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, 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 January 31, 1999
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, 1998
INDEX
PAGE NO.
PART I - Financial Information (Unaudited)
Consolidated Balance Sheets 1
Consolidated Statements of Earnings 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 1998 1998
Cash and cash equivalents $ 10,365,319 11,796,514
Securities available for sale, at market
value (amortized cost of $35,725,499
and $33,174,361) 35,726,400 33,274,100
Federal Home Loan Bank stock 750,000 750,000
Mortgage-backed securities available for sale,
at market value (amortized cost of $34,796,096
and $33,695,252) 35,041,880 34,128,765
Loans receivable, net 15,530,635 15,764,398
Premises and equipment, net 325,943 333,323
Accrued interest receivable:
Securities 461,972 430,289
Mortgage-backed securities 194,714 189,193
Loans receivable 60,426 74,955
Other assets 43,114 65,149
Total assets $ 98,500,403 96,806,686
Liabilities and Stockholders' Equity
Deposits $ 66,255,743 64,150,713
Accrued interest on deposits 99,243 144,081
Advances from FHLB of Des Moines 15,000,000 15,000,000
Advances from borrowers for taxes and insurance 81,586 182,209
Other liabilities 67,103 53,980
Income taxes payable 304,370 397,005
Total liabilities 81,808,045 79,927,988
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 8,182,114 8,170,765
Common stock acquired by ESOP (489,753) (501,246)
Common stock acquired by MRP (168,905) (189,030)
Unrealized gain (loss) on securities available
for sale, net 155,411 335,950
Treasury stock at cost, 46,055 and 34,555 shares (834,503) (608,815)
Retained earnings - substantially restricted 9,839,429 9,662,509
Total stockholders' equity 16,692,358 16,878,698
Total liabilities and stockholders' equity $ 98,500,403 96,806,686
See accompanying notes to consolidated financial statements.
1
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended
December 31,
1998 1997
Interest income:
Loans receivable $ 302,201 286,569
Mortgage-backed securities 567,482 506,672
Securities 570,188 626,771
Other interest-earning assets 144,573 35,753
Total interest income 1,584,444 1,455,765
Interest expense:
Deposits 840,225 799,513
Advances from FHLB 210,974 99,276
Total interest expense 1,051,199 898,789
Net interest income 533,245 556,976
Provision for loan losses - -
Net interest income after provision
for loan losses 533,245 556,976
Noninterest income:
Service charges on NOW accounts 6,135 8,331
Other 1,153 734
Total noninterest income 7,288 9,065
Noninterest expense:
Compensation and benefits 155,869 152,760
Occupancy expense 7,824 7,596
Equipment and data processing expense 27,234 19,827
SAIF deposit insurance premium 9,320 9,568
Other 47,290 46,028
Total noninterest expense 247,537 235,779
Earnings before income taxes 292,996 330,262
Income taxes 116,077 130,306
Net earnings $ 176,919 199,956
Basic earnings per common share $ .23 .26
Diluted earnings per common share $ .23 .26
Dividends per share $ .00 .00
See accompanying notes to consolidated financial statements.
2
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Comprehensive Earnings
(Unaudited)
Three Months Ended
December 31,
1998 1997
Net earnings $ 176,919 199,956
Other comprehensive earnings - unrealized
gain (loss) on securities available for sale (180,539) 63,782
Comprehensive earnings (loss) $ (3,620) 263,738
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,
1998 1997
Cash flows from operating activities:
Net earnings $ 176,919 199,956
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation expense 7,599 3,669
ESOP expense 22,842 25,715
MRP expense 20,125 19,522
Amortization of premiums, discounts
and loan fees, net (89,623) (73,815)
Decrease (increase) in:
Accrued interest receivable (22,675) (44,197)
Other assets 22,035 20,955
Increase (decrease) in:
Accrued interest on deposits (44,838) (4,504)
Other liabilities 13,123 22,317
Income taxes payable 13,395 3,332
Net cash provided by (used for)
operating activities 118,902 172,950
Cash flows from investing activities:
Loans originated, net of principal collections 233,763 (1,141,776)
Mortgage-backed securities available for sale:
Purchased (3,503,612) -
Principal collections 2,402,671 919,567
Securities available for sale:
Purchased (13,611,419) (2,000,000)
Proceeds from maturity 11,150,000 4,500,000
Proceeds from sale - 800,000
Purchase of premises and equipment (219) -
Net cash provided by (used for)
investing activities (3,328,816) 3,077,791
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 2,105,030 622,897
Advances from borrowers for taxes and
insurance (100,623) (95,558)
Advances from Federal Home Loan Bank:
Proceeds - 2,000,000
Repayments - (2,000,000)
Purchase of treasury stock (225,688) -
Net cash provided by (used for)
financing activities 1,778,719 527,339
Net increase (decrease) in cash
and cash equivalents (1,431,195) 3,778,080
Cash and cash equivalents at beginning of period 11,796,514 2,552,167
Cash and cash equivalents at end of period $ 10,365,319 6,330,247
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits $ 885,063 804,017
Interest on advances from FHLB 210,974 99,276
Federal income taxes $ 102,682 126,973
See accompanying notes to consolidated financial statements.
