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, 1997
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, 1998
Common Stock, par value $.01 per share
827,897 Shares
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 1997
INDEX
PAGE NO.
PART I - Financial Information (Unaudited)
Consolidated Balance Sheets 1
Consolidated Statements of Earnings 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II - Other Information 8
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
December 31, September 30,
Assets 1997 1997
Cash and cash equivalents $ 6,330,247 2,552,167
Securities available for sale,
at market value (amortized cost of
$32,331,274 and $35,557,757, respectively) 32,255,294 35,411,629
Federal Home Loan Bank stock 601,500 601,500
Mortgage-backed and related securities
available for sale, at market value
(amortized cost of $29,580,223
and $30,499,492) 29,742,916 30,631,091
Loans receivable, net 15,051,923 13,910,147
Premises and equipment, net 283,826 287,495
Accrued interest receivable:
Securities 524,990 474,971
Mortgage-backed securities 168,335 173,771
Loans receivable 59,869 60,255
Other assets 11,223 32,178
Total assets $ 85,030,123 84,135,204
Liabilities and Stockholders' Equity
Deposits $ 61,693,971 61,071,074
Accrued interest on deposits 117,652 122,156
Advances from FHLB of Des Moines 6,500,000 6,500,000
Advances from borrowers for taxes and insurance 62,678 158,236
Other liabilities 47,953 25,636
Income taxes payable 250,294 209,502
Total liabilities 68,672,548 68,086,604
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 8,125,074 8,110,852
Common stock acquired by ESOP (535,723) (547,216)
Common stock acquired by MRP (237,747) (257,269)
Unrealized gain (loss) on securities
available for sale, net 54,629 (9,153)
Treasury stock at cost, 28,555 shares (499,815) (499,815)
Retained earnings - substantially restricted 9,442,592 9,242,636
Total stockholders' equity 16,357,575 16,048,600
Total liabilities and stockholders' equity $ 85,030,123 84,135,204
See accompanying notes to consolidated financial statements.
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended
December 31,
1997 1996
Interest income:
Loans receivable $ 286,569 237,303
Mortgage-backed and related securities 506,672 490,013
Securities 626,771 554,553
Other interest-earning assets 35,753 73,252
Total interest income 1,455,765 1,355,121
Interest expense:
Deposits 799,513 769,249
Advances from FHLB 99,276 38,128
Total interest expense 898,789 807,377
Net interest income 556,976 547,744
Provision for loan losses - -
Net interest income after
provision for loan losses 556,976 547,744
Noninterest income:
Service charges on NOW accounts 8,331 6,907
Gain (loss) on sale of securities
available for sale - (5,000)
Gain (loss) on sale of mortgage-backed
securities available for sale - 139,655
Other 734 1,533
Total noninterest income 9,065 143,095
Noninterest expense:
Compensation and benefits 152,760 143,016
Occupancy expense 7,596 6,941
Equipment and data processing expense 19,827 20,267
SAIF deposit insurance premium 9,568 33,119
Professional services 24,282 18,988
Other 21,746 18,901
Total noninterest expense 235,779 241,232
Earnings before income taxes 330,262 449,607
Income taxes 130,306 160,210
Net earnings $ 199,956 289,397
Basic earnings per common share $ .26 .37
Diluted earnings per common share $ .26 .37
Dividends per share $ .00 .00
See accompanying notes to consolidated financial statements.
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
December 31,
1997 1996
Cash flows from operating activities:
Net earnings $ 199,956 289,397
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation expense 3,669 3,683
ESOP expense 25,715 19,537
MRP expense 19,522 19,522
Loss (gain) on sale of securities
available for sale - 5,000
Loss (gain) on sale of mortgage-backed
securities available for sale - (139,655)
Amortization of premiums,
discounts and loan fees, net (73,815) (12,728)
Decrease (increase) in:
Accrued interest receivable (44,197) 11,432
Other assets 20,955 202,598
Increase (decrease) in:
Accrued interest on deposits (4,504) (45,156)
Other liabilities 22,317 (394,235)
Income taxes payable 3,332 (52,440)
Net cash provided by (used for)
operating activities 172,950 (93,045)
Cash flows from investing activities:
Loans originated, net of principal collections (1,141,776) (422,784)
Mortgage-backed securities available for sale:
Purchased - (3,294,898)
Principal collections 919,567 941,974
Proceeds from sale - 2,765,537
Securities available for sale:
Purchased (2,000,000) -
Proceeds from maturity 4,500,000 3,500,000
Proceeds from sale 800,000 995,000
Purchase of premises and equipment - (216)
Net cash provided by (used for)
investing activities 3,077,791 4,484,613
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 622,897 (266,499)
Advances from borrowers for
taxes and insurance (95,558) (72,711)
Advances from Federal Home
Loan Bank of Des Moines:
Proceeds 2,000,000 -
Repayments (2,000,000) -
Purchase of treasury stock - (438,150)
Net cash provided by (used for)
financing activities 527,339 (777,360)
Net increase (decrease) in
cash and cash equivalents 3,778,080 3,614,208
Cash and cash equivalents at beginning of period 2,552,167 3,236,497
Cash and cash equivalents at end of period $ 6,330,247 6,850,705
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits $ 804,017 814,405
Interest on advances from FHLB 99,276 38,128
Federal income taxes $ 126,973 54,100
See accompanying notes to consolidated financial statements.
