<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, NOW
accounts and advances from the Federal Home Loan Bank of Des Moines (FHLB). 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, 1999 $21.00 $19.00 $.00
March 31, 2000 $20.13 $14.75 $.00
June 30, 2000 $18.50 $15.00 $.50
September 30, 2000 $17.00 $15.00 $.00
December 31, 1998 $20.75 $19.50 $.00
March 31, 1999 $21.50 $19.88 $.50
June 30, 1999 $21.50 $19.63 $.00
September 30, 1999 $20.13 $19.00 $.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, 2000, the Company had approximately 400 stockholders of record (which includes nominees for
beneficial owners holding shares in "street name").
<PAGE> 1
Selected Financial Highlights
Financial Condition Data:
At September 30,
2000 1999 1998 1997 1996
(Dollars in Thousands)
Assets $ 93,949 96,617 96,807 84,135 81,149
Cash and cash equivalents and
securities $ 39,251 41,051 45,821 38,565 38,150
Mortgage-backed securities $ 34,266 36,492 34,129 30,631 29,819
Loans receivable, net $ 17,685 16,601 15,764 13,910 11,718
Deposits $ 66,609 67,747 64,151 61,071 62,712
Advances from FHLB $ 15,000 15,000 15,000 6,500 2,500
Stockholders' equity $ 11,846 13,217 16,879 16,049 15,072
Full service offices open 1 1 1 1 1
Operating Data:
For the Year Ended September 30,
2000 1999 1998 1997 1996
(Dollars in Thousands)
Interest income $ 6,247 6,463 5,970 5,533 5,295
Interest expense (4,220) (4,166) (3,754) (3,239) (3,121)
Net interest income 2,027 2,297 2,216 2,294 2,174
Provision for loan losses - (5) - - (15)
Net interest income after provision
for loan losses 2,027 2,292 2,216 2,294 2,159
Noninterest income (5,955) 139 39 170 145
Noninterest expense (905) (935) (922) (889) (1,552)
Earnings (loss) before income taxes (4,833) 1,496 1,333 1,575 752
Income tax (expense) benefit 1,756 (580) (526) (600) (296)
Net earnings (loss) $ (3,078) 916 807 945 456
Diluted earnings (loss) per share $ (4.41) 1.22 1.03 1.26 .58
Dividends per share $ .50 .50 .50 .40 .30
<PAGE> 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The business of the Bank has been that of a financial intermediary consisting primarily of attracting
deposits from the general public and using such deposits to originate mortgage loans secured by one-
to four-family residences and, to a lesser extent, commercial real estate loans, real estate construction
loans and loans secured by deposit accounts. The Bank's revenues are derived principally from interest
earned on loans, investments, and mortgage-backed 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 the 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 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.
Qualitative Disclosures of Market Risk
The Bank's principal financial objective is to achieve long-term profitability while limiting 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 limit 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, or maintaining the interest rate spread.
Although the Bank has originated adjustable rate mortgage loans (AMLs) in the past, during recent
years, the Bank originated fixed-rate loans. The Bank originated long-term, fixed-rate loans of $4.2
million, $6.6 million and $6.9 million during the years ended September 30, 2000, 1999 and 1998,
respectively. The Bank also purchased $6.6 million in AMLs and balloon MBSs during 2000 and $11.3
million of long-term, fixed-rate MBSs during 1999. The Bank expects to purchase short and
intermediate term securities and MBSs in the future.
Under the Bank's leveraged investment long-term Federal agency obligations, which are callable in the
near term, were purchased with intermediate-term FHLB advances (or other available funds). All
investment securities at September 30, 1999 were callable. The Bank earned a higher interest rate
spread since the market prices callable obligations differently than noncallable obligations with
otherwise identical terms. Leveraged investments usually result in increased interest rate risk. The
effect on net interest income is positive unless rates change significantly. Because of the rise in
interest rates, the market price of such securities were adversely affected, even though the interest rate
<PAGE> 3
spread remained positive.
The Bank sold all callable securities available for sale and a portion of the MBSs portfolio during 2000
in order to reduce interest rate risk. Noninterest income reflects losses on sales of securities of $5.7
million and $238,000 of MBSs.
Quantitative Disclosures of Market Risk
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.
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. 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, 2000 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)
+300 $ 8,349 $ (3,365) (29)% 9.46% (304)
+200 9,458 (2,256) (19)% 10.50% (200)
+100 10,600 (1,114) (10)% 11.54% (96)
0 11,714 12.50%
(100) 12,579 865 7% 13.20% +70
(200) 12,850 1,136 10% 13.35% +85
(300) 12,915 1,201 10% 13.30% +80
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 AML 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> 4
Average Balances, Interest and Average Yields and Rates
The following table presents for the periods indicated the total dollar amount of interest income from
average interest-earning assets and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were
made. All average balances are monthly average balances. Nonaccruing loans have been included in
the table as loans carrying a zero yield.
