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 June 30, 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 August 2, 1999
Common Stock, par value $.01 per share 746,216 Shares
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 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)
June 30, September 30,
Assets 1999 1998
Cash and cash equivalents $ 4,035,711 11,796,514
Securities available for sale, at market
value (amortized cost of $40,018,056
and $33,174,361) 39,495,150 33,274,100
Federal Home Loan Bank stock 750,000 750,000
Mortgage-backed securities available for sale,
at market value (amortized cost of $37,854,182
and $33,695,252) 37,369,081 34,128,765
Loans receivable, net 16,055,594 15,764,398
Premises and equipment, net 314,716 333,323
Accrued interest receivable:
Securities 532,205 430,289
Mortgage-backed securities 207,747 189,193
Loans receivable 70,747 74,955
Other assets, including deferred tax asset
of $245,096 at June 30, 1999 332,200 65,149
Total assets $ 99,163,151 96,806,686
Liabilities and Stockholders' Equity
Deposits $ 68,098,965 64,150,713
Accrued interest on deposits 140,032 144,081
Advances from FHLB of Des Moines 15,000,000 15,000,000
Advances from borrowers for taxes and insurance 265,060 182,209
Other liabilities 60,831 53,980
Income taxes payable 75,399 397,005
Total liabilities 83,640,287 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 8,208,018 8,170,765
Common stock acquired by ESOP (466,768) (501,246)
Common stock acquired by MRP (128,653) (189,030)
Unrealized gain (loss) on securities and MBS
available for sale, net (635,044) 335,950
Treasury stock at cost, 75,555 and 34,055 shares (1,423,253) (608,815)
Retained earnings - substantially restricted 9,959,999 9,662,509
Total stockholders' equity 15,522,864 16,878,698
Total liabilities and stockholders' equity $ 99,163,151 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
June 30,
1999 1998
Interest income:
Loans receivable $ 306,074 304,839
Mortgage-backed securities 570,833 497,467
Securities 681,279 592,079
Other interest-earning assets 73,200 91,719
Total interest income 1,631,386 1,486,104
Interest expense:
Deposits 830,887 824,511
Advances from FHLB 208,721 112,016
Total interest expense 1,039,608 936,527
Net interest income 591,778 549,577
Provision for loan losses - -
Net interest income after provision
for loan losses 591,778 549,577
Noninterest income:
Service charges on NOW accounts 6,498 7,188
Gain on sale of mortgage-backed securities
available for sale 56,069 3,760
Other 5,261 (127)
Total noninterest income 67,828 10,821
Noninterest expense:
Compensation and benefits 149,462 144,941
Occupancy expense 6,910 8,204
Equipment and data processing expense 22,559 18,454
SAIF deposit insurance premium 9,694 9,565
Other 37,940 39,081
Total noninterest expense 226,565 220,245
Earnings before income taxes 433,041 340,153
Income taxes 168,385 134,307
Net earnings $ 264,656 205,846
Basic earnings per common share $ .35 .27
Diluted earnings per common share $ .35 .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
June 30,
1999 1998
Net earnings $ 264,656 205,846
Unrealized gain (loss) on securities and
mortgage-backed securities available for sale:
Unrealized gain (loss) arising during period (477,022) 25,901
Reclassification adjustment for gain
included in net earnings (35,323) (2,369)
Comprehensive earnings (loss) $ (247,689) 229,378
See accompanying notes to consolidated financial statements.
3
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
(Unaudited)
Nine Months Ended
June 30,
1999 1998
Interest income:
Loans receivable $ 911,841 902,837
Mortgage-backed securities 1,705,520 1,493,154
Securities 1,895,873 1,796,665
Other interest-earning assets 308,510 211,147
Total interest income 4,818,744 4,403,803
Interest expense:
Deposits 2,495,161 2,423,252
Advances from FHLB 626,082 307,554
Total interest expense 3,121,243 2,730,806
Net interest income 1,697,501 1,672,997
Provision for loan losses 5,000 -
Net interest income after provision
for loan losses 1,692,501 1,672,997
Noninterest income:
Service charges on NOW accounts 18,171 22,371
Gain on sale of mortgage-backed securities
available for sale 106,287 3,760
Other 7,636 5,197
Total noninterest income 132,094 31,328
Noninterest expense:
Compensation and benefits 456,224 446,409
Occupancy expense 22,167 23,088
Equipment and data processing expense 73,136 61,508
SAIF deposit insurance premium 28,789 28,699
Other 126,256 130,597
Total noninterest expense 706,572 690,301
Earnings before income taxes 1,118,023 1,014,024
Income taxes 440,147 400,772
Net earnings $ 677,876 613,252
Basic earnings per common share $ .89 .79
Diluted earnings per common share $ .89 .78
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)
Nine Months Ended
June 30,
1999 1998
Net earnings $ 677,876 613,252
Unrealized gain (loss) on securities and
mortgage-backed securities available for sale:
Unrealized gain (loss) arising during period (904,033) 165,990
Reclassification adjustment for gain
included in net earnings (66,961) (2,369)
Comprehensive earnings (loss) $(293,118) 776,873
See accompanying notes to consolidated financial statements.
