-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NBtbYhm+43PD215FpwdU3lK6pkFIX7t3yuat+tORuLMCtY91Xd9ESqL+zFL1aShR WZgzuV/+PPqiaNuBPXcftg== 0000946275-97-000686.txt : 19971230 0000946275-97-000686.hdr.sgml : 19971230 ACCESSION NUMBER: 0000946275-97-000686 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971229 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSISSIPPI VIEW HOLDING CO CENTRAL INDEX KEY: 0000933404 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 411795363 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 000-25546 FILM NUMBER: 97745295 BUSINESS ADDRESS: STREET 1: 35 E BROADWAY CITY: LITTLE FALLS STATE: MN ZIP: 56345 BUSINESS PHONE: 6126325461 MAIL ADDRESS: STREET 1: 35 EAST BROADWAY CITY: LITTLE FALLS STATE: MN ZIP: 56345-3093 10KSB40 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One): [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended September 30, 1997, ------------------- [ ] 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 No. 0-25546 MISSISSIPPI VIEW HOLDING COMPANY - -------------------------------------------------------------------------------- (Name of Small Business Issuer in Its Charter) Minnesota 41-1795363 - --------------- ------------------ (State or Other Jurisdiction of Incorporation I.R.S. Employer or Organization) Identification No. 35 East Broadway, Little Falls, Minnesota 56345 - ----------------------------------------- -------------- (Address of Principal Executive Offices) (Zip Code) Issuer's Telephone Number, Including Area Code: 320-632-5461 ------------ 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 $0.10 per share --------------------------------------- (Title of Class) Check whether the issuer: (1) has 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 [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, --- to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $739,715 As of December 9, 1997, there were issued and outstanding 740,243 shares of the registrant's Common Stock. The Registrant's voting stock trades on the Nasdaq SmallCap market under the symbol "MIVI." The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the average bid and asked price of the registrant's Common Stock on December 9, 1997, was $8,018,784 ($18.00 per share based on 445,488 shares of Common Stock outstanding). Transition Small Business Disclosure Format (check one) YES [ ] NO [X] DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Annual Report to Stockholders for the Fiscal Year ended September 30, 1997. (Parts I, II, and IV) 2. Portions of the Proxy Statement for the Annual Meeting of Stockholders. (Part III) PART I Item 1. Business - ----------------- General Mississippi View Holding Company (the "Company") is a Minnesota corporation organized in November 1994 at the direction of Community Federal Savings and Loan Association of Little Falls (the "Association") in connection with the Association's conversion from the mutual to stock form (the "Conversion"). On March 23, 1995, the Association completed the Conversion and became a wholly owned subsidiary of the Company. The Company is a unitary savings and loan holding company which, under existing laws, generally is not restricted in the types of business activities in which it may engage provided the Association retains a specified amount of its assets in housing-related investments. The Association is a federally chartered stock savings and loan association. The Association's only office is located in Little Falls, Morrison County, Minnesota. The Association was founded in 1934 under the name Little Falls Federal Savings and Loan Association of Little Falls. The name of the Association was changed to Community Federal Savings and Loan Association of Little Falls in July 1977. The Association is subject to examination and comprehensive regulation by the Office of Thrift Supervision ("OTS") and its deposits are federally insured by the Savings Association Insurance Fund ("SAIF"). The Association is a member of and owns capital stock in the Federal Home Loan Bank ("FHLB") of Des Moines, which is one of the 12 regional banks in the FHLB System. The Association attracts deposits from the general public and uses such deposits, without outside borrowings, primarily to invest in investment securities and to originate loans secured by first mortgages on owner-occupied, one- to four-family residences in its market area. The Association's loan portfolio predominantly consists of both adjustable-rate and fixed-rate mortgage loans secured by single family residences and, to a much lesser extent, commercial mortgage and construction loans. The Association also makes consumer loans, consisting of savings account loans, home improvement loans, new and used auto loans, recreational vehicle loans, home equity line of credit loans, and unsecured loans. The principal sources of funds for the Association's lending activities are deposits and the amortization, repayment, and maturity of loans and investment securities. The Association does not rely on brokered deposits. Principal sources of income are interest on loans and investment securities. The Association's principal expense is interest paid on deposits. Market Area and Competition The Association's primary market area consists of Morrison County, Minnesota. Morrison County has traditionally been one of the lower income areas of the state and has carried a comparatively higher unemployment rate than other areas of the state. The county has been successful in recent years in attracting new and in retaining existing businesses through the progressive activities of its County Board, Little Falls City Council, Little Falls Economic Development Authority, Morrison County Rural Finance Development Authority, and Community Development of Morrison County Corporation. Little Falls financial institutions, including the Association, have demonstrated cooperation in providing needed expertise and gap financing to facilitate the community development process. Morrison County is the home of three major recreational boat manufacturers; Larson, Crestliner, and Glastron. The financial performance and employment size of the recreational boat industry have historically been highly cyclical. Also located in Morrison County are a hospital, a paper mill, a national mailing distributor, and Camp Ripley, a prominent National Guard training facility. Little Falls is the county seat of Morrison County. According to the Minnesota Department of Agriculture, Morrison County is the third largest dairy producing county in the State. The Association encounters strong competition both in the attraction of deposits and origination of real estate and other loans. Competition comes primarily from eight banks and two credit unions with offices in its market area. In addition, the Association competes with investment and mortgage banking companies that operate in the area. Due to their size, some of the Association's competitors possess greater financial and marketing resources. Based on published figures, the Association is the only thrift institution headquartered in Morrison County, Minnesota, and third largest financial institution headquartered in Morrison County, Minnesota on the basis of assets as of June 30, 1997. The Association competes for savings accounts by offering depositors competitive interest rates and a high level of personal service. Over the past five years, the Association has added low cost noninterest bearing checking accounts, safety deposit boxes, a drive-up 1 ATM, plastic cash and check cards, checking account overdraft protection and home equity line of credit loans in order to remain competitive in its market. Analysis of Loan Portfolio. Set forth below is selected data relating to the composition of the Association's loan portfolio by type of loan on the dates indicated:
At September 30, ------------------------------------------------------- 1997 1996 ----------------------- ------------------------ $ % $ % ------- -------- --------- -------- (Dollars in Thousands) Type of Loans: Construction ........................... 953 2.07% 627 1.40% Residential (includes held for sale)(1) 34,152 74.16% 33,682 75.54% Commercial real estate ................. 1,227 2.67% 1,417 3.18% Commercial business .................... 393 0.85% 351 0.79% Consumer loans (includes held for sale): Low document mortgage (2) .............. 1,036 2.25% 1,619 3.63% Other consumer and land ................ 8,289 18.00% 6,894 15.46% ------ ------ ------ ------ Total loans ............................ 46,050 100.00% 44,590 100.00% ====== ====== Less: Loans in process ....................... 310 228 Deferred loan origination fees and costs 269 236 Allowance for loan losses .............. 861 877 ------ ------ Total loans, net ......................... 44,610 43,249 ====== ======
- ----------------------------- (1) Includes one- to four-family and multi-family residential real estate. (2) Consists primarily of second mortgage and low documentation mortgage loans with terms of ten years or less. 2 Loan Maturity Tables. The following table sets forth the maturity of Association's loan portfolio at September 30, 1997. The table does not include prepayments of scheduled principal repayments which totaled $5.5 million and $6.0 million for the years ended September 30, 1997 and 1996, respectively. All mortgage loans are shown as maturing based on contractual maturities.
Land, Multi 1-4 Family Family & Commercial Real Estate Commercial Business & Mortgage Real Estate Construction Consumer Total ----------- ----------- ------------- ---------- ----- (Dollars in Thousands) ----------------------------------------------------------- Non-performing ........................ $ 223 $ -- $ -- $ 11 $ 234 Amounts Due: Within 3 Months ..................... 17 182 692 319 1,210 3 Months to 1 Year .................. 143 3 261 416 823 After 1 Year: 1 to 3 Years ........................ 452 301 -- 3,492 4,245 3 to 5 Years ........................ 930 73 -- 3,019 4,022 5 to 10 Years ....................... 2,301 125 -- 998 3,424 10 to 20 Years ...................... 14,590 937 -- 1,463 16,990 Over 20 Years ....................... 15,028 74 -- -- 15,102 -------- -------- ------ -------- -------- Total due after one year ......... 33,301 1,510 -- 8,972 43,783 -------- -------- ------ -------- -------- Total amount due ................. $ 33,684 $ 1,695 $ 953 $ 9,718 $ 46,050 ======== ======== ====== ======== Less: Allowance for loan loss ............. 861 Undisbursed portion of mortgage loans 310 Deferred loan fees .................. 269 -------- Loans receivable, net ............ $ 44,610 ========
The following table sets forth the dollar amount of all loans due after September 30, 1998, which have pre-determined interest rates and which have floating or adjustable interest rates. Fixed Floating or Rates Adjustable Rates Total ----- ---------------- ----- (Dollars in Thousands) ------------------------------------- One-to four-family ................ $ 9,349 $23,952 $33,301 Commercial real estate ............ 965 545 1,510 Consumer .......................... 7,687 1,285 8,972 ------- ------- ------- Total .......................... $18,001 $25,782 $43,783 ======= ======= ======= 3 One- to Four-Family Residential Loans. The Association's primary lending activity consists of the origination of single family residential mortgage loans secured by property located in the Association's primary market area. The Association generally originates one-to four-family residential mortgage loans in amounts up to 80% of the lesser of the appraised value or selling price of the mortgaged property. The Association requires private mortgage insurance on loans originated at 80 to 95% of the lesser of the appraised value or selling price. Loans equal to 100% of the lesser of appraised value or selling price are offered if insured by Farmers Home Administration ("FmHA") or the Veterans Administration ("VA"). Loans with a 95 to 98% loan to value ratio are offered if insured by the U.S. Department of Housing and Urban Development ("HUD"). Loans insured by other agencies are sold on the secondary market. Loan originations are generally obtained from existing or past customers, members of the local community, and referrals from realtors within the Association's lending area. Mortgage loans originated and held by the Association in its portfolio generally include due-on sale clauses which provide the Association with the contractual right to deem the loan immediately due and payable in the event that the borrower transfers ownership of the property without the Association's consent. The Association primarily originates for its portfolio adjustable-rate mortgage loans with up to 30 year terms that adjust annually based upon the one-year Treasury Bill rate and fixed rate mortgage loans with 15 year terms. The Association also originates 20 and 30 year fixed-rate mortgage loans for sale in the secondary market. The Association had limited success in originating ARMs during periods of prevailing low market interest rates. ARMs generally have a 2% cap on any change in the interest rate per year, with an overall limit of 6% on any increase or decrease over the life of the loan. Although the Association occasionally offers discounts on the interest rate on its ARMs during the first year of the mortgage loan for competitive reasons, generally it determines a borrowers ability to pay at the maximum second year rate. Three year balloon mortgages are offered on greater than forty acre parcels, seasonal dwellings, multi-collateral parcels, and one- to four-unit rental properties. Adjustable-rate mortgage loans decrease the risks associated with changes in interest rates, but involve other risks because, as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for default. At the same time, the marketability of the underlying collateral, may be adversely affected by higher interest rates. These risks have not had an adverse effect on the Association to date. Interest rates charged on fixed-rate mortgage loans are competitively priced based on market conditions and the Association's cost of funds. The origination fees for fixed rate loans were generally 1% at September 30, 1997. Generally, the Association's standard underwriting guidelines for fixed rate mortgage loans conform to Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association ("Fannie Mae") guidelines. The Association currently sells essentially all 30-year fixed-rate mortgage loans in the secondary market, servicing released. As of September 30, 1997, the Association's portfolio of loans previously originated, sold, and serviced for others totaled approximately $2.4 million. Multi-Family and Commercial Real Estate Loans. The Association originates a limited number of commercial real estate and multi-family real estate loans. Commercial loans must be approved by the President, who has authority to lend up to $500,000 on secured commercial real estate loans. Any loan in excess of this limit must be approved in advance by the Board of Directors. The President, informs the Board of Directors at their monthly meeting of all commercial real estate loans originated during the previous month. The Association's commercial real estate loan portfolio consists of seasoned permanent loans secured by improved property such as retail stores, manufacturing facilities, and other non-residential buildings. As of September 30, 1997, the Association had multi-family and commercial real estate loans totaling $2.2 million, or 4.87% of the Association's loan portfolio of which $840,550 were secured by multi-family real estate. Loans secured by multi-family and commercial real estate generally involve a greater degree of risk than residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects 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 or business. If the cash flow from the project or business is reduced, the borrower's ability to repay the loan may be impaired. As of September 30, 1997, the largest permanent multi-family and commercial real estate loan was secured by a commercial property in Little Falls, Minnesota and had a balance of $532,357 and payments were current. 4 Construction Loans. The Association primarily makes loans to construct single-family owner occupied homes which upon completion of construction convert to permanent financing. For at least the past 10 years, the Association has not made construction loans to builders for the purpose of spec homes. Construction loans are made to owners for construction of their primary residence on a construction/permanent basis. Construction/permanent loans to owner/borrowers have either fixed or adjustable rates and are underwritten in accordance with the same terms and requirements as the Association's permanent mortgages on existing properties except that the building contractor must meet the Association's Board approved construction lending policy. The loans generally provide for disbursements of loan proceeds in stages during a construction period of up to six months. Borrowers are required to pay accrued interest on the outstanding balance monthly during the construction phase. At September 30, 1997, there was $953,265 outstanding in construction loans to owner/borrowers with $271,924 in outstanding loans in process allocated to these projects. The Association originated $1.4 million in construction loans on one- to four-family properties during fiscal 1997. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, the Association may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate, the Association may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment. The Association is not engaged in any other significant loans for commercial development, land acquisition, and development of condominiums or apartment buildings. Consumer and Other Loans. The Association also offers consumer and other loans in the form of first and second low document three year balloon mortgages with 10 to 20-year amortizations which totaled $3.1 million and $3.2 million at September 30, 1997 and 1996, respectively, and automobile, recreational vehicle and mobile home loans, home improvement loans, home equity lines of credit, savings account loans, and commercial business loans which totaled $6.5 million and $5.6 million at September 30, 1997 and 1996, respectively. At September 30, 1997, 4.65% of total loans consisted of second mortgage loans. Federal regulations permit federally chartered thrift institutions to make secured and unsecured consumer loans up to 35% of an institution's assets. In addition, a federal thrift has lending authority above the 35% category for certain consumer loans, property improvement loans, and loans secured by savings accounts. The Association originates consumer loans in order to provide a wider range of financial services to its customers. Consumer loans have shorter terms and higher interest rates than mortgage loans, however, they are more costly to originate and administer and generally involve more credit risk than mortgage loans because of type and nature of the collateral and, in certain cases, the absence of collateral. In addition, consumer lending collections are dependent on the borrower's continuing financial stability, and thus are more likely to be adversely effected by job loss, divorce, illness, and personal bankruptcy. In most cases, any repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan balance because of improper repair and maintenance of the underlying security. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. The Association believes that the generally higher yields earned on consumer loans compensate for the increased credit risk and administration costs associated with such loans and that consumer loans are important to its efforts to increase the interest rate sensitivity and shorten the average maturity of its loan portfolio. In connection with consumer loan applications, the Association verifies the borrower's income and reviews a credit bureau report. In addition, the relationship of the loan to the value of the collateral is considered and the borrower debt to income ratio must meet the Association's underwriting guidelines. Federal thrift institutions are permitted to make secured or unsecured loans for commercial, corporate, business, or agricultural purposes, including the issuance of letters of credit secured by real estate, business equipment, inventories, accounts receivable, and cash equivalents. The aggregate amount of such loans outstanding may not exceed 20% of such institution's assets. Amounts in excess of 10% of the institution's assets must be used for qualifying small business loans. 