UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended December 31, 2002
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period
----------------------------------------------
Commission File Number 0-49619
PEOPLES OHIO FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-1795575
--------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
635 South Market Street, Troy, Ohio 45373
----------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, including Area Code (937) 339-5000
-----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILLED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILLING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----------- ------------
Applicable Only to Corporate Issuers
As of February 10, 2003, there were 7,583,652 common shares of the registrant
issued and outstanding.
1
PEOPLES OHIO FINANCIAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as
Of December 31, 2002 and June 30, 2002.
Condensed Consolidated Statements of Income for the
three and six months ended December 31, 2002 and
2001.
Condensed Consolidated Statement of Shareholders'
Equity for six months ended December 31, 2002.
Condensed Consolidated Statements of Cash Flows for
the six months ended December 31, 2002 and 2001.
Notes to Condensed Consolidated Financial
Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.
Item 4. Controls and Procedures.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security
Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURE PAGE
SECTION 302 CERTIFICATIONS
INDEX TO EXHIBITS
2
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND JUNE 30, 2002
2002 2002
ASSETS (UNAUDITED)
------ ------------------------ -----------------------
Cash on hand and in other financial institutions $ 15,506,382 $ 5,680,517
Investment securities:
Held to maturity, (fair value of $954,697 and
$1,174,000 at December 31, 2002 and June 30, 2002) 938,059 1,121,139
Available for sale 6,200,000 -
Loans, net of allowance for loan losses of $903,265 and $882,067 183,536,536 201,716,051
Office properties and equipment 4,836,183 4,649,712
Federal Home Loan Bank stock 5,169,900 5,051,600
Interest receivable 889,299 1,059,550
Other assets 910,996 643,706
------------------------ -----------------------
Total assets $ 217,987,355 $ 219,922,275
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 119,741,084 $ 120,446,602
Federal Home Loan Bank (FHLB) advances 71,664,876 74,174,409
Interest payable 340,258 231,386
Other liabilities 1,508,893 1,494,898
------------------------ -----------------------
Total liabilities 193,255,111 196,347,295
------------------------ -----------------------
Commitments and Contingent Liabilities - -
Equity for ESOP Shares 554,134 468,719
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized; none issued or outstanding - -
Common stock, no par value, 15,000,000 shares
authorized; 7,583,652 and 7,439,650 shares issued less
ESOP shares of 149,766 and 139,916 7,433,886 7,299,734
Additional paid-in capital 238,227 203,084
Treasury stock, at cost, 8,594 shares (30,081) 0
Retained earnings 16,536,078 15,603,443
------------------------ -----------------------
Total shareholders' equity 24,178,110 23,106,261
------------------------ -----------------------
$ 217,987,355 $ 219,922,275
============ ============
See Notes to Condensed Consolidated Financial Statements
3
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME FOR THE THREE AND SIX MONTHS ENDED
DECEMBER 31, 2002 AND DECEMBER 31, 2001
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
31-DEC 31-DEC
2002 2001 2002 2001
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $ 3,535,377 $ 3,961,725 7,319,102 $ 7,890,276
Interest on mortgage-backed securities and other securities 16,524 21,509 34,960 46,256
Other interest and dividend income 112,644 69,800 188,289 159,819
--------------- -------------- ------------- -------------
Total interest income 3,664,545 4,053,034 7,542,351 8,096,351
--------------- -------------- ------------- -------------
INTEREST EXPENSE
Deposits 633,512 883,146 1,346,527 1,845,408
Borrowings 924,086 1,085,947 1,893,408 2,229,382
--------------- -------------- ------------- -------------
Total interest expense 1,557,598 1,969,093 3,239,935 4,074,790
--------------- -------------- ------------- -------------
Net interest income 2,106,948 2,083,941 4,302,416 4,021,561
PROVISION FOR LOAN LOSSES 35,000 6,000 80,000 8,000
--------------- -------------- ------------- -------------
Net interest income after
