deposit accounts. At September 30,
1998, the Bank's consumer loan portfolio totaled $454,000 or 2.8%
of the Bank's gross loan portfolio.
The Bank lends up to 90% of the amount of the deposit and
the rate is currently the greater of 6.75% per annum or 1.5%
above the certificate rate on the pledged account.
Loan Originations and Servicing
Loan originations are developed from continuing business
with depositors and borrowers, soliciting realtors and builders
and walk-in customers. Loans are originated by the Bank's staff
of salaried loan officers. When the Bank originates a loan, it
retains the servicing. Loan applications are taken, processed in
the administrative office of the Bank, and then submitted to the
President or the Board, as appropriate.
The Bank's ability to originate loans is dependent upon the
customer demand for loans in its market. Demand is affected by
the local economy and interest rate environment.
The Bank has not sold any of its loans and does not
currently contemplate doing so in the future. While the Bank has
purchased and participated in loans in the past, it does not
currently contemplate purchasing or participating in new loans.
The following table shows the loan origination activities of
the Bank for the periods indicated.
Year
Ended
September 30,
1998 1997 1996
(In Thousands)
Originations by type:
Adjustable rate:
Real estate - one- to four- $ --- $ 71 $ 586
family
Total adjustable- -- 71 586
rate -
Fixed rate:
Real estate - commercial 467 238 400
and development
Real estate - one- to four- 6,449 4,996 4,813
family
Non-real estate - consumer 786 716 685
Total fixed-rate 7,702 5,950 5,898
Total loans $7,702 $6,021 $6,484
originated
Non-Performing Assets and Classified Assets
<PAGE>7
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.
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,
1998.
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 loans
No. Amount Category No. Amount Category No. Amount Category
(Dollars in Thousands)
Real Estate:
One- to four- 2 $16 .12% --- $--- ---% 2 $16 .12%
family
Total 2 $16 .12% --- $--- ---% 2 $16 .12%
Asset Quality. The Bank currently concentrates its lending
activity primarily on one- to four-family mortgage loans
in Perry County, Missouri and has traditionally
experienced low non-performing asset levels. At September 30,
1998, 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.
September 30,
1998 1997 1996
(Dollars in Thousands)
Non-accruing loans:
One- to four-family $--- $11 $---
Total --- 11 ---
Total non-performing assets $--- $11 $---
Total as a percentage of total
assets ---% .01% ---%
Other Loans of Concern. As of September 30, 1998 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
<PAGE>8
"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, 1998, the Bank had no assets
classified as substandard.
Allowance for Losses on Loans. The allowance for loan
losses is established through a provision for loan losses based
on management's evaluation of the risk inherent in its loan
portfolio and changes in the nature and volume of its loan
activity. Such evaluation, which includes a review of all loans
of which full collectibility may not be reasonably assured,
considers among other matters, the estimated fair value
(generally, the amount that could reasonably be expected to be
received in a current sale between a willing buyer and a willing
seller) of the underlying collateral, economic conditions,
historical loan loss experience and other factors that warrant
recognition in providing for an adequate loan loss allowance.
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, 1998, the
Bank had a total allowance for losses on loans of $25,000, or
.16% 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.
Year Ended
September 30,
1998 1997 1996
(Dollars in Thousands)
Balance at beginning of $25 $25 $10
period
Net charge-offs --- --- --
-
Additions charged to --- --- 15
operations
Balance at end of period $25 $25 $25
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
<PAGE>9
The distribution of the Bank's allowance for losses on loans at the dates
indicated is summarized as follows:
September 30,
1998 1997 1996
Percent Percent Percent Percent Percent Percent
of of of
Amount of Allowance Amount of Allow Amount of Allow
Loans of Loans ance of Loans ance
of in Each to Loan in Each to Loan in Each to
Loan Category Gross Loss Category Gross Loss category Gross
Loss Loans Allow Loans Allow Loans
Allow to in ance to in ance to in
ance Total Each Total Each Total Each
Gross Category Gross Category Gross Category
Loans Loans Loans
(Dollars in Thousands)
One- to $25 .19% 84.4% $25 81.5% .21% $25 87.2% .24%
four-family
Multi- --- --- .3 --- .4 --- --- .7 ---
Family
Commercial --- --- 4.6 --- 5.0 --- --- 2.1 ---
real estate
Construction --- --- 7.9 --- 10.5 --- --- 6.7 ---
or development
Consumer --- --- 2.8 --- 2.6 --- --- 3.3 ---
Unallocated --- --- --- --- --- --- --- --- ---
Total $25 100.0% 100.0% $25 100.0% .21% $25 100.0% .24%
<PAGE>10
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, 1998, the Bank's
liquidity ratio (liquid assets as a percentage of net
withdrawable savings deposits and current borrowings) was 90%.
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 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 its
market area. The Bank's current investment strategy emphasizes
mortgage-backed securities with high credit quality, high cash
flow, low interest-rate risk, high liquidity and minimal
prepayment risk. The Bank has invested primarily in federal
agency securities, principally Federal Home Loan Mortgage
Corporation ("FHLMC"), Government National Mortgage Association
("GNMA") and Federal National Mortgage Association ("FNMA")
obligations and certain types of CMOs. See Note 4 of the Notes
to Consolidated Financial Statements.
The FNMA, FHLMC and GNMA certificates are modified pass-
through mortgage-backed securities that represent undivided
interests in underlying pools of fixed-rate, or certain types of
adjustable rate, single-family residential mortgages issued by
these government-sponsored entities. FNMA and FHLMC provide the
certificate holder a guarantee of timely payments of interest and
scheduled principal payments, whether or not they have been
collected. GNMA's guarantee to the holder of timely payments of
principal and interest is backed by the full faith and credit of
the U.S. government.
A CMO is a special type of pass-through debt in which the
stream of principal and interest payments on the underlying
mortgages or mortgage-backed securities is used to create classes
with different maturities and, in some cases, amortization
schedules, as well as a residual interest, with each such class
possessing different risk characteristics. Management believes
these securities may represent attractive alternatives relative
to other investments due to the wide variety of maturity and
repayment options available through such investments. The Bank
did not hold any CMOs at September 30, 1998. 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.
<PAGE>11
Securities. At September 30, 1998, the Company and Bank's
securities (including a $750,000 investment in the common stock
of the FHLB of Des Moines) totaled $34.0 million, or 35.1% 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
totaled $2.1 million as of September 30, 1998, plus an additional
10% if the investments are fully secured by readily marketable
collateral. At September 30, 1998, 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>12
The following table sets forth the composition of the
Company's and Bank's securities and mortgage-backed securities at
the dates indicated.
September 30,
1998 1997 1996
Carry % of Carry % of Carry % of
ing Total ing Total ing Total
Value Value Value
(Dollars in Thousands)
Debt securities:
U.S. government securities $ - ---% $ - ---% $4,003 11.5%
Federal agency obitations 33,274 97.8 35,411 98.3 30,309 86.8
obligations
Subtotal 33,274 97.8 35,411 98.3 34,312 98.3
Equity securities:
FHLB stock 750 2.2 602 1.7 602 1.7
Subtotal 750 2.2 602 1.7 602 1.7
Total $34,024 100.0 $36,013 100.0 $34,914 100.0
Other interest-earning assets:
Interest-bearing deposits $11,651 100.0 $ 2,346 100.0% $ 3,081 100.0%
with banks
Total $11,651 100.0 $ 2,346 100.0% $ 3,081 100.0%
Mortgage-backed securities:
GNMA $19,767 57.9% $16,222 53.0% $13,348 44.8%
FNMA 11,103 32.5 10,074 32.9 7,879 26.4
FHLMC 3,259 9.6 4,335 14.1 8,088 27.1
CMOs --- -- --- -- 504 1.7
Total mortgage-backed $34,129 100.0 $30,631 100.0 $29,819 100.0
securities
The composition and maturities of the securities portfolio,
excluding FHLB stock and other equity securities, are indicated
in the following table.
