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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 September 30, 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 November 2, 2001, the latest practicable date, 1,496,038 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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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.................................................... 14
Part II - Other Information
Item 1. Legal Proceedings....................................................................... 19
Item 2. Changes in Securities and Use of Proceeds............................................... 19
Item 3. Defaults Upon Senior Securities......................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders..................................... 19
Item 5. Other Information....................................................................... 19
Item 6. Exhibits and Reports on Form 8-K........................................................ 19
SIGNATURES ........................................................................................... 20
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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Item 1. Financial Statements
--------------------
September 30, June 30,
2001 2001
---- ----
ASSETS
Cash and due from financial institutions $ 896,716 $ 1,015,400
Interest-bearing deposits in other financial institutions 2,671,879 4,335,495
Overnight deposits 4,000,000 1,000,000
--------------- ----------------
Total cash and cash equivalents 7,568,595 6,350,895
Time deposits in other financial institutions 300,000 --
Securities available for sale 2,555,230 3,001,715
Federal Home Loan Bank stock 1,421,800 1,397,200
Loans, net 122,363,963 120,481,894
Accrued interest receivable 928,102 921,864
Premises and equipment, net 2,107,225 1,977,435
Other assets 129,602 173,398
--------------- ----------------
Total assets $ 137,374,517 $ 134,304,401
=============== ================
LIABILITIES
Deposits $ 94,494,134 $ 91,341,201
Borrowed funds 25,359,886 25,474,596
Accrued interest payable and other liabilities 349,369 338,991
--------------- ----------------
Total liabilities 120,203,389 117,154,788
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 10,698,368 10,705,048
Retained earnings 11,175,810 11,150,845
Treasury stock, 283,829 and 271,829 shares, at cost (3,297,990) (3,178,640)
Unearned employee stock ownership plan shares (1,142,833) (1,182,471)
Unearned management recognition plan shares (317,736) (365,394)
Accumulated other comprehensive income 37,655 2,371
--------------- ----------------
Total shareholders' equity 17,171,128 17,149,613
--------------- ----------------
Total liabilities and shareholders' equity $ 137,374,517 $ 134,304,401
=============== ================
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3.
See accompanying notes to consolidated financial statements.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended
September 30,
2001 2000
---- ----
Interest income
Loans, including fees $ 2,407,543 $ 2,295,051
Securities 49,806 149,426
Demand, time and overnight deposits 41,724 13,451
Dividends on Federal Home Loan Bank stock 24,652 20,400
-------------- ---------------
Total interest income 2,523,725 2,478,328
Interest expense
Deposits 1,164,302 1,189,597
Borrowed funds 388,578 346,955
-------------- ---------------
Total interest expense 1,552,880 1,536,552
-------------- ---------------
Net interest income 970,845 941,776
Provision for loan losses 15,462 18,747
-------------- ---------------
Net interest income after provision for loan losses 955,383 923,029
Noninterest income
Service fees and other charges 32,889 27,915
Noninterest expense
Compensation and benefits 407,162 376,773
Director fees 24,300 30,000
Occupancy and equipment 107,682 80,914
Computer processing expense 63,710 56,527
State franchise taxes 47,569 44,725
Professional fees 24,079 25,602
Other 91,583 74,610
-------------- ---------------
Total noninterest expense 766,085 689,151
-------------- ---------------
Income before income taxes 222,187 261,793
Income tax expense 84,600 99,800
-------------- ---------------
Net income $ 137,587 $ 161,993
============== ===============
Earnings per common share - basic $ 0.10 $ 0.11
============== ===============
Earnings per common share - diluted $ 0.10 $ 0.11
============== ===============
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4.
See accompanying notes to consolidated financial statements.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended
September 30,
2001 2000
---- ----
Net income $ 137,587 $ 161,993
Other comprehensive income (loss)
Unrealized holding gains and (losses) on
available-for-sale securities 53,460 96,141
Tax effect (18,176) (32,688)
-------------- ---------------
Other comprehensive income (loss) 35,284 63,453
-------------- ---------------
Comprehensive income $ 172,871 $ 225,446
============== ===============
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5.
