<Page>
Report of Independent Auditors
To the Board of Directors and Stockholders of
Landmark Bancshares, Inc.
Dodge City, Kansas
We have audited the accompanying consolidated statements of financial condition
of Landmark Bancshares, Inc. and subsidiary as of September 30, 2000 and 1999,
and the related consolidated statements of operations, comprehensive income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended September 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial position of Landmark Bancshares, Inc. and
subsidiary as of September 30, 2000 and 1999, and the results of their
operations and cash flows for each of the three years in the period ended
September 30, 2000 in conformity with generally accepted accounting principles.
/s/Regier Carr & Monroe, L.L.P.
-------------------------------
Regier Carr & Monroe, L.L.P.
October 26, 2000
Wichita, Kansas
F-1
<Page>
Landmark Bancshares, Inc.
Consolidated Statements of Financial Condition
September 30, 2000 and 1999
<Table>
<Caption>
ASSETS 2000 1999
------------ -------------
Cash and due from banks:
Non-interest bearing $ 1,335,431 $ 1,598,533
Interest bearing 3,754,540 4,377,197
------------- -------------
Total cash and due from banks 5,089,971 5,975,730
Time deposits in other financial institutions 281,771 289,864
Investment securities held-to-maturity (estimated market
value of $27,263,608 and $27,969,640 at September 30,
2000 and 1999, respectively) 28,666,885 28,849,853
Investment securities available-for-sale 9,587,607 12,022,530
Mortgage-backed securities held-to-maturity (estimated
market value of $10,035,853 and $13,471,716 at
September 30, 2000 and 1999, respectively) 10,112,018 13,489,174
Loans receivable, net 182,659,647 177,236,196
Loans held-for-sale 8,854,493 604,395
Accrued income receivable 1,641,904 1,547,901
Foreclosed assets, net 170,724 146,883
Office properties and equipment, net 1,635,170 1,759,770
Prepaid expenses and other assets 1,666,882 1,949,751
Income taxes receivable, current 99,217 154,072
Deferred income taxes 209,686 89,865
------------- -------------
Total assets $ 250,675,975 $ 244,115,984
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 165,325,440 $ 158,936,292
Advances and other borrowings from
Federal Home Loan Bank 57,000,000 58,000,000
Advances from borrowers for taxes and insurance 2,337,045 2,143,805
Accrued expenses and other liabilities 2,351,486 2,631,740
------------- -------------
Total liabilities 227,013,971 221,711,837
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized; none issued
Common stock, $0.10 par value; 10,000,000 shares
authorized; 2,281,312 shares issued and outstanding 228,131 228,131
Additional paid-in capital 22,475,208 22,706,378
Retained income, substantially restricted 24,022,616 22,290,140
Accumulated other comprehensive income (loss) (110,594) (120,493)
Unamortized stock acquired by Employee Stock
Ownership Plan (418,963) (555,841)
Treasury stock, at cost, 1,173,938 and 1,149,748 shares at
September 30, 2000 and 1999, respectively (22,534,394) (22,144,168)
------------- -------------
Total stockholders' equity 23,662,004 22,404,147
------------- -------------
Total liabilities and stockholders' equity $ 250,675,975 $ 244,115,984
============= =============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<Page>
Landmark Bancshares, Inc.
Consolidated Statements of Operations
For the Years Ended September 30, 2000, 1999 and 1998
<Table>
<Caption>
2000 1999 1998
------------------- ------------------ ------------------
Interest and dividend income:
Loans, including fees $ 14,782,605 $14,101,667 $13,741,660
Debt securities:
Taxable 2,198,067 1,414,098 1,096,020
Tax-exempt 62,683 71,563 72,925
Dividends 422,436 363,280 369,990
Mortgage-backed securities 764,817 1,108,444 1,926,845
------------------- ------------------ ------------------
Total interest and dividend income 18,230,608 17,059,052 17,207,440
------------------- ------------------ ------------------
Interest expense:
Deposits 7,340,453 7,515,201 7,585,688
Borrowed funds 3,888,907 2,513,394 2,630,875
------------------- ------------------ ------------------
Total interest expense 11,229,360 10,028,595 10,216,563
------------------- ------------------ ------------------
Net interest income 7,001,248 7,030,457 6,990,877
Provision for losses on loans 266,970 785,000 265,000
------------------- ------------------ ------------------
Net interest income, after provision for losses 6,734,278 6,245,457 6,725,877
------------------- ------------------ ------------------
Non-interest income:
Service charges and late charges 455,021 397,741 339,478
Net gain on sale of available-for-sale securities 50,768 500,123 202,299
Net gain on sale of loans 180,979 462,813 472,908
Service fees on loans sold 157,891 165,025 157,032
Other 132,821 110,359 54,241
------------------- ------------------ ------------------
Total non-interest income 977,480 1,636,061 1,225,958
------------------- ------------------ ------------------
Non-interest expenses:
Compensation and related expenses 2,338,671 2,500,121 2,494,710
Occupancy expense 259,201 252,790 243,633
Federal insurance premium 106,075 149,201 156,064
Data processing 164,622 189,011 207,733
Other expense 1,187,877 1,100,272 1,032,298
------------------- ------------------ ------------------
Total non-interest expenses 4,056,446 4,191,395 4,134,438
------------------- ------------------ ------------------
Income before income taxes 3,655,312 3,690,123 3,817,397
------------------- ------------------ ------------------
Income taxes:
Currently payable 1,399,631 1,377,937 1,529,953
Deferred tax expense (benefit) (127,684) (43,384) (76,354)
------------------- ------------------ ------------------
1,271,947 1,334,553 1,453,599
------------------- ------------------ ------------------
Net income $ 2,383,365 $ 2,355,570 $ 2,363,798
=================== ================== ==================
Earnings per share:
Basic $ 2.19 $ 2.06 $ 1.56
=================== ================== ==================
Diluted $ 2.04 $ 1.87 $ 1.42
=================== ================== ==================
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<Page>
Landmark Bancshares, Inc.
Consolidated Statements of Comprehensive Income
For the Years Ended September 30, 2000, 1999 and 1998
<Table>
<Caption>
2000 1999 1998
------------------- ------------------ ------------------
Net income $ 2,383,365 $ 2,355,570 $ 2,363,798
------------------- ------------------ ------------------
Othercomprehensive income (loss), net of tax: Unrealized gains (losses) on
securities:
Unrealized holding gains (losses) arising
during period 40,944 (73,748) (505,531)
Less: reclassification adjustment for
gains included in net income (31,045) (330,081) (133,517)
------------------- ------------------ ------------------
Total other comprehensive income (loss) 9,899 (403,829) (639,048)
------------------- ------------------ ------------------
Comprehensive income $ 2,393,264 $ 1,951,741 $ 1,724,750
=================== ================== ==================
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<Page>
Landmark Bancshares, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended September 30, 2000, 1999 and 1998
<Table>
<Caption>
Unamortized
Accumulated Common Unamortized
Additional Other Stock ompensation Total
Common Paid-in Retained Comprehensive Acquired by Related to Treasury Stockholders'
Stock Capital Income Income ESOP MSBP Stock Equity
--------- ------------- ------------- ------------ -------------- ----------- -------------- ------------
Balance,
September 30, 1997 $228,131 $ 22,173,827 $ 19,305,087 $ 922,384 $ (844,597) $ (289,567) $ (9,249,935) $32,245,330
Allocation of shares
by Employees' Stock
Ownership Plan 175,691 151,878 327,569
Amortization of
compensation related
to Management Stock
Bonus Plan 108,968 193,045 302,013
Compensation related to
stock options granted 7,658 7,658
Net income for the
year ended
September 30, 1998 2,363,798 2,363,798
Cash dividend paid
($0.60 per share) (929,243) (929,243)
Net change in unrealized
gain on available-
for-sale investment
securities (639,048) (639,048)
Purchase of 360,707
treasury shares (8,654,310) (8,654,310)
-------- ------------ ------------ --------- ---------- ---------- ------------ -----------
Balance,
September 30, 1998 228,131 22,466,144 20,739,642 283,336 (692,719) (96,522) (17,904,245) 25,023,767
Allocation of shares
by Employees' Stock
Ownership Plan 98,672 136,878 235,550
Amortization of
compensation related
to Management Stock
Bonus Plan 104,809 96,522 201,331
Compensation related to
stock options granted 36,753 36,753
Net income for the
year ended
September 30, 1999 2,355,570 2,355,570
Cash dividend paid
($0.70 per share) (805,072) (805,072)
Net change in
unrealized gain
on available-for-sale
investment securities (403,829) (403,829)
Purchase of 196,370
treasury shares (4,239,923) (4,239,923)
-------- ------------ ------------ --------- ---------- --------- ------------ -----------
Balance,
September 30, 1999 228,131 22,706,378 22,290,140 (120,493) (555,841) - (22,144,168) 22,404,147
Allocation of shares by
Employees' Stock
Ownership Plan 59,134 136,878 196,012
Compensation related to
stock options granted 48,585 48,585
Exercise of stock options,
35,958 treasury shares (338,889) 692,308 353,419
Net income for the
year ended
September 30, 2000 2,383,365 2,383,365
Cash dividend paid
($0.60 per share) (650,889) (650,889)
Net change in unrealized
gain on available-
for-sale investment
securities 9,899 9,899
Purchase of 60,148
treasury shares (1,082,534) (1,082,534)
-------- ------------ ------------ --------- ---------- --------- ------------ -----------
Balance,
September 30, 2000 $228,131 $ 22,475,208 $ 24,022,616 $(110,594) $ (418,963) $ - $(22,534,394) $23,662,004
======== ============ ============ ========= ========== ========= ============ ===========
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<Page>
Landmark Bancshares, Inc.