September 30, 1998
Less 1 to 5 5 to 10 Over Total
Than Years Years 10 Investment
1 Year Years Securities
Carrying Carrying Carrying Carrying Market Amortized
Value Value Value Value Value Cost
(Dollars in Thousands)
Federal
agency $3,148 $998 $2,516 $26,612 $33,274 $33,174
obligations
available-
for-sale
Weighted 5.27% 5.15% 6.88% 7.00% 6.77%
average
yield
The Company and the Bank's securities portfolio at
September 30, 1998, 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
securities portfolio, are managed in accordance with a written
investment policy adopted by the Board of Directors.
Sources of Funds
General. The Bank's primary sources of funds are deposits,
amortization and prepayment of loan principal, borrowings,
interest earned on or maturation of investment securities and
short-term investments, and net earnings.
Borrowings may be used on a short-term basis to compensate
for seasonal reductions in deposits or deposit inflows at less
than projected levels, and may be used on a longer-term basis to
support expanded lending activities or to increase the
effectiveness of the Bank's asset/liability management program.
<PAGE>13
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.
Year Ended September 30,
1998 1997 1996
(In Thousands)
Opening balance $61,071 $62,712 $ 60,178
Deposits 36,467 33,795 34,932
Withdrawals (35,827)(37,673) (34,669)
Interest 2,237
credited 2,440 2,271
Ending balance $64,151 $61,071 $ 62,712
Net increase
(decrease) $ 3,080 $(1,641) 2,534
Percent increase 5.04% (2.62)% 4.21%
(decrease)
<PAGE>14
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.
September 30,
1998 1997 1996
Percent Percent Percent
Amount Amount Amount
of of of
Total Total Total
(Dollars in Thousands)
Transactions and
Savings Deposits:
Noninterest Bearing
NOW Accounts $ 81 .1% 177 .3% 117 .2%
NOW accounts 2.25% 3,015 4.7 3,303 5.4 3,209 5.1
Passbook Accounts 4,004 6.3 4,182 6.9 4,402 7.0
2.75%
Money Market
Accounts 4.69%,
4.65% and 4.02% 8,218 12.8 7,349 12.0 8,380 13.4
Total Non-
Certificates 15,318 23.9 15,011 24.6 16,108 25.7
Certificates:
2.00 - 4.00% 117 .2 215 .3 509 .8
4.01 - 6.00% 44,265 69.0 30,351 49.7 40,254 64.2
6.01 - 8.00% 4,451 6.9 15,494 25.4 5,841 9.3
Total Certificates 48,833 76.1 46,060 75.4 46,604 74.3
Total Deposits $64,151 100.0% $61,071 100.0% $62,712 100.0%
The following table shows rate and maturity information for
the Bank's certificates of deposit as of September 30, 1998.
2.00- 4.01- 6.01- Percent
4.00% 6.00% 8.00% Total of
Total
(Dollars in Thousands)
Certificate accounts maturing
in year ending:
September 30, 1999 $117 $33,920 $2,931 $36,968 75.7%
September 30, 2000 --- 7,103 1,085 8,188 16.8
September 30, 2001 --- 2,669 435 3,104 6.3
September 30, 2002 --- 243 --- 243 .5
Septembe 30, 2003 --- 330 --- 330 .7
Total $117 $44,265 $4,451 $48,833 100.0%
Percent of total .2% 90.7% 9.1% 100.0%
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 $15.0 million of advances from FHLB of Des Moines
outstanding as of September 30, 1998.
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.
Year Ended September 30,
1998 1997 1996
(Dollars in Thousands)
Maximum Balance:
FHLB advances $15,000 $6,500 $2,500
Average Balance:
FHLB advances $ 8,538 $3,346 $ 984
<PAGE>15
The following table sets forth certain information as to the
Bank's borrowings at the dates indicated.
September 30,
1998 1997 1996
(Dollars in Thousands)
FHLB advances $15,000 $6,500 $2,500
Total borrowings $15,000 $6,500 $2,500
Weighted average 5.5% 6.0% 6.0%
interest rate of FHLB
advances
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,
1998, Perry County had no subsidiaries.
Regulation
General. Perry County is a federally chartered savings
bank, the deposits of which are federally insured and backed by
the full faith and credit of the United States Government.
Accordingly, Perry County is subject to broad federal regulation
and oversight extending to all its operations. Perry County is a
member of the FHLB of Des Moines and is subject to certain
limited regulation by the Board of Governors of the Federal
Reserve System ("Federal Reserve Board"). As the savings and
loan holding 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, 1998, Perry County's lending limit under this
restriction was $2.1 million. Perry County is in compliance with
the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has
adopted guidelines establishing safety and soundness standards on
such matters as loan underwriting and documentation, internal
controls and audit systems, interest rate risk exposure and
compensation and other employee benefits. Any institution which
fails to comply with these standards must submit a compliance
plan.
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.
<PAGE>16
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. As of September 30, 1998, Perry County met
the requirements of a well-capitalized institution.
The FDIC is authorized to increase assessment rates, on a
semiannual basis, if it determines that the reserve ratio of the
SAIF will be less than the designated reserve ratio of 1.25% of
SAIF insured deposits. In setting these increased assessments,
the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as
established by the FDIC. The FDIC may also impose special
assessments on SAIF members to repay amounts borrowed from the
United States Treasury or for any other reason deemed necessary
by the FDIC.
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 approximately 6.48 basis points for each $100 in
domestic deposits, while BIF-insured institutions pay an
assessment equal to approximately 1.52 basis points for each $100
in domestic deposits. The assessment is expected to be reduced
to 2.43 basis points 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.
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,
1998, 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, 1998, Perry County had tangible capital of
$13.4 million, or 14.3% of adjusted total assets, which is
approximately $12.0 million above the minimum requirement of 1.5%
of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at
least 3% of adjusted total assets. Core capital generally
consists of tangible capital plus certain intangible assets,
including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action
provisions discussed below, however, a savings association must
maintain a core capital ratio of at least 4% to be considered
adequately capitalized unless its supervisory condition is such
to allow it to maintain a 3% ratio. At September 30, 1998, Perry
County had no intangibles which were subject to these tests.
At September 30, 1998, Perry County had core capital equal
to $13.4 million, or 14.3% of adjusted total assets, which is
$10.6 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
<PAGE>17
require a savings association to
maintain an additional amount of total capital to account for
concentration of credit risk and the risk of non-traditional
activities. At September 30, 1998, 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, 1998.
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.
OTS regulations also require that savings associations 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 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, 1998, Perry County had total risk-based
capital of $13.5 million and risk-weighted assets of $20.9
million; or total capital of 64.4% of risk-weighted assets. This
amount was $11.8 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.
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.
<PAGE>18
Generally, savings associations, such as Perry County, that
before and after the proposed distribution meet their 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
capital requirement for such capital component, as measured at
the beginning of the calendar year, or 75% of their net income
for the most recent four quarter period. However, an association
deemed to be in need of more than normal supervision by the OTS
may have its dividend authority restricted by the OTS. Perry
County may pay dividends in accordance with this general
authority.
Savings associations proposing to make any capital
distribution need only submit written notice to the OTS 30 days
prior to such distribution. Savings associations that do not, or
would not meet their current minimum capital requirements
following a proposed capital distribution, however, must obtain
OTS approval prior to making such distribution. 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 4%.
Penalties may be imposed upon associations for violations of
the liquid asset ratio requirement. At September 30, 1998, Perry
County was in compliance with the requirement, with an overall
liquid asset ratio of 90%.