provision for loan losses 2,071,948 2,077,941 4,222,416 4,013,561
--------------- -------------- ------------- -------------
OTHER INCOME
Service charges on deposit accounts and other 188,027 156,491 355,341 298,522
Fiduciary activities 171,065 197,318 338,784 385,854
Other income 49,432 44,806 95,383 98,072
--------------- -------------- ------------- -------------
Total other income 408,524 398,615 789,508 782,448
--------------- -------------- ------------- -------------
OTHER EXPENSES
Salaries and employee benefits 750,997 660,036 1,458,187 1,293,415
Net occupancy expenses 103,459 102,848 214,280 203,511
Equipment expenses 35,002 38,476 78,225 74,561
Data processing fees 134,083 87,675 251,757 192,418
State of Ohio franchise taxes 60,250 56,250 120,500 112,500
Other expenses 416,483 524,091 829,690 952,777
--------------- -------------- ------------- -------------
Total other expenses 1,500,273 1,469,376 2,952,639 2,829,182
--------------- -------------- ------------- -------------
INCOME BEFORE FEDERAL INCOME TAX 980,198 1,007,181 2,059,285 1,966,826
FEDERAL INCOME TAX EXPENSE 337,852 347,167 709,820 677,927
--------------- -------------- ------------- -------------
NET INCOME $ 642,346 $ 660,014 1,349,465 $ 1,288,899
======== ======== ========== =========
PER SHARES DATA:
BASIC EARNINGS PER SHARE $ 0.08 $ 0.09 $ 0.18 $ 0.17
DILUTED EARNINGS PER SHARE $ 0.08 $ 0.09 $ 0.17 $ 0.17
DIVIDENDS PER SHARE $ 0.045 $ 0.030
See notes to Condensed Consolidated Financial Statements
4
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001
(unaudited)
2002 2001
---- ----
OPERATING ACTIVITIES
Net income $1,349,465 $1,288,899
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan losses 80,000 8,000
Depreciation and amortization 193,094 173,792
Investment securities amortization (accretion), net (97) 1,948
Federal Home Loan Bank stock dividends (118,300) (151,900)
Net change in other assets/ other liabilities 205,069 442,621
----------------- --------------
Net cash provided by operating activites 1,709,231 1,763,360
----------------- --------------
INVESTING ACTIVITIES
Net change in loans 18,099,515 (3,687,375)
Proceeds from maturities of securities held to maturity 183,080 244,121
Purchases of securities- available for sale (6,200,000) 0
Purchases of premises and equipment (379,565) (352,942)
----------------- --------------
Net cash used
by investing activities 11,703,030 (3,796,196)
----------------- --------------
FINANCING ACTIVITIES
Net change in
Interest-bearing demand and savings deposits 4,594,561 3,552,204
Certificates of deposit (5,300,079) 301,441
Proceeds from FHLB advances 32,000,000 134,000,000
Repayment of FHLB advances (34,509,533) (137,106,929)
Cash dividends (341,264) (223,190)
Purchase/Reissuance of treasury stock (30,081) -
----------------- --------------
Net cash provided by
financing activities (3,586,396) 523,526
----------------- --------------
Net Change in Cash and Cash Equivalents 9,825,865 (1,509,310)
Cash and cash equivalents, Beginning of Period 5,680,517 5,118,227
----------------- --------------
Cash and cash equivalents, End of Period $15,506,382 $3,608,917
============ ==========
See notes to Condensed Consolidated Financial Statements
5
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 2002
(Unaudited)
Additional Total
Common paid-in Retained Treasury shareholders'
stock capital earnings Stock equity
----------------- --------------- --------------- -------------- ---------------
BALANCE AT JUNE 30, 2002 $ 7,299,734 $ 203,084 $ 15,603,443 $ 0 $ 23,106,261
Net income - - 1,349,465 1,349,465
Cash dividends declared
on common stock ($.045 per share) - - (341,264) (341,264)
Exercise of stock options 144,002 36,339 - 180,341
Purchase of treasury stock - (36,493) (36,493)
Reissue of treasury stock (1,196) 6,412 5,216
Net change in equity from ESOP
shares (9,850) (75,565) (85,415)
-------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002 $ 7,433,886 $ 238,227 $ 16,536,078 $ (30,081)$ 24,178,110
================= =============== =============== ============== ===============
See Notes to Condensed Consolidated Financial Statements
6
PEOPLES OHIO FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2002
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Form 10-Q instructions and Article 10 of Regulation S-X, and,
in the opinion of management, all adjustments necessary to present fairly the
financial position as of December 31, 2002 and June 30, 2002, and the results of
operations and the cash flows for the six-month periods ended December 31, 2002
and 2001.
