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Page 1 of 18 pages
United States
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 MARCH 31, 2001
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission file number: 0-27980
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Potters Financial Corporation
-----------------------------
(Exact name of small business issuer
as specified in its charter)
Ohio 34-1817924
- ------------------------------------ -----------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
519 Broadway, East Liverpool, Ohio 43920
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (330) 385-0770
--------------
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Common Shares, no par value Outstanding at April 30, 2001
997,989 Common Shares
Transitional Small Business Disclosure Format (check one):
Yes No X
-------- -------
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FORM 10-QSB
QUARTER ENDED MARCH 31, 2001
Part I - Financial Information
Item 1. Financial Statements
Interim financial information required by Item 310(b) of Regulation S-B
is included in this Form 10-QSB as referenced below:
Page
Number (s)
----------
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Comprehensive Income 5
Condensed Consolidated Statements of Changes in Shareholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-16
Part II - Other Information
Item 1. Legal Proceedings 17
Item 2. Change in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
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POTTERS FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------
March 31, December 31,
2001 2000
---- ----
ASSETS
Cash and due from financial institutions $ 3,950 $ 3,930
Interest-bearing deposits 1,344 401
Federal funds sold 2,469 489
----------- -----------
Cash and cash equivalents 7,763 4,820
Securities available for sale 20,235 21,177
Federal Home Loan Bank stock 1,297 1,274
Loans, net 116,193 119,903
Premises and equipment, net 2,561 2,016
Other assets 2,158 2,245
----------- -----------
Total assets $ 150,207 $ 151,435
=========== ===========
LIABILITIES
Deposits $ 118,623 $ 117,792
Federal Home Loan Bank advances 17,500 19,500
Accrued expenses and other liabilities 1,342 1,810
----------- -----------
Total liabilities 137,465 139,102
SHAREHOLDERS' EQUITY
Common shares, no par value
Authorized: 2,000,000 shares;
Issued: 1,116,528 shares in 2001 and 2000
Paid-in capital 5,295 5,288
Retained earnings 8,833 8,567
Accumulated other comprehensive income 97 (39)
Unearned compensation on
recognition and retention plan shares (46) (46)
Treasury stock, at cost: 118,539 shares (1,437) (1,437)
----------- -----------
Total shareholders' equity 12,742 12,333
----------- -----------
Total liabilities and shareholders' equity $ 150,207 $ 151,435
=========== ===========
See accompanying notes to financial statements.
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POTTERS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------------
Three months ended
March 31,
2001 2000
---- ----
INTEREST INCOME
Loans, including fees $ 2,479 $ 2,307
Securities 355 378
Federal funds sold and other 23 18
--------- ---------
2,857 2,703
INTEREST EXPENSE
Deposits 1,281 1,153
Federal Home Loan Bank advances 289 319
--------- ---------
1,570 1,472
--------- ---------
NET INTEREST INCOME 1,287 1,231
Provision for loan losses 15
--------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,272 1,231
NONINTEREST INCOME
Gains on loan sales 8
Other noninterest income 127 162
--------- ---------
135 162
--------- ---------
NONINTEREST EXPENSE
Compensation and benefits 428 424
Occupancy and equipment 113 121
Other noninterest expense 322 325
--------- ---------
863 870
--------- ---------
INCOME BEFORE INCOME TAX 544 523
Income tax expense 168 178
--------- ---------
NET INCOME $ 376 $ 345
========= =========
Earnings per common share
Basic $ 0.38 $ 0.34
======== =========
Diluted $ 0.37 $ 0.33
======== =========
See accompanying notes to financial statements.
