UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ____________.
Commission File Number 0-22223
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PEOPLES-SIDNEY FINANCIAL CORPORATION
------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 31-1499862
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
101 E. Court Street, Sidney, Ohio 45365
---------------------------------------
(Address of principal executive offices)
(937) 492-6129
--------------
(Issuer's telephone number)
As of February 4, 2002, the latest practicable date, 1,475,038 shares of the
issuer's common shares, $.01 par value, were issued and outstanding.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
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....................................................................... 21
Item 2. Changes in Securities................................................................... 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
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2.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
Item 1. Financial Statements
--------------------
December 31, June 30,
2001 2001
---- ----
ASSETS
Cash and due from financial institutions $ 1,043,066 $ 1,015,400
Interest-bearing deposits in other financial institutions 3,085,036 4,335,495
Overnight deposits 3,000,000 1,000,000
--------------- ----------------
Total cash and cash equivalents 7,128,102 6,350,895
Time deposits in other financial institutions 300,000 --
Securities available for sale 4,997,530 3,001,715
Federal Home Loan Bank stock 1,441,500 1,397,200
Loans, net 120,219,717 120,481,894
Accrued interest receivable 918,415 921,864
Premises and equipment, net 2,098,156 1,977,435
Other assets 88,797 173,398
--------------- ----------------
Total assets $ 137,192,217 $ 134,304,401
=============== ================
LIABILITIES
Deposits $ 94,597,494 $ 91,341,201
Borrowed funds 25,243,641 25,474,596
Accrued interest payable and other liabilities 315,587 338,991
--------------- ----------------
Total liabilities 120,156,722 117,154,788
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
Paid-in capital 10,693,865 10,705,048
Retained earnings 11,211,208 11,150,845
Treasury stock, 304,337 and 271,829 shares, at cost (3,513,697) (3,178,640)
Unearned employee stock ownership plan shares (1,103,194) (1,182,471)
Unearned management recognition plan shares (270,078) (365,394)
Accumulated other comprehensive income (463) 2,371
--------------- ----------------
Total shareholders' equity 17,035,495 17,149,613
--------------- ----------------
Total liabilities and shareholders' equity $ 137,192,217 $ 134,304,401
=============== ================
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
3.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2001 2000 2001 2000
---- ---- ---- ----
Interest income
Loans, including fees $2,348,028 $2,371,752 $4,755,571 $4,666,803
Securities 62,514 147,836 112,320 297,262
Demand, time and overnight deposits 23,114 18,143 64,838 31,594
Dividends on FHLB Stock 19,710 23,360 44,362 43,760
---------- ---------- ---------- ----------
Total interest income 2,453,366 2,561,091 4,977,091 5,039,419
Interest expense
Deposits 1,069,271 1,205,951 2,233,573 2,395,548
Borrowed funds 387,041 399,120 775,619 746,075
---------- ---------- ---------- ----------
Total interest expense 1,456,312 1,605,071 3,009,192 3,141,623
---------- ---------- ---------- ----------
Net interest income 997,054 956,020 1,967,899 1,897,796
Provision for loan losses 10,221 17,768 25,683 36,515
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 986,833 938,252 1,942,216 1,861,281
Noninterest income
Service fees and other charges 35,480 25,646 68,369 53,561
Noninterest expense
Compensation and benefits 412,765 377,544 819,927 754,317
Director fees 24,300 26,200 48,600 56,200
Occupancy and equipment 105,739 81,523 213,421 162,437
Computer processing expense 62,263 54,944 125,973 111,471
State franchise taxes 47,590 44,725 95,159 89,450
Professional fees 30,346 26,572 54,425 52,174
Other 79,038 78,856 170,621 153,079
---------- ---------- ---------- ----------
Total noninterest expense 762,041 689,977 1,528,126 1,379,128
---------- ---------- ---------- ----------
Income before income taxes 260,272 273,921 482,459 535,714
Income tax expense 99,300 104,100 183,900 203,900
---------- ---------- ---------- ----------
Net income $ 160,972 $ 169,821 $ 298,559 $ 331,814
========== ========== ========== ==========
Earnings per common share - basic $ 0.12 $ 0.12 $ 0.22 $ 0.23
========== ========== ========== ==========
Earnings per common share - diluted $ 0.12 $ 0.12 $ 0.22 $ 0.23
