1
Exhibit 13
PEOPLES SAVINGS BANK OF TROY
AND SUBSIDIARY
Consolidated Financial Statements
June 30, 2001 and 2000
2
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
TABLE OF CONTENTS
PAGE
- ---------------------------------------------------------------- --------------
INDEPENDENT ACCOUNTANTS' REPORT 1
FINANCIAL STATEMENTS
Consolidated balance sheet 2
Consolidated statement of income 3
Consolidated statement of shareholder's equity 4
Consolidated statement of cash flows 5
Notes to consolidated financial statements 6
3
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders and
Board of Directors
Peoples Savings Bank of Troy
Troy, Ohio
We have audited the accompanying consolidated balance sheet of Peoples Savings
Bank of Troy and subsidiary as of June 30, 2001, and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Bank's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The consolidated
statements of Peoples Savings Bank of Troy as of June 30, 2000 and for each of
the two-year periods then ended were audited by other auditors whose report
dated August 4, 2000 expressed an unqualified opinion on those financial
statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of Peoples
Savings Bank of Troy and subsidiary as of June 30, 2001, and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ BKD, LLP
Cincinnati, Ohio
July 19, 2001
4
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30 2001 2000
- -----------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 5,118,227 $ 4,579,550
Investment securities, held to maturity (fair value of
$1,503,000 and $1,635,000) 1,484,294 1,669,993
Loans, net of allowance for loan losses of
$843,081 and $887,882 197,482,915 189,878,071
Premises and equipment 4,193,858 3,605,192
Federal Home Loan Bank stock 4,785,900 3,979,100
Interest receivable 1,026,513 957,832
Other assets 749,118 470,387
---------------------------
Total assets $214,840,825 $205,140,125
===========================
LIABILITIES
Deposits $108,398,334 $109,460,962
FHLB advances 83,521,561 74,725,728
Interest payable 259,813 523,606
Other liabilities 1,277,946 1,167,698
---------------------------
Total liabilities 193,457,654 185,877,994
---------------------------
COMMITMENTS AND CONTINGENCIES
EQUITY FROM ESOP SHARES 381,498 559,705
SHAREHOLDER'S EQUITY
Preferred stock, $1 par value, 10,000,000 shares authorized;
none issued or outstanding
Common stock, $1 par value
Authorized -- 90,000,000 shares
Issued and outstanding-- 7,439,650 and 7,436,350 shares,
less ESOP shares of 127,166 and 135,686 7,312,484 7,300,664
Additional paid-in capital 203,084 67,138
Retained earnings 13,486,105 11,334,624
---------------------------
Total shareholder's equity 21,001,673 18,702,426
---------------------------
Total liabilities and shareholder's equity $214,840,825 $205,140,125
===========================
See notes to consolidated financial statements.
(2)
5
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JUNE 30 2001 2000 1999
- ------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans receivable $15,828,683 $14,136,354 $11,934,146
Investment securities 106,313 122,673 158,235
Other interest and dividend income 403,710 338,975 295,049
---------------------------------------
Total interest income 16,338,706 14,598,002 12,387,430
---------------------------------------
INTEREST EXPENSE
Deposits 4,104,961 3,946,448 3,884,602
Borrowings 5,287,390 3,984,082 2,346,597
---------------------------------------
Total interest expense 9,392,351 7,930,530 6,231,199
---------------------------------------
NET INTEREST INCOME 6,946,355 6,667,472 6,156,231
Provision for loan losses 30,000 50,000
---------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,946,355 6,637,472 6,106,231
---------------------------------------
OTHER INCOME
Fiduciary activities 818,450 783,050 641,832
Service charges on deposit accounts and other 522,154 483,723 380,772
Other income 144,578 107,587 86,827
---------------------------------------
Total other income 1,485,182 1,374,360 1,109,431
---------------------------------------
OTHER EXPENSES
Salaries and employee benefits 2,244,088 2,051,162 1,890,151
Net occupancy expenses 365,116 337,364 342,937
Equipment expenses 126,360 90,142 76,521
Data processing fees 413,405 349,560 315,771
State of Ohio franchise taxes 208,780 179,935 170,181
Other expenses 1,379,234 1,260,116 1,151,660
---------------------------------------
Total other expenses 4,736,983 4,268,279 3,947,221
---------------------------------------
INCOME BEFORE INCOME TAX 3,694,554 3,743,553 3,268,441