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. As an alternative, the
savings association may maintain 60% of its assets in those
assets specified in Section 7701(a)(19) of the Internal Revenue
Code. Under either test, such assets primarily consist of
residential housing related loans and investments. At September
30, 1998, 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
<PAGE 19>
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 holding company, then within one year after the
failure, the holding company must register as a bank holding
company and become subject to all restrictions on bank holding
companies. See "- Holding 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
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.
Holding Company Regulation. The Company is a unitary
savings and loan holding company subject to regulatory oversight
by the OTS. As such, the Company is required to register and
file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement
authority over the holding 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
holding 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 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."
<PAGE>20
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, 1998, 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.
As a member, Perry County is required to purchase and
maintain stock in the FHLB of Des Moines. At September 30, 1998,
Perry County had $750,000 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 "nonqualifying loans" is
computed under the experience method. 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.
In August 1996, legislation was enacted that repealed the
percentage of taxable income method used by many thrifts,
including the Bank, to calculate their bad debt reserve for
federal income tax purposes. As a result, 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
tax years beginning after December 31, 1987. The recapture
occurs over a six-year period, commencing with the 1998 tax year.
At September 30, 1998, the Bank had approximately $442,314 in bad
debt reserves subject to recapture for federal income tax
purposes. The deferred tax liability related to the recapture
has been previously established so there will be no effect on
future net income.
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.
A portion of the Bank's reserves for losses on loans may
not, without adverse tax consequences, be utilized for the
payment of cash dividends or other distributions to a shareholder
(including distributions on redemption, dissolution or
liquidation) or for any other purpose (except to absorb bad debt
losses). As of September 30, 1998, the portion of Perry County's
reserves subject to this treatment for tax purposes totaled
approximately $1.35 million.
Perry County files federal income tax returns on a calendar
year basis using the accrual method of accounting. The Company
does not anticipate filing consolidated federal income tax
returns with Perry County. Savings associations that file
federal income tax returns as part of a
<PAGE>21
consolidated group are
required by applicable Treasury regulations to reduce their
taxable income for purposes of computing the percentage bad debt
deduction for losses attributable to activities of the
non-savings association members of the consolidated group that
are functionally related to the activities of the savings
association member. The Company and the Bank have not been
audited by the IRS within the last ten years.
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.
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 one part-time
employee as of September 30, 1998, 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, 1998. The office is owned by the Bank. At
September 30, 1998, the Bank's premises and equipment had an
aggregate net book value of $333,000.
Net Book
Year Square Value
Opened Footage of Premises
and
Equipment
Office:
14 North 1957 4,780 $333,000
Jackson Street
Perryville,
Missouri
The Bank's accounting and record-keeping activities are
maintained on an on-line basis with an independent service
bureau.
Item 3. Legal Proceedings
Currently, the Bank is not involved in any pending legal
proceedings other than a routine legal proceeding occurring in
the ordinary course of business, which in the aggregate involves
an amount that is believed by management to be immaterial to the
financial condition of the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders,
through the solicitation of proxies or otherwise, during the year
ended September 30, 1998.
<PAGE22>
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
Page 1 of the attached 1998 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 1998 Annual Report to
Stockholders are herein incorporated by reference.
Item 7. Financial Statements
The following information appearing in the Company's Annual
Report to Stockholders for the year ended September 30, 1998, is
incorporated by reference in this Annual Report on Form 10-KSB as
Exhibit 13.
Pages
in
Annual Report Section
Annual
Report
Report of Independent Auditors 10
Consolidated Balance Sheets as of September 30, 11
1998 and 1997
Consolidated Statements of Earnings for the Years
Ended September 30, 12
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity
for 13
Years Ended September 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for Years
Ended September 30, 14
1998, 1997 and 1996
Notes to Consolidated Financial Statements 15
With the exception of the aforementioned information, the
Company's Annual Report to Stockholders for the year ended
September 30, 1998, 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>23
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
1998, 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 1999, 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, 1998, all Section 16(a) filing
requirements applicable to its officers, directors and greater
than 10 percent beneficial owners were complied with.
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
1999, a copy of which will be filed not later than 120 days after
the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial
Owners and Management
Information concerning security ownership of certain
beneficial owners and management is incorporated herein by
reference from the definitive Proxy Statement for the Annual
Meeting of Stockholders to be held in 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
to Prior
Filing or
Regualtion Exhibit
S-B Number
Exhibit Attached
Number Document Hereto
3(i) Articles of Incorporation, including *
amendments thereto
3(ii) By-Laws *
4 Instruments defining the rights of *
security holders, including debentures *
10 Executive Compensation Plans and
Arrangements *
<PAGE>24
(a) Employment Contract between Leo *
J. Rozier and the Bank
(b) 1995 Stock Option and Incentive *
Plan
(c) Recognition and Retention Plan *
13 Annual Report to Security Holders 13
16 Letter re: change in certifying **
accountants
21 Subsidiaries of Registrant 21
23 Consents of Experts and Counsel 23
24 Power of Attorney Not required
27 Financial Data Schedule 27
________________
* 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 during the
quarter ended September 30, 1998.
<PAGE>25
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, 1998 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, 1998 Date: December 29, 1998
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, 1998 Date: December 29, 1998
By: /s/ Thomas L. Hoeh
Thomas L. Hoeh, Director
Date: December 29, 1998
EXHIBIT 13
ANNUAL REPORT TO SECURITY HOLDERS
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
Percent State of
Parent Subsidiary or of Incorporation
Organization Ownership
Perry Perry County Savings 100%
County Bank, FSB Federal
Financial
Corporation
EXHIBIT 23
CONSENTS OF EXPERTS AND COUNSEL
MICHAEL TROKEY & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
10411 CLAYTON ROAD
ST. LOUIS, MISSOURI 63131
We hereby consent to the incorporation by reference and use of
our report, dated December 10, 1998, 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, 1998 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 28, 1998
<S>
</TABLE>
<PAGE>1
<TABLE>
<S>
Business of the Company and the Bank
On November 23, 1994 Perry County Savings Bank converted its charter to a
federally chartered savings bank and changed its name to Perry County Savings
Bank, FSB (Bank). On February 10, 1995, Perry County Savings Bank, FSB converted
from mutual to stock form and became a wholly-owned subsidiary of a newly formed
Missouri holding company, Perry County Financial Corporation (Company). The
Company issued 856,452 shares of common stock at $10 per share in conjunction
with the offering. Net proceeds from the sale of common stock in the offering
were $7,267,041, after deduction of conversion costs of $612,319, and unearned
compensation related to shares issued to the Employee Stock Ownership Plan
(ESOP). The Company retained 50% of the net conversion proceeds, less the funds
used to originate a loan to the ESOP for the purchase of shares of common stock,
and used the balance of the net proceeds to purchase all of the stock of the Bank
in the conversion.
The Company has no significant assets other than common stock of the Bank, and
the loan to the ESOP, and net proceeds retained by the Company following the
conversion. The Company's principal business is the business of the Bank. The
Bank's deposit accounts are insured up to a maximum of $100,000 by the Savings
Association Insurance Fund (SAIF), which is administered by the Federal Deposit
Insurance Corporation (FDIC). The Bank's primary business, as conducted through
its office located in Perryville, Missouri, is the origination of mortgage loans
secured by one- to four-family residences located primarily in Perry County.
Lending activities are funded through attraction of deposit accounts, consisting
of certificate accounts, money-market deposit accounts, savings accounts and NOW
accounts. To a lesser extent, the Bank also originates mortgage loans on
commercial real estate, construction loans on single-family residences and
commercial properties, and loans secured by deposit accounts.