5 The Association makes commercial business loans on a secured basis and generally requires collateral consisting of real estate, accounts receivable, inventory, and equipment. The Association's commercial business loans primarily consist of short term loans for equipment, working capital, business expansion, and inventory financing. The Association customarily reviews the financial statements and income tax returns of the guarantors. The origination of commercial loans must be approved by the President of the Association who has authority to lend up to $500,000 on secured nonmortgage loans and $100,000 on unsecured commercial lending. Any loan in excess of these limits must be approved by the Board of Directors. Each month the President reports all commercial loans originated the previous month to the Board of Directors. As of September 30, 1997, the Association had approximately $1.3 million in outstanding commercial business loans, which represented approximately 2.8% of its loan portfolio. Loan Purchases. It is the current policy of the Association not to purchase loans. Although some loans that were purchased in the past still remain, the Association has not purchased any material amounts of whole loans or loan participations since 1984. In 1984, the Association purchased approximately $3.5 million in loans from a third party originator. These loans were secured by residential, multi-family, and commercial properties in various states. The originator eventually filed for bankruptcy and the Association wrote off approximately $700,000 of such loans in 1986. Approximately $55,074 of these loans remained in the Association's loan portfolio at September 30, 1997. The Association has made reserves for these loans and does not expect any further loss provisions; however, no assurance can be given that additional reserves will not be required. Furthermore, the Association also purchased whole loans or participations therein throughout the country, such loans being secured by one- to four-family residential, multi-family, commercial, and land-tract development real estate. At September 30, 1997, $699,080 or 1.57% of the Association's total loan portfolio consisted of purchased loans. Although it is the current policy of the Association not to purchase whole loans or participations in loans, no assurances can be given that the Association will not purchase loans or participations therein in the future. Loan Approval Authority and Underwriting. Certain loan officers may approve loans on one- to four-family residences up to $50,000. The Loan Committee has the authority to approve loans on one- to four-family residences above $50,000 up to $150,000. Loans on one- to four-family residences exceeding $150,000 requires the Board of Director's approval. Certain loan officers may approve consumer loans in a range from $20,000 to $50,000 as defined in the lending policy if secured by real estate mortgages on owner occupied residences with a loan to value of 80% or less and up to 100% of loan to value on home equity lines of credit. For all loans originated by the Association, upon receipt of a completed loan application from a prospective borrower, a credit report is ordered, income and certain other information is verified, and if necessary, additional financial information is requested. If an appraisal of the real estate intended to secure the proposed loan is required, the appraisal is performed by a state certified independent appraiser designated and approved by the Board of Directors. The Association makes construction/permanent loans on individual properties. Funds advanced during the construction phase are held in a loan-in-process account and disbursed based upon various stages of completion. The independent appraiser or loan officer determines the stage of completion based upon a physical inspection of the construction. The Association requires title insurance on all loans originated for sale on the secondary market. Title insurance is also required where a purchase of real estate is involved and on all fixed rate loans. Borrowers must also obtain hazard or flood insurance (for loans on property located in a flood zone) prior to closing the loan. For loans in excess of 80% of the loan to value ratio, borrowers are generally required to advance funds on a monthly basis together with each payment of principal and interest to an escrow account from which the Association makes disbursements for items such as real estate taxes and hazard insurance premiums. Loan Commitments. With the exception of some low document installment loans, the Association issues written, formal commitments to prospective borrowers on real estate approved loans. The commitment usually requires acceptance within 60 days of the date of issuance, however, on loans originated for sale in the secondary market, the term depends on the time remaining on the rate lock. As of September 30, 1997, the Association had $660,750 of commitments to originate mortgage loans. Loan Processing Fees. In addition to interest earned on loans, the Association recognizes service charges which consist primarily of loan application fees, processing fees, and late charges. The Association recognized loan processing fees of $79,000 and $71,000 for the fiscal years ended September 30, 1997 and 1996, respectively. 6 Loans to One Borrower. Savings associations are subject to the same limits as those applicable to national banks, which under current regulations limit loans-to-one borrower in an amount equal to 15% of unimpaired capital and unimpaired surplus, calculated as the sum of the Association's core and supplementary capital included in total capital, plus the balance of the general valuation allowances for loan and lease losses not included in supplementary capital, plus investments in subsidiaries that are not included in calculating core capital, or $500,000, whichever is higher. The Association's maximum loan-to-one borrower limit was approximately $1.8 million as of September 30, 1997. At September 30, 1997, the Association's largest aggregate loans to one borrower relationship consisted of several loans secured by a commercial property, business inventory, and residential real estate with a balance of $818,854 and all payments were current. Loan Delinquencies. The Association's collection procedures provide that when a mortgage loan is 15 days past due, a notice of nonpayment is sent. If payment is still delinquent after 30 days, the customer will receive a letter and/or telephone call. If the delinquency continues, similar subsequent efforts are made to eliminate the delinquency. If the loan continues in a delinquent status for 90 days or more and no repayment plan is in effect, a notice of right to cure default is mailed to the customer giving 30 days to bring the account current before foreclosure is commenced. Loans are reviewed on a monthly basis and are generally placed on a non-accrual status when the loan becomes more than 90 days delinquent and, in the opinion of management, the collection of additional interest is doubtful. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent interest payments, if any, are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectibility of the loan. Real estate acquired by the Association as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until such time as it is sold. When foreclosed real estate is acquired, it is recorded at the fair value at the date of foreclosure. Valuations are periodically performed by management and subsequent charges to operations are taken when it is determined that the carrying value of the property exceeds the estimated net realizable value. The Association was the owner of property classified as real estate owned and other repossessed assets, with original loan balances of $15,700 that had been written down to $0.00 at September 30, 1997. See " - Classified Assets." 7 Non-performing and Problem Assets. The following table sets forth information regarding non-accrual loans, real estate owned, and other repossessed assets, and loans 90 days or more delinquent but on which the Association was accruing interest at the date indicated. At September 30, ---------------- 1997 1996 -------- ------- (In Thousands) ---------------- Loans accounted for on a non-accrual basis: Mortgage loans: Permanent loans secured by 1-4 dwelling units ................ $ 190 $ -- All other mortgage loans ..................................... -- -- Non-mortgage loans ............................................. 11 17 ------ ------ Total .......................................................... 201 17 Accruing loans which are contractually past due 90 days or more: Mortgage loans: Construction loans ........................................... -- -- Permanent loans secured by 1-4 dwelling units ................ 33 31 All other mortgage loans ..................................... -- -- Non-mortgage loans ............................................. -- -- ------ ------ Total .......................................................... 33 31 ------ ------ Total non-accrual and accrual loans ............................ 234 48 ------ ------ Real estate owned (net) ........................................ -- -- Other non-performing assets .................................... -- -- ------ ------ Total non-performing assets .................................... $ 234 $ 48 ====== ====== Total non-accrual and accrual loans to net loans ............... 0.52% 0.11% Total non-accrual and accrual loans to total assets ............ 0.34% 0.07% Total non-performing assets to total assets .................... 0.34% 0.07% Interest income that would have been recorded on loans accounted for on a nonaccrual basis under the original terms of such loans was $8,506 and $1,148 for the fiscal years ended September 30, 1997 and 1996, respectively. No interest income on non-accrual loans was included in income for the fiscal years ended September 30, 1997 and 1996. Classified Assets. OTS regulations provide for a classification system for problems assets of insured institutions which covers all problem assets. Under this classification system, problem assets of insured institutions are classified 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 insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as loss are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets may be designated "special mention" because of potential weaknesses that do not currently warrant classification in one of the aforementioned categories. When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for loan losses in 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 an insured institution 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 institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS, which may order the establishment of additional general or specific loss 8 allowances. A portion of general loss allowances established to cover possible losses related to assets classified as substandard or doubtful may be included in determining an institution's regulatory capital, while specific valuation allowances for loan losses generally do not qualify as regulatory capital. At September 30, 1997, The Association's classified assets consisted of special mention loans of $621,197, substandard loans of $1,051,991, and doubtful loans of $0.00. A $861,170 general reserve allowance was established for both classified and unclassified assets. Assets classified as "loss" totaled $15,700 with a $15,700 specific reserve established. The Association had delinquent loans of 60 days or more of $246,455. Doubtful loans may be classified due to particular aspects of the loan; such as, delinquency, high loan-to-value ratio, poor market conditions, future employment of owner, or environmental issues. As of September 30, 1997, no loans were classified doubtful, therefore, no doubtful loans are reflected as non-performing loans in the prior table. Foreclosed Real Estate. Real estate acquired by the Association as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired it is recorded at the fair value at the date of foreclosure less estimated costs of disposition. Allowances for Loan Losses. It is management's policy to provide for inherent losses on loans in its loan portfolio. A provision for loan losses is charged to operations based on management's evaluation of the potential losses that may be incurred in the Association's loan portfolio. Such evaluation, which includes a review of all loans of which full collectibility of interest and principal may not be reasonably assured, considers the Association's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and current economic conditions. Impaired loans, including all loans that are restructured in a troubled debt restructuring involving a modification of terms, are measured at the present value of expected future cash flows discounted at the loan's initial effective interest rate. The fair value of the collateral of an impaired collateral-dependent loan or an observable market price, if one exists, may be used as an alternative to discounting. If the measure of the impaired loan is less than the recorded investment in the loan, impairment is recognized through the allowance for loan losses. A loan is considered impaired when, based on current information and events, it is probable that the Association will be unable to collect all amounts due according to the contractual terms of the loan agreement. Management will continue to review the entire loan portfolio to determine the extent, if any, to which further additional loss provisions may be deemed necessary. There can be no assurance that the allowance for losses will be adequate to cover losses which may in fact be realized in the future and that additional provisions for losses will not be required. 9 Allocation of Allowance for Loan. The following table sets forth the allocation of the Association's allowance for loan losses by loan category and the percent of loans in each category to total loans receivable at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses that may occur within the loan category because the total loan loss allowance is a valuation reserve applicable to the entire loan portfolio.
At September 30, ----------------------------------------------------- 1997 1996 ------------------------ ------------------------ Percent of Percent of Loans to Total Loans to Total Amount Loans Amount Loans ------ --------------- ------ --------------- (Dollars in Thousands) At end of period allocated to: One-to four-family residential (includes held for sale) .... $726 89.11% $746 88.41% Multi-family and commercial real estate ................. 93 3.73% 102 5.07% Construction ................. 3 2.07% 3 1.40% Consumer and other loans ..... 39 5.09% 26 5.12% ---- ------ ---- ------ Total allowance .......... $861 100.00% $877 100.00% ==== ====== ==== ======
Due to the size of the institution and the minimal amount of non-performing loans (see - "Non-performing and Problem Assets") the percentage of non-performing loans to allowance for loan losses will seem high. Movement of even one loan into or out of non-performing status may result in a large percentage change due to the size of the portfolio. 10 Analysis of the Allowance for Loan Losses. The following table sets forth information with respect to the Association's allowance for loan losses at the dates and for the periods indicated. At September 30, ----------------------- 1997 1996 --------- ---------- (Dollars in Thousands) ----------------------- Gross loans outstanding (1) .......................... $ 45,741 $ 44,362 ======== ======== Average loans outstanding ............................ 45,267 43,435 ======== ======== Allowance balance (at beginning of period) ........... $ 877 $ 962 -------- -------- Provision (credit): Residential (2) .................................... (12) (54) Commercial real estate ............................. (7) 26 Construction ....................................... 1 (2) Non-mortgage and other (including land) ............ 18 34 -------- -------- Total Provision ...................................... -- 4 -------- -------- Charge-offs: Residential (2) .................................... 12 5 Commercial real estate ............................. -- 2 Non-mortgage and other (including land) ............ 5 85 -------- -------- Total Charge-offs .................................... 17 92 -------- -------- Recoveries: Residential (2) .................................... -- 2 Commercial real estate ............................. -- -- Non-mortgage and other (including land) ............ 1 1 -------- -------- Total Recoveries ..................................... 1 3 -------- -------- Allowance balance (at end of period) ................. $ 861 $ 877 ======== ======== Allowance for loan losses as a percent of gross loans 1.88% 1.98% Net loans charged off as a percentage of average loans outstanding ....................................... 0.04% 0.21% - ---------------- (1) Includes total loans (including loans held for sale), net of loans in process. (2) Includes one- to four-family and multi-family residential real estate loans. Investment Portfolio Mortgage-backed and Related Securities. To supplement lending activities, the Association invests in residential mortgage-backed securities. Although such securities are held for investment, they can serve as collateral for borrowings and, through repayments, as a source of liquidity. The mortgage-backed securities portfolio as of September 30, 1997, consisted primarily of certificates issued by FHLMC. To a lesser extent, the mortgage-backed securities portfolio also contains certificates issued by Fannie Mae and the Government National Mortgage Association ("GNMA"). As of September 30, 1997, the carrying value of mortgage-backed securities totaled $5.0 million, or 7.39% of total assets. The market value of such securities totaled approximately $5.1 million at September 30, 1997. Mortgage-backed securities represent a participation interest in a pool of single-family or multi-family mortgages, the principal and interest payments on which are passed from the mortgage originators, through intermediaries (generally quasi-governmental agencies) that pool and repackage the participation interests in the form of securities, to investors such as the Association. Such quasi-governmental agencies, which guarantee the payment of principal and interest to investors, primarily include FHLMC, Fannie Mae, and GNMA. Mortgage-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The underlying pool of mortgages can be composed of either fixed-rate mortgages or adjustable-rate mortgage loans. Mortgage-backed securities are generally referred to as mortgage participation certificates or pass-through certificates. As a result, the interest rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate or adjustable rate) as well as prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security is equal to the life of the underlying mortgages. Mortgage-backed securities issued by FHLMC, Fannie Mae, and GNMA make up a majority of the pass-through certificates market. Investment Activities. The Association is required under federal regulations to maintain a minimum amount of liquid assets that may be invested in specified short-term securities and certain other investments. See "- Regulation - Federal Home Loan Bank System." The Association has generally maintained a liquidity portfolio well in excess of regulatory requirements. Liquidity levels may be increased or decreased depending upon the yields on investment alternatives and upon management's judgment as to the attractiveness of the yields then available in relation to other opportunities and its expectation of future yield levels, as well as management's projections as to the short-term demand for funds to be used in the Association's loan origination and other activities. As of September 30, 1997, the Association had an investment portfolio of approximately $16.0 million, consisting primarily of U.S. government agency obligation, certificates of deposit at other institutions, and FHLB stock, as permitted by OTS regulations. The Association has found its level of investment securities has increased in recent years as a result of repayments and prepayments on loans and mortgage-backed securities exceeding loan demand. The market value of investments at September 30, 1997, was $16.0 million which is equivalent to its carrying value. The Association anticipates having the ability to fund all of its investing activities from funds held on deposit at the FHLB of Des Moines. The Association will continue to seek high quality investments with short to intermediate maturities and duration from one to three years. 12 Investment Portfolio. The following table sets forth the carrying value of the Association's investment securities portfolio, short-term investments, FHLB stock, and mortgage-backed securities at the dates indicated. At September 30, ---------------------- 1997 1996 ---------- ---------- (Dollars in Thousands) Investment Securities: U.S. Government Securities Held-to-Maturity . $ -- $ -- U.S. Government Securities Available-for-Sale 999 2,499 U.S. Agency Securities Held-to-Maturity ..... -- 1,750 U.S. Agency Securities Available-for-Sale ... 7,592 7,836 Certificates of Deposit ..................... 4,755 4,065 Mutual Funds ................................ 93 87 FHLMC Stock ................................. 1,866 436 FHLB Stock .................................. 651 651 ------- ------- Total Investment Securities ............... 15,956 17,324 Mortgage-backed Securities Held-to-Maturity ... 2,650 3,479 Mortgage-backed Securities Available-for-Sale . 2,413 1,377 Interest Bearing Deposits (1) ................. 890 2,266 ------- ------- Total Investments ......................... $21,909 $24,446 ======= ======= - ---------------------- (1) Consisted of FHLB demand deposits and daily time deposits, considered cash equivalents. 13 Investment Portfolio Maturities. The following table sets forth certain information regarding the carrying value, weighted average yields and maturities of the Association's investment securities portfolio at September 30, 1997.