Year Ended September 30,
2000 1999 1998
Average Average Average
Average Yield/Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost BalanceInterest Cost
(Dollars in thousands)
Interest-earning assets:
Loans receivable $17,195 1,295 7.53% 16,005 1,219 7.62% 15,201 1,207 7.94%
Mortgage-backed securities 33,531 2,188 6.53% 35,716 2,310 6.47% 30,815 2,051 6.65%
Securities 19,927 1,297 6.52% 37,597 2,541 6.76% 34,177 2,360 6.91%
FHLB stock 750 50 6.74% 750 48 6.34% 583 39 6.76%
Other interest-earning
assets 22,611 1,417 6.27% 7,564 345 4.55% 6,200 313 5.05%
Total interest-earning
assets 94,014 6,247 6.64% 97,632 6,463 6.62% 86,976 5,970 6.86%
Interest-bearing liabilities:
Savings deposits 3,866 106 2.75% 4,128 114 2.75% 4,051 111 2.75%
Demand and MMDA deposits 13,302 538 4.04% 12,839 517 4.03% 11,057 433 3.91%
Certificate accounts 49,566 2,737 5.52% 49,888 2,698 5.41% 47,541 2,720 5.72%
Advances from FHLB 15,000 839 5.60% 15,000 837 5.58% 8,538 490 5.74%
Total interest-bearing
liabilities $81,734 4,220 5.16% 81,855 4,166 5.09% 71,187 3,754 5.27%
Net interest income before
provision for loan losses $ 2,027 2,297 2,216
Interest rate spread 1.48% 1.53% 1.59%
Net earning assets $12,280 15,777 15,789
Net yield on average
interest-earning assets 2.16% 2.35% 2.55%
Ratio of average interest-
earning assets to average
interest-bearing
liabilities 115.02% 119.27% 122.18%
<PAGE> 5
Rate/Volume Analysis
The following table sets forth certain information regarding changes in interest income and interest
expense of the Company for the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes in volume (changes in volume multiplied
by prior year's rate), rates (changes in rate multiplied by prior year's volume) and rate/volume (changes
in rate multiplied by the changes in volume).
Year Ended September 30,
2000 vs. 1999 1999 vs. 1998
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 $ 90 (15) (1) 74 64 (49) (3) 12
Mortgage-backed
securities (141) 20 (1) (122) 326 (58) (9) 259
Securities (1,195) (91) 41 (1,245) 236 (49) (5) 182
FHLB stock - 3 - 3 11 (2) (1) 8
Other interest-earning
assets 684 130 260 1,074 69 (31) (7) 31
Total interest-earning
assets (562) 47 299 (216) 706 (189) (25) 492
Interest expense:
Deposits 7 45 - 52 219 (144) (10) 65
Advances from FHLB - 2 - 2 371 (14) (10) 347
Total interest-
bearing liabilities $ 7 47 - 54 590 (158) (20) 412
Net interest income $ (270) 80
Year 2000 Readiness Disclosure
The Bank reviewed its 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 has been tested. Other major systems have been tested. Connectivity testing between Bank
and vendor systems to ensure continued compatibility has been completed.
No significant problems have been encountered with the year 2000 issue to date. There are other
reported dates which could cause software failure, and which were part of the year 2000 review and
testing. 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, 2000, 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 $40.5 million in certificates due within one year
and $16.9 million in other deposits without specific maturity at September 30, 2000. Management
estimates that most of the deposits will be retained or replaced by new deposits.
<PAGE> 6
Financial Condition
Total assets decreased from $96.6 million at September 30, 1999 to $94.0 million at September 30,
2000. The Bank sold all callable investments included in securities available for sale and a portion of
MBSs available for sale. Proceeds of the sales were $34.7 million of securities and $5.8 million of
MBSs and were invested in cash and cash equivalents, and to a lesser extent, used to fund loans and
deposit account withdrawals. Loans receivable, net increased as the Bank continued to promote fixed-
rate mortgage loan originations in local market area. Accrued interest on loans decreased due to one
nonaccrual loan at September 30, 2000. Accrued interest on MBSs and securities decreased due to
lower portfolio levels. Advances from borrowers for taxes and insurance decreased since the 1999
balance included customer deposits of insurance proceeds from a hailstorm.
The Company did not purchase any treasury stock during the year ended September 30, 2000. While
the purchase of treasury stock is believed to be beneficial to the Company and 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, 2000 to originate fixed-rate mortgage loans and fund loans
in process were $180,000. Loan commitments expire in 180 days or less.
Results of Operations
Comparison of the Years Ended September 30, 2000 and September 30, 1999
Net Earnings
Net loss for the year ended September 30, 2000 was $3.1 million, compared with net earnings of
$916,000 for the year ended September 30, 1999. The operations for 2000 were adversely affected
by losses on sales of securities and MBSs which were incurred to reduce interest rate risk.
Net Interest Income
Net interest income decreased from $2.3 million for 1999 to $2.0 million for 2000. The interest rate
spread decreased from 1.53% for 1999 to 1.48% for 2000. Securities in the amount of $34.7 million
were sold in order to improve the Bank's exposure to interest rate risk. Although the rate differential
between the securities sold and yield on the reinvested assets is approximately 50 basis points lower,
the Bank had approximately $3.5 million less in interest-earning assets as a result of the sale.
Interest on loans receivable increased as a result of higher average loans outstanding. Management
continues to emphasize origination of fixed-rate loans. Interest on securities, MBSs and other interest-
earning assets fluctuated due primarily to changes in average balances. 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 from $4.17 million for 1999 to $4.22 million for
2000 due to a higher average rate on deposits. The weighted-average rate on total interest-bearing
liabilities increased from 5.09% for 1999 to 5.16% for 2000.
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. There was no provision
for loan losses for 2000 compared to $5,000 for 1999. The Bank had one non-accrual loan at
September 30, 2000 of $156,000 and no non-accrual loans at September 30, 1999.
<PAGE> 7
Noninterest Income
Noninterest income reflects losses on sales of securities of $5.7 million and $238,000 of MBSs.
See "Qualitative Disclosures of Market Risk" for a further discussion.
