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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2000
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ____________.
Commission File Number 0-22223
-------
PEOPLES-SIDNEY FINANCIAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 31-1499862
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
101 E. Court Street, Sidney, Ohio 45365
----------------------------------------
(Address of principal executive offices)
(937) 492-6129
---------------------------
(Issuer's telephone number)
As of February 9, 2001, the latest practicable date, 1,541,315 shares of the
issuer's common shares, $.01 par value, were issued and outstanding.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
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18
PEOPLES-SIDNEY FINANCIAL CORPORATION
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INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets.................................... 3
Consolidated Statements of Income ............................. 4
Consolidated Statements of Comprehensive Income................ 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity........................................... 6
Consolidated Statements of Cash Flows ......................... 7
Notes to Consolidated Financial Statements .................... 8
Item 2. Management's Discussion and Analysis........................... 14
Part II - Other Information
Item 1. Legal Proceedings.............................................. 20
Item 2. Changes in Securities and Use of Proceeds...................... 20
Item 3. Defaults Upon Senior Securities................................ 20
Item 4. Submission of Matters to a Vote of Security Holders............ 20
Item 5. Other Information.............................................. 20
Item 6. Exhibits and Reports on Form 8-K............................... 20
SIGNATURES ............................................................... 21
2
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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Item 1. Financial Statements
December 31, June 30,
2000 2000
---- ----
ASSETS
Cash and due from financial institutions $ 903,522 $ 820,629
Interest-bearing deposits in other financial institutions 1,603,094 885,364
Overnight deposits -- 500,000
--------------- ----------------
Total cash and cash equivalents 2,506,616 2,205,993
Securities available for sale 8,518,982 8,446,681
Federal Home Loan Bank stock 1,348,300 1,023,000
Loans, net 119,035,568 114,649,700
Accrued interest receivable 952,917 893,569
Premises and equipment, net 1,895,307 1,890,886
Other assets 85,242 177,387
--------------- ----------------
Total assets $ 134,342,932 $ 129,287,216
=============== ================
LIABILITIES
Deposits $ 90,321,567 $ 93,056,941
Borrowed funds 26,500,000 19,000,000
Accrued interest payable and other liabilities 287,001 270,477
--------------- ----------------
Total liabilities 117,108,568 112,327,418
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares
authorized, none issued and outstanding
Common stock, $.01 par value, 3,500,000 shares
authorized, 1,785,375 shares issued 17,854 17,854
Additional paid-in capital 10,725,514 10,754,463
Retained earnings 10,969,290 10,856,394
Treasury stock, 227,260 and 207,060 shares, at cost (2,793,689) (2,636,295)
Unearned employee stock ownership plan shares (1,265,151) (1,347,800)
Unearned management recognition plan shares (460,727) (556,043)
Accumulated other comprehensive income (loss) 41,273 (128,775)
--------------- ----------------
Total shareholders' equity 17,234,364 16,959,798
--------------- ----------------
Total liabilities and shareholders' equity $ 134,342,932 $ 129,287,216
=============== ================
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See accompanying notes to consolidated financial
3
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
Interest income
Loans, including fees $ 2,371,752 $ 2,076,814 $ 4,666,803 $ 4,084,790
Securities 147,836 146,869 297,262 277,014
Demand, time and overnight deposits 18,143 19,897 31,594 60,757
Dividends on Federal Home Loan Bank
Stock 23,360 16,307 43,760 32,894
------------- ------------- ------------- --------------
Total interest income 2,561,091 2,259,887 5,039,419 4,455,455
Interest expense
Deposits 1,205,951 1,066,617 2,395,548 2,078,478
Borrowed funds 399,120 260,924 746,075 511,713
------------- ------------- ------------- --------------
Total interest expense 1,605,071 1,327,541 3,141,623 2,590,191
------------- ------------- ------------- --------------
Net interest income 956,020 932,346 1,897,796 1,865,264
Provision for loan losses 17,768 10,698 36,515 27,999
------------- ------------- ------------- --------------
Net interest income after provision for loan losses 938,252 921,648 1,861,281 1,837,265
Noninterest income
Service fees and other charges 25,646 19,680 53,561 42,413
Noninterest expense
Compensation and benefits 377,544 393,704 754,317 758,129
Director fees 26,200 30,000 56,200 60,000
Occupancy and equipment 81,523 76,003 162,437 153,710
Computer processing expense 54,944 49,782 111,471 97,261
FDIC deposit insurance premiums 4,752 12,777 9,544 24,980
State franchise taxes 44,725 74,343 89,450 149,666
Professional fees 26,572 27,942 52,174 57,419
Other 73,717 79,207 143,535 156,876
------------- ------------- ------------- --------------
