SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
SEC File Number 0-33419
-----------------------
PHSB Financial Corporation
--------------------------
(Exact Name of registrant as specified in its charter)
PENNSYLVANIA 25-1894708
- ------------ ----------
(State or other jurisdiction of (IRS Identification Number)
Employer incorporation or organization)
744 Shenango Road
P.O. Box 1568
Beaver Falls, Pennsylvania 15010
(724) 846 - 7300
--------------------------------
(Address, including zip code, and
telephone number, including area
code of Principal Executive Offices)
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 (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes [X] No [ ]
As of August 1, 2002 there were 3,147,399 shares outstanding of the issuer's
class of common stock.
1
PHSB FINANCIAL CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
Page
Number
------
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet (unaudited) as of June 30, 2002
and December 31, 2001 3
Consolidated Statement of Income (unaudited) for the Three
and Six Months ended June 30, 2002 and 2001 4
Consolidated Statement of Comprehensive Income (unaudited)
for the Three and Six Months ended June 30, 2002 and 2001 5
Consolidated Statement of Changes in Stockholders' Equity
(unaudited) for the Six Months ended June 30, 2002 6
Consolidated Statement of Cash Flows (unaudited) for the
Six Months ended June 30, 2002 and 2001 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 14
Part II Other Information 15
Signatures 17
2
PHSB FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, December 31,
2002 2001
------------ ------------
ASSETS
Cash and amounts due from other institutions $ 6,740,654 $ 5,988,187
Interest - bearing deposits with other institutions 6,326,120 28,195,161
Investment securities:
Available for sale 36,408,973 22,902,366
Held to maturity (market value $ 30,002,909
and $26,516,322) 29,690,953 26,259,684
Mortgage - backed securities:
Available for sale 57,029,579 54,603,622
Held to maturity (market value $ 39,135,730
and $30,444,092) 38,425,837 30,179,631
Loans (net of allowance for loan losses of $1,601,236
and $1,506,140) 143,521,529 137,000,743
Accrued interest receivable 1,837,566 1,679,032
Premises and equipment 4,902,375 5,029,993
Federal Home Loan Bank stock 2,966,300 2,614,800
Other assets 485,586 929,215
------------ ------------
TOTAL ASSETS $328,335,472 $315,382,434
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $217,099,598 $210,014,644
Advances from Federal Home Loan Bank 58,324,800 50,324,800
Accrued interest payable and other liabilities 2,465,838 2,208,161
------------ ------------
Total liabilities 277,890,236 262,547,605
------------ ------------
Preferred stock, 20,000,000 shares authorized, none issued - -
Common stock, $.10 par value 80,000,000 shares authorized,
3,497,109 shares issued 349,711 349,711
Additional paid in capital 32,264,002 32,229,027
Retained earnings - substantially restricted 22,813,132 21,985,576
Accumulated other comprehensive income 1,642,114 856,798
Unallocated ESOP shares (226,517 and 238,439 shares) (2,402,563) (2,529,013)
Unallocated RSP shares (3,190 and 6,380 shares) (28,635) (57,270)
Treasury stock, at cost (292,500 shares) (4,192,525) -
------------ ------------
Total stockholders' equity 50,445,236 52,834,829
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $328,335,472 $315,382,434
============ ============
See accompanying notes to the unaudited consolidated financial statements.