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POTTERS FINANCIAL CORPORATION
(Unaudited)
(Dollars in thousands)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended
March 31,
------------------
2001 2000
---- ----
NET INCOME $ 376 $ 345
Other comprehensive income (net of tax):
Change in unrealized loss on securities
available for sale arising during the period 136 47
Reclassification adjustment for accumulated
(gains)/losses included in net income
----------- ----------
Total other comprehensive income 136 47
----------- ----------
COMPREHENSIVE INCOME $ 512 $ 392
=========== ==========
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
2001 2000
---- ----
BALANCE - JANUARY 1 $ 12,333 $ 11,020
Net income for the three months ended March 31 376 345
Tax benefit arising from recognition and
retention plan shares 7 7
Purchase of treasury shares (17,350 in 2000) (172)
Cash dividends declared ($.11 per share in 2001
and $.095 per share in 2000) (110) (98)
Change in unrealized loss on
securities available for sale 136 47
----------- -----------
BALANCE - MARCH 31 $ 12,742 $ 11,149
=========== ===========
See accompanying notes to financial statements.
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POTTERS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three months ended
March 31,
---------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 376 $ 345
Adjustments to reconcile net income to net
cash from operating activities
Depreciation and amortization 79 79
Provision for loan losses 15
Net amortization of securities 1 11
Net realized gain on:
Sales of loans (8)
Sales of foreclosed real estate
and repossessed assets (1)
Stock dividend on FHLB stock (23) (22)
Loans originated for sale (497)
Proceeds from sales of loans held for sale 558 55
Net change in other assets and liabilities (255) 374
------- --------
Net cash from operating activities 246 841
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in available-for-sale securities:
Maturities, repayments and calls 3,699 742
Purchases (2,552)
Loan originations and payments, net 3,621 (3,540)
Loan purchases (5,221)
Proceeds from sale of foreclosed real estate
and repossessed assets 2
Net additions to property and equipment (604) (60)
-------- ---------
Net cash from investing activities 4,164 (8,077)
-------- ---------
(Continued)
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POTTERS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Dollars in thousands)
Three months ended
March 31,
--------------------
2001 2000
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 831 5,558
Proceeds from FHLB advances 1,550 3,400
Repayments of FHLB advances (3,550) (1,700)
Other financing activities (188) (117)
Repurchase of common stock (172)
Cash dividends paid (110) (98)
-------- ---------
Net cash from financing activities (1,467) 6,871
-------- ---------
Net change in cash and cash equivalents 2,943 (365)
Cash and cash equivalents at beginning of period 4,820 7,280
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,763 $ 6,915
======== =========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 1,782 $ 1,408
Income taxes 100 28
See accompanying notes to consolidated financial statements.
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POTTERS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include Potters Financial Corporation
("PFC") and its wholly-owned subsidiary, Potters Bank, both headquartered in
East Liverpool, Ohio. Significant intercompany transactions and balances have
been eliminated in consolidation. These interim financial statements are
prepared without audit and reflect all adjustments, which, in the opinion of
management, are necessary to present fairly the consolidated financial position
of PFC at March 31, 2001, and its statements of income, comprehensive income and
cash flows for the periods presented. All such adjustments are normal and
recurring in nature. The accompanying consolidated financial statements do not
purport to contain all the necessary financial disclosures required by generally
accepted accounting principles that might otherwise be necessary in the
circumstances and should be read in conjunction with the consolidated financial
statements of PFC and notes thereto included in the 2000 Annual Report.
All banking operations are considered by management to be aggregated in one
reportable operating segment.
Comprehensive income is reported for all periods. Other comprehensive income
includes the change in unrealized gains and losses on securities available for
sale.
A 5% stock dividend, paid from treasury shares in July 2000, reduced retained
earnings by $430,000. All references to common shares, earnings and dividends
per share have been restated to reflect all stock dividends and stock splits.
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
EPS includes the potential dilution resulting from the issuance of common shares
upon stock option exercises and vesting of recognition and retention plan
shares. Following is a summary of shares used in computing EPS:
Three months ended
------------------
March 31,
---------
2001 2000
---- ----
Weighted average common shares
outstanding for basic EPS 987,602 1,005,664
Add: Dilutive effects of assumed
exercises of stock options and
recognition and retention plan 25,264 21,470
----------- -----------
Average shares and dilutive potential
common shares 1,012,866 1,027,134
=========== ===========
As of March 31, 2001 and March 31, 2000, there were 31,078 and 32,655
antidilutive stock options. Antidilutive stock options are those in which the
exercise price of the option exceeds the fair market value of the underlying
stock. The antidilutive stock options were excluded from the above calculation.