As of September 30, 1997 ----------------------------------------------------------------------------------------------- One Year One to Five to More than Total or Less Five Years Ten Years Ten Years Investment Securities ----------------- ----------------- ---------------- ----------------- ----------------------- Carrying Average Carrying Average Carryig Average Carrying Average Carrying Average Market Value Yield Value Yield Value Yield Value Yield Value Yield Value -------- ------- -------- ------- ------- ------- -------- ------- -------- ------- ------ (Dollars in Thousands) U.S. Government obligations held-to-maturity................... $ -- --% $ -- --% $ -- --% $ -- --% $ -- --% $ -- U.S. Government obligations available-for-sale ................ 999 5.45 -- -- -- -- -- -- 999 5.45 999 U.S. Agency obligations held-to- maturity .......................... -- -- -- -- -- -- -- -- -- -- -- U.S. Agency obligations available-for-sale ................ 4,216 5.97 2,529 6.75 502 8.78 346 7.20 7,593 6.47 7,592 Other Securities (1) .............. 5,640 5.94 97 6.25 -- -- -- -- 5,737 5.95 5,738 FHLB stock (2) .................... n/a n/a n/a n/a n/a n/a n/a n/a 651 7.00 651 FHLMC stock, available-for-sale (3) n/a n/a n/a n/a n/a n/a n/a n/a 1,866 -- 1,866 Mortgage-backed securities held-to-maturity .................. 630 6.05 611 8.42 222 7.58 1,187 8.92 2,650 8.01 2,715 Mortgage-backed securities available-for-sale ................ 717 6.50 497 5.05 555 6.95 644 6.38 2,413 6.27 2,413 ------- ---- ------- ---- ------- ---- ------ ---- ------- ---- ------- Total ........................... $12,202 5.95% $ 3,734 6.78% $ 1,279 7.78% $2,177 7.90% $21,909 6.47% $21,974 ======= ==== ======= ==== ======= ==== ====== ==== ======= ==== =======
- --------------------- (1) Consists of Certificates of Deposit and other interest-bearing deposits. (2) As of September 30, 1997, FHLB stock paid a return of 7.00%. (3) FHLMC stock noninterest earning market value only. 14 Sources of Funds General. Deposits are the major external source of the Association's funds for lending and other investment purposes. The Association derives funds from the amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities, and operations. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions. The Association also has the ability to obtain advances from the FHLB of Des Moines as a source of funds. Deposits. Consumer and commercial deposits are attracted principally from within the Association's primary market area through the offering of a broad selection of deposit instruments including regular savings, demand and NOW accounts, and term certificate accounts. Deposit account terms vary according to the minimum balance required, the time period the funds must remain on deposit, and the interest rate, among other factors. Regular savings accounts, money market accounts, and NOW accounts constituted $18.9 million, or 34.3% of the Association's deposit portfolio at September 30, 1997. Certificates of deposit constituted $36.3 million or 65.7% of the deposit portfolio. As of September 30, 1997, the Association had no brokered deposits. Jumbo Certificate Accounts. The following table indicates the amount of the Association's certificates of deposit of $100,000 or more by time remaining until maturity as of September 30, 1997. Maturity Period Certificates of Deposit - -------------------------- ----------------------- (In Thousands) ----------------------- Within three months ..... $ 1,029 Three through six months 100 Six through twelve months 926 Over twelve months ...... 434 ------------- Total ................ $ 2,489 ============= Borrowings Deposits are the primary source of funds of the Association's lending and investment activities and for its general business purposes. The Association may obtain advances from the FHLB of Des Moines to supplement its supply of lendable funds. Advances from the FHLB of Des Moines are typically secured by a pledge of the Association's stock in the FHLB of Des Moines and a portion of the Association's first mortgage loans and certain other assets. The Association, if the need arises, may also access the Federal Reserve Bank discount window to supplement its supply of lendable funds and to meet deposit withdrawal requirements. As of September 30, 1997, the Association had no advances outstanding from the FHLB of Des Moines. As of September 30, 1997, the Association had no other borrowings. Subsidiary Activity The Company has one wholly-owned subsidiary, the Association. The Association is permitted to invest up to 2% of its assets in the capital stock of, or secured or unsecured loans to, subsidiary corporations, with an additional investment of 1% of assets when such additional investment is utilized primarily for community development purposes. Under such limitations, as of September 30, 1997, the Association was authorized to invest up to approximately $1.4 million in the stock of, or loan to, service corporations (based upon the 2% limitation). At September 30, 1997, the Association had no subsidiaries. 15 Personnel As of September 30, 1997, the Association had 19 full-time and 2 part-time employees. None of the Association's employees are represented by a collective bargaining group. Regulation Set forth below is a brief description of certain laws that relate to the regulation of the Company and the Association. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations. Company Regulation General. The Company is a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, the Company is required to register and file reports with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over the Company and its non-savings association subsidiaries, should such subsidiaries be formed, which also permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association. This regulation and oversight is intended primarily for the protection of the depositors of the Association and not for the benefit of stockholders of the Company. Qualified Thrift Lender Test. As a unitary savings and loan holding company, the Company generally is not subject to activity restrictions, provided the Association satisfies the Qualified Thrift Lender ("QTL") test or meets the definition of domestic building and loan association pursuant to section 7701 of the Internal Revenue Code of 1986, as amended (the "Code"). 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 the Association or any other SAIF-insured savings association) would become subject to restrictions applicable to bank holding companies unless such other associations each also qualify as a QTL or domestic building and loan association and were acquired in a supervisory acquisition. See "- Regulation of the Association - Qualified Thrift Lender Test." Restrictions on Acquisitions. The Company must obtain approval from the appropriate federal regulatory agency before acquiring control of any other insured institution. Such acquisitions are generally prohibited if they result in a multiple savings and loan holding 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 law generally provides that no "person," acting directly or indirectly or through or in concert with one or more other persons, may acquire "control," as that term is defined in OTS regulations, of a federally insured savings institution without giving at least 60 days written notice to the OTS and providing the OTS an opportunity to disapprove the proposed acquisition. In addition, no company may acquire control of such an institution without prior OTS approval. Federal Securities Law. The Company is subject to filing and reporting requirements by virtue of having its common stock registered under the Securities Exchange Act of 1934. Furthermore, 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. Regulation of the Association General. As a federally chartered, SAIF-insured savings association, the Association is subject to extensive regulation by the OTS and the Federal Deposit Insurance Corporation ("FDIC"). Lending activities and other investments must comply with various federal statutory and regulatory requirements. The Association is also subject to certain reserve requirements promulgated by the Federal Reserve Board. 16 The OTS, in conjunction with the FDIC, regularly examines the Association and prepares reports for the consideration of the Association's Board of Directors on any deficiencies that are found in the Association's operations. The Association's relationship with its depositors and borrowers is also regulated to a great extent by federal and state law, especially in such matters as the ownership of savings accounts and the form and content of the Association's mortgage documents. The Association must file reports with the OTS and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other savings institutions. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the SAIF and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulations, whether by the OTS, the FDIC, or the Congress could have a material adverse impact on the Company, the Association, and their operations. Insurance of Deposit Accounts. The Association's deposit accounts are insured by the SAIF to the maximum of $100,000 permitted by law. Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the institution's primary regulator. The FDIC charges an annual assessment for the insurance of deposits based on the risk a particular institution poses to its deposit insurance fund. Under this system as of September 30, 1997, SAIF members paid within a range of 0 cents to 27 cents per $100 of domestic deposits, depending upon the institution's risk classification. This risk classification is based on an institution's capital group and supervisory subgroup assignment. Pursuant to the Economic Growth and Paperwork Reduction Act of 1996 (the "Act"), the FDIC imposed a special assessment on SAIF members to capitalize the SAIF at the designated reserve level of 1.25% as of October 1, 1996. Based on the Association's deposits as of March 31, 1995, the date for measuring the amount of the special assessment pursuant to the Act, the Association paid a special assessment of $362,557 on November 27, 1996 to recapitalize the SAIF. This expense was recognized during the fourth quarter of fiscal 1996. The FDIC has reduced the premium for deposit insurance to a level necessary to maintain the SAIF at its required reserve level. Pursuant to the Act, the Association will pay, in addition to its normal deposit insurance premium as a member of the SAIF, an amount equal to approximately 6.4 basis points toward the retirement of the Financing Corporation bonds ("Fico Bonds") issued in the 1980's to assist in the recovery of the savings and loan industry. Members of the Bank Insurance Fund ("BIF"), by contrast, will pay, in addition to their normal deposit insurance premium, approximately 1.3 basis points. Based on total deposits as of September 30, 1997, the Association's Fico Bond premium will be approximately $35,000 in addition to its normal deposit insurance premium. Beginning no later than January 1, 2000, the rate paid to retire the Fico Bonds will be equal for members of the BIF and the SAIF. The Act also provides for the merging of the BIF and the SAIF by January 1, 1999, provided there are no financial institutions still chartered as savings associations at that time. Should insurance funds be merged before January 1, 2000, the rate paid by all members of this new fund to retire the Fico Bonds would be equal. Regulatory Capital Requirements. OTS capital regulations require savings institutions to meet three capital standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to at least 3% of total adjusted assets, and (3) a risk-based capital requirement equal to 8.0% of total risk-weighted assets. Savings associations with a greater than "normal" level of interest rate exposure will, in the future, be subject to a deduction for an interest rate risk ("IRR") component from capital for purposes of calculating their risk-based capital requirement. 17 As shown below, the Association's regulatory capital exceeded all minimum regulatory capital requirements applicable to it as of September 30, 1997: At September 30, 1997 ---------------------------------- Percentage of Amount Adjusted Assets ------------- --------------- GAAP Capital $11,998,136 17.50% =========== ===== Tangible Capital: (1) Regulatory requirement $ 1,000,434 1.50% Actual capital 10,886,680 16.32% ----------- ----- Excess $ 9,886,246 14.82% =========== ===== Core Capital: (1) Regulatory requirement $ 2,000,868 3.00% Actual capital 10,886,680 16.32% ----------- ----- Excess $ 8,885,812 13.32% =========== ===== Risk-Based Capital: (2) Regulatory requirement $ 2,729,569 8.00% Actual capital 11,318,542 33.17% ----------- ----- Excess $ 8,588,973 25.17% =========== ===== (1) Regulatory capital reflects modifications from GAAP capital due to valuation adjustments for available for sale securities and unallowable mortgage servicing rights. (2) Based on risk weighted assets of $34,119,617. Dividend and Other Capital Distribution Limitations. OTS regulations require the Association to give the OTS 30 days advance notice of any proposed declaration of dividends to the Company, and the OTS has the authority under its supervisory powers to prohibit the payment of dividends to the Company. In addition, the Association may not declare or pay a cash dividend on its capital stock if the effect thereof would be to reduce the regulatory capital of the Association below the amount required for the liquidation account to be established pursuant to the Association's plan of conversion. OTS regulations impose limitations upon all capital distributions by savings institutions, such as cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The rule establishes three tiers of institutions, based primarily on an institution's capital level. An institution that exceeds all fully phased-in capital requirements before and after a proposed capital distributions ("Tier 1 institution") and has not been advised by the OTS that it is in need of more than the normal supervision can, after prior notice but without the approval of the OTS, make capital distributions during a calendar year equal to the greater of (i) 100% of its net income to date during the calendar year plus the amount that would reduce by one-half its "surplus capital ratio" (the excess capital over its fully phased-in capital requirements) at the beginning of the calendar year, or (ii) 75% of its net income over the most recent four quarter period. Any additional capital distributions require prior regulatory approval. At September 30, 1997, the Association was a Tier 1 institution. In the event the 18 Association's capital fell below its fully phased-in requirement or the OTS notified it that it was in need of more than normal supervision, the Association's ability to make capital distributions could be restricted. In addition, the OTS could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OTS determines that such distribution would constitute an unsafe or unsound practice. Finally, a savings association is prohibited from making a capital distribution if, after making the distribution, the savings association would be undercapitalized (not meet any one of its minimum regulatory capital requirements). Qualified Thrift Lender Test. Savings institutions must meet either the QTL test pursuant to OTS regulations or the definition of a domestic building and loan association in section 7701 of the Internal Revenue Code of 1986, as amended (the "Code"). If the Association maintains an appropriate level of certain specified investments (primarily residential mortgages and related investments, including certain mortgage-related securities) and otherwise qualifies as a QTL or a domestic building and loan association, it will continue to enjoy full borrowing privileges from the FHLB of Des Moines. The required percentage of investments under the QTL test is 65% of assets while the Code requires investments of 60% of assets. An association must be in compliance with the QTL test or definition of domestic building and loan association on a monthly basis in nine out of every 12 months. As of September 30, 1997, the Association was in compliance with its QTL requirement and met the definition of a domestic building and loan association. There can be no assurance that the Association will continue to meet the QTL requirements or the definition of a domestic building and loan association in future periods. Loans-to-One Borrower. See "Business - Loans-to-One Borrower." Transactions With Affiliates. Generally, restrictions on transactions with affiliates require that transactions between a savings association or its subsidiaries and its affiliates be on terms as favorable to the Association as comparable transactions with non-affiliates. In addition, certain of these transactions are restricted to an aggregate percentage of the Association's capital; collateral in specified amounts must usually be provided by affiliates to receive loans from the Association. Affiliates of the Association include the Company and any company which would be under common control with the Association. In addition, a savings association may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of any affiliate that is not a subsidiary. The OTS has the discretion to treat subsidiaries of savings associations as affiliates on a case-by-case basis. Liquidity Requirements. All savings associations 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. The liquidity requirement may vary from time to time (between 4% and 10%) depending upon economic conditions and savings flows of all savings associations. At September 30, 1997, the Association's required liquid asset ratio was 5%. Monetary penalties may be imposed upon associations for violations of liquidity requirements. Federal Home Loan Bank System. The Association 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. As a member, the Association is required to purchase and maintain stock in the FHLB of Des Moines in an amount equal to at least 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year. At September 30, 1997, the Association had $650,700 in FHLB stock, which was in compliance with this requirement. 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) and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy the liquidity requirements that are imposed by the OTS. At September 30, 1997, the Association was in compliance with these requirements. 19 Item 2. Description of Property - -------------------------------- (a) Properties. The Company owns no real property but utilizes the office owned by the Association. The Association owns and operates from its office located at 35 East Broadway, Little Falls, Minnesota 56345. The Association has a total investment in office property and equipment of $1.44 million with a net book value of $806,900 at September 30, 1997. (b) Investment Policies. See "Item 1. Business" above for a general description of the Association's investment policies and any regulatory or Board of Directors' percentage of asset limitations regarding certain investments. All of the Association's investment policies are reviewed and approved by the Board of Directors of the Association, and such policies, subject to regulatory restrictions (if any), can be changed without a vote of stockholders. The Association's investments are primarily acquired to produce income, and to a lesser extent, possible capital gain. (1) Investments in Real Estate or Interests in Real Estate. See "Item 1. Business - Lending Activities," "Item 1. Business - Regulation of the Association," and "Item 2. Description of Property. (a) Properties" above. (2) Investments in Real Estate Mortgages. See "Item 1. Business - Lending Activities" and "Item 1. Business - Regulations of the Association." (3) Investments in Securities of or Interests in Persons Primarily Engaged in Real Estate Activities. See "Item 1. Business - Lending Activities," "Item 1. Business - Regulation of the Association," and "Item 1. Business - Subsidiary Activity." (c) Description of Real Estate and Operating Data. Not Applicable. Item 3. Legal Proceedings - -------------------------- The Company, from time to time, is a party to ordinary routine litigation, which arises in the normal course of business, such as claims to enforce liens, condemnation proceedings on properties in which the Association holds security interests, claims involving the making and servicing of real property loans, and other issues incident to the business of the Company. In the opinion of management, no material loss is expected from any of such pending claims or lawsuits. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ No matters were submitted to stockholders for a vote during the quarter ended September 30, 1997. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder - -------------------------------------------------------------------------------- Matters - ------- The information contained under the section captioned "Stock Market Information" in the Company's Annual Report to Stockholders for the fiscal year ended September 30, 1997 (the "Annual Report"), is incorporated herein by reference. Item 6. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- The required information is contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report and is incorporated herein by reference. 20 Item 7. Financial Statements - ----------------------------- The Company's consolidated financial statements required herein are contained in the Annual Report and are incorporated herein by reference. Quarter results of operations on page 17 of the 1997 Annual Report is hereby incorporated by reference. Item 8. Changes in and Disagreements With Accountants on Accounting and - -------------------------------------------------------------------------------- Financial Disclosure - -------------------- Not Applicable. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance - -------------------------------------------------------------------------------- with Section 16(b) of the Exchange Act - -------------------------------------- The information contained under the sections captioned "Filing of Beneficial Ownership Reports" and "I - Information with Respect to Nominees for Director, Directors Continuing in Office, and Executive Officers" in the Company's definitive proxy statement for the Company's Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by reference. Item 10. Executive Compensation - -------------------------------- The information contained under the section captioned "Director and Executive Officer Compensation" in the Proxy Statement is incorporated herein by reference. Item 11. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------ (a) Security Ownership of Certain Beneficial Owners Information required by this item is incorporated herein by reference to the section captioned "Voting Securities and Principal Holders Thereof" in the Proxy Statement. (b) Security Ownership of Management Information required by this item is incorporated herein by reference to the section captioned "I - Information with Respect to Nominees for Director, Directors Continuing in Office, and Executive Officers" in the Proxy Statement. (c) Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Registrant. Item 12. Certain Relationships and Related Transactions - -------------------------------------------------------- The information required by this item is incorporated herein by reference to the section captioned "Certain Relationships and Related Transactions" and "Voting Securities and Principal Holders Thereof" in the Proxy Statement. 21 Item 13. Exhibits, List and Reports on Form 8-K - ------------------------------------------------ (a) Exhibits are either attached as part of this Report or incorporated herein by reference. 3.1 Articles of Incorporation of Mississippi View Holding Company* 3.2 Amended Bylaws of Mississippi View Holding Company 10.1 Employment contract with Thomas J. Leiferman* 10.2 Management Stock Bonus Plan** 10.3 1995 Stock Option Plan** 10.4 1997 Stock Option Plan*** 11 Statement regarding computation of earnings per share 13 Annual Report to Stockholders for the fiscal year ended September 30, 1997. 21 Subsidiaries of the Registrant (see information contained herein under "Business - Subsidiary Activity"). 23 Consent of Bertram Cooper & Co., LLP 99 Financial Data Schedule**** (b) Reports on Form 8-K. None. - ------------------------------- * Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 33-86820) declared effective by the SEC on February 9, 1995. ** Incorporated by reference to the registrant's proxy statement for the special meeting of stockholders held on September 27, 1995 and filed with the SEC on August 17, 1995 (File No. 0-25546). *** Incorporated by reference to the Registrant's proxy statement for the annual meeting of stockholders held January 22, 1997 and filed with the SEC on December 16, 1997 (File No. 0-25546). ****Only in electronic filing. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MISSISSIPPI VIEW HOLDING COMPANY Dated: December 10, 1997 By: /s/ Thomas J. Leiferman ----------------------------------- Thomas J. Leiferman President, Chief Executive Officer, and Director (Duly Authorized Representative) Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Thomas J. Leiferman By: /s/ Wallace R. Mattock ----------------------------------- ---------------------------------- Thomas J. Leiferman Wallace R. Mattock President, Chief Executive Officer, Chairman of the Board and Director Date: December 10, 1997 Date: December 10, 1997 By: /s/ Neil Adamek By: /s/ Peter Vogel ----------------------------------- ---------------------------------- Neil Adamek Peter Vogel Director Director Date: December 10, 1997 Date: December 10, 1997 By: /s/ Gerald Peterson ----------------------------------- Gerald Peterson Director Date: December 10, 1997 By: /s/ Larry D. Hartwig ----------------------------------- Larry D. Hartwig Vice President (Principal Financial and Accounting Officer) Date: December 10, 1997 EX-11 2 EXHIBIT 11 MISSISSIPPI VIEW HOLDING COMPANY EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
For the Twelve Months Ended September 30, --------------------- 1997 1996 ---------- --------- Net Income ..................................................... $739,715 $558,768 ======== ======== Weighted Average Shares Outstanding ............................ 746,484 851,025 Common stock equivalents due to dilutive effect of stock options 26,970 1,587 -------- -------- Total weighted average common shares and equivalents outstanding 773,454 852,612 ======== ======== Primary Earnings Per Share ..................................... $ 0.96 $ 0.66 ======== ======== Weighted Average Shares Outstanding ............................ 746,484 851,025 Additional dilutive shares using end of period market value versus average market value for period when utilizing the treasury stock method regarding stock options ...................................... 54,005 10,870 -------- -------- Total weighted average common shares and equivalents outstanding for fully diluted computation ................................ 800,489 861,895 ======== ======== Fully diluted earnings per share ............................... $ 0.92 $ 0.65 ======== ========
Earnings per share of common stock for the twelve month periods ended September 30, 1996 and 1997, have been determined by dividing net income for the period by the weighted average number of shares of common stock outstanding, net of unearned ESOP shares. 24 EX-3.2 3 EXHIBIT 3.2 Exhibit 3.2 AMENDED AND RESTATED BYLAWS OF MISSISSIPPI VIEW HOLDING COMPANY ARTICLE I Home Office The home office of Mississippi View Holding Company (the "Corporation") shall be at 35 East Broadway, City of Little Falls, County of Morrison, in the State of Minnesota. The Corporation may also have offices at such other places within or without the State of Minnesota as the board of directors shall from time to time determine. ARTICLE II Stockholders SECTION 1. Place of Meetings. All annual and special meetings of stockholders shall be held at the home office of the Corporation or at such other place within or without the State of Minnesota as the board of directors may determine and as designated in the notice of such meeting. SECTION 2. Annual Meeting. A meeting of the stockholders of the Corporation for the election of directors and for the transaction of any other business of the Corporation shall be held annually at such date and time as the board of directors may determine. SECTION 3. Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called at any time by the majority of the board of directors, the chief executive officer or the president, and only such persons as are specifically permitted to call meetings by the Minnesota Business Corporation Act in accordance with the provisions of the Corporation's Articles of Incorporation. SECTION 4. Conduct of Meetings. Annual and special meetings shall be conducted in accordance with the rules and procedures established by the board of directors. The board of directors shall designate, when present, either the chairman of the board or president to preside at such meetings. SECTION 5. Voting. At each election for directors every stockholder entitled to vote at such election shall be entitled to one vote for each share of stock held by him. Unless otherwise provided in the Articles of Incorporation, by Statute, or by these Bylaws, a majority of those votes cast by stockholders at a lawful meeting shall be sufficient to pass on a transaction or matter. SECTION 6. Notice of Meetings. Written notice stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called shall be mailed by the secretary or the officer performing his duties, not less than ten days nor more than sixty days before the meeting to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books or records of the Corporation as of the record date prescribed in Section 7 of this Article II, with postage thereon prepaid. If a stockholder is present at a meeting, or in writing waives notice thereof before or after the meeting, notice of the meeting to such stockholder shall be unnecessary. When any stockholders' meeting, either annual or special, is adjourned for 120 days, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for less than 120 days or of the business to be transacted at such adjourned meeting, other than an announcement at the meeting at which such adjournment is taken. SECTION 7. Fixing of Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of stockholders. Such date in any case shall be not more than sixty days, and in case of a meeting of stockholders, not less than ten days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof. SECTION 8. Quorum. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. SECTION 9. Proxies. A shareholder may cast or authorize the casting of a vote by filing a written appointment of a proxy with an officer of the Corporation at or before the meeting at which the appointment is to be effective. A written appointment of a proxy may be signed by the shareholder or authorized by the shareholder by transmission of a telegram, cablegram, or other means of electronic transmission, provided that the corporation has no reason to believe that the telegram, cablegram, or other electronic transmission was not authorized by the shareholder. Any reproduction of the writing or transmission may be substituted or used in lieu of the original writing or transmission for any purpose for which the original transmission could be used, provided that the copy, facsimile telecommunication, or other reproduction is a complete and legible reproduction of the entire original writing or transmission. Proxies solicited on behalf of the management shall be voted as directed by the stockholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided in the proxy. SECTION 10. Voting of Shares in the Name of Two or More Persons. When ownership of stock stands in the name of two or more persons, in the absence of written directions to the Corporation to the contrary, at any meeting of the stockholders of the Corporation any one or more of such stockholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose name shares of stock stand, the vote or votes to which these persons are entitled shall be cast as directed by a majority of those holding such stock and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree. - 2 - SECTION 11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian trustee or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed. A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee and thereafter the pledgee shall be entitled to vote the shares so transferred. Neither treasury shares of its own stock held by the Corporation, nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting. SECTION 12. Inspectors of Election. In advance of any meeting of stockholders, the board of directors may appoint any persons, other than nominees for office, as inspectors of election to act at such meeting or any adjournment thereof. The number of inspectors shall be either one or three. If the board of directors so appoints either one or three inspectors, that appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the board or the president may make such appointment at the meeting. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting or at the meeting by the chairman of the board or the president. Unless otherwise prescribed by applicable law, the duties of such inspectors shall include: determining the number of shares of stock and the voting power of each share, the shares of stock represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all stockholders. SECTION 13. Nominating Committee. The board of directors shall act as a nominating committee for selecting the management nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least twenty days prior to the date of the annual meeting. Provided such committee makes such nominations, no nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by stockholders are made in writing and delivered to the secretary of the Corporation in accordance with the provisions of the Corporation's Articles of Incorporation. - 3 - ARTICLE III Board of Directors SECTION 1. General Powers. The business and affairs of the Corporation shall be under the direction of its board of directors. The board of directors shall annually elect a president and a chief executive officer from among its members and may also elect a chairman of the board from among its members. The board of directors shall designate, when present, either of the chairman of the board or president to preside at its meetings. SECTION 2. Number, Term and Election. The board of directors shall consist of five members and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected or qualified. The board of directors shall be classified in accordance with the provisions of the Corporation's Articles of Incorporation. Directors are to be elected by a plurality of votes cast by the shares entitled to vote in the election at a meeting of stockholders at which a quorum is present. The board of directors may increase the number of members of the board of directors but in no event shall the number of directors be increased in excess of fifteen. SECTION 3. Qualifications. Each Director of the Corporation must at all times be a resident of the State of Minnesota and the beneficial owner of not less than 100 shares of capital stock of the Corporation. For the purpose of this section, "resident" means any natural person who occupies a dwelling within Minnesota, has an intention to remain within Minnesota for a period of time (manifested by establishing a physical, on-going, non-transitory presence within Minnesota) and continues to reside in Minnesota for the term of his or her directorship. SECTION 4. Place of Meetings. All annual and special meetings of the board of directors shall be held at the home office of the Corporation or at such other place within or without the State in which the home office of the Corporation is located as the board of directors may determine and as designated in the notice of such meeting. SECTION 5. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this Bylaw at such time and date as the board of directors may determine. SECTION 6. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman of the board or president, or by two-thirds of the directors. The persons authorized to call special meetings of the board of directors may fix any place within or without the State of Minnesota as the place for holding any special meeting of the board of directors called by such persons. Members of the board of directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. SECTION 7. Nominating Committee. The board of directors shall act as a nominating committee for selecting the nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least twenty days prior to the date of the - 4 - annual meeting. Provided such committee makes such nominations, no nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by stockholders are made in writing and delivered to the secretary of the Corporation in accordance with the provisions of the Corporation's Articles of Incorporation. SECTION 8. Notice. Written notice of any special meeting shall be given to each director at least two days previous thereto delivered personally or by telegram or at least five days previous thereto delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid if mailed or when delivered to the telegraph company if sent be telegram. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. SECTION 9. Quorum. A majority of the number of directors fixed by Section 2 of Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 8 of Article III. SECTION 10. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by these Bylaws, the Articles of Incorporation, or the laws of Minnesota. SECTION 11. Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. SECTION 12. Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the Corporation addressed to the chairman of the board or president. Unless otherwise specified herein such resignation shall take effect upon receipt thereof by the chairman of the board or president. SECTION 13. Vacancies. Any vacancy occurring in the board of directors shall be filled in accordance with the provisions of the Corporation's Articles of Incorporation. Any directorship to be filled by reason of an increase in the number of directors may be filled by the affirmative vote of two-thirds of the directors then in office. The term of such director shall be in accordance with the provisions of the Corporation's Articles of Incorporation. SECTION 14. Removal of Directors. Any director or the entire board of directors may be removed for cause and then only in accordance with the provisions of the Corporation's Articles of Incorporation. SECTION 15. Compensation. Directors, as such, may receive a stated fee for their services. By resolution of the board of directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for actual attendance at each regular or special meeting of the board of directors. - 5 - Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the board of directors may determine. Nothing herein shall be construed to preclude any director from serving the Corporation in any other capacity and receiving remuneration therefor. SECTION 16. Presumption of Assent. A director of the Corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent or abstention shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who votes in favor of such action. ARTICLE IV Committees of the Board of Directors The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, as they may determine to be necessary or appropriate for the conduct of the business of the Corporation, and may prescribe the duties, constitution and procedures thereof. Each committee shall consist of one or more directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The board of directors shall have power, by the affirmative vote of a majority of the authorized number of directors, at any time to change the members of, to fill vacancies in, and to discharge any committee of the board. Any member of any such committee may resign at any time by giving notice to the Corporation provided, however, that notice to the board, the chairman of the board, the chairman of such committee, or the secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any member of any such committee may be removed at any time, either with or without cause, by the affirmative vote of a majority of the authorized number of directors at any meeting of the board called for that purpose. ARTICLE V Officers SECTION 1. Positions. The officers of the Corporation shall be a president, a chief executive officer, one or more vice presidents, a secretary and a treasurer, each of whom shall be elected by the board of directors. The offices of the secretary and treasurer may be held by the same person and a vice president may also be either the secretary or the treasurer. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may designate the treasurer as chief financial officer. The board may designate the president as chief executive officer. The board of directors may also elect or authorize the appointment of such other officers as the business of the Corporation may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the - 6 - absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices. SECTION 2. Election and Term of Office. The officers of the Corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the stockholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Election or appointment of an officer, employee or agent shall not of itself create contract rights. The board of directors may authorize the Corporation to enter into an employment contract with any officer in accordance with state law; but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V. SECTION 3. Removal. Any officer may be removed by vote the vote of the majority of the board of directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal, other than for cause, shall be without prejudice to the contract rights, if any, of the person so removed. SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term. SECTION 5. Remuneration. The remuneration of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. ARTICLE VI Contracts, Loans, Checks and Deposits SECTION 1. Contracts. To the extent permitted by applicable law, and except as otherwise prescribed by the Articles of Incorporation or these Bylaws with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. SECTION 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances. SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees or agents of the Corporation in such manner as shall from time to time be determined by resolution of the board of directors. SECTION 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in any of its duly authorized depositories as the board of directors may select. - 7 - ARTICLE VII Certificates for Shares and Their Transfer SECTION 1. Certificates for Shares. The shares of the Corporation shall be represented by certificates signed by the chairman of the board of directors, by the president or vice president, by the treasurer/chief financial officer or by the secretary of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. If any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before the certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue. SECTION 2. Form of Share Certificates. All certificates representing shares issued by the Corporation shall set forth upon the face or back that the Corporation will furnish to any shareholder upon request and without charge a full statement of the designations, preferences, limitations, and relative rights of the shares of each class authorized to be issued, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined, and the authority of the board of directors to fix and determine the relative rights and preferences of subsequent series. Each certificate representing shares shall state upon the face thereof: that the Corporation is organized under the laws of the State of Minnesota; the name of the person to whom issued; the number and class of shares; the date of issue; the designation of the series, if any, which such certificate represents; the par value of each share represented by such certificate, or a statement that the shares are without par value. Other matters in regard to the form of the certificates shall be determined by the board of directors. SECTION 3. Payment for Shares. No certificate shall be issued for any shares until such share is fully paid. SECTION 4. Form of Payment for Shares. The consideration for the issuance of shares shall be paid in accordance with the provisions of Minnesota law. SECTION 5. Transfer of Shares. Transfer of shares of capital stock of the Corporation shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record thereof or by his legal representative, who shall furnish proper evidence of such authority, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Corporation. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. SECTION 6. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Minnesota law or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. - 8 - SECTION 7. Lost Certificates. The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. SECTION 8. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VIII Fiscal Year; Annual Audit The fiscal year of the Corporation shall end on the last day of September of each year. The Corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors. ARTICLE IX Dividends Subject to the provisions of the Articles of Incorporation and applicable law, the board of directors may, at any regular or special meeting, declare dividends on the Corporation's outstanding capital stock. Dividends may be paid in cash, in property or in the Corporation's own stock. ARTICLE X Corporate Seal The corporate seal of the Corporation shall be in such form as the board of directors shall prescribe. ARTICLE XI Amendments The Bylaws may be altered, amended or repealed or new Bylaws may be adopted in the manner set forth in the Articles of Incorporation. As amended and restated on August 19, 1997 - 9 - EX-13 4 EXHIBIT 13 MISSISSIPPI VIEW HOLDING COMPANY 1997 ANNUAL REPORT
- ------------------------------------------------------------------------------------ TABLE OF CONTENTS - ------------------------------------------------------------------------------------ Selected Financial and Other Data........................................... 2 Letter to Shareholders...................................................... 3 Corporate Profile and Stock Market Information.............................. 4 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 6 Selected Quarterly Financial Data........................................... 17 Report of Independent Auditors.............................................. 18 Consolidated Financial Statements........................................... 19 Notes to Consolidated Financial Statements.................................. 24 Office Locations............................................................ 40 Other Corporate Information................................................. 40
============================================================================================================== SELECTED FINANCIAL AND OTHER DATA Financial Condition (Dollars in Thousands) ============================================================================================================== September 30, 1997 1996 1995 1994 1993 ============================================================================================================== Total assets (1) $68,546 $70,011 $69,443 $62,865 $64,995 Loans receivable, net 44,475 43,070 42,989 44,226 44,712 Loans held for sale 136 179 58 93 241 Mortgage-backed securities 5,064 4,857 4,750 3,123 4,248 Investment securities (1) 15,956 17,323 16,745 11,549 10,383 Cash and cash equivalents (1) 1,105 2,584 2,837 1,732 3,950 Deposits 55,184 56,531 54,920 56,402 58,873 Other borrowings -- -- -- -- -- Net retained earnings (substantially restricted) (2) 8,848 7,320 6,832 5,869 5,495 Total stockholders equity (1) 12,068 12,440 13,783 n/a n/a Summary of Operations (Dollars in Thousands) ============================================================================================================== Year Ended September 30, 1997 1996 1995 1994 1993 ============================================================================================================== Interest income $ 5,165 $ 5,173 4,860 4,233 4,803 Interest expense 2,502 2,531 2,234 2,065 2,577 Net interest income 2,663 2,642 2,626 2,168 2,226 Provision for credit losses -- 4 26 144 90 Non-interest income 202 351 215 155 303 Non-interest expense (3) 1,667 2,056 1,468 1,502 1,325 Income before income taxes and cumulative effect of change in accounting principle 1,198 933 1,347 677 1,114 Income tax expense 458 374 519 302 309 Income before cumulative effect of change in accounting principle 740 559 828 375 805 Cumulative effect of change in accounting principle -- -- -- -- -- Net income 740 559 828 375 805 Other Selected Data ============================================================================================================== Year Ended September 30, 1997 1996 1995 1994 1993 ============================================================================================================== Return on average assets 1.08% 0.80% 1.25% 0.59% 1.22% Return on average equity 6.18 4.23 8.02 6.47 15.81 Average interest earning assets to average interest bearing liabilities (1) 123.24 124.24 118.99 109.87 108.23 Average equity to average assets (1) 17.53 19.01 15.52 9.05 7.73 Net interest rate spread 3.10 2.98 3.38 3.10 3.09 Net interest income after provision for loan losses to total other expenses (1) 159.70 128.32 177.04 134.74 161.16 Earnings per share (4) $ 0.96 $ 0.66 $ 0.89 n/a n/a Book value per share (4) $ 16.30 $ 14.17 413.67 n/a n/a Stockholders equity to assets at period end (1) 17.61% 17.77% 19.85% 9.34 8.45 Non-performing assets to total assets 0.34 0.07 0.11 0.18 0.35 Non-performing loans to total loans 0.52 0.11 0.11 0.21 0.16 Allowance for loan losses to total loans 1.93 2.03 2.23 2.27 1.88
- -------------------------------------------------------------------------------- (1) The change is primarily due to the conversion from a mutual to a stock company in fiscal year 1995. (2) Composed of appropriated and unappropriated retained earnings and net unrealized gains/losses on marketable equity securities. (3) Includes a one time assessment in fiscal year 1996 of $362 to recapitalize the SAIF. (4) There were no shares outstanding prior to the consummation of the Company's initial public offering on March 23, 1995. 2 Mississippi View Holding Company To Our Shareholders: I am pleased to present the year ended September 30, 1997 Annual Report of Mississippi View Holding Company reflecting our second full year of operation as a stock company. Fiscal 1997 earnings were significantly greater than fiscal 1996 earnings resulting mainly from the payment of a one time Savings Association Insurance Fund ("SAIF") special assessment charged to Community Federal Savings and Loan Association in fiscal 1996. In addition, the interest rate spread, the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, increased in fiscal 1997 to 3.10% from 2.98% in fiscal 1996. As of September 30, 1997, Mississippi View Holding Company had repurchased approximately 27% of the stock it sold in its initial offering and over the past year the company's asset size was reduced resulting from these expenditures. Stock repurchases have been made to move toward a capital level which provides a more adequate return to shareholders. Future repurchases, if any, will be subject to the availability of stock, market conditions, trading price, financial performance and other considerations. In addition, the company paid two semi-annual dividends of $0.08 per share in fiscal 1997. Future dividends, if any, will be based on the continued successful operation of the company. Community Federal continues to significantly exceed all minimum federal regulatory capital requirements. Mississippi View Holding Company's board of directors and staff are dedicated to providing quality service to our customers. Our focus will continue to be filling the financial needs of our customers by marketing and selling competitively priced products and services. We are well positioned to meet tomorrow's challenges and look forward to an optimistic future. Sincerely, /s/ Thomas J. Leiferman Thomas J. Leiferman President & Chief Executive Officer 3 Business of the Corporation and the Association Mississippi View Holding Company Mississippi View Holding Company (the "Company) is the parent company for Community Federal Savings and Loan Association of Little Falls ("Community Federal" or the "Association"). The Company was formed as a Minnesota corporation in November 1994 at the direction of the Association to acquire all of the capital stock that Community Federal issued upon its conversion from the mutual to stock form of ownership (the "Conversion"). On March 23, 1995, the Company became a unitary savings and loan holding company when it purchased 100% of the Association's newly-issued common stock in connection with the "Conversion". Under existing laws, the Company generally is not restricted from engaging in any type of business activity provided that the Association retains a specified amount of its assets in housing-related loans and investments. The Company's business activities to date have been limited to its investments in and loans to the Association and a loan made to the Community Federal Savings and Loan Association Employee Stock Ownership Plan (the "ESOP") to enable the ESOP to purchase shares of the Company's common stock. Community Federal Savings and Loan Association The Association is a federally chartered stock savings and loan association. The Association's only office is located in Little Falls, Morrison County, Minnesota. The Association was founded in 1934 under the name Little Falls Federal Savings and Loan Association of Little Falls. The name of the Association was changed to Community Federal Savings and Loan Association of Little Falls in July 1977. The Association is subject to examination and comprehensive regulation by the Office of Thrift Supervision ("OTS") and its deposits have been federally insured by the Savings Association Insurance Fund ("SAIF"). The Association is a member of and owns capital stock in the Federal Home Loan Bank ("FHLB") of Des Moines, which is one of the 12 regional banks in the FHLB System. The Association's primary market area consists of Morrison County, Minnesota, which encounters strong competition both in the attraction of deposits and origination of real estate and other loans. Competition comes primarily from the eight banks and two credit unions with offices in its market area. In addition, the Association competes with investment and mortgage banking companies that operate in the area. Due to their size and holding company or branch network structure, some of the Association's competitors possess greater financial and marketing resources. Based on published figures, the Association is the only thrift institution headquartered in Morrison County, Minnesota. The Association competes for saving accounts by offering competitive interest rates and a high level of personal service. The Association attracts deposits from the general public and uses such deposits primarily to invest in investment securities and to originate loans secured by first mortgages on owner-occupied, one-to four-family residences in its market area. The Association's loan portfolio predominantly consists of both adjustable-rate and fixed-rate mortgage loans secured by single family residences and, to a much lesser extent, commercial mortgage and construction 4 loans. The Association also makes consumer loans, consisting of savings account loans, home improvement loans, home equity line of credit loans, new and used auto loans, recreational vehicle loans, and unsecured loans. As of September 30, 1997, the Association's total net portfolio of loans was $44.6 million, of which $36.1 million, or 81%, was secured by residential real estate. The principal sources of funds for the Association's lending activities are deposits and the amortization, repayment, and maturity of loans and investment securities. Principal sources of income are interest on loans and investment securities. The Association's principal expense is interest paid on deposits. Stock Market Information Since its issuance in March 1995, the Company's common stock has been traded on the Nasdaq "Small Cap" Market under the trading symbol of "MIVI". The daily stock quotation for Mississippi View Holding Company is published in The Wall -------- Street Journal under the trading symbols of "MIVI" or "MissVw". The following - --------------- table reflects the stock price trading range as published by the Nasdaq "Small Cap" Market statistical report. The stock price in the initial offering was $8.00 per share. HIGH LOW ---- --- Third Quarter - 6/30/95 10 1/4 8 1/2 Fourth Quarter - 9/30/95 11 5/8 9 1/2 First Quarter - 12/31/95 12 11 Second Quarter - 3/31/96 12 1/4 11 1/4 Third Quarter - 6/30/96 12 11 Fourth Quarter - 9/30/96 12 3/4 10 3/4 First Quarter - 12/31/96 12 3/4 11 3/4 Second Quarter - 3/31/97 15 1/2 12 1/4 Third Quarter - 6/30/97 15 5/8 14 Fourth Quarter - 9/30/97 17 1/2 14 1/2 The number of shareholders of record of common stock as of the record date of December 1, 1997, was approximately 199. This does not reflect the number of persons or entities who held stock in nominee or "street" name through various brokerage firms. At September 30, 1997, there were 740,243 shares outstanding. Semi-annual cash dividends of $0.08/share were paid on February 17, 1997, and August 15, 1997, to the shareholders of common stock on the record dates of February 3, 1997, and August 1, 1997, respectively. The Company's ability to pay dividends to shareholders is dependent upon earnings from investments and dividends it receives from the Association. The Association may not declare or pay a cash dividend on any of its stock if the effect thereof would cause Community Federal's regulatory capital to be reduced below (1) the amount required for the liquidation account established in connection with the Association's conversion from mutual to stock form, or (2) the regulatory capital requirements imposed by the OTS. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company's consolidated results of operations are primarily dependent on the Association's net interest income, or the difference between the interest income earned on its loan, mortgage-backed securities and investment securities portfolios, and the interest expense paid on its savings deposits and other borrowings. Net interest income is affected not only by the difference between the yields earned on interest-earning assets and the costs incurred on interest-bearing liabilities, but also by the relative amounts of such interest-earning assets and interest-bearing liabilities. Other components of net income include: provisions for losses on loans and other assets; noninterest income (primarily, miscellaneous loan fees; service fees; gain on the sale of loans; and gain on sale of real estate owned property); noninterest expense (primarily, compensation and employee benefits; federal insurance premiums; data processing costs; office occupancy expense; and gains, losses and expenses associated with foreclosed real estate); and income taxes. Earnings of the Company also are affected significantly by general economic and competitive conditions, particularly changes in market interest rates, government policies, and actions of regulatory authorities. Asset/Liability Management Strategy Management's strategy has been to enhance earnings and profitability and increase capital while maintaining asset quality. The Association's current lending strategy focuses on the origination of consumer lending and on traditional one-to four-family residential mortgages with the primary emphasis on single family residences in the Association's primary market area. Because deposits exceed loan demand, the Association also invests a significant portion of its assets in investment securities. This focus, along with the adherence to strict underwriting standards, is designed to reduce the risk of loss on the Association's loan portfolio. However, the lack of diversification in its loan portfolio structure does increase the Association's portfolio concentration risk by making the value of the portfolio more susceptible to declines in real estate values in its market area. This risk has been mitigated in recent years through the acquisition of investment securities, as well as the Association's efforts to maintain quality loans, consistent collection procedures, and adequate reserves for loss on loans. The Association's policy of pricing its deposits in accordance with management's determination of its lending and investment needs has caused assets to decrease this past fiscal year. Disintermediation of deposits continues to be a constant challenge. Disintermediation is the flow of funds away from savings institutions into direct investments, such as U.S. Government and corporate securities and other investment vehicles which, because of the absence of federal insurance premiums and reserve requirements, generally pay higher rates of return than savings institutions. Management continues to invest in U.S. Government and federal agency securities. When needed, proceeds from maturing securities or sold securities will be used to fund mortgage and consumer loan originations. 6 Management has increased the interest rate sensitivity of the Association's assets and decreased the interest rate sensitivity of it liabilities, while maintaining high asset quality. This has been accomplished by: (1) originating adjustable-rate mortgage loans, 15 year fixed mortgage loans, and shorter term consumer loans for its portfolio, (2) emphasizing the solicitation and retention of core deposits from within the primary market, (3) investing in short and intermediate term investments, (4) adhering to sound underwriting and investment standards, and (5) managing interest rates paid for deposits. In addition, the Association's conventional mortgage loans are underwritten to standards which would enable it to sell such loans in the secondary market, if management decided to do so. Market Risk Management Market risk is the risk of loss arising from adverse changes in market prices and rates. The Association's market risk is comprised primarily of interest rate risk resulting from its core banking activities of lending and deposit taking. Interest rate risk is the risk that changes in market interest rates might adversely affect the Association's net interest income or the economic value of its portfolio of assets, liabilities and off-balance sheet contracts. Management continually develops and applies strategies to mitigate this risk. Management does not believe that the Association's primary market risk exposures and how those exposures are managed in fiscal 1997 have changed when compared to fiscal 1996. Market risk limits have been established by the Board of Directors based on the Association's tolerance for risk. The Association primarily relies on the OTS Net Portfolio Value Model (the Model) to measure its susceptibility to interest rate changes. Net portfolio value (NPV) is defined as the present value of expected cash flows from existing assets minus the present value of expected net cash flows from existing liabilities plus or minus the present value of net expected cash flows from existing off-balance sheet contracts. The Association does not currently own any derivative financial instruments whose values are determined from underlying instruments or market indices and whose notional or contractual amounts would not be recognized in the financial statements. The Model estimates the current economic value of each type of asset, liability, and off-balance sheet contract after various assumed instantaneous, parallel shifts in the Treasury yield curve both upward and downward. The NPV Model uses an option-based pricing approach to value one-to four-family mortgages, mortgages serviced by others, and firm commitments to buy, sell, or originate mortgages. This approach makes use of an interest rate simulation program to generate numerous random interest rate paths that, in conjunction with a prepayment model, are used to estimate mortgage cash flows. Prepayment options and interest rate caps and floors contained in mortgages and mortgage-related securities introduce significant uncertainty in estimating the timing of cash flows for these instruments that warrants the use of this sophisticated methodology. All other financial instruments are valued using a static discounted cash flow method. Under this approach, the present value is determined by discounting the cash flows the instrument is expected to generate by the yields currently available to investors from an instrument of comparable risk and duration. The following table sets forth the present value estimates of the Association at September 30, 1997, as calculated by its NPV Model. The table shows the NPV of the Association under rate shock 7 scenarios of -400 basis points to +400 basis points in increments of 100 basis points. As market rates increase, the market value of the Association's large portfolio of mortgage loans and securities declines significantly and prepayments are slow. As rates decrease, the market value of mortgage loans and securities increase only modestly due to prepayment risk, periodic rate caps, and other embedded options. Actual changes in market value will differ from estimated changes set forth in this table due to various risks and uncertainties.