3
PHSB FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
INTEREST AND DIVIDEND INCOME
Loans $2,693,609 $2,634,956 $5,416,747 $5,256,393
Investment securities:
Taxable 437,576 442,852 812,405 928,148
Exempt from federal income tax 301,257 209,218 587,188 424,115
Mortgage - backed securities 1,516,097 1,529,783 2,966,859 2,894,347
Interest - bearing deposits with other institutions 31,715 69,087 99,739 156,155
---------- ---------- ---------- ----------
Total interest income 4,980,254 4,885,896 9,882,938 9,659,158
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 1,590,163 2,015,722 3,231,010 4,127,119
Advances from Federal Home Loan Bank 794,439 676,515 1,523,997 1,239,512
---------- ---------- ---------- ----------
Total interest expense 2,384,602 2,692,237 4,755,007 5,366,631
---------- ---------- ---------- ----------
Net interest income 2,595,652 2,193,659 5,127,931 4,292,527
PROVISION FOR LOAN LOSSES 180,000 120,000 360,000 240,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,415,652 2,073,659 4,767,931 4,052,527
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 152,954 150,251 297,203 291,526
Investment securities gains, net 44,561 -- 49,960 58,118
Rental income, net 18,156 25,327 41,483 49,654
Other income 71,403 51,737 130,937 96,481
---------- ---------- ---------- ----------
Total noninterest income 287,074 227,315 519,583 495,779
---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Compensation and employee benefits 931,234 820,240 1,840,350 1,628,927
Occupancy and equipment costs 354,997 319,623 706,587 676,146
Data processing costs 48,860 38,658 98,018 104,352
Other expenses 399,609 367,888 778,465 695,167
---------- ---------- ---------- ----------
Total noninterest expense 1,734,700 1,546,409 3,423,420 3,104,592
---------- ---------- ---------- ----------
Income before income taxes 968,026 754,565 1,864,094 1,443,714
Income taxes 243,000 205,682 477,000 380,182
---------- ---------- ---------- ----------
NET INCOME $ 725,026 $ 548,883 $1,387,094 $1,063,532
========== ========== ========== ==========
Earnings Per Share
Basic $ 0.23 $ 0.17 $ 0.43 $ 0.34
Diluted $ 0.23 $ 0.17 $ 0.43 $ 0.34
Weighted average number of shares outstanding
Basic 3,130,855 3,165,145 3,192,531 3,167,678
Diluted 3,180,441 3,165,293 3,239,314 3,167,695
See accompanying notes to the unaudited consolidated financial statements.
4
PHSB FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------------------ ----------------------- ------------------------- ----------------------
Net Income $ 725,026 $ 548,883 $ 1,387,094 $ 1,063,532
Other comprehensive
income (loss):
Unrealized gain (loss)
on available for sale
securities $ 1,648,956 $ (432,926) $ 1,239,832 $ 161,206
Less: Reclassification
adjustment for gain
included in net income (44,561) - - (49,960) (58,118)
------------------------ ------------------------ -------------------------- ------------------------
Other comprehensive income
(loss) before tax 1,604,395 (432,926) 1,189,872 103,088
Income tax expense (benefit)
related to other
comprehensive income (loss) 545,494 (147,195) 404,556 35,050
----------- ---------- ----------- -----------
Other comprehensive income
(loss), net of tax 1,058,901 (285,731) 785,316 68,038
----------- ---------- ----------- -----------
Comprehensive income $ 1,783,927 $ 263,152 $ 2,172,410 $ 1,131,570
=========== ========== =========== ===========
See accompanying notes to the unaudited consolidated financial statements.
5
PHSB FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED)
Accumulated
Other Total
Additional Compre- Unallocated Unallocated Stock- Compre-
Common Paid in Retained hensive Shares Held Shares Held Treasury holders' hensive
Stock Capital Earnings Income by ESOP by RSP Stock Equity Income
-------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ --------
Balance,
December
31, 2001 $349,711 $32,229,027 $21,985,576 $ 856,798 ($2,529,013) ($57,270) - $52,834,829
Net Income 1,387,094 1,387,094 1,387,094
Other comprehensive
income :
Unrealized gain on
available for
sale securities 785,316 785,316 785,316
---------
Comprehensive
income 2,172,410
=========
Cash dividends paid
($0.16 per share) (559,538) (559,538)
Treasury stock
purchased,
at cost (4,192,525) (4,192,525)
ESOP shares earned 34,975 126,450 161,425
RSP shares earned 28,635 28,635
-------- ------------ ------------ ----------- ----------- ----------- ------------ ------------
Balance,
June 30, 2002 $349,711 $32,264,002 $22,813,132 $1,642,114 ($2,402,563) ($28,635) ($4,192,525) $50,445,236
======== ============ ============ =========== =========== =========== ============ ============
See accompanying notes to the unaudited consolidated financial statements.