Common Stock
The common stock of Perry County Financial Corporation is traded on the NASDAQ
Small Cap Market under the symbol "PCBC". The following table sets forth the
market price and dividend information on the Company's common stock:
Quarter Ended High Low Dividend
December 31, 1995 $19.75 $17.75 $.00
March 31, 1996 $18.75 $17.75 $.30
June 30, 1996 $17.50 $16.00 $.00
September 30, 1996 $18.50 $17.25 $.00
December 31, 1996 $17.50 $17.00 $.00
March 31, 1997 $22.00 $17.50 $.40
June 30, 1997 $20.75 $19.00 $.00
September 30, 1997 $21.25 $20.88 $.00
December 31, 1997 $25.00 $20.50 $.00
March 31, 1998 $24.50 $23.25 $.50
June 30, 1998 $24.13 $22.75 $.00
September 30, 1998 $22.94 $18.00 $.00
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, 1998, the Company had approximately 400 stockholders of record
(which includes nominees for beneficial owners holding shares in "street name").
<PAGE>2
Selected Financial Highlights
Financial Condition Data:
At September 30,
1998 1997 1996 1995 1994
(Dollars in Thousands)
Assets $ 96,807 84,135 81,149 76,421 69,914
Cash and cash
equivalents and
securities $ 45,821 38,565 38,150 36,377 31,841
Mortgage-backed
securities $ 34,129 30,631 29,819 31,190 31,200
Loans receivable,
net $ 15,764 13,910 11,718 7,810 5,813
Deposits $ 64,151 61,071 62,712 60,178 61,296
Advances from
FHLB $ 15,000 6,500 2,500 - 500
Stockholders'
equity(1) $ 16,879 16,049 15,072 15,683 7,613
Full service offices open 1 1 1 1 1
Operating Data:
For the Year Ended September 30,
1998 1997 1996 1995 1994
(Dollars in Thousands)
Interest income $ 5,970 5,533 5,295 4,839 4,320
Interest expense (3,754) (3,239) (3,121) (2,859) (2,374)
Net interest income 2,216 2,294 2,174 1,980 1,946
Provision for loan losses - - (15) - -
Net interest income
after provision
for loan losses 2,216 2,294 2,159 1,980 1,946
Noninterest income 39 170 145 50 30
Noninterest expense (922) (889) (1,552) (862) (764)
Earnings before income
taxes and
cumulative effect of
change in accounting
principle 1,333 1,575 752 1,168 1,212
Income taxes (526) (600) (296) (432) (452)
Earnings before
cumulative effect of
change in accounting
principle 807 975 456 736 760
Cumulative effect of
change in accounting
principle - - - - (112)
Net earnings $ 807 975 456 736 648
Diluted earnings
per share $ 1.03 1.26 .58 (2) -
Dividends per share $ .50 .40 .30 .00 -
(1) Stockholders' equity at September 30, 1998, 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) Diluted earnings per share is not meaningful since common stock was issued
on February 10, 1995.
<PAGE>3
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 years ended
September 30, 1998 and 1997, the Bank originated $6.9 million and $5.2 million,
respectively, of 20-year, fixed rate mortgage loans. Also during 1998 the Bank
purchased $10.0 million of 20- and 30-year fixed rate mortgage-backed securities
(MBSs) with 10-year term, callable in 5 years, advances from FHLB. The Bank does
not anticipate that either financial objectives, strategies or instruments used
to manage its interest rate risk exposure will change significantly in the near
future.
<PAGE>4
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, 1998 the OTS estimated changes
in fair value of equity based on the indicated interest rate environments:
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)
+400 $ 9,018 $ (6,119) (40)% 10.49% (529)
+300 10,716 (4,421) (29)% 12.10% (368)
+200 12,427 (2,710) (18)% 13.62% (216)
+100 13,983 (1,154) (8)% 14.91% (87)
0 15,137 15.78%
(100) 15,626 489 3 % 16.03% 25
(200) 15,928 791 5 % 16.11% 33
(300) 16,299 1,162 8 % 16.23% 45
(400) 16,703 1,566 10 % 16.38% 60
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.
<PAGE>5
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.
Year Ended September 30,
1998 1997 1996
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Int. Cost
(Dollars in thousands)
Interest-earning assets:
Loans receivable $15,201 1,207 7.94% 12,729 1,014 7.97% 9,825 779 7.93%
Mortgage-backed
securities 30,815 2,051 6.65% 29,451 1,989 6.75% 31,267 2,248 7.19%
Securities 34,177 2,360 6.91% 33,479 2,294 6.85% 33,619 2,122 6.31%
FHLB stock 583 39 6.76% 602 42 7.00% 599 43 7.25%
Other interest-
earning assets 6,200 313 5.05% 3,875 194 5.00% 2,381 103 4.31%
Total interest-
earning assets 86,976 5,970 6.86% 80,136 5,533 6.90% 77,691 5,295 6.82%
Interest-bearing liabilities:
Savings deposits 4,051 111 2.75% 4,308 118 2.74% 4,490 123 2.74%
Demand and MMDA
deposits 11,057 433 3.91% 11,501 402 3.49% 11,719 426 3.63%
Certificate
accounts 47,541 2,720 5.72% 45,983 2,520 5.48% 45,338 2,512 5.54%
Advances from FHLB 8,538 490 5.74% 3,346 199 5.95% 984 60 6.06%
Total interest-
bearing
liabilities $71,187 3,754 5.27% 65,138 3,239 4.97% 62,531 3,121 4.99%
Net interest income
before provision
for loan losses $ 2,216 2,294 2,174
Interest rate spread 1.59% 1.93% 1.83%
Net earning
assets $ 15,789 14,998 15,160
Net yield on average
interest-earning
assets 2.55% 2.86% 2.80%
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 122.18% 123.02% 124.24%
<PAGE>6
Rate/Volume Analysis
The following table sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities, information
is provided on changes in volume (changes in volume multiplied by prior year's
rate), rates (changes in rate multiplied by prior year's volume) and rate/volume
(changes in rate multiplied by the changes in volume).
Year Ended September 30,
1998 vs. 1997 1997 vs. 1996
Increase (Decrease) Due To Increase (Decrease) Due To
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
(Dollars in Thousands)
Interest income:
Loans receivable $197 (3) (1) 193 230 4 1 235
Mortgage-backed
securities 92 (29) (1) 62 (131) (136) 8 (259)
Securities 47 18 1 66 (8) 181 (1) 172
FHLB stock (1) (2) - (3) - (1) - (1)
Other interest-
earning assets 116 2 1 119 65 16 10 91
Total interest-
earning assets 451 (14) - 437 156 64 18 238
Interest expense:
Deposits 42 180 2 224 12 (33) - (21)
Advances from FHLB 309 (7) (11) 291 143 (1) (3) 139
Total interest-
bearing liabilities $351 173 (9) 515 155 (34) (3) 118
Net interest income $ (78) 120
Year 2000
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 an outside service bureau which
recently completed proxy testing. Other major systems have been tested.
Connectivity testing between Bank and vendor systems to ensure continued
compatibility is scheduled for March, 1999. The Bank identified certain of its
hardware and software that would not be year 2000 compliant and purchased newer
equipment and software amounting to $63,000 in 1998. Management is unable to
estimate any additional expense related to this issue . Any year 2000 compliance
failure could result in additional expense to the Bank.
Liquidity and Capital Resources
The Bank's principal sources of funds are cash receipts from deposits, loan
repayments by borrowers, proceeds from maturing securities, 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 4%. The Bank's liquidity
ratio at September 30, 1998, 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 $37.0 million in
certificates due within one year and $15.3 million in other deposits without
specific maturity at September 30, 1998. Management estimates that most of the
deposits will be retained or replaced by new deposits.
<PAGE>7
Total assets increased from $84.1 million at September 30, 1997 to $96.8 million
at September 30, 1998. Maturing securities, advances from FHLB, loan repayments
and customer deposits were used to originate loans, fund the purchase of
securities and MBSs, and increase cash and cash equivalents. Loans receivable,
net increased as the Bank continued to promote fixed rate mortgage loan
originations in the Bank's market area. Accrued interest on securities decreased
due to the timing of interest receipts. Accrued interest on loans and MBSs
increased due to higher portfolio balances.