See accompanying notes to consolidated financial statements.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited)
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Three Months
Ended September 30,
-------------------
2001 2000
---- ----
Balance, beginning of period $ 17,149,613 $ 16,959,798
Net income for period 137,587 161,993
Cash dividends, $.08 per share in 2001 and $.07 per share in 2000 (112,622) (102,442)
Purchase of 12,000 and 7,500 shares of treasury stock in 2001 and
2000, at cost (119,350) (58,125)
Commitment to release 2,856 management recognition plan
shares in 2001 and 2000 47,658 47,658
Commitment to release 3,378 and 3,522 employee stock ownership
plan shares in 2001 and 2000, at fair value 32,958 26,710
Change in fair value on securities available for sale, net of tax 35,284 63,453
--------------- ----------------
Balance, end of period $ 17,171,128 $ 17,099,045
=============== ================
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6.
See accompanying notes to consolidated financial statements.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended
September 30,
2001 2000
---- ----
Cash flows from operating activities
Net income $ 137,587 $ 161,993
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 52,792 39,130
Provision for loan losses 15,462 18,747
FHLB stock dividends (24,600) (20,300)
Compensation expense for ESOP shares 32,958 26,710
Compensation expense for MRP shares 47,658 47,658
Change in
Accrued interest receivable and other assets 37,503 (24,789)
Accrued expense and other liabilities (7,798) (47,829)
Deferred loan fees 22,969 3,252
-------------- ---------------
Net cash from operating activities 314,531 204,572
Cash flows from investing activities
Proceeds from maturities/calls of securities available for sale 500,000 --
Principal repayments on mortgage-backed securities -- 92,831
Purchases of time deposits in other financial institutions (300,000) --
Net increase in loans (1,920,500) (2,597,502)
Premises and equipment expenditures (182,582) (23,029)
Purchases of FHLB stock -- (177,000)
-------------- ---------------
Net cash from investing activities (1,903,082) (2,704,700)
Cash flows from financing activities
Net change in deposits 3,152,933 (1,268,245)
Repayments of long-term FHLB advances (114,710) --
Proceeds from long-term FHLB advances -- 5,000,000
Cash dividends paid (112,622) (102,442)
Purchase of treasury stock (119,350) (58,125)
-------------- ---------------
Net cash from financing activities 2,806,251 3,571,188
-------------- ---------------
Net change in cash and cash equivalents 1,217,700 1,071,060
Cash and cash equivalents at beginning of period 6,350,895 2,205,993
-------------- ---------------
Cash and cash equivalents at end of period $ 7,568,595 $ 3,277,053
============== ===============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 1,541,703 $ 1,524,156
Income taxes -- 25,000
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7.
See accompanying notes to consolidated financial statements.
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 September 30, 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 accounting principles generally accepted in
the United States of America 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, 2001, included in the Corporation's 2001 Annual Report on Form 10-KSB for
the fiscal year ended June 30, 2001. 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 Sidney, 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 primarily in one segment, banking.
To prepare financial statements in conformity with accounting principles
generally accepted in the United States of America, 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") is 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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8.
(Continued)
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Standards ("SFAS") No. 141, "Business Combinations." SFAS No. 141
requires all business combinations within its scope to be accounted for using
the purchase method, rather than the pooling-of-interests method. The provisions
of this Statement apply to all business combinations initiated after June 30,
2001. The adoption of this statement will only have an impact on the
Corporation's financial statements if it enters into a business combination.
Also in June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which addresses the accounting for such assets arising from prior and
future business combinations. Upon the adoption of this Statement, goodwill
arising from business combinations will no longer be amortized, but rather will
be assessed regularly for impairment, with any such impairment recognized as a
reduction to earnings in the period identified. Other identified intangible
assets, such as core deposit intangible assets, will continue to be amortized
over their estimated useful lives. The Corporation is required to adopt this
Statement on July 1, 2002, and early adoption is permitted on July 1, 2001. The
adoption of this Statement will not have an impact on the Corporation's
financial statements, as it does not have any intangible assets.
NOTE 2 - SECURITIES AVAILABLE FOR SALE
Securities available for sale were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
September 30, 2001
- ------------------
U.S. Government agencies $ 2,498,177 $ 57,053 $ -- $ 2,555,230
=============== ========== =========== ==============
June 30, 2001
- -------------
U.S. Government agencies $ 2,998,122 $ 18,288 $ (14,695) $ 3,001,715
=============== ========== =========== ==============
Contractual maturities of securities available for sale at September 30, 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.
Estimated
Amortized Fair
Cost Value
---- -----
Due after one year through five years $ 500,000 $ 508,670
Due after five years through ten years 1,998,177 2,046,560
-------------- ---------------
$ 2,498,177 $ 2,555,230
============== ===============
No securities were sold during the three-month periods ended September 30, 2001
and 2000. No securities were pledged as collateral at September 30, 2001 or June
30, 2001.
