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 March 31, 2003
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period
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Commission File Number 0-49619
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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
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(Former name, former address and former fiscal year,
if changed since last report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER
(AS DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT).
YES NO X
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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
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Applicable Only to Corporate Issuers
As of May 12, 2003, there were 7,583,652 common shares of the registrant issued
and outstanding.
1
PEOPLES OHIO FINANCIAL CORPORATION
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INDEX
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PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as
Of March 31, 2003 and June 30, 2002.
Condensed Consolidated Statements of Income
for the three and nine months ended March
31, 2003 and 2002.
Condensed Consolidated Statement of
Shareholders' Equity for nine months ended
March 31, 2003.
Condensed Consolidated Statements of Cash
Flows for the nine months ended March 31,
2003 and 2002.
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
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SECTION 302 CERTIFICATIONS
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INDEX TO EXHIBITS
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2
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2003 AND JUNE 30, 2002
2003 2002
ASSETS (UNAUDITED)
------ ------------- -------------
Cash and cash equivalents $ 14,941,352 $ 5,680,517
Time deposits in other financial institutions 1,000,000
Investment securities:
Held to maturity, (fair value of $954,697 and
$1,174,000 at March 31, 2003 and June 30, 2002) 789,993 1,121,139
Available for sale 18,995,453 -
Loans, net of allowance for loan losses of $836,564 and $882,067 171,026,336 201,716,051
Office properties and equipment 4,736,917 4,649,712
Federal Home Loan Bank stock 5,220,800 5,051,600
Interest receivable 979,356 1,059,550
Other assets 606,014 643,706
------------- -------------
Total assets $ 218,296,220 $ 219,922,275
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $ 120,614,492 $ 120,446,602
Federal Home Loan Bank (FHLB) advances 71,405,361 74,174,409
Interest payable 187,736 231,386
Other liabilities 1,263,460 1,494,898
------------- -------------
Total liabilities 193,471,049 196,347,295
------------- -------------
Commitments and Contingent Liabilities - -
Equity from ESOP Shares 606,552 468,719
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 232,656 203,084
Treasury stock, at cost, 63,662 shares (258,519) 0
Unrealized Gain on Available for Sale Securities 18,348 0
Retained earnings 16,792,248 15,603,443
------------- -------------
Total shareholders' equity 24,218,619 23,106,261
------------- -------------
$ 218,296,220 $ 219,922,275
============= =============
See Notes to Condensed Consolidated Financial Statements
3
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2003 AND, 2002
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
31-MAR 31-MAR
2003 2002 2003 2002
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $ 3,272,892 $ 3,834,695 10,591,994 $11,724,971
Interest on mortgage-backed securities and other securities 103,902 20,662 138,862 66,918
Other interest and dividend income 75,025 56,902 263,314 216,721
----------- ----------- ----------- -----------
Total interest income 3,451,820 3,912,259 10,994,170 12,008,610
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 498,553 768,212 1,845,080 2,613,620
Borrowings 901,025 1,011,640 2,794,433 3,241,022
----------- ----------- ----------- -----------
Total interest expense 1,399,578 1,779,852 4,639,513 5,854,642
----------- ----------- ----------- -----------
Net interest income 2,052,242 2,132,408 6,354,658 6,153,968
PROVISION FOR LOAN LOSSES 30,000 18,000 110,000 26,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,022,242 2,114,408 6,244,658 6,127,968
----------- ----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts and other 186,756 151,457 542,097 449,979
Fiduciary activities 167,400 193,288 506,184 579,142
Other income 53,961 41,967 149,344 140,039
----------- ----------- ----------- -----------
Total other income 408,117 386,712 1,197,625 1,169,160
----------- ----------- ----------- -----------
Other expenses
Salaries and employee benefits 727,719 667,224 2,185,906 1,960,639
Net occupancy expenses 87,592 95,586 301,872 299,097
Equipment expenses 46,039 36,687 124,264 111,248
Data processing fees 137,817 103,239 389,574 295,657
State of Ohio franchise taxes 66,215 60,404 186,715 172,904
