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 March 31, 2001
[ ] 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 May 9, 2001, the latest practicable date, 1,516,908 shares of the issuer's
common shares, $.01 par value, were issued and outstanding.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [ x ]
1.
PEOPLES-SIDNEY FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
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........................ 15
Part II - Other Information
Item 1. Legal Proceedings........................................... 21
Item 2. Changes in Securities and Use of Proceeds................... 21
Item 3. Defaults Upon Senior Securities............................. 21
Item 4. Submission of Matters to a Vote of Security Holders......... 21
Item 5. Other Information........................................... 21
Item 6. Exhibits and Reports on Form 8-K............................ 21
SIGNATURES ............................................................... 22
2.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- ----------------------------------------------------------------------------------------------
Item 1. Financial Statements
March 31, June 30,
2001 2000
------------- -------------
ASSETS
Cash and due from financial institutions $ 843,771 $ 820,629
Interest-bearing deposits in other financial institutions 1,923,528 885,364
Overnight deposits 3,300,000 500,000
------------- -------------
Total cash and cash equivalents 6,067,299 2,205,993
Securities available for sale 3,524,755 8,446,681
Federal Home Loan Bank stock 1,372,400 1,023,000
Loans, net 118,494,830 114,649,700
Accrued interest receivable 943,655 893,569
Premises and equipment, net 1,873,175 1,890,886
Real estate owned 137,814 --
Other assets 207,124 177,387
------------- -------------
Total assets $ 132,621,052 $ 129,287,216
============= =============
LIABILITIES
Deposits $ 91,209,119 $ 93,056,941
Borrowed funds 24,000,000 19,000,000
Accrued interest payable and other liabilities 287,076 270,477
------------- -------------
Total liabilities 115,496,195 112,327,418
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 10,714,016 10,754,463
Retained earnings 11,085,535 10,856,394
Treasury stock, 260,400 shares at March 31, 2001 and
207,060 shares at June 30, 2000, at cost (3,073,676) (2,636,295)
Unearned employee stock ownership plan shares (1,223,826) (1,347,800)
Unearned management recognition plan shares (413,069) (556,043)
Accumulated other comprehensive income (loss) 18,023 (128,775)
------------- -------------
Total shareholders' equity 17,124,857 16,959,798
------------- -------------
Total liabilities and shareholders' equity $ 132,621,052 $ 129,287,216
============= =============
See accompanying notes to consolidated financial statements.
3.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Interest income
Loans, including fees $ 2,411,347 $ 2,133,063 $ 7,078,150 $ 6,217,853
Securities 108,847 149,033 406,109 426,047
Demand, time and overnight deposits 22,670 11,538 54,264 72,295
Dividends on Federal Home Loan
Bank Stock 24,103 16,557 67,863 49,451
----------- ----------- ----------- -----------
Total interest income 2,566,967 2,310,191 7,606,386 6,765,646
Interest expense
Deposits 1,178,081 1,085,584 3,573,629 3,164,062
Borrowed funds 398,636 262,097 1,144,711 773,810
----------- ----------- ----------- -----------
Total interest expense 1,576,717 1,347,681 4,718,340 3,937,872
----------- ----------- ----------- -----------
Net interest income 990,250 962,510 2,888,046 2,827,774
Provision for loan losses 19,443 16,042 55,958 44,041
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 970,807 946,468 2,832,088 2,783,733
Noninterest income
Service fees and other charges 24,982 20,711 78,543 63,124
Net realized gain (loss) on sale of
available for sale securities 98,912 (15,781) 98,912 (15,781)
----------- ----------- ----------- -----------
Total noninterest income 123,894 4,930 177,455 47,343
Noninterest expense
Compensation and benefits 394,134 376,664 1,148,451 1,134,793
Director fees 24,300 30,000 80,500 90,000
Occupancy and equipment 86,399 80,600 248,836 234,310
Computer processing expense 58,613 54,927 170,084 152,188
State franchise taxes 47,570 44,726 137,020 194,392
Professional fees 27,539 19,281 79,713 76,700
Other 83,535 80,195 236,614 262,051
----------- ----------- ----------- -----------
Total noninterest expense 722,090 686,393 2,101,218 2,144,434
----------- ----------- ----------- -----------
Income before income taxes 372,611 265,005 908,325 686,642
Income tax expense 142,050 108,844 345,950 283,553
----------- ----------- ----------- -----------
