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 September 30, 2003
[ ] 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
-------------- ---------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED
FILER(AS DEFINED IN RULE 126-2 OF THE EXCHANGE ACT).
YES NO X
-------------- ---------------
As of November 12, 2003, there were 7,377,419 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
September 30, 2003 and June 30, 2003.
Condensed Consolidated Statements of Income for
the three months ended September 30, 2003 and
2002.
Condensed Consolidated Statement of Shareholders'
Equity for three months ended September 30, 2003.
Condensed Consolidated Statements of Cash Flows
for the three months ended September 30, 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 and use of Proceeds.
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
INDEX TO EXHIBITS
2
ITEM 1. FINANCIAL STATEMENTS
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 JUNE 30
2003 2003
ASSETS (UNAUDITED)
------- ----------------------- -----------------------
Cash and cash equivalents $ 15,005,734 $ 15,835,436
Held-to -maturity securities (fair value $710,617 and $824,000) 697,539 779,425
Available-for-sale securities 22,470,793 16,687,228
Loans, net of allowance for loan losses of $857,392 and $862,235 150,662,778 160,608,931
Premises and equipment 4,586,923 4,654,915
Federal Home Loan Bank stock 5,325,900 5,272,800
Interest receivable 829,638 867,150
Bank-owned life insurance 4,049,642 0
Other assets 576,221 2,643,035
----------------------- -----------------------
Total assets $ 204,205,168 $ 207,348,920
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $ 125,342,267 $ 117,629,404
Federal Home Loan Bank (FHLB) advances 52,103,941 63,328,746
Interest payable 130,859 134,575
Other liabilities 1,812,331 1,274,964
----------------------- -----------------------
Total liabilities 179,389,398 182,367,689
----------------------- -----------------------
Commitments and Contingent Liabilities - -
Equity from ESOP Shares 660,290 630,279
-------- -------
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 150,066 and 150,066 7,433,586 7,433,586
Additional paid-in capital 153,826 186,600
Treasury stock, at cost, 206,233 and 155,441 shares (856,798) (643,261)
Unrealized Gain on Available-for-Sale Securities 66,446 56,616
Retained earnings 17,358,420 17,317,411
----------------------- -----------------------
Total shareholders' equity 24,155,480 24,350,952
----------------------- -----------------------
$ 204,205,168 $ 207,348,920
============ ============
See notes to condensed consolidated financial statements
3
Peoples Ohio Financial Corporation
Condensed Consolidated Statements of Income
For the Three months ended September 30, 2003 and, 2002
THREE MONTHS ENDED
30-SEP
2003 2002
---- ----
INTEREST INCOME
Interest and fees on loans $ 2,723,021 $ 3,783,724
Interest on mortgage-backed securities and other securities 114,758 18,436
Other interest and dividend income 73,527 75,645
---------------- -------------
Total interest income 2,911,306 3,877,805
---------------- -------------
INTEREST EXPENSE
Deposits 350,579 713,015
Borrowings 787,779 969,322
---------------- -------------
Total interest expense 1,138,358 1,682,337
---------------- -------------
Net interest income 1,772,948 2,195,468
PROVISION FOR LOAN LOSSES 30,000 45,000
---------------- -------------
Net interest income after
provision for loan losses 1,742,948 2,150,468
---------------- -------------
OTHER INCOME
Service charges on deposit accounts and other 278,287 167,314
Fiduciary activities 150,090 167,719
Increase in cash value of bank owned life insurance 44,112 0
Other income 51,176 45,952
---------------- -------------
Total other income 523,665 380,985
---------------- -------------
OTHER EXPENSES
Salaries and employee benefits 728,438 707,190
Net occupancy expenses 119,696 110,821
Equipment expenses 38,156 43,223
Data processing fees 146,945 117,674
State of Ohio franchise taxes 66,165 60,250
Other expenses 410,932 413,210
---------------- -------------
Total other expenses 1,510,332 1,452,368
---------------- -------------
INCOME BEFORE FEDERAL INCOME TAX 756,281 1,079,085
FEDERAL INCOME TAX EXPENSE 242,616 371,968
---------------- ------------
Net income $ 513,665 $ 707,117
Per Shares Data:
- ----------------
Basic Earnings Per Share $ 0.07 $ 0.09