Consolidated Statements of Cash Flows
For the Years Ended September 30, 2000, 1999 and 1998
<Table>
<Caption>
2000 1999 1998
------------------ ------------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,383,365 $ 2,355,570 $ 2,363,798
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 231,345 208,330 157,885
Realized gain on sale of investment securities
available-for-sale (50,768) (500,123) (202,299)
(Increase) decrease in accrued interest receivable (94,003) (104,054) 2,758
Decrease in income taxes (72,828) (169,974) (38,272)
Increase (decrease) in accounts payable and
accrued expenses (280,254) 894,660 (567,513)
Amortization of premiums and discounts
on investments and loans, net (60,664) (116,723) (85,099)
Amortization of mortgage servicing rights 89,036 90,636 50,692
Provision for losses on loans 266,970 785,000 265,000
Sale of loans held-for-sale 8,939,705 23,698,249 22,831,874
Gain on sale of loans held-for-sale (180,979) (462,813) (472,908)
Origination of loans held-for-sale (9,787,423) (20,482,876) (20,450,773)
Purchase of loans held-for-sale (671,690) (1,033,045)
Amortization related to MSBP and ESOP 136,878 233,400 344,923
Other non-cash items, net 146,302 158,510 105,714
------------------ ------------------ -----------------
Net cash provided by operating activities 1,666,682 5,916,102 3,272,735
------------------ ------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal collections, net 2,267,263 8,318,338 (1,076,137)
Loans purchased for investment (15,431,149) (14,529,810) (16,852,563)
Principal repayments on mortgage-backed securities 3,371,577 8,988,926 14,943,744
Acquisition of mortgage-backed securities
held-to-maturity (763,809)
Acquisition of investment securities held-to-maturity (22,425,730) (10,885,469)
Acquisition of investment securities available-for-sale (825,000) (4,439,929) (3,588,429)
Acquisition of equity investment (250,000)
Proceeds on disposition of equity investment 165,525
Proceeds from sale of investment securities
available-for-sale 3,328,452 1,478,042 647,553
Proceeds from maturities and calls of investment
securities held-to-maturity 200,000 5,191,000 18,150,000
Net (increase) decrease in time deposits 8,093 (39,997) (139,287)
Proceeds from sale of foreclosed assets 281,826 231,838 488,420
Acquisition of fixed assets (106,745) (249,886) (698,917)
Other investing activity, net (14,667) (181,749) (114,061)
------------------ ------------------ -----------------
Net cash provided (used) by investing activities (6,754,825) (18,422,766) 624,854
------------------ ------------------ -----------------
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<Page>
Landmark Bancshares, Inc.
Consolidated Statements of Cash Flows (Continued)
For the Years Ended September 30, 2000, 1999 and 1998
<Table>
<Caption>
2000 1999 1998
------------------- ------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 6,389,148 $ 4,143,376 $ 10,058,177
Net increase in escrow accounts 193,240 239,635 231,113
Proceeds from FHLB advances and other borrowings 405,500,000 91,800,000 31,700,000
Repayment of FHLB advances and other borrowings (406,500,000) (75,500,000) (36,200,000)
Purchase of treasury stock (1,082,534) (4,239,923) (8,654,310)
Proceeds from exercise of stock options 359,580
Dividends paid (650,889) (805,072) (929,243)
Other financing activity, net (6,161)
------------------- ------------------- ------------------
Net cash provided (used) by financing activities 4,202,384 15,638,016 (3,794,263)
------------------- ------------------- ------------------
Net (decrease) increase in cash and cash equivalents (885,759) 3,131,352 103,326
Cash and cash equivalents at beginning of year 5,975,730 2,844,378 2,741,052
------------------- ------------------- ------------------
Cash and cash equivalents at end of year $ 5,089,971 $ 5,975,730 $ 2,844,378
=================== =================== ==================
SUPPLEMENTAL DISCLOSURES Cash paid during the year for:
Interest on deposits, advances and other
borrowings $ 11,409,059 $ 10,228,772 $ 9,899,846
Income taxes 1,296,189 1,399,718 1,382,903
Transfers from loans to foreclosed assets 601,429 685,585 377,107
Loans to facilitate the sale of foreclosed assets 115,863 15,606 325,814
Net transfer of loans held for investment to held-for-sale 7,221,401 1,325,297 2,827,880
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<Page>
Landmark Bancshares, Inc.
Notes to Consolidated Financial Statements
September 30, 2000, 1999 and 1998
1. Summary of Significant Accounting Policies
Nature of operations:
Landmark Bancshares, Inc. (the Company) is a Kansas corporation and is
the parent company of its wholly-owned subsidiary, Landmark Federal
Savings Bank (the Bank). At the present time, the Company does not
conduct any active business other than operation of the Bank.
Landmark Federal Savings Bank is primarily engaged in attracting
deposits from the general public and using those deposits, together with
other funds, to originate real estate loans on one- to four- family
residences, commercial and consumer loans. The Bank conducts its
business from its main office in Dodge City and also has five branch
offices located in Dodge City, Garden City, Great Bend, Hoisington and
LaCrosse, Kansas. The Bank also has a loan origination office in the
Kansas City area. In addition, the Bank invests in mortgage-backed
securities and investment securities. The Bank offers its customers
fixed rate and adjustable rate mortgage loans, as well as other loans,
including commercial, auto, home equity and savings account loans.
Basis of presentation and consolidation:
The accompanying consolidated financial statements include the accounts
of Landmark Bancshares, Inc. and its wholly-owned subsidiary, Landmark
Federal Savings Bank. Significant intercompany transactions and balances
have been eliminated in consolidation.
Use of estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for
loan losses and the valuation of assets acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for loan losses and the valuation of
assets acquired by foreclosure, management obtains independent
appraisals for significant properties.
Management believes that the allowances for losses on loans and
valuations of assets acquired by foreclosure are adequate and
appropriate. While management uses available information to recognize
losses on loans and assets acquired by foreclosure, future losses may be
accrued based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowances for losses on loans and
valuations of assets acquired by foreclosure. Such agencies may require
the Bank to recognize additional losses based on their judgment of
information available to them at the time of their examination.
Cash and cash equivalents:
Cash and cash equivalents include unrestricted cash on hand, demand
deposits maintained in depository institutions and other readily
convertible investments with original maturities when purchased of three
months or less. All time deposits in other depository institutions are
treated as non-cash equivalents.
Investment and mortgage-backed securities:
Regulations require the Bank to maintain liquidity for maturities of
deposits and other short-term borrowings in cash, U.S. Government and
other approved securities.
Investments, including mortgage-backed securities, are classified as
held-to-maturity, trading or available-for-sale. Held-to-maturity
securities are securities for which the Bank has the positive intent and
ability to hold to maturity and are reported at amortized cost. Trading
securities are securities held principally for resale and are reported
at fair
F-8
<Page>
1. Summary of Significant Accounting Policies (Continued)
value, with unrealized changes in value reported in the bank's income
statement as part of earnings. Available-for-sale securities are
securities not classified as trading or as held-to-maturity securities
and are also reported at fair value, but any unrealized appreciation or
depreciation, net of tax effects, are reported as a separate component
of equity.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
Gains and losses on the sale of investment and mortgage-backed
securities are determined using the specific-identification method. All
sales are made without recourse.
