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 March 31, 1998
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 April 22, 1998
Common Stock, par value $.01 per share 827,897
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1998
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 9
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
March 31, September 30,
1998 1997
Assets
Cash and cash equivalents $ 7,835,698 2,552,167
Securities available for sale, at market value (amortized cost of
$32,906,918 and $35,557,757, respectively) 32,900,400 35,411,629
Federal Home Loan Bank Stock 601,500 601,500
Mortgage-backed securities available for sale, at market value
(amortized cost of $28,291,667 and $30,499,492, respectively) 28,506,020 30,631,091
Loans receivable, net 15,272,519 13,910,147
Premises and equipment, net
280,184 287,495
Accrued interest receivable:
Securities 397,256 474,971
Mortgage-backed securities 161,284 173,771
Loans receivable 66,340 60,255
Other assets 59,746 32,178
Total assets $ 86,080,947 84,135,204
Liabilities and Stockholders' Equity
Deposits $ 62,517,397 61,071,074
Accrued interest on deposits 120,546 122,156
Advances from FHLB of Des Moines 6,500,000 6,500,000
Advances from borrowers for taxes and insurance 110,555 158,236
Other liabilities 99,618 25,636
Income taxes payable 431,269 209,502
Total liabilities 69,779,385 68,086,604
Commitments and contingencies
Stockholders' equity:
Serial preferred stock, $.01 par value; 1,000,000 shares
authorized; shares issued and outstanding - none - -
Common stock, $.01 par value; 5,000,000 shares authorized;
856,452 shares issued 8,565 8,565
Additional paid-in capital 8,140,876 8,110,852
Common stock acquired by ESOP (524,230) (547,216)
Common stock acquired by MRP (218,224) (257,269)
Unrealized (loss) gain on securities available for sale, net 130,936 (9,153)
Treasury stock, at cost, 28,555 shares (499,815) (499,815)
Retained earnings - substantially restricted 9,263,454 9,242,636
Total stockholders' equity 16,301,562 16,048,600
Total liabilities and stockholders' equity $ 86,080,947 84,135,204
See accompanying notes to consolidated financial statements.
1
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
Interest income:
Loans receivable $ 311,429 246,235 597,998 483,538
Mortgage-backed securities 489,015 513,117 995,687 1,003,130
Securities 577,815 552,359 1,204,586 1,106,912
Other interest-earning assets 83,675 54,855 119,428 128,107
Total interest income 1,461,934 1,366,566 2,917,699 2,721,687
Interest expense:
Deposits 799,228 746,300 1,598,741 1,515,549
Advances from FHLB 96,262 36,688 195,538 74,816
Total interest expense 895,490 782,988 1,794,279 1,590,365
Net interest income 566,444 583,578 1,123,420 1,131,322
Provision for loan losses - - - -
Net interest income after
provision for loan losses 566,444 583,578 1,123,420 1,131,322
Noninterest income:
Service charges on NOW accounts 6,852 6,515 15,183 13,422
Loss on sale of securities
available for sale - - - (5,000)
Gain on sale of mortgage-backed
securities available for sale - - - 139,655
Other 4,590 4,334 5,324 5,867
Total noninterest income 11,442 10,849 20,507 153,944
Noninterest expense:
Compensation and benefits 148,708 136,790 301,468 279,806
Occupancy expense 7,288 7,036 14,884 13,977
Equipment and data processing expense 23,227 19,931 43,054 40,198
SAIF deposit insurance premium 9,566 2,291 19,134 35,410
Other 45,488 41,784 91,516 79,673
Total noninterest expense 234,277 207,832 470,056 449,064
Earnings before income taxes 343,609 386,595 673,871 836,202
Income taxes 136,159 150,949 266,465 311,159
Net earnings $ 207,450 235,646 407,406 525,043
Basic earnings per common share $ .27 .31 .53 .68
Diluted earnings per common share $ .26 .31 .52 .68
Dividends per share $ .50 .40 .50 .40
See accompanying notes to consolidated financial statements.