Income tax expense 1,273,364 1,263,100 1,077,600
---------------------------------------
NET INCOME $ 2,421,190 $ 2,480,453 $ 2,190,841
=======================================
BASIC EARNINGS PER SHARE $0.33 $0.33 $0.30
=======================================
DILUTED EARNINGS PER SHARE $0.32 $0.31 $0.28
=======================================
See notes to consolidated financial statements
(3)
6
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
COMMON
STOCK
-------------------
ADDITIONAL
PAID-IN RETAINED
AMOUNT CAPITAL EARNINGS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
BALANCES, JULY 1, 1998 $3,611,805 $ 83,421 $10,197,531 $13,892,757
Net income 2,190,841 2,190,841
Cash dividends ($.02 per share) (147,778) (147,778)
Exercise of stock options 31,944 21,500 53,444
Tax benefit from exercise of stock options 41,118 41,118
Net change in equity from ESOP shares (4,750) (295,846) (300,596)
Two-for-one stock split 3,627,727 (96,411) (3,535,676) (4,360)
-----------------------------------------------------------------------
BALANCES, JUNE 30, 1999 7,266,726 49,628 8,409,072 15,725,426
Net income 2,480,453 2,480,453
Cash dividends ($.03 per share) (222,919) (222,919)
Exercise of stock options 26,406 (2,286) 24,120
Tax benefit from exercise of stock options 19,796 19,796
Net change in equity from ESOP shares 7,532 668,018 675,550
-----------------------------------------------------------------------
BALANCES, JUNE 30, 2000 7,300,664 67,138 11,334,624 18,702,426
Net income 2,421,190 2,421,190
Cash dividends ($.03 per share) (223,190) (223,190)
Exercise of stock options 92,000 94,600 186,600
Tax benefit from exercise of stock options 41,346 41,346
Purchase of stock (88,700) (216,206) (304,906)
Net change in equity from ESOP shares 8,520 169,687 178,207
-----------------------------------------------------------------------
BALANCES, JUNE 30, 2001 $7,312,484 $203,084 $13,486,105 $21,001,673
=======================================================================
See notes to consolidated financial statements.
(4)
7
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $2,421,190 $2,480,453 $2,190,841
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for loan losses 30,000 50,000
Depreciation and amortization 340,400 291,856 266,070
Amortization of deferred loan fees (30,776) (70,554) (97,763)
Deferred income tax 106,000 66,656 38,532
Gain on sale of real estate owned (4,426)
Investment securities amortization (accretion), net (2,240) (195) 878
Federal Home Loan Bank stock dividends (328,600) (256,700) (204,500)
Net change in
Interest receivable (68,681) (39,469) (138,715)
Interest payable (263,793) (4,890) 229,190
Other assets (237,385) (8,580) (23,194)
Other liabilities 4,248 (567,892) 1,166,947
--------------------------------------------------
Net cash provided by operating activities 1,940,363 1,920,685 3,473,860
--------------------------------------------------
INVESTING ACTIVITIES
Purchases of securities held to maturity (100,000)
Proceeds from maturities of securities held to maturity 187,939 286,354 839,102
Net change in loans (7,574,068) (22,537,491) (36,111,742)
Purchases of premises and equipment (929,066) (481,831) (298,543)
Federal Home Loan Bank stock purchased (478,200) (512,700) (479,200)
Investment in real estate owned (55,218)
Proceeds from sales of real estate owned 59,644
--------------------------------------------------
Net cash used by investing activities (8,793,395) (23,245,668) (36,145,957)
--------------------------------------------------
FINANCING ACTIVITIES
Net change in
Interest-bearing demand and savings deposits 4,822,747 3,812,318 1,872,685
Certificates of deposit (5,885,375) (1,370,363) 7,661,873
Proceeds of FHLB advances 310,591,027 166,950,905 141,000,000
Repayment of FHLB advances (301,795,194) (146,142,802) (119,180,366)
Cash dividends (223,190) (222,919) (147,778)
Purchase of stock (304,906)
Proceeds from exercise of stock options 186,600 24,120 49,084
--------------------------------------------------
Net cash provided by financing activities 7,391,709 23,051,259 31,255,498
--------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 538,677 1,726,276 (1,416,599)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,579,550 2,853,274 4,269,873
--------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $5,118,227 $4,579,550 $2,853,274
===================================================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $9,656,144 $7,935,420 $6,002,009
Income tax paid 1,220,000 1,265,000 915,000
See notes to consolidated financial statements.
