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, 2005
|_| 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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
As of October 31, 2005, the latest practicable date, 1,405,148 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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1.
PEOPLES-SIDNEY FINANCIAL CORPORATION
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets ........................................... 3
Consolidated Statements of Income ..................................... 4
Consolidated Statements of Comprehensive Income ....................... 5
Condensed Consolidated Statements of Changes in Shareholders' Equity .. 6
Consolidated Statements of Cash Flows ................................. 7
Notes to Consolidated Financial Statements ............................ 8
Item 2. Management's Discussion and Analysis .................................. 15
Item 3. Controls and Procedures ............................................... 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ..................................................... 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ........... 22
Item 3. Defaults Upon Senior Securities ....................................... 22
Item 4. Submission of Matters to a Vote of Security Holders ................... 22
Item 5. Other Information ..................................................... 22
Item 6. Exhibits .............................................................. 22
SIGNATURES ...................................................................... 23
INDEX TO EXHIBITS ............................................................... 24
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2.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
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Item 1. Financial Statements
--------------------
September 30, June 30,
2005 2005
------------- -------------
(Unaudited)
ASSETS
Cash and due from financial institutions $ 1,210,118 $ 1,366,825
Interest-bearing deposits in other financial institutions 4,141,644 3,954,371
------------- -------------
Total cash and cash equivalents 5,351,762 5,321,196
Securities available for sale 5,360,475 5,433,915
Federal Home Loan Bank stock 1,694,400 1,673,900
Loans, net of allowance of $852,400 and $835,500 122,220,415 121,110,189
Accrued interest receivable 834,270 745,534
Premises and equipment, net 2,053,655 2,095,691
Other assets 165,493 314,841
------------- -------------
Total assets $ 137,680,470 $ 136,695,266
============= =============
LIABILITIES
Deposits $ 85,509,874 $ 85,930,737
Borrowed funds 34,153,514 32,588,719
Accrued interest payable and other liabilities 334,615 414,419
------------- -------------
Total liabilities 119,998,003 118,933,875
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 10,793,272 10,785,770
Retained earnings 11,735,821 11,702,497
Treasury stock, 360,227 and 352,727 shares, at cost (4,217,778) (4,113,716)
Unearned employee stock ownership plan shares (556,116) (588,958)
Accumulated other comprehensive loss (90,586) (42,056)
------------- -------------
Total shareholders' equity 17,682,467 17,761,391
------------- -------------
Total liabilities and shareholders' equity $ 137,680,470 $ 136,695,266
============= =============
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
3.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
September 30,
-------------------------
2005 2004
---------- ----------
Interest income
Loans, including fees $1,947,843 $1,837,810
Securities 53,034 45,590
Demand, time and overnight deposits 25,222 10,883
Dividends on FHLB Stock 20,568 17,108
---------- ----------
Total interest income 2,046,667 1,911,391
Interest expense
Deposits 433,651 369,897
Borrowed funds 433,122 410,863
---------- ----------
Total interest expense 866,773 780,760
---------- ----------
Net interest income 1,179,894 1,130,631
Provision for loan losses 16,914 26,769
---------- ----------
Net interest income after provision for loan losses 1,162,980 1,103,862
Noninterest income
Service fees and other charges 34,650 31,677
Gain on sale of real estate owned 657 --
---------- ----------
Total noninterest income 35,307 31,677
Noninterest expense
Compensation and benefits 427,819 409,737
Director fees 24,300 24,300
Occupancy and equipment 101,018 102,616
Computer processing 86,768 58,942
Professional fees 53,224 28,394
State franchise taxes 49,763 52,798
Other 80,427 83,578
---------- ----------
Total noninterest expense 823,319 760,365
---------- ----------
Income before income taxes 374,968 375,174
Income tax expense 135,400 135,300
---------- ----------
Net income $ 239,568 $ 239,874
========== ==========
Earnings per common share - basic $ 0.17 $ 0.17
========== ==========
Earnings per common share - diluted $ 0.17 $ 0.17
========== ==========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
September 30,
------------------------
2005 2004
--------- ---------
Net income $ 239,568 $ 239,874
Other comprehensive income (loss)
Unrealized holding gains and (losses) on
available-for-sale securities (73,530) 120,845
Tax effect 25,000 (41,087)
--------- ---------
Other comprehensive income (loss) (48,530) 79,758
--------- ---------
Comprehensive income $ 191,038 $ 319,632
========= =========
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See accompanying notes to consolidated financial statements.