Diluted Earnings Per Share $ 0.07 $ 0.09
Dividends Per Share $ 0.060 $ 0.045
See notes to condensed consolidated financial statements
4
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
2003 2002
---- ----
OPERATING ACTIVITIES
Net income $513,665 $707,117
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan losses 30,000 45,000
Depreciation and amortization 95,773 96,864
Investment securities amortization (accretion), net 216,245 (49)
Federal Home Loan Bank stock dividends (53,100) (60,400)
Net change in other assets/ other liabilities 2,457,998 478,311
--------------------- -----------------
Net cash provided by operating activities 3,260,581 1,266,843
--------------------- -----------------
Investing ACTIVITIES
Net change in loans 9,916,153 6,180,855
Proceeds from maturities of securities held to maturity 81,886 175,624
Proceeds from maturities of securities available for sale 190,000 0
Purchases of securities- available for sale (6,000,000) 0
Purchase of Bank Owned Life Insurance (4,049,642) 0
Purchases of premises and equipment (27,781) (321,155)
---------------------- -----------------
Net cash provided
by investing activities 110,616 6,035,324
--------------------- -----------------
Financing ACTIVITIES
Net change in
Interest-bearing demand and savings deposits 9,295,886 6,409,586
Certificates of deposit (1,583,023) (2,370,521)
Proceeds from FHLB advances 0 32,000,000
Repayment of FHLB advances (11,224,805) (32,253,197)
Cash dividends (442,645) (341,264)
Proceeds from exercise of stock options 39,037 0
Purchase/Reissuance of treasury stock (36,493)
(285,348)
Net cash provided (used) by
financing activities (4,200,898) 3,408,111
--------------------- -----------------
Net Change in Cash and Cash Equivalents (829,702) 10,710,278
Cash and cash equivalents, Beginning of Period 15,835,436 5,680,517
---------------------- -----------------
Cash and cash equivalents, End of Period $15,005,734 $16,390,795
See notes to condensed consolidated financial statements ---------------------- ------------------
5
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
Additional Unrealized Gain Total
Common paid-in Retained Treasury on AFS shareholders'
stock capital earnings Stock Securities equity
-----------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2003 $7,433,586 $186,600 $17,317,411 ($643,261) $56,616 $24,350,952
Net income - - 513,665 513,665
Cash dividends declared 0
on common stock ($.06 per share) - (442,645) (442,645)
Exercise of stock options 0 (32,774) - 71,811 39,037
Purchase of treasury stock, net
- (285,348) (285,348)
Net change in Unrealized Gain/Loss 0
on AFS Securities 9,830 9,830
Net change in equity from ESOP 0
shares
- (30,011) (30,011)
-----------------------------------------------------------------------------------
BALANCE AT SEPT 30, 2003 $7,433,586 $153,826 $17,358,420 ($856,798) $66,446 $24,155,480
===================================================================================
See Notes to Condensed Consolidated Financial Statements
6
PEOPLES OHIO FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 September 30, 2003 and June 30, 2003, the results of
operations and the cash flows for the three-month periods ended September 30,
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 months ended September 30, 2003, are not necessarily indicative of
results for the entire fiscal year.
The condensed consolidated balance sheet of the Company as of June 30, 2003 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 2003 Annual Report to Shareholders.
(2) Earnings Per Share
The following table is for the three-month period ending September 30, 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
September 30,
---------------------------------------------------
Weighted average number of common shares 2003 2002
---- ----
outstanding (basic EPS) 7,400,942 7,513,814
Dilutive effect of stock options 215,489 214,698
------- -------
Weighted average number of common shares
and equivalents outstanding (diluted EPS) 7,616,431 7,728,512
--------- ---------
7
(3) Stock Options
The Company has a stock-based employee compensation plan. The Company accounts
for this plan under the recognition and measurement principles 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. The proforma
effect on income for the periods presented includes the effect of forfeitures.
