UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 5TH STREET, N.W.
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 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
Commission File No. 0-25088
PERRY COUNTY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Missouri 43-1694505
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14 North Jackson Street, Perryville, Missouri 63775-1334
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (573) 547-4581
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 .
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date.
Class Outstanding January 31, 2000
Common Stock, par value $.01 per share 810,397 Shares
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 1999
INDEX
PAGE NO.
PART I - Financial Information (Unaudited)
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Comprehensive Earnings 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II - Other Information 10
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
December 31, September 30,
Assets 1999 1999
Cash and cash equivalents $ 5,124,237 2,702,394
Securities available for sale, at market value
(amortized cost of $40,348,464 and $40,689,812) 34,650,612 37,598,925
Federal Home Loan Bank stock 750,000 750,000
Mortgage-backed securities available for sale,
at market value (amortized cost of $34,600,443
and $37,243,056) 33,084,059 36,491,591
Loans receivable, net 16,884,213 16,600,996
Premises and equipment, net 304,904 311,740
Accrued interest receivable:
Securities 520,406 497,458
Mortgage-backed securities 188,407 203,805
Loans receivable 64,005 79,191
Deferred tax asset 2,127,475 1,325,803
Other assets, including prepaid income
taxes of $127,743 at December 31, 1999 159,687 55,047
Total assets $ 93,858,005 96,616,950
Liabilities and Stockholders' Equity
Deposits $ 67,388,813 67,747,445
Accrued interest on deposits 116,471 151,751
Advances from FHLB of Des Moines 15,000,000 15,000,000
Advances from borrowers for taxes and insurance 109,348 288,846
Other liabilities 77,966 89,218
Income taxes payable - 122,812
Total liabilities 82,692,598 83,400,072
Commitments and contingencies
Serial preferred stock, $.01 par value,
1,000,000 shares
authorized; none issued and outstanding - -
Common stock, $.01 par value; 5,000,000 shares
authorized; 856,452 shares issued 8,565 8,565
Additional paid-in capital 8,232,177 8,220,541
Common stock acquired by ESOP (443,783) (455,275)
Common stock acquired by MRP (119,181) (141,056)
Unrealized gain (loss) on securities
available for sale, net (4,315,901) (2,420,682)
Treasury stock at cost, 46,055 and
34,555 shares (2,193,325) (2,193,325)
Retained earnings - substantially restricted 9,996,855 10,198,110
Total stockholders' equity 11,165,407 13,216,878
Total liabilities and stockholders' equity $ 93,858,005 96,616,950
See accompanying notes to consolidated financial statements.
1
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
December 31,
1999 1998
Interest income:
Loans receivable $ 317,550 302,201
Mortgage-backed securities 579,632 567,482
Securities 691,767 570,188
Other interest-earning assets 44,684 144,573
Total interest income 1,633,633 1,584,444
Interest expense:
Deposits 833,575 840,225
Advances from FHLB 210,974 210,974
Total interest expense 1,044,549 1,051,199
Net interest income 589,084 533,245
Provision for loan losses - -
Net interest income after provision
for loan losses 589,084 533,245
Noninterest income:
Service charges on NOW accounts 6,517 6,135
Gain on sale of MBSs 933 -
Provision for loss on MBSs (188,431) -
Provision for loss on securities (486,563) -
Other 397 1,153
Total noninterest income (667,147) 7,288
Noninterest expense:
Compensation and benefits 159,734 155,869
Occupancy expense 7,210 7,824
Equipment and data processing expense 21,938 27,234
SAIF deposit insurance premium 10,055 9,320
Other 37,076 47,290
Total noninterest expense 236,013 247,537
Earnings (loss) before income taxes (314,076) 292,996
Income taxes (112,821) 116,077
Net earnings (loss) $ (201,255) 176,919
Basic earnings (loss) per common share $ (.26) .23
Diluted earnings (loss) per common share $ (.26) .23
Dividends per share $ .00 .00
See accompanying notes to consolidated financial statements.
2
PERRY COUNTY FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Earnings
(Unaudited)
Three Months Ended
December 31,
1999 1998
Net earnings (loss) $ (201,255) 176,919
Other comprehensive earnings - unrealized
gain (loss) on securities available for sale, net:
Reclassification adjustment for gain, net of
income taxes, included in net earnings (loss) (588) -
Unrealized holding gains (losses), net (1,894,631) (180,539)
Comprehensive earnings (loss) $ (2,096,474) (3,620)
See accompanying notes to consolidated financial statements.