During 1997 and 1998, treasury stock of the Company increased by $431,000 and
$109,000, respectfully. The Company repurchased 46,080 shares and 6,000 shares
of common stock in the open market at an average price of $17.41 and $19.63 per
share in 1997 and 1998, respectfully. In 1998, 500 shares were issued under the
management recognition plan (MRP) at $24.13 per share. In 1997, 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, 1998 to originate fixed
rate mortgage loans and fund loans in process were $357,365. Loan commitments
expire in 180 days or less.
Results of Operations
Comparison of the Years Ended September 30, 1998 and September 30, 1997
Net Earnings
Net earnings for the year ended September 30, 1998 were $807,000 compared with
$975,000 for the year ended September 30, 1997. The decrease relates primarily
to substantially lower gain on sale of MBSs and lower interest rate spread.
Noninterest expense increased due to higher employee stock ownership plan (ESOP)
expenses, offset by lower SAIF deposit insurance premium.
Net Interest Income
Net interest income was $2.3 million for 1997 and $2.2 million for 1998. The
interest rate spread decreased from 1.93% for 1997 to 1.59% for 1998. Interest
rates paid on deposits increased due to local market competition. Total interest
income for 1997 was $5.5 million compared with $6.0 million for 1998. Although
the weighted-average yield on interest-earning assets decreased from 6.90% for
1997 to 6.86% for 1998, average interest-earning assets increased from $80.1
million for 1997 to $87.0 million for 1998. Interest on loans receivable
increased as a result of higher average loans outstanding for 1998. Management
has placed renewed emphasis on origination of loans, primarily fixed-rate loans.
Interest on MBSs increased due to a higher average balance, offset by a slightly
lower yield. Interest on securities increased due to a higher balance and yield.
Interest on other interest-earning assets increased largely as a result of a
higher average balance. Components of interest-earning assets change from time
to time based on the availability, interest rates and other terms of loans,
investments and MBSs. Interest expense increased largely due to a higher average
balance of FHLB advances and, to a lesser extent, a higher average rate on
deposits. The weighted-average rate on total interest-bearing liabilities
increased from 4.97% for 1997 to 5.27% for 1998, reflecting an increasingly
competitive market for retail deposits.
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. No provision for loan losses
<PAGE>8
was recorded for the years ended September 30, 1997 and 1998. There were no
non-accrual loans at September 30, 1998 compared to $11,000 at September 30,
1997.
Noninterest Income
Noninterest income decreased from $170,000 for 1997 to $39,000 for 1998. Net
gains on sales of securities and MBS amounted to $4,000 in 1998 compared to
$135,000 in 1997. 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 $889,000 for 1997 to $922,000 for 1998.
Compensation and benefits increased due to higher ESOP expenses and slightly
higher salaries. ESOP expense was $87,000 and $103,000 for 1997 and 1998,
respectively. ESOP expense is affected by changes in the market price of the
Company's stock. SAIF deposit insurance premiums decreased as a result of a
lower assessment rate.
Income Taxes
Income taxes decreased due to lower earnings before income taxes.
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
$456,000 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 SAIF. In addition, noninterest expense also decreased
substantially due to lower compensation expense, lower cost of 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 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. 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.
<PAGE>9
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.
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>
<PAGE>10
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, 1998 and 1997
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the three years in the period ended September 30, 1998.
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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1998 in conformity with generally accepted
accounting principles.
St. Louis, Missouri
December 10, 1998<PAGE>
<PAGE>11
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1998 and 1997
Assets 1998 1997
Cash and cash equivalents $ 11,796,514 2,552,167
Securities available for sale, at market value
(amortized cost of $33,174,361 and $35,557,757) 33,274,100 35,411,629
Federal Home Loan Bank Stock 750,000 601,500
Mortgage-backed securities available for sale,
at market value (amortized cost of $33,695,252
and $30,499,492) 34,128,765 30,631,091
Loans receivable, net 15,764,398 13,910,147
Premises and equipment, net 333,323 287,495
Accrued interest receivable:
Securities 430,289 474,971
Mortgage-backed securities 189,193 173,771
Loans receivable 74,955 60,255
Other assets 65,149 32,178
Total assets $ 96,806,686 84,135,204
Liabilities and Stockholders' Equity
Deposits $ 64,150,713 61,071,074
Accrued interest on deposits 144,081 122,156
Advances from FHLB of Des Moines 15,000,000 6,500,000
Advances from borrowers for taxes and insurance 182,209 158,236
Other liabilities 53,980 25,636
Accrued income taxes 71,835 87,681
Deferred income tax liability 325,170 121,821
Total liabilities 79,927,988 68,086,604
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 8,170,765 8,110,852
Common stock acquired by ESOP (501,246) (547,216)
Common stock acquired by MRP (189,030) (257,269)
Unrealized (loss) gain on securities
available for sale, net 335,950 (9,153)
Treasury stock, at cost, 34,555 and
28,555 shares (608,815) (499,815)
Retained earnings - substantially restricted 9,662,509 9,242,636
Total stockholders' equity 16,878,698 16,048,600
Total liabilities and stockholders' equity $ 96,806,686 84,135,204
See accompanying notes to consolidated financial statements.
<PAGE>12
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
Years Ended September 30, 1998, 1997 and 1996
1998 1997 1996
Interest income:
Loans receivable $ 1,207,200 1,014,312 778,921
Mortgage-backed securities 2,050,704 1,989,129 2,247,890
Securities 2,399,372 2,335,572 2,165,422
Other interest-earning assets 313,014 193,720 102,669
Total interest income 5,970,290 5,532,733 5,294,902
Interest expense:
Deposits:
NOW 72,783 74,139 67,271
Passbook accounts 111,277 118,166 123,262
Money market deposit accounts 360,078 327,758 358,290
Certificates 2,719,639 2,519,594 2,511,991
Advances from FHLB 489,964 199,036 59,623
Total interest expense 3,753,741 3,238,693 3,120,437
Net interest income 2,216,549 2,294,040 2,174,465
Provision for loan losses - - 15,000
Net interest income after
provision for loan losses 2,216,549 2,294,040 2,159,465
Noninterest income:
Service charges on NOW accounts 29,283 27,339 27,705
Gain (loss) on sale of securities
available for sale - (17,010) 21,055
Gain on sale of mortgage-backed
securities available for sale 3,760 152,429 75,208
Gain on investment in data center - - 17,679
Other 5,860 7,359 3,605
Total noninterest income 38,903 170,117 145,252
Noninterest expense:
Compensation and benefits 595,638 559,006 725,683
Occupancy expense 31,169 27,996 28,060
Equipment and data processing expense 84,704 78,592 79,876
SAIF deposit insurance premium 38,209 55,264 140,923
SAIF special assessment - - 392,821
Other 172,525 167,922 184,673
Total noninterest expense 922,245 888,780 1,552,036
Earnings before income taxes 1,333,207 1,575,377 752,681
Income taxes:
Current 525,826 462,836 469,787
Deferred 670 137,370 (173,606)
Total income taxes 526,496 600,206 296,181
Net earnings $ 806,711 975,171 456,500
Basic earnings per common share $ 1.04 1.27 .58
Diluted earnings per common share $ 1.03 1.26 .58
See accompanying notes to consolidated financial statements.