(5)
8
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Note 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Peoples Savings Bank of Troy (Bank) and
its wholly owned subsidiary, Peoples Building and Savings Service Corporation
(Service Corporation) (an inactive corporation), conform to generally accepted
accounting principles and reporting practices followed by the thrift industry.
The more significant of the policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The Bank operates under a state thrift charter and provides full banking
services, including trust services. As a state-chartered thrift, the Bank is
subject to regulation by the Office of Thrift Supervision, Ohio Department of
Commerce, Division of Financial Institutions, and the Federal Deposit Insurance
Corporation.
The Bank generates commercial, mortgage and consumer loans and receives deposits
from customers located primarily in Miami County, and surrounding counties. The
Bank's loans are generally secured by specific items of collateral including
real property, consumer assets and business assets
CONSOLIDATION -- The consolidated financial statements include the accounts of
the Bank and Service Corporation after elimination of all material intercompany
transactions.
INVESTMENT SECURITIES -- Debt securities are classified as held to maturity when
the Bank has the positive intent and ability to hold the securities to maturity.
Securities held to maturity are carried at amortized cost. Debt securities not
classified as held to maturity and marketable equity securities are classified
as available for sale. Securities available for sale are carried at fair value
with unrealized gains and losses reported separately in accumulated other
comprehensive income, net of tax
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed when considered uncollectible. Interest
income is subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are being deferred and amortized as an
adjustment of yield on the loans.
Allowance for loan losses is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
(6)
9
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of June
30, 2001 the allowance for loan losses is adequate based on information
currently available. A worsening or protracted economic decline in the areas
within which the Bank operates would increase the likelihood of additional
losses due to credit and market risks and could create the need for additional
loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based principally on the
estimated useful lives of the assets. Maintenance and repairs are expensed as
incurred while major additions and improvements are capitalized. Gains and
losses on dispositions are included in current operations.
Federal home loan bank stock is a required investment for institutions that are
members of Federal Home Loan Bank system. The required investment in the common
stock is based on a predetermined formula.
Foreclosed assets are carried at the lower of cost or fair value less estimated
selling costs. When foreclosed assets are acquired, any required adjustment is
charged to the allowance for loan losses. All subsequent activity is included in
current operations.
Stock options are granted for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant. The
Bank accounts for and will continue to account for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and, accordingly, recognizes no compensation expense for the stock option
grants.
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Bank
files consolidated income tax returns with its subsidiary.
Reclassifications of certain amounts in the 2000 and 1999 consolidated financial
statements have been made to conform to the 2001 presentation.
Note 2 - REORGANIZATION
On June 25, 2001, the Bank's Board of Directors authorized the formation of a
holding company for the Bank in a transaction in which each of the outstanding
shares of the Bank would be exchanged for one share of the holding company. The
Bank would thereafter be a wholly-owned subsidiary of the holding company.
Note 3 - RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at June 30, 2001 was $200,000.
(7)
10
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Note 4 - INVESTMENT SECURITIES
2001
-----------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
JUNE 30 COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
Held to maturity
U.S. Treasury $ 100 $ 2 $ 102
State and municipal 100 $(8) 92
Mortgage-backed securities 1,284 25 1,309
-----------------------------------------------------------------------
Total investment securities $1,484 $27 $(8) $1,503
=======================================================================
2000
-----------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
JUNE 30 COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
Held to maturity
U.S. Treasury $ 99 $ (4) $ 95
State and municipal 100 (9) 91
Mortgage-backed securities 1,471 $1 (23) 1,449
-----------------------------------------------------------------------
Total investment securities $1,670 $1 $(36) $1,635
=======================================================================
The amortized cost and fair value of securities held to maturity and available
for sale at June 30, 2001, by contractual maturity, are shown below. 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.
HELD TO MATURITY
------------------------------------
AMORTIZED FAIR
COST VALUE
- ----------------------------------------------------------------------------------------------------------------------------
One to five years $ 100 $ 102
After ten years 100 92
------------------------------------
200 194
Mortgage-backed securities 1,284 1,309
------------------------------------
Totals $1,484 $1,503
====================================
Securities with a carrying value of $3,266,853 and $1,543,250 were pledged at
June 30, 2001 and 2000 to secure certain deposits and for other purposes as
permitted or required by law.