Total noninterest expense 689,977 743,758 1,379,128 1,458,041
------------- ------------- ------------- --------------
Income before income taxes 273,921 197,570 535,714 421,637
Income tax expense 104,100 81,893 203,900 174,709
------------- ------------- ------------- --------------
Net income $ 169,821 $ 115,677 $ 331,814 $ 246,928
============= ============= ============= ==============
Earnings per common share - basic $ 0.12 $ 0.08 $ 0.23 $ 0.17
============= ============ ============= ==============
Earnings per common share - diluted $ 0.12 $ 0.08 $ 0.23 $ 0.17
============= ============ ============= =============
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See accompanying notes to consolidated financial
4
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
Net income $ 169,821 $ 115,677 $ 331,814 $ 246,928
Other comprehensive income (loss)
Unrealized holding gains and (losses) on
available-for-sale securities 161,508 (101,752) 257,649 (144,283)
Tax effect (54,913) 34,596 (87,601) 49,056
------------- ------------- ------------- --------------
Other comprehensive income (loss) 106,595 (67,156) 170,048 (95,227)
------------- ------------- ------------- --------------
Comprehensive income $ 276,416 $ 48,521 $ 501,862 $ 151,701
============= ============= ============= ==============
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See accompanying notes to consolidated financial
5
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
Balance, beginning of period $ 17,099,045 $ 17,444,851 $ 16,959,798 $ 17,362,217
Net income for period 169,821 115,677 331,814 246,928
Cash dividends, $.08 and $.07 per share for the
three months ended December 31, 2000 and
1999, $.15 and $.14 per share for the six months
ended December 31, 2000 and 1999 (116,476) (107,455) (218,918) (214,910)
Purchase of 12,700 and 20,200 shares of
treasury stock for the three and six months
ended December 31, 2000, at cost (99,269) -- (157,394) --
Commitment to release 2,856 management
recognition plan shares for the three
months ended December 31, 2000 and 1999 and 5,712
management recognition plan shares for the
six months ended December 31, 2000 and 1999 47,658 47,658 95,316 95,316
Commitment to release 3,522 and 3,672
employee stock ownership plan shares for the
three months ended December 31, 2000 and 1999
and 7,044 and 7,624 employee stock
ownership plan shares for the six months
ended December 31, 2000 and 1999, at fair value 26,990 34,740 53,700 73,991
Change in fair value on securities available for
sale, net of tax 106,595 (67,156) 170,048 (95,227)
------------- ------------- ------------- --------------
Balance, end of period $ 17,234,364 $ 17,468,315 $ 17,234,364 $ 17,468,315
============= ============= ============= ==============
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See accompanying notes to consolidated financial
6
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months Ended
December 31,
------------
2000 1999
---- ----
Cash flows from operating activities
Net income $ 331,814 $ 246,928
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 79,023 76,976
Provision for loan losses 36,515 27,999
FHLB stock dividends (43,600) (32,800)
Compensation expense for ESOP shares 53,700 73,991
Compensation expense for MRP shares 95,316 95,316
Change in
Accrued interest receivable and other assets 30,008 (36,986)
Accrued expense and other liabilities (71,077) (78,221)
Deferred loan fees 6,551 16,713
-------------- ---------------
Net cash from operating activities 518,250 389,916
Cash flows from investing activities
Purchases of securities available for sale -- (2,000,000)
Maturities and calls securities available for sale -- 1,000,000
Principal repayments on mortgage-backed securities 188,137 111,573
Purchases of time deposits in other financial institutions -- (1,000,000)
Maturities of time deposits in other financial institutions -- 1,300,000
Net increase in loans (4,428,934) (6,515,963)
Premises and equipment expenditures (83,444) (51,246)
Purchases of FHLB stock (281,700) (10,800)
-------------- ---------------
Net cash from investing activities (4,605,941) (7,166,436)
Cash flows from financing activities
Net change in deposits (2,735,374) 5,001,087
Net change in short-term borrowings 2,500,000 (1,100,000)
Proceeds from long-term borrowings 5,000,000 5,000,000
Cash dividends paid (218,918) (214,910)
Purchase of treasury stock (157,394) --
-------------- ---------------
Net cash from financing activities 4,388,314 8,686,177
-------------- ---------------
Net change in cash and cash equivalents 300,623 1,909,657
Cash and cash equivalents at beginning of period 2,205,993 1,932,978
-------------- ---------------
Cash and cash equivalents at end of period $ 2,506,616 $ 3,842,635
============== ===============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 3,121,126 $ 2,590,731
Income taxes 210,000 273,000
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See accompanying notes to consolidated financial
7
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include accounts of
Peoples-Sidney Financial Corporation ("Peoples") and its wholly-owned
subsidiary, Peoples Federal Savings and Loan Association ("Association"), a
federal stock savings and loan association, together referred to as the
Corporation. All significant intercompany transactions and balances have been
eliminated.
