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, 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 March 31, 1999
Common Stock, par value $.01 per share 810,897 Shares
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
PAGE NO.
PART I - Financial Information (Unaudited)
Consolidated Balance Sheets 1
Consolidated Statements of Earnings 2,4
Consolidated Statements of Comprehensive Earnings 3,5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - Other Information 11
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
March 31, September 30,
Assets 1999 1998
Cash and cash equivalents $ 7,988,900 11,796,514
Securities available for sale, at market
value (amortized cost of $39,378,184
and $33,174,361) 39,183,125 33,274,100
Federal Home Loan Bank stock 750,000 750,000
Mortgage-backed securities available for sale,
at market value (amortized cost of $34,862,813
and $33,695,252) 34,863,111 34,128,765
Loans receivable, net 16,152,805 15,764,398
Premises and equipment, net 321,536 333,323
Accrued interest receivable:
Securities 497,458 430,289
Mortgage-backed securities 192,278 189,193
Loans receivable 71,790 74,955
Other assets 89,324 65,149
Total assets $ 100,110,327 96,806,686
Liabilities and Stockholders' Equity
Deposits $ 68,084,371 64,150,713
Accrued interest on deposits 127,616 144,081
Advances from FHLB of Des Moines 15,000,000 15,000,000
Advances from borrowers for taxes and insurance 206,694 182,209
Other liabilities 79,596 53,980
Income taxes payable 296,720 397,005
Total liabilities 83,794,997 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 8,195,664 8,170,765
Common stock acquired by ESOP (478,261) (501,246)
Common stock acquired by MRP (148,779) (189,030)
Unrealized gain (loss) on securities and MBS
available for sale, net (122,699) 335,950
Treasury stock at cost, 45,555 and 34,055 shares (834,503) (608,815)
Retained earnings - substantially restricted 9,695,343 9,662,509
Total stockholders' equity 16,315,330 16,878,698
Total liabilities and stockholders' equity $ 100,110,327 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
March 31,
1999 1998
Interest income:
Loans receivable $ 303,566 311,429
Mortgage-backed securities 564,205 489,015
Securities 644,406 577,815
Other interest-earning assets 90,737 83,675
Total interest income 1,602,914 1,461,934
Interest expense:
Deposits 824,049 799,228
Advances from FHLB 206,387 96,262
Total interest expense 1,030,436 895,490
Net interest income 572,478 566,444
Provision for loan losses 5,000 -
Net interest income after provision
for loan losses 567,478 566,444
Noninterest income:
Service charges on NOW accounts 5,538 6,852
Gain on sale of mortgage-backed securities
available for sale 50,218 -
Other 1,222 4,590
Total noninterest income 56,978 11,442
Noninterest expense:
Compensation and benefits 150,893 148,708
Occupancy expense 7,433 7,288
Equipment and data processing expense 23,343 23,227
SAIF deposit insurance premium 9,775 9,566
Other 41,026 45,488
Total noninterest expense 232,470 234,277
Earnings before income taxes 391,986 343,609
Income taxes 155,685 136,159
Net earnings $ 236,301 207,450
Basic earnings per common share $ .31 .27
Diluted earnings per common share $ .31 .26
Dividends per share $ .50 .50
See accompanying notes to consolidated financial statements.
2
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Comprehensive Earnings
(Unaudited)
Three Months Ended
March 31,
1999 1998
Net earnings $ 236,301 207,450
Unrealized gain (loss) on securities and
mortgage-backed securities available for sale:
Unrealized gain (loss) arising during period (246,473) 76,307
Reclassification adjustment for gain
included in net earnings (31,637) -
Comprehensive earnings (loss) $ (41,809) 283,757
See accompanying notes to consolidated financial statements.