Loans receivable:
Loans receivable that management has intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal balances, net of undisbursed loan proceeds, the
allowance for loan losses, any deferred fees or costs on originated
loans and unamortized premiums or discounts on purchased loans. Premiums
and discounts on purchased residential real estate loans are amortized
to income using the interest method over the estimated remaining period
to maturity. Loan origination fees and certain direct costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
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 Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, the current level of
non-performing assets and current economic conditions. This evaluation
is inherently subjective as it requires estimates that are susceptible
to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and
interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrower's prior
payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan by loan
basis for commercial and construction loans by either the present value
of expected future cash flows discounted at the loan's effective
interest rate, the loan's obtainable market price, or the fair value of
the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Corporation does not
separately identify individual consumer and residential loans for
impairment disclosures.
The accrual of interest on mortgage and commercial loans is discontinued
at the time the loan is 90 days delinquent unless the credit is
well-secured and in process of collection. Consumer loans are typically
charged off no later than 180 days past due. In all cases, loans are
placed on nonaccrual or charged-off at an earlier date if collection of
principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The
interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.
F-9
<Page>
1. Summary of Significant Accounting Policies (Continued)
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.
Foreclosed assets:
Assets acquired through, or in lieu of, foreclosure are to be sold and
are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. Subsequent to foreclosure, management
periodically performs valuations, and an allowance for losses is
established by a charge to operations if the carrying value of a
property exceeds the fair value less estimated costs to sell. Revenue
and expenses from operations and changes in the valuation allowance are
included in net expenses from foreclosed assets. The historical average
holding period for such property is approximately six months.
Mortgage servicing rights:
Servicing assets are recognized as separate assets when rights are
acquired through purchase or through sale of financial assets.
Capitalized servicing rights are reported in other assets and are
amortized into non-interest income in proportion to, and over the period
of, the estimated future net servicing income of the underlying
financial assets. Servicing assets are evaluated for impairment based
upon the fair value of the rights as compared to amortized cost.
Impairment is determined by stratifying rights by predominant
characteristics, such as interest rates and terms. Fair value is
determined using prices for similar assets with similar characteristics,
when available, or based upon discounted cash flows using market-based
assumptions. Impairment is recognized through a valuation allowance for
an individual stratum, to the extent that fair value is less than the
capitalized amount for the stratum.
Derivative financial instruments:
All derivative financial instruments previously held or issued by the
Company were held or issued for purposes other than trading. The Company
did not hold or issue any derivative financial instruments during the
years ended September 30, 2000, 1999 and 1998.
Credit related financial instruments:
In the ordinary course of business the Bank has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of
credit, and standby letters of credit. Such financial instruments are
recorded in the financial statements when they are funded or related
fees are incurred or received.
Office properties and equipment:
Office properties and equipment are stated at cost less accumulated
deprecation. Depreciation is computed on a straight-line basis or
accelerated methods over the estimated useful lives of five to fifty
years for buildings and improvements and three to twenty years for
furniture, fixtures, equipment and automobiles.
Transfers of financial assets:
Transfers of financial assets are accounted for as sales, when control
over the assets has been surrendered. Control over transferred assets is
deemed to be surrendered when (1) the assets have been isolated from the
Company, (2) the transferee obtains the right (free of conditions that
constrain it from taking advantage of that right) to pledge or exchange
the transferred assets, and (3) the Company does not maintain effective
control over the transferred assets through an agreement to repurchase
them before their maturity.
Income taxes:
Deferred income tax assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net deferred
tax asset or liability is determined based on the tax effects of the
temporary differences between the book and tax bases of the various
balance sheet assets and liabilities and gives current recognition to
changes in tax rates and laws.
F-10
<Page>
1. Summary of Significant Accounting Policies (Continued)
Advertising costs:
Advertising costs are expensed as incurred and included in other
non-interest expense. Advertising expenses totaled $91,411, $64,152 and
$74,274 for the years ended September 30, 2000, 1999 and 1998,
respectively.
Stock-based compensation:
The Company has adopted Statement of Financial Accounting Standard
(SFAS) No. 123, Accounting for Stock-Based Compensation, which
establishes a fair-value-based method of accounting for stock
compensation plans with employees and others. It applies to all
arrangements under which employees receive shares of stock or other
equity instruments of the employer, or the employer incurs liabilities
to employees in amounts based on the price of the employer's stock. The
Company's stock options are recognized and measured in accordance with
the fair-value-based method of accounting.
Earnings per share:
Basic earnings per share represents income available to common
stockholders divided by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share reflects
additional common shares that would have been outstanding if dilutive
potential common shares had been issued, as well as any adjustment to
income that would result from the assumed issuance. Potential common
shares that may be issued by the Company relate solely to outstanding
stock options and management stock bonus plan (MSBP) shares, and are
determined using the treasury stock method.
Earnings per common share have been computed based on the following:
<Table>
<Caption>
Years Ended September 30,
-----------------------------------------------------------
2000 1999 1998
----------------- ----------------- ------------------
Net income $2,383,365 $2,355,570 $2,363,798
================= ================= ==================
Average number of common shares
outstanding 1,086,528 1,142,222 1,518,482
Effect of dilutive stock options 81,318 119,494 140,102
Effect of dilutive MSBP shares 748 6,366
----------------- ----------------- ------------------
Average number of common shares
outstanding used to calculate diluted
earnings per common share 1,167,846 1,262,464 1,664,950
================= ================= ==================
</Table>
Comprehensive income:
The Company adopted SFAS 130, Reporting Comprehensive Income, as of
October 1, 1998. Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate
component of the equity section of the balance sheet, such items, along
with net income are components of comprehensive income. The adoption of
SFAS 130 had no effect on the Company's net income or stockholders'
equity.
F-11
<Page>
1. Summary of Significant Accounting Policies (Continued)
The components of other comprehensive income and related tax effects are
as follows:
<Table>
<Caption>
Years Ended September 30,
-----------------------------------------------------------
2000 1999 1998
----------------- ----------------- ------------------
Unrealized holding gains (losses) on
available-for sale securities $ 68,528 $ (160,267) $ (842,750)
Reclassification adjustment for losses
(gains) realized in income (50,768) (500,123) (202,299)
----------------- ----------------- ------------------
Net unrealized gains (losses) 17,760 (660,390) (1,045,049)
Tax effect (7,861) 256,561 406,001
----------------- ----------------- ------------------
Net-of-tax amount $ 9,899 $ (403,829) $ (639,048)
================= ================= ==================
</Table>
Impact of new accounting standards:
As discussed at Note 23, the Company adopted the provisions of SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as of
October 1, 2000.
In September 2000, FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities.
The new Statement replaces Statement 125, issued in June 1996. This
Statement revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of Statement 125's provisions
without reconsideration. SFAS 140 is effective for transfers occurring
after March 31, 2001 and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15,
2000. SFAS 140 is not expected to have a material effect on the
Company's financial statements.
Financial statement presentation:
Certain items in prior year financial statements have been reclassified
to conform to the 2000 presentation.
2. Investment Securities
The amortized cost and estimated market values of investment securities
at September 30 are summarized as follows:
<Table>
<Caption>
September 30, 2000
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
Held-to-maturity:
Government Agency Securities $27,481,885 $ - $ 1,399,854 $26,082,031
Municipal Obligations 1,185,000 12,797 16,220 1,181,577
----------- ----------- ----------- -----------
$28,666,885 $ 12,797 $ 1,416,074 $27,263,608
=========== =========== =========== ===========
Available-for-sale:
Debt Securities
Government Agency Securities $ 2,000,000 $ - $ 47,813 $ 1,952,187
Corporate Bonds 200,000 18,187 181,813
Common Stock 3,756,890 493,186 606,469 3,643,607
Stock in FHLB, at cost 3,800,000 3,800,000
Other 10,000 10,000
----------- ----------- ----------- -----------
$ 9,766,890 $ 493,186 $ 672,469 $ 9,587,607
=========== =========== =========== ===========
</Table>
F-12
<Page>
2. Investment Securities (Continued)
<Table>
<Caption>
September 30, 1999
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
Held-to-maturity:
Government Agency Securities $27,464,853 $ $ 887,041 $26,577,812
Municipal Obligations 1,385,000 16,453 9,625 1,391,828
----------- ----------- ----------- -----------
$28,849,853 $ 16,453 $ 896,666 $27,969,640
=========== =========== =========== ===========
Available-for-sale:
Debt Securities
Government Agency Securities $ 4,000,000 $ - $ $ 4,000,000
Corporate Bonds 200,000 2,000 9,000 193,000
Common Stock 4,568,574 537,790 727,834 4,378,530
Stock in FHLB, at cost 3,441,000 3,441,000
Other 10,000 10,000
----------- ----------- ----------- -----------
$12,219,574 $ 539,790 $ 736,834 $12,022,530
=========== =========== =========== ===========
</Table>
Government agency securities above include bonds and notes issued by
various government agencies. Those agencies include the following:
Fannie Mae, Freddie Mac and Federal Home Loan Bank. Federal Home Loan
Bank members are required to maintain an investment in stock at an
amount equal to a percentage of outstanding home loans. For disclosure
purposes such stock, which is carried at cost, is assumed to have a
market value that is equal to cost.
