1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-24135
PCB HOLDING COMPANY
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(Exact name of registrant as specified in its charter)
INDIANA 35-2040715
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
819 MAIN STREET, TELL CITY, INDIANA 47586
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 1-812-547-7094
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Former name, former address and former fiscal year, if changed since last report
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 preceding
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[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS; Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 396,750 shares of common stock were outstanding as of April
30, 1999.
2
PCB HOLDING COMPANY
INDEX
PART I FINANCIAL INFORMATION PAGE
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998 3
Consolidated Statements of Income for the three months
ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 5
Notes to consolidated financial statements 6 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-12
PART II. OTHER INFORMATION 13
SIGNATURES 14
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PART I - FINANCIAL INFORMATION
PCB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
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1999 1998
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(UNAUDITED) *
(IN THOUSANDS)
ASSETS
Cash and due from banks $ 43 $ 43
Interest bearing deposits with banks 2,860 2,323
Securities available for sale, at fair value 1,163 1,532
Loans receivable, net 21,543 20,930
Federal Home Loan Bank stock, at cost 196 196
Premises and equipment 217 218
Accrued interest receivable 132 148
Other assets 47 49
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Total Assets $ 26,201 $ 25,439
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LIABILITIES
Deposits $ 20,274 $ 19,517
Accrued interest payable on deposits 13 6
Accrued expenses and other liabilities 50 66
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Total Liabilities 20,337 19,589
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STOCKHOLDERS' EQUITY
Preferred stock of $.01 per share
Authorized 1,000,000 shares; none issued 0 0
Common stock of $.01 per share
Authorized 4,000,000 shares; issued and
outstanding 396,750 shares 4 4
Additional paid-in capital 3,656 3,656
Retained earnings-substantially restricted 2,225 2,199
Accumulated other comprehensive income:
Net unrealized loss on securities available for sale,
net of tax (21) (9)
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Total Stockholders' Equity 5,864 5,850
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Total Liabilities and Stockholders' Equity $ 26,201 $ 25,439
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* Derived from audited financial statements.
See accompanying notes to consolidated financial statements.
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PCB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
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1999 1998
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
INTEREST INCOME
Loans $ 400 $ 369
Mortgage-backed securities 0 1
Other debt securities 20 15
Federal Home Loan Bank dividends 4 4
Interest bearing deposits with banks 25 13
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Total interest income 449 402
INTEREST EXPENSE
Deposits 250 265
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Net interest income 199 137
Provision for loan losses 2 0
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Net interest income after provision for loan losses 197 137
NON-INTEREST INCOME
Service charges on deposit accounts 3 0
Other income 2 2
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Total non-interest income 5 2
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NON-INTEREST EXPENSE
Compensation and benefits 88 79
Occupancy and equipment 10 11
Deposit insurance premiums 3 3
Other operating expenses 61 40
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Total non-interest expense 162 133
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Income before income taxes 40 6
Income tax expense 14 1
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Net Income 26 5
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized gains (losses) on securities:
Unrealized holding gains arising during the period (12) (2)
Less: reclassification adjustment 0 0
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Other comprehensive income (loss) (12) (2)
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COMPREHENSIVE INCOME $ 14 $ 3
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Net income per common share, basic $ 0.07 $ 0.01
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See accompanying notes to consolidated financial statements.
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PCB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
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March 31,
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 26 $ 5
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of premiums and accretion of
discounts on securities, net (1) 0
Provision for loan losses 2 0
Depreciation expense 4 4
Decrease in accrued interest receivable 16 14
Increase (decrease) in accrued interest payable 7 (1)
Net change in other assets/liabilities (6) 1
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Net Cash Provided By Operating Activities 48 23
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CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest bearing deposits with banks (537) (733)
Proceeds from maturity of securities available for sale 350 599
Purchases of securities available for sale 0 (499)
Principal collected on mortgage-backed securities 0 2
Net (increase) decrease in loans receivable (615) 165
Purchase of premises and equipment (3) (34)
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Net Cash Used in Investing Activities (805) (500)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 757 579
Increase in deferred conversion and offering expenses 0 (100)
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Net Cash Provided By Financing Activities 757 479
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Net Increase in Cash and Due From Banks 0 2
Cash and due from banks at beginning of period 43 18
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Cash and Due From Banks at End of Period $ 43 $ 20
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See accompanying notes to consolidated financial statements.