3
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
(Unaudited)
Six Months Ended
March 31,
1999 1998
Interest income:
Loans receivable $ 605,767 597,998
Mortgage-backed securities 1,131,687 995,687
Securities 1,214,594 1,204,586
Other interest-earning assets 235,310 119,428
Total interest income 3,187,358 2,917,699
Interest expense:
Deposits 1,664,274 1,598,741
Advances from FHLB 417,361 195,538
Total interest expense 2,081,635 1,794,279
Net interest income 1,105,723 1,123,420
Provision for loan losses 5,000 -
Net interest income after provision
for loan losses 1,100,723 1,123,420
Noninterest income:
Service charges on NOW accounts 11,673 15,183
Gain on sale of mortgage-backed securities
available for sale 50,218 -
Other 2,375 5,324
Total noninterest income 64,266 20,507
Noninterest expense:
Compensation and benefits 306,762 301,468
Occupancy expense 15,257 14,884
Equipment and data processing expense 50,577 43,054
SAIF deposit insurance premium 19,095 19,134
Other 88,316 91,516
Total noninterest expense 480,007 470,056
Earnings before income taxes 684,982 673,871
Income taxes 271,762 266,465
Net earnings $ 413,220 407,406
Basic earnings per common share $ .54 .53
Diluted earnings per common share $ .54 .52
Dividends per share $ .50 .50
See accompanying notes to consolidated financial statements.
4
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Comprehensive Earnings
(Unaudited)
Six Months Ended
March 31,
1999 1998
Net earnings $ 413,220 407,406
Unrealized gain (loss) on securities and
mortgage-backed securities available for sale:
Unrealized gain (loss) arising during period (427,012) 140,089
Reclassification adjustment for gain
included in net earnings (31,637) -
Comprehensive earnings (loss) $ (45,429) 547,495
See accompanying notes to consolidated financial statements.
5
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net earnings $ 413,220 407,406
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation expense 14,380 7,311
Provision for loan losses 5,000 -
Gain on sale of mortgage-backed
securities available for sale (50,218) -
ESOP expense 47,884 53,010
MRP expense 40,251 39,045
Amortization of premiums, discounts
and loan fees, net (207,421) (149,717)
Decrease (increase) in:
Accrued interest receivable (67,089) 84,117
Other assets (24,175) (27,568)
Increase (decrease) in:
Accrued interest on deposits (16,465) (1,610)
Other liabilities 25,616 73,982
Income taxes payable 169,080 139,491
Net cash provided by (used for)
operating activities 350,063 625,467
Cash flows from investing activities:
Loans originated, net of principal collections (393,408) (1,362,372)
Mortgage-backed securities available for sale:
Purchased (8,918,461) -
Principal collections 5,585,669 2,208,382
Proceeds from sale 2,205,526 -
Securities available for sale:
Purchased (20,136,479) (9,000,000)
Proceeds from maturity or call 14,150,000 11,000,000
Proceeds from sale - 800,000
Purchase of premises and equipment, net (2,593) -
Net cash provided by (used for)
investing activities (7,509,746) 3,646,010
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 3,933,658 1,446,323
Advances from borrowers for taxes and
insurance 24,485 (47,681)
Advances from Federal Home Loan Bank:
Proceeds - 2,000,000
Repayments - (2,000,000)
Purchase of treasury stock (225,688) -
Dividends paid to stockholders (380,386) (386,588)
Net cash provided by (used for)
financing activities 3,352,069 1,012,054
Net increase (decrease) in cash
and cash equivalents (3,807,614) 5,283,531
Cash and cash equivalents at beginning of period 11,796,514 2,552,167
Cash and cash equivalents at end of period $ 7,988,900 7,835,698
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits $ 1,680,739 1,600,351
Interest on advances from FHLB 417,361 195,538
Federal and state income taxes $ 102,682 126,973
See accompanying notes to consolidated financial statements.
6
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 March 31, 1999 and 1998:
Three Months Ended
March 31,
1999 1998
Net earnings $ 236,301 207,450
Weighted-average shares - Basic EPS 762,495 774,899
Stock options under treasury stock method 4,029 10,187
Weighted-average shares - Diluted EPS 766,524 785,086
Basic earnings per common share $ .31 .27
Diluted earnings per common share $ .31 .26
Following is a summary of basic and diluted earnings per common share for
the six months ended March 31, 1999 and 1998:
Six Months Ended
March 31,
1999 1998
Net earnings $ 413,220 407,406
Weighted-average shares - Basic EPS 762,426 774,324
Stock options under treasury stock method 4,029 10,187
Weighted-average shares - Diluted EPS 766,455 784,511
Basic earnings per common share $ .54 .53
Diluted earnings per common share $ .54 .52
7
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 $14.4 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 primarily 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 200 basis point increase or decrease in interest
rates, whichever produces the lower value. 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 has been completed. The Bank has developed a written
contingency plan which includes a ledger card system for loan and deposit
accounts. The Bank previously identified certain of its hardware and software
8
that would not be year 2000 compliant and 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, maturity
or call
of securities, 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 March 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 March 31, 1999, 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
March 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 $16,315
Stockholders' equity of Company (2,533)
Unrealized loss on securities 123
Tangible capital 13,905 14.2% $1,473 1.5%
General valuation allowance 30
Total capital to risk-weighted
assets $13,935 66.6% $1,674 8.0% $2,092 10.0%
Tier 1 capital to risk-weighted
assets $13,905 66.5% $ 837 4.0% $1,255 6.0%
Tier 1 capital to total assets $13,905 14.2% $3,928 4.0% $4,910 5.0%
Commitments to originate mortgage loans and fund loans in process at
March 31, 1999 amounted to $997,000, expiring in 180 days or less.