3
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
December 31,
1999 1998
Cash flows from operating activities:
Net earnings (loss) $ (201,255) 176,919
Adjustments to reconcile net earnings (loss)
to net cash provided by (used for) operating
activities:
Depreciation expense 6,836 7,599
ESOP expense 23,128 22,842
MRP expense 21,875 20,125
Gain on sale of MBSs (933) -
Provision for loss on MBSs 188,431 -
Provision for loss on securities 486,563 -
Amortization of premiums, discounts and
loan fees, net (159,124) (89,623)
Decrease (increase) in:
Accrued interest receivable 7,636 (22,675)
Other assets (104,640) 22,035
Increase (decrease) in:
Accrued interest on deposits (35,280) (44,838)
Other liabilities (11,252) 13,123
Income taxes payable (122,812) 13,395
Net cash provided by (used for)
operating activities 99,173 118,902
Cash flows from investing activities:
Loans originated, net of principal collections (283,217) 233,763
Mortgage-backed securities available for sale:
Purchased (776,541) (3,503,612)
Principal collections 1,195,131 2,402,671
Proceeds from sale 2,225,427 -
Securities available for sale:
Purchased - (13,611,419)
Proceeds from maturity or call 500,000 11,150,000
Purchase of premises and equipment - (219)
Net cash provided by (used for) investing
activities 2,860,800 (3,328,816)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (358,632) 2,105,030
Advances from borrowers for taxes and insurance (179,498) (100,623)
Purchase of treasury stock - (225,688)
Net cash provided by (used for) financing
activities (538,130) 1,778,719
Net increase (decrease) in cash
and cash equivalents 2,421,843 (1,431,195)
Cash and cash equivalents at beginning of period 2,702,394 11,796,514
Cash and cash equivalents at end of period $ 5,124,237 10,365,319
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits $ 868,855 885,063
Interest on advances from FHLB 210,974 210,974
Federal income taxes $ 137,735 102,682
See accompanying notes to consolidated financial statements.
4
PERRY COUNTY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
The information contained in the accompanying consolidated financial statements
is unaudited. In the opinion of management, the consolidated financial
statements contain all adjustments (none of which were other than normal
recurring entries) necessary for a fair statement of the results of
operations for the interim periods. The results of operations for the interim
periods are not necessarily indicative of the results which may be expected
for the entire fiscal year. These consolidated financial statements should
be read in conjunction with the consolidated financial statements of the
Company for the year ended September 30, 1999 contained in the 1999 Annual
Report to Stockholders which is filed as an exhibit to the Company's Annual
Report on Form 10-KSB.
Following is a summary of basic and diluted earnings (loss) per common share
for the three months ended December 31, 1999 and 1998:
Three Months Ended
December 31,
1999 1998
Net earnings (loss) $ (201,255) 176,919
Weighted-average shares - Basic EPS 765,444 761,847
Stock options under treasury stock method 1,875 1,875
Weighted-average shares - Diluted EPS 767,319 763,722
Basic earnings (loss) per common share $ (.26) .23
Diluted earnings (loss) per common share $ (.26) .23
5
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Perry County Financial Corporation (Company) has no significant assets other
than common stock of Perry County Savings Bank, FSB (Bank), the loan to the
ESOP and net proceeds retained by the Company following the conversion. The
Company's principal business is the business of the Bank. Therefore, the
discussion in the Management's Discussion and Analysis of Financial Condition
and Results of Operations relates to the Bank and its operations.
Certain statements in this report which relate to the Company's plans,
objectives or future performance may be deemed to be forward-looking
statements within the meaning of the Private Securities Litigation Act of
1995. Such statements are based on management's current expectations.
Actual strategies and results in future periods may differ materially from
those currently expected because of various risks and uncertainties.
Additional discussion of factors affecting the Company's business and
prospects is contained in periodic filings with the Securities and Exchange
Commission.
Asset and Liability Management and Market Risk
The Bank's net interest income is dependent primarily upon the difference or
spread between the average yield earned on loans, securities and mortgage-
backed securities (MBSs) and the average rate paid on deposits and advances
from the FHLB, as well as the relative amounts of such assets and
liabilities. The Bank, as other thrift institutions, is subject to interest
rate risk to the degree that its interest-bearing liabilities mature or
reprice at different times, or on a different basis, than its interest-
earning assets. The Bank does not purchase derivative financial instruments
or other financial instruments for trading purposes. Further, the Bank is
not subject to foreign currency exchange rate risk, commodity price risk or
equity price risk.
The Bank's principal financial objective is to achieve long-term profitability
while managing its exposure to fluctuating interest rates. The Bank has an
exposure to interest rate risk, including short-term U.S. prime interest
rates. The Bank has employed various strategies intended to manage the
adverse effects of interest rate risk on future operations by providing a
better match between the interest rate sensitivity of its assets and
liabilities. Although the Bank has originated adjustable rate mortgage loans
(AMLs) in the past, the Bank originated primarily 20-year, fixed rate loans in
recent years. The Bank purchased long-term, fixed rate MBSs during the years
ended September 30, 1999 and 1998 of $11.3 million and $10.0 million,
respectively. Advances from the FHLB with a 10-year term, callable in 5
years, were used to fund a portion of the purchases.