6
PHSB FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months ended June 30,
2002 2001
------------ ------------
OPERATING ACTIVITIES
Net income $ 1,387,094 $ 1,063,532
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 360,000 240,000
Depreciation, amortization and accretion 346,549 328,945
Amortization of discounts, premiums and
loan origination fees 590,474 543,083
Gains on sale of investment securities, net (49,960) (58,118)
Increase in accrued interest receivable (158,534) (37,183)
Increase in accrued interest payable 197,072 5,081
Amortization of ESOP unearned compensation 161,425 57,450
Amortization of RSP unearned compensation 28,635 64,257
Other, net (77,363) (70,647)
------------ ------------
Net cash provided by operating activities 2,785,392 2,136,400
------------ ------------
INVESTING ACTIVITIES
Investment and mortgage-backed securities available for sale:
Proceeds from sales 362,710 1,862,276
Proceeds from maturities and principal repayments 9,986,378 7,337,854
Purchases (25,096,111) (29,469,367)
Investment and mortgage-backed securities held to maturity:
Proceeds from maturities and principal repayments 12,983,717 9,859,674
Purchases (24,686,909) (5,997,258)
Decrease (increase) in loans receivable, net (7,391,722) 559,370
Proceeds from sale of repossessed assets 177,511 295,837
Purchase of premises and equipment, net (218,931) (237,132)
Purchase of Federal Home Loan Bank Stock (351,500) -
------------ ------------
Net cash used for investing activities (34,234,857) (15,788,746)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 7,084,954 3,007,809
Advances from Federal Home Loan Bank 10,000,000 20,000,000
Repayment of Advances from Federal Home Loan Bank (2,000,000) (6,000,000)
Treasury stock purchased (4,192,525) (325,197)
Cash dividends paid (559,538) (509,185)
------------ ------------
Net cash provided by financing activities 10,332,891 16,173,427
------------ ------------
Increase (decrease) in cash and cash equivalents (21,116,574) 2,521,081
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,183,348 6,597,161
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,066,774 $ 9,118,242
============ ============
See accompanying notes to the unaudited consolidated financial statements.
7
PHSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of PHSB Financial Corporation (the
"Company") include it's wholly-owned subsidiary, Peoples Home Savings Bank (the
"Bank") and the Bank's wholly-owned subsidiary, HOMECO (the "Subsidiary"). All
significant intercompany balances and transactions have been eliminated. The
Company's business is conducted principally through the Bank.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions to Form 10-QSB and, therefore, do not
necessarily include all information which would be included in audited financial
statements. The information furnished reflects all normal recurring adjustments
which are, in the opinion of management, necessary for the fair statement of the
results of the period. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year or any
other future period. The unaudited consolidated financial statements should be
read in conjunction with Form 10-KSB for the year ended December 31, 2001.
Cash Flow Information
The Company has defined cash and cash equivalents as cash and amounts due from
depository institutions and interest-bearing deposits with other institutions.
For the six months ended June 30, 2002 and 2001, the Company made cash payments
for interest of $4,557,935 and $5,631,550 respectively. The Company also made
cash payments for income taxes of $457,742 and $309,442 respectively, during
these same periods.
NOTE 2 - EARNINGS PER SHARE
The Company provides dual presentation of basic and diluted earnings per share.
Basic earnings per share is calculated utilizing net income as reported as the
numerator and average shares outstanding as the denominator. The computation of
diluted earnings per share differs in that the dilutive effects of any options,
warrants, and convertible securities are adjusted for in the denominator.
All references to earnings per share have been retroactively adjusted to reflect
the conversion which was completed on December 20, 2001. As a result of the
conversion each common share of PHS Bancorp, Inc. was converted into 1.28123
shares of PHSB Financial Corporation common stock.
Shares outstanding do not include ESOP shares that were purchased and
unallocated in accordance with SOP 93-6, "Employers' Accounting for Stock
Ownership Plans."