Other expenses 377,194 424,743 1,206,884 1,377,520
----------- ----------- ----------- -----------
Total other expenses 1,442,575 1,387,883 4,395,215 4,217,065
----------- ----------- ----------- -----------
INCOME BEFORE FEDERAL INCOME TAX 987,783 1,113,237 3,047,067 3,080,064
Federal income tax expense 340,795 383,756 1,050,615 1,061,683
----------- ----------- ----------- -----------
Net income $ 646,988 $ 729,481 1,996,452 $ 2,018,381
=========== =========== =========== ===========
PER SHARES DATA:
- ----------------
BASIC EARNINGS PER SHARE $ 0.09 $ 0.10 $ 0.26 $ 0.27
DILUTED EARNINGS PER SHARE $ 0.08 $ 0.09 $ 0.26 $ 0.26
DIVIDENDS PER SHARE $ 0.045 $ 0.035 $ 0.090 $ 0.065
See notes to Condensed Consolidated Financial Statements
4
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2003 AND 2002
(unaudited)
2003 2002
---- ----
OPERATING ACTIVITIES
Net income $ 1,996,452 $ 2,018,381
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan losses 110,000 26,000
Depreciation and amortization 232,939 253,717
Investment securities amortization (accretion), net 17,463 1,852
Federal Home Loan Bank stock dividends (169,200) (206,600)
Net change in other assets/ other liabilities (166,653) 219,726
------------- -------------
Net cash provided by operating activities 2,021,001 2,313,076
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INVESTING ACTIVITIES
Net change in loans 30,579,715 (3,624,809)
Proceeds from maturities of securities held to maturity 336,614 354,539
Proceeds from maturities of securities available for sale 30,000 0
Purchases of securities- available for sale (19,020,584) 0
Purchase of time deposits in other financial institutions (1,000,000) 0
Purchases of premises and equipment (320,144) (634,959)
------------- -------------
Net cash used
by investing activities 10,605,601 (3,905,229)
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FINANCING ACTIVITIES
Net change in
Interest-bearing demand and savings deposits 6,570,903 13,631,055
Certificates of deposit (6,403,013) (3,757,419)
Proceeds from FHLB advances 32,000,000 180,000,000
Repayment of FHLB advances (34,769,048) (187,661,649)
Cash dividends (679,664) (483,578)
Proceeds from exercise of stock options 180,341 0
Purchase/Reissuance of treasury stock (265,286) -
-------------
Net cash provided by
financing activities (3,365,767) 1,728,409
------------- -------------
Net Change in Cash and Cash Equivalents 9,260,835 136,256
Cash and cash equivalents, Beginning of Period 5,680,517 5,118,227
------------- -------------
Cash and cash equivalents, End of Period $ 14,941,352 $ 5,254,483
============= =============
See notes to Condensed Consolidated Financial Statements
5
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2003
(Unaudited)
Additional Unrealized Gain Total
Common paid-in Retained Treasury on AFS shareholders'
stock capital earnings Stock Securities equity
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 2002 $ 7,299,734 $ 203,084 $ 15,603,443 $ 0 $ 23,106,261
Net income - - 1,996,452 1,996,452
Cash dividends declared
on common stock ($.09 per share) - (679,664) (679,664)
Exercise of stock options 144,002 36,339 - 180,341
Purchase of treasury stock - (280,443) (280,443)
Reissue of treasury stock (6,767) 21,924 15,157
Net change in Unrealized Gain/Loss
on AFS Securities 18,348 18,348
Net change in equity from ESOP
shares (9,850) (127,983) (137,833)
------------ ---------- ------------ ---------- ---------- ------------
BALANCE AT MARCH 31, 2003 $ 7,433,886 $ 232,656 $ 16,792,248 $ (258,519) $ 18,348 24,218,619
============ ========== ============ ========== ========== ============
See Notes to Condensed Consolidated Financial Statements
6
PEOPLES OHIO FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2003
(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 March 31, 2003 and June 30, 2002, and the results of
operations and the cash flows for the nine-month periods ended March 31, 2003
and 2002.
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 nine months ended March 31, 2003, 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 nine-month periods ending March 31,
2003 and 2002 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 Nine Months Ended
March 31, March 31,
Weighted average number of common shares 2003 2002 2003 2002
--------- --------- --------- ---------
outstanding (basic EPS) 7,572,190 7,439,650 7,553,225 7,439,650
Dilutive effect of stock options 206,587 259,107 198,391 275,456
--------- --------- --------- ---------
Weighted average number of common shares
and equivalents outstanding (diluted EPS) 7,778,777 7,698,757 7,553,225 7,715,106
========= ========= ========= =========
Options to purchase 168,155 shares of common stock at exercise prices ranging
from $6.81 to $8.13 per share were outstanding at March 31, 2003, but were not
included in the computation of diluted EPS due to their exercise price being
greater than the average market price of common shares.