The provision for income taxes is based upon the effective tax rate expected to
be applicable for the entire year.
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POTTERS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - SECURITIES AVAILABLE FOR SALE
Securities available for sale were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollars in thousands)
March 31, 2001
- --------------
U.S. government and
federal agencies $ 8,791 $ 38 $ (57) $ 8,772
States and municipalities 2,549 115 (8) 2,656
Other 189 6 195
Mortgage-backed securities 8,537 67 (16) 8,588
----------- ----------- ----------- -----------
20,066 226 (81) 20,211
Equity securities 22 2 24
----------- ----------- ----------- -----------
$ 20,088 $ 228 $ (81) $ 20,235
=========== =========== =========== ===========
December 31, 2000
- -----------------
U.S. government and
federal agencies $ 9,496 $ 9 $ (110) $ 9,395
States and municipalities 2,282 95 2,377
Other 259 1 260
Mortgage-backed securities 9,176 22 (75) 9,123
----------- ----------- ----------- -----------
21,213 127 (185) 21,155
Equity securities 22 22
----------- ----------- ----------- -----------
$ 21,235 $ 127 $ (185) $ 21,177
=========== =========== =========== ===========
Contractual maturities of debt securities available for sale at March 31, 2001
were as follows. Securities not due at a single maturity date, primarily
mortgage-backed securities, are shown separately. Expected maturities will
differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
---- ----------
(Dollars in thousands)
Due in one year or less $ 3,003 $ 3,005
Due after one year through five years 2,598 2,628
Due after five years through ten years 2,003 2,009
Due after ten years 3,925 3,981
Mortgage-backed securities 8,537 8,588
-------- ---------
$ 20,066 $ 20,211
======== =========
Available-for-sale securities totaling $3.0 million were called in 2001,
resulting in no gain or loss. A security totaling $1.0 million was called during
2000, resulting in no gain or loss.
The carrying value of securities pledged as collateral for public funds totaled
$11.5 million at March 31, 2001.
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POTTERS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - LOANS RECEIVABLE
Loans receivable were as follows:
March 31, December 31,
2001 2000
---- ----
(Dollars in thousands)
Real estate loans
One-to-four family residences $ 76,724 $ 78,463
Loans held for sale 43 96
Nonresidential property 17,539 19,572
Multifamily and other 2,750 2,839
----------- -----------
97,056 100,970
----------- -----------
Consumer and other loans
Home equity loans 13,360 13,282
Purchased second mortgage loans 4,235 4,631
Consumer loans and lines of credit 1,633 1,920
Commercial business loans 1,321 1,555
Other 1,774 1,854
----------- -----------
22,323 23,242
----------- -----------
Total loan principal balances 119,379 124,212
Undisbursed loan funds (1,826) (2,909)
Premiums on purchased loans,
and net deferred loan (fees) costs 529 564
Allowance for loan losses (1,889) (1,964)
----------- -----------
$ 116,193 $ 119,903
=========== ===========
Activity in the allowance for loan losses was as follows:
Three months ended
March 31,
--------------------------------
2001 2000
---- ----
(Dollars in thousands)
Beginning balance $ 1,964 $ 2,037
Provision for loan losses 15
Recoveries 8 15
Charge-offs (98) (37)
----------- -----------
Ending balance $ 1,889 $ 2,015
=========== ===========
Nonaccrual and renegotiated loans totaled $997,000 and $841,000 at March 31,
2001 and December 31, 2000. Potters Bank is not committed to lend additional
funds to debtors whose loans have been modified. Impaired loans were not
material at any date or during any period presented because nonperforming loans
consisted primarily of residential mortgages and consumer loans that are not
separately analyzed for impairment.