8
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Private Securities Litigation Act of 1995 contains safe harbor provisions
regarding forward-looking statements. When used in this discussion, the words
"believes", "anticipates", "contemplates", "expects", and similar expressions
are intended to identify forward-looking statements. Such statements are subject
to certain risks and uncertainties which could cause actual results to differ
materially from those projected. Those risks and uncertainties include changes
in interest rates, risks associated with the effect of opening a new branch, the
ability to control costs and expenses, and general economic conditions.
Overview
On December 20, 2001, PHSB Financial Corporation (the "Company") completed its
second step conversion from a mutual holding company structure to a full stock
company. As part of the mutual holding company reorganization, the shares
formerly held by the mutual holding company were cancelled, the Company sold
2,201,191 new shares to the public and the publicly held shares of PHS Bancorp,
Inc., the former middle tier holding company, were exchanged for 1,295,918
shares of the Company.
On July 30, 2002 the President signed into law the Sarbanes-Oxley Act of 2002
(the "Act"), following an investigative order proposed by the SEC on chief
financial officers and chief executive officers of 947 large public companies on
June 27, 2002. Additional regulations are expected to be promulgated by the SEC.
As a result of the accounting restatements by large public companies, the
passage of the Act and regulations expected to be implemented by the SEC,
publicly-registered companies, such as the Company, will be subject to
additional and more cumbersome reporting regulations and disclosure. These new
regulations, which are intended to curtail corporate fraud, will require certain
officers to personally certify certain SEC filings and financial statements and
will require additional measures to be taken by our outside auditors, officers
and directors. The loss of investor confidence in the stock market and the new
laws and regulations will increase non-interest expenses of the Company and
could adversely affect the prices of publicly-traded stocks, such as the
Company.
Unless the context otherwise indicates, all references to the Company include
its wholly owned subsidiary, Peoples Home Savings Bank (the "Bank"). Prior to
December 20, 2001, all references refer to the Bank and PHS Bancorp, Inc.
Financial Condition
Total assets at June 30, 2002 of $328.3 million represented an increase of $13.0
million or 4.1% from December 31, 2001. This increase was primarily due to
increases in securities of $27.6 million and loans of $6.5 million, partially
offset by a decrease in cash and interest bearing deposits of $21.1 million.
Loans receivable, net at June 30, 2002, of $143.5 million represented an
increase of $6.5 million from $137.0 million at December 31, 2001. The increase
in the loan portfolio was primarily attributable to a loan to a local school
district for $4.3 million made in the first quarter of 2002.
At June 30, 2002, investment securities (available for sale and held to
maturity) increased $16.9 million to $66.1 million from $49.2 million at
December 31, 2001. Mortgage-backed securities (available for sale and held to
maturity) increased $10.7 million to $95.5 million at June 30, 2002 from $84.8
million at December 31, 2001. The total increase of $27.6 million to the
investment and mortgage-backed securities portfolios (available for sale and
held to maturity) were the result of purchases of $49.8 million which were
funded by sales of $363,000, maturities of $9.9 million, and principal
repayments of $13.0 million along with a net increase in Federal Home Loan Bank
advances of $8.0 million. The purchases funded by advances from the Federal Home
Loan Bank of Pittsburgh were part of Peoples Home Savings' leverage strategy.
Total deposits after interest credited at June 30, 2002 were $217.1 million, an
increase of $7.1 million or 3.4% from $210.0 million at December 31, 2001.
Advances from the Federal Home Loan Bank of Pittsburgh increased $8.0 million to
$58.3 million at June 30, 2002 from $50.3 million at December 31, 2001. This
increase was the result of additional borrowings to fund securities purchases as
discussed above.
9
Stockholders' equity decreased $2.4 million for the six month period ended June
30, 2002. This decrease was due to treasury stock purchases of $4.2 million and
cash dividends paid of $560,000. These decreases to stockholders' equity were
partially offset by net income of $1.4 million along with decreases in
unallocated ESOP and RSP shares of $126,000 and $28,000 respectively along with
increased accumulated other comprehensive income of $785,000.
Results of Operations
Comparison of Operating Results for the Three Months Ended June 30, 2002 and
June 30, 2001.