Net income $ 230,561 $ 156,161 $ 562,375 $ 403,089
=========== =========== =========== ===========
Earnings per common share - basic $ 0.16 $ 0.10 $ 0.40 $ 0.27
=========== =========== =========== ===========
Earnings per common share - diluted $ 0.16 $ 0.10 $ 0.40 $ 0.27
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
4.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net income $ 230,561 $ 156,161 $ 562,375 $ 403,089
Other comprehensive income (loss)
Unrealized holding gains and (losses) on
available-for-sale securities 63,685 (26,347) 321,334 (170,630)
Reclassification adjustments for (gains)
and losses later realized as income (98,912) 15,781 (98,912) 15,781
--------- --------- --------- ---------
Net unrealized gains and (losses) (35,227) (10,566) 222,422 (154,849)
Tax effect 11,977 3,592 (75,624) 52,648
--------- --------- --------- ---------
Other comprehensive income (loss) (23,250) (6,974) 146,798 (102,201)
--------- --------- --------- ---------
Comprehensive income $ 207,311 $ 149,187 $ 709,173 $ 300,888
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
5.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Balance, beginning of period $ 17,234,364 $ 17,468,315 $ 16,959,798 $ 17,362,217
Net income for period 230,561 156,161 562,375 403,089
Cash dividends, $.08 and $.07 per share for the
three months ended March 31, 2001 and
2000, and $.23 and $.21 per share for the nine
months ended March 31, 2001 and 2000 (114,316) (105,705) (333,234) (320,615)
Purchase of 33,140 and 65,700 shares of treasury
stock for the three months ended March 31, 2001
and 2000, and 53,340 and 65,700 shares of
treasury stock for the nine months ended,
March 31, 2001 and 2000, at cost (279,987) (651,062) (437,381) (651,062)
Commitment to release 2,856 management
recognition plan shares for the three months
ended March 31, 2001 and 2000 and 8,568
management recognition plan shares for the
nine months ended March 31, 2001 and 2000 47,658 47,658 142,974 142,974
Commitment to release 3,522 and 3,672
employee stock ownership plan shares for
the three months ended March 31, 2001 and 2000,
and 10,566 and 11,015 employee stock
ownership plan shares for the nine months
ended March 31, 2001 and 2000, at fair value 29,827 35,950 83,527 109,941
Change in fair value on securities available for
sale, net of tax (23,250) (6,974) 146,798 (102,201)
------------ ------------ ------------ ------------
Balance, end of period $ 17,124,857 $ 16,944,343 $ 17,124,857 $ 16,944,343
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
6.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
March 31,
2001 2000
------------ ------------
Cash flows from operating activities
Net income $ 562,375 $ 403,089
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 121,314 116,910
Provision for loan losses 55,958 44,041
FHLB stock dividends (67,700) (49,300)
Net realized (gain) loss on sale of securities (98,912) 15,781
Compensation expense for ESOP shares 83,527 109,941
Compensation expense for MRP shares 142,974 142,974
Change in
Accrued interest receivable and other assets (84,828) (259,266)
Accrued expense and other liabilities (59,025) (120,068)
Deferred loan fees 3,402 21,718
------------ ------------
Net cash from operating activities 659,085 425,820
Cash flows from investing activities
Purchases of securities available for sale (1,500,000) (2,997,813)
Maturities and calls of securities available for sale 2,000,000 1,000,000
Proceeds from sale of securities available for sale 4,408,534 984,219
Principal repayments on mortgage-backed securities 339,731 181,770
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 (4,042,304) (10,078,286)
Premises and equipment expenditures (103,603) (51,763)
Purchases of FHLB stock (281,700) (10,800)
------------ ------------
Net cash from investing activities 820,658 (10,672,673)
Cash flows from financing activities
Net change in deposits (1,847,822) 7,705,725
Net change in short-term borrowings -- (1,800,000)
Proceeds from long-term borrowings 5,000,000 5,000,000
Cash dividends paid (333,234) (320,615)
Purchase of treasury stock (437,381) (651,062)
------------ ------------
Net cash from financing activities 2,381,563 9,934,048
------------ ------------
Net change in cash and cash equivalents 3,861,306 (312,805)
Cash and cash equivalents at beginning of period 2,205,993 1,932,978
------------ ------------
Cash and cash equivalents at end of period $ 6,067,299 $ 1,620,173
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 4,688,363 $ 3,945,813
Income taxes 310,000 428,000
Noncash transactions
Transfer from loans to other real estate owned $ 137,814 $ --
See accompanying notes to consolidated financial statements.