Noninterest expense
Noninterest expense decreased from $935,000 for 1999 to $905,000 for 2000. Compensation and
benefits decreased due to fewer full time employees and lower ESOP expense, partially offset by cost
of living salary increases, higher MRP expense and lower loan origination fees capitalized. ESOP
expense was $94,000 and $79,000 for 1999 and 2000, respectively. ESOP expense is affected by
changes in the market price of the Company's stock. Equipment and data processing expense
decreased due primarily to slightly lower data processing charges.
Income Taxes
Income taxes decreased from $580,000 in 1999 to a credit of $1,756,000 in 2000 due to losses on
securities and MBSs available for sale.
Comparison of the Years Ended September 30, 1999 and September 30, 1998
Net Earnings
Net earnings for the year ended September 30, 1999 were $916,000 compared with $807,000 for the
year ended September 30, 1998, an increase of $109,000. The increase relates primarily to gains on
sale of MBSs and higher net interest income, partially offset by higher noninterest expense and income
taxes.
Net Interest Income
Net interest income was $2.2 million for 1998 and $2.3 million for 1999. The interest rate spread
decreased from 1.59% for 1998 to 1.53% for 1999. Interest rates paid on deposits decreased due
to local market conditions in 1998. Total interest income increased $493,000 from $6.0 million for
1998 to $6.5 million for 1999. The weighted-average yield on interest-earning assets decreased from
6.86% for 1998 to 6.62% for 1999 due to loan refinances, MBS prepayments and calls of investment
securities. Interest on loans receivable increased as a result of higher average loans outstanding for
1999. Management has placed renewed emphasis on origination of loans, primarily fixed-rate loans.
Interest on securities, MBSs and other interest-earning assets increased due to higher average balances,
offset by lower yields. 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
$412,000 from $3.8 million for 1998 to $4.2 million for 1999 due to higher average balances of
deposits and FHLB advances, offset by a lower average rate on deposits. The weighted-average rate
on total interest-bearing liabilities decreased from 5.27% for 1998 to 5.09% for 1999.
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 other 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. The provision for loan
losses was $5,000 for the year ended September 30, 1999. No provision for loan losses was recorded
for the year ended September 30, 1998. There were no non-accrual loans at September 30, 1999 or
1998.
Noninterest Income
Noninterest income increased by $100,000 from $39,000 for 1998 to $139,000 for 1999. This
increase resulted primarily from net gains on sales of MBSs of $4,000 in 1998 compared to $106,000
in 1999. Gains on sales of assets are not stable sources of income and there is no assurance that the
<PAGE> 8
Company will generate such gains in the future.
Noninterest expense
Noninterest expense increased by $13,000 from $922,000 for 1998 to $935,000 for 1999.
Compensation and benefits increased due to cost of living salary increases, offset by lower ESOP
expenses. ESOP expense was $103,000 and $94,000 for 1998 and 1999, respectively. ESOP
expense is affected by changes in the market price of the Company's stock. Equipment and data
processing expense increased as a result of full-year depreciation expense on equipment additions
placed in service during 1998 compared with half-year depreciation in 1998. Other noninterest expense
decreased due to lower supervisory and professional fees.
Income Taxes
Income taxes increased $54,000 from $526,000 in 1998 to $580,000 in 1999 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> 9
MICHAEL TROKEY & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
10411 CLAYTON ROAD
ST. LOUIS, MO 63131
(314) 432-0996
Report of Independent Auditors
The Board of Directors
Perry County Financial Corporation
Perryville, Missouri
We have audited the accompanying consolidated balance sheets of Perry County Financial Corporation
and subsidiary (Company), as of September 30, 2000 and 1999 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 2000. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the three years
in the period ended September 30, 2000 in conformity with generally accepted accounting principles.
St. Louis, Missouri
November 29, 2000
<PAGE> 10
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 2000 and 1999
Assets 2000 1999
Cash and cash equivalents $ 33,551,233 2,702,394
Securities available for sale, at market value (amortized
cost of $4,938,404 and $40,689,812) 4,950,056 37,598,925
Federal Home Loan Bank Stock 750,000 750,000
Mortgage-backed securities available for sale, at market
value (amortized cost of $35,125,029 and $37,243,056) 34,265,602 36,491,591
Loans receivable, net 17,685,109 16,600,996
Premises and equipment, net 288,416 311,740
Accrued interest receivable:
Securities 98,201 497,458
Mortgage-backed securities 196,629 203,805
Loans receivable 72,530 79,191
Deferred tax asset 1,104,907 1,325,803
Refundable income taxes 948,636 -
Other assets 37,905 55,047
Total assets $ 93,949,224 96,616,950
Liabilities and Stockholders' Equity
Deposits $ 66,608,646 67,747,445
Accrued interest on deposits 156,265 151,751
Advances from FHLB of Des Moines 15,000,000 15,000,000
Advances from borrowers for taxes and insurance 225,469 288,846
Other liabilities 82,289 89,218
Accrued income taxes 30,485 122,812
Total liabilities 82,103,154 83,400,072
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 8,254,013 8,220,541
Common stock acquired by ESOP (409,305) (455,275)
Common stock acquired by MRP (50,934) (141,056)
Unrealized loss on securities available for sale, net (534,098) (2,420,682)
Treasury stock, at cost, 114,524 shares (2,193,325) (2,193,325)
Retained earnings - substantially restricted 6,771,154 10,198,110
Total stockholders' equity 11,846,070 13,216,878
Total liabilities and stockholders' equity $ 93,949,224 96,616,950
See accompanying notes to consolidated financial statements.