The amortized cost and estimated market value of debt securities by
contractual maturity as of September 30, 2000 are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<Table>
<Caption>
September 30, 2000
------------------------------------------------------
Held-to-Maturity Available-for-Sale
-------------------------- --------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
----------- ------------ ----------- ------------
Due in one year or less $ 200,000 $ 200,000 $ $ -
Due after one year through five years 3,400,000 3,340,016 150,000 141,375
Due after five years through ten years 22,066,885 20,947,655
Due after ten years 3,000,000 2,775,937 2,050,000 1,992,625
----------- ----------- ----------- -----------
$28,666,885 $27,263,608 $ 2,200,000 $ 2,134,000
=========== =========== =========== ===========
</Table>
Gross realized gains and (losses) on sales of investment securities and
related tax benefit (provision) during the years ended September 30 are
as follows:
<Table>
<Caption>
2000 1999 1998
--------- --------- ---------
Available-for-sale securities:
Realized gains $ 92,516 $ 509,255 $ 202,299
Realized losses (41,748) (9,132) -
--------- --------- ---------
$ 50,768 $ 500,123 $ 202,299
========= ========= =========
Tax benefit (provision) $ (19,723) $(194,298) $ (78,593)
========= ========= =========
</Table>
Proceeds from sales of available-for-sale securities were $3,328,452,
$1,478,042 and $647,553 for the years ended September 30, 2000, 1999 and
1998, respectively. During the year ended September 30, 2000 sales
consisted of common stock of unrelated financial corporations, stock in
FHLB and government agency securities. During the
F-13
<Page>
2. Investment Securities (Continued)
years ended September 30, 1999 and 1998, sales consisted of common stock
of unrelated financial corporations. Investment securities with a
carrying amount of $29,454,380 and $19,500,000 as of September 30, 2000
and 1999, respectively, were pledged as collateral for public funds as
discussed in Note 9.
3. Mortgage-Backed Securities
Mortgage-backed securities, all of which were classified as
held-to-maturity at September 30, 2000 and 1999, consist of the
following:
<Table>
<Caption>
September 30, 2000
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- -------- ----------
GNMA - fixed rate $ 43,616 $ 224 $ - $ 43,840
FNMA - ARMs 4,985,758 13,077 54,396 4,944,439
FHLMC - ARMs 1,461,099 11,859 3,016 1,469,942
FHLMC - fixed rate 49,505 256 289 49,472
FNMA - fixed rate 305,495 5,230 310,725
Collateralized mortgage obligations -
government agency issue 2,363,257 7,578 43,183 2,327,652
Collateralized mortgage
obligations-private issues 903,288 13,505 889,783
----------- ----------- -------- ----------
$10,112,018 $ 38,224 $114,389 $10,035,853
=========== =========== ======== ===========
</Table>
<Table>
<Caption>
September 30, 1999
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- -------- -----------
GNMA - fixed rate $ 103,124 $ 1,693 $ - $ 104,817
FNMA - ARMs 5,901,429 27,530 47,602 5,881,357
FHLMC - ARMs 1,900,940 19,066 3,134 1,916,872
FHLMC - fixed rate 79,967 1,165 119 81,013
FNMA - fixed rate 343,808 7,188 350,996
Collateralized mortgage obligations -
government agency issue 3,862,807 15,579 32,719 3,845,667
Collateralized mortgage
obligations-private issues 1,297,099 2,109 8,214 1,290,994
----------- ----------- -------- -----------
$13,489,174 $ 74,330 $ 91,788 $13,471,716
=========== =========== ======== ===========
</Table>
Collateralized mortgage obligations consist of floating rate and fixed
rate notes with varying contractual principal maturities. The Bank has
no principal only, interest only, or residual collateralized mortgage
obligations.
There were no mortgage-backed securities classified as
available-for-sale for years ended September 30, 2000, 1999 or 1998,
respectively.
Mortgage-backed securities with a carrying amount of $8,604,843 and
$6,171,483 at September 30, 2000 and 1999, respectively, were pledged as
collateral for public funds as discussed in Note 9.
F-14
<Page>
4. Loans Receivable
Loans receivable at September 30, are summarized as follows:
<Table>
<Caption>
September 30,
------------------------------
2000 1999
------------- -------------
Real estate loans:
Residential $ 147,514,858 $ 138,008,961
Construction 857,486 1,847,609
Commercial 9,331,198 9,050,225
Second mortgage 10,403,434 9,716,029
Commercial business 7,033,573 6,531,200
Consumer 9,050,233 13,578,547
------------- -------------
Gross loans 184,190,782 178,732,571
Less: Net deferred loan fees, premiums and discounts (154,428) (178,699)
Allowance for loan losses (1,376,707) (1,317,676)
------------- -------------
Total loans, net $ 182,659,647 $ 177,236,196
============= =============
</Table>
The following is an analysis of the change in the allowance for loss on
loans:
<Table>
<Caption>
2000 1999 1998
----------- ----------- -----------
Balance, beginning $ 1,317,676 $ 1,136,753 $ 968,623
Provision charged to operations 266,970 785,000 265,000
Loans charged off (352,390) (657,712) (107,070)
Recoveries 144,451 53,635 10,200
----------- ----------- -----------
Balance, ending $ 1,376,707 $ 1,317,676 $ 1,136,753
=========== =========== ===========
</Table>
Impairment of loans having recorded investments of $505,276 at September
30, 2000 and $353,790 at September 30, 1999 have been recognized in
conformity with FASB Statement No. 114, as amended by FASB Statement No.
118. The average recorded investment in impaired loans during the years
ended September 30, 2000, 1999 and 1998 was $429,533, $429,669 and
$438,658, respectively. Allowances for loss on these loans are included
in the above analysis of the overall allowance for loss on loans. There
are no specific loss provisions associated with impaired loans as of
September 30, 2000 and 1999. Interest income on impaired loans of
$25,858, $27,139 and $31,803 was recognized for cash payments received
for the year ended September 30, 2000, 1999 and 1998, respectively.
It is Bank policy not to modify interest rates below the then current
market rate on loans associated with troubled debt restructuring. The
Bank is not committed to lend additional funds to debtors whose loans
have been modified.
See Note 18 for disclosure of loans to related parties.
5. Mortgage Servicing Rights
Mortgage loans serviced for others are not included in the accompanying
statements of financial condition. The unpaid principal balances of
these loans at September 30 are summarized as follows:
<Table>
<Caption>
2000 1999 1998
----------- ----------- -----------
FHLMC $55,384,983 $60,153,338 $58,336,823
Other investors 2,727,416 1,790,728 1,809,812
----------- ----------- -----------
$58,112,399 $61,944,066 $60,146,635
=========== =========== ===========
</Table>
F-15
<Page>
5. Mortgage Servicing Rights (Continued)
Custodial escrow balances maintained in connection with the foregoing
loan servicing and included in demand deposits, were approximately
$44,540 and $59,955 at September 30, 2000 and 1999.
The following is an analysis of the changes in mortgage servicing rights
during the year ended September 30, 2000, 1999 and 1998:
<Table>
<Caption>
2000 1999 1998
--------- --------- ---------
Balance, beginning $ 318,543 $ 225,835 $ 96,199
Additions 34,015 183,344 180,311
Amortization (89,036) (90,636) (50,675)
--------- --------- ---------
Balance, ending $ 263,522 $ 318,543 $ 225,835
========= ========= =========
</Table>
The fair value of servicing rights as of September 30, 2000 and 1999 was
determined to approximate book value, based on values of FHLMC servicing
of comparable stratification, including prepayment speeds. No valuation
allowance was recorded against mortgage servicing rights at September
30, 2000 and 1999.
6. Accrued Income Receivable
Accrued interest receivable at September 30 is summarized as follows:
<Table>
<Caption>
2000 1999
---------- ----------
Mortgage-backed securities $ 66,678 $ 83,235
Loans receivable 1,121,751 1,030,071
Investments 453,475 434,595
---------- ----------
$1,641,904 $1,547,901
========== ==========
</Table>
7. Foreclosed Assets
Real estate owned or in judgment and other repossessed assets consist of
the following:
<Table>
<Caption>
September 30,
-------------------
2000 1999
-------- --------
Real estate acquired by foreclosure $130,000 $ -
Real estate loans in judgment
and subject to redemption 40,724 70,081
Other foreclosed assets 76,802
-------- --------
$170,724 $146,883
======== ========
</Table>
There was no activity in the allowance for loss account for the years
ended September 30, 2000, 1999 and 1998.