(8)
11
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Note 5 - LOANS AND ALLOWANCE
JUNE 30 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Mortgage loans on existing real estate
Residential single family units $150,711 $146,404
Other residential and commercial 23,467 21,172
------------------------------------
Total real estate loans 174,178 167,576
Construction loans 12,817 14,842
Commercial business 5,323 3,450
Consumer 4,769 4,293
Home improvement 6,065 5,777
Deposit and other loans 612 548
------------------------------------
203,764 196,486
Deferred loan fees (163) (170)
Undisbursed portion of loans (5,275) (5,550)
Allowance for loan losses (843) (888)
------------------------------------
Total loans $197,483 $189,878
====================================
JUNE 30 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses
Balances, July 1 $888 $880 $863
Provision for losses 30 50
Recoveries on loans 6 2 4
Loans charged off (51) (24) (37)
-----------------------------------------------------
Balances, June 30 $843 $888 $880
=====================================================
Note 6 - PREMISES AND EQUIPMENT
JUNE 30 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Land $ 955 $ 955
Buildings 4,443 3,885
Equipment 2,953 2,582
------------------------------------
Total cost 8,351 7,422
Accumulated depreciation (4,157) (3,817)
------------------------------------
Net $4,194 $3,605
====================================
(9)
12
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 7 - DEPOSITS
JUNE 30 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest bearing accounts $ 5,161 $ 4,342
NOW accounts 21,480 19,404
Super NOW accounts 244 211
Passbook accounts 16,604 15,259
Money market accounts 9,243 8,693
Certificates and other time deposits of $100,000 or more 15,216 30,578
Other certificates and time deposits 40,450 30,974
-----------------------------------
Total deposits $108,398 $109,461
===================================
Certificates and other time deposits maturing in years ending June 30
2002 $43,552
2003 8,394
2004 1,987
2005 1,303
2006 430
===================
$55,666
===================
Note 8 - LONG-TERM DEBT
JUNE 30 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank advances, fixed and variable rates, due at various dates through
May 1, 2013 $83,522 $74,726
The Federal Home Loan Bank advances are secured by substantially all
first-mortgage loans and FHLB stock. Advances are subject to restrictions or
penalties in the event of repayment.
Maturities in years ending June 30
2002 $50,217
2003 2,231
2004 2,246
2005 12,262
2006 3,278
Thereafter 13,288
-------------------
$83,522
===================
(10)
13
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Note 9 - INCOME TAX
YEAR ENDED JUNE 30 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Income tax expense
Currently payable $1,167 $1,196 $1,039
Deferred 106 67 39
-----------------------------------------------------
Total income tax expense $1,273 $1,263 $1,078
=====================================================
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $1,256 $1,273 $1,111
Other 17 (10) (33)
-----------------------------------------------------
Actual tax expense $1,273 $1,263 $1,078
=====================================================
A cumulative net deferred tax liability is included in other liabilities. The
components of the liability are as follows:
JUNE 30 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
Allowance for loan losses $ 163 $ 138
Other 3 11
------------------------------------
Total assets 166 149
------------------------------------
LIABILITIES
FHLB stock (487) (376)
Depreciation (12)
------------------------------------
Total liabilities (499) (376)
------------------------------------
$(333) $(227)
====================================
Retained earnings include approximately $2,390,000 for which no deferred income
tax liability has been recognized. This amount represents an allocation of
income to bad debt deductions as of December 31, 1987 for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses or
adjustments arising from carryback of net operating losses would create income
for tax purposes only, which income would be subject to the then-current
corporate income tax rate. The unrecorded deferred income tax liability on the
above amounts was approximately $812,600.
(11)
14
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Note 10 - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Bank exposure to credit loss in the event of nonperformance by the other party
to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amount of those
instruments. The Bank uses the same credit policies in making such commitments
as it does for instruments that are included in the consolidated balance sheet.
Financial instruments whose contract amount represents credit risk as of June 30
were as follows:
2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Commitments to extend credit $15,017 $11,005
Mortgage loans serviced for others with recourse 130 134
Standby letters of credit 735 2,019
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.