The Bank continues to hold securities under a "leveraged investment" program.
Long-term Federal agency obligations, which are callable in the near term,
were purchased with intermediate-term FHLB advances (or other available
funds). All investment securities at December 31, 1999 are callable. The
Bank is able to earn a higher interest rate spread since the market prices
callable obligations differently than noncallable obligations with otherwise
identical terms. Leveraged investments usually result in increased interest
rate risk. The effect on net interest income is positive unless rates change
significantly. If rates rise substantially, the long-term security is
usually not called. Interest rates increased during the quarter ended
December 31, 1999 and the year ended September 30, 1999. Because of
increases in interest rates, market prices for securities and MBSs have been
adversely affected. The Bank recorded unrealized losses of $4.3 million,
net of tax at December 31, 1999.
The Bank sold $2.2 million of fixed-rate MBSs at gain of $933, and purchased
$777,000 of adjustable MBSs during the three months ended December 31, 1999.
In January 2000, the Bank sold $2.0 million of callable securities at a loss
of approximately $150,000. In February 2000, the Bank sold $7.8
6
million of MBSs and callable securities at an aggregate loss of approximately
$580,000. Noninterest income included provisions for loss on MBSs and
securities of $188,000 and $487,000, respectively, at December 31, 1999
representing the unrealized loss at that date. In addition, a valuation
allowance of $196,000 was established for the deferred tax assets at
December 31, 1999.
Management is in the process of reviewing the portfolio and alternatives, which
may include additional sales of securities and MBSs at a loss, in order to
reduce interest rate risk. The Bank expects to purchase short and
intermediate-term securities and MBSs in the future. The Bank continues to
originate fixed-rate loans.
The OTS provides a net market value methodology to measure the interest rate
risk exposure of thrift institutions. This exposure is a measure of the
potential decline in the net portfolio value (NPV) of the institution based
upon the effect of an assumed 100 basis point increase or decrease in interest
rates. NPV is the present value of the expected net cash flows from the
institution's financial instruments (assets, liabilities and off-balance
sheet contracts). Loans, deposits, and investments are valued taking
into consideration similar maturities, related discount rates and applicable
prepayment assumptions.
Year 2000
The Bank reviewed its computer applications with its outside data processing
service bureau and other software vendors to ensure operational and financial
systems were not adversely affected by "year 2000" software failures. All
major customer applications are processed through an outside service bureau
which has been tested. Other major systems have been tested. Connectivity
testing between Bank and vendor systems to ensure continued compatibility
have also been tested.
No significant problems have been encountered with the year 2000 issue to date.
There are other dates which have been widely reported which could cause
software failures, and which were part of the Bank's year 2000 review and
testing. Any year 2000 or other date related compliance failure could
result in additional expense to the Bank.
Liquidity and Capital Resources
The Bank's principal sources of funds are cash receipts from deposits, security
maturities and calls, principal collections on mortgage-backed securities,
loan repayments by borrowers and net earnings. The Bank has an agreement
with the Federal Home Loan Bank of Des Moines to provide cash advances,
should the Bank need additional funds.
The minimum level of liquidity required by regulation is presently 4%. The
Bank's liquidity ratio exceeded the regulatory requirement at December 31,
1999.
Under the capital adequacy guidelines and 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.
Capital adequacy guidelines require Tier 1 (core) capital of at least 4% (3%
under certain circumstances) of total assets, Tier 1 capital of 4% of risk-
weighted assets and total capital (risk-based capital) of 8% of
risk-weighted assets. As of December 31, 1999, the Bank was categorized as
well capitalized under the regulatory framework for prompt corrective action.
Commitments to originate mortgage loans and fund loans in process at
December 31, 1999 amounted to $213,000, expiring in 180 days or less.
7
The Bank's regulatory capital and regulatory capital requirements at
December 31, 1999 are summarized as follows:
Minimum Required Minimum Required
for Capital to be "Well
Actual Adequacy Capitalized"
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
Consolidated stockholders' equity $11,165
Stockholders' equity of Company (1,605)
Unrealized loss on securities and
MBSs available for sale, net 4,316
Deferred tax assets not includable
in regulatory capital (1,092)
Tangible capital 12,784 13.3% $1,441 1.5%
General valuation allowance 30
Total capital to risk-weighted
assets $12,814 55.9% $1,832 8.0% $2,290 10.0%
Tier 1 capital to risk-weighted
assets $12,784 55.8% $ 916 4.0% $1,374 6.0%
Tier 1 capital to total assets $12,784 13.3% $3,842 4.0% $4,803 5.0%
Generally, unrealized losses on securities and MBSs do not affect the
computation of regulatory capital. However, the Bank is limited in the
amount of deferred tax assets which may be considered in computing regulatory
capital. Losses on sales of securities and MBSs are charged to earnings and
reduce regulatory capital.