These interim consolidated financial statements are prepared without audit and
reflect all adjustments which, in the opinion of management, are necessary to
present fairly the financial position of the Corporation at December 31, 2000
and its results of operations and cash flows for the periods presented. All such
adjustments are normal and recurring in nature. The accompanying consolidated
financial statements have been prepared in accordance with the instructions of
Form 10-QSB and, therefore, do not purport to contain all the necessary
financial disclosures required by generally accepted accounting principles that
might otherwise be necessary in the circumstances, and should be read in
conjunction with the consolidated financial statements and notes thereto of the
Corporation for the fiscal year ended June 30, 2000, included in the
Corporation's 2000 Annual Report on Form 10-KSB for the fiscal year ended June
30, 2000. Reference is made to the accounting policies of the Corporation
described in the notes to consolidated financial statements contained in such
report. The Corporation has consistently followed these policies in preparing
this Form 10-QSB.
The Corporation provides financial services through its main office in Sidney,
Ohio, and branch offices in Anna and Jackson Center, Ohio. Its primary deposit
products are checking, savings and term certificate accounts, and its primary
lending products are residential mortgage, commercial and installment loans.
Substantially all loans are secured by specific items of collateral including
business assets, consumer assets and real estate. Commercial loans are expected
to be repaid from cash flow from operations of businesses. Real estate loans are
secured by both residential and commercial real estate. Substantially all
revenues and services are derived from financial institution products and
services in Shelby County and contiguous counties. Management considers the
Corporation to operate in one segment, banking.
To prepare financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the
financial statements and disclosures provided, and future results could differ.
The allowance for loan losses, fair values of financial instruments and status
of contingencies are particularly subject to change.
Income tax expense is based on the effective tax rate expected to be applicable
for the entire year. Income tax expense is the total of the current year income
tax due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for the
temporary differences between the carrying amounts and tax basis of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Basic earnings per share ("EPS") are based on net income divided by the weighted
average number of shares outstanding during the period. Employee stock ownership
plan ("ESOP") shares are considered outstanding for this calculation unless
unearned. Management recognition plan ("MRP") shares are considered outstanding
as they become vested. Diluted EPS shows the dilutive effect of MRP shares and
the additional common shares issuable under stock options.
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(Continued)
8
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
A reconciliation of the numerators and denominators used in the computation of
the basic earnings per common share and diluted earnings per common share is
presented below:
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
---- ---- ---- ----
Basic Earnings Per Common Share
Numerator
Net income $ 169,821 $ 115,677 $ 331,814 $ 246,928
========== =========== =========== ===========
Denominator
Weighted average common shares
outstanding 1,567,300 1,664,622 1,572,563 1,664,622
Less: Average unallocated ESOP shares (109,581) (124,044) (111,342) (125,880)
Less: Average unearned MRP shares (29,038) (40,463) (30,466) (41,891)
---------- ----------- ----------- -----------
Weighted average common shares
outstanding for basic earnings per
common share 1,428,681 1,500,115 1,430,755 1,496,851
========== =========== =========== ===========
Basic earnings per common share $ 0.12 $ 0.08 $ 0.23 $ 0.17
========= =========== =========== ==========
Diluted Earnings Per Common Share
Numerator
Net income $ 169,821 $ 115,677 $ 331,814 $ 246,928
========== =========== =========== ===========
Denominator
Weighted average common shares
outstanding for basic earnings per
common share 1,428,681 1,500,115 1,430,755 1,496,851
Add: Dilutive effects of average unearned
MRP shares -- -- -- --
Add: Dilutive effects of assumed exercises
of stock options -- -- -- --
---------- ----------- ----------- -----------
Weighted average common shares and
dilutive potential common shares
outstanding 1,428,681 1,500,115 1,430,755 1,496,851
========== =========== =========== ===========
Diluted earnings per common share $ 0.12 $ 0.08 $ 0.23 $ 0.17
========= =========== =========== =========
Unearned MRP shares and stock options granted did not have a dilutive effect on
EPS for the three and six months ended December 31, 2000 and 1999 as the fair
value of the MRP shares on the date of grant and the exercise price of
outstanding options was greater than the average market price for the periods.
As of December 31, 2000 and 1999, there were 140,824 and 141,824 options
outstanding that were not dilutive.
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(Continued)
9
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting is that
the hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. SFAS 133 does not allow hedging of a
security that is classified as held to maturity. Accordingly, upon adoption of
SFAS 133, companies may reclassify any security from held to maturity to
available for sale if they wish to be able to hedge the security in the future.
SFAS 133, as deferred by SFAS 137 and amended by SFAS 138, was effective for
fiscal years beginning after June 15, 2000. The adoption of SFAS 133 did not
have a significant impact on the Corporation's financial statements.
NOTE 2 - SECURITIES AVAILABLE FOR SALE
Securities available for sale were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
December 31, 2000
- ------------------
U.S. Government agencies $ 3,997,147 $ 14,487 $ (11,954) $ 3,999,680
Mortgage-backed securities 4,459,300 60,002 -- 4,519,302
--------------- ---------- ----------- --------------
Total $ 8,456,447 $ 74,489 $ (11,954) $ 8,518,982
=============== ========== =========== ==============
June 30, 2000
- -------------
U.S. Government agencies $ 3,996,736 $ -- $ (100,336) $ 3,896,400
Mortgage-backed securities 4,645,059 -- (94,778) 4,550,281
--------------- ---------- ----------- --------------
Total $ 8,641,795 $ -- $ (195,114) $ 8,446,681
=============== ========== =========== ==============
Contractual maturities of securities available for sale at December 31, 2000
were as follows. Actual maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties. Securities not due at a single maturity,
primarily mortgage-backed securities, are shown separately.