2
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net earnings $ 407,406 525,043
Adjustments to reconcile net earnings to net cash provided by
(used for) operating activities:
Depreciation expense 7,311 7,302
ESOP expense 53,010 40,235
MRP expense 39,045 39,045
Amortization of premiums (discounts) and loan fees, net (149,717) (1,447)
Loss on sale of securities available for sale - 5,000
Gain on sale of mortgage-backed securities available for sale - (139,655)
Decrease (increase) in:
Accrued interest receivable 84,117 55,861
Other assets (27,568) 161,226
Increase (decrease) in:
Accrued interest on deposits and other liabilities 72,372 (402,104)
Income taxes payable 139,491 (3,382)
Net cash provided by (used for) operating activities 625,467 287,124
Cash flows from investing activities:
Loans originated, net of principal collections on loans (1,362,372) (673,326)
Mortgage-backed securities available for sale:
Purchased - (4,232,791)
Principal collections 2,208,382 1,633,510
Proceeds from sale - 2,765,537
Securities available for sale:
Purchased (9,000,000) (3,500,000)
Proceeds from maturity or call 11,000,000 4,500,000
Proceeds from sale 800,000 995,000
Purchase of premises and equipment, net - (412)
Net cash provided by (used for) investing activities 3,646,010 1,487,518
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 1,446,323 (514,778)
Advances from borrowers for taxes and insurance (47,681) (44,772)
Advances from FHLB 2,000,000 -
Repayment of advances from FHLB (2,000,000) -
Purchase of treasury stock - (762,372)
Dividends paid to shareholders (386,588) (299,667)
Net cash provided by (used for) financing activities 1,012,054 (1,621,589)
Net increase (decrease) in cash and cash equivalents 5,283,531 153,053
Cash and cash equivalents at beginning of period 2,552,167 3,236,497
Cash and cash equivalents at end of period $ 7,835,698 3,389,550
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits $ 1,600,351 1,534,059
Interest on advances from FHLB of Des Moines 195,538 74,816
Federal and state income taxes $ 126,973 289,338
See accompanying notes to consolidated financial statements.
3
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 and six months ended March 31, 1998 and the three and six months
ended March 31, 1997, as restated, under SFAS No. 128:
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
Net earnings $ 207,450 235,646 407,406 525,043
Weighted-average shares - Basic EPS 774,899 757,338 774,324 769,023
Stock options - treasury stock method 10,187 - 10,187 -
Weighted-average shares - Diluted EPS 785,086 757,338 784,511 769,023
Basic earnings per common share $ .27 .31 .53 .68
Diluted earnings per common share $ .26 .31 .52 .68
Options to purchase 70,798 shares of common stock at $19.00 per share were outstanding during
the three and six months ended March 31, 1997, 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.
4
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 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 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 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 six months ended March 31, 1998, the Bank originated primarily 20-year,
fixed rate loans. Management does not anticipate that either financial objectives, strategies or
instruments used to manage 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).
5
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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 securities (MBSs), 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. The Bank's liquidity ratio exceeded the
regulatory requirement at March 31, 1998.
The Bank is required to maintain certain minimum capital requirements under OTS regulations. Failure
by a savings institution to meet minimum capital requirements can result in certain mandatory and
possible discretionary actions by regulators which, if undertaken, could have a direct material effect on
the Bank's financial statements. 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. The capital amounts and classifications are also subject to judgments
by the regulators about components, risk-weightings and other factors.
The Bank's regulatory capital and minimum capital requirements at March 31, 1998 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 $ 16,302
Stockholders' equity of Company (3,188)
Unrealized gain on securities (131)
Tangible capital 12,983 15.6% $ 1,250 1.5%
General valuation allowance 25
Total capital to risk-weighted assets $ 13,008 67.1% $ 1,550 8.0% $ 1,938 10.0%
Tier 1 capital to risk-weighted-assets$ 12,983 67.0% $ 775 4.0% $ 1,163 6.0%
Tier 1 capital to total assets $ 12,983 15.6% $ 2,499 3.0% $ 4,166 5.0%
Commitments to originate mortgage loans and fund loans in process at March 31, 1998 amounted to
$361,000, expiring in 180 days or less. Commitments to purchase securities amounted to $2,000,000
at March 31, 1998.
6
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition
Assets increased from $84.1 million at September 30, 1997 to $86.1 million at March 31, 1998.