========== ========== ========== ==========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2001 2000 2001 2000
---- ---- ---- ----
Net income $ 160,972 $ 169,821 $ 298,559 $ 331,814
Other comprehensive income (loss)
Unrealized holding gains and (losses) on
available-for-sale securities (57,755) 161,508 (4,295) 257,649
Tax effect 19,637 (54,913) 1,461 (87,601)
------------- ------------- ------------- --------------
Other comprehensive income (loss) (38,118) 106,595 (2,834) 170,048
------------- ------------- ------------- --------------
Comprehensive income $ 122,854 $ 276,416 $ 295,725 $ 501,862
============= ============= ============= ==============
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2001 2000 2001 2000
---- ---- ---- ----
Balance, beginning of period $ 17,171,128 $ 17,099,045 $ 17,149,613 $ 16,959,798
Net income for period 160,972 169,821 298,559 331,814
Cash dividends, $.09 and $.08 per share for
the three months ended December 31, 2001
and 2000, $.17 and $.15 per share for the six
months ended December 31, 2001 and 2000 (125,574) (116,476) (238,196) (218,918)
Purchase of 20,508 and 12,700 shares of
treasury stock for the three months
ended December 31, 2001 and 2000; and
32,508 and 20,200 shares of treasury stock
for the six months ended December 31, 2001
and 2000, at cost (215,707) (99,269) (335,057) (157,394)
Commitment to release 2,856 management
recognition plan shares for the three months
ended December 31, 2001 and 2000 and 5,712
management recognition plan shares for the
six months ended December 31, 2001 and 2000 47,658 47,658 95,316 95,316
Commitment to release 3,378 and 3,522
employee stock ownership plan shares for the
three months ended December 31, 2001 and 2000
and 6,756 and 7,044 employee stock
ownership plan shares for the six months
ended December 31, 2001 and 2000, at fair value 35,136 26,990 68,094 53,700
Change in fair value on securities available for
sale, net of tax (38,118) 106,595 (2,834) 170,048
------------ ------------ ------------ ------------
Balance, end of period $ 17,035,495 $ 17,234,364 $ 17,035,495 $ 17,234,364
============ ============ ============ ============
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See accompanying notes to consolidated financial statements.
6.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended
December 31,
------------
2001 2000
---- ----
Cash flows from operating activities
Net income $ 298,559 $ 331,814
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 104,341 79,023
Provision for loan losses 25,683 36,515
FHLB stock dividends (44,300) (43,600)
Compensation expense on ESOP shares 68,094 53,700
Compensation expense on MRP shares 95,316 95,316
Change in
Accrued interest receivable and other assets 87,941 30,008
Accrued expense and other liabilities (21,944) (71,077)
Deferred loan fees 34,016 6,551
-------------- ---------------
Net cash from operating activities 647,706 518,250
Cash flows from investing activities
Proceeds from maturities/calls of securities available for sale 500,000 --
Purchases of securities available for sale (2,500,000) --
Principal repayments on mortgage-backed securities -- 188,137
Purchases of time deposits in other financial institutions (300,000) --
Net change in loans 202,478 (4,428,934)
Premises and equipment expenditures (225,062) (83,444)
Purchases of FHLB stock -- (281,700)
-------------- ---------------
Net cash from investing activities (2,322,584) (4,605,941)
Cash flows from financing activities
Net change in deposits 3,256,293 (2,735,374)
Net change in short-term borrowings -- 2,500,000
Repayments of long-term FHLB borrowings (230,955) --
Proceeds from long-term FHLB borrowings -- 5,000,000
Cash dividends paid (238,196) (218,918)
Purchase of treasury stock (335,057) (157,394)
-------------- ---------------
Net cash from financing activities 2,452,085 4,388,314
-------------- ---------------
Net change in cash and cash equivalents 777,207 300,623
Cash and cash equivalents at beginning of period 6,350,895 2,205,993
-------------- ---------------
Cash and cash equivalents at end of period $ 7,128,102 $ 2,506,616
============== ===============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 2,992,088 $ 3,121,126
Income taxes 181,000 210,000
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
7.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include accounts of
Peoples-Sidney Financial Corporation ("Peoples") and its wholly-owned
subsidiary, Peoples Federal Savings and Loan Association ("Association"), a
federal stock savings and loan association, together referred to as the
Corporation. All significant intercompany transactions and balances have been
eliminated.