Income (loss) from foreclosed assets, included in other non-interest
income, for the years ended September 30 are as follows:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Net gain on sale of foreclosed assets $ 4,792 $ 3,711 $ 24,677
Operating expenses, net of rental income (38,877) (20,773) (13,142)
-------- -------- --------
Balance, ending $(34,085) $(17,062) $ 11,535
======== ======== ========
</Table>
F-16
<Page>
8. Office Properties and Equipment
Office properties and equipment are stated at cost less accumulated
depreciation as follows:
<Table>
<Caption>
September 30,
-----------------------
2000 1999
---------- ----------
Land $ 298,366 $ 298,366
Office building and improvements 1,958,977 1,955,675
Furniture, fixtures and equipment 1,241,367 1,138,044
Automobiles 11,544 11,544
---------- ----------
3,510,254 3,403,629
Less accumulated depreciation 1,875,084 1,643,859
---------- ----------
$1,635,170 $1,759,770
========== ==========
Depreciation expense ($157,885 for 1998) $ 231,345 $ 208,330
========== ==========
</Table>
9. Deposits
Deposits at September 30 are summarized as follows:
<Table>
<Caption>
2000 1999
------------ ------------
Demand accounts:
Interest-bearing $ 16,132,399 $ 21,323,449
Non-interest bearing 4,445,472 3,960,610
------------ ------------
Total demand accounts 20,577,871 25,284,059
Savings deposits 8,052,345 7,561,096
Certificates of deposit 136,695,224 126,091,137
------------ ------------
$165,325,440 $158,936,292
============ ============
</Table>
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 as of September 30, 2000 and 1999 was
approximately $46,933,583 and $26,987,714, respectively. Deposit
accounts as of September 30, 2000 included public funds of $37,411,681.
Public funds were collateralized by investment securities and
mortgage-backed securities as discussed in Notes 2 and 3. Public funds
were also guaranteed by letters of credit totaling $5,000,000 issued by
the FHLB.
At September 30, 2000, scheduled maturities of certificates of deposit
are as follows:
<Table>
<Caption>
Year Ending September 30,
- ----------------------------------------
2000 $117,992,165
2001 14,209,738
2002 3,349,042
2003 776,821
2004 355,458
Thereafter 12,000
---------------------
$136,695,224
=====================
</Table>
F-17
<Page>
10. Advances and other Borrowings from Federal Home Loan Bank
Advances and other borrowings from the Federal Home Loan Bank at
September 30 are summarized as follows:
<Table>
<Caption>
2000 1999
----------- -----------
Advances $57,000,000 $35,000,000
Line of credit 23,000,000
----------- -----------
$57,000,000 $58,000,000
=========== ===========
</Table>
Advances and other borrowings from the Federal Home Loan Bank at
September 30 consist of the following:
<Table>
<Caption>
Fiscal 2000 1999
----------------------------------------- ---------------------------------------
Year Weighted Weighted
Maturity Amount Average Rate Amount Average Rate
- -------------- -------------------- ------------------ ------------------ ------------------
2000 $ % $ 37,000,000 5.76 %
2001 30,000,000 6.62
2002
2003
2004 8,000,000 6.01 8,000,000 4.93
2005 10,000,000 6.10
Thereafter 9,000,000 5.75 13,000,000 4.64
-------------------- ------------------ ------------------ ------------------
$ 57,000,000 6.31 % $ 58,000,000 5.39 %
==================== ================== ================== ==================
</Table>
At September 30, 2000 the Company had $0 outstanding under a line of
credit with the Federal Home Loan Bank. There is no stated limit on the
line of credit, the FHLB evaluates the credit limitations based on
various criteria. The line of credit matures on February 2, 2001 and
bears interest at the line of credit rate established by the Federal
Home Loan Bank. This rate is adjusted from time to time. The rate as of
September 30, 2000 was 6.90%. At September 30, 1999 the Company had
$23,000,000 outstanding under a $30,000,000 line of credit, due February
4, 1999.
The advances and line of credit are collateralized as of September 30,
2000 and 1999 by a blanket pledge agreement, including all stock in
Federal Home Loan Bank, qualifying first mortgage loans, certain
mortgage-related securities and other investment securities.
11. Income Taxes
The Company and subsidiary file consolidated income tax returns.
Allocation of federal and state income taxes between current and
deferred portions is as follows:
<Table>
<Caption>
Years ended September 30,
-----------------------------------------------
2000 1999 1998
----------- ----------- -----------
Current tax provision:
Federal $ 1,240,908 $ 1,212,852 $ 1,289,824
State 158,723 165,085 240,129
----------- ----------- -----------
1,399,631 1,377,937 1,529,953
----------- ----------- -----------
Deferred tax provision:
Federal (112,745) (38,308) (67,421)
State (14,939) (5,076) (8,933)
----------- ----------- -----------
(127,684) (43,384) (76,354)
----------- ----------- -----------
$ 1,271,947 $ 1,334,553 $ 1,453,599
=========== =========== ===========
</Table>
F-18
<Page>
11. Income Taxes (Continued)
The Company's effective income tax rate was different than the statutory
federal income tax rate for the following reasons:
<Table>
<Caption>
2000 1999 1998
---------------- ---------------- ---------------
Statuatory federal income tax 34.0 % 34.0 % 34.0 %
Increase (reductions) resulting from:
State taxes, net of federal tax benefit 2.3 2.9 3.6
Other (1.5) 0.7 0.5
---------------- ---------------- ---------------
34.8 % 37.6 % 38.1 %
================ ================ ===============
</Table>
The components of net deferred tax asset (liability) at September 30, 2000
and 1999 are as follows:
<Table>
<Caption>
2000 1999
--------- ---------
Deferred tax asset:
Deferred loan fees and costs $ 11,382 $ 15,833
Allowance for loan losses 507,180 485,433
Deferred compensation and accrued salaries 192,508 182,874
Equity investment in partnership 11,129
Unrealized loss on available-for-sale securities 68,690 76,551
State net operating loss 9,101
Accumulated depreciation 690
--------- ---------
789,551 771,820
--------- ---------
Deferred tax liabilities:
Accumulated depreciation (244)
Special bad debt deduction (115,060) (172,590)
FHLB stock dividends (452,664) (496,980)
Investment basis (12,141) (12,141)
--------- ---------
(579,865) (681,955)
--------- ---------
$ 209,686 $ 89,865
========= =========
</Table>
No valuation allowance was recorded against deferred tax assets at
September 30, 2000 or 1999.
Effective with the tax year beginning October 1, 1996, the Bank was no
longer able to use the percentage of taxable income method and began to
recapture tax bad debt reserves of $936,968 over a six year period. The
reserves to be recaptured consist of bad debt deductions after December
31, 1987. If the amounts deducted prior to December 31, 1987 are used
for purposes other than for loan losses, such as in a distribution in
liquidation or otherwise, the amounts deducted would be subject to
federal income tax at the then current corporate tax rate. The Bank had
recorded a deferred tax asset related to the allowance for loan losses
reported for financial reporting purposes and a deferred tax liability
for special bad debt deductions after December 31, 1987. The Bank, in
accordance with SFAS No. 109, has not recorded a deferred tax liability
of approximately $1,900,000 related to approximately $5,585,000 of
cumulative special bad debt deductions prior to December 31, 1987.
F-19
<Page>
12. Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings and other factors. Prompt corrective action
provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of core and tangible capital (as defined in
the regulations) to assets (as defined) and core and total capital to
risk weight assets (as defined). Management believes, as of September
30, 2000, that the Bank meets all capital adequacy requirements to which
it is subject.
As of September 30, 2000, the most recent notification from the Office
of Thrift Supervision (OTS) categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth
in the table. There are no conditions or events since that notification
that management believes have changed the Bank's category.