Change Percent of Change in Interest Rates Estimated Amount of Estimated NPV NPV Ratio (4) (basis points) NPV Change (1) NPV (2) Ratio (3) (basis points) - -------------- --------- ----------- --------- --------- -------------- + 400 $11,684 $(2,722) - 19% 17.46% -299 + 300 12,563 (1,843) - 13% 18.48% -197 + 200 13,347 (1,059) - 7% 19.35% -110 + 100 13,983 (423) - 3% 20.03% - 42 - 14,406 -- -- 20.45% -- - 100 14,608 203 + 1% 20.61% + 16 - 200 14,896 491 + 3% 20.86% + 41 - 300 15,304 898 + 6% 21.24% + 79 - 400 15,859 1,453 + 10% 21.76% +131
- --------------------- (1) Represents the excess (deficiency) of the estimated NPV assuming the indicated change in interest rates minus the estimated NPV assuming no change in interest rates. (2) Calculated as the amount of change in the estimated NPV divided by the estimated NPV assuming no change in interest rates. (3) Calculated as the estimated NPV divided by average total assets. (4) Calculated as the excess (deficiency) of the NPV ratio assuming the indicated change in interest rates over the estimated NPV ratio assuming no change in interest rates. Savings associations are subject to an interest rate risk ("IRR") component in calculating their required regulatory capital. An institution's IRR is measured as the change to its NPV as a result of a hypothetical 200 basis point change in market interest rates. A resulting change in NPV of more than 2% of the estimated market value of its assets will require the institution to deduct from its capital 50% of that excess change. The following table as computed by the OTS determined that the Association had no IRR modification required to its regulatory capital requirement.
At September 30, 1997 At September 30, 1996 --------------------- --------------------- Risk Measures: 200 bp rate shock Pre-Shock NPV Ratio: NPV as % of PV of Assets 20.45% 17.24% Exposure Measure: Post-Shock NPV Ratio 19.35% 16.15% Sensitivity Measure: Change in NPV Ratio - 110 bp -109 bp Calculation of Capital Component Change in NPV as % of PV of Assets - 1.50% - 1.43% Interest Rate Risk Capital Component ($000) - -- - --
8 Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit run-offs, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Association may undertake in response to changes in interest rates. Although the Association is not subject to the IRR component reduction discussed above, the Association is still subject to interest rate risk and, as can be seen above, rising interest rates will reduce the Association's NPV. The OTS has the authority to require otherwise exempt institutions to comply with the rule concerning interest rate risk. The Association attempts to manage the interest rates it pays on deposits while maintaining a stable deposit base and provide quality services to its customers. The Association has limited its borrowings and relied primarily upon deposits as its source of funds. To the extent the Association is unable to invest these funds in loans originated in the Association's market area, it will continue to purchase shorter, high quality investment securities. Changes in Financial Condition from September 30, 1996 to September 30, 1997 General. The Company decreased assets by $1,464,369 from September 30, 1996, to September 30, 1997. The asset decrease was primarily the net result of using liquidity from maturing, held to maturity securities of $1,888,626 and cash and cash equivalents of $1,479,060 to fund the increase in loans receivable of $1,404,528 and to purchase treasury stock of $2,068,422. Cash and Cash Equivalents. Cash and cash equivalents, which consist of interest-bearing and noninterest-bearing deposits, decreased $1,479,060 or 57.25%. This decrease was primarily due to the purchase of treasury stock during the fiscal year ended September 30, 1997. Securities available-for-sale. Securities available-for-sale increased $728,199, or 5.95%, from $12,235,145 on September 30, 1996, to $12,963,344 on September 30, 1997. Maturities and principal receipts of $6,074,554 exceeded purchases of $5,311,916 reducing the portfolio by $762,638. This decrease in the portfolio was offset by an increase in the net unrealizable gain on these securities of $1,512,110 of which $995,958 was due to an error in the recorded number of shares of stock of the Federal Home Loan Mortgage Corporation (FHLMC) owned by the Association. The additional shares issued in a 3-for-1 stock split in fiscal 1992 were not recorded which resulted in the amount of stock owned being understated by 8,792 shares. The market value adjustment had no effect on net income or earnings per share but did have an effect on certain balance sheet items and their corresponding ratios. Any increase or decrease in the market value of such securities will have a corresponding positive or negative effect on stockholders' equity. Securities held-to-maturity. Debt and mortgage-backed securities held-to-maturity decreased $1,888,626, or 20.32%, from $9,294,092 on September 30, 1996, to $7,405,466 on September 30, 1997. The decrease was primarily due to maturities and principal receipts of $6,641,854 exceeding purchases of $4,755,000. 9 Loans Held for Sale. Loans held for sale decreased $43,113 from $178,663 (3 loans) at September 30, 1996, to $135,550 (2 loans) at September 30, 1997. This decrease was the result of management's decision to sell, in the secondary market, lower-yielding fixed rate mortgage loans rather than maintaining them for portfolio. Held for sale loans are presold in the secondary market prior to origination. The balance is the amount sold, yet unfunded as of the period end. Loans Receivable, Net. Loans receivable increased $1,404,528, or 3.26%, from $43,070,281 on September 30, 1996, to $44,474,809 on September 30, 1997. The increase was due from new originations exceeding principal amortization and loan payoffs. Premises and Equipment. Premises and equipment, net of depreciation, increased $18,054 due to purchases of new assets exceeding normal depreciation amortized on fixed assets. Deferred Tax Asset. Deferred tax asset, net of valuation allowance, decreased $163,903 during this twelve month period as a result of a tax deferred liability being incurred due to the increase in the mark to market value of available for sale securities. Other Assets. Other assets decreased $27,669, or 4.65%, from $595,208 as of September 30, 1996, to $567,539 as of September 30, 1997, due to the reduced Federal Deposit Insurance Corporation (FDIC) prepaid assessment of $23,467. Deposits. Deposits, after interest credited, decreased by $1,347,607, or 2.38% to $55,183,587 at September 30, 1997, from $56,531,194 at September 30, 1996. The decrease was due, in part, to management's deposit pricing strategy. Advances from Borrowers for Taxes and Insurance. Advances from borrowers for taxes and insurance decreased $31,492 from $138,530 on September 30, 1996 , to $107,038 on September 30, 1997, due to a change in calculating the maximum allowed advances from borrowers for taxes and insurance. Accrued Income Tax. The income tax accrual increased by $66,352 between the two periods due to an accrued income tax amount calculated for September 30, 1997. The September 30, 1996, balance was classified as a prepaid asset because the estimated tax payments exceeded the accrual Deferred Tax Liability. Deferred tax liability increased from $0.00 at September 30, 1996, to $525,353 on September 30, 1997, due primarily to the increase in net unrealized gains on available for sale securities. See also "Securities Available-for-Sale." Other Liabilities. Other liabilities decreased by $304,634, or 33.82%, from $900,850 on September 30, 1996, to $596,216 on September 30, 1997. The primary reason for the decrease was the payment of the Savings Association Insurance Fund (SAIF) assessment of $362,557 during the first quarter offset by increases in accounts payable of $33,110, and a five year pledge/commitment of $26,250, of which $20,250 is outstanding at September 30, 1997, to Unity Family Healthcare/St. Gabriel's Hospital, a local healthcare/hospital facility, for renovation and expansion. 10 Shareholders' Equity. Shareholders' equity decreased by $372,341, or 2.99%, from $12,440,245 on September 30, 1996, to $12,067,904 on September 30, 1997. This decrease is the net effect of the following changes in equity: a paid in capital increase of $29,821 resulting from the fair market value adjustment to earned and committed to be released Employee Stock Ownership Plan ("ESOP") shares, net of taxes; an increase of $68,724 as a result of accounting for earned ESOP shares; an increase of $907,266 resulting from market valuation adjustments on available for sale securities; an increase of $739,715 from net operational income for the twelve month period just ended; an increase of $69,458 as a result of accounting for earned Management Stock Bonus Plan ("MSBP") shares; a decrease of $2,068,422 resulting from open market purchases of the Company's common stock pursuant to two stock repurchase programs, and a decrease to retained earnings due to dividends declared and paid of $118,903. Average Balance Sheet The following table sets forth certain information relating to average balance sheets and reflects the average yield on assets and average cost of liabilities for the periods indicated and the average yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from month-end balances. Management does not believe that the use of month-end instead of daily average balances has caused any material difference in the information presented. 11
Average Balance Sheet For the Year Ended September 30, ------------------------------------------------------------------------ 1997 1996 -------------------------------------- -------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost (Dollars in Thousands) Interest-earning assets: Loans receivable (1) $45,267 $ 3,817 8.43% $43,435 $3,704 8.53% Investment securities available-for-sale 12,082 741 6.13% 10,050 576 5.73% Investment securities held-to-maturity (2) 7,779 521 6.70% 11,005 731 6.64% Other interest-earning assets 1,922 86 4.47% 3,497 162 4.63% ------- ------- ------- ----- Total interest-earning assets 67,050 5,165 7.70% 67,987 5,173 7.61% Non interest-earning assets 1,205 1,426 ------- ------- Total assets $68,255 $69,413 ======= ======= Interest-bearing liabilities: Savings deposits $14,382 395 2.75% $13,922 330 2.37% Transaction accounts 3,040 37 1.22% 3,251 37 1.14% Time Deposit 36,985 2,070 5.60% 37,551 2,164 5.76% ------- ------- ------- ----- Total interest-bearing liabilities 54,407 2,502 4.60% 54,724 2,531 4.63% ------- ----- Non interest-bearing liabilities: Demand Deposits 1,173 827 Other non interest-bearing liabilities 708 665 ------- ------- Total liabilities 56,288 56,216 Shareholders equity 11,967 13,197 ------- ------- Total liabilities and shareholders equity $68,255 $ 69,413 ======= ========== Net interest income $ 2,663 $2,642 ======= ===== Interest rate spread (3) 3.10% 2.98% Net yield on interest-earning assets (4) 3.97% 3.89% Ratio of average interest-earning assets to average interest-bearing liabilities 123.24% 124.24%
- --------------------- (1) Average balances include non-accrual loans and are net of undisbursed commitments. (2) Includes interest-bearing deposits in other financial institutions. (3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (4) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets. 12 Rate / Volume Analysis. The table below sets forth certain information regarding changes in interest income and interest expense of the Association for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (changes in average volume multiplied by old rate); (ii) changes in rates (changes in rate multiplied by old average volume); (iii) changes in rate-volume (changes in rate multiplied by the change in average volume).