Securities and mortgage-backed securities portfolios decreased $2.5 million and $2.1 million,
respectively, from the September 30, 1997 balances. Proceeds from sales, maturity or call of
securities, principal collections on loans and MBSs, and net savings deposits were used to fund loans,
increase cash and cash equivalents and purchase securities. Loans increased from $13.9 million at
September 30, 1997 to $15.3 million at March 31, 1998. The Bank is originating primarily 20-year
fixed-rates loans at the present time.
Asset Quality
Loans are placed on a nonaccrual status when contractually delinquent more than ninety days. There
were no nonaccrual loans at September 30, 1997 or March 31, 1998.
Following is a summary of the allowance for loan losses:
Balance, September 30, 1997 $ 25,000
Charge-offs -
Recoveries -
Provision for loan losses -
Balance, March 31, 1998 $ 25,000
Results of Operation
Net Earnings
Net earnings decreased from $236,000 for the three months ended March 31, 1997 to $207,000 for
the three months ended March 31, 1998. Net earnings decreased from $525,000 for the six months
ended March 31, 1997 to $407,000 for the six months ended March 31, 1998. Net earnings for the
three months ended March 31, 1998 decreased from the comparable period in 1997 due to lower net
interest income and higher noninterest expense. Net earnings for the six months ended March 31,
1998 decreased from the comparable period in 1997 as a result of net gain on sale of securities and
MBSs of $135,000, which was recognized during the 1997 period, and higher noninterest expense in
1998.
Net Interest Income
Net interest income decreased from $584,000 for the three months ended March 31, 1997 to
$566,000 for the three months ended March 31, 1998. Net interest income decreased from
$1,131,000 for the six months ended March 31, 1997 to $1,123,000 for the six months ended March
31, 1998. Interest income increased as a result of a higher level of loans and other interest-earning
assets. 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, mortgage-
backed securities (MBSs), and other interest-bearing assets. Interest expense increased as a result of
a higher average balance of FHLB advances outstanding and a higher weighted-average rate on
deposits.
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
7
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 and six months ended March 31, 1997 and
1998.
Noninterest Income
During the six months ended March 31, 1997, securities available for sale with a carrying value of $1.0
million were sold at a loss of $5,000 and MBSs with a carrying value of $2,626,000 were sold at a
gain of $140,000. The sales were primarily small balance pools and one collateralized mortgage
obligation of $500,000.
Noninterest Expense
Noninterest expense increased from $208,000 for the three months ended March 31, 1997 to
$234,000 for the three months ended March 31, 1998. Noninterest expense increased from $449,000
for the six months ended March 31, 1997 to $470,000 for the six months ended March 31, 1998.
The increase was primarily a result of higher compensation and benefits. Compensation and benefits
increased largely due to higher ESOP expense, which increased from $40,000 for the six months ended
March 31, 1997 to $53,000 for the six months ended March 31, 1998. Under generally accepted
accounting principles, expense of the ESOP is affected by changes in the market price of the Bank's
stock. SAIF deposit insurance premium for the six months ended March 31, 1998 decreased from the
comparable period in 1997 as a result of a lower assessment rate. Other noninterest expense for the
six months ended March 31, 1998 increased from the comparable period in 1997 as a result of higher
professional services due to operating as a public company.
Income Taxes
Income taxes decreased due to lower earnings before income taxes.
8
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 21, 1998 the Company held its Annual Meeting of Stockholders.
(b) At the meeting Leo J. Rozier and Stephen C. Rozier were elected for terms to expire in 2001.
(c) Stockholders voted on the following matters:
(i) The election of the following directors of the Company:
DIRECTOR: FOR ABSTAIN
Leo J. Rozier 775,695 10,543
Stephen C. Rozier 777,739 8,499
(ii) The ratification of the appointment of Michael Trokey & Company, P.C. as auditors for
the Company for the fiscal year ended September 30, 1998:
VOTES: FOR AGAINST ABSTAIN
786,238 782,470 544 3,224
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits: none
(b) Reports on Form 8-K: None
9
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
PART II - Other Information
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: May 6, 1998 BY: Leo J. Rozier
Leo J. Rozier, President, Chief Executive
Officer, Duly Authorized Officer
and Principal Financial Officer