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 March 31, 2001 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.
(Continued)
8.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
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 Nine Months Ended
------------------ -----------------
March 31, March 31,
--------- ---------
2001 2000 2001 2000
---------- ----------- ----------- -----------
Basic Earnings Per Common Share
Numerator
Net income $ 230,561 $ 156,161 $ 562,375 $ 403,089
========== =========== =========== ===========
Denominator
Weighted average common shares
outstanding 1,539,839 1,628,203 1,561,814 1,652,244
Less: Average unallocated ESOP shares (106,059) (120,372) (109,581) (124,044)
Less: Average unearned MRP shares (26,182) (37,607) (29,038) (40,463)
---------- ----------- ----------- -----------
Weighted average common shares
outstanding for basic earnings per
common share 1,407,598 1,470,224 1,423,195 1,487,737
========== =========== =========== ===========
Basic earnings per common share $ 0.16 $ 0.10 $ 0.40 $ 0.27
========= =========== =========== ===========
Diluted Earnings Per Common Share
Numerator
Net income $ 230,561 $ 156,161 $ 562,375 $ 403,089
========== =========== =========== ===========
Denominator
Weighted average common shares
outstanding for basic earnings per
common share 1,407,598 1,470,224 1,423,195 1,487,737
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 1,407,598 1,470,224 1,423,195 1,487,737
========== =========== =========== ===========
Diluted earnings per common share $ 0.16 $ 0.10 $ 0.40 $ 0.27
========= =========== =========== ===========
Unearned MRP shares and stock options granted did not have a dilutive effect on
EPS for the three and nine months ended March 31, 2001 and 2000 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 March 31, 2001 and 2000, there were 140,824 options outstanding that were
not dilutive.
(Continued)
9.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Statement of Financial 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 No. 133 does not allow hedging of a security which is
classified as held to maturity. Upon adoption of SFAS No. 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 No. 133, as delayed by SFAS
No. 137 and amended by SFAS No. 138, is effective for fiscal years beginning
after June 15, 2000, with early adoption encouraged for any fiscal quarter
beginning July 1, 1998 or later, with no retroactive application. The adoption
of SFAS No. 133 on July 1, 2000 did not have a significant impact on the
Corporation's financial statements.
In September 2000, the Financial Accounting Standards Board issued SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." SFAS No. 140 replaces SFAS No. 125 and resolves various
implementation issues while carrying forward most of the provisions of SFAS No.
125 without change. SFAS No. 140 revises standards for transfers of financial
assets by clarifying criteria and expanding guidance for determining whether the
transferor has relinquished control and the transfer is therefore accounted for
as a sale. SFAS No. 140 also adopts new accounting requirements for pledged
collateral and requires new disclosures about securitizations and pledged
collateral. SFAS No. 140 is effective for transfers occurring after March 31,
2001 and for disclosures relating to securitization transactions and collateral
for fiscal years ending after December 15, 2000. The adoption of this standard
has not had a material effect on the Corporations'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
--------------- ---------- ----------- --------------
March 31, 2001
U.S. Government agencies $ 3,497,447 $ 28,323 $ (1,015) $ 3,524,755
=============== ========== =========== ==============
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
=============== ========== =========== ==============
(Continued)
10.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES AVAILABLE FOR SALE (Continued)
Contractual maturities of securities available for sale at March 31, 2001 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 $ 999,379 $ 1,000,620
Due after five years through ten years 2,498,068 2,524,135
-------------- ---------------
$ 3,497,447 $ 3,524,755
============== ===============
Proceeds from sales of securities available for sale, gross realized gains and
gross realized losses were as follows.