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9.
(Continued)
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 3 - LOANS
Loans were as follows:
September 30, June 30,
2001 2001
---- ----
Mortgage loans:
1-4 family residential $ 98,903,863 $ 96,717,463
Multi-family residential 1,237,409 1,239,141
Commercial real estate 10,155,546 10,025,284
Real estate construction and
development 6,013,297 6,131,040
Land 1,107,015 1,370,376
------------- -------------
Total mortgage loans 117,417,130 115,483,304
Consumer loans 4,673,841 4,657,828
Commercial loans 3,783,655 3,629,987
------------- -------------
Total loans 125,874,626 123,771,119
Less:
Allowance for loan losses (676,500) (660,800)
Loans in process (2,550,231) (2,367,462)
Deferred loan fees (283,932) (260,963)
------------- -------------
$ 122,363,963 $ 120,481,894
============= =============
Activity in the allowance for loan losses is summarized as follows:
Three Months Ended
September 30,
-------------
2001 2000
---- ----
Balance at beginning of period $ 660,800 $ 591,350
Provision for losses 15,462 18,747
Charge-offs -- (4,563)
Recoveries 238 66
--------- ---------
Balance at end of period $ 676,500 $ 605,600
========= =========
Nonperforming loans were as follows:
September 30, June 30,
2001 2001
---- ----
Loans past due over 90 days still on accrual $489,000 $498,000
Nonaccrual loans 787,000 764,000
Nonperforming loans include smaller balance homogeneous loans, such as
residential mortgage and consumer loans that are collectively evaluated for
impairment.
As of September 30, 2001 and June 30, 2001 and for the three months ended
September 30, 2001 and 2000, loans required to be evaluated for impairment on an
individual loan basis were not material.
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10.
(Continued)
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 4 - BORROWED FUNDS
At September 30, 2001 and June 30, 2001, 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 September 30, 2001 and
June 30, 2001.
As a member of the FHLB system, the Association has the ability to obtain
borrowings up to a maximum total of $28,436,000, 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 were as follows:
September 30, June 30,
2001 2001
---- ----
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 convertible advance, fixed-rate until June 2004,
due June 11, 2009 5,000,000 5,000,000
6.27% FHLB convertible advance, fixed-rate until
September 2003, due September 8, 2010 5,000,000 5,000,000
5.30% select pay mortgage-matched advance, final
maturity May 1, 2011 1,936,066 1,974,596
5.35% select pay mortgage-matched advance, final
maturity July 1, 2011 3,923,820 4,000,000
--------------- ----------------
$ 25,359,886 $ 25,474,596
=============== ================
Advances under the borrowing agreements are collateralized by a blanket pledge
of the Association's residential mortgage loan portfolio and its FHLB stock.
The interest rates on the convertible advances are fixed for a specified number
of years, then convertible to a variable rate at the option of the FHLB. If the
convertible option is exercised, the advance may be prepaid without penalty. The
select pay mortgage-matched advances require monthly principal and interest
payments and annual additional principal payments.
Maturities of FHLB advances for the next fives years and thereafter were:
Year ended September 30,
2002 $ 3,512,954
2003 889,964
2004 780,376
2005 682,793
2006 595,961
Thereafter 18,897,838
--------------
$ 25,359,886
==============
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11.
(Continued)
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 5 - OFF-BALANCE-SHEET ACTIVITIES
Loss contingencies, including claims and legal actions arising in the ordinary
course of business, are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated. Management
does not believe there now are such matters that will have a material effect on
the financial statements.
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.
The contractual amount of financial instruments with off-balance-sheet risk was
as follows:
September 30, June 30,
2001 2001
---- ----
Fixed Variable Fixed Variable
Rate Rate Rate Rate
---- ---- ---- ----
Nonresidential $ -- $ 310,000 $ 412,000 $ 113,000
Residential real estate 446,000 317,000 -- 600,000
Interest rates 6.75-7.50% 7.00-8.25% 7.00-7.25% 7.00-7.50%
Commitments to make loans are generally made for a period of 30 days or less.
The maximum maturity for fixed-rate loan commitments was 20 years.
The Corporation also had unused commercial and home equity lines of credit
approximating $2,487,000 and $2,539,000 at September 30, 2001 and June 30, 2001.
At September 30, 2001 and June 30, 2001, the Association was required to have
$712,000 and $698,000 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.
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12.