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NOTE 4 - FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank ("FHLB") advances were as follows:
March 31, December 31,
2001 2000
---- ----
(Dollars in thousands)
Maturities March 2001 through May 2010, primarily
convertible fixed rate, from 5.54% to 6.50%, averaging 5.99% $ 19,500
Maturities March 2002 through May 2010, primarily
convertible fixed rate, from 5.61% to 6.50%, averaging 6.04% $ 17,500
----------- -----------
$ 17,500 $ 19,500
=========== ===========
FHLB advances are payable at maturity, or prior to maturity with prepayment
penalties. At March 31, 2001, advances totaling $12.0 million were convertible
fixed-rate advances which, at the FHLB's option, can be converted to the London
Interbank Offering Rate on a quarterly basis after the first year. If the FHLB
exercises its option, the advances may be repaid in whole or in part on any of
the quarterly repricing dates without prepayment penalty. Advances are
collateralized by all shares of FHLB stock and by 100% of the qualified real
estate loan portfolio.
As of March 31, 2001, scheduled maturities of advances were as follows:
Maturities
----------
(Dollars in thousands)
Due in one year or less $ 2,000
Due after one year through two years 3,500
Due after two years through three years
Due after five years 12,000
-----------
$ 17,500
===========
NOTE 6 - COMMITMENTS AND CONTINGENCIES
LOSS CONTINGENCIES: 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.
LOAN COMMITMENTS: 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 used to make commitments are also used for loans, including obtaining
collateral at exercise of the commitment.
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NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
Financial instruments with off-balance sheet risk at March 31, 2001 were as
follows:
Fixed Variable
Rate Rate
---- ----
(Dollars in thousands)
Commitments to make loans
(at market rates) $ 257 $ 1,002
Unused lines of credit and
letters of credit 8,260
Commitments to make loans are generally made for periods of 60 days or less. The
fixed-rate loan commitments have interest rates ranging from 7.38% to 11.75%,
with maturity dates of 15 to 30 years.
NOTE 7 - CONCENTRATIONS OF CREDIT RISK
Current local loan origination activities are with customers located within the
immediate lending area, which includes portions of Columbiana and Jefferson
Counties in northeastern Ohio and northern Hancock County in West Virginia. The
Boardman loan production office focuses on originating loans in Mahoning and
Trumbull Counties in northeastern Ohio and Beaver and Allegheny Counties in
northwestern Pennsylvania. Loan purchases have been used to supplement local
loan originations and have resulted in the following concentrations:
Northwest Southwest Hilton Local
Ohio Ohio Head, SC Indiana(1) and other Total
---- ---- -------- ------- --------- -----
(Dollars in thousands)
One-to-four family residences $ 10,592 $ 2,285 $ 5,418 $ 4,349 $ 22,644
Multifamily and nonresidential 1,134 1,995 $ 487 3,616
First mortgage home equity 6,038 6,038
Second mortgages 4,236 4,236
--------- ---------- --------- --------- ------- --------
$ 11,726 $ 4,280 $ 5,418 $ 14,623 $ 487 $ 36,534
========= ========== ========= ========= ======= ========
- -----------------------
(1) Loans from various parts of the country purchased from a bank in Indiana.
Two nonconforming real estate loan programs, which charge a slightly higher
interest rate on single family residential mortgage loans, are available to
persons who are considered slightly higher credit risks. Such loans totaled $7.7
million at March 31, 2001. Of the $7.7 million, $414,000 were purchased real
estate loans from southwest Ohio also reported above.
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Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
GENERAL
In the following pages, management presents an analysis of the financial
condition of Potters Financial Corporation ("PFC") and its wholly-owned
subsidiary, Potters Bank, as of March 31, 2001 and December 31, 2000, and its
results of operations for the three months ended March 31, 2001 and 2000. In
addition to the historical information, the following discussion contains
forward-looking statements that involve risks and uncertainties, including
regulatory policy changes, interest rate fluctuations, loan demand and other
risks. Economic circumstances, operations and actual strategies and results in
future time periods may differ materially from those currently expected. Some of
the factors that could cause or contribute to such differences are discussed
herein but also include changes in the economy and interest rates in the nation
and in Potters Bank's general market area. Such forward-looking statements
represent PFC's judgment as of the current date. PFC disclaims, however, any
intent or obligation to update such forward-looking statements. See Exhibit 99,
attached hereto, which is incorporated herein by reference.