Commitments at March 31, 1999 to purchase mortgage-backed securities were
approximately $1,000,000.
Financial Condition
Deposits from customers, cash and cash equivalents, proceeds from maturity or
call of securities and proceeds from sale of mortgage-backed securities were
used to fund purchases of securities and mortgage-backed securities. Accrued
interest on deposits decreased due to timing of interest payments and lower
weighted-average rate. Advances from borrowers for taxes and insurance
increased due to customer deposits of insurance proceeds from a recent
hailstorm, which more than offset the payment of real estate taxes on behalf of
borrowers in December. During the six months ended March 31, 1999, the Bank
experienced an unrealized loss, net of taxes, on securities and mortgage-backed
securities of $459,000.
During October, 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.
9
Asset Quality
Loans are placed on a nonaccrual status when contractually delinquent more than
ninety days. There were no nonaccrual loans at March 31, 1999.
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 5,000
Balance at March 31, 1999 $ 30,000
Results of Operation
Net Earnings
Net earnings increased from $207,000 for the three months ended March 31,
1998 to $236,000 for the three months ended March 31, 1999 primarily as a result
of a gain on sale of mortgage-backed securities. Net earnings increased from
$407,000 for the six months ended March 31, 1998 to $413,000 for the six months
ended March 31, 1999. The increase was due to the gain on sale of mortgage-
backed securities, offset by a decrease in net interest income and an increase
in noninterest expense.
Net Interest Income
Net interest income increased from $566,000 for the three months ended March
31, 1998 to $572,000 for the three months ended March 31, 1999. Net interest
income decreased from $1,123,000 for the six months ended March 31, 1998 to
$1,106,000 for the six months ended March 31, 1999. Interest income on
mortgage-backed securities and interest income on securities increased as a
result of a higher average balance in the 1999 periods. Interest on other
interest-earning assets increased 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 and 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
recognized a provision for loan losses for the three and six months ended March
31, 1999 of $5,000. There was no provision for loan losses for the three and
six months ended March 31, 1998.
Noninterest Income
Noninterest income was higher as a result of a gain on sale of mortgage-backed
securities of $50,000.
Noninterest Expense
Noninterest expense decreased from $234,000 for the three months ended March
31, 1998 to $232,000 for the three months ended March 31, 1999. Noninterest
expense increased from $470,000 for the six months ended March 31, 1998 to
$480,000 for the six months ended March 31, 1999. The increase for the six
month period was due primarily to higher data processing costs and depreciation
on equipment.
Income Taxes
Income taxes increased due to higher pretax earnings.
10
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 20, 1999 the Company held its Annual Meeting of
Stockholders.
(b) At the meeting James K. Young and Milton A. Vogel were elected for
terms to expire in 2002.
(c) Stockholders voted on the following matters:
(i) The election of the following directors of the Company:
DIRECTOR FOR ABSTAIN
James K. Young 745,235 3,150
Milton A. Vogel 743,235 5,150
(ii) The ratification of the appointment of Michael Trokey & Company,
P.C. as auditors for the Company for the fiscal year ended
September 30, 1999:
VOTES FOR AGAINST ABSTAIN
748,385 747,735 250 400
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: May 3, 1999 BY: Leo J. Rozier
Leo J. Rozier, President, Chief Executive
Officer and Duly Authorized Officer
and Principal Financial Officer
11