5.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
September 30,
----------------------------
2005 2004
----------- -----------
Balance, beginning of period $17,761,391 $17,430,913
Net income for period 239,568 239,874
Cash dividends, $.15 and $.14 per share for the three
months ended September 30, 2005 and 2004 (206,244) (191,895)
Purchase of 7,500 shares of treasury stock for the three
months ended September 30, 2005 (104,062) --
Commitment to release 2,799 and 2,944 employee stock
ownership plan shares for the three months ended
September 30, 2005 and 2004, at fair value 40,344 47,331
Change in fair value on securities available for
sale, net of tax (48,530) 79,758
----------- -----------
Balance, end of period $17,682,467 $17,605,981
=========== ===========
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See accompanying notes to consolidated financial statements.
6.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
September 30,
------------------------------
2005 2004
------------ ------------
Cash flows from operating activities
Net income $ 239,568 $ 239,874
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 45,447 43,876
Provision for loan losses 16,914 26,769
Net accretion on securities (90) (90)
Gain on sale of real estate owned (657) --
FHLB stock dividends (20,500) (17,100)
Compensation expense for ESOP shares 40,344 47,331
Change in:
Accrued interest receivable and other assets 60,612 110,352
Accrued expense and other liabilities (54,804) (160,415)
Deferred loan fees 8,211 (701)
------------ ------------
Net cash from operating activities 335,045 289,896
Cash flows from investing activities
Net change in loans (1,184,634) (1,307,145)
Premises and equipment expenditures (3,411) (9,296)
Proceeds from sale of real estate owned 49,940 --
------------ ------------
Net cash from investing activities (1,138,105) (1,316,441)
Cash flows from financing activities
Net change in deposits (420,863) (558,847)
Repayments of long-term FHLB advances (435,205) (474,810)
Proceeds from long-term FHLB advances 2,000,000 --
Cash dividends paid (206,244) (191,895)
Purchase of treasury stock (104,062) --
------------ ------------
Net cash from financing activities 833,626 (1,225,552)
------------ ------------
Net change in cash and cash equivalents 30,566 (2,252,097)
Cash and cash equivalents at beginning of period 5,321,196 10,033,688
------------ ------------
Cash and cash equivalents at end of period $ 5,351,762 $ 7,781,591
============ ============
Supplemental disclosures of cash flow information
Interest paid $ 862,997 $ 783,897
Income taxes paid -- 15,000
Noncash transactions
Transfer from loans to other real estate owned $ 49,283 $ --
- --------------------------------------------------------------------------------
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
Principles of Consolidation: 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, 2005
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 for
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, 2005, included in the Corporation's 2005 Annual Report on Form 10-KSB for
the fiscal year ended June 30, 2005. 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.
Nature of Operations: 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
commercial and residential real estate. Commercial loans are expected to be
repaid from cash flow from operations of businesses. 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.
Use of Estimates: 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 actual results could differ. The allowance for loan
losses and fair values of financial instruments are particularly subject to
change.
Income Taxes: 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.
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(Continued)
8.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Common Share: Basic earnings per common share ("EPS") are net
- --------------------------
income divided by the weighted average number of common shares outstanding
during the period. Employee stock ownership plan ("ESOP") shares are considered
outstanding for this calculation unless unearned. Diluted EPS shows the dilutive
effect of additional common shares upon exercise of stock options.
Stock -Based Compensation: Employee compensation expense under stock options is
- -------------------------
reported using the fair value recognition provisions of FASB Statement 123
(revised 2004) (FAS 123R), Share Based Payment. The Corporation has adopted FAS
123R using the modified prospective method. Under this method, compensation
expense will be recognized for the unvested portion of previously issued awards
that remained outstanding as of July 1, 2005 and for any future awards. Prior
interim periods and fiscal year results will not be restated. For the quarter
ended September 30, 2005, no compensation expense was recognized in the income
statement as all outstanding options were fully vested prior to June 30, 2005.
NOTE 2 - SECURITIES AVAILABLE FOR SALE
Securities available for sale were as follows.