(Continued)
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 6 - EARNINGS PER SHARE
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
September 30,
2001 2000
---- ----
Basic Earnings Per Common Share
Numerator
Net income $ 137,587 $ 161,993
=========== ===========
Denominator
Weighted average common shares outstanding 1,506,850 1,577,826
Less: Average unallocated ESOP shares (99,085) (113,103)
Less: Average unearned MRP shares (20,469) (31,894)
----------- -----------
Weighted average common shares outstanding for
basic earnings per common share 1,387,296 1,432,829
=========== ===========
Basic earnings per common share $ 0.10 $ 0.11
=========== ==========
Diluted Earnings Per Common Share
Numerator
Net income $ 137,587 $ 161,993
=========== ===========
Denominator
Weighted average common shares outstanding for
basic earnings per common share 1,387,296 1,432,829
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 1,387,296 1,432,829
=========== ===========
Diluted earnings per common share $ 0.10 $ 0.11
=========== ===========
Unearned MRP shares and stock options granted did not have a dilutive effect on
EPS for the three months ended September 30, 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 period. As of
September 30, 2001 and 2000, there were 140,824 options outstanding that were
not dilutive.
- --------------------------------------------------------------------------------
13.
(Continued)
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 the Corporation as of September 30, 2001, compared to
June 30, 2001, and results of operations for the three months ended September
30, 2001, compared with the same period 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 September 30, 2001 were $137.4 million compared to $134.3
million at June 30, 2001, an increase of $3.1 million, or 2.3%. The increase in
total assets was due to an increase in loans and cash and cash equivalents
funded by an increase in deposits.
Cash and cash equivalents increased $1.2 million, primarily as a temporary
earning source until loan growth utilizes all the funds provided from deposit
growth.
Loans increased $1.9 million from $120.5 million at June 30, 2001 to $122.4
million at September 30, 2001. The increase in loans was primarily in one- to
four-family residential loans, which increased $2.2 million. Changes in other
types of mortgage loans were not significant. The overall increase in total
loans is reflective of providing attractive loan rates and products compared to
local competition. The addition of the Sidney Wal-Mart branch also contributed
to the growth.
- --------------------------------------------------------------------------------
14.
(Continued)
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The Corporation's consumer and commercial loan portfolio remained relatively
unchanged between June 30, 2001 and September 30, 2001. Non-mortgage loans
remain a small portion of the entire loan portfolio and represented 6.7% of
gross loans at September 30, 2001 and June 30, 2001.
Premises and equipment increased $130,000 from $1,977,000 at June 30, 2001 to
$2,107,000 at September 30, 2001. The increase resulted from the Association's
new branch in the new Wal-Mart Superstore in Sidney.
Total deposits increased $3.2 million from $91.3 million at June 30, 2001 to
$94.5 million at September 30, 2001. The increase was primarily due to a special
interest rate offered on one-year certificates of deposit. As a result,
certificates of deposit increased $2.1 million since June 30, 2001. The
Corporation also had increases in other deposit categories as
noninterest-bearing demand accounts increased $174,000, money market accounts
increased $611,000, and savings accounts increased $467,000 while NOW accounts
decreased $196,000 since June 30, 2001.
Borrowed funds were $25.4 million at September 30, 2001 compared to $25.5
million at June 30, 2001. Borrowings at September 30, 2001 consisted of
long-term fixed-rate advances, convertible fixed-rate advances and select pay
mortgage-matched advances. Based on the FHLB stock owned by the Association at
September 30, 2001, the Association had the ability to obtain borrowings up to a
maximum total of $28.4 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 $66.3 million
at September 30, 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.
Net Income. The Corporation earned net income of $138,000 for the three months
ended September 30, 2001 compared to $162,000 for the three months ended
September 30, 2000. The decrease in net income was primarily due to an increase
in noninterest expense partially offset by an increase in net interest income.
Net Interest Income. Net interest income totaled $971,000 for the three months
ended September 30, 2001 compared to $942,000 for the three months ended
September 30, 2000. The increase was the result of higher income on loans
coupled with a decrease in interest expense on deposits, partially offset by an
increase in interest on borrowings.
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15.
(Continued)
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Interest and fees on loans increased $112,000, or 4.9% from $2,295,000 for the
three months ended September 30, 2000 to $2,408,000 for the three months ended
September 30, 2001. The increase in interest income was due to a higher average
balance of loans.