(3) Stock-based Compensation
The Company accounts for its stock option plan under the recognition and
measurement principals of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under those plans had
an exercise price equal to the market value of the underlying common stock on
the grant date. The following table illustrates the effect on net income and
earnings per share as if the Company had applied the fair value provisions of
FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
7
Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
---------- ---------- ----------- -----------
Net income, as reported $ 646,988 $ 729,481 $ 1,996,452 $ 2,018,381
Less: Total stock-based employee compensation
Cost determined under the fair value based
Method, net of income taxes (3,720) (32,366) (11,966) (91,639)
Pro Forma net income $ 643,268 $ 697,115 $ 1,984,486 $ 1,926,674
========== ========== =========== ===========
Earnings per share:
Basic - as reported $ 0.09 $ 0.10 $ 0.26 $ 0.27
========== ========== =========== ===========
Basic - pro forma $ 0.09 $ 0.09 $ 0.26 $ 0.26
========== ========== =========== ===========
Diluted - as reported $ 0.08 $ 0.09 $ 0.26 $ 0.26
========== ========== =========== ===========
Diluted - pro forma $ 0.08 $ 0.09 $ 0.26 $ 0.25
========== ========== =========== ===========
(4) Impact of Current Accounting Issues
On November 25, 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No.
45) which expands on the accounting guidance of Statements No. 5, 57 and 107
and incorporates without change the provisions of FASB Interpretation No. 34,
which is being suspended.
FIN No. 45, which is applicable to public and non--public entities, will
significantly change current practice in the accounting for, and disclosure of,
guarantees. Each guarantee meeting the characteristics described in FIN No. 45
is to be recognized and initially measured at fair value, which will be a
change from current practice for most entities. In addition, guarantors will be
required to make significant new disclosures, even if the likelihood of the
guarantor making payment so under the guarantee is remote, which represents
another change from current general practice.
FIN No. 45's disclosure requirements are effective for financial statements of
interim or annual periods ending after December 15, 2002, while the initial
recognition and initial measurement provisions are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. The Company has
changed its method of accounting and financial reporting for standby letters of
credit by adopting the provisions of FIN No. 45 effective January 1, 2003.
There was no material impact of the adoption on the financial statements.
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
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
8
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 March 31, 2003 were $218,296,000
compared to $219,922,000 at June 30, 2002, a decrease of $1,664,000 or 0.7%.
CASH AND CASH EQUIVALENTS increased $9.2 million, from $5.7 million at June 30,
2002 to $14.9 million at March 31, 2003. This increase was primarily the result
of funds provided from maturities and repayments of loans exceeding new loan
originations by $27.8 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
$18.7 million at March 31, 2003. This increase was the result of management
purchasing $8.7 million of variable rate demand notes during the period.
Management views these short -term investments as a higher yielding alternative
to "over-night" funds. In addition, the management purchased $7.0 million in
mortgage-backed securities and $3.0 million in federal agency bonds. These
securities have weighted average maturities ranging from one to three years and
are viewed by management as conservative short-term investments as it evaluates
other longer-term investment (loan) alternatives.
NET LOANS declined $30.7 million or 15.2%, from $201.716 million at June 30,
2002, to $171.026 million at March 31, 2003. The following table illustrates
changes in the Bank's loan portfolio by category for each period presented.
BALANCE BALANCE
MARCH 31, JUNE 30, CHANGE CHANGE
2003 2002 ($'S) (%)
--------- --------- --------- -------
One-to-four family real estate $ 122,782 $ 149,480 $ (26,742) (17.9)%
Commercial real estate 27,179 27,055 124 0.5
--------- --------- ---------
Total mortgage loans 149,961 176,535 (26,618) (15.1)
Construction 7,832 9,144 (1,312) (14.3)
Commercial business 6,128 5,529 599 10.8
Consumer 2,438 5,146 (2,708) (52.6)
Second mortgages 5,072 5,774 (702) (12.2)
Other 431 470 (39) (8.3)
--------- --------- ---------
Gross loans 171,863 202,598 (30,779) (15.2)
Allowance for loan losses (837) (882) 45
--------- --------- ---------
Total loans, net $ 171,026 $ 201,716 $ (30,734) (15.2)%
========= ========= =========
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 experienced a 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.