Gross Gross
Fair Unrealized Unrealized
Value Gains Losses
---------- ---------- ----------
September 30, 2005
- ------------------
U.S. Government agencies $5,360,475 $ 155 $ (137,404)
========== ========== ==========
June 30, 2005
- -------------
U.S. Government agencies $5,433,915 $ 3,905 $ (67,624)
========== ========== ==========
Contractual maturities of securities available for sale at September 30, 2005
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.
Fair
Value
----------
Due after one year through five years $2,475,465
Due after five years through ten years 2,885,010
----------
$5,360,475
==========
There were no sales of securities available for sale during the three months
ended September 30, 2005 or 2004. No securities were pledged as collateral at
September 30, 2005 or June 30, 2005.
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(Continued)
9.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES AVAILABLE FOR SALE (Continued)
Securities with unrealized losses at September 30, 2005 and June 30, 2005,
aggregated by investment category and length of time that individual securities
have been in a continuous unrealized loss position, are as follows.
Less than 12 Months 12 Months or More Total
------------------------- ------------------------- -------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Description of Securities Value Loss Value Loss Value Loss
- ------------------------- ---------- ---------- ---------- ---------- ---------- ----------
September 30, 2005
- ------------------
U.S. Government agencies $1,975,310 $ (24,321) $2,885,010 $ (113,083) $4,860,320 $ (137,404)
========== ========== ========== ========== ========== ==========
June 30, 2005
- -------------
U.S. Government agencies $1,990,000 $ (9,602) $2,940,010 $ (58,022) $4,930,010 $ (67,624)
========== ========== ========== ========== ========== ==========
Unrealized losses on the investment securities have not been recognized into
income because the securities are of high credit quality, management has the
intent and ability to hold for the foreseeable future, and the decline in fair
value is largely due to changes in interest rates. The fair value is expected to
recover as the securities approach their maturity date or reset date.
NOTE 3 - LOANS
Loans were as follows.
September 30, June 30,
2005 2005
------------- -------------
Mortgage loans:
1-4 family residential $ 94,615,609 $ 94,593,583
Multi-family residential 1,410,380 1,297,418
Commercial real estate 12,774,250 12,564,156
Real estate construction and
development 2,118,519 1,441,815
Land 2,128,995 2,186,890
------------- -------------
Total mortgage loans 113,047,753 112,083,862
Consumer loans 5,375,294 5,056,291
Commercial loans 5,037,111 5,184,668
------------- -------------
Total loans 123,460,158 122,324,821
Less:
Allowance for loan losses (852,400) (835,500)
Deferred loan fees (387,343) (379,132)
------------- -------------
$ 122,220,415 $ 121,110,189
============= =============
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(Continued)
10.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - LOANS (Continued)
Activity in the allowance for loan losses is summarized as follows.
Three Months Ended
September 30,
-------------------------
2005 2004
--------- ---------
Balance at beginning of period $ 835,500 $ 752,900
Provision for losses 16,914 26,769
Charge-offs (111) (2,669)
Recoveries 97 --
--------- ---------
Balance at end of period $ 852,400 $ 777,000
========= =========
Impaired loans were as follows.
September 30, June 30,
2005 2005
------------- --------
Period-end impaired loans with no allowance for loan losses allocated $ -- $ --
Period-end impaired loans with allowance for loan losses allocated 241,000 161,000
Amount of the allowance allocated to impaired loans 142,000 134,000
Three Months Ended
September 30,
-----------------------
2005 2004
-------- --------
Average of impaired loans during the period $186,000 $129,000
Interest income recognized during the period 3,274 3,182
Cash-basis interest income recognized 1,126 530
Nonperforming loans were as follows.
September 30, June 30,
2005 2005
------------- ----------
Loans past due over 90 days still on accrual $ 347,000 $ 349,000
Nonaccrual loans 1,094,000 1,318,000
Nonperforming loans include smaller balance homogeneous loans, such as
residential mortgage and consumer loans that are collectively evaluated for
impairment and individually classified impaired loans.
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(Continued)
11.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - BORROWED FUNDS
At September 30, 2005 and June 30, 2005, 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.
There were $2,500,000 in outstanding borrowings on this line of credit at
September 30, 2005 and June 30, 2005.
As a member of the FHLB system, the Association has the ability to obtain
borrowings up to a maximum total of $67.5 million including the cash management
line of credit. Advances from the Federal Home Loan Bank were as follows.