4
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, 1998 contained in the 1998
Annual Report to Stockholders which is filed as an exhibit to the Company's
Annual Report on Form 10-KSB.
(2) Following is a summary of basic and diluted earnings per common share for
the three months ended December 31, 1998 and 1997:
Three Months Ended
December 31,
1998 1997
Net earnings $ 176,919 199,956
Weighted-average shares - Basic EPS 761,847 773,750
Stock options under treasury stock method 1,875 7,682
Weighted-average shares - Diluted EPS 763,722 781,432
Basic earnings per common share $ .23 .26
Diluted earnings per common share $ .23 .26
5
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 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.
Although the Bank has originated adjustable rate mortgage loans (AMLs) in the
past, recently the Bank has originated primarily 20-year, fixed rate loans.
Since April, 1998, the Bank has purchased $13.5 million of 20- and 30-year
fixed rate mortgage-backed securities. Advances from the FHLB with a 10-year
term, callable in 5 years, were used to fund the purchases. 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 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 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 an outside service bureau
which recently completed proxy testing. Other major systems have been
tested. Connectivity testing between Bank and vendor systems to ensure
continued compatibility is scheduled for March, 1999. The Bank identified
certain of its hardware and software that would not be year 2000 compliant and
6
purchased newer equipment and software amounting to $63,000 in 1998.
Management is unable to estimate any additional expense related to this
issue. Any year 2000 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, 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,
1998.
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, 1998, 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, 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 $16,692
Stockholders' equity of Company (2,901)
Unrealized gain on securities (155)
Tangible capital 13,636 14.2% $1,440 1.5%
General valuation allowance 25
Total capital to risk-weighted
assets $13,661 65.2% $1,676 8.0% $2,096 10.0%
Tier 1 capital to risk-weighted
assets $13,636 65.1% $ 838 4.0% $1,257 6.0%
Tier 1 capital to total assets $13,636 14.2% $3,839 4.0% $4,798 5.0%
Commitments to originate mortgage loans and fund loans in process at
December 31, 1998 amounted to $1,063,000, expiring in 180 days or less.
Commitments at December 31, 1998 to purchase securities were approximately
$2,000,000.
7
Financial Condition
Deposits from customers and cash and cash equivalents were used to fund
purchases of securities and mortgage-backed securities. 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. During the three months
ended December 31, 1998 the Company repurchased 11,500 shares of common stock
in the open market at a price of $19.625 per share. 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.
Asset Quality
Loans are placed on a nonaccrual status when contractually delinquent more than
ninety days. There were no nonaccrual loans at December 31, 1998.
Following is a summary of activity in the allowance for loan losses:
Balance at September 30, 1998 $ 25,000
Charge-offs -
Recoveries -
Provision for loan loss -
Balance at December 31, 1998 $ 25,000
Results of Operation
Net Earnings
Net earnings decreased from $200,000 for the three months ended December 31,
1997 to $177,000 for the three months ended December 31, 1998. The decrease
was due primarily to a decline in net interest income and an increase in
noninterest
expense, offset by a decrease in income taxes.
Net Interest Income
Net interest income decreased from $557,000 for the three months ended December
31, 1997 to $533,000 for the three months ended December 31, 1998. Interest
income on loans receivable increased as a result of a higher average balance
of loans in the 1998 period. Interest on other interest- earning assets
increased significantly due to a higher average balance of FHLB daily time
deposits. 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 on deposits increased due to a higher weighted-
average rate, reflecting an increasingly competitive market for retail
deposits. 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,
1998 and 1997.
8
Noninterest Income
Noninterest income was comparable for the three months ended December 31, 1997
and 1998.
Noninterest Expense
Noninterest expense increased from $236,000 for the three months ended December
31, 1997 to $248,000 for the three months ended December 31, 1998. The
increase was due primarily to higher data processing costs and depreciation on
equipment.
Income Taxes
Income taxes decreased due to lower pretax earnings.
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
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, 1999 BY: Leo J. Rozier
Leo J. Rozier, President, Chief Executive
Officer and Duly Authorized Officer
and Principal Financial Officer
10