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PCB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION OF INTERIM INFORMATION
PCB Holding Company ("Company") was incorporated by Peoples Building and
Loan Association, F.A. ("Association") (now known as Peoples Community
Bank) (the "Bank") in connection with the conversion of the Association
from a federally chartered mutual savings and loan association to a
federally chartered stock savings bank. Upon consummation of the
conversion on July 1, 1998, the Company became the holding company for the
Bank.
In the opinion of the management, the unaudited consolidated financial
statements include all normal adjustments considered necessary to present
fairly the financial position as of March 31, 1999, and the results of
operations for the three months ended March 31, 1999 and 1998 and cash
flows for the three months ended March 31, 1999 and 1998. Interim results
are not necessarily indicative of results that may be expected for a full
year.
The consolidated financial statements and notes are presented as permitted
by Form 10-QSB, and do not contain certain information included in the
Company's audited consolidated financial statements and notes for the year
ended December 31, 1998.
The consolidated financial statements include the accounts of the Company,
the Bank and its wholly-owned subsidiary, Peoples Building and Loan
Service Corp. All material intercompany balances and transactions have
been eliminated in consolidation.
2. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
THREE MONTHS ENDED
MARCH 31,
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1999 1998
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(IN THOUSANDS)
Cash payments for:
Interest $ 243 $ 266
Taxes 38 16
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PCB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. COMPREHENSIVE INCOME
Comprehensive income is defined as "the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners." Comprehensive income for the Company includes
net income and unrealized gains and losses on securities available for
sale. The following tables set forth the components of other comprehensive
income and the allocated income tax amounts for the three months ended
March 31, 1999 and 1998:
THREE MONTHS ENDED
MARCH 31,
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1999 1998
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Unrealized gains on securities:
Unrealized holding gains
arising during the period $ (20) $ (3)
Income tax benefit 8 1
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Net of tax amount (12) (2)
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Less: reclassification
adjustment for (gains)
losses included in net
income - -
Income tax expense (benefit) - -
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- -
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Other comprehensive
income $ (12) $ (2)
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4. NET INCOME PER COMMON SHARE
Basic earnings per share is calculated by dividing net income by the
396,750 common shares outstanding during the quarter ended March 31, 1999.
Basic per share information is presented for prior periods as though the
shares were outstanding during the earliest period presented. The Company
has no dilutive potential common shares.
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PCB HOLDING COMPANY AND SUBSIDIARY
SAFE HARBOR STATEMENT FOR FORWARD LOOKING STATEMENTS
This report may contain forward-looking statements within the meaning of the
federal securities laws. These statements are not historical facts, rather
statements based on the Company's current expectations regarding its business
strategies and their intended results and its future performance.
Forward-looking statements are preceded by terms such as "expects," "believes,"
"anticipates," "intends" and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous
risks and uncertainties could cause or contribute to the Company's actual
results, performance and achievements to be materially different from those
expressed or implied by the forward-looking statements. Factors that may cause
or contribute to these differences include, without limitation, general economic
conditions, including changes in market interest rates and changes in monetary
and fiscal policies of the federal government; legislative and regulatory
changes; the Company's ability to remedy any computer malfunctions that may
result from the advent of the Year 2000; and other factors disclosed
periodically in the Company's filings with the Securities and Exchange
Commission.
Because of the risks and uncertainties inherent in forward-looking statements,
readers are cautioned not to place undue reliance on them, whether included in
this report or made elsewhere from time to time by the Company or on its behalf.
The Company assumes no obligation to update any forward-looking statements.