General.
Net income for the three months ended June 30, 2002 increased $176,000 to
$725,000, from $549,000 for the three months ended June 30, 2001. This increase
was primarily due to increased net interest income of $402,000 along with
increased non-interest income of $60,000.These increases to net income were
partially offset by increases in non-interest expense, loan loss provisions and
income tax provisions of $188,000, $60,000 and $37,000, respectively.
Net Interest Income.
Reported net interest income increased $402,000 or 18.3% for the three months
ended June 30, 2002. Net interest income on a tax equivalent basis increased by
$451,000 or 19.6%, in a period when both average interest earning assets and
average interest-bearing liabilities increased (increased $46.9 million and
$24.4 million, respectively). The Company's net interest rate spread decreased 6
basis points to 2.91% for the three months ended June 30, 2002.
Interest Income.
Interest income on a tax equivalent basis totaled $5.1 million for the three
months ended June 30, 2002, an increase of $142,000 or 2.8% over the total of
$5.0 million for the three months ended June 30, 2001. This increase was
primarily due to an increase in the Company's average interest-earning assets of
$46.9 million for the three months ended June 30, 2002, partially offset by a 88
basis point decrease in the yield earned. Interest earned on loans increased
$59,000 or 2.2%, in 2002. This increase was due to a $15.4 million increase in
the average balance of loans, partially offset by a 71 basis point decrease in
the yield earned. Interest earned on investment and mortgage-backed securities
(including securities held for sale) increased $83,000 or 3.5%, in 2002. This
increase was due to an increase in the average balance of securities of $31.5
million partially offset by a 95 basis point decrease in the yield earned.
Interest Expense.
Interest expense decreased $308,000 to $2.4 million for the three months ended
June 30, 2002. The decrease in interest expense was due to an 82 basis point
decrease in the average cost of interest-bearing liabilities to 3.46%, partially
offset by a $24.4 million increase in the average balance of interest-bearing
liabilities. The $24.4 million increase in the average balance of
interest-bearing liabilities was the result of increased deposits of $14.8
million and increased average borrowings of $9.6 million.
10
Provision for Losses on Loans.
The provision for loan losses is charged to operations to bring the total
allowance for loan losses to a level that represents management's best estimates
of the losses inherent in the portfolio, based on:
o historical experience;
o volume;
o type of lending conducted by the Bank;
o industry standards;
o the level and status of past due and non-performing loans;
o the general economic conditions in the Bank's lending area; and
o other factors affecting the collectibility of the loans in its portfolio.
The provision for loan losses increased by $60,000 to $180,000 for the three
months ended June 30, 2002, from $120,000 for the three months ended June 30,
2001. Increases in loans precipitated the increase in the provision for loan
losses. At June 30, 2002 and December 31, 2001 the allowance for loan losses
represented 1.10% and 1.09%, of loans, respectively. See "Risk Elements."
Non-interest Income.
Total non-interest income increased $60,000 to $287,000 for the three months
ended June 30, 2002, from $227,000 for the three months ended June 30, 2001.
This increase was primarily due to investment security gains of $45,000 for the
three months ended June 30, 2002. There were no investment security gains for
the three months ended June 30, 2001.
Non-interest Expense.
Non-interest expense increased $189,000 to $1,735,000 for the three months ended
June 30, 2002, from $1,546,000 for the three months ended June 30, 2001. This
increase was primarily due to increased compensation and employee benefits of
$111,000 which was primarily the result of normal merit increases along with
increased ESOP expense due to additional ESOP shares acquired in connection with
the conversion and reorganization that was effective December 20, 2001.
Comparison of Operating Results for the Six Months Ended June 30, 2002 and June
30, 2001.
General.
Net income for the six months ended June 30, 2002 increased by $324,000 to $1.4
million from $1.1 million for the six months ended June 30, 2001. This increase
was primarily due to increased net interest income of $835,000 along with
increased non-interest income of $24,000.These increases to net income were
partially offset by increases in non-interest expense, loan loss provisions and
income tax provisions of $319,000, $120,000 and $97,000, respectively.