September 30, June 30,
2005 2005
------------- -----------
Cash management advance, variable rate 4.06%
at September 30, 2005 and 3.53% at June 30, 2005 $ 2,500,000 $ 2,500,000
6.13% FHLB fixed-rate advance, due June 25, 2008 7,000,000 7,000,000
4.42% FHLB fixed-rate advance, due July 9, 2010 2,000,000 --
6.00% FHLB convertible advance, fixed-rate until
December 2005, due June 11, 2009 5,000,000 5,000,000
6.27% FHLB convertible advance, fixed-rate until
December 2005, due September 8, 2010 5,000,000 5,000,000
5.30% select pay mortgage-matched advance, final
maturity May 1, 2011 827,302 858,399
5.35% select pay mortgage-matched advance, final
maturity July 1, 2011 1,697,673 1,954,752
3.92% select pay mortgage-matched advance, final
maturity November 1, 2012 681,550 702,046
3.55% select pay mortgage-matched advance, final
maturity March 1, 2013 782,188 804,848
4.10% select pay mortgage-matched advance, final
maturity March 1, 2015 959,120 979,664
4.09% select pay mortgage-matched advance, final
maturity November 1, 2017 692,430 703,360
3.31% select pay mortgage-matched advance, final
maturity April 1, 2019 786,511 797,932
4.72% select pay mortgage-matched advance, final
maturity November 1, 2022 2,460,549 2,483,689
4.38% select pay mortgage-matched advance, final
maturity December 1, 2022 819,992 827,909
3.92% select pay mortgage-matched advance, final
maturity December 1, 2022 732,487 739,884
3.64% select pay mortgage-matched advance, final
maturity March 1, 2023 2,213,712 2,236,236
----------- -----------
$34,153,514 $32,588,719
=========== ===========
Advances under the borrowing agreements are collateralized by a blanket pledge
of the Association's residential mortgage loan portfolio and its FHLB stock.
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(Continued)
12.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - BORROWED FUNDS (Continued)
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 prepayment
fee. The select pay mortgage-matched advances require monthly principal and
interest payments and annual additional principal payments.
Maturities of FHLB advances for the next five years and thereafter were as
follows.
Year ended September 30,
2006 $ 4,520,996
2007 1,772,709
2008 8,560,361
2009 6,378,268
2010 8,223,741
Thereafter 4,697,439
-----------
$34,153,514
===========
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 of 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,
2005 2005
------------- ----------
1-4 family residential real estate - fixed rate $ 110,000 $ 407,000
1-4 family residential real estate - variable rate 225,000 695,000
Land - variable rate 460,000 --
Land - fixed rate 400,000 --
Commercial lines of credit 2,614,000 2,592,000
Home equity lines of credit 795,000 709,000
The interest rate on fixed-rate commitments ranged from 5.88% to 6.63% at
September 30, 2005 and 5.75% to 7.00% at June 30, 2005. Commitments to make
loans are generally made for a period of 30 days or less. The maximum maturity
for fixed-rate commitments range from 10 years to 20 years.
- --------------------------------------------------------------------------------
(Continued)
13.
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 5 - OFF-BALANCE-SHEET ACTIVITIES (Continued)
At September 30, 2005 and June 30, 2005, the Corporation was required to have
$296,000 and $325,000 on deposit with its correspondent banks as a compensating
clearing requirement.
The Corporation entered into employment agreements with certain of its officers.
The agreements provide for a term of one to three years and a salary and
performance review by the Board of Directors not less often than annually, as
well as inclusion of the employee in any formally established employee benefit,
bonus, pension and profit-sharing plans for which management personnel are
eligible. The agreements provide for extensions for a period of one year on each
annual anniversary date, subject to review and approval of the extension by
disinterested members of the Board of Directors of the Association. The
employment agreements also provide for vacation and sick leave.
NOTE 6 - EARNINGS PER SHARE
The factors used in the earnings per share computation follow.