FINANCIAL CONDITION
Total assets increased 3.0% from $25.4 million at December 31, 1998 to
$26.2 million at March 31, 1999, primarily as a result of increases in cash and
interest bearing deposits with banks and loans receivable, net, which was funded
primarily by an increase in deposits and proceeds from maturities of securities
available for sale.
Loans receivable, net, were $21.5 million at March 31, 1999, compared to
$20.9 million at December 31, 1998, a 2.9% increase.
Other debt securities available for sale (U.S. government agency
obligations and corporate notes) decreased from $1.5 million at December 31,
1998 to $1.2 million at March 31, 1999. During the three month period ended
March 31, 1999, the Company had maturities of other debt securities with a
carrying value of $350,000.
Cash and interest bearing deposits with banks increased from $2.4 million
at December 31, 1998 to $2.9 million at March 31, 1999 as a result of excess
liquidity funded by the growth in deposits and proceeds from maturing
securities.
Total deposits increased from $19.5 million at December 31, 1998 to $20.3
million at March 31, 1999 primarily as a result of the growth in demand and
savings deposit accounts. The Bank began offering several types of demand
deposit accounts in the fourth quarter of 1998.
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PCB HOLDING COMPANY AND SUBSIDIARY
RESULTS OF OPERATIONS
NET INCOME. Net income was $26,000 for the three months ended March 31,
1999, compared to $5,000 for the three months ended March 31, 1998. The increase
in net income for 1999 compared to 1998 resulted primarily from an increase in
net interest income, offset by an increase in non-interest expense.
NET INTEREST INCOME. Net interest income increased 45.3% from $137,000 in
1998 to $199,000 for 1999 as a result of an increase in total interest income
and a decrease in interest expense. The average yield on interest-earning assets
decreased from 7.36% for 1998 to 7.06% for 1999. The average balance of total
interest-earning assets was $21.8 million for 1998 compared to $25.5 million for
1999. The average cost of interest-bearing liabilities decreased from 5.31% for
1998 to 5.10% for 1999 while the average balance of interest-bearing liabilities
was $19.9 million for 1998 compared to $19.6 million for 1999. The interest rate
spread for 1998 was 2.05% compared to 1.96% for 1999. The increase in average
interest-earning assets and decrease in average interest-bearing liabilities for
1999 compared to 1998 relates primarily to the issuance of common stock in
connection with the Bank's mutual to stock conversion on July 1, 1998.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $1,500 for
the three month period ended March 31, 1999. There was no provision for loan
losses for the three month period ended March 31, 1998. Provision for loan
losses are charges to earnings to bring the total allowance for loan losses to a
level considered adequate by management to provide for probable known and
inherent loan losses based on management's evaluation of the collectability of
the loan portfolio, including the nature of the portfolio, credit
concentrations, trends in historical loss experience, specific impaired loans,
and economic conditions. In determining the adequacy of the allowance for loan
losses, the Company reviews all loans quarterly, and loans are assigned a risk
weighting based on asset classification. The allowance for loan losses was
$50,000 at March 31, 1999 and $51,000 December 31, 1998. Management has deemed
these amounts as adequate on those dates based on its best estimate of probable
known and inherent loan losses. At March 31, 1999, non-performing loans totaled
$23,000.
NON-INTEREST INCOME. Non-interest income was $5,000 for the three months
ended March 31, 1999 and $2,000 for the three months ended March 31, 1998. The
increase is primarily a result of service charges on deposit accounts being
introduced in late 1998.
NON-INTEREST EXPENSES. Non-interest expenses totaled $162,000 for the
three months ended March 31, 1999 compared to $133,000 for the same period in
1998. The increase for 1999 compared to 1998 resulted primarily from increases
in compensation and benefits of $9,000 and an increase in other operating
expenses of $21,000. Other operating expenses increased in 1999 as compared to
the same period in 1998 primarily as a result of increases in service bureau
costs related to new loan products and demand deposit accounts, professional
fees, registrar fees, advertising expenses and additional expenses of operating
as a public company.