Year Ended September 30, --------------------------------------------------------------------- 1997 vs. 1996 1996 vs. 1995 --------------------------------- -------------------------------- Increase (Decrease) Due to Increase (Decrease) Due to --------------------------------- -------------------------------- Rate/ Rate/ Volume Rate Volume Net Volume Rate Volume Net -------- ------ --------- ---- -------- ------ -------- ------ (Dollars in Thousands) Interest income: Loans receivable (1) $ 156 $ (45) $ (2) $ 109 $ (76) $ 173 $ (4) $ 93 Securities available- for- sale 116 40 8 164 235 64 74 373 Securities held-to- maturity (214) 5 (2) (211) (154) (11) 2 (163) Other interest-earning assets (73) (6) 3 (76) 32 (19) (4) 9 ----- ----- ----- ----- ----- ----- ----- ----- Total interest-earning assets (15) (6) 7 (14) 37 207 68 312 Interest Expense: Savings accounts (15) (22) 0 (37) (3) 301 (0) 298 Other liabilities -- -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- Total interest- bearing liabilities (15) (22) 0 (37) (3) 301 (0) 298 ----- ----- ----- ----- ----- ----- ----- ----- Net change in interest income $ 0 $ 16 $ 7 $ 23 $ 40 $ (94) $ 68 $ 14 ===== ===== ===== ===== ===== ===== ===== =====
(1) Loans are net of undisbursed commitments. Comparison of Operating Results for the Years Ended September 30, 1996, and 1997 Net Income. Net income increased $180,947, or 32.38% from $558,768 on September 30, 1996 to $739,715 on September 30, 1997. Noninterest expense decreased $388,428 and was offset by decreased noninterest income of $148,618 and increased income tax expense of $83,762. The decrease in noninterest expense was primarily due to a $362,557 charge connected with a one time special assessment from the SAIF resulting from legislation that was signed into law on September 30, 1996, for the purpose of recapitalizing the SAIF. Interest Income. Interest income decreased $8,503, or .16%, in the twelve month period ended September 30, 1997, as compared to the same period ended September 30, 1996. Interest income from 13 loans receivable increased $113,560 due to the increase in the average loan balances offset somewhat by lower rates paid on such balances over the period due to decreased market rates of interest. Available- for-sale security investment income increased $211,869 due to the increase in the average investment balance along with increased rate of return on these investments. Held-to-maturity investment security income decreased $333,932 due to a decrease in the average balance of such securities as maturities were not reinvested in such investments. Interest Expense: Interest expense, which is comprised of interest paid on deposits, decreased $29,677, or 1.17%, for the twelve month comparative period for September 30, 1996 and 1997. This decrease was primarily due to lower rates paid on a lower average balance of certificate deposits during this period. Net Interest Income. Net interest income increased $21,174, or 0.80%, from $2,641,886 for the twelve month period ended September 30, 1996, to $2,663,060 for the same period ended September 30, 1997. This was due to the decreased deposit interest expense ($29,677) offset by decreased revenue from interest earned on the interest earning assets ($8,503). The Company's interest rate spread improved from 2.98% to 3.10% as the yield earned on interest earning assets increased while the cost of interest bearing deposits decreased. Provisions for Loan Losses. The Association currently maintains an allowance for loan losses based upon management's periodic evaluation of known and inherent risks in the loan portfolio, the Association's past loss experience, adverse situations that may affect the borrowers' ability to repay loans, estimated value of the underlying collateral, and current and expected market conditions. Provisions for loan losses decreased from $3,725 at September 30, 1996, to no provisions made for the twelve month period ending September 30, 1997. While management maintains its allowance for losses at a level which it considers to be adequate to provide for potential losses, there can be no assurances that further additions will not be made to the loss allowances and that such losses will not exceed the estimated amounts. Noninterest Income. Noninterest income decreased $148,618, or 42.38%, from $350,678 at September 30, 1996, to $202,060 at September 30, 1997. This decrease was primarily the result of a $81,023 contingency recovery in the first quarter of fiscal 1996, a decrease of $56,770 in gains on the sale of loans, and a payment for $11,900 received from the Association's previous data processor recorded during the twelve months ended September 30, 1996. The contingency recovery was due to a $65,000 settlement paid by the Association to settle litigation for which it had established a $146,023 loss reserve. In this litigation the bankruptcy trustee was seeking the return of loan payments made to the Association by the servicer based on theories of fraudulent conveyance and preference. On October 30, 1995, the Court issued an order approving a settlement in the amount of $65,000 between the trustee and the Association. Noninterest Expense. Noninterest expense decreased by $388,428, or 18.89%, from $2,055,971 to $1,667,543 during the twelve month periods ended September 30, 1996 and 1997, respectively. Compensation and employee benefits increased $44,125 due primarily to director and employee compensation increases of $32,667 and ESOP expense increase of $11,124. Pursuant to the Economic Growth and Paperwork Reduction Act of 1996 (the "Act"), the FDIC imposed a special assessment on SAIF members to capitalize the SAIF at the designated reserve level of 1.25% as of October 1, 1996. Based on the Association's deposits as of March 31, 1995, the date for measuring 14 the amount of the special assessment pursuant to the Act, the Association paid a special assessment of $362,557 to recapitalize the SAIF in September 1996. The Act, also, reduced the ongoing FDIC premium for deposit insurance by $74,018 for the twelve month period. Other increases in noninterest expenses were occupancy of $6,973, data processing of $7,258, offset by a decrease in advertising for $3,586, real estate owned expense for $3,638, and other noninterest expenses for $2,985. Historically, date fields in computer software programs were programmed using two digit characters to represent the year. Due to this practice, these software applications, if not corrected prior to the year 2000, will interpret the year as 1900 and not 2000. As a result, many calculations which rely on the date field information, such as interest, payment or due dates and other operating functions, will generate results which will be significantly misstated. To prepare for this event and to minimize its potential adverse impact, management has begun a process to identify areas that will be affected by this issue, assess their potential impact on the operations of the Association, monitor the progress of third party software vendors in addressing this matter, testing changes provided by these vendors, and developing contingency plans for any critical systems which are not effectively reprogrammed. The Association's material data processing functions are performed using software provided by a third party vendor. This company has advised its users that it expects to resolve any potential problems prior to the year 2000. In addition, this company will provide ongoing communication to its users to assist them in implementing tests of the vendor's software. If this company is unable to correct potential problems in time, or if tests should prove the proposed corrections to be insufficient, it is likely that the Association would experience significant data processing delays, errors or failures. Such delays, errors or failures could have a significant adverse impact on the financial condition and results of operations of the Association. In addition, monitoring and managing the year 2000 project will result in additional direct and indirect costs to the Association. Direct costs include potential charges by third party software vendors for product enhancements, costs involved in testing software products for year 2000 compliance, and any resulting costs for developing and implementing contingency plans for critical software products which are not enhanced. Indirect costs will principally consist of the time devoted by existing employees in managing software vendor progress, testing enhanced software products and implementing any necessary contingency plans. While such direct costs cannot yet be reasonably estimated, these expenditures will be charged to expense as incurred. Income Tax Expense. Income tax expense increased $83,762, or 22.39%, from $374,100 for the twelve months ended September 30, 1996, to $457,862 for the twelve month period ended September 30, 1997, due to increased earnings. Liquidity and Capital Resources. The Association is required to maintain minimum levels of "liquid assets," as defined by OTS regulations. This requirement, which may be varied from time to time depending upon economic conditions and deposit flows, is based upon a percentage of deposits and short-term borrowings. The required OTS minimum ratio is currently 5%. The Association's average liquidity ratio was 20.93% during September 1997. The OTS required short term liquidity is 1%; at September 30, 1997, the Association's short term liquidity was 16.17%. The Association manages its liquidity ratio to meet its 15 funding needs, including: deposit outflows; disbursements of payments collected from borrowers for taxes and insurance; repayment of borrowings, when applicable and loan principal disbursements. The Association also monitors its liquidity position in accordance with its asset/liability objectives. In addition to funds provided from operations, the Association's primary sources of funds are: savings deposits; principal repayments on loans and mortgage-backed securities; and matured or called investment securities. As an alternative to supplement liquidity needs, the Association has the ability to borrow from the FHLB of Des Moines. Scheduled loan repayments and maturing investment securities are a relatively predictable source of funds. However, savings deposit flows and prepayments on loans and mortgage-backed securities are significantly influenced by changes in market interest rates, economic conditions, and competition. The Association strives to manage the pricing of its deposits to maintain a balanced stream of cash flow commensurate with its loan commitments and other predictable funding needs. The Association's most liquid assets are cash and cash equivalents, which include highly liquid short-term investments. The level of these assets is dependent on the Association's operating, financing, and investing activities during any given period. At September 30, 1997, cash and cash equivalents totaled $1.105 million. The Association anticipates that it will have sufficient funds available to meet its current commitments. As of September 30, 1997, the Association had commitments to fund loans of $660,750, unused lines of credit of $1,292,196, and loans in process of $309,781. Certificates of deposit scheduled to mature within one year totaled $27.6 million at September 30, 1997. Based on historical deposit withdrawals and outflows, and on internal monthly deposit reports monitored by management, management believes that a majority of such deposits will remain in the Association. The Association is required by OTS to maintain various regulatory capital requirements. At September 30, 1997, the Association exceeded these regulatory capital requirements. See Note 14 to the Notes to Consolidated Financial Statements included herein. Impact of Inflation and Changing Prices The Consolidated Financial Statements and Notes thereto 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 consideration for changes in the relative purchasing power of money over time caused by inflation. Unlike industrial companies, nearly all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, since such goods and services are affected by inflation. In the current interest rate environment, liquidity and the maturity structure of the Association's assets and liabilities are critical to the maintenance of acceptable performance levels. 16 Impact of New Accounting Standards The Financial Accounting Standards Board ("FASB") has issued several new accounting standards which may affect the accounting for transactions of the Association. The new standards are discussed in detail at Note 15 to the Notes to Consolidated Financial Statements included herein. Selected Quarterly Financial Data (unaudited) (Dollars in thousands except earnings per share) First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Fiscal 1997 - ------------------------- Total interest income $ 1,293 $ 1,285 $ 1,292 $ 1,295 Total interest expense 635 621 621 625 Net interest income 658 664 671 670 Provision for loan losses -- -- -- -- Net Income 173 174 208 185 Earnings per share $ 0.22 $ 0.22 $ 0.26 $ 0.24 Fiscal 1996 - ------------------------- Total interest income $ 1,307 $ 1,300 $ 1,281 $ 1,286 Total interest expense 622 637 634 639 Net interest income 685 663 647 647 Provision for loan losses 2 -- 2 -- Net Income 258 174 196 (69) Earnings per share $ 0.29 $ 0.19 $ 0.24 $ (0.09) -17- INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Mississippi View Holding Company and Subsidiary Little Falls, Minnesota 56345 We have audited the accompanying consolidated statements of financial condition of Mississippi View Holding Company and Subsidiary (the Company) as of September 30, 1997 and 1996, and the related consolidated statements of income,changes in shareholders' equity, and cash flows for the two years then ended. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conduced 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mississippi View Holding Company and Subsidiary as of September 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for the two years then ended, in conformity with generally accepted accounting principles. Bertram Cooper & Co., LLP Waseca, Minnesota October 29, 1997 18 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, ---------------------------------------------- ASSETS 1997 1996 ------ --------------------- --------------------- Cash and cash equivalents: Cash and due from banks $ 214,934 $ 317,777 Interest bearing deposits with banks 889,660 2,265,877 Securities available-for-sale, at fair value 12,963,344 12,235,145 Securities held-to-maturity, at amortized cost (fair value of $7,470,314 for 1997 and $9,320,741 for 1996) 7,405,466 9,294,092 FHLB stock, at cost 650,700 650,700 Loans held for sale 135,550 178,663 Loans receivable, net of allowance for loan losses of $861,170 in 1997 and $877,094 in 1996 44,474,809 43,070,281 Accrued interest receivable 437,548 450,327 Premises and equipment 806,900 788,846 Deferred tax asset (net of valuation allowance) - 163,903 Other assets 567,539 595,208 --------------------- --------------------- Total Assets $ 68,546,450 $ 70,010,819 ===================== ===================== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Demand deposits $ 4,408,558 $ 4,471,137 Savings deposits 14,525,018 14,087,832 Time deposits 36,250,011 37,972,225 --------------------- --------------------- Total deposits 55,183,587 56,531,194 Advances from borrowers for taxes and insurance 107,038 138,530 Accrued income taxes 66,352 - Deferred tax liability 525,353 - Other liabilities 596,216 900,850 --------------------- --------------------- Total Liabilities 56,478,546 57,570,574 --------------------- --------------------- Shareholders' equity: Serial preferred stock, no par value, 5,000,000 shares authorized, no shares issued - - Common stock, $.10 par value, 10,000,000 shares authorized; 1,007,992 shares issued, 653,151 and 776,713 outstanding 100,799 100,799 Paid in capital 7,540,218 7,510,397 Treasury stock (267,749 and 130,278 shares), at cost (3,605,111) (1,536,689) Retained earnings, substantially restricted 7,737,458 7,116,646 Unearned ESOP shares (58,463 and 66,527 shares) at cost (498,012) (566,736) Unearned MSBP shares (28,629 and 34,474 shares) at cost (317,954) (387,412) Net unrealized gain on available-for-sale securities, net of tax of $740,337 in 1997 and $135,494 in 1996 1,110,506 203,240 --------------------- --------------------- Total shareholders' equity 12,067,904 12,440,245 --------------------- --------------------- Total liabilities and shareholders' equity $ 68,546,450 $ 70,010,819 ===================== =====================
The accompanying notes are an integral part of these consolidated financial statements 19 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
For the Year ended September 30, ---------------------------------------- 1997 1996 ------------------- ------------------- Interest income: Loans receivable $ 3,817,212 $ 3,703,652 Securities available-for-sale 740,781 528,912 Securities held-to-maturity 606,933 940,865 ------------------- ------------------- Total interest income 5,164,926 5,173,429 ------------------- ------------------- Interest expense: Demand deposits 36,963 37,345 Savings deposits 394,811 330,357 Time deposits 2,070,092 2,163,841 ------------------- ------------------- Total interest expense 2,501,866 2,531,543 ------------------- ------------------- Net interest income 2,663,060 2,641,886 Provision for loan losses - 3,725 ------------------- ------------------- Net interest income after provision for loan losses 2,663,060 2,638,161 ------------------- ------------------- Noninterest income: Other fees and service charges 79,022 70,603 Gain on sale of loans 17,372 74,142 Net gain on sale of foreclosed real estate 12,848 17,394 Contingency recovery - 81,023 Other 92,818 107,516 ------------------- ------------------- Total noninterest income 202,060 350,678 ------------------- ------------------- Noninterest expenses: Compensation and employee benefits 963,690 919,565 Occupancy 94,829 87,856 Deposit insurance assessment - 362,557 Deposit insurance premiums 76,073 150,091 Data processing 83,254 75,996 Advertising 27,201 30,787 Foreclosed real estate expense, net 1,415 5,053 Other 421,081 424,066 ------------------- ------------------- Total noninterest expense 1,667,543 2,055,971 ------------------- ------------------- Income before income taxes 1,197,577 932,868 Income tax expense 457,862 374,100 ------------------- ------------------- Net income $ 739,715 $ 558,768 =================== =================== Earnings per share of common stock $ 0.96 $ 0.66 =================== =================== Weighted averages common shares outstanding 746,484 851,025 =================== ===================
The accompanying notes are an integral part of these consolidated financial statements 20 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized Retained Unallocated Unallocated Gain on Additional Earnings Common Common Securities Common Paid-in Treasury Substantially Stock Held Stock Held Available Stock Capital Stock Restricted By ESOP For MSBP For Sale Total -------- ----------- ---------- ----------- ----------- --------- ---------- ------------ Balance, September 30, 1995 $100,799 $7,494,971 $ -- $6,697,907 $(644,441) $ -- $ 133,763 $13,782,999 Treasury stock acquired -- -- (1,536,689) -- -- -- -- (1,536,689) Net earnings for the year ended September 30, 1996 -- -- -- 558,768 -- -- -- 558,768 Dividend paid $0.16/share -- -- -- (140,029) -- -- -- (140,029) Fair value adjustment of ESOP shares net of taxes of $10,284 -- 15,426 -- -- -- -- -- 15,426 Allocated ESOP shares -- -- -- -- 77,705 -- -- 77,705 MSBP shares acquired, net of earned shares in the amount of $71,217 -- -- -- -- -- (387,412) -- (387,412) Net change in unrealized gain on available-for-sale securities, net of taxes of $46,318 -- -- -- -- -- -- 69,477 69,477 -------- ---------- ----------- ---------- -------------------- ---------- ----------- Balance, September 30, 1996 $100,799 $7,510,397 $(1,536,689) $7,116,646 $(566,736) $(387,412) $ 203,240 $12,440,245 ------- --------- ----------- ---------- --------- -------- --------- --------- Treasury stock acquired -- -- (2,068,422) -- -- -- -- (2,068,422) Net earnings for the year ended September 30, 1997 -- -- -- 739,715 -- -- -- 739,715 Dividend paid $0.16/share -- -- -- (118,903) -- -- -- (118,903) Fair value adjustment of ESOP shares net of taxes of $17,846 -- 26,769 -- -- -- -- -- 26,769 Allocated ESOP shares -- -- -- -- 68,724 -- -- 68,724 MSBP shares earned -- -- -- -- -- 69,458 -- 69,458 Effect of tax adjustment for vested MSBP shares -- 3,052 -- -- -- -- -- 3,052 Net change in unrealized gain on available-for-sale securities, net of taxes of $740,337 -- -- -- -- -- -- 907,266 907,266 -------- ---------- ----------- ---------- ---------- --------- ---------- ---------- Balance, September 30, 1997 $100,799 $7,540,218 $(3,605,111) $7,737,458 $(498,012) $(317,954) $1,110,506 $12,067,904 ======== ========== ============ ========== ========== ========= ========= ==========
The accompanying notes are an integral part of these consolidated financial statements 21 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended September 30, ----------- ------------ 1997 1996 ----------- ------------ Cash flows from operating activities: Interest received on loans and investments $ 5,146,533 $ 5,212,957 Interest paid (2,499,878) (2,532,101) Other fees, commissions, and income received 285,085 299,433 Cash paid to suppliers, employees and others (1,704,523) (1,350,252) Contributions to charities (29,482) (7,869) Income taxes paid (298,000) (643,219) Loans originated for sale (1,744,089) (2,455,977) Proceeds from sale of loans 1,742,622 4,487,415 ----------- ----------- Net cash provided by operating activities 898,268 3,010,387 ----------- ----------- Cash flows from investing activities: Purchases of available-for-sale securities (5,311,916) (6,547,147) Proceeds from maturities of available-for-sale securities 6,074,554 1,356,285 Purchases of held-to-maturity securities (4,755,000) (4,694,532) Proceeds from maturities of held-to-maturity securities 6,641,854 9,295,315 Loan originations and principal payments on loans, net (1,375,500) (2,123,430) Purchases of property and equipment (109,049) (10,936) Proceeds from sale of foreclosed real estate 12,848 17,394 ----------- ----------- Net cash provided by (used in) investing activities 1,177,791 (2,707,051) ----------- ----------- Cash flows from financing activities: Net increase in non-interest bearing demand and savings deposit accounts 375,500 398,025 Net (decrease) increase in time deposits (1,722,125) 1,213,396 Net (decrease) in mortgage escrow funds (31,492) (49,168) Dividend on unallocated ESOP shares 10,322 11,612 Acquisition of treasury stock (2,068,422) (1,536,689) Acquistion of unearned MSBP shares -- (453,899) Dividends paid (118,902) (140,029) ----------- ----------- Net cash used by financing activities (3,555,119) (556,752) ----------- ----------- Net (decrease) in cash and cash equivalents (1,479,060) (253,416) Cash and cash equivalents at beginning of year 2,583,654 2,837,070 ----------- ----------- Cash and cash equivalents at end of year $ 1,104,594 $ 2,583,654 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements 22 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Year Ended September 30, ----------- ------------ 1997 1996 ----------- ------------ RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net income $ 739,715 $ 558,768 Adjustments: Provision for losses on loans and real estate -- 3,725 Depreciation 90,995 83,771 Federal Home Loan Bank stock dividends -- (12,800) Reinvested dividends (5,421) (5,071) ESOP fair value adjustment 26,768 15,426 Amortization of ESOP compensation 58,403 66,092 Amortization of MSBP compensation 66,487 66,487 Tax benefit of MSBP vesting activities 3,052 -- Net amortization and accretion of premiums and discounts on securities 28,466 38,211 Net (gains) on sales of foreclosed real estate (12,848) (17,393) Net loan fees deferred and amortized 32,924 14,291 Net mortgage loan servicing fees deferred 2,112 (11,611) Net increase in unearned MSBP shares 2,971 -- Contingency recovery -- (81,023) (Increase) decrease in: Loans held for sale (18,839) 2,014,650 Accrued interest receivable 12,780 78,598 Prepaid income tax 23,892 (23,892) Deferred tax asset 163,903 (119,721) Other assets 1,664 (6,639) Increase (decrease) in: Accrued interest payable (983) (558) Accrued income tax (13,139) (115,222) Other liabilities (304,634) 464,298 ----------- ----------- Net cash provided by operating activities $ 898,268 $ 3,010,387 =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Federal Home Loan Bank stock dividends $ -- $ 12,800 Refinancings of sales of foreclosed real estate -- 37,200 Transfers from loans to real estate acquired through foreclosure -- 4,989 Reinvested dividends 5,421 5,071 Transfer of debt securities to available-for-sale from securities held-to-maturity -- 2,449,446 Transfers of loans held for investment to loans held for sale -- 2,135,339