Three Months Ended, Nine Months Ended
March 31, March 31,
--------- ---------
2001 2000 2001 2000
------------- ------------- ------------- --------------
Proceeds from sales $ 4,408,534 $ 984,219 $ 4,408,534 $ 984,219
Gross realized gains 98,912 -- 98,912 --
Gross realized losses -- 15,781 -- 15,781
No securities were pledged as collateral at March 31, 2001 or June 30, 2000.
(Continued)
11.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - LOANS
Loans were as follows.
March 31, June 30,
2001 2000
------------- -------------
Mortgage loans:
1-4 family residential $ 94,917,212 $ 92,116,695
Multi-family residential 1,254,773 1,300,151
Commercial real estate 10,386,672 10,047,775
Real estate construction and
development 6,781,337 8,088,290
Land 935,137 991,864
------------- -------------
Total mortgage loans 114,275,131 112,544,775
Consumer loans 4,345,711 3,571,071
Commercial loans 3,233,484 2,406,064
------------- -------------
Total loans 121,854,326 118,521,910
Less:
Allowance for loan losses (643,000) (591,350)
Loans in process (2,467,782) (3,035,548)
Deferred loan fees (248,714) (245,312)
------------- -------------
$ 118,494,830 $ 114,649,700
============= =============
Activity in the allowance for loan losses is summarized as follows.
Three Months Ended, Nine Months Ended
March 31, March 31,
--------- ---------
2001 2000 2001 2000
------------- ------------- ------------- --------------
Balance at beginning of period $ 623,500 $ 557,407 $ 591,350 $ 528,898
Provision for losses 19,443 16,042 55,958 44,041
Charge-offs -- -- (4,563) --
Recoveries 57 70 255 580
------------- ------------- ------------- --------------
Balance at end of period $ 643,000 $ 573,519 $ 643,000 $ 573,519
============= ============= ============= ==============
Nonperforming loans were as follows.
March 31, June 30,
2001 2000
--------------- ----------------
Loans past due over 90 days still on accrual $ 351,000 $ 289,000
Nonaccrual loans 530,000 756,000
Nonperforming loans include smaller balance homogeneous loans, such as
residential mortgage and consumer loans that are collectively evaluated for
impairment.
As of and for the three months and nine months ended March 31, 2001 and 2000, no
loans were required to be evaluated for impairment on an individual loan basis
within the scope of SFAS No. 114.
(Continued)
12.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - BORROWED FUNDS
At March 31, 2001 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. No borrowings
were outstanding on this line of credit at March 31, 2001 or June 30, 2000.
Based on the FHLB stock owned by the Association at March 31, 2001, the
Association has the ability to obtain borrowings up to a maximum total of
$27,448,000, 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 March 31, 2001 and June 30, 2000 were as follows.
March 31, June 30,
2001 2000
--------------- ----------------
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 --
--------------- ----------------
$ 24,000,000 $ 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)
13.
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.
March 31, June 30,
2001 2000
---- ----
Fixed Variable Fixed Variable
Rate Rate Rate Rate
------------ ------------- ------------ ------------
Residential real estate $ 283,000 $ 477,000 $ 15,000 $ 879,000
Interest rates 7.00 - 7.50% 6.50 - 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 5 years to 20 years.
The Corporation also had unused commercial and home equity lines of credit
approximating $2,334,000 and $2,200,000 at March 31, 2001 and June 30, 2000.
At March 31, 2001 and June 30, 2000, the Association was required to have
$450,000 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 March 31, 2001 and June 30, 2000. 56,330 options
were exercisable at March 31, 2001 and June 30, 2000. In addition, 37,714
options to purchase common stock were reserved for future grants at March 31,
2001 and June 30, 2000.
14.