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PCB HOLDING COMPANY AND SUBSIDIARY
INCOME TAX EXPENSE. Income tax expense for the three month period ended
March 31, 1999 was $14,000, compared to $1,000 for the same period in 1998. The
effective tax rate for 1999 is 35.3% compared to 14.9% for 1998 due to the
effect of the graduated federal tax rates.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are customer deposits, proceeds from
loan repayments, maturing securities and FHLB advances. While loan repayments
and maturities are a predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by market interest rates, general economic
conditions and competition. At March 31, 1999, the Bank had cash and
interest-bearing deposits with banks of $2.9 million and securities
available-for-sale with a fair value of $1.2 million. At March 31, 1999, the
Bank also had an available, but undrawn, credit line of $3.9 million from the
FHLB-Indianapolis.
The Bank's primary investing activity is the origination of one-to-four
family mortgage loans. The Bank also invests in U.S. Government and agency
securities and mortgage-backed securities issued by U.S. Government agencies.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. Historically, the Bank has been able to retain a significant
amount of its deposits as they mature.
Current OTS regulations require savings institutions to maintain an
average daily balance of liquid assets (cash and eligible investments) equal to
at least 4.0% of the average daily balance of its net withdrawable deposits and
short-term borrowings. Historically, the Bank has maintained liquidity levels in
excess of regulatory requirements.
The Bank is required to maintain specific amounts of capital pursuant to
OTS requirements. As of March 31, 1999, the Bank was in compliance with all
regulatory capital requirements which were effective as of such date with
tangible, core and risk-based capital ratios of 15.6%, 15.6% and 28.6%,
respectively.
YEAR 2000 ISSUES
The Bank is a user of computers, computer software, and equipment
utilizing embedded microcontrollers that will be affected by the Year 2000
("Y2K") issue. The Y2K issue exists because many computer systems and
applications use two-digit date fields to designate a year. As the century date
change occurs, date sensitive systems may incorrectly recognize the year 2000.
This inability to recognize or properly treat the Y2K issue may cause systems to
process financial and operational information incorrectly. The Y2K issue
presents several potential risks to the Bank:
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PCB HOLDING COMPANY AND SUBSIDIARY
1. Customers transactions are processed by one or more computer systems
provided by a third-party service bureau. The failure of one or more of
those systems to function as a result of the Y2K date change could result
in the Bank's inability to properly process customer transactions. If that
were to occur, the Bank could lose customers to other financial
institutions, resulting in a loss of revenue.
2. Certain of the Bank's borrowers utilize computers and computer software to
varying degrees in conjunction with the operation of their businesses.
The customers and suppliers of those businesses may utilize computers as
well. Should the Bank's borrowers, or the businesses on which they depend,
experience Y2K related computer problems, such borrowers' cash flow could
be disrupted, adversely affecting their ability to repay their loans with
the Bank.
3. Concern on the part of certain depositors that the Y2K related problems
could impair access to their deposit account balances following the Y2K
date change could result in the Bank experiencing a deposit outflow prior
to December 31, 1999.
4. If the Y2K related problems cause any of the Bank's systems, or the
systems of the third-party service bureau upon which the Bank depends, to
become inoperative, increased personnel costs could be incurred if
additional staff is required to perform functions that the inoperative
systems would have otherwise performed.
5. Certain utility services, such as electrical power and telecommunication
services, could be disrupted if those services experience Y2K related
problems. The Bank's Y2K contingency plan will address such possible
situations.
Management believes it is not possible to estimate the potential lost revenue
due to the Y2K issue, as the extent and longevity of such potential problems
cannot be predicted. The Bank adopted a Y2K Action Plan in October 1997 to
assess all systems to insure that they will function properly in the Y2K. This
process involves separate phases which include: awareness, assessment,
renovation, validation, and implementation.