These interim consolidated financial statements are prepared without audit and
reflect all adjustments which, in the opinion of management, are necessary to
present fairly the financial position of the Corporation at December 31, 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 principals 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.
- --------------------------------------------------------------------------------
(Continued)
8.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
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
---- ----- ------ -----
December 31, 2001
- -----------------
U.S. Government agencies $ 4,998,232 $ 26,688 $ (27,390) $ 4,997,530
=============== ========== =========== ==============
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 December 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.
Estimated
Amortized Fair
Cost Value
---- -----
Due after one year through five years $ 3,000,000 $ 2,978,940
Due after five years through ten years 1,998,232 2,018,590
-------------- ---------------
$ 4,998,232 $ 4,997,530
============== ===============
No securities were sold during the three-month and six-month periods ended
December 31, 2001 and 2000. No securities were pledged as collateral at December
31, 2001 or June 30, 2001.
- --------------------------------------------------------------------------------
(Continued)
9.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - LOANS
Loans were as follows:
December 31, June 30,
2001 2001
---- ----
Mortgage loans:
1-4 family residential $ 96,759,090 $ 96,717,463
Multi-family residential 1,271,443 1,239,141
Commercial real estate 10,799,387 10,025,284
Real estate construction and
development 4,682,662 6,131,040
Land 1,079,547 1,370,376
--------------- ----------------
Total mortgage loans 114,592,129 115,483,304
Consumer loans 4,493,447 4,657,828
Commercial loans 3,590,278 3,629,987
--------------- ----------------
Total loans 122,675,854 123,771,119
Less:
Allowance for loan losses (685,000) (660,800)
Loans in process (1,476,158) (2,367,462)
Deferred loan fees (294,979) (260,963)
--------------- ----------------
$ 120,219,717 $ 120,481,894
=============== ================
Activity in the allowance for loan losses is summarized as follows:
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2001 2000 2001 2000
---- ---- ---- ----
Balance at beginning of period $ 676,500 $ 605,600 $ 660,800 $ 591,350
Provision for losses 10,221 17,768 25,683 36,515
Charge-offs (1,801) -- (1,801) (4,563)
Recoveries 80 132 318 198
------------- ------------- ------------- --------------
Balance at end of period $ 685,000 $ 623,500 $ 685,000 $ 623,500
============= ============= ============= ==============
Nonperforming loans were as follows:
December 31, June 30,
2001 2001
---- ----
Loans past due over 90 days still on accrual $ 651,000 $ 498,000
Nonaccrual loans 900,000 764,000
Nonperforming loans include smaller balance homogeneous loans, such as
residential mortgage and consumer loans that are collectively evaluated for
impairment.
As of December 31, 2001 and June 30, 2001 and for the three months and six
months ended December 31, 2001 and 2000, loans required to be evaluated for
impairment on an individual loan basis were not material.
- --------------------------------------------------------------------------------
(Continued)
10.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - BORROWED FUNDS
At December 31, 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 December 31, 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 $28,830,000, including the cash management
line-of-credit based upon its current FHLB stock ownership. However, the
Association can obtain advances up to the lower of 50% of the Association's
total assets or 80% of the Association's pledgable residential mortgage loan
portfolio by purchasing more FHLB stock. Advances from the Federal Home Loan
Bank at December 31, 2001 and June 30, 2001 were as follows:
December 31, 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 1,897,025 1,974,596
5.35% select pay mortgage-matched advance, final
maturity July 1, 2011 3,846,616 4,000,000
--------------- ----------------
$ 25,243,641 $ 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 December 31,
2002 $ 3,507,047
2003 884,358
2004 775,054
2005 677,742
2006 591,167
Thereafter 18,808,273
--------------
$ 25,243,641
==============
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(Continued)
11.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
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:
December 31, June 30,
2001 2001
---- ----
Fixed Variable Fixed Variable
Rate Rate Rate Rate
---- ---- ---- ----
Nonresidential $ -- $ -- $ 412,000 $ 113,000
Residential real estate 816,000 39,000 -- 600,000
Interest rates 6.75% 6.0% 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 $2,363,000 and $2,539,000 at December 31, 2001 and June 30, 2001.
At December 31, 2001 and June 30, 2001, the Association was required to have
$1,249,000 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.