THREE MONTHS ENDED
---------------------------------------
2003 2002
---------------------------------------
Net income, as reported $ 513 $ 707
Less: Total stock-based employee
compensation cost determined under the
fair value based method, net of income
taxes (5) (5)
--------------- ---------------
Pro forma net income $ 508 $ 702
============== ==============
Earnings per share:
Basic - as reported 0.7 0.9
Basic - pro forma 0.7 0.9
Diluted - as reported 0.7 0.9
Diluted - pro forma 0.7 0.9
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
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."
8
FINANCIAL CONDITION
Total consolidated assets of the Company at September 30, 2003 were
$204,205,000, compared to $207,349,000 at June 30, 2003, a decline of $3,144,000
or 1.5%.
CASH AND CASH EQUIVALENTS remained fairly stable declining $829,000, from
$15,835,000 at June 30, 2003 to $15,006,000 at September 30, 2003. Management
uses its uses its short -term "cash accounts" to hold funds generated from these
regular banking activities as it evaluates investment (loan) alternatives.
NET LOANS declined $9.9 million or 6.2%, from $160,609,000at June 30, 2003, to
$150,663 million at September 30, 2003. The following table illustrates changes
in the Bank's loan portfolio by category for each period presented.
BALANCE BALANCE
SEPTEMBER 30, JUNE 30, CHANGE CHANGE
2003 2003 ($'S) (%)
----- ----- ----- ---
Residential single-family mortgages $ 107,472 $ 115,175 $ (7,703) (6.7)%
Other residential and commercial mortgages 24,910 25,021 (111) (0.4)
------ ------ -----
Total mortgage loans 132,382 140,196 (7,814) (5.6)
Construction 10,260 12,802 (2,542) (19.9)
Commercial business 4,268 5,573 (1,305) (7.5)
Consumer 2,475 2,452 23 0.01
Home improvement 4,774 4,772 2 -
Deposit and other 278 290 (12) (0.04)
--- --- ----
Gross loans 154,437 166,085 (11,648) (7.0)
Deferred loan fees (214) (209) 5
Undisbursed portion of loans (2,703) (4,405) 1,702
Allowance for loan losses (857) (862) (5)
----- ----- ---
Total loans, net $ 150,663 $ 160,609 $ (9,946) (6.2)%
--------- --------- ---------
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 seen some decline in its residential
single-family mortgage loan portfolio. Management continues to focus on
shorter-term commercial real estate, commercial business and consumer lending
during the quarter.
THE ALLOWANCE FOR LOAN LOSSES was relatively unchanged declining from $862,000
at June 30, 2003 to $857,000 at September 30, 2003. This decrease was the result
of a provision for loan losses of $30,000 during the quarter ended September 30,
2003 and net charge-offs of $35,000. The ratio of the Company's allowance for
loan losses to gross loans was 0.56% and 0.52% at September 30, 2003 and June
30, 2003, respectively. 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 September 30, 2003 and June 30, 2003.
September 30, June 30,
2003 2003
---- ----
Past due 90+ and still accruing $ 2,021,000 $ 3,193,000
Non-accrual 1,002,000 634,000
--------- -------
Total non-performing loans $ 3,023,000 $ 3,827,000
=========== ===========
9
Non-performing loans, declined from $3,827,000 at June 30, 2003, to $3,023,000
at September 30, 2003. Loans past-due 90 days or more declined from $3,193,000
at June 30, 2003 to $2,021,000 at September 30, 2003. This decline was primarily
attributable to four accounts which were brought current during the quarter, two
commercial loans totaling $250,000 and $499,000 which are secured by business
assets, and two first mortgage loans totaling $70,000 and $197,000,
respectively. Non-accrual loans increased from $634,000 at June 30, 2003 to
$1,002,000 at September 30, 2003. This increase in non-accrual loans was
attributable to placing a commercial real estate loan ($375,000) on non-accrual
status during the quarter. Management continues to work closely with these
borrowers to bring these loans current.