<PAGE> 11
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
Years Ended September 30, 2000, 1999 and 1998
2000 1999 1998
Interest income:
Loans receivable $ 1,294,618 1,219,136 1,207,200
Mortgage-backed securities 2,187,965 2,310,106 2,050,704
Securities 1,347,567 2,589,063 2,399,372
Other interest-earning assets 1,416,828 344,408 313,014
Total interest income 6,246,978 6,462,713 5,970,290
Interest expense:
Deposits:
NOW 82,321 78,258 72,783
Passbook accounts 106,224 113,732 111,277
Money market deposit accounts 455,459 439,222 360,078
Certificates 2,736,739 2,697,518 2,719,639
Advances from FHLB 839,309 837,055 489,964
Total interest expense 4,220,052 4,165,785 3,753,741
Net interest income 2,026,926 2,296,928 2,216,549
Provision for loan losses - 5,000 -
Net interest income after provision for
loan losses 2,026,926 2,291,928 2,216,549
Noninterest income:
Service charges on NOW accounts 24,548 24,397 29,283
Loss on sale of securities available for sale (5,747,625) - -
Gain (loss) on sale of mortgage-backed securities
available for sale (238,216) 106,287 3,760
Other 6,323 8,337 5,860
Total noninterest income (5,954,970) 139,021 38,903
Noninterest expense:
Compensation and benefits 601,176 607,544 595,638
Occupancy expense 28,860 29,508 31,169
Equipment and data processing expense 91,594 94,339 84,704
SAIF deposit insurance premium 20,577 38,643 38,209
Other 163,234 164,993 172,525
Total noninterest expense 905,441 935,027 922,245
Earnings (loss) before income taxes (4,833,485) 1,495,922 1,333,207
Income taxes:
Current (868,489) 611,935 525,826
Deferred (887,096) (32,000) 670
Total income taxes (1,755,585) 579,935 526,496
Net earnings (loss) $ (3,077,900) 915,987 806,711
Basic earnings (loss) per common share $ (4.41) 1.23 1.04
Diluted earnings (loss) per common share $ (4.41) 1.22 1.03
See accompanying notes to consolidated financial statements.
<PAGE> 12
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 2000, 1999 and 1998
Common Common
Additional Stock Stock
Common Paid-in Acquired Acquired
Stock Capital by ESOP by MRP
Balance at
September 30, 1997 $ 8,565 8,110,852 (547,216) (257,269)
Net earnings - - - -
Reclass of gains in-
cluded in operations - - - -
Unrealized holding gains - - - -
Comprehensive earnings
Shares issued under MRP - 3,312 - (12,062)
Amortization of MRP
awards - - - 80,301
Cash dividends of $.40
per share - - - -
Amortization of ESOP
awards - 56,601 45,970 -
Treasury stock purchased - - - -
Balance at
September 30, 1998 8,565 8,170,765 (501,246) (189,030)
Net earnings - - - -
Reclass of gains in-
cluded in operations - - - -
Unrealized holding losses - - - -
Comprehensive earnings
Shares issued under MRP - 1,318 - (32,528)
Amortization of MRP
awards - - - 80,502
Cash dividends of $.50
per share - - - -
Amortization of ESOP
awards - 48,458 45,971 -
Treasury stock purchased - - - -
Balance at
September 30, 1999 8,565 8,220,541 (455,275) (141,056)
Net earnings (loss) - - - -
Reclass of loss in-
cluded in operations - - - -
Unrealized loss on
securities available for
sale, net - - - -
Comprehensive loss
Amortization of MRP
awards - - - 90,122
Cash dividends of $.50
per share - - - -
Amortization of ESOP
awards - 33,472 45,970 -
Treasury stock purchased - - - -
Balance at
September 30, 2000 $ 8,565 8,254,013 (409,305) (50,934)
(Continued)
See accompanying notes to consolidated financial statements.
<PAGE> 13
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 2000, 1999 and 1998
Unrealized
Gain (Loss)
on Securities Total
Available Treasury Retained Stockholders'
For Sale Stock Earnings Equity
Balance at
September 30, 1997 $ (9,153) (499,815) 9,242,636 16,048,600
Net earnings - - 806,711 806,711
Reclass of gains in-
cluded in operations (2,369) - - (2,369)
Unrealized holding gains 347,472 - - 347,472
Comprehensive earnings 1,151,814
Shares issued under MRP - 8,750 - -
Amortization of MRP
awards - - - 80,301
Cash dividends of $.40
per share - - (386,838) (386,838)
Amortization of ESOP
awards - - - 102,571
Treasury stock purchased - (117,750) - (117,750)
Balance at
September 30, 1998 335,950 (608,815) 9,662,509 16,878,698
Net earnings - - 915,987 915,987
Reclass of gains in-
cluded in operations (66,961) - - (66,961)
Unrealized holding losses (2,689,671) - - (2,689,671)
Comprehensive earnings (1,840,645)
Shares issued under MRP- - 31,210 - -
Amortization of MRP
awards - - - 80,502
Cash dividends of $.50
per share - - (380,386) (380,386)
Amortization of ESOP
awards - - - 94,429
Treasury stock purchased - (1,615,720) - (1,615,720)
Balance at
September 30, 1999 (2,420,682) (2,193,325) 10,198,110 13,216,878
Net earnings (loss) - - (3,077,900) (3,077,900)
Reclass of loss in-
cluded in operations 3,950,655 - - 3,950,655
Unrealized loss on
securities available for
sale, net (2,064,071) - - (2,064,071)
Comprehensive loss (1,191,316)
Amortization of MRP
awards - - - 90,122
Cash dividends of $.50
per share - - (349,056) (349,056)
Amortization of ESOP
awards - - - 79,442
Treasury stock purchased - - - -
Balance at
September 30, 2000 $(534,098) (2,193,325) 6,771,154 11,846,070
See accompanying notes to consolidated financial statements.