The Bank and subsidiary are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material adverse effect on the consolidated financial position of the
Bank.
Note 11 - DIVIDEND AND CAPITAL RESTRICTIONS
Without prior approval, current regulations allow the Bank to pay dividends not
exceeding net profits (as defined) for the current year plus retained net income
for the previous two calendar years. The Bank normally restricts dividends to a
lesser amount because of the need to maintain an adequate capital structure. At
June 30, 2001, total regulatory capital of the Bank was $21,383,171, of which
approximately $5,578,000 was potentially available for distribution to
stockholders.
(12)
15
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Note 12 - REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies and is assigned to a capital category. The assigned
capital category is largely determined by three ratios that are calculated
according to the regulations: total risk adjusted capital, Tier 1 capital, and
Tier 1 leverage ratios. The ratios are intended to measure capital relative to
assets and credit risk associated with those assets and off-balance sheet
exposures of the entity. The capital category assigned to an entity can also be
affected by qualitative judgments made by regulatory agencies about the risk
inherent in the entity's activities that are not part of the calculated ratios.
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At June 30, 2001 and 2000, the
Bank is categorized as well capitalized and met all subject capital adequacy
requirements. There are no conditions or events since June 30, 2001 that
management believes have changed the Bank's classification.
--------------------------------------------------------------------------
REQUIRED FOR ADEQUATE TO BE WELL
ACTUAL CAPITAL(1) CAPITALIZED(1)
--------------------------------------------------------------------------
JUNE 30 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------------------------------------------------------
AS OF JUNE 30, 2001
Total risk-based capital (1) (to risk-weighted
assets) $22,226 16.8% $10,588 8.0% $13,235 10.0%
Tier 1 capital (1) (to risk-weighted assets) 21,383 16.2% 5,294 4.0% 7,941 6.0%
Core capital (1) (to adjusted total assets) 21,383 10.0% 6,442 3.0% 10,736 5.0%
Core capital (1) (to adjusted tangible assets) 21,383 10.0% 4,294 2.0% N/A
Tangible capital (1) (to adjusted total assets) 21,383 10.0% 3,221 1.5% N/A
AS OF JUNE 30, 2000
Total risk-based capital (1) (to risk-weighted
assets) $20,150 16.1% $10,017 8.0% $12,521 10.0%
Tier 1 capital (1) (to risk-weighted assets) 19,262 15.4% 5,008 4.0% 7,513 6.0%
Core capital (1) (to adjusted total assets) 19,262 9.4% 6,152 3.0% 10,254 5.0%
Core capital (1) (to adjusted tangible assets) 19,262 9.4% 4,102 2.0% N/A
Tangible capital (1) (to adjusted total assets) 19,262 9.4% 3,076 1.5% N/A
(1) As defined by regulatory agencies
(13)
16
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 13 -- EMPLOYEE BENEFIT PLANS
The Bank's defined-benefit pension plan covers substantially all of its
employees. The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements:
JUNE 30 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $705 $605
Service cost 74 63
Interest cost 51 42
Actuarial loss 26 2
Benefits paid (8) (7)
------------------------------------
Benefit obligation at end of year 848 705
------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 956 761
Actual return on plan assets (354) 203
Benefits paid (7) (8)
------------------------------------
Fair value of plan assets at end of year 595 956
------------------------------------
Funded status (253) 251
Unrecognized net actuarial (gain) loss 265 (197)
Unrecognized prior service cost (56) (63)
Unrecognized transition (asset) liability 33 36
------------------------------------
Prepaid (accrued) benefit cost $ (11) $ 27
====================================
(14)
17
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
YEAR ENDED JUNE 30 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $74 $63 $53
Interest cost 51 42 36
Expected return on plan assets 354 (196) (238)
Net amortization and deferral (441) 131 195
-----------------------------------------------------
Net periodic benefit cost $38 $40 $46
=====================================================
Assumptions used in the accounting were:
Discount rate 7% 7% 7%
Rate of increase in compensation 4% 4% 4%
Expected long-term rate of return on assets 8% 8% 8%
The Bank has a retirement savings 401(k) plan in which substantially all
employees may participate. The Bank matches employees' contributions at the rate
of 3 percent of base salary contributed by participants. The Bank's expense for
the plan was $39,357 for 2001, $41,200 for 2000 and $36,100 for 1999.