The ratio of the Company's allowance for loan losses to non-performing loans was
28.3% and 22.5% at September 30, 2003 and June 30, 2003, respectively.
Management believes that the problems with these loans are isolated and not
indicative of the loan portfolio in total.
DEPOSITS increased $7,713,000 or 6.6%, from $117,629,000 at June 30, 2003 to
$125,342,000 at September 30, 2003. The following table illustrates changes in
the various types of deposits for each period presented.
BALANCE BALANCE
SEPTEMBER 30, JUNE 30, CHANGE CHANGE
2003 2003 ($'S) (%)
---- --- ---- ---
Noninterest bearing accounts $5,743 $ 5,815 $ 72 1.2%
NOW accounts 26,851 21,700 5,151 23.7
Super NOW accounts 1,650 1,095 555 50.7
Passbook accounts 21,815 20,823 992 4.8
Money market accounts 31,548 26,763 4,785 17.9
Certificates of deposit 37,735 41,433 (3,698) (9.9)
------ ------ -------
Total deposits $ 125,342 $ 117,629 $ 7,713 6.6%
--------- --------- -------
Increases in noninterest bearing, NOW, super NOW, passbook and money market
accounts were primarily attributable to the opening of new accounts. In addition
to new retail accounts and a significant new public fund customer, a portion of
the growth in virtually all types of deposit accounts was the result of
customers transferring proceeds from maturing certificates of deposit into these
accounts.
TOTAL STOCKHOLDERS' EQUITY declined $196,000 or 0.8%, from $24,351,000 million
at June 30, 2003, to $24,155,000million at September 30, 2003. The decrease was
the result of $443,000 in dividends paid to the Company's stockholders,
$246,000, net of options exercised, related to the repurchase of stock and
$30,000 related to the net change in equity related to the Company's ESOP during
the quarter ended September 30, 2003, offset by $514,000 in net earnings and a
$10,000 increase in the unrealized gain on securities available for sale during
the quarter ended September 30, 2003. During July 2003, the Company's Board of
Directors authorized the repurchase of up 350,000 shares of the Company's common
stock. Treasury stock purchases are made on the open market and used for general
corporate purposes.
RESULTS OF OPERATIONS--COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2003
AND 2002
The Company reported earnings of $514,000 for the three months ended September
30, 2003, a decline of $193,000, or 27.3%, from the $707,000 reported for the
same period in 2002. Basic and diluted earnings per share both declined $0.02 or
22.2% from $0.09 for the three months ended September 30, 2002 to $0.07 for the
three months ended September 30, 2003. The Company's return on average assets
was 1.00% for the three months ended September 30, 2003 compared to 1.27% for
the same period in 2002. Return on average equity was 8.48% for the three months
ended September 30, 2003, compared to 12.12% for the same period in 2002.
Earnings declined as a result of a decline in net interest income of $422,000,
or 19.2%, from $2,195,000 reported for the three months ended September 30, 2002
to $1,773,000 for three months ended September 30, 2003. This decrease was
partially offset by an increase in noninterest income of $143,000 or 37.5%, from
$381,000 reported for three months ended September 30, 2002 to $524,000 three
months ended September, 2003.
10
NET INTEREST INCOME was $1,773,000 for the three months ended September 30,
2003, $422,000, or 19.2%, less than the $2,195,000 reported for three months
ended September 30, 2002. Total interest income was $2,911,000 for the quarter
ended September 30, 2003, a decline of $967,000, or 24.9% from the $3,878,000
reported during the quarter ended September 30, 2002. The decline in interest
income was partially offset by a $544,000 decline in interest expense from
$1,682,000 for the three months ended September 30 2002, to $1,138,000 for the
three months ended September 30, 2003.