<PAGE> 14
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended September 30, 2000, 1999 and 1998
2000 1999 1998
Cash flows from operating activities:
Net earnings (loss) $(3,077,900) 915,897 806,711
Adjustments to reconcile net earnings (loss) cash
provided by (used for) operating activities:
Depreciation expense 27,189 28,026 18,068
Provision for loan loss - 5,000 -
ESOP expense 79,442 94,429 102,571
MRP expense 90,122 80,502 80,301
Amortization of premiums, discounts and loan
fees, net (310,937) (509,013) (318,244)
Loss (gain) on sale of mortgage-backed securities
available sale 238,216 (106,287) (3,760)
Loss on sale of securities available for sale 5,747,625 - -
Decrease (increase) in:
Accrued interest receivable 413,094 (86,017) 14,560
Refundable income taxes (948,636) - -
Other assets 17,142 10,102 (32,971)
Increase (decrease) in:
Accrued interest on deposits 4,514 7,670 21,925
Other liabilities (6,929) 35,238 28,344
Accrued income taxes (92,327) 50,977 (15,846)
Deferred income tax asset/liability (887,096) (32,000) 670
Net cash provided by (used for) operating
activities 1,293,519 494,614 702,329
Cash flows from investing activities:
Loans originated, net of principal collections (1,082,941) (836,864) (1,854,251)
Mortgage-backed securities available for sale:
Purchased (8,532,881)(16,802,234) (10,036,213)
Principal collections 4,631,931 9,162,197 5,944,652
Proceeds from sale 5,787,068 4,195,315 901,069
Securities available for sale:
Purchased (4,899,173)(21,157,634) (27,477,856)
Proceeds from maturity or call 500,000 14,149,666 29,377,989
Proceeds from sale 34,706,413 - 800,000
Purchase of FHLB stock, net of redemption - - (148,500)
Purchase of premises and equipment (3,865) (6,443) (63,896)
Net cash provided by (used for) investing
activities 31,106,552 (11,295,997) (2,557,006)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (1,138,799) 3,596,732 3,079,639
Advances from borrowers for taxes and insurance (63,377) 106,637 23,973
Advances from FHLB - - 18,000,000
Repayment of advances from FHLB - - (9,500,000)
Purchase of treasury shares - (1,615,720) (117,750)
Dividends paid to stockholders (349,056) (380,386) (386,838)
Net cash provided by (used for) financing
activities (1,551,232) 1,707,263 11,099,024
Net increase (decrease) in cash and cash equivalents 30,848,839 (9,094,120) 9,244,347
Cash and cash equivalents at beginning of year 2,702,394 11,796,514 2,552,167
Cash and cash equivalents at end of year $ 33,551,233 2,702,394 11,796,514
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits $ 3,376,229 3,321,060 3,241,852
Interest on advances from FHLB 839,309 837,055 489,964
Federal income taxes 152,340 503,481 476,320
State income taxes 20,000 57,476 65,352
See accompanying notes to consolidated financial statements.
<PAGE> 15
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999 and
Years Ended September 30, 2000, 1999 and 1998
(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 $33,315,296 and $2,450,022 at September 30, 2000 and 1999,
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.
d. Loans receivable, net are carried at unpaid principal balances, less loans in process, net deferred
loan fees, and allowance for losses. Loan origination and commitment fees and certain direct
loan origination costs are deferred and amortized to interest income over the contractual life
of the loan using the interest method.
e. 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
<PAGE> 16
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
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, 2000 or 1999.
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 allowance based on their evaluation
of available information. There can be no assurance that the Bank's regulators will not
require further increases to the allowance.
g. Premises and equipment, net are carried at cost, less accumulated depreciation. Depreciation
of premises and equipment is computed using the straight-line method based on the
estimated useful lives of the related assets. Estimated lives are generally thirty to fifty years
for building and improvements, and five to ten years for furniture and equipment.
h. Interest on securities, mortgage-backed securities and loans receivable is accrued as earned.
Interest on loans receivable contractually delinquent more than ninety days is excluded from
income until collected.
i. Deferred income tax assets and liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount that will more likely than not
be realized. Income tax expense is the tax payable or refundable for the period plus or minus
the net change in the deferred tax assets and liabilities.
j. Earnings per share are based upon the weighted-average shares outstanding. ESOP shares
which have been committed to be released are considered outstanding, and stock options to
the extent dilutive.
k. 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.
The Bank reports compensation expense equal to the average fair value of the ESOP shares
committed to be released in accordance with the provisions of Statement of Position 93-6.
<PAGE> 17
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
l. The following paragraphs summarize the impact of new accounting pronouncements:
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
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. SFAS No. 133, as amended by SFAS No. 137 and No.
138 is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 is not
expected to affect the financial position or results of the 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. Senior management of the Bank
monitors the level of net interest income and noninterest income from various products and
services. Further, operations of the Bank are managed and financial performance is evaluated
on an industry-wide basis. As a result, all of the Bank's operations are considered by
management to be aggregated in one reportable operating segment.
The consolidated financial statements have been prepared in conformity with generally accepted
accounting principles. In preparing the consolidated financial statements, management is
required to make estimates and assumptions which affect the reported amounts of assets and
liabilities as of the balance sheet dates and income and expenses for the periods covered. Actual
results could differ significantly from these estimates and assumptions.