The Bank also has an employee stock ownership plan covering substantially all of
its employees. The cost of the plan is borne by the Bank through contributions
to an employee stock ownership trust in amounts determined by the Board of
Directors. The cash contributions to the plan in 2001, 2000 and 1999 were
$40,000, $64,125 and $37,500, respectively.
In addition to the contributions made to participants' accounts, the accounts
are credited annually with the participants' share of investment earnings,
losses or expenses of the trust fund. Benefits under the Plan become 100% vested
over periods up to 7 years or in the event of death, disability, or attaining
age 65 (normal retirement age under the Plan) or termination of the Plan. The
total number of shares held by the plan, all of which have been allocated to
participant accounts, were 127,166 and 135,686 at June 30, 2001 and 2000. All
ESOP shares are included as outstanding in the calculation of earnings per share
information.
Below are the transactions affecting the ESOP equity accounts:
COMMON STOCK RETAINED EARNINGS TOTAL
---------------- ------------------ -------------------
Balances, July 1, 1998 $69,234 $865,425 $934,659
Two-for-one stock split 69,234 (69,234)
Net change in equity from ESOP shares 4,750 295,846 300,596
---------------- ------------------ -------------------
Balances, June 30, 1999 143,218 1,092,037 1,235,255
Net Change in equity from ESOP shares (7,532) (668,018) (675,550)
---------------- ------------------ -------------------
Balances, June 30, 2000 135,686 424,019 559,705
Net Change in equity from ESOP shares (8,520) (169,687) (178,207)
---------------- ------------------ -------------------
Balances, June 30, 2001 $127,166 $254,332 $381,498
================ ================== ===================
(15)
18
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Note 14 -- RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with certain directors, executive
officers, significant stockholders and their affiliates or associates (related
parties). Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features. The aggregate
amount of loans, as defined, to such related parties were as follows:
Balances, July 1, 2000 $2,020
Changes in composition of related parties (92)
New loans, including renewals 711
Payments, etc., including renewals (387)
--------
Balances, June 30, 2001 $2,252
========
Note 15 -- STOCK OPTION PLAN
Under the Bank's incentive stock option plan, the Bank grants selected
executives and other key employees stock option awards which vest and become
fully exercisable at the date of grant. Under the Bank's stock option plan for
nonemployee directors, at each year's annual meeting of shareholders, there
shall be granted automatically to each outside director, the option to purchase
3,000 shares of common stock. Both plans are accounted for in accordance with
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees and related interpretations. During 2001, the Bank granted options for
132,745 shares of the Bank's common stock. The exercise price of each option,
which has a ten-year life, was equal to the market price of the Bank's stock on
the date of grant; therefore, no compensation expense was recognized.
Although the Bank has elected to follow APB No. 25, SFAS No. 123 requires pro
forma disclosures of net income and earnings per share as if the Bank had
accounted for its employee stock options under that Statement. The fair value of
each option grant was estimated on the grant date using an option-pricing model
with the following assumptions:
2001 2000 1999
-----------------------------------------------------
Risk-free interest rates 5.7 to 5.8% 6.4 to 6.5% 4.6% to 5.5%
Dividend yields .88% .01% .01%
Volatility factors of expected market price of common stock 35% 15% 15%
Weighted-average expected life of the options 10 years 10 years 10 years
(16)
19
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this statement are as follows:
2001 2000 1999
-----------------------------------------------------
Net income As reported $2,421 $2,480 $2,191
Pro forma 2,252 2,144 1,931
Earnings per share As reported .33 .33 .30
Pro forma .30 .29 .26
Diluted earnings per share As reported .32 .31 .28
Pro forma .29 .27 .24
The following is a summary of the status of the Bank's stock option plans and
changes in those plans as of and for the years ended June 30, 2001, 2000 and
1999.