9
THE ALLOWANCE FOR LOAN LOSSES decreased from $882,000 at June 30, 2002
to $837,000 at March 31, 2003 as a result of net charge-offs of $155,000 during
the period ended March 31, 2003 partially offset by a provision for loan losses
of $110,000. 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 March 31, 2003 and June 30, 2002.
March 31, June 30,
2003 2002
---- ----
Non-accrual $ 631,000 $ 352,000
Past due 90+ and still accruing 1,162,000 637,000
----------- ---------
Total non-performing loans $ 1,793,000 $ 989,000
=========== =========
Non-performing loans, increased from $989,000 at June 30, 2002, to $1,793,000 at
March 31, 2003. This increase was primarily the result of one commercial lending
relationship totaling $749,000 which was 269 days past due at March 31, 2003.
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
46.7% and 89.2% at March 31, 2003 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, increasing $167,000 or .01%, from $120.447
million at June 30, 2002 to $120.614 million at March 31, 2003. The following
table illustrates changes in the various types of deposits for each period
presented.
BALANCE BALANCE
MARCH 31, JUNE 30, CHANGE CHANGE
2003 2002 ($'S) (%)
--------- --------- -------- -----
Noninterest bearing accounts $ 9,808 $ 7,112 $ 2,696 37.9%
NOW accounts 21,177 26,313 (5,126) (19.5)
Super NOW accounts 979 500 479 95.8
Passbook accounts 22,541 20,302 2,239 11.0
Money market accounts 23,792 17,448 6,304 36.1
Certificates of deposit 42,317 48,772 (6,455) (13.2)
------ --------- -------
Total deposits $ 120,614 $ 120,447 $ 167 0.1%
========= ========= =======
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.
FEDERAL HOME LOAN BANK ADVANCES declined $2.8 million from $74.17 million at
June 30, 2002 to $71.41 million at March 31, 2003. This decline was the result
of regular principal repayments and maturities.
TOTAL STOCKHOLDERS' EQUITY increased $1.095 million or 4.7%, from $23.11 million
at June 30, 2002, to $24.20 million at March 31, 2003. The increase was the
result of $2.0 million in net earnings and $180,000 related to the exercise of
stock options during the period ended March 31, 2003, offset by $680,000 in
dividends paid to the Company's stockholders, $265,000 related to net
repurchases of treasury stock and $138,000 related to the net change in equity
related to the Company's ESOP during the period ended March 31, 2003. During
July 2002, the Company's Board of Directors authorized the repurchase of up
350,000 shares of the Company's common stock of which 63,662 were held at March
31, 2003. Treasury stock purchases will be made on the open market and used for
general corporate purposes.
10
RESULTS OF OPERATIONS--
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2003 AND 2002
The Company reported earnings of $1,996,000 for the nine months ended March 31,
2003, a decline of $22,000, or 1.1%, from the $2,018,000 reported for the same
period in 2002. Basic earnings per share declined $0.01 or 3.7% from $0.27 for
the nine months ended March 31, 2002 to $0.26 for the nine months ended March
31, 2003. Diluted earnings per share remained stable at $0.26 for both nine
month periods. The Company's return on average assets was 1.21% for the nine
months ended March 31, 2003 compared to 1.24% for the same period in 2002 while
return on average equity declined to 11.20% for the nine months ended March 31,
2003 from 12.41% for the same period 2002.
Earnings from the two periods were comparable as a result of an increase in net
interest income of $201,000, or 3.3%, from $6,154,000 reported for the nine
months ended March 31, 2002 to $6.355,000 for nine months ended March 31, 2003.
The increase net interest income was offset by an $84,000 increase in the
provision for loan losses from $26,000 for the nine months ended March 31, 2002
to $110,000 for the nine months ended March 31, 2003. Increased net interest
income was further offset by a $178,000 or 4.2% increase in noninterest expense
from $4,217,000 for the nine months ended March 31, 2002 to $4,395,000 for the
nine months ended March 31, 2003.
NET INTEREST INCOME was $6,355,000 for the nine months ended March 31, 2003,
$201,000, or 3.3%, higher than the $6,154,000 reported for nine months ended
March 31, 2002. This increase was attributable to a $1,215,000, or 20.8% decline
in interest expense that was partially offset by a $1,014,000 or 8.5% decline in
interest income earned during the nine months ended March 31, 2003. 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 March 31, 2003. The interest rates the Bank charges its borrowers
and pays its depositors are significantly influenced by these rates.