The Bank's operations are affected by interest rate risk, credit risk, market risk and regulations by
the Office of Thrift Supervision (OTS). The Bank is subject to interest rate risk to the degree that
its interest-bearing liabilities mature or reprice more rapidly, or on a different basis, than its
interest-earning assets. The Bank uses a net market value methodology provided by the OTS to
measure its interest rate risk exposure. Net portfolio value is the expected discounted cash flows
from the institution's assets, liabilities and off-balance-sheet contracts. This exposure is a
measure of the potential decline in the net portfolio value of the Bank based upon the effect of
an assumed increase or decrease in interest rates in 100 basis point increments. Credit risk is
the risk of default on the Bank's loan portfolio that results from the borrowers' inability or
unwillingness to make contractually required payments. Market risk reflects changes in the value
of collateral underlying loans receivable and the valuation of real estate held by the Bank. The
Bank is subject to periodic examination by regulatory agencies which may require the Bank to
record increases in the allowances based on their evaluation of available information. There can
be no assurance that the Bank's regulators will not require further increases to the allowances.
The Bank is 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
<PAGE> 18
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
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, 2000 to originate fixed-rate mortgage loans and fund loans in
process were $180,000 expiring in 180 days or less.
(3) Securities:
Securities are summarized as follows:
2000
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Available for sale:
Debt securities - Federal
agency obligations $ 4,938,404 13,455 (1,803) 4,950,056
Weighted-average rate 6.48%
1999
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Available for sale:
Debt securities - Federal
agency obligations $ 40,689,812 - (3,090,887) 37,598,925
Weighted-average rate 6.78%
Maturities of debt securities available for sale are summarized as follows:
2000
Amortized Market
Cost Value
Due in one year or less $ 1,993,709 1,992,106
Due after one year through five years 2,944,696 2,957,950
$ 4,938,404 4,950,056
Proceeds from sales of securities available for sale and gross realized gains and losses on these
sales are summarized as follows:
2000 1999 1998
Proceeds from sale $ 34,706,413 - 800,000
Gross realized gains $ - - -
Gross realized losses (5,747,625) - -
Net gains (losses) $ (5,747,625) - -
<PAGE> 19
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) Mortgage-backed Securities:
Mortgage-backed securities are summarized as follows:
2000
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Available for sale:
Mortgage-participation certificates:
FHLMC $ 2,298,575 8,575 (8,578) 2,298,572
GNMA 22,665,315 22,137 (721,658) 21,965,794
FNMA 10,161,139 14,797 (174,699) 10,001,237
$ 35,125,029 45,509 (904,935) 34,265,602
Weighted-average rate 6.86%
1999
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Available for sale:
Mortgage-participation certificates:
FHLMC $ 463,926 - (8,133) 455,793
GNMA 30,699,022 33,475 (655,665) 30,076,832
FNMA 6,080,108 11,840 (132,982) 5,958,966
$ 37,243,056 45,315 (796,780) 36,491,591
Weighted-average rate 6.54%
Mortgage-backed securities with a market values of $6,224,000 and $1,663,000 were pledged
as collateral to secure advances from FHLB of Des Moines and certain deposits, respectively, at
September 30, 2000. Adjustable-rate mortgage and balloon loans included in mortgage-backed
securities at September 30, 2000 and 1999 were approximately $9,800,000 and $9,187,000,
respectively.
Proceeds from sales of mortgage-backed securities available for sale and gross realized gains and
losses on these sales are summarized as follows:
2000 1999 1998
Proceeds from sale $ 5,787,068 4,195,315 901,069
Gross realized gains $ 933 106,287 10,267
Gross realized losses (239,149) - (6,507)
Net gains (losses) $ (238,216) 106,287 3,760
<PAGE> 20
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) Loans Receivable, Net
Loans receivable, net are summarized as follows:
2000 1999
Real estate loans:
Single, 1-4 family units $ 15,516,189 14,379,196
Multi-family, 5 or more units 13,521 26,892
Construction 656,000 1,029,840
Land 620,469 637,905
Commercial 904,596 617,844
Loans secured by deposit accounts 302,684 279,953
18,013,459 16,971,630
Loans in process (283,393) (329,405)
Deferred loan fees (14,956) (11,229)
Allowance for losses (30,000) (30,000)
$ 17,685,109 16,600,996
Weighted-average rate 7.61% 7.51%
Real estate construction loans at September 30, 2000, are secured primarily by single, 1-4 family
units. Adjustable-rate loans included in the loan portfolio amounted to $401,000 and $504,000
at September 30, 2000 and 1999, respectively.
Following is a summary of activity in allowance for losses:
2000 1999 1998
Balance, beginning of year $ 30,000 25,000 25,000
Provision charged to expense - 5,000 -
Balance, end of year $ 30,000 30,000 25,000
The Bank had one non-accrual loan at September 30, 2000 of $156,000 and no non-accrual loans
at September 30, 1999.
Following is a summary of loans in excess of $60,000 to directors and executive officers for the
year ended September 30, 2000:
Balance, September 30, 1999 $ 255,724
Repayments (10,717)
Balance, September 30, 2000 $ 245,007
These loans were made on substantially the same terms as those prevailing at the time for
comparable transactions with unaffiliated persons.
<PAGE> 21
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(6) Premises and Equipment, Net
Premises and equipment, net are summarized as follows:
2000 1999
Land $ 46,972 46,972
Building and improvements 350,356 350,356
Furniture, fixtures and equipment 179,369 175,504
576,697 572,832
Less accumulated depreciation 288,281 261,092
$ 288,416 311,740
Depreciation expense for the years ended September 30, 2000, 1999 and 1998 was $27,189,
$28,026 and $18,068, respectively.