During 1997, the Bank completed the systems assessment phase of its Plan by
identifying each internal system that could potentially be affected by the Y2K
issue. Those systems include the Bank's in-house microcomputer systems and
third-party service bureau as well as equipment such as the alarm system, vault
locks, telephone system, etc., that may contain embedded microprocessors. For
each such system, the Bank developed a process for determining whether or not
the system is Y2K compliant. Pursuant to this process, the Bank obtained Y2K
compliant certifications from vendors wherever possible, and conducted its own
validation testing.
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PCB HOLDING COMPANY AND SUBSIDIARY
When the results of the Bank's validation testing reveals that a particular
system is not Y2K compliant, a contingency plan to either upgrade the system in
order to meet the Y2K compliance requirements or replace the system with one
that is certified as Y2K compliant. The Bank is currently in the validation and
implementation phases of this process. A third-party service bureau processes
all customer transactions and has completed upgrades to its systems to be Y2K
compliant. On November 8, 1998, the Bank began testing of those third-party
systems by processing transactions for each type of account.
As of December 31, 1998, the testing was complete and the results of the testing
indicated that these third-party systems were Y2K compliant for all critical
test dates selected.
Other third parties upon which the Bank depends for processing include
correspondent banks, brokerage firms, and the pension plan administrator. These
third parties have indicated their compliance or intended compliance with the
Y2K. Should the testing of any third-party system or service reveal that such
system or service is not Y2K compliant, a specific deadline will be set by which
time the system or service must be brought into Y2K compliance. Should Y2K
compliance not be achieved by the specified deadlines, the Bank has developed a
contingency plan for each such external system or service. Those contingency
plans document the action the Bank will take for each such non-compliant system.
In certain cases, such as the potential loss of electrical power or
telecommunication services due to Y2K problems, testing by the Bank is either
not practical or not possible. In those cases, contingency plans will be
designed that specify how the Bank will deal with such potential situations. For
example, the Bank is considering the purchase or lease of an electrical power
generator with sufficient capacity to allow the Bank to maintain critical
functions in the event power from the electric utility is interrupted.
The federal regulators have established specific guidelines and time tables to
follow in addressing the Y2K issue. The Bank is currently in compliance with the
federally mandated Y2K guidelines and time tables.
As of March 31, 1999, the Bank is on schedule with its internal Y2K preparation
efforts. All internal systems identified in the assessment phase of the project
that are considered "mission critical" have been tested for Y2K compliance.
Systems that have been determined to be Y2K compliant will be retested during
1999 following any material upgrades or enhancements. The Bank has replaced
non-compliant microcomputer equipment and has installed and tested the related
software for Y2K compliance. Other equipment containing embedded microprocessors
have been certified as Y2K compliant by the applicable vendors. The Bank's
estimated total cost to replace computer equipment, software programs, or other
equipment containing embedded microprocessors that were not Y2K compliant, is
approximately $8,000. As of March 31, 1999, substantially all of these costs
have been incurred. System maintenance or modification costs are being expensed
as incurred, while the cost of new hardware, software, or other equipment, is
capitalized and amortized over their estimated useful lives. While the
third-party service bureau has not indicated what, if any, cost it may pass onto
its customers, the Bank does not believe that the cost associated with its
actions or those of its vendors will be material to the Bank. However, in the
event that the Bank's third-party service bureau is unable to fulfill its
contractual obligations to the Bank, it could have a significant adverse impact
on the financial condition and results of operations of the Bank.
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PART II
OTHER INFORMATION
PCB HOLDING COMPANY
ITEM 1. LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits involving
the Bank, mainly as a plaintiff, such as claims to enforce liens,
condemnation proceedings on properties in which the Bank holds
security interests, claims involving the making and servicing of real
property loans and other issues incident to the Bank's business. The
Bank is not a party to any pending legal proceedings that it believes
would have a material adverse affect on it's financial condition or
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
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27 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
PCB HOLDING COMPANY
(Registrant)
DATED May 13, 1999 BY: /s/ Carl D. Smith
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Carl D. Smith
President and CEO
DATED May 13, 1999 BY: /s/ Clarke A. Blackford
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Clarke A. Blackford
Vice President
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