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, 2004
[ ] 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
-----------------------------------------------------------------
(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
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 126-B OF THE EXCHANGE ACT).
YES NO X
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As of MAY 7, 2004, there were 7,296,225 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 March 31,
2004 and June 30, 2003.
Condensed Consolidated Statements of Income for the three
And nine months ended March 31, 2004 and 2003.
Condensed Consolidated Statement of Shareholders' Equity for
three and nine months ended March 31, 2004.
Condensed Consolidated Statements of Cash Flows for the nine
months ended March 31, 2004 and 2003.
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
MARCH 31 JUNE 30
2004 2003
------------- -------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 7,611,998 $ 15,835,436
Held-to -maturity securities (fair value $568,071 and $824,000) 564,207 779,425
Available-for-sale securities 17,310,247 16,687,228
Loans, net of allowance for loan losses of $917,950 and $862,235 150,305,762 160,608,931
Premises and equipment 4,500,193 4,654,915
Federal Home Loan Bank stock 5,433,000 5,272,800
Interest receivable 880,495 867,150
Bank-owned life insurance 4,147,177 0
Other assets 726,463 2,643,035
------------- -------------
Total assets $ 191,479,542 $ 207,348,920
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 114,433,888 $ 117,629,404
Federal Home Loan Bank (FHLB) advances 50,645,808 63,328,746
Interest payable 87,801 134,575
Other liabilities 1,686,424 1,274,964
------------- -------------
Total liabilities 166,853,921 182,367,689
------------- -------------
Commitments and Contingent Liabilities -- --
Equity from ESOP Shares 503,314 630,279
------------- -------------
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 120,989 and 150,066 7,462,663 7,433,586
Additional paid-in capital 0 186,600
Treasury stock, at cost, 287,427 and 155,441 shares (1,200,907) (643,261)
Unrealized Gain on Available-for-Sale Securities 116,292 56,616
Retained earnings 17,744,259 17,317,411
------------- -------------
Total shareholders' equity 24,122,307 24,350,952
------------- -------------
$ 191,479,542 $ 207,348,920
============= =============
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, 2004 AND, 2003
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
31-MAR 31-MAR
2004 2003 2004 2003
----------- ----------- ----------- -----------
INTEREST INCOME
Interest and fees on loans $ 2,531,138 $ 3,272,893 $ 7,795,226 $10,591,994
Interest on mortgage-backed securities and other securities 145,857 103,902 411,025 138,862
Other interest and dividend income 73,698 75,025 215,933 263,314
----------- ----------- ----------- -----------
Total interest income 2,750,693 3,451,820 8,422,184 10,994,170
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 294,853 498,553 972,972 1,845,080
Borrowings 712,733 901,025 2,215,965 2,794,433
----------- ----------- ----------- -----------
Total interest expense 1,007,586 1,399,578 3,188,937 4,639,513
----------- ----------- ----------- -----------
Net interest income 1,743,107 2,052,242 5,233,247 6,354,657
PROVISION FOR LOAN LOSSES 40,000 30,000 100,000 110,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 1,703,107 2,022,242 5,133,247 6,244,657
----------- ----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts and other 272,461 186,756 841,987 543,097
Fiduciary activities 143,607 167,400 426,841 506,184
Increase in cash value of bank owned life insurance 51,780 0 146,848 0
Other income 66,543 53,961 167,024 149,344
----------- ----------- ----------- -----------
Total other income 534,391 408,117 1,582,700 1,198,625
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits 755,166 727,719 2,239,999 2,185,906
Net occupancy expenses 111,844 87,592 341,345 301,872
Equipment expenses 39,347 46,039 114,539 124,264
Data processing fees 181,825 137,817 470,072 389,574
State of Ohio franchise taxes 75,050 66,215 207,380 186,715
Other expenses 500,625 377,194 1,423,826 1,206,884
----------- ----------- ----------- -----------
Total other expenses 1,663,857 1,442,576 4,797,161 4,395,215
----------- ----------- ----------- -----------
INCOME BEFORE FEDERAL INCOME TAX 573,641 987,783 1,918,786 3,048,067
FEDERAL INCOME TAX EXPENSE 168,742 340,795 609,585 1,050,615