- --------------------------------------------------------------------------------
(Continued)
12.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 6 - EARNINGS PER COMMON 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 Six Months Ended
December 31, December 31,
2001 2000 2001 2000
Basic Earnings Per Common Share
Numerator
Net income $ 160,972 $ 169,821 $ 298,559 $ 331,814
========== =========== =========== ===========
Denominator
Weighted average common shares
outstanding 1,490,783 1,567,300 1,498,817 1,572,563
Less: Average unallocated ESOP shares (95,707) (109,581) (97,396) (111,342)
Less: Average unearned MRP shares (17,613) (29,038) (19,041) (30,466)
---------- ----------- ----------- -----------
Weighted average common shares
outstanding for basic earnings per
common share 1,377,463 1,428,681 1,382,380 1,430,755
========= ========= ========= =========
Basic earnings per common share $ 0.12 $ 0.12 $ 0.22 $ 0.23
========= =========== =========== ==========
Diluted Earnings Per Common Share
Numerator
Net income $ 160,972 $ 169,821 $ 298,559 $ 331,814
========== =========== =========== ===========
Denominator
Weighted average common shares
outstanding for basic earnings per
common share 1,377,463 1,428,681 1,382,380 1,430,755
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 1,377,463 1,428,681 1,382,380 1,430,755
========= ========= ========= =========
Diluted earnings per common share $ 0.12 $ 0.12 $ 0.22 $ 0.23
========= =========== =========== =========
Unearned MRP shares and stock options granted did not have a dilutive effect on
EPS for the three and six months ended December 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 December 31, 2001 and 2000, there were 140,824 options outstanding that
were not dilutive.
- --------------------------------------------------------------------------------
13.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis
------------------------------------
Introduction
In the following pages, management presents an analysis of the consolidated
financial condition of the Corporation as of December 31, 2001, compared to June
30, 2001, and results of operations for the three and six months ended December
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 December 31, 2001 were $137.2 million compared to $134.3 million
at June 30, 2001, an increase of $2.9 million, or 2.2%. The increase in total
assets was due to an increase in securities and cash and cash equivalents funded
by an increase in deposits.
Securities increased $2.0 million and cash and cash equivalents increased
$777,000 at December 31, 2001 as compared to June 30, 2001 primarily as a
temporary earning source until loan growth utilizes the funds provided from
deposit growth.
Loans decreased $300,000 from $120.5 million at June 30, 2001 to $120.2 million
at December 31, 2001. The decrease was primarily in real estate construction and
development loans, which decreased $1.4 million. This decrease was partially
offset by an increase of $800,000 in commercial real estate loans. The overall
decrease in total mortgage loans is reflective of a slowing economy marked by
fewer new housing starts.
- --------------------------------------------------------------------------------
(Continued)
14.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The Corporation's consumer loan and commercial loan portfolios decreased
$164,000 and $40,000, respectively between June 30, 2001 and December 31, 2001.
The decrease in these loan categories is also due to a general slow down in the
economy. Non-mortgage loans remain a small portion of the entire loan portfolio,
representing 6.6% and 6.7% of gross loans at December 31, 2001 and June 30,
2001.
Premises and equipment increased $121,000 from $1,977,000 at June 30, 2001 to
$2,098,000 at December 31, 2001. The increase resulted from the Association's
new branch located in the new Wal-Mart Superstore in Sidney.
Total deposits increased $3.3 million from $91.3 million at June 30, 2001 to
$94.6 million at December 31, 2001. The increase was primarily due to an
increase of $1.5 million in savings accounts. The Corporation also had increases
in all other deposit categories as money market accounts increased $950,000,
certificates of deposit accounts increased $509,000, NOW accounts increased
$262,000, and noninterest-bearing demand deposits increased $64,000 since June
30, 2001. The growth in deposits has occurred despite the dramatic decline in
interest rates that has transpired during the last half of calendar 2001.
Customer preference has shifted from stock market type investments due to its
volatility to financial institution deposit products.
Borrowed funds were $25.2 million at December 31, 2001 compared to $25.5 million
at June 30, 2001. Borrowings at December 31, 2001 consisted of long-term
fixed-rate advances, convertible fixed-rate advances and select pay
mortgage-matched advances. The only activity during the six months related to
scheduled principal repayments on select pay mortgage-matched advances. Based on
the FHLB stock owned by the Association at December 31, 2001, the Association
had the ability to obtain borrowings up to a maximum total of $28.8 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 December 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.