The accompanying notes are an integral part of these consolidated financial statements 23 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 and 1996 Note 1. Summary of Significant Accounting Policies The following summarizes the significant accounting policies Mississippi View Holding Company (the Company) follows in presenting its financial statements. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Community Federal Savings and Loan Association (the Association). All significant intercompany transactions and balances are eliminated in consolidation. Certain amounts in the financial statements for the prior year have been reclassified to conform to current financial statement presentation. Nature of Business - The Company is a unitary thrift holding company whose subsidiary provides financial services. The Association's business is that of a financial intermediary and consists primarily of attracting deposits from the general public and using such deposits, together with borrowings and other funds, to make mortgage loans secured by residential real estate and other consumer loans. At September 30, 1997, the Association operated one retail banking office in Minnesota. The Association is subject to significant competition from other financial institutions, and is also subject to regulation by certain federal regulatory agencies and undergoes periodic examinations by those regulatory agencies. Use of Estimates - In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets, and income and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties. A substantial portion of the Association's loans are collateralized by real estate in local markets (see Note 13). In addition, foreclosed real estate is located in the same market area. Accordingly, the ultimate collectibility of a substantial portion of the Association's loan portfolio and the recovery of a substantial portion of the carrying amount of foreclosed real estate are susceptible to changes in local market conditions. While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Association's allowance for losses on loans and foreclosed real estate. These agencies may require the Association to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Cash Equivalents - Cash equivalents of $300,000 and $1,000,000 at September 30, 1997 and 1996, respectively, consist of certificates of deposit, and funds due from banks. For purposes of the statements of cash flows, the Association considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Investment Securities - The Company classifies its investments, including debt securities, marketable equity securities, mortgage-backed securities, and mortgage related securities in one of three catagories: held-to-maturity, trading and available-for-sale. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. The Company does not engage in securities trading, therefore, the balance of its debt securities and all equity securities are classified as available-for-sale. The Company classifies debt securities as available-for-sale when it determines that such securities may be sold at a future date or if there are foreseeable circumstances under which the Company would sell such securities. 24 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 1. Summary of Significant Accounting Policies - (continued) Securities designated as available-for-sale are recorded at fair value. Changes in the fair value of securities available-for-sale are included in shareholders' equity as unrealized holding gains or losses net of the related tax effect. Unrealized losses on available-for-sale securities or held-to-maturity securities reflecting a decline in value judged to be other than temporary are charged to income. Realized gains or losses on available-for-sale securities are computed on a specific identification basis. Premiums and discounts on debt and mortgage-backed securities are amortized to expense or accreted to income over the estimated life of the respective security using a method that approximates the level yield method. The Association, as a member of the Federal Home Loan Bank System, is required to maintain an investment in capital stock of the Federal Home Loan Bank of Des Moines. Because no ready market exists for this stock, and it has no quoted market value, the Association's investment in this stock is carried at cost. Loans Held for Sale - Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are recognized through a valuation allowance by charges to income. Loans Receivable - Loans receivable that management has the intent and ability to hold for the forseeable future or until maturity or pay-off are reported at their outstanding principal balance adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Discounts and premiums on purchased residential real estate loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on purchased consumer loans are recognized over the expected lives of the loans using the level yield method. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on the Association's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and current economic conditions. Loans are considered impaired if full principal and interest payments are not anticipated to be made in accordance with the contractual terms. Impaired loans are carried at the present value of expected future cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to require an increase, such an increase is reported as a component of the provision for loan losses. Uncollectible interest on loans contractually past due for three months is charged off or an allowance is established based on management's periodic evaluation. The allowance is established by a charge to interest income equal to all interest previously accrued and income is subsequently recognized only to the extent cash payments are received until, in management's judgment, the borrower's ability to make periodic interest and principal payments returns to normal, in which case the loan is returned to accrual status. Loan origination fees and certain direct origination costs are capitalized with the net fee or cost recognized as an adjustment to interest income using the interest method. Mortgage Servicing Rights - The Association adopted Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" for transactions entered into after December 31, 1996. SFAS No. 125 established accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on the consistent application of the financial-components approach. This approach requires 25 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 1. Summary of Significant Accounting Policies - (continued) the recognition of financial assets and servicing assets that are controlled by the reporting entity, and the derecognition of financial assets and liabilities when control is extinguished. Liabilities and derivatives incurred or obtained by transferors in conjunction with the transfer of financial assets are measured at fair value, if practicable. Servicing assets and other retained interests in transferred assets are measured by allocating the carrying amount between the assets sold and the interest retained, based on their relative fair value. The adoption of SFAS No. 125 did not have a material effect on the Association's operations for the year ended September 30, 1997. Foreclosed Real Estate - Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at the lower of the related unpaid loan balance or fair value of the property, less estimated costs to sell, at the date of foreclosure. Costs relating to development and improvement of property are capitalized, whereas costs relating to the holding of property are expensed. Valuations are periodically performed by management and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds its estimated fair value less estimated costs to sell. Premises and Equipment - Land is carried at cost. Building, furniture and equipment are carried at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the assets, which range from five to forty years. Income Taxes - Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. The effect of a change in the beginning-of-the-year balance of a valuation allowance that results from a change in judgment about the realizability of deferred tax assets is included in income. The Company files consolidated income tax returns with the Association and they have entered into a tax sharing agreement which provides that the Association will pay to the Company, or receive a refund from the Company, as if the Association's portion of income tax liability or benefit was separately determined based on the Association's taxable income or loss. Earnings Per Share - Earnings per share of common stock has been determined by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the year. Stock options are regarded as common stock equivalents computed using the treasury stock method. Shares acquired by the employee stock ownership plan are not considered in the weighted average shares outstanding until shares are committed to be released to an employee's individual account or have been earned. The difference between primary and fully diluted earnings per share is not material. Treasury Stock - Treasury stock is recorded at cost. In the event of a subsequent reissue, the treasury stock account will be reduced by the cost of such stock on the average cost basis with any excess proceeds credited to addional paid-in capital. Treasury stock is available for general corporate purposes. Stock-Based Compensation - SFAS No. 123, "Accounting for Stock-Based Compensation," establishes a new fair value-based accounting method for stock-based compensation plans. As permitted by SFAS No. 123, management has elected to continue measuring compensation costs based on the intrinsic value method as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." See Footnote No. 10 for proforma disclosure of net income and earnings per share as if the fair value method had been adopted. 26 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 1. Summary of Significant Accounting Policies - (continued) Fair Values of Financial Instruments - SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial condition. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimated cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. SFAS No. 107 excludes certain financial instruments and all nonfinancial assets and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures, as presented in Note 12: Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximates fair value. Debt and equity securities: Fair values for debt and equity securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. FHLB stock: The carrying amount of FHLB stock approximates fair value. Loans: For variable-rate loans that reprice frequently with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans (for example, fixed rate commercial real estate, rental property mortgage loans, and commercial and industrial loans) are estimated using discounted cash flow analyses, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality giving consideration to estimated prepayment and credit loss factors. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable. Accrued interest receivable: The carrying amount of accrued interest receivable approximates fair value. Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. The carrying amount of accrued interest payable approximates fair value. Advance payments by borrowers for taxes and insurance (escrow accounts): The carrying amount of escrow accounts approximate fair value. Loan commitments: Commitments to extend credit were evaluated and fair value was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The carrying value and fair value of commitments to extend credit are not considered material for disclosure. 27 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 2. Debt and Equity Securities The amortized costs and fair values of debt and equity securities are summarized as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------- ------------ ------------ ----------- September 30, 1997: - ------------------ Securities available-for-sale: Debt securities: U.S. Government and agency obligations $ 8,566,851 $ 36,481 $ (12,322) $ 8,591,010 Mortgage-backed securities 2,401,673 11,657 (19) 2,413,311 ----------- ----------- ----------- ----------- Subtotal 10,968,524 48,138 (12,341) 11,004,321 ----------- ----------- ----------- ----------- Equity securities: Mutual fund 92,325 596 -- 92,921 Stock in FHLMC 51,653 1,814,449 -- 1,866,102 ----------- ----------- ----------- ----------- Subtotal 143,978 1,815,045 -- 1,959,023 ----------- ----------- ----------- ----------- Total $11,112,502 $ 1,863,183 $ (12,341) $12,963,344 =========== =========== =========== =========== Securities held-to-maturity: Certificates of deposit $ 4,755,000 $ -- $ -- $ 4,755,000 Mortgage-backed securities 2,650,466 87,715 (22,867) 2,715,314 ----------- ----------- ----------- ----------- Total $ 7,405,466 $ 87,715 $ (22,867) $ 7,470,314 =========== =========== =========== =========== September 30, 1996: - ------------------- Securities available-for-sale: Debt securities: U.S. Government and agency obligations $10,361,165 $ 21,133 $ (47,513) $10,334,785 Mortgage-backed securities 1,396,690 -- (19,107) 1,377,583 ----------- ----------- ----------- ----------- Subtotal 11,757,855 21,133 (66,620) 11,712,368 ----------- ----------- ----------- ----------- Equity securities: Mutual fund 86,903 -- (33) 86,870 Stock in FHLMC 51,653 384,254 -- 435,907 ----------- ----------- ----------- ----------- Subtotal 138,556 384,254 (33) 522,777 ----------- ----------- ----------- ----------- Total $11,896,411 $ 405,387 $ (66,653) $12,235,145 =========== =========== =========== =========== Securities held-to-maturity: U.S. Government and agency obligations $ 1,749,672 $ 172 $ (2,031) $ 1,747,813 Certificates of deposit 4,065,000 -- -- 4,065,000 Mortgage-backed securities 3,479,420 75,648 (47,140) 3,507,928 ----------- ----------- ----------- ----------- Total $ 9,294,092 $ 75,820 $ (49,171) $ 9,320,741 =========== =========== =========== ===========
There were no sales of securities during the two years ended September 30, 1997 and 1996. 28 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 2. Debt and Equity Securities - (continued) The amortized cost and estimated market value of debt securities at September 30, 1997, by contractual maturity, are shown below. Mortgage-backed securities have been aggregated and disclosed separately, rather than allocated over several maturity groupings, since they lack a single maturity date and because borrowers retain the right to prepay the obligation.
Held-to-Maturity Available-for-Sale ------------------------- ------------------------- Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value ----------- ----------- ----------- ----------- Due in one year or less $ -- $ -- $ 5,200,006 $ 5,214,434 Due from one to five years -- -- 2,510,207 2,528,845 Due from five to ten years -- -- 501,291 501,961 Due after ten years -- -- 355,347 345,770 ----------- ----------- ----------- ----------- Subtotal -- -- 8,566,851 8,591,010 Mortgage-backed securities 2,650,466 2,715,314 2,401,673 2,413,311 ----------- ----------- ----------- ----------- Total $ 2,650,466 $ 2,715,314 $10,968,524 $11,004,321 =========== =========== =========== ===========
Note 3. Loans Receivable Loans receivable at September 30, 1997 and 1996 consist of the following:
1997 1996 ------------ ------------ Secured by 1-4 family residences $ 39,863,763 $ 37,623,209 Secured by other real estate 2,831,392 3,964,195 Construction 953,265 626,900 Consumer and other 2,053,921 1,916,165 Loans secured by deposits 212,790 281,115 ------------ ------------ Total loans receivable 45,915,131 44,411,584 Less: Undisbursed portion of mortgage loans (309,781) (227,762) Allowance for loan losses (861,170) (877,094) Deferred loan fees (269,371) (236,447) ------------ ------------ Loans receivable, net $ 44,474,809 $ 43,070,281 ============ ============
A summary of the activity in the allowance for loan losses is as follows: Years ended September 30, --------------------------- 1997 1996 ------------ ------------- Balance, beginning of period $ 877,094 $ 962,086 Provision for losses -- 3,725 Charge offs (17,017) (92,213) Recoveries 1,093 3,496 ------------- ------------- Balance, end of period $ 861,170 $ 877,094 ============= ============= In the ordinary course of business, the Association has granted loans to certain executive officers, directors and their related interests. Related party loans are made on substantially the same terms as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectibility. The aggregate dollar amount of these loans was approximately $124,000 and $140,000 at September 30, 1997 and 1996, respectively. 29 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 4. Foreclosed Real Estate Foreclosed real estate acquired in settlement of loans consists of the following: September 30, ------------------ 1997 1996 ------- -------- Real estate acquired by foreclosure $15,700 $15,700 Less allowance for losses 15,700 15,700 ------- ------- Foreclosed real estate, net $ -- $ -- ======= ======= Activity in the allowance for losses on foreclosed real estate is as follows: Years ended September 30, ------------------------- 1997 1996 -------- ----------- Beginning balance $ 15,700 $ 25,187 Provision charged to income -- -- Charge-offs -- (9,487) Recoveries -- -- -------- -------- Ending balance $ 15,700 $ 15,700 ======== ======== Note 5. Loan Servicing Mortgage loans serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balance of loans serviced for others was $2,351,000 and $2,823,000 at September 30, 1997 and 1996, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in demand deposits were approximately $4,700 and $13,300 at September 30, 1997 and 1996, respectively. Capitalized mortgage servicing rights included in other assets are summarized as follows:
Years Ended September 30, ------------------------- 1997 1996 ---------- ----------- Beginning balance, net of accumulated amortization $11,600 $ -- Amounts capitalized -- 12,700 Amortization 2,100 1,100 Valuation adjustments -- -- ------- ------- Balance, end of period $ 9,500 $11,600 ======= =======
Note 6. Accrued Interest Receivable Accrued interest receivable at September 30, 1997 and 1996 is summarized as follows: 1997 1996 -------- -------- Investment securities $152,279 $164,382 Mortgage-backed securities 38,569 41,500 Loans receivable 246,700 244,445 -------- -------- Total $437,548 $450,327 ======== ======== 30 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 7. Premises and Equipment Premises and equipment at September 30, 1997 and 1996 consists of the following: 1997 1996 ----------- ------------ Land $ 98,840 $ 98,840 Office building 797,008 790,702 Furniture and equipment 541,618 463,914 ----------- ----------- Total 1,437,466 1,353,456 Less accumulated depreciation (630,566) (564,610) ----------- ----------- Premises and equipment, net $ 806,900 $ 788,846 =========== =========== Note 8. Deposits The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was approximately $2,489,000 and $2,434,000 at September 30, 1997 and 1996, respectively. Deposited amounts in excess of $100,000 per account are not insured by the Savings Association Insurance Fund. At September 30, 1997, the scheduled maturities of time deposits, for the fiscal years ended, are as follows: 1998 $27,624,960 1999 8,424,248 2000 99,744 2001 101,059 Thereafter -- ----------- Total $36,250,011 =========== Deposits by related parties were approximately $1,014,000 and $803,000 at September 30, 1997 and 1996, respectively. The Association provides collateral to various local governmental units as required by State statute on savings and certificate accounts with balances greater than $100,000. The collateral pledged against these deposits consisted of mortgage-backed securities totaling $961,363 and $1,101,623 as of September 30, 1997 and 1996, respectively. Note 9. Income Taxes Income tax expense (benefit) applicable to operations include current and deferred taxes as follows: Years ended September 30, ------------------------- 1997 1996 ---------- ------------ CURRENT Federal $ 279,700 $ 367,539 State 93,750 126,283 --------- --------- Subtotal 373,450 493,822 --------- --------- DEFERRED Federal 63,310 (89,790) State 21,102 (29,932) --------- --------- Subtotal 84,412 (119,722) --------- --------- Total income tax provision $ 457,862 $ 374,100 ========= ========= The State of Minnesota follows the Internal Revenue Code for the determination of taxable income in connection with temporary differences. The State portion of deferred tax assets and liabilities is approximately 25%. 31 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 9. Income Taxes - (continued) Temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities that create deferred tax assets and liabilities are as follows:
September 30, --------------------------- 1997 1996 ----------- ------------ Deferred tax assets: General loan loss allowance $ 278,044 $ 350,838 Deferred loan fees 107,748 94,579 Deferred compensation 140,875 129,278 Accrual adjustments 16,847 -- SAIF assessment -- 145,023 ----------- ----------- 543,514 719,718 Less valuation allowance (68,679) (162,000) ----------- ----------- Subtotal 474,835 557,718 ----------- ----------- Deferred tax liabilities: Excess tax reserves 115,768 115,768 Unrealized gains on available-for-sale securities 740,337 135,494 FHLB stock dividends 99,680 99,680 Mortgage servicing assets 3,800 4,644 Depreciation and basis adjustment 40,604 38,229 ----------- ----------- Subtotal 1,000,189 393,815 ----------- ----------- Net deferred tax (liability) asset $ (525,354) $ 163,903 =========== ===========
The Association has paid sufficient income taxes in prior carryback years which would enable it to recover the balance of the net deferred tax assets, therefore, no additional valuation allowance was required at September 30, 1997 and 1996. Actual income tax expense varied from "expected" tax expense (computed by applying the United States federal corporate income tax rate of 34 percent to earnings before taxes) as follows:
Years ended September 30, ------------------------- 1997 1996 --------- --------- Computed "expected" tax expense: $ 407,000 $ 317,200 Increase (reduction) in income tax resulting from: State income taxes, net of federal tax benefit 76,000 63,600 Other (net) (25,138) (6,700) --------- --------- Total income tax expense $ 457,862 $ 374,100 ========= =========