Estimated
Amortized Fair
Cost Value
Due after one year through five years $ 2,999,134 $ 2,987,180
Due after five years through ten years 998,013 1,012,500
Mortgage-backed securities 4,459,300 4,519,302
------------- ------------
$ 8,456,447 $ 8,518,982
============= ============
No securities were sold during the three-month and six-month periods ended
December 31, 2000 and 1999. No securities were pledged as collateral at December
31, 2000 or June 30, 2000.
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(Continued)
10
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 3 - LOANS
Loans were as follows:
December 31, June 30,
2000 2000
---- ----
Mortgage loans:
1-4 family residential $ 96,240,668 $ 92,116,695
Multi-family residential 1,270,126 1,300,151
Commercial real estate 10,227,901 10,047,775
Real estate construction and
development 6,802,351 8,088,290
Land 1,001,740 991,864
----------- ----------
Total mortgage loans 115,542,786 112,544,775
Consumer loans 4,433,066 3,571,071
Commercial loans 2,758,634 2,406,064
------------- -------------
Total loans 122,734,486 118,521,910
Less:
Allowance for loan losses (623,500) (591,350)
Loans in process (2,823,555) (3,035,548)
Deferred loan fees (251,863) (245,312)
------------- -------------
$ 119,035,568 $ 114,649,700
============= =============
Activity in the allowance for loan losses is summarized as follows:
Three Months Ended, Six Months Ended
December 31 December 31,
----------- ------------
2000 1999 2000 1999
---- ---- ---- ----
Balance at beginning of period $ 605,600 $ 546,199 $ 591,350 $ 528,898
Provision for losses 17,768 10,698 36,515 27,999
Charge-offs -- -- (4,563) --
Recoveries 132 510 198 510
--------- ---------- --------- ---------
Balance at end of period $ 623,500 $ 557,407 $ 623,500 $ 557,407
========= ========== ========= =========
Nonperforming loans were as follows:
December 31, June 30,
2000 2000
---- ----
Loans past due over 90 days still on accrual $ 561,000 $ 289,000
Nonaccrual loans 824,000 756,000
Nonperforming loans include smaller balance homogeneous loans, such as
residential mortgage and consumer loans that are collectively evaluated for
impairment.
As of December 31, 2000 and June 30, 2000 and for the three months and six
months ended December 31, 2000 and 1999, no loans were required to be evaluated
for impairment on an individual loan basis within the scope of SFAS No. 114.
- --------------------------------------------------------------------------------
(Continued)
11
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 4 - BORROWED FUNDS
At December 31, 2000 and June 30, 2000, the Association had a cash management
line of credit enabling it to borrow up to $8,000,000 from the Federal Home Loan
Bank of Cincinnati ("FHLB"). All cash management advances have an original
maturity of 90 days. The line of credit must be renewed on an annual basis.
$2,500,000 in borrowings were outstanding on this line of credit at December 31,
2000. No cash management line of credit borrowings were outstanding at June 30,
2000.
Based on the FHLB stock owned by the Association at December 31, 2000, the
Association has the ability to obtain borrowings up to a maximum total of
$26,966,000, including the cash management line-of-credit. However, the
Association can obtain advances up to the lower of 50% of the Association's
total assets or 80% of the Association's pledgable residential mortgage loan
portfolio by purchasing more FHLB stock. Advances from the Federal Home Loan
Bank at December 31, 2000 and June 30, 2000 were as follows:
December 31, June 30,
2000 2000
---- ----
Variable-rate FHLB cash management advances,
6.75% at December 31, 2000 $ 2,500,000 $ --
7.15% FHLB fixed-rate advance, due May 2, 2001 2,500,000 2,500,000
7.41% FHLB fixed-rate advance, due May 15, 2001 2,000,000 2,000,000
7.40% FHLB fixed-rate advance, due May 2, 2002 2,500,000 2,500,000
6.13% FHLB fixed-rate advance, due June 25, 2008 7,000,000 7,000,000
6.00% FHLB fixed-rate advance, due June 11, 2009 5,000,000 5,000,000
6.27% FHLB fixed-rate advance, due September 8, 2010 5,000,000 --
--------------- ----------------
$ 26,500,000 $ 19,000,000
=============== ================
Advances under the borrowing agreements are collateralized by a blanket pledge
of the Association's residential mortgage loan portfolio and its FHLB stock.
NOTE 5 - OFF-BALANCE-SHEET ACTIVITIES
Some financial instruments, such as loan commitments, credit lines, letters of
credit and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make
such commitments as are used for loans, including obtaining collateral at
exercise of the commitment.