<PAGE>13
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 1998, 1997 and 1996
Common Common
Additional Stock Stock
Common Paid-in Acquired Acquired
Stock Capital by ESOP by MRP
Balance at
September 30, 1995 $ 8,565 7,962,536 (639,160) -
Shares issued under MRP - 37,643 - (553,166)
Amortization of MRP
awards - - - 217,807
Cash dividends of $.30
per share - - - -
Amortization of ESOP
awards - 34,481 45,974 -
Unrealized loss on
securities available for
sale, net - - - -
Treasury stock purchased - - - -
Net earnings - - - -
Balance at
September 30, 1996 8,565 8,034,660 (593,186) (335,359)
Amortization of MRP
awards - - - 78,090
Cash dividends of $.40
per share - - - -
Amortization of ESOP
awards - 40,666 45,970 -
Unrealized gain on
securities available for
sale, net - - - -
Treasury stock purchased - - - -
Exercise of stock options - 35,526 - -
Net earnings - - - -
Balance at
September 30, 1997 8,565 8,110,852 (547,216) (257,269)
Shares issued under MRP - 3,312 - (12,062)
Amortization of MRP
awards - - - 80,301
Cash dividends of $.50
per share - - - -
Amortization of ESOP
awards - 56,601 45,970 -
Unrealized gain on
securities available for
sale, net - - - -
Treasury stock purchased - - - -
Net earnings - - - -
Balance at
September 30, 1998 $ 8,565 8,170,765 (501,246) (189,030)
Unrealized
Gain (Loss)
on Securities Total
Available Treasury Retained Stockholders'
For Sale Stock Earnings Equity
Balance at
September 30, 1995 $ 2,520 - 8,348,432 15,682,893
Shares issued under MRP - 515,523 - -
Amortization of MRP
awards - - - 217,807
Cash dividends of $.30
per share - - (237,800) (237,800)
Amortization of ESOP
awards - - - 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 (540,409) (68,977) 8,567,132 15,072,426
Amortization of MRP
awards - - - 78,090
Cash dividends of $.40
per share - - (299,667) (299,667)
Amortization of ESOP
awards - - - 86,636
Unrealized gain on
securities available for
sale, net 531,256 - - 531,256
Treasury stock purchased - (802,121) - (802,121)
Exercise of stock options 371,283 - 406,809
Net earnings - - 975,171 975,171
Balance at
September 30, 1997 (9,153) (499,815) 9,242,636 16,048,600
Shares issued under MRP - 8,750 - -
Amortization of MRP
awards - - - 80,301
Cash dividends of $.50
per share - - (386,838) (386,838)
Amortization of ESOP
awards - - 102,571
Unrealized gain on
securities available
for sale, net 345,103 - - 345,103
Treasury stock purchased (117,750) - (117,750)
Net earnings - - 806,711 806,711
Balance at
September 30, 1998 $ 335,950 (608,815) 9,662,509 16,878,698
See accompanying notes to consolidated financial statements.
<PAGE>14
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended September 30, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
Net earnings $ 806,711 975,171 456,500
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation expense 18,068 14,581 14,576
Provision for loan loss - - 15,000
ESOP expense 102,571 86,636 80,455
MRP expense 80,301 78,090 217,807
Amortization of premiums, discounts
and loan fees, net (318,244) (58,962) (41,147)
FHLB stock dividends - - (11,800)
Gain on sale of mortgage-backed
securities available for sale (3,760) (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)
Decrease (increase) in:
Accrued interest receivable 14,560 54,853 (109,846)
Deferred tax asset - 15,548 (8,693)
Other assets (32,971) 38,238 6,262
Increase (decrease) in:
Accrued interest on deposits 21,925 (8,692) (24,603)
Other liabilities 28,344 (402,666) 397,482
Accrued income taxes (15,846) (71,761) 56,828
Deferred income tax liability 670 121,821 (164,913)
Net cash provided by (used for)
operating activities (702,329) 707,438 780,738
Cash flows from investing activities:
Loans originated, net of principal
collections (1,854,251) (2,186,712) (3,922,342)
Mortgage-backed securities
available for sale:
Purchased (10,036,213) (9,614,645) (6,227,075)
Principal collections 5,944,652 3,767,551 5,271,977
Proceeds from sale 901,069 5,518,486 2,216,420
Securities available for sale:
Purchased (27,477,856) (14,033,931) (14,298,500)
Proceeds from maturity or call 29,377,989 11,500,000 7,800,000
Proceeds from sale 800,000 1,982,990 3,810,762
Purchase of FHLB stock, net of
redemption (148,500) - -
Purchase of premises and equipment (63,896) (1,412) (2,468)
Net cash provided by (used for)
investing activities (2,557,006) (3,067,673) (5,351,226)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 3,079,639 (1,640,435) 2,533,229
Advances from borrowers for taxes
and insurance 23,973 11,319 41,154
Advances from FHLB 18,000,000 6,500,000 2,500,000
Repayment of advances from FHLB (9,500,000) (2,500,000) -
Exercise of stock options - 406,809 -
Purchase of treasury shares (117,750) (802,121) (584,500)
Dividends paid to stockholders (386,838) (299,667) (237,800)
Net cash provided by (used
for) financing activities 11,099,024 1,675,905 4,252,083
Net increase (decrease) in cash and
cash equivalents 9,244,347 (684,330) (318,405)
Cash and cash equivalents at
beginning of year 2,552,167 3,236,497 3,554,902
Cash and cash equivalents at
end of year $ 11,796,514 2,552,167 3,236,497
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits $ 3,241,852 3,048,349 3,085,417
Interest on advances from FHLB 489,964 199,036 59,623
Federal income taxes 476,320 499,893 366,700
State income taxes 65,352 46,673 46,258
Noncash activity - transfer from held to maturity to available for sale:
Securities - - 32,746,005
Mortgage-backed securities $ - - 31,232,845
See accompanying notes to consolidated financial statements.
<PAGE>15
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997 and
Years ended September 30, 1998, 1997 and 1996
(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 $11,650,815 and
$2,345,578 at September 30, 1998 and 1997, 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.
<PAGE>16
e. 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 under 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." 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 No. 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, 1998 or 1997.
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.
<PAGE>17
j. During 1998 the Bank adopted SFAS No. 128, "Earnings per Share."
Earnings per share are based upon the weighted-average shares outstanding. ESOP
shares which have been committed to be released are considered outstanding, and
stock options to the extent dilutive.
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 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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes standards for
accounting and reporting of
<PAGE>18
derivative instruments, including derivative
instruments embedded in another type of contract and for hedging activities. The
statement further requires that all derivatives should be recognized as either
assets or liabilities and measured at the fair value. The accounting for changes
in the fair value, or gains or losses, of a derivative depends on the use of the
derivative and resulting designation. The statement supersedes or modifies
certain other accounting pronouncements. The statement is effective for the
first fiscal quarter of the fiscal year beginning after June 15, 1999. SFAS No.
133 is not expected to affect the Bank's financial position or results of the
operations of the Bank.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." The statement amends SFAS No.
65 and No. 115. The statement requires that after the securitization of a
mortgage loan held for sale, any retained mortgage-backed securities must be
classified under the provisions of SFAS No. 115. Mortgage banking enterprises
must classify as trading any retained mortgage-backed securities that it commits
to sell before or during the securitization process. The statement is effective
for the first fiscal quarter of the fiscal year beginning after December 15,
1998. SFAS No. 134 is not expected to affect the Bank's financial position or
results of operations of the Bank.
(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.