All adjustments to the financial statements were normal and recurring in nature.
These results have been determined on the basis of accounting principles
generally accepted in the United States of America. The results of operations
for the three and six months ended December 31, 2002, are not necessarily
indicative of results for the entire fiscal year.
The condensed consolidated balance sheet of the Company as of June 30, 2002 has
been derived from the audited consolidated balance sheet of the Company as of
that date.
The condensed consolidated financial statements are those of the Company and the
Bank. Certain information and footnote disclosures normally included in the
Company's financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. These condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's 2002 Annual Report to Shareholders.
(2) Earnings Per Share
The following table is for the three and six-month periods ending December 31,
2002 and 2001 and reflects the weighted average number of shares of common stock
for both basic and diluted EPS as well as the dilutive effect of stock options.
Three Months Ended Six Months Ended
December 31, December 31,
2002 2001 2002 2001
Weighted average number of common share ---- ---- ---- ----
outstanding (basic EPS) 7,583,652 7,439,650 7,515,193 7,439,650
Dilutive effect of stock options 175,402 319,710 214,786 283,788
--------- --------- --------- ---------
Weighted average number of common
shares and equivalents outstanding (diluted EPS) 7,759,054 7,759,360 7,729.979 7,723,438
========= ========= ========= =========
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
General
Peoples Ohio Financial Corporation (the "Company") is based in west central Ohio
and is the parent company of Peoples Savings Bank of Troy (the "Bank"). The
Company was formed during the year ended June 30, 2002 to provide various
benefits to the Bank, as well as, to take advantage of a more effective
structure for expanded financial activities. The Bank, a state chartered savings
bank, was originally chartered in 1890. The Bank is primarily engaged in
attracting deposits from Miami and northern Montgomery counties and originating
7
mortgage loans throughout those same areas. All references to the Company
include the Bank unless otherwise indicated.
Forward Looking Statements
In addition to historical information, this Form 10-Q may include certain
forward-looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the composition or quality of the Bank's loan
and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices. A further description of the risks and uncertainties to the business are
included in detail under the caption "Liquidity and Capital Resources of the
Company and the Bank."
FINANCIAL CONDITION
Total consolidated assets of the Company at December 31, 2002 were $217,987,000
compared to $219,922,000 at June 30, 2002, a decrease of $1,935,000 or 0.9%.
CASH AND CASH EQUIVALENTS increased $9.8 million, from $5.7 million at June 30,
2002 to $15.5 million at December 31, 2002. This increase was primarily the
result of funds provided from maturities and repayments of loans exceeding new
loan originations by $18.2 million during the period. Management uses its short
- -term "cash accounts" to hold funds generated from these regular banking
activities as it evaluates investment (loan) alternatives.
INVESTMENT SECURITIES-AVAILABLE FOR SALE increased from $0 at June 30, 2002 to
$6.2 million at December 31, 2002. This increase was the result of management
purchasing $6.2 million of variable rate demand notes during the period.
Management views these short -term investments as a higher yielding alternative
to "over-night" funds as it evaluates other longer-term investment (loan)
alternatives.
NET LOANS declined $18.2 million or 9.0%, from $201.716 million at June 30,
2002, to $183.537 million at December 31, 2002. The following table illustrates
changes in the Bank's loan portfolio by category for each period presented.