- --------------------------------------------------------------------------------
(Continued)
12
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 5 - OFF-BALANCE-SHEET ACTIVITIES (Continued)
The contractual amount of financial instruments with off-balance-sheet risk was
as follows:
December 31, June 30,
2000 2000
---- ----
Fixed Variable Fixed Variable
Rate Rate Rate Rate
---- ---- ---- ----
Nonresidential $ -- $ 170,000 $ -- $ --
Residential real estate 124,000 170,000 15,000 879,000
Interest rates 8.75 - 9.25% 8.00 - 9.00% 9.00% 8.25 - 9.50%
Commitments to make loans are generally made for a period of 30 days or less.
Maturities for fixed-rate loan commitments range from 10 years to 20 years.
The Corporation also had unused commercial and home equity lines of credit
approximating $2,527,000 and $2,200,000 at December 31, 2000 and June 30, 2000.
At December 31, 2000 and June 30, 2000, the Association was required to have
$346,000 and $419,000 on deposit with its correspondent banks as a compensating
clearing requirement.
The Association entered into employment agreements with certain officers of the
Corporation. The agreements provide for a term of one to three years and a
salary and performance review by the Board of Directors not less often than
annually, as well as inclusion of the employee in any formally established
employee benefit, bonus, pension and profit-sharing plans for which management
personnel are eligible. The agreements provide for extensions for a period of
one year on each annual anniversary date, subject to review and approval of the
extension by disinterested members of the Board of Directors of the Association.
The employment agreements also provide for vacation and sick leave.
NOTE 6 - STOCK OPTION AND INCENTIVE PLAN
The Stock Option and Incentive Plan was approved by the shareholders of the
Corporation on May 22, 1998. The Board of Directors has granted options to
purchase shares of common stock at an exercise price ranging from $16.01 to
$18.75 to certain employees, officers and directors of the Corporation. The
exercise price for options granted prior to June 10, 1998, were reduced by $3.99
to adjust for the return of capital distribution. One-fifth of the options
awarded become exercisable on each of the first five anniversaries of the date
of grant. The option period expires 10 years from the date of grant. 140,824
options were outstanding at December 31, 2000 and June 30, 2000. 56,330 options
were exercisable at December 31, 2000 and June 30, 2000. In addition, 37,714
options to purchase common stock were reserved for future grants at December 31,
2000 and June 30, 2000.
- --------------------------------------------------------------------------------
(Continued)
13
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis
-------------------------------------
Introduction
In the following pages, management presents an analysis of the consolidated
financial condition of Peoples-Sidney Financial Corporation (the "Corporation")
as of December 31, 2000, compared to June 30, 2000, and results of operations
for the three and six months ended December 31, 2000, compared with the same
periods in 1999. This discussion is designed to provide a more comprehensive
review of operating results and financial position than could be obtained from
an examination of the financial statements alone. This analysis should be read
in conjunction with the interim financial statements and related footnotes
included herein.
When used in this discussion or future filings by the Corporation with the
Securities and Exchange Commission, or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," "believe" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Corporation
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, changes in levels of market interest rates, credit risks of lending
activities and competitive and regulatory factors, could affect the
Corporation's financial performance and could cause the Corporation's actual
results for future periods to differ materially from those anticipated or
projected.
The Corporation is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on its liquidity,
capital resources or operations except as discussed herein. The Corporation is
not aware of any current recommendations by regulatory authorities that would
have such effect if implemented.
The Corporation does not undertake, and specifically disclaims, any obligation
to publicly release the result of any revisions that may be made to any
forward-looking statements to reflect occurrence of anticipated or unanticipated
events or circumstances after the date of such statements.
Financial Condition
Total assets at December 31, 2000 were $134.3 million compared to $129.3 million
at June 30, 2000, an increase of $5.0 million, or 3.9%. The increase in total
assets was due to an increase in loans funded by proceeds from increased
borrowings.
Loans increased $4.4 million from $114.6 million at June 30, 2000 to $119.0
million at December 31, 2000. The increase was primarily in one- to four-family
residential loans, which increased $4.1 million. Real estate construction and
development loans decreased $1.3 million due to conversion into permanent
one-to-four family loans. Changes in other types of mortgage loans were not
significant. The overall increase in total mortgage loans is reflective of a
strong local economy coupled with attractive loan rates and products compared to
local competition. Expansion into new market areas through the Association's two
new branch-banking facilities also contributed to the growth.
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(Continued)
14
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The Corporation's consumer loan portfolio increased $862,000 between June 30,
2000 and December 31, 2000. The increase was spread evenly among loans on
deposit accounts, single payment personal notes and automobile loans. Commercial
loans increased $353,000 as the Corporation has gradually increased the emphasis
on this type of lending. Non-mortgage loans represented only 5.9% and 5.0% of
gross loans at December 31, 2000 and June 30, 2000.