(7) Deposits
Deposits are summarized as follows:
Description and interest rate 2000 1999
Noninterest-bearing checking $ 41,365 59,200
NOW accounts, 2.25% 3,589,135 3,467,695
Savings accounts, 2.75% 3,635,446 4,075,051
Money market deposit accounts, 4.96% and
4.72%, respectively 9,552,650 10,045,753
Total transaction accounts 16,818,596 17,647,699
Certificates:
2.01 - 3.00% 130,558 120,000
3.01 - 4.00% - -
4.01 - 5.00% 2,599,279 13,790,019
5.01 - 6.00% 21,996,230 34,680,622
6.01 - 7.00% 21,450,929 1,509,105
7.01 - 8.00% 3,613,053 -
Total certificates, 5.29% and 5.29%, respectively 49,790,050 50,099,746
Total deposits $ 66,608,646 67,747,445
Weighted-average rate - deposits 5.47% 4.98%
Certificate maturities at September 30, 2000 are summarized as follows:
October 1, 2000 to September 30, 2001 $ 40,516,246
October 1, 2001 to September 30, 2002 6,789,406
October 1, 2002 to September 30, 2003 1,797,828
October 1, 2003 to September 30, 2004 491,132
October 1, 2004 to September 30, 2005 195,438
$ 49,790,050
<PAGE> 22
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Certificates of deposits of $100,000 or more at September 30, 2000 are summarized as follows:
Maturing in:
Three months or less $ 3,131,635
Over three through six months 2,581,837
Over six through twelve months 2,085,882
$ 7,799,354
(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 2000 1999
May 8, 2008 5.62% May 8, 2003 $ 5,500,000 5,500,000
July 15, 2008 5.52% July 15, 2003 8,000,000 8,000,000
September 11, 2008 4.99% September 11, 2001 1,500,000 1,500,000
$ 15,000,000 15,000,000
Advances from Federal Home Loan Bank of Des Moines were secured by FHLB stock, certain
mortgage-backed securities and single-family mortgage loans of $11,795,039. See also notes
3 and 4. All advances at September 30, 2000 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. The
Bank's tax bad debt reserves in excess of the 1987 tax year level are subject to recapture as
a result of legislation enacted in 1996. The recapture is 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. The Bank is permitted to make additions to the tax bad debt
reserve using the experience method.
Income taxes are summarized as follows:
2000 1999 1998
Current:
Federal $ (823,346) 541,860 462,655
State (45,143) 70,075 63,171
(868,489) 611,935 525,826
Deferred:
Federal (883,014) (34,000) 1,639
State (4,082) 2,000 (969)
(887,096) (32,000) 670
$ (1,755,585) 579,935 526,496
The Bank has an net operating loss carryforward for Federal income tax purposes of $2,300,000
which expires in 2020.
<PAGE> 23
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Total income tax expense is different than the amounts computed by applying the federal rate of
34% in the years ending September 30, 2000, 1999 and 1998 to earnings (loss) before taxes
as a result of the following:
2000 1999 1998
Expected income tax expense at Federal tax rate $ (1,643,384) 508,613 453,291
ESOP compensation expense 11,380 16,475 19,244
State income tax, net of Federal tax benefit (45,143) 45,718 41,664
Other (78,438) 9,129 12,297
$ (1,755,585) 579,935 526,496
Effective tax rate (36.3)% 38.8% 39.5%
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 were 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:
2000 1999
Deferred tax asset:
Allowance for loan losses $ 11,100 11,100
Unrealized loss on securities and MBSs available for sale 313,677 1,421,670
Net operating loss carryforward 845,787 -
Book over tax ESOP and MRP expense, net 46,695 42,224
Deferred tax asset 1,217,259 1,474,994
Deferred tax liability:
Tax bad debt reserves arising after December 31, 1987 (107,986) (144,825)
FHLB stock dividend (4,366) (4,366)
Deferred tax liability (112,352) (149,191)
Net deferred tax asset (liability) $ 1,104,907 1,325,803
(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> 24
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
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, 2000, 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, 2000 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 $11,846
Stockholders' equity of Company (1,281)
Deferred tax asset - limited (901)
Unrealized loss on securities 534
Tangible capital 10,198 11.0% $1,392 1.5%
General valuation allowance 30
Total capital to risk-weighted
assets $10,228 46.5% $1,759 8.0% $2,199 10.0%
Tier 1 capital to risk-weighted-
assets $10,198 46.4% $880 4.0% $1,319 6.0%
Tier 1 capital to total assets $10,198 11.0% $3,711 4.0% $4,639 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 does not permit cash dividend payments if the Bank's capital would
be reduced below the amount of the minimum capital requirements or the liquidation account
established at the time of conversion to stock form. The OTS may impose other restrictions on
payment of dividends.
<PAGE> 25
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Following is a summary of basic and diluted earnings (loss) per common share for the year ended
September 30, 2000, 1999 and 1998:
2000 1999 1998
Net earnings (loss) $ (3,077,900) 915,987 806,711
Weighted-average shares - Basic EPS 698,699 746,260 775,325
Stock options - treasury stock method - 2,883 8,352
Weighted-average shares - Diluted EPS 698,699 749,143 783,677
Basic earnings (loss) per common share $ (4.41) 1.23 1.04
Diluted earnings (loss) per common share $ (4.41) 1.22 1.03
Options to purchase 49,387 shares of common stock at $19.00 per share were outstanding
during the year ended September 30, 2000, but were not included in the computation of
diluted earnings (loss) per share 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 equal to the ESOP's debt service less dividends on
unallocated shares used to repay the 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.