Three Months Ended
September 30,
----------------------------
2005 2004
----------- -----------
Basic Earnings Per Common Share
Net income $ 239,568 $ 239,874
=========== ===========
Weighted average common shares
outstanding 1,427,349 1,432,648
Less: Average unallocated ESOP shares (48,791) (60,494)
----------- -----------
Weighted average common shares
outstanding for basic earnings
per common share 1,378,558 1,372,154
=========== ===========
Basic earnings per common share $ 0.17 $ 0.17
=========== ===========
Diluted Earnings Per Common Share
Net income $ 239,568 $ 239,874
=========== ===========
Weighted average common shares
outstanding for basic earnings
per common share 1,378,558 1,372,154
Add: Dilutive effects of assumed
exercises of stock options -- 542
----------- -----------
Weighted average common shares
and dilutive potential common
shares outstanding 1,378,558 1,372,696
=========== ===========
Diluted earnings per common share $ 0.17 $ 0.17
=========== ===========
- --------------------------------------------------------------------------------
(Continued)
14.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis
------------------------------------
Introduction
In the following pages, management presents an analysis of the consolidated
financial condition of the Corporation as of September 30, 2005, compared to
June 30, 2005, and results of operations for the three months ended September
30, 2005, compared with the same period in 2004. 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.
Overview and Outlook
As the Federal Reserve Board continues to analyze market adjustments in interest
rates to control inflationary pressures, depositors and borrowers alike continue
to make a shift in the type of instrument that suits their immediate and
long-term needs. We are currently seeing increases in money market accounts and
decreases in demand deposits as well as longer-term certificates of deposit. As
certificates mature, customers are repositioning deposits into higher yielding
liquid type accounts to take advantage of future increasing interest rates. On
the lending side, many borrowers are again considering adjustable rate mortgages
as market interest rates have pushed fixed rate mortgages to higher levels. We
expect rates to continue to increase as our fiscal year progresses.
Forward-Looking Statements
When used in this filing 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.
- --------------------------------------------------------------------------------
(Continued)
15.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Financial Condition
Total assets at September 30, 2005 were $137.7 million compared to $136.7
million at June 30, 2005, an increase of $1.0 million. The increase in total
assets was primarily due to an increase in loans of $1.1 million, funded by
borrowed funds, which increased by $1.6 million.
Cash and cash equivalents increased $31,000 from $5,352,000 at June 30, 2005 to
$5,321,000 at September 30, 2005.
The securities portfolio, which is classified as available for sale, decreased
$74,000, from $5,434,000 at June 30, 2005 to $5,360,000 at September 30, 2005.
The decrease is related to a decrease in the fair value of the securities during
the reporting period as no securities transactions occurred. See Note 2 of Notes
to Consolidated Financial Statements.
Federal Home Loan Bank stock increased $20,000 from $1,674,000 at June 30, 2005
to $1,694,000 at September 30, 2005 as a result of normal dividend payments.
Loans increased $1.1 million from $121.1 million at June 30, 2005 to $122.2
million at September 30, 2005. The most significant change was in real estate
construction and development loans, which increased $0.7 million from $1.4
million at June 30, 2005 to $2.1 million at September 30, 2005. Commercial real
estate loans and multi-family residential increased $0.2 million and $0.1
million, respectively from June 30, 2005 to September 30, 2005. Consumer loans
also provided an increase to the loan portfolio with growth of $0.3 million from
June 30, 2005 to September 30, 2005. Other loan categories had nominal changes,
that combined, totaled a decrease of $0.2 million for the current period. See
Note 3 of Notes to Consolidated Financial Statements.
Premises and equipment decreased $42,000 from $2,096,000 at June 30, 2005 to
$2,054,000 at September 30, 2005. This decrease resulted from normal
depreciation of existing assets partially offset by equipment purchases and
routine improvements to the office building.
Total deposits decreased $0.4 million from $85.9 million at June 30, 2005 to
$85.5 million at September 30, 2005 primarily due to a decrease of $1.1 million
in certificates of deposit. NOW accounts also decreased $0.4 million and savings
account decreased $0.3 million. These decreases were partially offset by an
increase of $1.4 million in money market accounts.
Borrowed funds increased $1.6 million from $32.6 million at June 30, 2005 to
$34.2 million at September 30, 2005. This increase was the result of the
addition of a $2.0 million FHLB fixed-rate advance, which was offset by the
scheduled repayments of mortgage-matched advances. The increase in FHLB advances
was used to fund the increase in loans and offset the decrease in deposits. See
Note 4 of Notes to Consolidated Financial Statements.
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. Demand for real estate loans and other types
of loans influence lending activities, which in turn is affected by interest
rates at which such loans are made, general economic conditions and availability
of funds for lending activities.