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 March 31, 2001, compared to June 30, 2000, and results of operations for
the three and nine months ended March 31, 2001, compared with the same periods
in 2000. 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 March 31, 2001 were $132.6 million compared to $129.3 million at
June 30, 2000, an increase of $3.3 million, or 2.6%. The increase in total
assets was due to an increase in loans funded by proceeds from increased
borrowings.
Loans increased $3.8 million from $114.6 million at June 30, 2000 to $118.5
million at March 31, 2001. The increase in mortgage loans was primarily in one-
to four-family residential loans, which increased $2.8 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 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.
(Continued)
15.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The Corporation's consumer loan portfolio increased $775,000 between June 30,
2000 and March 31, 2001. The increase was spread evenly among loans on deposit
accounts, single payment personal notes and automobile loans. Commercial loans
increased $827,000 as the Corporation has gradually increased the emphasis on
this type of lending. Non-mortgage loans represented 6.2% and 5.0% of gross
loans at March 31, 2001 and June 30, 2000.
Total deposits decreased $1.8 million from $93.0 million at June 30, 2000 to
$91.2 million at March 31, 2001. 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 offered a
special interest rate on a 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. The Corporation did experience growth in three-year and
four-year certificates of deposit. Management believes this increase was due to
customers wanting to lock in at higher interest rates in a declining interest
rate environment combined with the sluggish performance of the stock market. NOW
accounts increased $400,000 and savings accounts declined $783,000 since June
30, 2000. Money market accounts and noninterest-bearing demand deposits had
little change since June 30, 2000.
Borrowed funds were $24.0 million at March 31, 2001 compared to $19.0 million at
June 30, 2000. Borrowings at March 31, 2001 consisted entirely of long-term
fixed-rate advances. 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 March 31, 2001, the Association had the ability to
obtain borrowings up to a maximum total of $27.4 million. 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 $67.2 million at March 31, 2001.
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 between 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 March 31, 2001 Compared to the Three Months Ended March 31,
2000
Net Income. The Corporation earned net income of $231,000 for the three months
ended March 31, 2001 compared to $156,000 for the three months ended March 31,
2000. The increase in net income was primarily due to a gain on the sale of a
security and an increase in net interest income.
(Continued)
16.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Net Interest Income. Net interest income totaled $990,000 for the three months
ended March 31, 2001 compared to $963,000 for the three months ended March 31,
2000. The increase was the result of higher income on loans, demand, time and
overnight deposits and FHLB Stock dividends partially offset by an increase in
interest expense on deposits and borrowings.
Interest and fees on loans increased $278,000, or 13.0% from $2,133,000 for the
three months ended March 31, 2000 to $2,411,000 for the three months ended March
31, 2001. 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
demand, time and overnight deposits increased $11,000 for the three months ended
March 31, 2001 as compared to the same period in the prior year, the increase
resulted from a higher average balance. Dividends on Federal Home Loan Bank
Stock increased $8,000 for the three months ended March 31, 2001 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 $92,000 for the three months ended March 31,
2001 compared to the three months ended March 31, 2000. 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
March 31, 2001 compared to $262,000 for the three ended March 31, 2000. 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 March 31, 2001 totaled
$19,000 compared to $16,000 for the three months ended March 31, 2000. The
allowance for loan losses totaled $643,000, or 0.53% of gross loans receivable
and 73.0% of total nonperforming loans at March 31, 2001, 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.
(Continued)
17.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Noninterest income. Noninterest income includes service fees and other
miscellaneous income and totaled $124,000 for the three months ended March 31,
2001 and $5,000 for the three months ended March 31, 2000. The increase was
primarily due to a gain on the sale of a security and an increase in service
charges on deposit accounts.
Noninterest expense. Noninterest expense totaled $722,000 for the three months
ended March 31, 2001 compared to $686,000 for the three months ended March 31,
2000, an increase of $36,000, or 5.2%. This increase was spread fairly evenly
among the various individual noninterest expense categories.
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 $142,000 for the three months ended March 31, 2001 compared
to $109,000 for the three months ended March 31, 2000, representing an increase
of $33,000. The effective tax rate was 38.1% and 41.1% for the three months
ended March 31, 2001 and 2000.