----------- ----------- ----------- -----------
NET INCOME $ 404,900 $ 646,988 $ 1,309,200 $ 1,997,452
=========== =========== =========== ===========
PER SHARES DATA:
BASIC EARNINGS PER SHARE $ 0.06 $ 0.09 $ 0.18 $ 0.26
DILUTED EARNINGS PER SHARE $ 0.05 $ 0.08 $ 0.17 $ 0.26
DIVIDENDS PER SHARE $ 0.060 $ 0.045 $ 0.120 $ 0.090
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, 2004 AND 2003
(unaudited)
2004 2003
------------ ------------
OPERATING ACTIVITIES
Net income $ 1,309,200 $ 1,996,452
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan losses 100,000 110,000
Depreciation and amortization 289,064 232,939
Investment securities amortization (accretion), net (86,163) 17,463
Increase in cash surrender value of life insurance (147,177)
Federal Home Loan Bank stock dividends (160,200) (169,200)
Net change in other assets/ other liabilities 2,413,751 (166,653)
------------ ------------
Net cash provided by operating activities 3,718,476 2,021,001
------------ ------------
INVESTING ACTIVITIES
Net change in loans 10,203,169 30,579,715
Proceeds from maturities of securities held to maturity 215,218 336,614
Proceeds from sales and maturities of securities available for sale 10,876,981 30,000
Purchases of securities- available for sale (11,500,000) (19,020,584)
Purchase of Bank Owned Life Insurance (4,000,000)
Purchase of time deposits in other financial institutions (1,000,000)
Purchases of premises and equipment (134,342) (320,144)
------------ ------------
Net cash provided by investing activities 5,661,026 10,605,601
------------ ------------
FINANCING ACTIVITIES
Net change in
Interest-bearing demand and savings deposits 2,739,742 6,570,903
Certificates of deposit (5,935,258) (6,403,013)
Proceeds from FHLB advances 59,500,000 32,000,000
Repayment of FHLB advances (72,182,938) (34,769,048)
Cash dividends (880,419) (679,664)
Proceeds from exercise of stock options 261,123 180,341
Purchase/Reissuance of treasury stock (1,105,189) (265,286)
------------ ------------
Net Cash used by financing activities (17,602,939) (3,365,767)
------------ ------------
Net Change in Cash and Cash Equivalents (8,223,438) 9,260,835
Cash and cash equivalents, Beginning of Period 15,835,436 5,680,517
------------ ------------
Cash and cash equivalents, End of Period $ 7,611,998 $ 14,941,352
============ ============
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, 2004
(unaudited)
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 -- -- 1,309,200 1,309,200
Cash dividends declared 0
on common stock ($.12 per share) -- (880,419) (880,419)
Exercise of stock options 0 (186,600) (99,821) 547,543 261,122
Purchase of treasury stock, net -- (1,105,189) (1,105,189)
Net change in Unrealized Gain/Loss
on AFS Securities 59,676 59,676
Net change in equity from ESOP
shares 29,077 97,888 126,965
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT MAR 31, 2004 $ 7,462,663 $ 0 $ 17,744,259 ($1,200,907) $ 116,292 $ 24,122,307
============ ============ ============ ============ ============ ============
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, 2004
(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, 2004 and June 30, 2003, the results of
operations for the three and nine-month periods ended March 31, 2004 and 2003,
and the cash flows for the nine-month periods ended March 31, 2004 and 2003.
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-month periods ended March 31, 2004, are not necessarily
indicative of results for the entire fiscal year.
The condensed consolidated balance sheet of Peoples Ohio Financial Corporation
(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
Peoples Savings Bank of Troy (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 and nine-month period ending March 31, 2004
and 2003 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,
--------- ---------
2004 2003 2004 2003
--------- --------- --------- ---------
Weighted average number of common shares
outstanding (basic EPS) 7,337,685 7,572,190 7,375,841 7,553,225
Dilutive effect of stock options 148,897 206,587 184,036 198,391
--------- --------- --------- ---------
Weighted average number of common shares and
equivalents outstanding (diluted EPS) 7,486,582 7,778,777 7,559,877 7,751,616
========= ========= ========= =========
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 pro-forma
effect on income for the periods presented includes the effect of forfeitures.