<PAGE>19
(3) Securities:
Securities are summarized as follows:
1998
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Available for sale:
Debt securities - Federal
agency obligations $33,174,361 105,081 (5,342) 33,274,100
Weighted-average rate 6.77%
1997
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Available for sale:
Debt securities - Federal
agency obligations $35,557,757 60,932 (207,060) 35,411,629
Weighted-average rate 7.05%
Maturities of debt securities available for sale are summarized as follows:
1998
Amortized Market
Cost Value
Due in one year or less $ 3,149,964 3,148,000
Due after one year through five years 1,000,000 997,500
Due after five years through ten years 2,500,000 2,516,250
Due after ten years through fifteen years 19,995,111 20,075,000
Due after fifteen years through twenty years 3,500,878 3,506,250
Due after twenty-five through thirty years 3,028,408 3,031,100
$33,174,361 33,274,100
Proceeds from sales of securities available for sale and gross realized
gains and losses on these sales are summarized as follows:
1998 1997 1996
Proceeds from sale $800,000 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
<PAGE>20
(4) Mortgage-backed Securities:
Mortgage-backed securities are summarized as follows:
1998
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Available for sale:
Mortgage-participation
certificates:
FHLMC $ 3,213,827 53,562 (8,076) 3,259,313
GNMA 19,555,160 255,304 (44,043) 19,766,421
FNMA 10,926,265 230,966 (54,200) 11,103,031
$ 33,695,252 539,832 (106,319) 34,128,765
Weighted-average rate 6.70%
1997
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
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%
Mortgage-backed securities with market values of $4,909,876 and $2,653,318
were pledged as collateral to secure advances from FHLB of Des Moines and certain
deposits, respectively, at September 30, 1998. Adjustable-rate mortgage and
balloon loans included in mortgage-backed securities at September 30, 1998 and
1997 were approximately $10,801,000 and $15,194,000, respectively.
Proceeds from sales of mortgage-backed securities available for sale and
gross realized gains and losses on these sales are summarized as follows:
1998 1997 1996
Proceeds from sale $ 901,069 5,518,486 2,216,420
Gross realized gains $ 10,267 192,362 82,474
Gross realized losses (6,507) (39,933) (7,266)
Net gains (losses) $ 3,760 152,429 75,208
<PAGE>21
(5) Loans Receivable, Net
Loans receivable, net are summarized as follows:
1998 1997
Real estate loans:
Single, 1-4 family units $ 13,496,676 11,843,536
Multi-family, 5 or more units 41,887 63,881
Construction 689,900 1,417,816
Land 578,827 101,012
Commercial 726,933 726,403
Loans secured by deposit accounts 454,154 382,104
15,988,377 14,534,752
Loans in process (190,165) (590,515)
Deferred loan fees (8,814) (9,090)
Allowance for losses (25,000) (25,000)
$ 15,764,398 13,910,147
Weighted-average rate 7.70% 7.93%
Real estate construction loans at September 30, 1998, are secured primarily
by single, 1-4 family units. Adjustable-rate loans included in the loan
portfolio amounted to $1,013,430 and $1,815,632 at September 30, 1998 and 1997,
respectively.
Following is a summary of activity in allowance for losses:
1998 1997 1996
Balance, beginning of year $ 25,000 25,000 10,000
Provision charged to expense - - 15,000
Balance, end of year $ 25,000 25,000 25,000
Nonaccrual loans at September 30, 1997 were $10,896. There were no
nonaccrual loans at September 30, 1998.
Following is a summary of loans in excess of $60,000 to directors and
executive officers for the year ended September 30, 1998:
Balance, September 30, 1997 $ 261,401
Refinance 170,000
Repayments (189,104)
Balance, September 30, 1998 $ 242,297
These loans were made on substantially the same terms as those prevailing
at the time for comparable transactions with unaffiliated persons.
<PAGE>22
(6) Premises and Equipment, Net
Premises and equipment, net are summarized as follows:
1998 1997
Land $ 46,972 46,972
Building and improvements 350,356 350,356
Furniture, fixtures and equipment 169,062 105,166
566,390 502,494
Less accumulated depreciation 233,067 214,999
$ 333,323 287,495
Depreciation expense for the years ended September 30, 1998, 1997 and 1996
was $18,068, $14,581 and $14,576, respectively.
(7) Deposits
Deposits are summarized as follows:
Description and interest rate 1998 1997
Noninterest-bearing checking $ 81,340 176,565
NOW accounts, 2.25% 3,014,860 3,303,438
Savings accounts, 2.75% 4,003,898 4,181,871
Money market deposit accounts,
4.69% and 4.65%, respectively 8,217,769 7,348,850
Total transaction accounts 15,317,867 15,010,724
Certificates:
2.01 - 3.00% 116,837 178,777
3.01 - 4.00% - 36,359
4.01 - 5.00% 630,626 1,678,702
5.01 - 6.00% 43,634,556 28,672,118
6.01 - 7.00% 4,450,827 15,494,394
Total certificates, 5.66%
and 5.68%, respectively 48,832,846 46,060,350
Total deposits $ 64,150,713 61,071,074
Weighted-average rate - deposits 5.19% 5.15%
Certificate maturities at September 30, 1998 are summarized as follows:
October 1, 1998 to September 30, 1999 $ 36,967,664
October 1, 1999 to September 30, 2000 8,188,132
October 1, 2000 to September 30, 2001 3,104,395
October 1, 2001 to September 30, 2002 242,971
October 1, 2002 to September 30, 2003 329,684
$ 48,832,846
<PAGE>23
Certificates of deposits of $100,000 or more at September 30, 1998 are
summarized as follows:
Maturing in:
Three months or less $ 2,768,369
Over three through six months 2,269,352
Over six through twelve months 2,430,223
$ 7,467,944
(8) Advances from FHLB of Des Moines
Advances from Federal Home Loan Bank of Des Moines are summarized as
follows:
Interest
Maturity Date Rate Initial Call Date 1998 1997
November 7, 1997 6.11% None $ - 2,000,000
May 29, 1998 6.19% None - 1,500,000
June 25, 1998 5.86% None - 1,000,000
September 10, 1998 5.83% None - 2,000,000
May 8, 2008 5.62% May 8, 2003 5,500,000 -
July 15, 2008 5.52% July 15, 2003 8,000,000 -
September 11, 2008 4.99% September 11, 2001 1,500,000 -
$ 15,000,000 6,500,000
Advances from Federal Home Loan Bank of Des Moines were secured by FHLB
stock, certain mortgage-backed securities and single-family mortgage loans of
$13,193,150. See also note 4. All advances at September 30, 1998 are subject
to call at the dates indicated and every three months thereafter.
(9) Income Taxes
The Company and Bank file separate federal income tax returns on a calendar
year basis. 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 are subject to recapture
and payable in equal amounts over six years in tax years beginning January 1,
1998 and thereafter. The Bank was able to defer the recapture of its applicable
excess tax bad debt reserves for two years by having met a residential loan
requirement.
Income taxes are summarized as follows:
1998 1997 1996
Current:
Federal $ 462,655 408,526 419,995
State 63,171 54,310 49,792
525,826 462,836 469,787
Deferred:
Federal 1,639 119,857 (151,474)
State (969) 17,513 (22,132)
670 137,370 (173,606)
$ 526,496 600,206 296,181
<PAGE>24
Total income tax expense is different than the amounts computed by applying
the federal rate of 34% in the years ending September 30, 1998, 1997 and 1996 to
earnings before taxes as a result of the following:
1998 1997 1996
Expected income tax expense at
Federal tax rate $ 453,291 535,628 255,912
ESOP compensation expense 19,244 13,827 11,723
State income tax, net of Federal
tax benefit 41,664 48,083 18,294
Other 12,297 2,668 10,252
$ 526,496 600,206 296,181
Effective tax rate 39.5% 38.1% 39.3%
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.
The components of the net deferred tax asset (liability) are summarized as
follows:
1998 1997
Deferred tax asset:
Allowance for loan losses $ 9,250 9,250
Unrealized loss on securities and MBS
available for sale - 5,376
Book over tax ESOP and MRP expense, net 39,374 37,752
Deferred tax asset 48,338 52,378
Deferred tax liability:
Tax bad debt reserves arising after
December 31, 1987 (171,839) (169,833)
Unrealized gain on securities and MBS
available for sale (197,303) -
FHLB stock dividend (4,366) (4,366)
Deferred tax liability (373,508) (174,199)
Net deferred tax asset (liability) $ (325,170) (121,821)
(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.