Total deposits decreased $2.7 million from $93.0 million at June 30, 2000 to
$90.3 million at December 31, 2000. The decrease was primarily due to a large
jumbo certificate of deposit for $901,000, which matured and was withdrawn as
well as a decline in 15-month certificates of deposit. The Corporation had run a
special interest rate 15-month certificate of deposit from July 1999 through
October 1999 that resulted in approximately $17.2 million of 15-month
certificates of deposit with scheduled maturities ranging from October 2000
through January 2001. Although a large percentage of the maturing 15-month
certificates of deposit renewed in a current certificate of deposit offering,
some were withdrawn. Management expects the majority of the 15-month
certificates of deposit maturing in January 2001 to renew with the Corporation.
NOW accounts increased $581,000 and savings accounts declined $914,000 since
June 30, 2000. Money market accounts and noninterest-bearing demand deposits had
little change since June 30, 2000.
Borrowed funds were $26.5 million at December 31, 2000 compared to $19.0 million
at June 30, 2000. Borrowings at December 31, 2000 consisted of 24.0 million
long-term fixed-rate advances and 2.5 million short-term variable rate cash
managed line of credit. The additional borrowings were taken to fund ongoing
loan demand and replace withdrawn certificates of deposit. Based on the FHLB
stock owned by the Association at December 31, 2000, the Association had the
ability to obtain borrowings up to a maximum total of $26,966,000. However, the
Association can obtain advances up to the lower of 50% of the Association's
total assets or 80% of the Association's pledgable residential mortgage loan
portfolio by purchasing more FHLB stock. Based upon the 50% of total assets
limitation, management estimates the maximum borrowing capacity from the FHLB to
be approximately $64,694,000 at December 31, 2000.
Results of Operations
The operating results of the Corporation are affected by general economic
conditions, monetary and fiscal policies of federal agencies and regulatory
policies of agencies that regulate financial institutions. The Corporation's
cost of funds is influenced by interest rates on competing investments and
general market rates of interest. Lending activities are influenced by demand
for real estate loans and other types of loans, which in turn is affected by
interest rates at which such loans are made, general economic conditions and
availability of funds for lending activities.
The Corporation's net income primarily depends on its net interest income, which
is the difference b.3etween interest income earned on interest-earning assets,
such as loans and securities and interest expense incurred on interest-bearing
liabilities, such as deposits and borrowings. The level of net interest income
is dependent on the interest rate environment and volume and composition of
interest-earning assets and interest-bearing liabilities. Net income is also
affected by provisions for loan losses, service charges, gains on the sale of
assets and other income, noninterest expense and income taxes.
Three Months Ended December 31, 2000 Compared to the Three Months Ended December
31, 1999
Net Income. The Corporation earned net income of $170,000 for the three months
ended December 31, 2000 compared to $116,000 for the three months ended December
31, 1999. The increase in net income was primarily due to an increase in net
interest income and a decrease in noninterest expense.
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(Continued)
15
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Net Interest Income. Net interest income totaled $956,000 for the three months
ended December 31, 2000 compared to $932,000 for the three months ended December
31, 1999. The increase was the result of higher income on loans and FHLB Stock
dividends partially offset by an increase in interest expense on deposits and
borrowings.
Interest and fees on loans increased $295,000, or 14.2% from $2,077,000 for the
three months ended December 31, 1999 to $2,372,000 for the three months ended
December 31, 2000. The increase in interest income was due to a higher average
balance of loans coupled with an increase in the yield earned on loans.
Dividends on Federal Home Loan Bank Stock increased $7,000 for the three months
ended December 31, 2000 as compared to the same period in the prior year. The
increase was the result of having a higher balance of stock owed by the
Association than a year ago.
Interest paid on deposits increased $139,000 for the three months ended December
31, 2000 compared to the three months ended December 31, 1999. The increase
resulted from an increase in the average rate paid on deposits combined with an
increase in the average balance of deposits.
Interest paid on borrowed funds totaled $399,000 for the three months ended
December 31, 2000 compared to $261,000 for the three ended December 31, 1999.
The increase in interest expense on borrowed funds resulted from a higher
average balance of borrowed funds combined with an increase in the rate paid for
borrowings.
Provision for Loan Losses. The Corporation maintains an allowance for loan
losses in an amount that, in management's judgment, is adequate to absorb
probable losses in the loan portfolio. While management utilizes its best
judgment and information available, the ultimate adequacy of the allowance is
dependent upon a variety of factors, including the performance of the
Corporation's loan portfolio, the economy, changes in real estate values and
interest rates and the view of the regulatory authorities toward loan
classifications. The provision for loan losses is determined by management as
the amount to be added to the allowance for loan losses after net charge-offs
have been deducted to bring the allowance to a level that is considered adequate
to absorb probable losses in the loan portfolio. The amount of the provision is
based on management's monthly review of the loan portfolio and consideration of
such factors as historical loss experience, general prevailing economic
conditions, changes in the size and composition of the loan portfolio and
specific borrower considerations, including the ability of the borrower to repay
the loan and the estimated value of the underlying collateral.