BALANCE BALANCE
DECEMBER 30, JUNE 30, CHANGE CHANGE
2002 2002 ($'S) (%)
---- ---- ----- ---
One-to-four family real estate $ 133,395 $ 149,480 $(16,085) (10.8)%
Commercial real estate 27,301 27,055 246 0.9
------ ------ ---
Total mortgage loans 160,696 176,535 (15,839) (9.0)
Construction 9,341 9,144 197 2.2
Commercial business 5,711 5,529 182 3.3
Consumer 2,902 5,146 (2,244) 43.6
Second mortgages 5,350 5,774 (424) (7.3)
Other 440 470 (30) (6.4)
--- --- ----
Gross loans 184,440 202,598 (18,158) (9.0)
Allowance for loan losses (903) (882) (21)
----- ----- ----
Total loans, net $ 183,537 $ 201,716 $(18,179) (9.0)%
========= ========= =========
8
While the Bank continues to be a strong residential lender throughout the
communities in which it operates, management has been reluctant to portfolio
long-term fixed rate mortgages during this period of historically low interest
rates. As a result, the Bank has seen some decline in its residential
single-family mortgage loan portfolio. Management continued to focus on
shorter-term commercial real estate and commercial business lending during the
period as evidenced by slight increases in these loan types during the period.
THE ALLOWANCE FOR LOAN LOSSES increased from $882,000 at June 30, 2002
to $903,000 at December 31, 2002 as a result of a provision for loan losses of
$80,000 during the period ended December 31, 2002 partially offset by net
charge-offs of $59,000. The 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 regarding the impact of economic conditions on the
portfolio.
The following table compares non-performing loans, which are loans past due 90
days or more and non-accruing loans, at December 31, 2002 and June 30, 2002.
December 31, June 30,
2002 2002
---- ----
Non-accrual $ 144,000 $ 352,000
Past due 90+ and still 1,639,000 637,000
--------- -------
accruing
Total non-performing $ 1,783,000 $ 989,000
=========== =========
loans
Non-performing loans, increased from $989,000 at June 30, 2002, to $1,783,000 at
December 31, 2002. This increase was primarily the result of one lending
relationship totaling $749,000 which was 179 days past due at December 31, 2002.
Management is working closely with this borrower to bring these loans current.
The ratio of the Company's allowance for loan losses to non-performing loans was
50.6% and 89.2% at December 31, 2002 and June 30, 2002, respectively. Management
believes that the problems with these loans are isolated and not indicative of
the loan portfolio in total.
DEPOSITS overall remained stable, declining $706,000 or .06%, from $120.447
million at June 30, 2002 to $119.741 million at December 31, 2002. The following
table illustrates changes in the various types of deposits for each period
presented.
BALANCE BALANCE
DECEMBER 31, JUNE 30, CHANGE CHANGE
2002 2002 ($'S) (%)
---- ---- ----- ---
Noninterest bearing accounts $ 7,966 $ 7,112 $ 854 12.0%
NOW accounts 20,396 26,313 (5,917) (22.5)
Super NOW accounts 627 500 127 25.4
Passbook accounts 21,650 20,302 1,348 8.3
Money market accounts 25,782 17,448 2,404 6.6
Certificates of deposit 43,320 48,772 (5,452) (11.2)
------ ------ -------
Total deposits $ 119,741 $ 120,447 $ (706) (0.6)%
========= ========= =======
Increases in noninterest bearing, Super NOW and, to a lesser extent, passbook
accounts were attributable to the opening of new accounts. In addition to new
accounts, a portion of the growth in passbook and money market accounts was the
result of customers transferring proceeds from maturing certificates of deposit
into these accounts.
TOTAL STOCKHOLDERS' EQUITY increased $1.072 million or 4.6%, from $23.11 million
at June 30, 2002, to $24.18 million at December 31, 2002. The increase was the
result of $1.3 million in net earnings and $180,000 related to the exercise of
stock options during the period ended December 31, 2002, offset by $341,000 in
dividends paid to the Company's stockholders, $31,000 related to net repurchases
of treasury stock and $85,000 related to the net change in equity related to the
Company's ESOP during the period ended December 31, 2002. During July 2002, the
Company's Board of Directors authorized the repurchase of up 350,000 shares of
the Company's
9
common stock. Treasury stock purchases will be made on the open market and used
for general corporate purposes.