Nine Months Ended March 31, 2001 Compared to the Nine Months Ended March 31,
2000
Net Income. The Corporation earned net income of $562,000 for the nine months
ended March 31, 2001 compared to $403,000 for the nine months ended March 31,
2000. The increase in net income was primarily due to an increase in net
interest income and a gain on sale of a mortgage-backed security available for
sale.
Net Interest Income. Net interest income totaled $2,888,000 for the nine months
ended March 31, 2001 compared to $2,828,000 for the nine months ended March 31,
2000. The increase was the result of higher income on loans partially offset by
an increase in interest expense on deposits and borrowings.
Interest and fees on loans increased $860,000, or 13.8% from $6,218,000 for the
nine months ended March 31, 2000 to $7,078,000 for the nine months ended March
31, 2001. 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 decreased $20,000 for the nine months ended March
31, 2001 as compared to the same period in the prior year. The decrease was the
result of having a lower average balance than a year ago.
Interest paid on deposits increased $410,000 for the nine months ended March 31,
2001 compared to the nine months ended March 31, 2000. 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 $1,145,000 for the nine months ended
March 31, 2001 compared to $774,000 for the nine months ended March 31, 2000.
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 nine months
ended March 31, 2001 totaled $56,000 compared to $44,000 for the nine months
ended March 31, 2000.
Noninterest income. Noninterest income includes service fees, gains or losses on
sales of securities and other miscellaneous income and totaled $177,000 for the
nine months ended March 31, 2001 and $47,000 for the nine months ended March 31,
2000. The increase was primarily due to a gain on sale of a an available for
sale mortgage-backed security.
(Continued)
18.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Noninterest expense. Noninterest expense totaled $2,101,000 for the nine months
ended March 31, 2001 compared to $2,144,000 for the nine months ended March 31,
2000, a decrease of $43,000, or 2.0%. 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 $346,000 for the nine months ended March 31, 2001 compared
to $284,000 for the nine months ended March 31, 2000, representing an increase
of $62,000. The effective tax rate was 38.1% and 41.3% for the nine months ended
March 31, 2001 and 2000.
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 nine months ended March 31, 2001 and 2000.
Nine Months
Ended March 31,
2001 2000
------------ ------------
(Dollars in thousands)
Net income $ 562 $ 403
Adjustments to reconcile net income to net cash from
operating activities 97 23
------------ ------------
Net cash from operating activities 659 426
Net cash from investing activities 821 (10,673)
Net cash from financing activities 2,381 9,934
------------ ------------
Net change in cash and cash equivalents 3,861 (313)
Cash and cash equivalents at beginning of period 2,206 1,933
------------ ------------
Cash and cash equivalents at end of period $ 6,067 $ 1,620
============ ============
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 March 31, 2001, the Association's regulatory
liquidity was 9.7%. At such date, the Corporation had commitments to originate
fixed-rate residential real estate loans totaling $283,000 and variable-rate
residential real estate mortgage loans totaling $477,000. 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.
(Continued)
19.
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 March 31, 2001 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 March 31, 2001 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 March 31, 2001 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)
March 31, 2001
Total capital (to risk-
weighted assets) $ 15,652 17.7% $ 7,065 8.0% $ 8,831 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 15,009 17.0 3,532 4.0 5,299 6.0
Tier 1 (core) capital (to
adjusted total assets) 15,009 11.3 5,303 4.0 6,629 5.0
Tangible capital (to
adjusted total assets) 15,009 11.3 1,989 1.5 N/A 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
20.
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
---------------------------------------------------
No matters were brought before the shareholders for a vote during the
quarter.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Form 8-K was filed on January 17, 2001. Under Item 5, Other
Events', the Corporation reported the issuance of a press release
to announce the quarterly earnings and declare a dividend.
21.
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: May 14, 2001 /s/ Douglas Stewart
------------ -------------------
Douglas Stewart
President
Date: May 14, 2001 /s/ Debra Geuy
------------ --------------
Debra Geuy
Chief Financial Officer