EMPLOYEES:
YEAR ENDED JUNE 30 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Price Exercise Exercise
Price Price
Options Shares Shares Shares
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 740,057 $3.42 650,648 $2.57 285,977 $3.34
Granted 108,745 3.94 109,000 8.13 54,000 6.81
Exercised (92,000) 2.03 (18,846) 1.11 (15,384) 0.72
Forfeited/expired (64,500) 6.57 (745) 7.92 (500) 6.81
Adjustment for stock split 326,555
----------------- --------------- ----------------
Outstanding, end of year 692,302 3.40 740,057 3.42 650,648 2.57
================= =============== ================
Options exercisable at year end 692,302 3.40 740,057 3.42 650,648 2.57
Weighted-average fair value of
options granted during the
year 2.03 2.98 1.50
As of June 30, 2001, the employee options outstanding and exercisable are as
follows:
Outstanding and Exercisable
-----------------------------------------------------------------------------------------------
Weighted Average
Remaining Contractual Weighted Average Exercise
Range of Exercise Prices Number Life (Months) Price
- --------------------------------- ------------------------------- ------------------------------- -------------------------------
$0.01 to $1.00 75,298 17.90 $0.42
$1.01 to $2.50 276,304 47.57 1.64
$2.51 to $5.00 173,645 94.73 3.56
$5.01 to $7.50 82,680 86.30 6.81
$7.50 to $10.00 84,375 98.93 8.13
-------------------------------
692,302 67.06 3.40
===============================
(17)
20
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
DIRECTORS:
YEAR ENDED JUNE 30 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Price Exercise Exercise
Price Price
Options Shares Shares Shares
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 166,884 $3.42 150,444 $2.57 73,002 $3.34
Granted 24,000 2.94 24,000 7.13 12,000 7.25
Exercised (7,560) .42 (16,560) 2.17
Adjustment for stock split 82,002
----------------- --------------- ----------------
Outstanding, end of year 190,884 3.35 166,884 3.42 150,444 2.57
================= =============== ================
Options exercisable at year end 190,884 3.35 166,884 3.42 150,444 2.57
Weighted-average fair value of
options granted during the
year 1.50 2.98 1.50
As of June 30, 2001, the employee options outstanding and exercisable are as
follows:
Outstanding and Exercisable
--------------------------------------------------------------------------------------------
Weighted Average
Remaining Contractual Weighted Average
Range of Exercise Prices Number Life (Months) Exercise Price
- --------------------------------- ------------------------------- ------------------------------- ----------------------------
$1.01 to $2.50 100,884 37.05 $1.75
$2.51 to $5.00 45,000 96.29 3.10
$5.01 to $7.50 45,000 95.46 7.18
-------------------------------
190,884 71.89 3.35
===============================
(18)
21
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Note 16 -- EARNINGS PER SHARE
Earnings per share (EPS) were computed as follows:
YEAR ENDED JUNE 30, 2001
-----------------------------------------------------
Weighted
Average Per-Share
Income Shares Amount
-----------------------------------------------------
BASIC EARNINGS PER SHARE
Income available to common stockholders $2,421 7,439,225 $0.33
EFFECT OF DILUTIVE SECURITIES
Stock options 240,534
-------------------
DILUTED EARNINGS PER SHARE
Income available to common stockholders and assumed conversions
$2,421 7,679,759 $0.32
=====================================================
Options to purchase 406,700 shares of common stock at $3.13 to $8.13 per share
were outstanding at June 30, 2001, but were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
Year Ended June 30, 2000
-----------------------------------------------------
Weighted
Average Per-Share
Income Shares Amount
-----------------------------------------------------
BASIC EARNINGS PER SHARE
Income available to common stockholders $2,480 7,426,510 $0.33
EFFECT OF DILUTIVE SECURITIES
Stock options 479,815
-------------------
DILUTED EARNINGS PER SHARE
Income available to common stockholders and assumed conversions
$2,480 7,906,325 $0.31
=====================================================
(19)
22
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Options to purchase 260,055 shares of common stock at $6.81 to $8.13 per share
were outstanding at June 30, 2000, but were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
Year Ended June 30, 1999
-----------------------------------------------------
Weighted Average Per-Share Amount
Income Shares
-----------------------------------------------------
BASIC EARNINGS PER SHARE
Income available to common stockholders $2,191 7,384,125 $0.30
EFFECT OF DILUTIVE SECURITIES
Stock options 550,763
-------------------
DILUTED EARNINGS PER SHARE
Income available to common stockholders and assumed conversions
$2,191 7,934,888 $0.28
=====================================================
Note 17 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS -- The fair value of cash and cash equivalents
approximates carrying value.
SECURITIES AND MORTGAGE-BACKED SECURITIES -- Fair values are based on quoted
market prices.