The Bank's actual capital amounts (in thousands) and ratios are also
presented in the following table:
<Table>
<Caption>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
--------------------------- --------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- -------- ------------ ------- ------------ ---------
As of September 30, 2000:
Total (Risk-Based) Capital
(to Risk Weighted Assets) $ 21,185 17.1% $ 9,920 8.0% $12,400 10.0%
Core (Tier I) Capital
(to Risk Weighted Assets) 19,809 16.0% N/A 7,440 6.0%
Core (Tier I) Capital - leverage
(to Assets) 19,809 8.0% 9,896 4.0% 12,370 5.0%
As of September 30, 1999:
Total (Risk-Based) Capital
(to Risk Weighted Assets) $ 19,615 16.1% $ 9,739 8.0% $12,173 10.0%
Core (Tier I) Capital
(to Risk Weighted Assets) 18,297 15.0% N/A 7,304 6.0%
Core (Tier I) Capital - leverage
(to Assets) 18,297 7.6% 9,652 4.0% 12,065 5.0%
</Table>
F-20
<Page>
12. Regulatory Matters (Continued)
The following is a reconciliation of net worth to regulatory capital as
reported in the September 30, 2000 and 1999 reports to the Office of
Thrift Supervision:
<Table>
<Caption>
September 30,
------------------------------
2000 1999
------------- -------------
Bank net worth per report to OTS $ 19,835,000 $ 18,615,000
Rounding 356 328
------------- -------------
Net worth as reported in accompanying
financial statements (bank only) 19,835,356 18,615,328
Adjustments to arrive at Core (Tier I)
and Tangible Capital:
Disallowed servicing assets (26,000) (318,000)
------------- -------------
Core (Tier I) and Tangible Capital 19,809,356 18,297,328
Adjustments to arrive at Total Capital:
Allowable portion of general allowance
for loan losses 1,376,000 1,318,000
------------- -------------
Total Risk-Based Capital $ 21,185,356 $ 19,615,328
============= =============
Risk weight assets $ 124,000,000 $ 121,734,000
============= =============
</Table>
13. Contingencies
The Company is at times a defendant in certain claims and legal actions
arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate
disposition of such matters is not expected to have a material adverse
effect on the consolidated financial condition of the Company.
14. Employee Benefit Plans
Employee Retirement Plan:
The Bank has adopted a 401(k) defined contribution savings plan.
Substantially all employees are covered under the contributory plan.
Pension costs attributable to the years ended September 30, 2000, 1999
and 1998 were $37,556, $36,286 and $29,847, respectively, including all
current service costs.
Deferred Compensation Agreements:
The Bank has entered into deferred compensation agreements with certain
key employees that provide for cash payments to be made after their
retirement. The liabilities under the agreements have been recorded at
the present values of accrued benefits using a 7% interest rate. The
balance of estimated accrued benefits was $235,447 and $246,285 at
September 30, 2000 and 1999, respectively. In connection with the
deferred compensation agreements, the Bank has purchased life insurance
policies on covered employees in which the Bank is the beneficiary to
assist in funding benefits. At September 30, 2000 and 1999, the cash
surrender values on the policies were $421,759 and $529,842,
respectively.
Employee Stock Ownership Plan:
Upon conversion from mutual to stock form, the Bank established an
employee stock ownership plan (ESOP). The original acquisition of
136,878 shares of Company stock by the plan was funded by a loan from
the Company to the ESOP, in the amount of $1,368,780. The loan, together
with interest, is to be repaid over a ten year period through annual
contributions by the Bank. The debt, which is accounted for as a
liability of the Bank and a receivable for the Company, has been
eliminated in consolidation.
The Bank makes annual contributions to the ESOP equal to the ESOP's debt
service less dividends received by the ESOP. All dividends received by
the ESOP are used to pay debt service. The ESOP shares initially were
pledged as collateral for its debt. As the debt is repaid, shares are
released from the collateral and will be allocated to active employees,
based on the proportion of debt service paid in the year. The Bank
accounts for its ESOP shares in
F-21
<Page>
14. Employee Benefit Plans (Continued)
accordance with Statement of Position No. 93-6. Accordingly, the debt of
the ESOP is recorded as debt of the Bank and the shares pledged as
collateral are reported as unearned ESOP shares in the Statement of
Financial Condition. As of September 30, 2000, the balance of
indebtedness from the ESOP to the Company was $418,963, which is shown
as a deduction from stockholders' equity on the consolidated balance
sheet. The debt, which is accounted for as a liability of the Bank and a
receivable for the Company, has been eliminated in consolidation. As
shares are released from collateral, the Company reports compensation
expense equal to the current market price of the shares, and the shares
become outstanding for earnings per share (EPS) computations. Dividends
on allocated ESOP shares are recorded as a reduction of retained
earnings, dividends on unallocated ESOP shares are recorded as
compensation expense. ESOP compensation expense was $154,481, $191,188
and $298,320 for the years ended September 30, 2000, 1999 and 1998,
respectively. As of September 30, 2000, of the 120,120 shares acquired
by the ESOP, 78,224 shares were allocated and 41,896 shares were
unallocated. The 41,896 unallocated shares had an estimated market value
of $764,602 at September 30, 2000.
Management Stock Bonus Plan:
In connection with the stock conversion, the Bank adopted three
Management Stock Bonus Plans (collectively the MSBP), the objective of
which is to enable the Bank to retain personnel of experience and
ability in key positions of responsibility. All employees of the Bank
are eligible to receive benefits under the MSBP. Benefits may be granted
at the sole discretion of a committee appointed by the Board of
Directors. The MSBP is managed by trustees who are non-employee
directors and who have the responsibility to invest all funds
contributed by the Bank to the trusts created for the MSBP.
The MSBP has purchased 91,252 shares of the Company's stock for
$965,224. These shares were granted in the form of restricted stock
payable over a five-year period at the rate of one-fifth of such shares
per year following the date of grant of the award. Compensation expense,
in the amount of the fair market value of the common stock at the date
of the grant to the employee, was recognized pro rata over the five
years during which the shares were payable. All awards were fully
amortized as of March 1999. A recipient of such restricted stock will be
entitled to all voting and other stockholder rights, except that the
shares, while restricted, may not be sold, pledged or otherwise disposed
of and are required to be held in escrow. If a holder of such restricted
stock terminates employment for reasons other than death, disability or
retirement, the employee forfeits all rights to the allocated shares
under restriction. If the participant's service terminates as a result
of death, disability, retirement or a change in control of the Bank, all
restrictions expire and all shares allocated become unrestricted. The
Board of Directors can terminate the MSBP at any time, and if it does
so, any shares not allocated will revert to the Company.
15. Stock Option Plan
In connection with the stock conversion, the Bank's Board of Directors
adopted the 1994 Stock Option Plan (the Option Plan). Pursuant to the
initial Option Plan, 228,131 shares of common stock are reserved for
issuance by the Company upon exercise of stock options granted to
officers, directors and employees of the Bank from time to time under
the Option Plan. The purpose of the option plans is to provide
additional incentive to certain officers, directors and key employees by
facilitating their purchase of a stock interest in the Company. Stock
option plans provide for the granting of incentive and non-incentive
stock options with a duration of ten years, after which no awards may be
made, unless earlier terminated by the Board of Directors pursuant to
the option plans. Stock to be offered under the plans may be authorized
but unissued common stock, or previously issued shares that have been
reacquired by the Company and held as treasury shares.
Option plans are administered by a committee of at least three
non-employee directors designated by the Board of Directors (the Option
Committee). The Option Committee will select the employees to whom
options are to be granted and the number of shares to be granted. The
option price may not be less than 100% of the fair market value of the
shares on the date of the grant, and no option shall be exercisable
after the expiration of ten years from the grant date. In the case of
any employee who owns more than 10% of the outstanding common stock at
the time the option is granted, the option price may not be less than
110% of the fair market value of the shares on the date of the grant,
and the option shall not be exercisable after the expiration of five
years from the grant date. The exercise price may be paid in cash,
shares of the common stock, or a combination of both.
F-22
<Page>
15. Stock Option Plan (Continued)
As of the date of conversion, the Option Committee granted 228,131
shares of common stock, at an exercise price of $10 per share,
contingent upon stockholder approval of the Option Plan which was
ratified June 22, 1994. In addition, options for 18,479 shares of common
stock, at an exercise price of $16.50 per share, were awarded on
November 20, 1996; options for 2,053 shares of common stock, at an
exercise price of $23.625 per share, were awarded on January 15, 1998;
options for 10,000 shares were awarded on November 18, 1998 and options
for 2,500 shares were awarded on April 27, 2000, at an exercise price of
$15.125. All such options are exercisable immediately. As of September
30, 2000, 42,803 options have been exercised and 2,000 options have
expired resulting in 216,360 options outstanding.
The Company accounts for the fair value of its grants issued under the
plans subsequent to October 1, 1996 in accordance with FASB Statement
123. The compensation cost that has been charged against income for the
plans was $0, $36,753 and $7,658 for the years ended September 30, 2000,
1999 and 1998, respectively. In accordance with SFAS No. 123, the fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants during the years ended September 30, 2000
and 1999: dividend yield of 2.54 percent, expected volatility of 25.00
percent, risk-free interest rate of 5.5 percent and expected life of two
years. Common stock options granted during the year ended September 30,
2000 had an exercise price of $15.125 per share and an estimated fair
value of $0. Common stock options granted during the year ended
September 30, 1999 had an exercise price of $23.25 per share and an
estimated fair value of $3.675 per share.