Interest income was $10,994,000 for the nine months ended March 31, 2003, a
decrease of $1,014,000 or 8.5%, from $12,009,000 for the nine months ended March
31 2002. This was primarily the result of a $1,133,000 or 9.7% decline in
interest income earned on loans from $11,725,000 for the nine months ended March
31, 2002, to $10,592,000 for the nine months ended March 31, 2003.
As previously mentioned, rather than portfolioing long-term fixed rate
mortgages, management chose to focus on shorter-term commercial real estate and
commercial business lending. As a result, average net loans outstanding declined
from $202.4 million during the nine months ended March 31, 2002 to $191.8
million during the same period ended March 31, 2003, 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 38 basis points, from 7.73% during the nine
months ended March 31, 2002 to 7.35% for the same period ended March 31, 2003,
as borrowers continue to refinance taking advantage of lower interest rates.
Interest expense was $4,640,000 for the nine months ended March 31, 2003, a
decrease of $1,215,000 or 20.8%, from $5,855,000 for the nine months ended March
31 2002. 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
$1,095,000, $861,000 or 44.0% lower than the $1,956,000 recorded in nine months
ended March 31, 2002. This decline in interest expense was the result of a
decline in the average balance of certificates of deposit by $11.2 million, from
$54.8 million for the nine months ended March 31, 2002, to $43.6 million for
nine months ended March 31, 2003, coupled with a decline in the average rate
paid on those certificates of deposit by 141 basis points, from 4.76 % during
the nine months ended March 31 2002, to 3.35 % during the nine months ended
March 31 2003. Interest expense on FHLB advances was $2,794,000, $447,000 or
13.8% lower than the $3,241,000 recorded in the nine months ended March 31,
2002. Again, this decline was attributable to a decline in both the average
balance of FHLB advances by $7.5 million, from $80.5 million for the nine months
ended March 31, 2002 to $73.0 million for the nine months ended March 31, 2003,
and a decline in the average rate paid on those FHLB advances, from 5.37% during
the nine months ended March 31 2002, to 5.10% during the same period in 2003.
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 $16.2 million, from $39.7 million for the nine months ended March 31,
2002, to $55.9 million for the nine months ended March 31, 2003, while the
average balance of the Company's savings accounts increased $4.1 million, from
$16.2 million for the nine months ended March 31, 2002, to $21.8 million for the
nine months ended March 31, 2003.
11
THE PROVISION FOR LOAN LOSSES was $110,000 for nine months ended March 31, 2003
compared to $26,000 for the same period in 2002. 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 nine months ended March 31, 2003 were $170,000 compared to
$48,000 during the same period in 2002. 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 $4,395,000 for nine months ended March 31, 2003,
$178,000 or 4.2% higher than the $4,217,000 reported for the nine months ended
March 31, 2002. The increase was primarily attributable to increases in salaries
and employee benefits and data processing fees. Salaries and employee benefits
increased $225,000 or 11.5% due to regular salary increases, a $90,000 increase
in costs associated with maintaining the Company's defined benefit plan and the
hiring of a new senior lender and chief financial officer in July 2002. Data
processing fees increased $94,000 or 31.8% due to a $39,000 increase in software
maintenance expense and a $46,000 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 $171,000 or 12.4% decline in other
noninterest expense primarily attributable to a $169,000 or 47.3% decline in
professional services.
TOTAL INCOME TAX EXPENSE was $1,051,000 (an effective tax rate of 34.5%) for the
nine months ended March 31, 2003, compared to $1,062,000 (an effective tax rate
of 34.5%) during the nine months ended March 31, 2002.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
The Company reported earnings of $647,000 for the three months ended March 31,
2003, a decline of $82,000, or 11.3%, from the $729,000 reported for the same
period in 2002. Basic and diluted earnings per share decreased $0.01 or 10.0%
from $0.10 for the three months ended March 31, 2002 to $0.09 for the three
months ended March 31, 2003. While diluted earnings per share decreased $0.01 or
11.1% from $0.09 for the nine months ended March 31, 2002 to $0.08 for the three
months ended March 31, 2003. The Company's return on average assets was 1.19%
for the three months ended March 31, 2003 compared to 1.34% for the same period
in 2002 while return on average equity was 10.70% for the three months ended
March 31, 2003 compared to 13.14% for the same period in 2002.