LOANS -- For both short-term loans and variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values are based
on carrying values. The fair values for certain mortgage loans, including
one-to-four family residential, are based on quoted market prices of similar
loans sold in conjunction with securitization transactions, adjusted for
differences in loan characteristics. The fair value for other loans is estimated
using discounted cash flow analyses using interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality.
INTEREST RECEIVABLE/PAYABLE -- The fair values of interest receivable/payable
approximate carrying values.
FHLB STOCK -- Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
DEPOSITS -- The fair values of noninterest-bearing, interest-bearing demand and
savings accounts are equal to the amount payable on demand at the balance sheet
date. The carrying amounts for variable rate, fixed-term certificates of deposit
approximate their fair values at the balance sheet date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on such time deposits.
FEDERAL HOME LOAN BANK ADVANCES -- The fair value of these borrowings are
estimated using a discounted cash flow calculation, based on current rates for
similar debt.
(20)
23
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
OFF-BALANCE SHEET COMMITMENTS -- Commitments include commitments to purchase and
originate mortgage loans, commitments to sell mortgage loans, and standby
letters of credit and are generally of a short-term nature. The fair value of
such commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing.
The estimated fair values of the Bank's financial instruments are as follows:
2001 2000
-----------------------------------------------------------------------
Carrying Amount Fair Carrying Fair
JUNE 30 Value Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $5,118 $5,118 $4,580 $4,580
Investment securities held to maturity 1,484 1,503 1,670 1,636
Loans, net 197,483 202,410 189,878 184,818
Interest receivable 1,027 1,027 958 958
Stock in FHLB 4,786 4,786 3,979 3,979
LIABILITIES
Deposits 108,398 108,787 109,461 109,657
FHLB advances 83,522 82,250 74,726 73,807
Interest payable 260 260 524 524
Note 18 -- SEGMENT INFORMATION
The Bank uses differences in products as the basis for defining its reportable
segments. The Bank reports one product segment: Bank operations.
The Bank operations segment consists of the business of offering savings
deposits through issuance of savings accounts, money market accounts and
certificates of deposit and lending or utilizing funds primarily for the
purchase, construction and improvement of real estate. The largest percentage of
the mortgage loans are fixed-rate mortgages. The Bank also attempts to originate
as many adjustable-rate mortgages as feasible. Mortgage loans are generally made
for up to thirty years in length. The Bank's principal sources of income are
interest on mortgage loans and fees for service charges, as well as interest and
dividends on investments.
In addition to the product segment, the Bank reports on personal trust services
in an Other segment. The Bank began trust operations in July 1995 and derives
revenue from management fees charged by the Trust Department for serving as
trustee, custodian of IRA accounts, and agent for personal investment accounts.
Fees are based on market values of each account and are charged quarterly as a
percentage of market value based on a published fee schedule. The Trust
Department sponsors no common, mutual, or proprietary funds.
The accounting policies of the segments are the same as those described in the
summary of the significant accounting policies. The Bank evaluates performance
of the segments based on net income. The Bank does not evaluate assets by
segment; therefore, assets are not included in the table below.
(21)
24
PEOPLES SAVINGS BANK OF TROY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The following table summarizes the financial results of the Bank's business
segments for the years ended June 30, 2001, 2000, and 1999:
2001 Bank Operations Other Total
- ----------------------------------------------------- --------------------- -------------------- --------------------
Interest income $16,338 $16,338
Interest expense 9,392 9,392
-------------------- ---------------------
Net interest income 6,946 6,946
--------------------- --------------------
Non-interest income 667 $818 1,485
Other expenses 4,196 541 4,737
Federal income tax 1,179 94 1,273
Net income 2,238 183 2,421
2000
----
Interest income $14,598 $14,598
Interest expense 7,931 7,931
--------------------- --------------------
Net interest income 6,667 6,667
--------------------- --------------------
Non-interest income 591 $783 1,374
Other expenses 3,767 531 4,298
Federal income tax 1,177 86 1,263
Net income 2,314 166 2,480
1999
----
Interest income $12,387 $12,387
Interest expense 6,231 6,231
--------------------- --------------------
Net interest income 6,156 6,156
--------------------- --------------------
Non-interest income 467 $642 1,109
Other expenses 3,489 508 3,997
Federal income tax 1,032 46 1,078
Net income 2,102 88 2,191