Without limiting the foregoing, some of the forward-looking statements included
herein are the statements under the following headings and regarding the
following matters:
RESULTS OF OPERATIONS - Statements regarding management's intention to establish
a full-service office in Beaver, Pennsylvania in order to expand its loan
growth and deposit base.
ALLOWANCE AND PROVISION FOR LOAN LOSSES - Management's statements regarding the
amount and adequacy of the allowance for loan losses.
FINANCIAL CONDITION - Statements regarding the strategic focus and long-term
goals of Potters Bank.
Statements regarding the ability of internal loan generation to reduce
Potters Bank's reliance on purchased loans to grow the loan portfolio.
The following discussion and financial information are presented to provide
shareholders with a more comprehensive review of the financial position and
operating results than could be obtained from an examination of the financial
statements alone. The review should be read in conjunction with the consolidated
financial statements and accompanying notes. Because the activities of PFC have
been limited primarily to holding the shares of Potters Bank, the following
discussion essentially concerns the operations of Potters Bank.
RESULTS OF OPERATIONS
PFC recorded net income of $376,000, or $.37 per diluted share, for the first
quarter of 2001, compared to net income of $345,000, or $.33 per diluted share,
for the first three months of 2000. Earnings grew 9.0% during 2001 over the
first quarter of last year and earnings per diluted share grew 12.1%. No
significant nonrecurring events occurred during 2001, but during the first
quarter of 2000, $29,000 ($19,000 net of tax) was received from a shareholder
pursuant to an order of the Office of Thrift Supervision under its change of
control regulations. Excluding this nonrecurring event, first quarter 2001 net
income increased 15.3% and diluted earnings per share 19.4% over the prior year
first quarter. Net interest income increased a moderate 4.5% during 2001 and
noninterest expense declined almost 1.0% from the first quarter of 2000.
The annualized return on average shareholders' equity and average assets were
11.91% and .99% for the three months ended March 31, 2001, compared to 12.48%
and .94% for the first
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quarter of 2000. Adjusting 2000 returns to reflect core earnings, the first
quarter 2000 annualized return on average shareholders' equity was 11.79% and
the annualized return on average assets was .89%. On a core operating basis,
both returns increased during the first three months of 2001 compared to the
same time period in 2000.
Interest income increased $154,000, or 5.7%, during the first quarter of 2001
over 2000, primarily from a 7.5% increase in loan interest income due to a
greater average balance of loans than in the first quarter of 2000 and higher
rates earned on loans. Interest expense increased $98,000, or 6.7%, during the
first quarter of 2001 over 2000 due to a greater average balance of deposits and
higher rates paid on both deposits and borrowings. Net interest income increased
$56,000, or 4.5%, during 2001.
The yield on average earning assets increased, from 7.75% during the first
quarter of 2000, to 8.02% during the first quarter of 2001. The cost of funds
increased from 4.42% to 4.64% during that same time period. These increases
resulted in an increase in the interest rate spread, from 3.33% during the first
quarter of 2000, to 3.38% during the first quarter of 2001. Contributing to the
increase were higher rates on originated loans, lower rates paid on indexed
deposits and lower certificate of deposit rates on new and renewing
certificates.
During the first quarter of 2001, gains generated on loan sales, both servicing
released and servicing retained, were $8,000. Excluding nonrecurring PFC
miscellaneous income during the first quarter of 2000, other noninterest income
declined slightly during the first quarter of 2001, primarily from lower
miscellaneous loan fees and lower rental income on leased office space. Income
from deposit service charges, ATM/VISA check card fees and other fees for
customer services, however, increased $12,000, or 13.2%.
Noninterest expense decreased $7,000, or almost 1.0%, during the first quarter
of 2001, compared to the first quarter of 2000. Compensation and benefits
increased $4,000 during 2001, occupancy and equipment costs decreased $8,000 and
other noninterest expense declined $3,000. The closing of the Mentor loan
production office had a positive impact on all noninterest expense, as did
watchful spending and diligent negotiations of new and renewing contracts. Data
processing costs, as well as professional fees and postage, increased during
2001 over the prior year first quarter as strategic initiatives were executed.