RESULTS OF OPERATIONS--
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001
The Company reported earnings of $1,349,000 for the six months ended December
31, 2002, an increase of $61,000, or 4.7%, above the $1,289,000 reported for the
same period in 2001. Basic earnings per share increased $0.01 or 5.9% from $0.17
for the six months ended December 31, 2001 to $0.18 for the six months ended
December 31, 2002. Diluted earnings per share remained stable at $0.17 for both
six month periods. The Company's return on average assets was 1.22% for the six
months ended December 31, 2002 compared to 1.20% for the same period in 2001
while return on average equity declined to 11.42% for the six months ended
December 31, 2002 from 12.13% for the same period 2001.
Earnings from the two periods were comparable as a result of an increase in net
interest income of $280,000, or 7.0%, from $4,022,000 reported for the six
months ended December 31, 2001 to $4,302,000 for six months ended December 31,
2002. This increase was partially offset by an increase in noninterest expense
of $138,000 or 4.9%, from $2,815,000 reported for six months ended December 31,
2001 to $2,953,000 six months ended September, 2002.
NET INTEREST INCOME was $4,302,000 for the six months ended December 31, 2002,
$280,000, or 7.0%, higher than the $4,022,000 reported for six months ended
December 31, 2001. This increase was attributable to a $835,000, or 20.5%
decline in interest expense that was partially offset by a $554,000 decline in
interest income earned during the six months ended December 31, 2002. These
declines were the result of the continuing low interest rate environment
resulting from actions taken by the Federal Reserve Bank (the Fed). Note, the
Fed's "Open Market Committee" which establishes the Federal funds rate and the
discount rate, lowered these key interest rates a total of 15 times from July 1,
2000 through December 31, 2002. The interest rates the Bank charges its
borrowers and pays its depositors are significantly influenced by these rates.
Interest income was $7,542,000 for the six months ended December 31, 2002, a
decrease of $554,000 or 6.8%, from $8,096,000 for the six months ended December
31 2001. This was primarily the result of a $571,000 or 7.2% decline in interest
income earned on loans from $7,890,000 for the six months ended December 31,
2001, to $7,319,000 for the six months ended December 31, 2002.
As previously mentioned, management has been reluctant to portfolio long-term
fixed rate mortgages rather focusing on shorter-term commercial real estate and
commercial business lending. As a result, average net loans outstanding declined
from $202.5 million during the six months ended December 31, 2001 to $196.0
million during the same period ended December 31, 2002, contributing to the
decline in interest income. However, the primary reason for the decline in
interest income related to loans was a result of a lower average yield earned on
the Bank's loan portfolio which declined 32 basis points, from 7.79% during the
six months ended December 31, 2001 to 7.47% for the same period ended December
31, 2002, as borrowers continue to refinance taking advantage of lower interest
rates.
Interest expense was $3,240,000 for the six months ended December 31, 2002, a
decrease of $835,000 or 20.5%, $4,075,000 from the six months ended December 31
2001. This decline was largely the result of declines in interest expense paid
on certificates of deposit and FHLB advances in comparison to the same period in
the previous year. Interest expense on certificates of deposit was $623,000,
$590,000 or 48.6% lower than the $1,213,000 recorded in six months ended
December 31, 2001. This decline in interest expense was the result of a decline
in the average balance of certificates of deposit by $11.1 million, from $48.0
million for the six months ended September 2001, to $37.9 million for six months
ended December 31, 2002, coupled with a decline in the average rate paid on
those certificates of deposit by 177 basis points, from 5.06 % during the six
months ended December 31 2001, to 3.29 % during the six months ended December 31
2002. Interest expense on FHLB advances was $1,893,000, $336,000 or 15.1% lower
than the $2,229,000 recorded in the six months ended December 31, 2001. Again,
this decline was attributable to a decline in both the average balance of FHLB
advances by $8.4 million, from $82.2 million for the six months ended December
31, 2001 to $73.8 million for the six months ended December 31, 2002, and a
decline in the average rate paid on those FHLB advances, from 5.42% during the
six months ended December 31 2001, to 5.13% during the same period in 2002.