Certain information for the years ended September 30, 2000 and 1999
relative to stock options is as follows:
<Table>
<Caption>
September 30,
------------------------------------------------------------------
2000 1999
------------------------------- ------------------------------
Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price
- ------------- -------------- -------------- -------------- ------------
Outstanding at beginning of year 258,663 $ 11.18 248,663 $ 10.70
Granted 2,500 15.13 10,000 23.13
Canceled (2,000) (23.25)
Exercised (42,803) (11.04)
-------------- -------------- -------------- ------------
Outstanding at end of year 216,360 $ 11.14 258,663 $ 11.18
============== ============== ============== ============
Exercisable at end of year 216,360 258,663
============== ==============
Number of shares available for future grant:
Beginning of year 0 0
============== ==============
End of year 0 0
============== ==============
</Table>
16. Off-Balance Sheet Activities
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financial needs of its
customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit
and commitments to sell loans. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the
amount recognized in the Statement of Financial Condition. The contract
or notional amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for loan commitments is
represented by the contractual notional amount of those instruments. The
Bank uses the same credit policies in making commitments as it does for
on-balance-sheet instruments.
At September 30, 2000, the Bank had outstanding commitments to originate
loans receivable of $3,667,019. The commitments outstanding at September
30, 2000 consisted of $3,587,019 in real estate loans. Of the
commitments
F-23
<Page>
16. Off-Balance Sheet Activities (Continued)
outstanding at September 30, 2000, 1,241,719 were for fixed rate loans
with rates of 8.00% to 10.50% and $2,425,300 were for adjustable rate
loans with initial rates of 7.125% to 8.50%.
At September 30, 2000, the Bank had unfunded commitments under lines of
credit of $4,612,594. Unfunded commitments under commercial lines of
credit, revolving credit lines and overdraft protection agreements are
commitments for possible future extensions of credit to existing
customers. The Bank uses the same credit policies in extending lines of
credit as it does for on-balance-sheet instruments.
At September 30, 2000, the Bank had commercial letters of credit of
$109,200. Commercial letters of credit are conditional commitments
issued by the bank to guarantee the performance of a customer to a third
party. Those letters of credit are primarily issued to support public
and private borrowing arrangements. Essentially all letters of credit
issued have expiration dates within one year. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Bank generally holds
collateral supporting those commitments if deemed necessary.
Loan commitments 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. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Bank upon
extension of credit is based on management's credit evaluation of the
counter-party. Collateral held is primarily residential real estate, but
may include autos, accounts receivable, inventory, property, plant and
equipment.
The Bank had no outstanding commitments from mortgage banking concerns
to purchase loans yet to be originated at September 30, 2000.
The Bank had outstanding commitments with mortgage banking concerns to
sell loans of $658,387 at September 30, 2000, the outstanding
commitments expire on October 27, 2000.
The Bank had no commitments to purchase mortgage-backed securities or
investments at September 30, 2000.
At September 30, 2000, loans with a carrying value of $8,854,493 have
been classified by management as held-for-sale. The carrying value of
these loans is at the lower of cost or market value as of September 30,
2000.
17. Significant Concentrations of Credit Risk
The Bank grants mortgage, consumer and business loans primarily to
customers within the state. Although the Bank has a diversified loan
portfolio, a substantial portion of its customers' ability to honor
their contracts is dependent upon the agribusiness and energy sectors of
the economy. The Bank's net investment in loans is subject to a
significant concentration of credit risk given that the investment is
primarily within a specific geographic area.
As of September 30, 2000 the Bank had a net investment of $191,514,140
in loans receivable. These loans possess an inherent credit risk given
the uncertainty regarding the borrower's compliance with the terms of
the loan agreement. To reduce credit risk, the loans are secured by
varying forms of collateral, including first mortgages on real estate,
liens on personal property, savings accounts, etc. It is generally Bank
policy to file liens on titled property taken as collateral on loans,
such as real estate and autos. In the event of default, the Bank's
policy is to foreclose or repossess collateral on which it has filed
liens.
In the event that any borrower completely failed to comply with the
terms of the loan agreement and the related collateral proved worthless,
the Bank would incur a loss equal to the loan balance.
F-24
<Page>
18. Related Party Transactions
Directors and primary officers of the Company were customers of, and had
transactions with, the Bank in the ordinary course of business during
the two years ended September 30, 2000 and 1999, and similar
transactions are expected in the future. All loans included in such
transactions were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than
normal risk of loss or present other unfavorable features.
The following analysis is of loans made to principal officers, directors
and principal holders of equity securities that individually exceeded
$60,000 in aggregate during the year ended September 30, 2000:
<Table>
Balance, September 30, 1999 $ 2,544,918
New loans 1,294,239
Repayments (1,019,505)
-----------
Balance, September 30, 2000 $ 2,819,652
===========
</Table>
The Bank has made several commercial loans to a director that at times
have approached the loans to one borrower limitations. The Bank
evaluates the loan limitations and sells the loans if they would exceed
the loans to one borrower limitation.
19. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
Cash:
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Time deposits in financial institutions:
The fair value of fixed maturity certificate of deposits are estimated
using the rates currently offered for deposits of similar remaining
maturities.
Investment securities and mortgage-backed securities: For securities
held for investment purposes, fair values are based on quoted market
prices or dealer quotes, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
Loans receivable:
The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
Deposit liabilities:
The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit are estimated
using the rates currently offered for deposits of similar remaining
maturities.
Advances and other borrowings from Federal Home Loan Bank: The fair
value of advances from the Federal Home Loan Bank are estimated using
the rates offered for similar borrowings.
F-25
<Page>
19. Disclosures about Fair Value of Financial Instruments (Continued)
Commitments to extend credit:
The fair value of commitments is 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 estimated fair values of the Bank's financial instruments are as
follows:
<Table>
<Caption>
September 30, 2000 September 30, 1999
------------------------------ ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- -------------- -------------- -------------
(In Thousands) (In Thousands)
Financial assets:
Cash and cash equivalents:
Interest-bearing $ 3,755 $ 3,755 $ 4,377 $ 4,377
Non-interest bearing 1,335 1,335 1,598 1,598
Time deposits in other financial institutions 282 282 290 290
Investment securities held-to-maturity 28,667 27,264 28,850 27,970
Investment securities available-for-sale 9,588 9,588 12,022 12,022
Mortgage-backed securities held-to-maturity 10,112 10,036 13,489 13,472
Loans receivable 182,660 181,588 177,236 177,317
Loans held-for-sale 8,854 8,912 604 604
Financial liabilities:
Deposits 165,325 164,723 158,936 158,317
Advances and other borrowings from
the Federal Home Loan Bank 57,000 56,879 58,000 57,067
Par Fair Par Fair
Value Value Value Value
-------------- -------------- -------------- -------------
Unrecognized financial instruments:
Commitments to extend credit $ 3,667 $ 3,672 $ 3,292 $ 3,329
Commitments to sell loans 658 664 678 690
</Table>
20. Restrictions on Retained Earnings
The Bank may not declare or pay a cash dividend to the Company if the
effect would cause the net worth of the Bank to be reduced below either
the amount required for the "liquidation account" or the net worth
requirement imposed by the OTS. If all capital requirements continue to
be met, the Bank may not declare or pay a cash dividend in an amount in
excess of the Bank's net earnings for the fiscal year in which the
dividend is declared plus one-half of the surplus over the capital
requirements, without prior approval of the OTS.
Office of Thrift Supervision regulations require that upon conversion
from mutual to stock form of ownership, a liquidation account be
established by restricting a portion of net worth for the benefit of
eligible savings account holders who maintain their savings accounts
with the Bank after conversion. In the event of complete liquidation
(and only in such event) each savings account holder who continues to
maintain their savings account shall be entitled to receive a
distribution from the liquidation account after payment to all creditors
but before any liquidation distribution with respect to common stock.
The initial liquidation account was established at $15,489,000. This
account may be proportionately reduced for any subsequent reduction in
the eligible holder's savings accounts.