- --------------------------------------------------------------------------------
(Continued)
16.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The Corporation's net income primarily depends on its net interest income, which
is the difference between interest income earned on interest-earning assets,
such as loans and securities and interest expense incurred on interest-bearing
liabilities, such as deposits and borrowings. The level of net interest income
is dependent on the interest rate environment and volume and composition of
interest-earning assets and interest-bearing liabilities. Net income is also
affected by provisions for loan losses, service charges, gains on the sale of
assets and other income, noninterest expense and income taxes.
Three Months Ended September 30, 2005 Compared to the Three Months Ended
September 30, 2004
Net Income. The Corporation earned net income of $240,000 for both the three
months ended September 30, 2005 and September 30, 2004. Although net income
remained unchanged, there were changes in the components of net income. The most
significant changes occurred in net interest income, which increased coupled
with a decrease in the provision for loan losses offset by an increase in
noninterest expense.
Net Interest Income. Net interest income totaled $1,180,000 for the three months
ended September 30, 2005 compared to $1,131,000 for the three months ended
September 30, 2004, representing an increase of $49,000. The increase was the
result of an improvement in the net interest rate spread between interest
earning assets and interest bearing liabilities during the current period.
Interest and fees on loans increased $110,000 from $1,838,000 for the three
months ended September 30, 2004 to $1,948,000 for the three months ended
September 30, 2005. The increase in interest income was due primarily to a
higher average balance of loans and, to a lesser extent, an increase in the
average yield earned. The average balance of loans increased to $121.4 million
with an average yield of 6.42% for the three months ended September 30, 2005
compared to an average balance of $116.6 million with an average yield of 6.30%
for the same three month period last year.
Interest on securities increased $7,000 due to an increase in the average yield
earned during the current period. Interest on demand, time and overnight
deposits increased $14,000 to $25,000 for the three months ended September 30,
2005 as compared to $11,000 for the same period last year. The increase in
interest earned on deposits with other financial institutions was the result of
a higher average yield earned on such deposits partially offset by a decrease in
the average balance.
Dividends on FHLB stock increased over the comparable period due to an increase
in the dividend rate paid by the FHLB coupled with a higher average balance.
Interest paid on deposits increased $64,000 from $370,000 for the three months
ended September 30, 2004 to $434,000 for the three months ended September 30,
2005. The increase resulted from an increase in the average interest rate paid
on deposits partially offset by a decrease in the average balance of deposits.
The average balance of deposits for the three months ended September 30, 2005
was $84.6 million at an average cost of 2.03% compared to an average balance of
$85.0 million at an average cost of 1.73% for the three months ended September
30, 2004.
Interest paid on borrowed funds totaled $433,000 for the three months ended
September 30, 2005 compared to $411,000 for the three months ended September 30,
2004. The increase of $22,000 in interest expense on borrowed funds resulted
from an increase in the average balance of borrowed funds partially offset by a
decrease in the average cost of these borrowings.
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(Continued)
17.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
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 incurred 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, 2005
totaled $17,000 compared to $27,000 for the three months ended September 30,
2004. The decrease of $10,000 in the provision for loan losses was due to a
modest decline in nonperforming loans in the three months ended September 30,
2005 while the prior year three-month period had a modest increase in
nonperforming loans. Additionally, net charge-offs were less in the three months
ended September 30, 2005 compared to the three months ended September 30, 2004.
The allowance for loan losses totaled $852,000, or 0.69% of gross loans
receivable net of deferred loan origination fees and 59.2% of total
nonperforming loans at September 30, 2005, compared with $777,000, or 0.66% of
gross loans receivable, net of deferred loan origination fees and 50.5% of total
nonperforming loans at September 30, 2004. Overall, the Corporation's charge-off
history remains very modest and 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, which includes service fees, other
miscellaneous income and the net gain or loss on the sale of real estate owned,
increased $3,000 from $32,000 for the three months ended September 30, 2004 to
$35,000 for the three months ended September 30, 2005
Noninterest expense. Noninterest expense totaled $823,000 for the three months
ended September 30, 2005 compared to $760,000 for the three months ended
September 30, 2004, an increase of $63,000. Compensation and benefits expense
increased $18,000 resulting from normal salary increases. Computer processing
increased $28,000 due to the Corporation's upgrade to a new data processing
system. Professional fees also increased $25,000 as a result of new government
regulations and requirements.