Three months ended Nine months ended
March 31, March 31,
-------------------------------------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Net income, as reported $ 405 $ 647 $ 1,309 $ 1,996
Less:
Total stock-based employee
compensation cost determined under the fair
value based method, net of income taxes (10) (4) (25) (13)
--------- --------- --------- ---------
Pro forma net income $ 395 $ 643 $ 1,284 $ 1,983
========= ========= ========= =========
Earnings per share:
Basic - as reported 0.06 0.09 0.18 0.26
Basic - pro forma 0.05 0.09 0.17 0.26
Diluted - as reported 0.05 0.08 0.17 0.26
Diluted - pro forma 0.05 0.08 0.17 0.26
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 upon 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 March 31, 2004 were $191,480,000,
compared to $207,349,000 at June 30, 2003, a decline of $15,869,000 or 7.7%.
CASH AND CASH EQUIVALENTS declined $8,223,000 or 51.9%, from $15,835,000 at June
30, 2003 to $7,612,000 at March 31, 2004. Management uses its short-term "cash
accounts" to hold funds generated from these regular banking activities as it
evaluates investment (loan) alternatives.
NET LOANS declined $10,303,000 million or 6.4%, from $160,609,000 at June 30,
2003, to $150,306,000 at March 31, 2004. The following table illustrates changes
in the Bank's loan portfolio by category for each period presented.
BALANCE BALANCE
MARCH 31, JUNE 30, CHANGE CHANGE
2004 2003 ($'S) (%)
---- ---- ----- ---
Residential single-family mortgages $ 104,218 $ 115,175 ($10,957) (9.5%)
Other residential and commercial mortgages 27,124 25,021 2,103 8.4
--------- --------- --------
Total mortgage loans 131,342 140,196 (8,854) (6.3)
Construction 7,910 12,802 (4,892) (38.2)
Commercial business 6,597 5,573 1,024 18.4
Consumer 2,196 2,452 (256) (10.4)
Home improvement 5,453 4,772 681 14.3
Deposit and other 265 290 (25) (8.6)
--------- --------- --------
Gross loans 153,763 166,085 (12,322) (7.4)
Deferred loan fees (202) (209) 7 3.3
Undisbursed portion of loans (2,337) (4,405) 2,068 46.9
Allowance for loan losses (918) (862) (56) 6.5
--------- --------- --------
Total loans, net $ 150,306 $ 160,609 (10,303) (6.4%)
========= ========= =======
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, commercial business and consumer lending.
THE ALLOWANCE FOR LOAN LOSSES increased $56,000 or 6.5%, from $862,000 at June
30, 2003 to $918,000 at March 31, 2004. This increase was the result of a
provision for loan losses of $100,000 during the nine months ended March 31,
2004 and net charge-offs of $44,000. The ratio of the Company's allowance for
loan losses to gross loans was 0.61% and 0.53% at March 31, 2004 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 March 31, 2004 and June 30, 2003.
March 31, June 30,
2004 2003
---------- ----------
Past due 90+ and still accruing $ 485,000 $2,559,000
Non-accrual 893,000 634,000
---------- ----------
Total non-performing loans $1,378,000 $3,193,000
========== ==========
Non-performing loans declined from $3,193,000 at June 30, 2003 to $1,378,000 at
March 31, 2004. Loans past-due 90 days or more declined from $2,559,000 at June
30, 2003 to $485,000 at March 31, 2004. This decline was
9
primarily attributable to seven accounts which were brought current during the
nine month period, three commercial loans totaling $266,000, $250,000 and
$499,000 which are secured by business assets, and four first mortgage loans
totaling $70,000, $197,000, $348,000 and $192,000, respectively. Non-accrual
loans increased from $634,000 at June 30, 2003 to $893,000 at March 31, 2004.