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) 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, 1997 contained in the 1997 Annual Report to Stockholders which
is filed as an exhibit to the Company's Annual Report on Form 10-
KSB.
(2) In February 1997, the FASB issued SFAS No. 128, "Earnings per
Share" and SFAS No. 129, "Disclosure of Information about Capital
Structure." The Statements supersede APB Opinion No. 15, amend
certain other accounting pronouncements, and modify the
presentation of earnings per share. The Statements are effective
for financial statements for both interim periods and years ending
after December 15, 1997. Following is a summary of basic and
diluted earnings per common share for the three months ended
December 31, 1997 and the three months ended December 31, 1996, as
restated, under SFAS No. 128:
Three Months Ended
December 31,
1997 1996
Net earnings $ 199,956 289,397
Weighted-average shares - Basic EPS 773,750 780,707
Stock options under treasury stock method 7,682 -
Weighted-average shares - Diluted EPS 781,432 780,707
Basic earnings per common share $ .26 .37
Diluted earnings per common share $ .26 .37
Options to purchase 49,387 shares of common stock at $19.00 per
share were outstanding during the three months ended December 31,
1996, but were not included in the computation of diluted EPS since
the exercise price was greater than the average market price of the
common stock.
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 MBS and the average rate paid on deposits, 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 any 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 reducing 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 minimize the adverse effect of interest rate
risk on future operations by providing a better match between the
interest rate sensitivity of its assets and liabilities. In
particular, the Bank's strategies are intended to stabilize net
interest income for the long-term by protecting its interest rate
spread against increases in interest rates. Such strategies include
the purchase of short and intermediate term securities and adjustable
rate mortgage backed securities. Although the Bank has originated
adjustable rate mortgage loans (AMLs) in the past, during the quarter
ended December 31, 1997, the Bank originated primarily 20-year, fixed
rate loans. Management does not anticipate that either financial
objectives, strategies or instruments used to reduce its interest rate
risk exposure will change significantly in the near future.
The OTS provides a net market value methodology to measure the interest
rate risk exposure of thrift institutions. This exposure is a measure
of the potential decline in the net portfolio value (NPV) of the
institution based upon the effect of an assumed 200 basis point
increase or decrease in interest rates. NPV is the present value of
the expected net cash flows from the institution's financial
instruments (assets, liabilities and off-balance sheet contracts).
Loans, deposits, and investments are valued taking into consideration
similar maturities, related discount rates and applicable prepayment
assumptions. Under OTS regulations, an institution's normal level of
interest rate risk in the event of this assumed change in interest
rates is a decrease in the institution's NPV in an amount not exceeding
2% of the present value of its assets. This procedure for measuring
interest rate risk was developed by the OTS to replace the gap analysis
(the difference between interest-earning assets and interest-bearing
liabilities that mature or reprice within a specific time period).
Year 2000
The Bank is reviewing computer applications with its outside data
processing service bureau and other software vendors to ensure
operational and financial systems are not adversely affected by "year
2000" software failures. All major customer applications are processed
through the outside service bureau. The service bureau has indicated
that it expects to modify existing programs to make them year 2000
compliant. Management of the Bank is unable to estimate any additional
expense related to this issue. Any year 2000 compliance failures 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, principal collections on mortgage-backed and
related 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.
During November, 1997, the Office of Thrift Supervision (OTS) lowered
the liquidity requirement for savings institutions from 5% to 4% of the
liquidity base. In addition, the OTS expanded the type of investments
considered to be liquid assets, eliminated the 1% short-term liquidity
requirement and provided savings institutions the option of computing
its liquidity base. The Bank's liquidity ratio exceeded the regulatory
requirement at December 31, 1997.