Total interest income was $2,911,000 for the quarter ended September 30, 2003, a
decline of $967,000, or 24.9% from the $3,878,000 reported during the quarter
ended September 30, 2002. The decrease was attributable to a decline in average
loans outstanding from $203,009,000 during the quarter ended September 30, 2002
to $154,415,000 during the quarter ended September 30, 2003. This decline was
the result of the Company taking advantage of the prolonged low interest rate
environment to divest of longer-term fixed rate assets (primarily 30-year fixed
rate mortgages) in favor of shorter-term interest earning assets (primarily
investment securities with weighted-average-maturities ranging from 1 to 3
years) in an effort to reduce the Company's exposure to interest rate risk and
better position the Company should longer-term interest rates begin to increase.
The continued low interest rate environment on the average yield of the
Company's loan portfolio and declines in average loans outstanding were the
primary reasons for this decline in total interest income. Management noted that
the average yield on the Company's loan portfolio declined 39 basis points from
7.35% during the quarter ended September 30, 2002 to 6.96% during the quarter
ended September 30, 2003.
Interest expense was $1,138,000 for the three months ended September 30, 2003,
$544,000 or 32.3%, lower than the $1,682,000 recorded for the three months ended
September 30 2002, as interest expense paid on certificates of deposit and
Federal Home Loan Bank ("FHLB") advances declined significantly in comparison to
the same period in the previous year. Interest expense on certificates of
deposit was $252,000, $164,000 or 39.4% lower than the $416,000 recorded in
three months ended September 30, 2002. The average balance of certificates of
deposit declined by $7,580,000, from $46,864,000 for the three months ended
September 2002, to $39,284,000 for three months ended September 30, 2003. In
addition, the average rate paid on those certificates of deposit decreased by
100 basis points, from 3.55% during the three months ended September 30, 2002,
to 2.55% during the three months ended September 30 2003. Interest expense on
FHLB advances was $788,000, $181,000 or 18.7% lower than the $969,000 recorded
in the three months ended September 30, 2002. The average balance of FHLB
advances declined by $18,127,000, from $75,443,000 for the three months ended
September 30, 2002 to $57,316,000 for the three months ended September 30, 2003.
The impact of the decline in average FHLB advances outstanding was somewhat
offset by an increase in the average rate paid on those advances of 31 basis
points, from 5.14% during the three months ended September 30 2002, to 5.45%
during the same period in 2003. The balance of the decline in interest expense
was attributable to declines in the interest paid to the Company's demand
deposit and savings account customers. The average balance of the Company's
interest-bearing NOW and money market accounts increased $7,360,000, from
$52,575,000 for the three months ended September 30, 2002, to $59,935,000 for
the three months ended September 30, 2003, while the average balance of the
Company's savings accounts increased $1,485,000 during the same period in 2002.
.. The impact of the increases in average demand deposit and savings accounts
outstanding was completely offset by a decrease in the average rate paid on
those deposits during the three months ended September 30 2003, in comparison to
the same period in 2002.
THE PROVISION FOR LOAN LOSSES was $30,000 for three months ended September 30,
2003 compared to $45,000 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. Net charge-offs for three months ended September 2003 were $35,000
compared to $24,000 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 INCOME was $524,000 for three months ended September 30, 2003,
$143,000 or 37.5% higher than the $381,000 reported for the three months ended
September 30, 2002. The increase was primarily attributable to a $111,000
increase in service charges earned on deposit accounts and a $44,000 increase in
the cash surrender value of life insurance. These increases were somewhat offset
by a $17,000 decline in income generated from fiduciary activities (trust
services).
11
NONINTEREST EXPENSE was $1,510,000 for three months ended September 30, 2003,
$58,000 or 4.0% higher than the $1,452,000 reported for the three months ended
September 30, 2002. The slight increase was attributable to slight increases in
several expense accounts.