Net Interest Income.
Reported net interest income increased $835,000 or 19.5% for the six months
ended June 30, 2002. Net interest income on a tax equivalent basis increased by
$920,000 or 20.4%, in a period when both average interest earning assets and
average interest-bearing liabilities increased (increased $48.4 million and
$25.3 million, respectively). The Company's net interest rate spread decreased 6
basis points to 2.90% for the six months ended June 30, 2002.
11
Interest Income.
Interest income on a tax equivalent basis totaled $10.2 million for the six
months ended June 30, 2002, an increase of $308,000 or 3.1% over the total of
$9.9 million for the six months ended June 30, 2001. This increase was primarily
due to an increase in the Company's average interest-earning assets of $48.4
million for the six months ended June 30, 2002, partially offset by a 92 basis
point decrease in the yield earned. Interest earned on loans increased $161,000
or 3.1%, in 2002. This increase was due to a $15.0 million increase in the
average balance of loans, partially offset by a 63 basis point decrease in the
yield earned. Interest earned on investment and mortgage-backed securities
(including securities held for sale) increased $147,000 or 3.2%, in 2002. This
increase was due to an increase in the average balance of securities of $33.4
million, partially offset by a 109 basis point decrease in the yield earned.
Interest Expense.
Interest expense decreased $612,000 to $4.8 million for the six months ended
June 30, 2002. The decrease in interest expense was due to an 86 basis point
decrease in the average cost of interest-bearing liabilities to 3.51%, partially
offset by a $25.3 million increase in the average balance of interest-bearing
liabilities. The $25.3 million increase in the average balance of
interest-bearing liabilities was the result of increased deposits of $13.4
million and increased average borrowings of $11.9 million.
Provision for Losses on Loans.
The provision for loan losses increased by $120,000 to $360,000 for the six
months ended June 30, 2002, from $240,000 for the six months ended June 30,
2001. Increases in loans precipitated the increase in the provision for loan
losses. At June 30, 2002 and December 31, 2001 the allowance for loan losses
represented 1.10% and 1.09% of loans, respectively. See "Comparison of Operating
Results for the Three Months Ended June 30, 2002 and June 30, 2001- Provision
for Losses on Loans and Risk Elements."
Non-interest Income.
Total non-interest income increased $24,000 to $520,000 for the six months ended
June 30, 2002, from $496,000 for the six months ended June 30, 2001.
Non-interest Expense.
Non-interest expense increased $318,000 to $3,423,000 for the six months ended
June 30, 2002, from $3,105,000 for the six months ended June 30, 2001. This
increase was primarily due to increased compensation and employee benefits of
$211,000 which was primarily the result of normal merit increases along with
increased ESOP expense due to additional ESOP shares acquired in connection with
the conversion and reorganization that was effective December 20, 2001.
12
Liquidity and Capital Requirements
Liquidity refers to the Company's ability to generate sufficient cash to meet
the funding needs of current loan demand, savings deposit withdrawals, and to
pay operating expenses. The Company has historically maintained a level of
liquid assets in excess of regulatory requirements. Maintaining a high level of
liquid assets tends to decrease earnings, as liquid assets tend to have a lower
yield than other assets with longer terms (e.g. loans). The Company adjusts
liquidity as appropriate to meet its asset/liability objectives.
The Company's primary sources of funds are deposits, amortization and prepayment
of loans and mortgage-backed securities, maturities of investment securities and
funds provided from operations. While scheduled loan and mortgage-backed
securities repayments are a relatively predictable source of funds, deposit
flows and loan and mortgage-backed securities prepayments are greatly influenced
by interest rates, economic conditions and competition. In addition, the Company
invests excess funds in overnight deposits, which provide liquidity to meet
lending requirements
The Company has other sources of liquidity if a need for additional funds
arises, such as FHLB of Pittsburgh advances. At June 30, 2002 the Bank had
borrowed $58.3 million of it's $144.6 million maximum borrowing capacity with a
remaining borrowing capacity of approximately $86.3 million. Additional sources
of liquidity can be found in the Company's balance sheet, such as investment
securities and unencumbered mortgage-backed securities that are readily
marketable. Management believes that the Company has adequate resources to fund
all of its commitments.