Dividends on allocated shares are charged to stockholders' equity. Dividends on unallocated
shares are recorded as a reduction to the ESOP loan. ESOP expense for 2000, 1999 and 1998
was $79,442, $94,429 and $102,571, respectively. The number of ESOP shares were as
follows:
2000 1999
Allocated shares 20,022 16,398
Shares released for allocation 4,597 4,597
Unreleased shares 40,931 45,528
Total ESOP shares 65,550 66,523
<PAGE> 26
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
The fair value of unreleased ESOP shares based on market price of the Company's stock was
$696,000 at September 30, 2000.
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, 2000, 1999 and 1998, there were 49,387 shares outstanding. At September
30, 2000 there were 39,510 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:
2000 1999 1998
Reported net earnings (loss) $ (3,077,900) 915,987 806,711
Proforma net earnings (loss) $ (3,111,937) 881,950 772,674
Reported diluted earnings (loss) per share $ (4.41) 1.22 1.03
Proforma diluted earnings (loss) per share $ (4.45) 1.18 .99
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 and 1,712 in November, 1998. 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 2000, 1999 and 1998 was $90,122, $80,502 and $80,301,
respectively.
<PAGE> 27
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(12) Condensed Parent Company Only Financial Statements
The following condensed balance sheets and condensed statements of operations 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 2000 1999
Cash and cash equivalents $ 845,511 1,129,331
ESOP note receivable 477,697 515,961
Accrued interest receivable 145 -
Other assets 12,049 24,376
Investment in subsidiary 10,564,803 11,621,356
Total assets $ 11,900,205 13,291,024
Liabilities and Stockholders' Equity
Other liabilities $ 54,135 74,146
Total liabilities 54,135 74,146
Stockholders' equity 11,846,070 13,216,878
Total liabilities and stockholders' equity $ 11,900,205 13,291,024
STATEMENTS OF OPERATIONS
Year Ended September 30,
2000 1999 1998
Equity in earnings (loss) of the Bank $ (3,112,701) 434,591 303,598
Dividend from Bank - 428,226 428,226
Interest income 91,840 135,199 190,918
Other income - - 2,300
Other expenses (38,904) (54,639) (79,753)
Income taxes (18,135) (27,390) (38,578)
Net earnings (loss) $ (3,077,900) 915,987 806,711
<PAGE> 28
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
STATEMENTS OF CASH FLOWS
Year Ended September 30,
2000 1999 1998
Cash flows from operating activities:
Net earnings (loss) $ (3,077,900) 915,987 806,711
Adjustments to reconcile net earnings (loss)
to net cash provided by (used for)
operating activities:
Equity in earnings of the Bank 3,112,701 (862,817) (731,824)
Dividend from Bank - 428,226 428,226
Other, net (7,829) 58,829 24,461
Net cash provided by (used for)
operating activities 26,972 540,225 527,574
Cash flows from investing activities:
Principal collected on loan to ESOP 38,264 35,837 33,565
Purchase of securities available for sale - - (1,000,000)
Securities available for sale - matured - 1,000,000 1,000,000
Securities available for sale - sold - - 800,000
Net cash provided by (used for)
investing activities 38,264 1,035,837 833,565
Cash flows from financing activities:
Treasury stock purchased - (1,615,720) (117,750)
Dividends paid (349,056) (380,386) (386,838)
Net cash provided by (used for)
financing activities (349,056) (1,996,106) (504,588)
Net increase (decrease) in cash and cash
equivalents (283,820) (420,044) 856,551
Cash and cash equivalents at beginning of year 1,129,331 1,549,375 692,824
Cash and cash equivalents at end of year $ 845,511 1,129,331 1,549,375
(13) Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments are summarized as follows:
2000 1999
Carrying Fair Carrying Fair
Amount Value Amount Value
Non-trading instruments and
nonderivatives:
Cash and cash equivalents $ 33,551,233 33,551,233 2,702,394 2,702,394
Securities available for sale 4,950,056 4,950,056 37,598,925 37,598,925
Stock in FHLB of Des Moines 750,000 750,000 750,000 750,000
Mortgage-backed securities
available for sale 34,265,602 34,265,602 36,491,591 36,491,591
Loans receivable, net 17,685,109 17,486,962 16,600,996 16,371,902
Accrued interest receivable 367,360 367,360 780,454 780,454
Deposits 66,608,646 66,427,700 67,747,445 67,537,475
Accrued interest on deposits 156,265 156,265 151,751 151,751
Advances from FHLB of
Des Moines 15,000,000 14,571,000 15,000,000 15,031,000
<PAGE> 29
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
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.
The carrying amount of accrued interest approximates fair value.
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> 30
CORPORATE INFORMATION
OFFICERS
LEO J. ROZIER
chairman of the board
and president
JAMES K. YOUNG
secretary
STEPHEN C. ROZIER
assistant vice-president
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
JAMES K. YOUNG
retired owner/operator of
funeral home
THOMAS L. HOEH
attorney
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
FORM 10-KSB
A COPY OF FORM 10-KSB, INCLUDING FINANCIAL STATEMENT SCHEDULES AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON
WRITTEN REQUEST TO THE SECRETARY, PERRY COUNTY FINANCIAL CORPORATION, 14 NORTH JACKSON STREET,
PERRYVILLE, MISSOURI 63375-1334.
<PAGE> 31
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