NET INTEREST INCOME was $2,052,000 for the three months ended March 31, 2003,
$80,000, or 3.8%, less than the $2,132,000 reported for three months ended March
31, 2002.
Interest income was $3,452,000 for the three months ended March 31, 2003, a
decrease of $562,000 or 14.7%, from $3,912,000 for the three months ended March
31 2002 which was primarily attributable to a $427,000 or 10.8% decline in
interest income earned on loans from $3,835,000 for the three months ended March
31, 2002, to $3,273,000 for the three months ended March 31, 2003. This decline
was the result of both, a lower average balance of total loans outstanding,
which declined from $203.2 million for the quarter ended March 31, 2002 to
$183.5 for the quarter ended March 31, 2003, and a decline in the overall yield
on loans, from 7.55% during the quarter ended March 31, 2002, to 7.09% during
the quarter ended March 31, 2003.
Interest expense was $1,400,000 for the three months ended March 31, 2003, a
reduction of $380,000 or 21.4%, from the $1,780,000 paid during the three months
ended March 31, 2002. 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 $6.6 million,
from $116.8 million for the quarter ended March 31, 2002, to $123.4 million
during the quarter ended March 31, 2003, 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 accounts during the quarter ended March
31, 2003 was 1.62% compared to 2.63% during the quarter ended March 31, 2002. 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 $77.0 million during the quarter ended March 31, 2002, to $73.0
million during the quarter ended March 31, 2003, which in turn, lowered the
interest expense associated with those advances.
THE PROVISION FOR LOAN LOSSES was $30,000 for three months ended March 31, 2003
compared to $18,000 for the same period in 2002. 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 March 2003 were $111,000 compared to $38,000
during the same period in 2002. While management believes that the allowance
12
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 $1,443,000 for three months ended March 31, 2003,
$55,000 or 3.9% higher than the $1,388,000 reported for the three months ended
March 31, 2002. The increase was primarily attributable to increases in salaries
and employee benefits which increased $60,000 or 9.1% 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 $35,000 or 33.5% due to a
$10,000 increase in software maintenance expense and a $18,000 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 $48,000
or 11.2% decline in other noninterest expense primarily due to a $38,000 decline
in professional fees and a $15,000 decline in office property expense. During
the quarter ended March 31, 2002 management formed the holding company and
incurred professional fees and marketing expenses related to its formation, no
such expenses were incurred during the quarter ended March 31, 2003.
TOTAL INCOME TAX EXPENSE was $341,000 (an effective tax rate of 34.5%) for the
three months ended March 31, 2003, compared to $384,000 (an effective tax rate
of 34.5%) during the three months ended March 31, 2002.
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 20.05% and 3.84% at March 31, 2003, 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 March 31, 2003, the Bank had outstanding commitments to originate loans of
$2,743,000, unused lines of credit of $10,217,000 and standby letters of credit
of $544,000. As of March 31, 2003, certificates of deposit scheduled to mature
in one year or less totaled $25.3 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 March 31, 2003, the Bank exceeded all regulatory minimum
capital requirements with tangible and tier 1 capital both at $25,833,000 or
11.78% of adjusted total assets, and risk-based capital at $ 26,670,000 or
17.99% 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 March 31, 2003, the Bank's cash
and cash equivalents totaled $14,941,000. 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 has many options available for satisfying its longer-term cash needs
including 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
13
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
Not Applicable
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
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
14
b. Reports on Form 8-K
1. On January 23, 2003, the Company filed a Current Report
on Form 8-K reporting information under Item 5,
incorporating by reference a press release dated
January 22, 2003, relating to the Company's unaudited
results for the quarter ended December 31, 2002.
2. On February 28, 2003, the Company filed a Current
Report on Form 8-K reporting information under Item 5,
incorporating by reference a press release dated
February 27, 2003, relating to the payment of the
Company's dividend.
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: May 14, 2003 By /s/ Ronald B. Scott
------------------------------------
Ronald B. Scott
President
By /s/ Richard J. Dutton
------------------------------------
Richard J. Dutton
Vice-President, Chief Financial Officer
15
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: May 14, 2003
/s/ Ronald B. Scott
--------------------------
Ronald B. Scott
Chief Executive Officer
16
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: May 14, 2003
/s/ Richard J. Dutton
----------------------------
Richard J. Dutton
Chief Financial Officer
17
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
18