Income Tax Expense. Income tax expense totaled $135,000 for both the three
month-periods ended September 30, 2005 and 2004, representing an effective tax
rate of 36.1%.
- --------------------------------------------------------------------------------
(Continued)
18.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
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, 2005 and 2004.
Three Months
Ended September 30,
----------------------
2005 2004
-------- --------
(Dollars in thousands)
Net income $ 240 $ 240
Adjustments to reconcile net income to net cash from
operating activities 95 50
-------- --------
Net cash from operating activities 335 290
Net cash from investing activities (1,138) (1,316)
Net cash from financing activities 834 (1,226)
-------- --------
Net change in cash and cash equivalents 31 (2,252)
Cash and cash equivalents at beginning of period 5,321 10,034
-------- --------
Cash and cash equivalents at end of period $ 5,352 $ 7,782
======== ========
The Corporation's principal sources of funds are deposits, borrowings, loan
repayments, maturities of securities and other funds provided by operations.
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 Corporation
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. Management believes that loan repayments and other sources of funds
will be adequate to meet the Corporation's foreseeable liquidity needs.
The Corporation also has the ability to borrow from the FHLB up to a maximum
total of $67.5 million including the cash management line of credit. See Note 4
of the Notes to Consolidated Financial Statements for a detail of the
Corporation's borrowings from the FHLB at September 30, 2005.
At September 30, 2005, the Corporation had commitments to originate fixed-rate
loans totaling $510,000 and variable-rate loans totaling $685,000. Loan
commitments are generally for 30 days. See Note 5 of the Notes to Consolidated
Financial Statements for a detail of the Corporation's loan commitments at
September 30, 2005. The Office of Thrift Supervision regulations require the
Corporation's insured subsidiary to maintain a safe and sound level of liquid
assets. The Corporation considers its liquidity and capital reserves sufficient
to meet its outstanding short and long-term needs, and believes it is in
compliance with regulatory requirements.
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. Capital amounts and
classifications are also subject to qualitative judgments by the regulators.
Failure to meet minimum capital requirements can result in regulatory action.
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(Continued)
19.
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required.
At September 30, 2005 and June 30, 2005, 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, 2005 and
June 30, 2005. 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, 2005 and June 30, 2005, the Association's actual capital
levels, minimum required levels and levels to be considered "well capitalized"
were as follows.
To Be
Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------- ------- ------- ------- -------
(Dollars in Thousands)
----------------------
September 30, 2005
- ------------------
Total capital (to risk-
weighted assets) $17,204 21.1% $ 6,523 8.0% $ 8,154 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 16,383 20.1 3,261 4.0 4,892 6.0
Tier 1 (core) capital (to
adjusted total assets) 16,383 11.9 5,517 4.0 6,897 5.0
Tangible capital (to
adjusted total assets) 16,383 11.9 2,069 1.5 N/A
June 30, 2005
- -------------
Total capital (to risk-
weighted assets) $16,909 20.7% $ 6,550 8.0% $ 8,188 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 16,083 19.6 3,275 4.0 4,913 6.0
Tier 1 (core) capital (to
adjusted total assets) 16,083 11.8 5,471 4.0 6,838 5.0
Tangible capital (to
adjusted total assets) 16,083 11.8 2,052 1.5 N/A
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20.
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONTROLS AND PROCEDURES
- --------------------------------------------------------------------------------
Item 3. Controls and Procedures
-----------------------
Any control system, no matter how well designed and operated, can provide only
reasonable (not absolute) assurance that its objectives will be met.
Furthermore, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected.
Disclosure Controls
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures, as such term is defined in
Rules 13a - 15(e) and 15d - 15(e) of the Securities Exchange Act of 1934
(Exchange Act) as of the end of the period covered by the report.
Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that as of September 30, 2005 our disclosure controls and
procedures were effective to provide reasonable assurance that (i) the
information required to be disclosed by us in this Report was recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and (ii) information required to be disclosed by us in
our reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have not been any changes in the Corporation's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the fiscal quarter to which this report relates
that have materially affected, or are reasonably likely to materially affect,
the Corporation's internal control over financial reporting.
- --------------------------------------------------------------------------------
21.