These declines were somewhat offset by slight increases in interest expense on
the Company's demand deposit accounts as depositors chose to invest proceeds
from maturing certificates in these short-term accounts. Accordingly, the
average balance of the Company's interest-bearing NOW and money market accounts
increased $17.8 million,
10
from $36.8 million for the six months ended December 31, 2001, to $54.6 million
for the six months ended December 31, 2002, while the average balance of the
Company's savings accounts increased $4.2 million, from $17.2 million for the
six months ended December 31, 2001, to $21.4 million for the six months ended
December 31, 2002.
THE PROVISION FOR LOAN LOSSES was $80,000 for six months ended December 31, 2002
compared to $8,000 for the same period in 2001. The provision for both periods
reflects management's analysis of the Bank's loan portfolio based on information
that is currently available to it at such time. In particular, management
considers the level of non-performing loans and potential problem loans. Total
charge-offs for six months ended September 2002 were $59,000 compared to $16,000
during the same period in 2001. While management believes that the allowance for
loan losses is sufficient based on information currently available to it, no
assurances can be made that future events, conditions, or regulatory directives
will not result in increased provisions for loan losses which may adversely
effect income.
NONINTEREST EXPENSE was $2,953,000 for six months ended December 31, 2002,
$138,000 or 4.9% higher than the $2,815,000 reported for the six months ended
December 31, 2001. The increase was primarily attributable to increases in
salaries and employee benefits which increased $165,000 or 12.8% due to regular
salary increases and the hiring of a new senior lender and chief financial
officer in July 2002.
TOTAL INCOME TAX EXPENSE was $710,000 (an effective tax rate of 34.5%) for the
six months ended December 31, 2002, compared to $678,000 (an effective tax rate
of 34.1%) during the six months ended December 31, 2001.
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
The Company reported earnings of $642,000 for the three months ended December
31, 2002, a decline of $18,000, or 2.7%, from the $660,000 reported for the same
period in 2001. Both basic and diluted earnings per share decreased $0.01 or
11.1% from $0.09 for the three months ended December 31, 2001 to $0.08 for the
three months ended December 31, 2002. The Company's return on average assets was
1.16% for the three months ended December 31, 2002 compared to 1.22% for the
same period in 2001 while return on average equity was 10.76% for the three
months ended December 31, 2002 compared to 12.20% for the same period 2001.
NET INTEREST INCOME was comparable at $2,107,000 for the three months ended
December 31, 2002, $23,000, or 1.1%, higher than the $2,084,000 reported for
three months ended December 31, 2001.
Interest income was $3,665,000 for the three months ended December 31, 2002, a
decrease of $388,000 or 9.6%, from $4,053,000 for the three months ended
December 31 2001 which was primarily attributable to a decline in interest
income earned on loans from $3,962,000 for the three months ended December 31,
2001, $427,000 or 10.8% less than the $3,535,000 earned the three months ended
December 31, 2002. This decline was the result of both, a lower average balance
of total loans outstanding, which declined from $204.8 million for the quarter
ended December 31, 2001 to $191.7 for the quarter ended December 31, 2002, and a
decline in the overall yield on loans, from 7.74% during the quarter ended
December 31, 2001, to 7.38% during the quarter ended December 31, 2002.