Savings and loan associations were allowed a bad debt deduction, in determining income tax for tax purposes, based on specified experience formulas or a percentage of taxable income before such deduction. On August 21, 1996 legislation was signed into law which repealed the percentage of taxable income method for the tax bad debt deduction. The repeal is effective for the Association's taxable year beginning October 1, 1996. In addition, the legislation requires the Association to include in taxable income its tax bad debt reserves in excess of its base year reserves (pre-1988 reserves) over a six, seven, or eight year period depending upon the attainment of certain loan origination levels. Since the percentage of taxable income method for the tax bad debt deduction and the corresponding increase in the tax bad debt reserve in excess of base year have been recorded as temporary differences, this change in the tax law will not effect the Company's statement of operations. Retained earnings at September 30, 1996, includes approximately $1,459,000 of pre-1988 reserves, for which no deferred income tax liability, approximately $584,000, has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments from carryback of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. 32 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 10. Employee Benefit Plans Salary Continuation Plan The Association has adopted a directors' consultation and retirement plan. Benefits related to services are expensed under the plan vesting schedule. The Association adopted an insured executive supplemental retirement plan and the estimated benefits will be accrued over the expected remaining years of employment. The compensation expense related to these plans amounted to $31,663 and $29,892 for the years ended September 30, 1997 and 1996, respectively. Salary Reduction Plan The Association maintains a salary reduction plan (401(k) Plan) which covers qualifying all full time employees. Company contributions are determined anually by the Board of Directors. The Company's expense related to this plan was $-0- and $1,042 for the years ended September 30, 1997 and 1996, respectively. Employee Stock Ownership Plan The Association established an Employee Stock Ownership Plan (ESOP) covering all employees over the age of 21, with at least one year of service who work at least 1,000 hours during the plan year. The ESOP borrowed funds from the Company to purchase a total of 80,639 shares of the Company's common stock. The loan is collateralized by the common stock. Contributions by the Association are used to repay the loan with shares being released from the Company's lien proportional to the loan repayment. Annually, on December 31, the released shares are allocated to the participants in the same proportion as their wages bear to the total compensation of all of the participants. The Company presents these financial statements in accordance with the AICPA Statement of Position (SOP) No. 93-6, "Employers' Accounting for Employee Stock Ownership Plans." The price of the shares issued and unreleased are charged to unearned compensation, a contra-equity account, and shares released are reported as compensation expense equal to the current market value price of the released shares. Dividends paid on allocated shares are charged to retained earnings and those on unallocated shares are charged to expense. The following table presents the components of the ESOP shares: September 30, ------------------- 1997 1996 -------- -------- Allocated shares 16,128 8,064 Commited to be released shares 6,048 6,048 Unreleased shares 58,463 66,527 -------- -------- Total ESOP shares 80,639 80,639 ======== ======== Fair value of unreleased shares $993,871 $848,219 ======== ======== Compensation expense recorded $105,127 $ 94,003 ======== ======== Management Stock Bonus Plan (MSBP) The Company has adopted a MSBP for directors and management to enable the Association to attract and retain experienced and capable personnel in key positions of responsibility. A total of 29,224 shares were awarded in the form of restricted stock payable over a five year vesting period and 11,095 shares were reserved for future awards. The Company acquired the MSBP shares in fiscal 1996 in an open market purchase at a cost of $458,629, which was initially recorded as unearned compensation in a contra shareholders' equity account. The Company recognizes compensation expense pro rata over the vesting period which amounted to $66,663 and $66,487 for fiscal 1997 and 1996, respectively. 33 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 10. Employee Benefit Plans - (continued) Stock Option Plan In September, 1995 the Company adopted a stock option plan, the 1995 Stock Option Plan (the SOP). During 1995, options exercisable for 73,072 shares of the Company's common stock were granted to certain officers and directors at an exercise price of $11.375 per share. The options vest over a five year period and may be exercised within 10 years of the grant date. In January 1997, a second option plan, the 1997 Stock Option and Incentive Plan was adopted. In 1997, options exercisable for 63,636 shares of the Company's common stock were granted to certain officers and directors at an exercise price of $13.00 per share. The options vest over a two year period and may be exercised within 10 years of the grant date. All options granted in the 1997 Stock Option Plan have dividend equivalent rights associated with such options. The Company uses the intrinsic value method as described in APB Opinion No. 25 and related interpretations to account for its stock incentive plans. Accordingly, no compensation cost has been recognized for the fixed option plan. There are no charges or credits to expense with respect to the granting or exercise of options since the options were issued at fair value on the respective grant dates. Had compensation cost for the Company's stock-based plans been determined in accordance with the fair value method recommended by SFAS No. 123, the Company's net income and earnings per share would have been reduced to the proforma amounts indicated below:
1997 1996 -------- -------- Net income: As reported $739,715 $558,768 Pro forma 614,602 519,471 Earnings per common share and common share equivalent: As reported $ 0.96 $ 0.66 Pro forma 0.82 0.61
The above disclosed pro forma effects of applying SFAS No. 123, to compensation costs, may not be representative of the effects on reported pro forma net income for future years. The fair value for each option grant is estimated on the date of the grant using the Black Scholes Model. The model incorporates the following assumptions: 1997 1996 ------ ------ Risk-free interest rate 5.60% 6.08% Expected life 10 Yrs. 10 Yrs. Expected volatility 19.00% 20.00% Expected dividends 2.00% None The fair value of the granted 1995 options granted in 1995 was $4.48 per option. The fair value of the options granted in 1997 was $3.51 per options. A summary of stock option activity under the SOP's are detailed below: Weighted Options Average Available Options Exercise For Grant Outstanding Price --------- ----------- ----------- September 30, 1994 None None -- Plan adopted 100,799 -- $ 11.375 Granted September 27, 1995 (73,072) 73,072 11.375 ------- ------- ----------- September 30, 1995 27,727 73,072 11.375 Exercised -- -- -- Forfeited -- -- -- ------- ------- ----------- September 30, 1996 27,727 73,072 11.375 Plan adopted 87,771 -- 13.000 Granted January 22, 1997 (63,636) 63,636 13.000 Exercised -- -- -- Forfeited -- -- -- ------- ------- ----------- September 30, 1997 51,862 136,708 $ 12.131 ====== ======= =========== 34 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 10. Employee Benefit Plans - (continued) The following table summarizes information about stock options outstanding at September 30, 1997:
Options Outstanding Options Exercisable ---------------------------------------------------------- --------------------------------------- Weighted Avg. Remaining Number Exercise Contractual Outstanding Price Life In Years Number Price ---------------------------------------------------------- --------------------------------------- 73,072 $11.375 8.0 Yrs. 29,224 $11.375 63,636 $13.000 9.1 Yrs. 31,813 $13.000 ------- ------ 136,708 61,037 ======= ======
Note 11. Commitments Loans serviced for FNMA, in the amount of $480,474 at September 30, 1997, were sold subject to recourse provisions which require the Association to buy back any loan which is delinquent more than ninety days. The Association also sold loans and related servicing subject to recourse provisions which expire in March 1998 in the amount of $910,350 at September 30, 1997. The Association has not incurred any losses on loans sold with recourse provisions. Note 12. Financial Instruments The Association 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 are commitments to extend credit and involve, to varying degrees, elements of credit risk in excess of the amount recognized on the balance sheet. The Association's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Association uses the same credit policies in making commitments as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments to extend credit which represent credit risk totaled $660,750 for loans ($481,650 at fixed rates and $179,100 at adjustable rates) and $1,292,196 unused lines of credit at September 30, 1997. Commitments to sell loans amounted to $237,300 at September 30, 1997. The estimated fair values of the Company's financial instruments are as follows:
September 30, 1997 September 30, 1996 -------------------------- -------------------------- Carrying Fair Carrying Fair Financial assets: Amount Value Amount Value ----------- ----------- ----------- ------------ Cash and cash equivalents $ 1,104,594 $ 1,104,594 $ 2,583,654 $42,583,654 Investment securities 20,368,810 20,433,657 21,529,237 21,555,886 FHLB stock 650,700 650,700 650,700 650,700 Loans receivable 44,610,359 46,246,918 43,248,944 44,201,216 Accrued interest receivable 437,548 437,548 450,327 450,327 Financial liabilities: Deposits 55,183,587 55,209,196 56,531,194 56,538,374 Advance payments by borrowers (escrows) 107,038 107,038 138,530 138,530
35 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 13. Significant Geographic Concentration of Credit Risk A significant portion of the Association's loans receivable are to borrowers located in Little Falls, Minnesota, and the surrounding counties. This geographic concentration amounted to approximately 95% of the total loans receivable balance for the years ended September 30, 1997 and 1996. Note 14. Stockholders Equity and Regulatory Matters On March 23, 1995, the Association converted from a mutual association to a stock association pursuant to a Plan of Conversion, (the Conversion) via the issuance of common stock. In conjunction with the Conversion, the Company sold 1,007,992 shares of common stock which, after giving effect to offering expenses of $471,714, resulted in net proceeds of $7.6 million which included an order for 20,159 shares of stock in the amount of $161,272 from the Employee Stock Ownership Plan (ESOP). Pursuant to the Conversion, the Association transferred all of its outstanding shares to its newly organized holding company. On March 24, 1995 the Association's ESOP purchased an additional 60,480 shares in the open market, in the amount of $529,200. The ESOP's purchases were funded through a loan from the Company. Upon the Conversion, the preexisting liquidation rights of the mutual stock association members were unchanged. Such rights will be accounted for by the Company for the benefit of such depositors in proportion to their liquidation interests as of either the Eligibility Record Date or the Supplemental Eligibility Record Date as defined in the Conversion. Subsequent to the Conversion, neither the Company nor the Association may declare or pay cash dividends on any of their shares of common stock if the effect would be to reduce shareholders' equity below applicable regulatory capital requirements or if such declaration of payment would otherwise violate regulatory requirements. The Association is subject to various regulatory capital requirements administered by the Office of Thrift Supervision (OTS). Failure to meet minimum capital requirements can initiate certain mandatory - and possible additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Association's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines that involve quantitative measures of the Association's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Association's capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulation), to risk-weighted assests (as defined), and of tangible and Tier 1 capital (as defined) to adjusted total assets (as defined). Management believes, as of September 30, 1997, that the Association meets all of capital adequacy requirements to which it is subject. As of September 30, 1997 and 1996, the most recent notification from the OTS categorized the Association as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Association must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Association's category. 36 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 14. Stockholders Equity and Regulatory Matters - (continued) The Association's actual regulatory capital amounts, with reconcilation to the Company's capital investment in the Association determined in accordance with generally accepted accounting principles (GAAP), and ratios as of September 30, 1997 and 1996, are also presented in the following tables (in thousands):
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provision ------------------------- ---------------------- ----------------------- Amount Percent Amount Percent Amount Percent ------------ ----------- ---------- ---------- ------------ --------- GAAP capital, September 30, 1997 $ 11,998 Less: Unrealized gains on securities available-for-sale (1,111) Excess mortgage servicing rights (1) ------------ Tangible capital and ratio to adjusted total assets $ 10,886 16.3% $ 1,000 1.50% ------------ ----------- ---------- ---------- Tier 1 (Core) capital and ratio to adjusted total assets $ 10,886 16.3% $ 2,000 3.0% $ 3,335 5.0% ------------ ----------- ---------- ---------- ------------ --------- Tier 1 capital and ratio to risk-weighted assets $ 10,886 31.9% $ 1,365 4.0% $ 2,047 6.0% ------------ ----------- ---------- ---------- ------------ --------- Tier 2 capital, allowance for loan losses 432 ------------ Total risk-based capital and ratio to risk-weighted assets, September 30, 1997 $ 11,318 33.2% $ 2,730 8.0% $ 3,412 10.0% ============ =========== ========== ========== ============ =========
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provision ------------------------- ---------------------- ----------------------- Amount Percent Amount Percent Amount Percent ------------ ----------- ---------- ---------- ------------ --------- GAAP capital, September 30, 1996 $ 10,643 Less: Unrealized gains on securities available-for-sale (238) Excess mortgage servicing rights (1) ------------ Tangible capital and ratio to adjusted total assets $ 10,404 14.9% $ 1,046 1.50% ------------ ----------- ---------- ---------- Tier 1 (Core) capital and ratio to adjusted total assets $ 10,404 14.9% $ 2,092 3.0% $ 3,487 5.0% ------------ ----------- ---------- ---------- ------------ --------- Tier 1 capital and ratio to risk-weighted assets $ 10,404 30.5% $ 1,366 4.0% $ 2,049 6.0% ------------ ----------- ---------- ---------- ------------ --------- Tier 2 capital, allowance for loan losses 430 ------------ Total risk-based capital and ratio to risk-weighted assets, September 30, 1996 $ 10,834 31.7% $ 2,733 8.0% $ 3,416 10.0% ============ =========== ========== ========== ============ =========
37 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 15. Effects of New Financial Accounting Standards SFAS No. 128, "Earnings Per Share" - issued February 1997, establishes standards for computing and presenting earnings per share (EPS). It simplifies prior standards by replacing primary earnings per share with basic earnings per share and by altering the calculation of diluted EPS, which replaces fully diluted EPS. SFAS No. 128 is effective for financial statements issued after December 15, 1997, including interim periods. SFAS No. 130, "Reporting Comprehensive Income" - issued June 1997, establishes standards for reporting and displaying comprehensive income and its components in general-purpose financial statements. Comprehensive income includes net income and several other items that current accounting standards require to be recognized outside of net income. This statement requires entities to display comprehensive income and its components in the financial statements with presentation of the accumulated balances of other comprehensive income reported in stockholders' equity separately from retained earnings and additional paid-in capital. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods that are presented for comparative purposes is required. SFAS No. 131, "Disclosures about Segments of Enterprise and Related Information" - issued June 1997, requires public business enterprises to report information about their operating segments in a complete set of financial statements to shareholders. This statement also requires entities to report enterprise-wide information about their products and services, their activities in different geographic areas, and their reliance on major customers. Certain segment information is also to be reported in interim financial statements. The basis for determining an enterprise's operating segments is the manner in which management operates the business. Specifically, financial information is required to be reported on the basis that it is used internally by the enterprise's chief operating decision maker in making decisions related to resource allocation and segment performance. SFAS No. 131 is effective for financial statements for years beginning after December 31, 1997. Management believes adoption of the above-described Statements will not have a material effect on financial position and the results of operations, nor will adoption require additional capital resources. Note 16. Parent Only Condensed Financial Information This information should be read in conjunction with the other Notes to Consolidated Financial Statements. On March 23, 1995 the Company issued $7.6 million of common stock and contributed one-half of the net proceeds to the Association as equity capital. Shareholders' equity differs from the consolidated statements primarily by the amount of consolidating ESOP adjustments. STATEMENT OF FINANCIAL CONDITION
September 30, ------------------------------- 1997 1996 ------------ ----------- ASSETS Cash and cash equivalents $ 24,203 $ 61,525 Investment in Association subsidiary 11,998,136 10,642,889 Loan to Association subsidiary 65,000 1,725,000 Loan to Association ESOP 542,056 609,813 Tax benefit due from subsidiary 40,781 33,235 ----------- ----------- Total $12,670,176 $13,072,462 =========== =========== LIABILITIES AND SHAREHOLDERS EQUITY Other liabilities $ 111,961 $ 70,210 Shareholders' equity 12,558,215 13,002,252 ----------- ----------- Total $12,670,176 $13,072,462 =========== ===========
38 MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Note 16. Parent Only Condensed Financial Information - (continued) STATEMENT OF INCOME
For the Year Ended September 30, ----------------------------- Interest from: 1997 1996 ------------- ------------- Association's subsidiary loan $ 80,148 $ 151,949 Association's ESOP loan 47,137 54,101 Dividends from Association subsidiary 450,000 200,000 ----------- ----------- Total income 577,285 406,050 Expenses: Non-interest expenses 272,672 234,402 Income tax (benefit) (58,435) (11,679) ----------- ----------- Total expenses 214,237 222,723 ----------- ----------- Income before equity in undistributed net income of Association subsidiary 363,048 183,327 Equity in undistributed net income of Association subsidiary 828,442 577,217 ----------- ----------- Net income $ 1,191,490 $ 760,544 =========== ===========
STATEMENT OF CASH FLOWS
For the Year Ended September 30, -------------------------------- 1997 1996 ----------- ------------ Net income $ 1,191,490 $ 760,544 Adjustments: Equity in undistributed net income of subsidiary (828,442) (577,217) ESOP fair value adjustment, net of taxes 26,768 15,426 Increase in income tax benefit due from subsidiary (3,499) (33,235) Increase in deferred income taxes (4,047) -- (Decrease) in accrued income taxes -- (160) Increase in other liabilities 41,750 70,210 ----------- ----------- Net cash provided by operations 424,020 235,568 ----------- ----------- Cash flows from investing activities: Subsidiary loan proceeds 1,660,000 1,375,000 Purchase of treasury stock (2,068,422) (1,536,689) ----------- ----------- Net cash used in investing activities (408,422) (161,689) ----------- ----------- Cash flows from financing activities: Payment of cash dividend (120,677) (141,804) Principal received on ESOP loan 67,757 80,660 ----------- ----------- Net cash used in financing activities (52,920) (61,144) ----------- ----------- (Decrease) increase in cash and cash equivalents (37,322) (12,735) Cash and cash equivalents Beginning of year 61,525 48,790 ----------- ----------- End of year $ 24,203 $ 61,525 =========== ===========
39 OFFICE LOCATIONS MISSISSIPPI VIEW HOLDING COMPANY 35 East Broadway Little Falls, Minnesota 56345 (320) 632-5461 COMMUNITY FEDERAL SAVINGS AND LOAN ASSOCIATION OF LITTLE FALLS 35 East Broadway Little Falls, Minnesota 56345 (320) 632-5461 Board of Directors of Mississippi View Holding Company and Community Federal Savings and Loan Association of Little Falls Wallace R. Mattock Chairman of the Board (rotated annually) Neil Adamek Thomas J. Leiferman Gerald Peterson Peter Vogel Executive Officers of Mississippi View Holding Company and Community Federal Savings & Loan Association of Little Falls Thomas J. Leiferman President and Chief Executive Officer Larry D. Hartwig Mary Ann Karnowski Vice President Vice President ----------------------- Corporate Counsel Independent Auditors Rosenmeier Anderson & Vogel Bertram Cooper & Co., LLP 210 Second Street, N.E. 110 Second Avenue, S.E. Little Falls, Minnesota 56345 Waseca, Minnesota 56093 Special Counsel Transfer Agent and Registrar Company Malizia, Spidi, Sloane & Fisch,P.C. Registrar and Transfer One Franklin Square 10 Commerce Drive 1301 K Street, N.W., Suite 700 East Cranford, New Jersey 07016 Washington D.C. 20005 (908) 272-8511 ------------------------ The Company's Annual Report for the year ended September 30, 1997, filed with the Securities and Exchange Commission on Form 10-KSB is available without charge upon written request. For a copy of the Form 10-KSB or any other investor information, please write or call Larry D. Hartwig, Vice President at the Company's Office in Little Falls, Minnesota. The Annual Meeting of Shareholders will be held on January 21, 1998, at 10:00 a.m. at the office of the Company. 40 EX-23 5 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-3280 of Mississippi View Holding Company on Form S-8 (filed with the Securities and Exchange Commission on April 5, 1996) of our report dated October 29, 1997 included in this Annual Report on Form 10-KSB of Mississippi View Holding Company for the fiscal year ended September 30, 1997. /s/Bertram Cooper & Co., LLP Bertram Cooper & Co., LLP Waseca, Minnesota December 22, 1997 EX-27 6 ARTICLE 9 FDS FOR FORM 10KSB40
9 1000 YEAR SEP-30-1997 SEP-30-1997 215 890 0 0 12,963 7,405 7,470 45,741 861 68,546 55,184 0 1,295 0 0 0 101 11,967 68,546 3,817 1,348 0 5,165 2,502 2,502 2,663 0 0 1,668 1,198 740 0 0 740 0.96 0.92 7.76 201 33 0 1,456 877 17 1 861 861 0 695
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