At June 30, 2002, the Bank's Tier I risk-based and total risk-based capital
ratios were 30.2% and 31.3%, respectively. Current regulations require Tier I
risk-based capital of 6% and total risk - based capital of 10% risk-based assets
to be considered well capitalized. The Bank's leverage ratio was 12.7% at June
30, 2002. Current regulations require a leveraged ratio 5% to be considered well
capitalized.
13
Risk Elements
Nonperforming Assets
The following schedule presents information concerning nonperforming assets
including nonaccrual loans, loans 90 days or more past due, and other real
estate owned at June 30, 2002 and December 31, 2001. A loan is classified as
nonaccrual when, in the opinion of management, there are serious doubts about
collectibility of interest and principal. At the time the accrual of interest is
discontinued, future income is recognized only when cash is received.
The allowance for loan losses was 399.3% of total non-performing assets at June
30, 2002 and 254.0% at December 31, 2001.
June 30, December 31,
2002 2001
---- ----
(Dollars in Thousands)
Loans on nonaccrual basis $374 $537
Loans past due 90 days or more 27 56
-- --
Total non-performing loans 401 593
--- ---
Real estate owned 0 0
- -
Total non-performing assets $401 $593
==== ====
Total non-performing loans to
total loans 0.28% 0.43%
===== =====
Total non-performing loans to
total assets 0.12% 0.19%
===== =====
Total non-performing assets to
total assets 0.12% 0.19%
===== =====
14
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in rights of the Company's Security holders.
None.
Item 3. Defaults by the Company on its senior securities.
None.
Item 4. Results of Votes of Security Holders.
On May 23, 2002, the Company held its annual meeting of stockholders and the
following items were presented:
Election of Directors Joseph D. Belas, Howard B. Lenox and James P. Wetzel,
Jr. for terms of three years ending in 2005. Mr. Belas received 2,938,708
votes in favor and 16,839 votes were withheld. Mr. Lenox received 2,934,477
votes in favor and 21,070 votes were withheld. Mr. Wetzel received
2,939,036 votes in favor and 16,511 votes were withheld.
Ratification of the appointment of S.R. Snodgrass, A.C. as the Company's
independent accountants for the 2002 fiscal year with 2,927,994 votes for,
25,377 votes against, and 2,176 abstentions.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8 - K.
(h) The following exhibits are filed as part of this report.
3.1 Articles of Incorporation of PHSB Financial Corporation*
3.2 Bylaws of PHSB Financial Corporation*
4.0 Specimen Stock Certificate of PHSB Financial Corporation*
10.1 Employment Agreement between Peoples Home Savings Bank and
James P. Wetzel, Jr.*
10.2 1998 Restricted Stock Plan**
10.3 1998 Stock Option Plan**
10.4 Employment Agreement between Peoples Home Savings Bank and
Richard E. Canonge***
99.0 Review Report of Independent Accountants
99.1 Certification
- ---------------
* Incorporated by reference to Registrant's Registration Statement on Form
SB-2 initially filed with the Securities and Exchange Commission on
September 10, 2001 (File No. 333-69180).
15
** Incorporated by reference to the identically numbered exhibits to PHS
Bancorp, Inc.'s Form 10-Q for the quarter ended September 30, 1998 and
filed with the Securities and Exchange Commission on November 13, 1998
(File No. 0-23230).
*** Incorporated by reference to Registrant's Annual Report on Form 10-K for
the year ended December 31, 2001 and filed with the Securities and Exchange
Commission on March 28, 2002
(b) Reports on Form 8-K.
None
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 8, 2002
PHSB Financial Corporation
- --------------------------
(Registrant)
By: /s/James P. Wetzel, Jr.
- ---------------------------
James P. Wetzel, Jr.
President and Chief Executive Officer
By: /s/Richard E. Canonge
- -------------------------
Richard E. Canonge
Chief Financial Officer and Treasurer
17