- --------------------------------------------------------------------------------
(Continued)
15.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Three Months Ended December 31, 2001 Compared to the Three Months Ended December
31, 2000
Net Income. The Corporation earned net income of $161,000 for the three months
ended December 31, 2001 compared to $170,000 for the three months ended December
31, 2000. The decrease in net income was primarily due to an increase in
noninterest expense almost entirely offset by an increase in net interest
income, noninterest income and a decrease in the provision for loan losses.
Net Interest Income. Net interest income totaled $997,000 for the three months
ended December 31, 2001 compared to $956,000 for the three months ended December
31, 2000. The increase of $41,000 was the result of a decrease in interest
expense on deposits and borrowings partially offset by a decrease in interest
income on securities and loans.
Interest and fees on loans decreased $24,000 from $2,372,000 for the three
months ended December 31, 2000 to $2,348,000 for the three months ended December
31, 2001. The decrease in interest and fee income occurred primarily as a result
of a decrease in the average interest yield on loans partially offset by an
increase in the average balance.
Interest on securities decreased $85,000 for the three months ended December 31,
2001 compared to the three months ended December 31, 2000. The decrease was
largely due to a decline in the average balance of securities which resulted
from the sale of a mortgage-backed security during the third quarter of fiscal
2001, coupled with a decrease in the average interest rate.
Interest paid on deposits decreased $137,000 for the three months ended December
31, 2001 compared to the three months ended December 31, 2000. Beginning in
October, 2001 the Association significantly adjusted the interest rates offered
on all deposit accounts to appropriately reflect the current interest rate
environment. This resulted in a decrease in the average interest rate paid on
deposits during the current quarter somewhat offset by a higher average balance.
Interest paid on borrowed funds totaled $387,000 for the three months ended
December 31, 2001 compared to $399,000 for the three ended December 31, 2000.
The decrease of $12,000 in interest expense on borrowed funds resulted from a
decrease in the average rate paid for borrowings despite a slight increase in
the average balance.
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.
- --------------------------------------------------------------------------------
(Continued)
16.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The provision for loan losses for the three months ended December 31, 2001
totaled $10,000 compared to $18,000 for the three months ended December 31,
2000. The allowance for loan losses totaled $685,000, or 0.56% of gross loans
receivable and 44.2% of total nonperforming loans at December 31, 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 80% 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 $35,000 for the three months ended December 31,
2001 and $26,000 for the three months ended December 31, 2000. The increase was
primarily due to an increase in service charges on deposit accounts.
Noninterest expense. Noninterest expense totaled $762,000 for the three months
ended December 31, 2000 compared to $690,000 for the three months ended December
31, 2000, an increase of $72,000. The increase was the result of the additional
personnel, occupancy and advertising costs associated with the new branch office
in the new Wal-Mart Superstore in Sidney, which opened in June 2001.
Income Tax Expense Income tax expense totaled $99,000 for the three months ended
December 31, 2001 compared to $104,000 for the three months ended December 31,
2000, representing an decrease of $5,000. The effective tax rate was 38.2% and
38.0% for the three months ended December 31, 2001 and 2000.
Six Months Ended December 31, 2001 Compared to the Six Months Ended December 31,
2000
Net Income. The Corporation earned net income of $299,000 for the six months
ended December 31, 2001 compared to $332,000 for the six months ended December
31, 2000. The decrease of $33,000 in net income was primarily due to an increase
in noninterest expense partially offset by an increase in net interest income,
noninterest income and a decrease in the provision for loan losses.
Net Interest Income. Net interest income totaled $1,968,000 for the six months
ended December 31, 2001 compared to $1,898,000 for the six months ended December
31, 2000. The increase of $70,000 was the result of a decrease in interest
expense on deposits coupled with an increase in interest income on loans offset
by a decrease in interest earned on securities.
Interest and fees on loans increased $89,000 to $4,756,000 for the six months
ended December 31, 2001 from $4,667,000 for the six months ended December 31,
2000. Even though the average interest yield has decreased, the Association
realized an increase in the average balance of the loan portfolio compared to a
year ago. Also contributing to the increase in income was an increase in fee
income resulting from increased refinancing activity brought on by a declining
interest rate environment.
Interest earned on securities decreased $185,000 for the six months ended
December 31, 2001 compared to the same period last year. The decrease is largely
due to a decrease in the average balance of securities resulting from the sale
of mortgage-backed security during the third quarter of the fiscal year ended
June 30, 2001. Additionally, the average interest rate earned on securities also
decreased as compared to the same period a year ago.