<PAGE>25
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, 1998, 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,
1998 are as follows:
Minimum Required Minimum Required
for Capital to be "Well
Actual Adequacy Capitalized"
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
Consolidated stockholders'
equity $ 16,879
Stockholders' equity
of Company (3,111)
Unrealized gain on securities (336)
Tangible capital 13,432 14.3% $ 1,409 1.5%
General valuation allowance 25
Total capital to
risk-weighted assets $ 13,457 64.4% $ 1,670 8.0% $ 2,088 10.0%
Tier 1 capital to risk-
weighted assets $ 13,432 64.3% $ 835 4.0% $ 1,253 6.0%
Tier 1 capital to total
assets $ 13,432 14.3% $ 3,757 4.0% $ 4,695 5.0%
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
<PAGE>26
approval. The regulation provides more significant restrictions on payment of dividends in
the event that the capital requirements are not met.
Following is a summary of basic and diluted earnings per common share for
the year ended September 30, 1998 and for the years ended September 30, 1997 and
1996, as restated under SFAS No. 128:
1998 1997 1996
Net earnings $ 806,711 975,171 456,500
Weighted-average shares - Basic EPS 775,325 767,940 793,391
Stock options - treasury stock method 8,352 3,474 -
Weighted-average shares - Diluted EPS 783,677 771,414 793,391
Basic earnings per common share $ 1.04 1.27 .58
Diluted earnings per common share $ 1.03 1.26 .58
Options to purchase 70,798 shares of common stock at $19.00 per share were
outstanding during the year ended September 30, 1996, but were not included in
the computation of diluted EPS since the exercise price was greater than the
average market price of the common stock.
(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 1998, 1997 and 1996
was $102,571, $86,636 and $80,455, respectively. The number of ESOP shares were
as follows:
1998 1997
Allocated shares 13,237 8,640
Shares released for allocation 4,597 4,597
Unreleased shares 50,125 54,722
Total ESOP shares 67,959 67,959
<PAGE>27
The fair value of unreleased ESOP shares based on market price of the
Company's stock was $984,000 at September 30, 1998.
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,
1998 and 1997, there were 49,387 shares outstanding. At September 30, 1998 there
were 19,754 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 diluted earnings per common share would have been reduced to the proforma
amounts indicated below:
1998 1997 1996
Reported net earnings $ 806,711 975,171 456,500
Proforma net earnings $ 772,674 897,800 358,607
Reported diluted earnings
per common share $ 1.03 1.26 .58
Proforma diluted earnings
per common share $ .99 1.16 .45
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 an additional 500 shares were awarded in November,
1997 to one employee. 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 1998, 1997 and 1996 was $80,301, $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, 1998 to originate fixed rate mortgage loans and fund loans in
process were $357,365 expiring in 180 days or less.
<PAGE>28
(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.
BALANCE SHEETS
September 30,
Assets 1998 1997
Cash and cash equivalents $ 1,549,375 692,824
Securities available for sale 1,000,000 1,788,500
ESOP note receivable 551,798 585,363
Accrued interest receivable 11,625 29,094
Other assets 37,744 14,726
Investment in subsidiary 13,768,466 12,944,137
Total assets $ 16,919,008 16,054,644
Liabilities and Stockholders' Equity
Other liabilities $ 40,310 6,044
Total liabilities 40,310 6,044
Stockholders' equity 16,878,698 16,048,600
Total liabilities and stockholders'
equity $ 16,919,008 16,054,644
STATEMENTS OF EARNINGS
Year Ended September 30,
1998 1997 1996
Equity in earnings of the Bank $ 303,598 547,705 331,735
Dividend from Bank 428,226 342,581 -
Interest income 190,918 200,861 267,135
Interest expense - (3,196) (8,919)
Loss on sale of securities
available for sale - (5,000) -
Other income 2,300 76 -
Other expenses (79,753) (62,404) (66,001)
Income taxes (38,578) (45,452) (67,450)
Net earnings $ 806,711 975,171 456,500
<PAGE>29
STATEMENTS OF CASH FLOWS
Year Ended September 30,
1998 1997 1996
Cash flows from operating activities:
Net earnings $ 806,711 975,171 456,500
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Equity in earnings of the Bank (731,824) (890,286) (331,735)
Dividend from Bank 428,226 342,581 -
Loss on sale of securities available
for sale - 5,000 -
Other, net 24,461 12,337 (8,209)
Net cash provided by (used for)
operating activities 527,574 444,803 116,556
Cash flows from investing activities:
Principal collected on loan to ESOP 33,565 31,436 29,442
Purchase of securities available
for sale (1,000,000) - (1,800,000)
Securities available for sale - matured 1,000,000 - 1,800,000
Securities available for sale - sold 800,000 995,000 -
Net cash provided by (used for)
investing activities 833,565 1,026,436 29,442
Cash flows from financing activities:
Advance from Bank - - 355,000
Repayment of advance from Bank - (355,000) -
Exercise of stock options - 406,809 -
Treasury stock purchased (117,750) (802,121) (584,500)
Dividends paid (386,838) (299,667) (237,800)
Net cash provided by (used for)
financing activities (504,588) (1,049,979) (467,300)
Net increase (decrease) in cash and
cash equivalents 856,551 421,260 (321,302)
Cash and cash equivalents at beginning
of year 692,824 271,564 592,866
Cash and cash equivalents at end
of year $ 1,549,375 692,824 271,564
(15) Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments are
summarized as follows:
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Non-trading instruments and
nonderivatives:
Cash and cash equivalents $ 11,796,514 11,796,514 2,552,167 2,552,167
Securities available for sale 33,274,100 33,274,100 35,411,629 35,411,629
Stock in FHLB of Des Moines 750,000 750,000 601,500 601,500
Mortgage-backed securities
available for sale 34,128,765 34,128,765 30,631,091 30,631,091
Loans receivable, net 15,764,398 16,088,962 13,910,147 14,016,251
Deposits 64,150,713 64,530,000 61,071,074 61,083,000
Advances from FHLB of
Des Moines 15,000,000 15,294,000 6,500,000 6,502,000
<PAGE>30
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>31
CORPORATE INFORMATION
OFFICERS
LEO J. ROZIER
chairman of the board
and president
JAMES K. YOUNG
secretary
DIRECTORS
LEO J. ROZIER
chairman of the board
and president
STEPHEN C. ROZIER
assistant vice-president
MILTON A. VOGEL
retired owner/operator of
automobile agency
Perryville, Missouri
JAMES K. YOUNG
retired owner/operator of
funeral home
Perryville, Missouri
THOMAS L. HOEH
attorney
Perryville, Missouri
CORPORATE OFFICES
14 North Jackson Street
Perryville, Missouri 63775
Telephone (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 20,
1999, 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.
<S>
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<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 145,699
<INT-BEARING-DEPOSITS> 11,650,815
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 67,402,865
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 15,764,398
<ALLOWANCE> 25,000
<TOTAL-ASSETS> 96,806,686
<DEPOSITS> 64,150,713
<SHORT-TERM> 0
<LIABILITIES-OTHER> 777,275
<LONG-TERM> 15,000,000
0
0
<COMMON> 8,565
<OTHER-SE> 16,870,133
<TOTAL-LIABILITIES-AND-EQUITY> 96,806,686
<INTEREST-LOAN> 1,207,200
<INTEREST-INVEST> 4,450,076
<INTEREST-OTHER> 313,014
<INTEREST-TOTAL> 5,970,290
<INTEREST-DEPOSIT> 3,263,777
<INTEREST-EXPENSE> 3,753,741
<INTEREST-INCOME-NET> 2,216,549
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 3,760
<EXPENSE-OTHER> 922,245
<INCOME-PRETAX> 1,333,207
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 806,711
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 2.55
<LOANS-NON> 0
<LOANS-PAST> 0
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<ALLOWANCE-OPEN> 25,000
<CHARGE-OFFS> 0
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<ALLOWANCE-CLOSE> 25,000
<ALLOWANCE-DOMESTIC> 25,000
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<ALLOWANCE-UNALLOCATED> 25,000
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