Interest expense was $1,558,000 for the three months ended December 31, 2002, a
decrease of $411,000 or 20.9%, $1,969,000 for the three months ended December 31
2001. This decline was the result of the lower interest rate environment coupled
with a change in the mix of deposits and FHLB advances used to fund the Bank's
assets. While average total deposits increased $11.9 million, from $111.5
million for the quarter ended December 31, 2001, to $123.4 million during the
quarter ended December 31, 2001, the composition of those deposits changed
significantly shifting from longer-term higher rate certificates of deposit to
shorter-term lower rate demand deposit and savings accounts. As a result, the
average rate paid on deposit account during the quarter ended December 31, 2002
was 2.05% compared to 3.17% during the quarter ended December 31, 2001. In
addition, this growth in deposits allowed the Bank to payoff maturing FHLB
advances which resulted in a decline in the average balance of FHLB advances
outstanding from $81.2 million during the quarter ended December 31, 2001, to
$72.1 million during the quarter ended December 31, 2002, which in turn, lowered
the interest expense associated with those advances.
THE PROVISION FOR LOAN LOSSES was $35,000 for three months ended December 31,
2002 compared to $6,000 for the same period in 2001. The provision for both
periods reflects management's analysis of the Bank's loan portfolio based on
information that is currently available to it at such time. In particular,
management considers the level of non-performing loans and potential problem
loans. Total charge-offs for three months ended
11
September 2002 were $45,000 compared to $11,000 during the same period in 2001.
While management believes that the allowance for loan losses is sufficient based
on information currently available to it, no assurances can be made that future
events, conditions, or regulatory directives will not result in increased
provisions for loan losses which may adversely affect income.
NONINTEREST EXPENSE was $1,500,000 for three months ended December 31, 2002,
$31,000 or 2.1% higher than the $1,469,000 reported for the three months ended
December 31, 2001. The increase was primarily attributable to increases in
salaries and employee benefits which increased $91,000 or 13.8% due to regular
salary increases and the hiring of a new senior lender and chief financial
officer in July 2002 and data processing fees which increased $46,000 or 52.3%
due to a $20,000 increase in software maintenance expense and a $23,000 increase
in depreciation expense both were related to the imaging equipment placed in
service during May of 2002 . These increases were partially offset by a $108,000
or 20.6% decline in other noninterest expense primarily due to a $60,000 decline
in professional fees and a $31,000 decline in advertising expense. During the
quarter ended December 31, 2001 management was in the initial stages of forming
the holding company and incurred professional fees and marketing expenses
related to its formation, no such expenses were incurred during the quarter
ended December 31, 2002.
TOTAL INCOME TAX EXPENSE was $338,000 (an effective tax rate of 34.5%) for the
three months ended December 31, 2002, compared to $347,000 (an effective tax
rate of 34.5%) during the three months ended December 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY AND THE BANK
Recent legislation repealed the Office of Thrift Supervision's (OTS) minimum
liquidity ratio requirement for the Bank. Regulations now require the Bank to
maintain sufficient liquidity to ensure its safe and sound operation. The Bank's
regulatory liquidity was 19.12% and 3.84% at December 31, and June 30, 2002,
respectively. The primary source of funding for the Company is dividend payments
from the Bank. Dividend payments by the Bank have been used solely by the
Company to pay dividends to its stockholders.
The Bank's liquidity is a product of its operating, investing and financing
activities. The primary investment activity of the Bank is the origination of
mortgage loans and to a lesser extent commercial and consumer loans. The primary
sources of funds are deposits, FHLB borrowings, prepayments and maturities of
outstanding loans, mortgage-backed securities, and investments. While scheduled
payments of loans and mortgage-backed securities and maturing investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by interest rates, economic conditions and competition. The
Bank utilizes FHLB borrowings to leverage its capital base and provide funds for
lending and to better manage its interest rate risk. The sole investment of the
Company is its investment in the Bank's stock.
At December 31, 2002, the Bank had outstanding commitments to originate loans of
$2,739,000, unused lines of credit of $10,529,000 and standby letters of credit
of $543,000. As of December 31, 2002, certificates of deposit scheduled to
mature in one year or less totaled $17.6 million. Based on historical
experience, management believes that a significant portion of maturing deposits
will remain with the Bank. Management anticipates that the Bank will continue to
have sufficient funds, through deposits, borrowings, and normal operations to
meet its commitments.