The provision for loan losses for the three months ended December 31, 2000
totaled $17,768 compared to $10,698 for the three months ended December 31,
1999. The allowance for loan losses totaled $623,500 or .51% of gross loans
receivable and 45.0% of total nonperforming loans at December 31, 2000, compared
with $591,000, or 0.50% of gross loans receivable and 56.6% of total
nonperforming loans at June 30, 2000. Charge-offs experienced by the Corporation
have primarily related to consumer and other non-real estate loans. The
Corporation's low historical charge-off history is the product of a variety of
factors, including the Corporation's underwriting guidelines, which generally
require a loan-to-value or projected completed value ratio of 90% for purchase
or construction of one- to four-family residential properties and 75% for
commercial real estate and land loans, established income information and
defined ratios of debt to income.
Noninterest income. Noninterest income includes service fees and other
miscellaneous income and totaled $26,000 for the three months ended December 31,
2000 and $20,000 for the three months ended December 31, 1999. The increase was
primarily due to an increase in service charges on deposit accounts.
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(Continued)
16
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Noninterest expense. Noninterest expense totaled $690,000 for the three months
ended December 31, 2000 compared to $744,000 for the three months ended December
31, 1999, a decrease of $54,000, or 7.2%. The decrease was the result of a
decrease in compensation and benefits and franchise taxes paid by the
Association. Compensation and benefits decreased due to the impact that the
Corporation's lower average stock price had on the Corporation's stock-based
benefit plans. The Association pays franchise taxes on a calendar-year basis
based on its net worth at June 30 of the preceding year. The lower capital
levels at the Association at June 30, 1999, after the large dividend paid to
Peoples prior to June 30, 1999, resulted in lower franchise taxes beginning
January 1, 2000.
Income Tax Expense. The volatility of income tax expense is primarily
attributable to the change in income before income taxes and the impact the
Corporation's stock price has on the stock-based employee benefit plans. Income
tax expense totaled $104,000 for the three months ended December 31, 2000
compared to $82,000 for the three months ended December 31, 1999, representing
an increase of $22,000. The effective tax rate was 38.0% and 41.5% for the three
months ended December 31, 2000 and 1999.
Six Months Ended December 31, 2000 Compared to the Six Months Ended December 31,
1999
Net Income. The Corporation earned net income of $332,000 for the six months
ended December 31, 2000 compared to $247,000 for the six months ended December
31, 1999. The increase in net income was primarily due to an increase in net
interest income and a decrease in noninterest expense.
Net Interest Income. Net interest income totaled $1,898,000 for the six months
ended December 31, 2000 compared to $1,865,000 for the six months ended December
31, 1999. The increase was the result of higher income on loans and securities
partially offset by an increase in interest expense on deposits and borrowings.
Interest and fees on loans increased $582,000, or 14.2% from $4,085,000 for the
six months ended December 31, 1999 to $4,667,000 for the six months ended
December 31, 2000. The increase in interest income was due to a higher average
balance of loans coupled with an increase in the yield earned on loans.
Interest earned on securities increased $20,000 for the six months ended
December 31, 2000 as compared to the same period in the prior year. The increase
was the result of having a higher yield than a year ago.
Interest paid on deposits increased $317,000 for the six months ended December
31, 2000 compared to the six months ended December 31, 1999. The increase
resulted from an increase in the average rate paid on deposits combined with an
increase in the average balance of deposits.
Interest paid on borrowed funds totaled $746,000 for the six months ended
December 31, 2000 compared to $512,000 for the six ended December 31, 1999. The
increase in interest expense on borrowed funds resulted from a higher average
balance of borrowed funds combined with an increase in the rate paid for
borrowings.
Provision for Loan Losses. The provision for loan losses for the six months
ended December 31, 2000 totaled $36,515 compared to $27,999 for the six months
ended December 31, 1999.
Noninterest income. Noninterest income includes service fees and other
miscellaneous income and totaled $54,000 for the six months ended December 31,
2000 and $42,000 for the six months ended December 31, 1999. The increase was
primarily due to an increase in service charges on deposit accounts.
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(Continued)
17
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Noninterest expense. Noninterest expense totaled $1,379,000 for the six months
ended December 31, 2000 compared to $1,458,000 for the six months ended December
31, 1999, a decrease of $79,000, or 5.4%. The decrease was the result of a
decrease in franchise taxes paid by the Association.
Income Tax Expense. The volatility of income tax expense is primarily
attributable to the change in income before income taxes and the impact the
Corporation's stock price has on the stock-based employee benefit plans. Income
tax expense totaled $204,000 for the six months ended December 31, 2000 compared
to $175,000 for the six months ended December 31, 1999, representing an increase
of $29,000. The effective tax rate was 38.1% and 41.4% for the six months ended
December 31, 2000 and 1999.
Liquidity and Capital Resources
The Corporation's liquidity, primarily represented by cash and cash equivalents,
is a result of operating, investing and financing activities. These activities
are summarized below for the six months ended December 31, 2000 and 1999.