Potters Bank began the task of building a branch office in Beaver, Pennsylvania
during the first quarter of 2001. The facility is expected to be operational in
June 2001. Potters Bank has been originating loans in that area and plans a
full-service facility intended to widen the deposit base needed to fund loan
growth. There can be no assurance, however, that the branch will be completed
when expected or that it will be successful in attracting additional loans or
deposits. During construction and the initial start-up of operations, the branch
will be incurring net expense.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses decreased $75,000 and ended the first quarter of
2001 at $1.9 million. Charge-offs of $98,000 of consumer loans during the first
quarter of 2001 were somewhat offset by provisions of $15,000 and recoveries of
$8,000. During the first quarter of 2000, the allowance for loan losses began
and ended the quarter at $2.0 million. Charge-offs totaling $37,000 during the
first quarter of 2000, primarily consumer loans, were partially offset by
$15,000 in recoveries.
Nonperforming loans of $997,000 at March 31, 2001 increased from $841,000 at
December 31, 2000. Nonperforming loans at March 31, 2001 consisted primarily of
one-to-four family real estate secured loans, with approximately 58% resulting
from the purchased loan packages, 30% from one-to-four family real estate loans,
8% from commercial real estate loans, 2% resulting from
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consumer loans and less than 2% resulting from nonconforming real estate loan
programs. At March 31, 2001, nonperforming loans represented .66% of total
assets. The allowance for loan losses represented 189.5% of nonperforming loans
at March 31, 2001, compared to 233.5% at December 31, 2000. The decline in the
allowance percentage was the result of both increasing nonperforming loans and
increasing charge-offs in the loan portfolio. No loans were designated impaired
at March 31, 2001 or December 31, 2000.
FINANCIAL CONDITION
PFC's assets contracted during the first quarter of 2001, from $151.4 at
December 31, 2000, to $150.2 million at March 31, 2001. Lower loan demand and
heightened competition for residential and commercial real estate loans were
experienced during the first quarter of 2001, from uncertainty in the financial
markets regarding the future course of the economy and interest rates. Excess
cash flows were used to pay off a Federal Home Loan Bank ("FHLB") advance and to
fund deposit outflows resulting from a less aggressive stance on interest rates
offered for public funds.
Securities available for sale decreased $942,000, to $20.2 million at March 31,
2001, compared to $21.2 million at December 31, 2000. Securities totaling $3.0
million were called during the first quarter of 2001 and replaced. Securities
available for sale are carried at fair value, with resulting unrealized gains or
losses added to or deducted from shareholders' equity, net of tax. The
unrealized loss on securities available for sale, net of tax, decreased from
$39,000 at year-end 2000 and became an unrealized gain of $97,000 at March 31,
2001, primarily from declining interest rates.
Net loans decreased from $119.9 million at December 31, 2000, to $116.2 million
at March 31, 2001, a decrease of $3.7 million, or 3.1%. No loans were purchased
during the first quarter of 2001 and loan repayments exceeded loans originated
by $3.6 million. Loans originated for sale during 2001 totaled $497,000 and
proceeds from sales of loans totaled $558,000, generating gains of $8,000. Real
estate loans decreased $3.9 million, or 3.9%, during 2001, with a $1.8 million
decrease in one-to-four family real estate loans, and a $2.1 million decrease in
multifamily and commercial real estate loans. The strategic plan calls for
utilization of internal loan generation to become less reliant on loan purchases
to grow the portfolio, although there can be no assurance that the demand for
loans will continue in surrounding local areas, or that the Boardman loan
production office or the Beaver Office will successfully penetrate their
respective markets.
Two nonconforming real estate loan programs, which charge slightly higher
interest rates on single family residential real estate loans to persons who are
considered slightly higher credit risks, totaled $7.7 million at March 31, 2001,
$414,000 of which were purchased loans. Such loans involve greater underwriting
and default risk than conforming real estate loans. The increased risk is
somewhat mitigated by charging a higher interest rate than on conforming loans,
by following stringent loan collection procedures and by adhering to regulatory
limitations on the total of such loans and regulatory reporting requirements to
the Board of Directors. Such loans are also specifically identified and
addressed in management's ongoing review of the allowance for loan losses, and a
larger percentage of the allowance is allocated to nonconforming loans than to
conforming real estate loans. Of such loans, $17,000 was nonperforming at March
31, 2001.