Financial Condition
Sales of MBSs, securities called and loan repayments were used to increase cash
and cash equivalents. Accrued interest on securities increased due to the
timing of interest receipts. Deferred tax asset increased due to a higher
unrealized loss on securities and MBSs available for sale. Accrued interest
payable on deposits decreased due to timing of interest payments. Advances
from borrowers for taxes and insurance decreased due to the payment of real
estate taxes on behalf of borrowers in December. The Company did not
repurchase shares of common stock in the open market during the quarter. While
the purchase of treasury stock may be beneficial to the Company or shareholders,
the purchase of treasury stock reduces interest-earning assets of the Company.
Capital of the Bank is also reduced to the extent treasury stock purchases
are funded by dividends from the Bank to the Company. The Company may
purchase treasury stock in the future.
Asset Quality
Loans are placed on a nonaccrual status when contractually delinquent more
than ninety days. There were no nonaccrual loans at December 31, 1999.
Following is a summary of activity in the allowance for loan losses:
Balance at September 30, 1999 $ 30,000
Charge-offs -
Recoveries -
Provision for loan loss -
Balance at December 31, 1999 $ 30,000
8
Results of Operations
Net Earnings
Net earnings decreased from $177,000 for the three months ended December 31,
1998 to a net loss of $201,000 for the three months ended December 31, 1999.
The decrease was due primarily to provision for loss on MBSs and securities,
offset by higher net interest income, a decrease in noninterest expense and
an income tax credit.
Net Interest Income
Net interest income increased from $533,000 for the three months ended
December 31, 1998 to $589,000 for the three months ended December 31, 1999.
The increase is due primarily to purchase of long-term, fixed-rate MBSs and
callable Federal agency obligations. Loan term, fixed-rate loans were
originated to replace loan prepayments and refinances. Interest on MBSs and
investment securities increased due to higher weighted average balances.
Other interest-earning assets decreased due to a lower average balance in the
three months ended December 31, 1999 than in the prior period. Components of
interest income vary from time to time based on the availability and interest
rates of loans, securities, MBSs and other interest-earning assets.
Provision for Loan Losses
Provision for loan losses is based upon management's consideration of economic
conditions which may affect the ability of borrowers to repay the loans.
Management also reviews individual loans for which full collectibility may
not be reasonably assured and considers, among other matters, the risks inherent
in the Bank's portfolio and the estimated fair value of the underlying
collateral. This evaluation is ongoing and results in variations in the
Bank's provision for loan losses. As a result of this evaluation, the Bank
made no provision for loan losses for the three months ended December 31, 1999
and 1998.
Noninterest Income
Noninterest income for the three months ended December 31, 1999 includes
provisions for loss on MBSs and securities of $188,000 and $487,000,
respectively. Other noninterest income was comparable for the three months
ended December 31, 1998 and 1999.
Noninterest Expense
Noninterest expense decreased from $248,000 for the three months ended
December 31, 1998 to $236,000 for the three months ended December 31, 1999.
The decrease was due primarily to lower data processing expense and
professional fees, offset by slightly higher compensation and benefits.
Income Taxes
Income taxes decreased to a credit of $113,000 for the three months ended
December 31, 1999 compared to expense of $116,000 for the three months ended
December 31, 1998 due to the provisions for loss on MBSs and securities.
9
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
PART II - Other Information
Item 1 - Legal Proceeding
There are no material legal proceedings to which the Holding Company or the Bank
is a party or of which any of their property is subject. From time to time,
the Bank is a party to various legal
proceedings incident to its business.
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
(a) On January 19, 2000 the Company held its Annual Meeting of Stockholders.
(b) At the Meeting, Thomas L. Hoeh was elected for a term to expire in 2003.
(c) Stockholders voted on the following matters:
(i) The election of the following director of the Company:
DIRECTOR FOR WITHHELD
Thomas L. Hoeh 438,074 109,074
(ii) The ratification of the appointment of Michael Trokey &
Company, P.C. as auditors for the Company for the fiscal
year ended September 30, 2000:
VOTES FOR AGAINST ABSTAIN
547,148 525,065 21,200 883
(iii) Stockholder proposal to retain investment banker:
VOTES FOR AGAINST NON-VOTES
621,841 301,158 230,723 87,890
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits: none
(b) Reports on Form 8-K: None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERRY COUNTY FINANCIAL CORPORATION
(Registrant)
DATE: February 11, 2000 BY: Leo J. Rozier
Leo J. Rozier, President, Chief Executive
Officer and Duly Authorized Officer
and Principal Financial Officer
11