Six Months
Ended December 31,
2000 1999
---- ----
(Dollars in thousands)
Net income $ 332 $ 247
Adjustments to reconcile net income to net cash from
operating activities 186 143
--------- ---------
Net cash from operating activities 518 390
Net cash from investing activities (4,606) (7,166)
Net cash from financing activities 4,389 8,686
--------- ---------
Net change in cash and cash equivalents 301 1,910
Cash and cash equivalents at beginning of period 2,206 1,933
--------- ---------
Cash and cash equivalents at end of period $ 2,507 $ 3,843
========= =========
The Corporation's principal sources of funds are deposits, loan repayments,
maturities of securities and other funds provided by operations. The Association
also has the ability to borrow from the FHLB. While scheduled loan repayments
and maturing investments are relatively predictable, deposit flows and early
loan prepayments are more influenced by interest rates, general economic
conditions and competition. The Association maintains investments in liquid
assets based on management's assessment of the (1) need for funds, (2) expected
deposit flows, (3) yields available on short-term liquid assets and (4)
objectives of the asset/liability management program.
OTS regulations presently require the Association to maintain an average daily
balance of investments in United States Treasury, federal agency obligations and
other investments in an amount equal to 4% of the sum of the Association's
average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less. The liquidity requirement, which may be changed
from time to time by the OTS to reflect changing economic conditions, is
intended to provide a source of relatively liquid funds on which the Association
may rely, if necessary, to fund deposit withdrawals or other short-term funding
needs. At December 31, 2000, the Association's regulatory liquidity was 10.9%.
At such date, the Corporation had commitments to originate fixed-rate commercial
and residential real estate loans totaling $124,000 and variable-rate commercial
and residential real estate mortgage loans totaling $340,000. Loan commitments
are generally for 30 days. The Corporation considers its liquidity and capital
reserves sufficient to meet its outstanding short and long-term needs. See Note
5 of the Notes to Consolidated Financial Statements.
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(Continued)
18
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The Association is subject to various regulatory capital requirements
administered by the federal regulatory agencies. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Association must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Association's
capital amounts and classifications are also subject to qualitative judgments by
the regulators about the Association's components, risk weightings and other
factors. Failure to meet minimum capital requirements can initiate certain
mandatory actions that, if undertaken, could have a direct material effect on
the Corporation's financial statements. At December 31, 2000 and June 30, 2000,
management believes the Association complies with all regulatory capital
requirements. Based on the Association's computed regulatory capital ratios, the
Association is considered well capitalized under the Federal Deposit Insurance
Act at December 31, 2000 and June 30, 2000. No conditions or events have
occurred subsequent to the last notification by regulators that management
believes would have changed the Association's category.
At December 31, 2000 and June 30, 2000, the Association's actual capital levels
and minimum required levels were:
Minimum Minimum
Required To Be Required To Be
Adequately Capitalized Well Capitalized
Under Prompt Corrective Under Prompt Corrective
Actual Action Regulations Action Regulations
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
December 31, 2000
Total capital (to risk-
weighted assets) $ 15,311 17.3% $ 7,085 8.0% $ 8,857 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 14,689 16.6 3,543 4.0 5,314 6.0
Tier 1 (core) capital (to
adjusted total assets) 14,689 10.9 5,373 4.0 6,716 5.0
Tangible capital (to
adjusted total assets) 14,689 10.9 2,015 1.5 N/A
June 30, 2000
Total capital (to risk-
weighted assets) $ 14,773 17.2% $ 6,858 8.0% $ 8,572 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 14,183 16.5 3,429 4.0 5,143 6.0
Tier 1 (core) capital (to
adjusted total assets) 14,183 10.9 5,183 4.0 6,479 5.0
Tangible capital (to
adjusted total assets) 14,183 10.9 1,944 1.5 N/A
- --------------------------------------------------------------------------------
19
PEOPLES-SIDNEY FINANCIAL CORPORATION
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On October 13, 2000 the Annual Meeting of Shareholders of the
Corporation was held. The following members of the Board of Directors
of the Corporation were re-elected by the votes set forth below for
the terms expiring in 2003:
Harry N. Faulkner FOR: 1,245,264 WITHHELD: 45,662
John W. Sargeant FOR: 1,240,332 WITHHELD: 50,594
One other matter submitted to the Shareholders, for which the
following votes were cast:
Ratification of the selection of Crowe, Chizek and Company LLP as the
auditors of the Corporation for the fiscal year ending June 30, 2001
FOR: 1,273,970 AGAINST: 13,100 ABSTAIN: 3,856
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Form 8-K was filed on October 19, 2000 under Item 5, Other
Events', the Corporation reported the issuance of a press release
to announce the quarterly earnings and declare a dividend.
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20
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirement of the Securities Exchange Act of 1934, the small
business issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 10, 2001 /s/ Douglas Stewart
--------------------------- ------------------------------
Douglas Stewart
President
Date: February 10, 2001 /s/ Debra Geuy
--------------------------- ------------------------------
Debra Geuy
Chief Financial Officer