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, 1997, the Bank was categorized as well capitalized under
the regulatory framework for prompt corrective action.
The Bank's regulatory capital and regulatory capital requirements at
December 31, 1997 are summarized as follows:
Minimum Required Minimum Required
for Capital to be "Well Capitalized"
Actual Adequacy
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
Consolidated stockholders' equity $ 16,358
Stockholders' equity of Company (3,127)
Unrealized gain on securities (55)
Tangible capital 13,176 16.0% $ 1,236 1.5%
General valuation allowance 25
Total capital to risk-weighted assets $ 13,201 70.2% $ 1,505 8.0% $ 1,881 10.0%
Tier 1 capital to risk-weighted-assets $ 13,176 70.0% $ 752 4.0% $ 1,129 6.0%
Tier 1 capital to total assets $ 13,176 16.0% $ 2,472 3.0% $ 4,120 5.0%
Commitments to originate mortgage loans and fund loans in process at
December 31, 1997 amounted to $697,000, expiring in 180 days or less.
The Bank was committed to purchase a $1,000,000 security at December
31, 1997.
Financial Condition
Assets increased from $84.1 million at September 30, 1997 to $85.0
million at December 31, 1997. Securities available for sale decreased
from $35.4 million at September 30, 1997 to $32.3 million at December
31, 1997 due to the sale, maturity or call of securities. Proceeds
from the sales were used to fund loans and increase cash and cash
equivalents. Loans increased from $13.9 million at September 30, 1997
to $15.1 million at December 31, 1997. The Bank is originating
primarily 20-year fixed-rates loans at the present time. Accrued
interest on securities increased due to the timing of interest payment
dates. Advances from borrowers for taxes and insurance decreased due
to the payment of real estate taxes on behalf of borrowers in December.
Asset Quality
Loans are placed on a nonaccrual status when contractually delinquent
more than ninety days. There was one nonaccrual loan for $9,000 at
December 31, 1997.
Following is a summary of activity in the allowance for loan losses:
Balance at September 30, 1997 $ 25,000
Charge-offs -
Recoveries -
Provision for loan loss -
Balance at December 31, 1997 $ 25,000
Results of Operation
Net Earnings
Net earnings decreased from $289,000 for the three months ended
December 31, 1996 to $200,000 for the three months ended December 31,
1997. The decrease was due primarily to recognition of $140,000 on
sale of mortgage-backed securities (MBSs) for the three months ended
December 31, 1996 compared to none for the three months ended December
31, 1997.
Net Interest Income
Net interest income increased from $548,000 for the three months ended
December 31, 1996 to $557,000 for the three months ended December 31,
1997. Interest income on loans receivable increased as a result of a
higher level of loans. Loans receivable, net have increased
substantially in recent years. Components of interest income vary
from time to time based on the availability and interest rates of
loans, securities, MBSs and other interest-bearing assets. Interest
expense increased as both for deposits and advances from the FHLB.
Interest on deposits increased due to higher local interest rates. A
branch office was opened in Perryville by an out of town bank during
1997. Interest on FHLB advances increased due to a higher average
balance.
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, 1997 and 1996.
Noninterest Income
During the three months ended December 31, 1996, mortgage-backed and
related securities with a balance of $2,626,000 were sold for
$2,766,000, resulting in a gain of $140,000. The sales were primarily
small balance pools and one collateralized mortgage obligation of
$500,000. During the three months ended December 31, 1996, securities
available for sale with a carrying value of $1.0 million were sold at
loss of $5,000. There were no gains or losses on securities or MBSs in
the three month period ended December 31, 1997.
Noninterest Expense
Noninterest expense increased from $241,000 for the three months ended
December 31, 1996 to $236,000 for the three months ended December 31,
1997. Compensation and benefits increased primarily as a result of
higher ESOP expense, which increased from $20,000 for the three months
ended December 31, 1996 to $26,000 for the three months ended December
31, 1997. ESOP expense is affected by changes in the market price of
the Company's stock. After the SAIF was recapitalized with the one-
time special assessments, recurring premiums are assessed at a
substantially lower rate.
Income Taxes
Income taxes decreased due to lower pretax earnings.
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
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits: none
(b) Reports on Form 8-K: None
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, 1998 BY: Leo J. Rozier
Leo J. Rozier, President, Chief Executive
Officer and Duly Authorized Officer
and Principal Financial Officer