PEOPLES-SIDNEY FINANCIAL CORPORATION
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings
-----------------
The Company is not involved in any pending legal proceedings other
than routine legal proceedings occurring in the ordinary course of
business, which, in the aggregate, involved amounts which are
believed to be immaterial to the consolidated financial condition
and operations of the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
The following table illustrates the repurchase of the Corporation's
common stock during the period ended September 30, 2005.
- ------------------------------------------------------------------------------------------------
Total Number of Maximum
Shares Purchased Number of Shares
as Part of That May Yet Be
Total Number of Average Price Publicly Purchased Under
Shares Paid Announced Plans the Plan or
Period Purchased Per Share or Programs Programs
- ------------------------------------------------------------------------------------------------
July l, 2005 -
July 31, 2005 7,500 $13.875 7,500 64,100
- ------------------------------------------------------------------------------------------------
August l, 2005 -
August 31, 2005 -- -- -- 64,100
- ------------------------------------------------------------------------------------------------
September 1, 2005 -
September 30, 2005 -- -- -- 64,100
- ------------------------------------------------------------------------------------------------
Total 7,500 $13.875 7,500 64,100
- ------------------------------------------------------------------------------------------------
On April 19, 2005, the registrant announced that its Board of
Directors had authorized management to repurchase up to 5% of the
Registrant's common stock both through the open market and through
unsolicited negotiated transactions. The authorization, which is for
71,600 shares, will continue for a twelve-month period and will
expire in April 2006, if not renewed.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits
--------
(a) (1) Exhibits 31.1 and 31.2: Section 302 Certifications
(2) Exhibit 32: Section 906 Certifications
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22.
PEOPLES-SIDNEY FINANCIAL CORPORATION
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: November 14, 2005 /s/ Douglas Stewart
--------------------------- ----------------------------------------
Douglas Stewart
President and Chief Executive Officer
Date: November 14, 2005 /s/ Debra Geuy
--------------------------- ----------------------------------------
Debra Geuy
Chief Financial Officer
- --------------------------------------------------------------------------------
23.
PEOPLES-SIDNEY FINANCIAL CORPORATION
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Articles of Incorporation of Incorporated by reference to the Registration Statement
Peoples-Sidney Financial on Form S-1 filed by Peoples-Sidney Financial Corporation
Corporation on January 27, 1997 (the "S-1") with the Securities and
Exchange Commission (the "SEC"), Exhibit 3.1.
3.2 Bylaws of Peoples-Sidney Financial Incorporated by reference to the S-1, Exhibit 3.2.
Corporation
10.1 Employee Stock Ownership Plan Incorporated by reference to the S-1, Exhibit 10.1
10.2 Form of Employment Agreement with Incorporated by Pre-Effective Amendment No. 1 to the S-1
Douglas Stewart filed with the SEC on March 12, 1997, Exhibit 10.2
10.3 Form of Employment Agreements with Incorporated by Pre-Effective Amendment No. 1 to the S-1
David R. Fogt, Gary N. Fullenkamp and filed with the SEC on March 12, 1997, Exhibit 10.3
Debra A. Geuy
10.4 Form of Severance Agreement with Incorporated by Pre-Effective Amendment No. 1 to the S-1
Steve Goins filed with the SEC on March 12, 1997, Exhibit 10.4
10.5 401 (k) Plan Incorporated by Pre-Effective Amendment No. 1 to the S-1
filed with the SEC on March 12, 1997, Exhibit 10.5
10.6 Peoples-Sidney Financial Corporation Filed as an exhibit to the Registrant's Annual Report on
Amended and Restated 1998 Stock Form 10-KSB for the fiscal year ended June 30, 1999 (File
Option and Incentive Plan No. 0-22223) and incorporate herein by reference.
10.7 Peoples-Sidney Financial Corporation Filed as an exhibit to the Registrant's Annual Report on
Amended and Restated 1998 Management Form 10-KSB for the fiscal year ended June 30, 1999 (File
Recognition Plan No. 0-22223) and incorporate herein by reference.
11 Statement Regarding Computation of See Note 6 to the consolidated financial statements.
Earnings per Share
31.1 Certification of Principal Executive
Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial
Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
- --------------------------------------------------------------------------------
24.
PEOPLES-SIDNEY FINANCIAL CORPORATION
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
32 Certifications of the Chief Executive
Officer and the Chief Financial
Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
- --------------------------------------------------------------------------------
25.