- --------------------------------------------------------------------------------
(Continued)
17.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Interest paid on deposits decreased $162,000 for the six months ended December
31, 2001 compared to the six months ended December 31, 2000. Due to a declining
rate environment, the Association adjusted the rates offered on deposit accounts
resulting in a decrease in the average interest rate paid during the current six
month period. However, despite declining interest rates the Association
experienced an increase in the average balance of deposits which partially
offset the effect of lower rates.
Provision for Loan Losses. The provision for loan losses for the six months
ended December 31, 2001 totaled $25,683 compared to $36,515 for the six months
ended December 31, 2000.
Noninterest income. Noninterest income includes service fees and other
miscellaneous income and totaled $68,000 for the six months ended December 31,
2001 and $54,000 for the six months ended December 31, 2000. The increase was
primarily due to an increase in service charges on transaction accounts.
Noninterest expense. Noninterest expense totaled $1,528,000 for the six months
ended December 31, 2001 compared to $1,379,000 for the six months ended December
31, 2000, an increase of $149,000. The increase was directly related to the
additional cost of personnel, occupancy and advertising associated with the
opening of a new branch office during June 2001 in the new Wal-Mart Superstore
in Sidney.
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 $184,000 for the six months ended December 31, 2001 compared
to $204,000 for the six months ended December 31, 2000, representing a decrease
of $20,000. The effective tax rate was 38.1% for the six months ended December
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 six months ended December 31, 2001 and 2000.
Six Months
Ended December 31,
------------------
2001 2000
---- ----
(Dollars in thousands)
Net income $ 299 $ 332
Adjustments to reconcile net income to net cash from
operating activities 349 186
------------ ------------
Net cash from operating activities 648 518
Net cash from investing activities (2,323) (4,606)
Net cash from financing activities 2,452 4,389
------------ ------------
Net change in cash and cash equivalents 777 301
Cash and cash equivalents at beginning of period 6,351 2,206
------------ ------------
Cash and cash equivalents at end of period $ 7,128 $ 2,507
============ ============
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(Continued)
18.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
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 December 31, 2001, the Corporation had commitments to originate fixed-rate
commercial and residential real estate loans totaling $816,000 and variable-rate
commercial and residential real estate mortgage loans totaling $39,000. 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 December 31, 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 December 31, 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 December 31, 2001 and June 30, 2001, the Association's actual capital levels
and minimum required levels were:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
December 31, 2001
- -----------------
Total capital (to risk-
weighted assets) $ 14,431 16.2% $ 7,145 8.0% $ 8,931 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 13,765 15.4 3,572 4.0 5,359 6.0
Tier 1 (core) capital (to
adjusted total assets) 13,765 10.0 5,491 4.0 6,864 5.0
Tangible capital (to
adjusted total assets) 13,765 10.0 2,059 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
On October 16, 2001, the Board of Directors announced the completion of the
Corporation's fourth stock repurchase program through purchasing 78,915 shares
in the open market over the past several months. In addition, the Board of
Directors authorized the commencement of the Corporation's fifth stock
repurchase program whereby a total of 74,800 shares will be purchased in the
open market as conditions permit over the next twelve months.
- --------------------------------------------------------------------------------
(Continued)
20.
PEOPLES-SIDNEY FINANCIAL CORPORATION
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On October 12, 2001 the Annual Meeting of Shareholders of the
Corporation was held. The following members of the Board of Directors
of the Corporation were re-elected by the votes set forth below for
the terms expiring in 2004:
James W. Kerber FOR: 1,219,404 WITHHELD: 9,725
Douglas Stewart FOR: 1,222,304 WITHHELD: 6,825
One other matter submitted to the Shareholders, for which the
following votes were cast:
Ratification of the selection of Crowe, Chizek and Company LLP as the
auditors of the Corporation for the fiscal year ending June 30, 2002.
FOR: 1,216,384 AGAINST: 2,200 ABSTAIN: 10,545
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Form 8-K was filed on October 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. The
Corporation also announced the completion of a stock buyback
program and the commencement of another 5% buyback.
- --------------------------------------------------------------------------------
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: February 11, 2002 /s/ Douglas Stewart
----------------- -----------------------
Douglas Stewart
President
Date: February 11, 2002 /s/ Debra Geuy
----------------- -----------------------
Debra Geuy
Chief Financial Officer