F-26
<Page>
21. Quarterly Results of Operations (Unaudited)
Following is a summary of the unaudited quarterly results of operations
for the year ended September 30, 2000:
<Table>
<Caption>
Quarter Ended
-----------------------------------------------------------------------------
December 31 March 31 June 30 September 30
----------------- ----------------- ----------------- -----------------
Interest income $4,479,222 $4,457,181 $4,559,143 $4,735,062
Interest expense 2,590,072 2,722,718 2,856,578 3,059,992
----------------- ----------------- ----------------- -----------------
Net interest income 1,889,150 1,734,463 1,702,565 1,675,070
Provision for losses on loans 135,000 95,000 135,000 (98,030)
----------------- ----------------- ----------------- -----------------
Net interest income, after provision
for losses 1,754,150 1,639,463 1,567,565 1,773,100
Non-interest income 226,877 223,930 251,351 275,322
Non-interest expenses (1,025,123) (1,001,996) (966,849) (1,062,478)
----------------- ----------------- ----------------- -----------------
Income before income taxes 955,904 861,397 852,067 985,944
Provision for income taxes (369,300) (357,000) (340,600) (205,047)
----------------- ----------------- ----------------- -----------------
Net income $ 586,604 $ 504,397 $ 511,467 $ 780,897
================= ================= ================= =================
Earnings per common share:
Basic $ 0.55 $ 0.47 $ 0.46 $ 0.71
Diluted 0.50 0.43 0.44 0.67
Dividends declared per share $ 0.15 $ 0.15 $ 0.15 $ 0.15
</Table>
F-27
<Page>
22. Parent Company Financial Information
Condensed financial statements of Landmark Bancshares, Inc. (Parent
Company) are shown below. The Parent Company has no significant operating
activities.
Condensed Statements of Financial Condition
As of September 30, 2000 and 1999
(In Thousands)
<Table>
<Caption>
2000 1999
-------- --------
ASSETS
Cash and cash equivalents $ 192 $ 778
Time deposits in other financial institutions 282 290
Investment securities available-for-sale 3,825 4,571
Investment in subsidiary 19,835 18,615
Loans receivable 419 556
Other assets 439 491
-------- --------
Total assets $ 24,992 $ 25,301
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Borrowings from subsidiary $ 1,254 $ 2,800
Accrued expenses and other liabilities 76 97
-------- --------
Total liabilities 1,330 2,897
-------- --------
Stockholders' equity:
Common stock 228 228
Additional paid-in capital 22,475 22,706
Retained income 24,023 22,290
Net unrealized gain on available-for-sale securities (111) (120)
Unamortized amounts related to ESOP and MSBP (419) (556)
-------- --------
46,196 44,548
Treasury stock, at cost (22,534) (22,144)
-------- --------
Total stockholders' equity 23,662 22,404
-------- --------
Total liabilities and stockholders' equity $ 24,992 $ 25,301
======== ========
</Table>
Condensed Statements of Operations
For the Years Ended September 30, 2000, 1999 and 1998
(In Thousands)
<Table>
<Caption>
2000 1999 1998
------- ------- -------
Equity earnings of subsidiary $ 2,332 $ 2,079 $ 2,267
Interest and dividend income 236 224 248
Net gain on sale of investments 51 500 202
Other 26 5 (77)
------- ------- -------
Total income 2,645 2,808 2,640
------- ------- -------
Operating expenses 302 360 235
------- ------- -------
Income before income taxes 2,343 2,448 2,405
Income tax expense (benefit) (40) 93 41
------- ------- -------
Net income $ 2,383 $ 2,355 $ 2,364
======= ======= =======
</Table>
F-28
<Page>
22. Parent Company Financial Information (Continued)
Condensed Statements of Cash Flows
For the Years Ended September 30, 2000, 1999 and 1998
(In Thousands)
<Table>
<Caption>
2000 1999 1998
------- ------- -------
Cash Flows from Operating Activities
Net income $ 2,383 $ 2,355 $ 2,364
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of subsidiary (2,332) (2,079) (2,267)
Gain on sale of investments (51) (500) (202)
(Increase) decrease in other assets (140) 57 (165)
Increase (decrease) in other liabilities (21) 48 (17)
Other 21 52 164
------- ------- -------
Net cash used by operating activities (140) (67) (123)
------- ------- -------
Cash Flows from Investing Activities
Dividends from subsidiary 1,300 5,700 8,000
Acquisition of investment securities available-for-sale,
including deposits (287) (3,765)
Proceeds from sale of investment securities
available-for-sale 870 1,516 669
Decrease in loans to subsidiary and ESOP, net 137 137 152
Proceeds from sale of equity investment 166
Other loans, net 245 (95)
------- ------- -------
Net cash provided by investing activities 2,473 7,311 4,961
------- ------- -------
Cash Flows from Financing Activities
Proceeds from subsidiary note payable 1,454 4,942 8,200
Repayment of net payable to subsidiary (3,000) (6,842) (3,500)
Purchase of treasury stock (1,083) (4,240) (8,654)
Proceeds from exercise of stock options 360
Cash dividends paid (650) (805) (929)
------- ------- -------
Net cash used by financing activities (2,919) (6,945) (4,883)
------- ------- -------
Increase (decrease) in cash and cash equivalents (586) 299 (45)
Cash and cash equivalents at beginning of year 778 479 524
------- ------- -------
Cash and cash equivalents at end of year $ 192 $ 778 $ 479
======= ======= =======
</Table>
F-29
<Page>
23. Subsequent Event - Accounting for Derivatives and Hedging Activity
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement requires the
recognition of all derivative financial instruments as either assets or
liabilities in the statement of financial position and measurement of
those instruments at fair value. The accounting for gains and losses
associated with changes in the fair value of a derivative and the effect
on the consolidated financial statements will depend on its hedge
designation and whether the hedge is highly effective in achieving
offsetting changes in the fair value or cash flows of the asset or
liability hedged. Under the provisions of SFAS No. 133, the method that
will be used for assessing the effectiveness of a hedging derivative, as
well as the measurement approach for determining the ineffective aspects
of the hedge, must be established at the inception of the hedge. The
methods must be consistent with the entity's approach to managing risk.
SFAS No. 137 was issued in June 1999 to modify SFAS No. 133 regarding
recognition in the balance sheet of embedded derivatives that are to be
separated from the host contract. SFAS No. 138 was issued in June 2000
to amend SFAS No. 133 before its effective date to address a limited
number of issues causing implementation difficulties for a large number
of entities.
As issued, SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. SFAS No. 137 also amended SFAS 133
by postponing the mandatory effective date to all fiscal quarters of
fiscal years beginning after June 15, 2000, with initial application as
of the beginning of an entity's fiscal quarter; on that date, hedging
relationships must be designated anew and documented pursuant to the
provisions of this Statement. Earlier application is encouraged, but is
permitted only as of the beginning of any fiscal quarter beginning after
June 15, 2000. Retroactive application to financial statements of prior
periods is prohibited. Management of the Company will adopt the
provisions of this statement beginning October 1, 2000.
As permitted by SFAS No. 133, on October 1, 2000, the Company
transferred all of its securities from the held-to-maturity portfolio to
the available-for-sale and trading portfolios as follows:
<Table>
<Caption>
Securities Transferred
-----------------------------------------------------------------------------------
Available
Trading for Sale Total Total
Security (at fair value) (at fair value) (at fair value) (at book value)
-------- ------------------ ------------------ ------------------ ---------------------
Investment securities $ 9,642,188 $17,621,420 $ 27,263,608 $ 28,666,885
Mortgage-backed-securities 10,035,853 10,035,853 10,112,018
------------------ ------------------ ------------------ ---------------------
Total $ 9,642,188 $27,657,273 $ 37,299,461 $ 38,778,903
================== ================== ================== =====================
</Table>
As of October 1, 2000, the effect of the transfer of these securities
was reported as a cumulative adjustment from a change in accounting
principle, net of tax benefits, impacting earnings and other
comprehensive income as follows:
<Table>
<Caption>
Adjustment to
Adjustment Other
to Comprehensive Total
Earnings Income Adjustments
------------ ------------- --------------
Investment securities $ (339,697) $(1,063,580) $ (1,403,277)
Mortgage-backed securities (76,165) (76,165)
------------ ------------- --------------
Pre-tax loss (339,697) (1,139,745) (1,479,442)
Income tax benefit 125,144 419,882 545,026
------------ ------------- --------------
Net loss $ (214,553) $ (719,863) $ (934,416)
============ ============= ==============
</Table>
The impact to earnings resulted in a loss of $214,553 that was recorded
against current operations as of October 1, 2000, as a cumulative
adjustment from a change in accounting principle, net of tax benefits.
Future changes in fair value for any remaining securities in the trading
portfolio will be reflected through current operation. Changes in fair
value for any securities in the available-for-sale portfolio will be
adjusted through other comprehensive income.
F-30