TOTAL INCOME TAX EXPENSE was $243,000 (an effective tax rate of 32.1%) for the
three months ended September 30, 2003, compared to $372,000 (an effective tax
rate of 34.5%) during the three months ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY AND THE BANK
Banking regulations require the Bank to maintain sufficient liquidity to ensure
its safe and sound operation. The Bank's regulatory liquidity was 21.55% and
13.70% at September 30, 2003 and 2002, respectively. The primary source of
funding for the Company is dividend payments from the Bank. Dividend payments by
the Bank have been used primarily 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 September 30, 2003, the Bank had outstanding commitments to originate loans
of $4,585,000, open-end consumer lines of credit of $7,331,000, unused
commercial lines of credit of $2,100,000 and standby letters of credit of
$297,000. As of September 30, 2003, certificates of deposit scheduled to mature
in one year or less totaled $22,113,000. 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 Office of Thrift Supervision ("OTS") regulations to meet
certain minimum capital requirements. At September 30, 2003, the Bank exceeded
all of its regulatory capital requirements with tangible and tier 1 capital both
at $22,411,000 or 11.13% of adjusted total assets, and risk-based capital at $
23,268,000 or 17.75% of risk-weighted assets. The required minimum ratios 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 September 30, 2003, the Bank's
cash and cash equivalents totaled $15,006,000. 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 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,
2003, except as discussed in the Management's Discussion and Analysis of
Financial Condition and Results of Operations set forth in Item 2, above. For
information regarding the Company's Market Risk, refer to the Company's Form
10-K for the year ending June 30, 2003.
12
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form
10-Q, the Company's Chief Executive Officer and Chief Financial Officer
evaluated, with the participation of the Company's management, the effectiveness
of the Company's disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")). Based upon their evaluation, the Company's Chief Executive
Officer and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rules and forms.
No changes were made to the Company's internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)
during the Company's most recent fiscal quarter that have materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
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 AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting was held on October 28, 2003 at
Edison Junior College in Piqua, Ohio at 3:00 p.m. Proxies were
solicited from shareholders pursuant to Regulation 14A of the
Exchange Act. The meeting included the following matters voted
upon by shareholders:
1. The election of Donald Cooper, Thomas E. Robinson and
Richard W. Klockner to two-year terms on the Company's
Board of Directors. The vote was 5,020,793 in favor and
279,525 withheld for Donald Cooper, 5,169,222 in favor
and 131,096 withheld for Thomas E. Robinson and
5,019,793 in favor and 280,525 withheld for Richard W.
Klockner. Incumbent Directors who were not nominees for
election at the meeting are: William J. McGraw, III,
Ronald B. Scott and James S. Wilcox.
2. The ratification of BKD, LLP to serve as the Company's
independent auditors for the fiscal year ending June 30,
2004. The vote was 5,017,008 in favor and 291,177
against, with 97,754 abstaining.
ITEM 5. OTHER INFORMATION
Not Applicable
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. 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))
31.1 Certification of Ronald B. Scott, Chief
Executive Officer, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of Richard J. Dutton, Chief
Financial Officer, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
32 Certification of Ronald B. Scott, Chief Executive
Officer and Richard J. Dutton, Chief Financial Officer,
perusuent to Section 906 of The Sarbanes-Oxley Act of
2002.
b. Reports on Form 8-K
1. On August 8, 2003, the Company filed a Current Report on
Form 8-K reporting information under Item 5,
incorporating a press release dated August 8, 2003,
relating to the Company's earnings for fiscal year 2003.
2. On August 28, 2003, the Company filed a Current Report
on Form 8-K reporting information under Item 5,
incorporating a press release dated August 28, 2003,
relating to the approval of a semi-annual 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: November 13, 2003 By /s/ Ronald B. Scott
-------------------------------
Ronald B. Scott
President, Chief Executive Officer
By /s/ Richard J.Dutton
----------------------------
Richard J. Dutton
Vice-President, Chief Financial Officer
14
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))
31.1 Certification of Ronald B. Scott, Chief Executive Officer, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Richard J. Dutton, Chief Financial Officer, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32 Certification of Ronald B. Scott, Chief Executive Officer, and
Richard J. Dutton, Chief Financial Officer, perusuent to Section 906
of The Sarbanes-Oxley Act of 2002.
15