The Bank is required by OTS regulations to meet certain minimum capital
requirements. At December, 2002, the Bank exceeded all of its regulatory capital
requirements with tangible and tier 1 capital both at $25,185,000 or 11.53% of
adjusted total assets, and risk-based capital at $ 26,088,000 or 17.85% of
risk-weighted assets. The required minimum ratios are 1.5% for tangible capital
to adjusted total assets, 4.0% for tier 1 capital to adjusted total assets and
8.0% for risk-based capital to risk-weighted assets.
The Bank's most liquid assets are cash and cash equivalents. The level of cash
and cash equivalents is dependent on the Bank's operating, financing lending and
investing activities during any given period. At December 31, 2002, the Bank's
cash and cash equivalents totaled $15,506,000. The Company's and Bank's future
short -term requirements for cash are not expected to significantly change.
However, in the event that the Bank should require funds in excess of its
ability to generate them internally, additional sources of funds are available,
including additional FHLB advances. With no parent company debt and sound
capital levels, the Company
12
should have many options available for satisfying its longer-term cash needs
such as borrowing funds, raising equity capital and issuing trust preferred
securities.
Management is not aware of any current recommendations or government proposals
which, if implemented would have a material effect on the Company's liquidity,
capital resources or operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in the Company's market risk since June 30,
2002, except as discussed in the Management Discussion and Analysis.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the filing date of this Form 10-Q, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as defined in Rule 13a-14 of the
Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information required to be included in this Quarterly Report on Form 10-Q. There
have been no significant changes in the Company's internal controls or in other
factors which could significantly affect internal controls subsequent to the
date the Company carried out its evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions incident to its
business, none of which is believed by management to be material
to the financial condition of the Company.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a vote of Security Holders
The information contained in Part II Item 4 of the Company's Form
10-Q filed with the SEC on November 14, 2002 for the period ended
September 30, 2002, is incorporated herein by reference.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1.1 Peoples Ohio Financial Corporation Articles of
Incorporation (incorporated by reference to the Form 8-A
filed with the SEC on February 8, 2002 (the "Form 8-A"),
Exhibit 2(a))
3.1.2 Peoples Ohio Financial Corporation Amended and Restated
Code of Regulations (Incorporated by reference to the
Form 8-A, Exhibit 2(b))
11.1 Computation of earnings per share
13
99.1 Certification of Ronald B. Scott, Chief Executive Officer,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Richard J. Dutton, Chief Financial
Officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
b. Reports on Form 8-K
1. On November 6, 2002, the Company filed a Current Report on
Form 8-K reporting information under Item 5, incorporating
as an exhibit a consent of Independent Accountants
relating to the registration statement filed on October
31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Peoples Ohio Financial Corporation
Dated: February 12, 2003 By /s/ Ronald B. Scott
-------------------
Ronald B. Scott
President
By /s/ Richard J. Dutton
---------------------
Richard J. Dutton
Vice-President, Chief Financial Officer
14
SECTION 302 CERTIFICATION
I, Ronald B. Scott, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peoples Ohio Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 12, 2003
/s/ Ronald B. Scott
-------------------
Ronald B. Scott
Chief Executive Officer
15
SECTION 302 CERTIFICATION
I, Richard J. Dutton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peoples Ohio Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 12, 2003
/s/ Richard J. Dutton
---------------------
Richard J. Dutton
Chief Financial Officer
16
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
----------- -----------------------
3.1 Peoples Ohio Financial Corporation Articles
of Incorporation (incorporated by reference
to the Form 8-A filed with the SEC on
February 8, 2002 (the "Form 8-A"), Exhibit
2(a))
3.2 Peoples Ohio Financial Corporation Amended
and Restated Code of Regulations
(Incorporated by reference to the Form 8-A,
Exhibit 2(b))
11.1 Computation of earnings per share
99.1 Certification of Ronald B. Scott, Chief
Executive Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.2 Certification of Richard J. Dutton, Chief
Financial Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
17