Total deposits increased $831,000 during 2001, to $118.6 million at March 31,
2001. Inflows occurred primarily in certificates of deposit. The Asset and
Liability Management Committee continues to focus on strategies for reduced
interest rate risk and responsible deposit management. Such strategies include
setting competitive rates on selected certificates of deposit with maturity
dates exceeding one year and utilizing tiered interest rates based on the amount
on deposit.
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FHLB advances totaled $17.5 million at March 31, 2001, compared to $19.5 million
at December 31, 2000. Advances were used primarily to meet liquidity needs
during 2001. Advance repayments totaled $3.6 million during the first quarter of
2001.
Shareholders' equity increased $409,000 during 2001 due primarily to net income
of $376,000 and a $136,000 change in the unrealized gain/loss on securities
available for sale, offset by the payment of $110,000, or $.11 per share, in
dividends.
LIQUIDITY AND CAPITAL RESOURCES
Normal, recurring sources of funds are primarily customer deposits, securities
available for sale, maturities, loan repayments and other funds provided by
operations. Potters Bank has the ability to borrow from the FHLB when needed as
a secondary source of liquidity.
The most significant components of cash flows from investing activities during
the first three months of 2001 were net loan payments of $3.6 million and
securities calls and repayments of $3.7 million, offset by $2.6 million in
securities purchases. Significant investing activities during the first quarter
of 2000 were loan purchases of $5.2 million and net loan originations of $3.5
million, offset by securities repayments of $742,000.
Financing activities during the first quarter of 2001 included deposit inflows
of $831,000 and proceeds from FHLB advances of $1.6 million, offset by
repayments of $3.6 million. Deposit inflows of $5.6 million occurred during the
first quarter of 2000, while other financing activities included net FHLB
advance proceeds of $1.7 million and the purchase of 17,350 shares for $172,000.
Potters Bank's average regulatory liquidity ratio for March 2001 was 13.12%. At
March 31, 2001, Potters Bank had commitments to originate loans of $1.3 million
and unused lines of credit totaling $8.3 million.
The following table details the minimum capital requirements set forth by
regulation for all federally insured savings institutions and Potters Bank's
capital levels as of March 31, 2001 (dollars in thousands):
Tangible Core Risk-based
Capital Capital Capital
-------------------- -------------------- -------------------
Amount % Amount % Amount %
------ --- ------ --- ------ --
Regulatory capital -
computed $12,454 8.29% $ 12,454 8.29% $ 13,548 15.02%
Minimum capital
requirement 2,253 1.50 6,008 4.00* 7,217 8.00
--------- ---- --------- ----- -------- ------
Regulatory capital -
excess $10,201 6.79% $ 6,446 4.29% $ 6,331 7.02%
======== ====== ========= ==== ======== ======
- ------------------
*Savings associations that meet certain requirements may be permitted to
maintain minimum core capital of 3.00%.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits
Exhibit 3.1 Articles of Incorporation of Potters Incorporated by reference to the
Financial Corporation Form 8-A filed with the Securities
and Exchange Commission (the
"SEC") on March 4, 1996 (SEC File
No. 0-27980).
Exhibit 3.2 Code of Regulations of Potters Incorporated by reference to the
Financial Corporation Form 8-A filed with the SEC on
March 4, 1996 (SEC File No.
0-27980).
Exhibit 11 Statement re: computation of See Note 1 to consolidated
per share earnings financial statements included
herewith.
Exhibit 99 Safe Harbor Under the Private Included herewith.
Securities Litigation Reform Act of 1995
B. Reports on Form 8-K.
None
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In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
POTTERS FINANCIAL CORPORATION
Date: May 7, 2001 By: /s/ Edward L. Baumgardner
-----------------------
Edward L. Baumgardner
Duly Authorized Representative,
President and Chief Executive Officer
By: /s/ Anne S. Myers
-----------------------
Anne S. Myers
Principal Financial Officer and
Principal Accounting Officer
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