Interest paid on deposits decreased $25,000 for the three months ended September
30, 2001 compared to the three months ended September 30, 2000. The decrease
resulted from a lower average interest rate offset slightly by a higher average
balance of deposits.
Interest paid on borrowed funds totaled $389,000 for the three months ended
September 30, 2001 compared to $347,000 for the three ended September 30, 2000.
The increase in interest expense on borrowed funds resulted from a higher
average balance of borrowed funds partially offset by a decrease in the average
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 September 30, 2001
totaled $15,000 compared to $19,000 for the three months ended September 30,
2000. The allowance for loan losses totaled $676,000, or 0.54% of gross loans
receivable and 53.0% of total nonperforming loans at September 30, 2001,
compared with $661,000, or 0.53% of gross loans receivable and 52.3% of total
nonperforming loans at June 30, 2001. 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 $33,000 for the three months ended September
30, 2001 and $28,000 for the three months ended September 30, 2000. The increase
was primarily due to an increase in service charges on deposit accounts.
Noninterest expense. Noninterest expense totaled $766,000 for the three months
ended September 30, 2001 compared to $689,000 for the three months ended
September 30, 2000, an increase of $77,000, or 11.2%. The increase was the
result of the additional personnel, occupancy and advertising costs associated
with the new branch office in the Wal-Mart Superstore in Sidney which opened in
June 2001.
Income Tax Expense. Income tax expense totaled $85,000 for the three months
ended September 30, 2001 compared to $100,000 for the three months ended
September 30, 2000, representing a decrease of $15,000. The decrease in income
tax expense is reflective of the decrease in net income for the three months
ended September 30, 2001 as compared to the three months ended September 30.
2000. The effective tax rate was 38.1% for the three months ended September 30,
2001 and 2000.
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16.
(Continued)
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
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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 three months ended September 30, 2001 and 2000.
Three Months
Ended September 30,
2001 2000
---- ----
(Dollars in thousands)
Net income $ 138 $ 162
Adjustments to reconcile net income to net cash from
operating activities 177 43
------------ ------------
Net cash from operating activities 315 205
Net cash from investing activities (1,903) (2,705)
Net cash from financing activities 2,806 3,571
------------ ------------
Net change in cash and cash equivalents 1,218 1,071
Cash and cash equivalents at beginning of period 6,351 2,206
------------ ------------
Cash and cash equivalents at end of period $ 7,569 $ 3,277
============ ============
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.
At September 30, 2001, the Corporation had commitments to originate fixed-rate
commercial and residential real estate loans totaling $446,000 and variable-rate
nonresidential and residential real estate mortgage loans totaling $627,000.
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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17.
(Continued)
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
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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 September 30, 2001 and June 30, 2001,
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 September 30, 2001 and June 30, 2001. No conditions or events have
occurred subsequent to the last notification by regulators that management
believes would have changed the Association's category.
At September 30, 2001 and June 30, 2001, 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)
September 30, 2001
Total capital (to risk-
weighted assets) $ 14,170 15.6% $ 7,290 8.0% $ 9,112 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 13,507 14.8 3,645 4.0 5,467 6.0
Tier 1 (core) capital (to
adjusted total assets) 13,507 9.8 5,492 4.0 6,866 5.0
Tangible capital (to
adjusted total assets) 13,507 9.8 2,060 1.5 N/A
June 30, 2001
Total capital (to risk-
weighted assets) $ 13,934 15.6% $ 7,168 8.0% $ 8,961 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 13,277 14.8 3,584 4.0 5,376 6.0
Tier 1 (core) capital (to
adjusted total assets) 13,277 9.9 5,374 4.0 6,718 5.0
Tangible capital (to
adjusted total assets) 13,277 9.9 2,015 1.5 N/A
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18.
PEOPLES-SIDNEY FINANCIAL CORPORATION
PART II - OTHER INFORMATION
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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
---------------------------------------------------
There were no matters brought to a vote of security holders during
the quarter ended September 30, 2001.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Form 8-K was filed on July 23, 2001 under Item 5, Other Events,
the Corporation reported the issuance of a press release to
announce the quarterly and year-end earnings for the period
ending June 30, 2001, declare a dividend, and announce the date
of the 2001 Annual Meeting of Shareholders.
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19.
SIGNATURES
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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: November 2, 2001 /s/ Douglas Stewart
---------------------------- ---------------------------
Douglas Stewart
President
Date: November 2, 2001 /s/ Debra Geuy
---------------------------- ---------------------------
Debra Geuy
Chief Financial Officer
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20.