5
PERRY COUNTY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net earnings $ 677,876 613,252
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation expense 21,200 10,974
Provision for loan losses 5,000 -
Gain on sale of mortgage-backed
securities available for sale (106,287) (3,760)
ESOP expense 71,731 80,017
MRP expense 60,377 58,567
Amortization of premiums, discounts
and loan fees, net (359,297) (233,527)
Decrease (increase) in:
Accrued interest receivable (116,262) (73,744)
Other assets (21,955) (15,969)
Increase (decrease) in:
Accrued interest on deposits (4,049) (1,000)
Other liabilities 6,851 3,420
Income taxes payable 3,563 (31,839)
Net cash provided by (used for)
operating activities 238,748 406,391
Cash flows from investing activities:
Loans originated, net of principal collections (291,632) (1,810,220)
Mortgage-backed securities available for sale:
Purchased (15,881,389) (4,005,682)
Principal collections 7,631,381 4,092,172
Proceeds from sale 4,195,315 -
Securities available for sale:
Purchased (20,636,912) (16,467,155)
Proceeds from maturity or call 14,150,000 16,050,000
Proceeds from sale - 800,000
Redemption of FHLB stock, net - 176,500
Purchase of premises and equipment, net (2,593) (46,785)
Net cash provided by (used for)
investing activities (10,835,830) (1,300,101)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 3,948,252 3,037,749
Advances from borrowers for taxes and
insurance 82,851 (7,823)
Advances from Federal Home Loan Bank:
Proceeds - 8,500,000
Repayments - (6,500,000)
Purchase of treasury stock (814,439) -
Dividends paid to stockholders (380,386) (386,588)
Net cash provided by (used for)
financing activities 2,836,279 4,643,338
Net increase (decrease) in cash
and cash equivalents (7,760,803) 3,749,628
Cash and cash equivalents at beginning of period 11,796,514 2,552,167
Cash and cash equivalents at end of period $ 4,035,711 6,301,795
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits $ 2,499,210 2,424,252
Interest on advances from FHLB 626,082 307,554
Federal and state income taxes $ 239,956 432,611
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 June 30, 1999 and 1998:
Three Months Ended
June 30,
1999 1998
Net earnings $ 264,301 205,846
Weighted-average shares - Basic EPS 761,116 776,049
Stock options under treasury stock method 3,751 9,668
Weighted-average shares - Diluted EPS 764,869 785,717
Basic earnings per common share $ .35 .27
Diluted earnings per common share $ .35 .26
Following is a summary of basic and diluted earnings per common share for
the nine months ended June 30, 1999 and 1998:
Nine Months Ended
June 30,
1999 1998
Net earnings $ 677,876 613,252
Weighted-average shares - Basic EPS 759,163 774,899
Stock options under treasury stock method 3,753 9,668
Weighted-average shares - Diluted EPS 762,916 784,567
Basic earnings per common share $ .89 .79
Diluted earnings per common share $ .89 .78
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 October, 1998, the Bank has purchased $11.3 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 June 30,
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%
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 June 30,
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
June 30, 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 $15,523
Stockholders' equity of Company (2,387)
Unrealized loss on securities 635
Tangible capital 13,771 14.1% $1,468 1.5%
General valuation allowance 30
Total capital to risk-weighted
assets $13,801 69.9% $1,580 8.0% $1,976 10.0%
Tier 1 capital to risk-weighted
assets $13,771 69.7% $ 790 4.0% $1,185 6.0%
Tier 1 capital to total assets $13,771 14.1% $3,916 4.0% $4,896 5.0%
Commitments to originate mortgage loans and fund loans in process at
June 30, 1999 amounted to $776,000, expiring in 180 days or less.
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.
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 nine months ended June 30, 1999, the Bank experienced an unrealized
loss, net of taxes, on securities and mortgage-backed securities of $971,000.
During the nine months ended June 30, 1999 the Company repurchased 41,500 shares
of common stock in the open market at $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 June 30, 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 losses 5,000
Balance at June 30, 1999 $ 30,000
Results of Operation
Net Earnings
Net earnings increased from $206,000 for the three months ended June 30,
1998 to $265,000 for the three months ended June 30, 1999. Net earnings
increased from $613,000 for the nine months ended June 30, 1998 to $678,000
for the six months ended June 30, 1999. The increase was due primarily to the
gain on sale of mortgage-backed securities (MBSs) and higher net interest
income, offset by an increase in noninterest expense and income taxes.
Net Interest Income
Net interest income increased from $550,000 for the three months ended June
30, 1998 to $592,000 for the three months ended June 30, 1999. Net interest
income decreased from $1,673,000 for the nine months ended June 30, 1998 to
$1,698,000 for the nine months ended June 30, 1999. Interest income MBSs
and interest income on securities increased as a result of a
higher average balance in the 1999 periods. Interest on other interest-earning
assets decreased for the three months ended June 30, 1999 compared to the 1998
period due to a lower 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-earning 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 nine months ended June 30, 1999
of $5,000. There was no provision for loan losses for the three and nine
months ended June 30, 1998.
Noninterest Income
Noninterest income was higher as a result of a gain on sale of mortgage-backed
securities for the three and nine months ended June 30, 1999 of $56,000 and
$106,000, respectively. A gain of $4,000 was recognized in the comparable
periods for 1998.
Noninterest Expense
Noninterest expense increased from $220,000 for the three months ended June
30, 1998 to $227,000 for the three months ended June 30, 1999. Noninterest
expense increased from $690,000 for the nine months ended June 30, 1998 to
$707,000 for the nine months ended June 30, 1999. The increase for the nine
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
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: August 12, 1999 BY: Leo J. Rozier
Leo J. Rozier, President, Chief Executive
Officer and Duly Authorized Officer
and Principal Financial Officer
11