This increase in non-accrual loans was attributable to placing a commercial real
estate loan ($375,000) on non-accrual status during the period. 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
66.6% and 22.5% at March 31, 2004 and June 30, 2003, respectively. Management
believes that the problems with these loans are isolated and not indicative of
the loan portfolio in total.
BANK-OWNED LIFE INSURANCE increased from $0 at June 30, 2003 to $4,147,000 at
March 31, 2004. In June 2003, both the Company's and Bank's Board of Directors
authorized the purchase of life insurance on several key executives in an effort
to protect the Bank against projected increases in employee benefit costs and to
help mitigate the costs associated with replacing key members of management in
the event of their untimely death. It should be noted that no additional
benefits were provided by the Company or Bank to these executives as a result of
this transaction.
DEPOSITS remained fairly stable, declining $3,195,000 or 2.7%, from $117,629,000
at June 30, 2003 to $114,434,000 at March 31, 2004. The following table
illustrates changes in the various types of deposits for each period presented.
BALANCE BALANCE
MARCH 31, JUNE 30, CHANGE CHANGE
2004 2003 ($'S) (%)
----- ---- ----- ---
Noninterest bearing accounts $ 13,857 $ 5,815 $ 8,042 1.4%
NOW accounts 17,116 21,700 (4,584) (21.1)
Super NOW accounts 2,068 1,095 973 88.9
Passbook accounts 22,873 20,823 2,050 9.8
Money market accounts 24,413 26,763 (2.350) (8.8)
Certificates of deposit 34,107 41,433 (7,326) (17.7)
------ ------ ------
Total deposits $114,434 $117,629 ($ 3,195) (2.7)
======== ======== ========
Fluctuations in demand deposit and savings accounts were attributable to normal
account activity. In addition, a portion of the growth in virtually all types of
all other deposit accounts was the result of customers transferring proceeds
from maturing certificates of deposit into these accounts.
TOTAL STOCKHOLDERS' EQUITY declined $229,000, or 0.9%, from $24,351,000 million
at June 30, 2003, to $24,122,000 million at March 31, 2004. The decline was the
result of $880,000 in dividends paid to the Company's stockholders and
$1,105,000 related to the repurchase of treasury stock. These decreases to
stockholders' equity were somewhat offset by $1,309,000 in net earnings,
$261,000 contributed from the exercise of stock options, $127,000 related to the
net change in equity related to the Company's ESOP and a $60,000 increase in the
unrealized gain on securities available for sale during the nine month period
ended March 31, 2004. During July 2003, the Company's Board of Directors
authorized the repurchase of up 373,000 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 NINE MONTHS ENDED MARCH 31, 2004 AND
2003
The Company reported earnings of $1,309,000 for the nine months ended March 31,
2004, a decline of $687,000, or 34.4%, from the $1,996,000 reported for the same
period in 2003. Basic earnings per share declined $0.08 or 30.8% from $0.26 for
the nine months ended March 31, 2003 to $0.18 for the nine months ended March
31, 2004. Diluted earnings per share declined $0.09 or 34.6% from $0.26 for the
nine months ended December 31, 2002 to $0.17 for the nine months ended March 31,
2004. The Company's return on average assets was 0.88% for the nine months ended
March 31, 2004 compared to 1.21% for the same period in 2003. Return on average
equity was 7.19% for the nine months ended March 31, 2004, compared to 11.20%
for the same period in 2003.
10
Earnings declined as a result of a decline in net interest income of $1,122,000,
or 17.7%, from $6,355,000 reported for the nine months ended March 31, 2003 to
$5,233,000 for nine months ended March 31, 2004. This decrease was partially
offset by an increase in noninterest income of $385,000 or 32.1%, from
$1,198,000 reported for nine months ended March 31, 2003 to $1,583,000 for the
nine months ended March 31, 2004.
NET INTEREST INCOME was $5,233,000 for the nine months ended March 31, 2004,
$1,122,000, or 17.7%, less than the $6,355,000 reported for nine months ended
March 31, 2003. Total interest income was $8,422,000 for the nine months ended
March 31, 2004, a decline of $2,572,000, or 23.4% from the $10,994,000 reported
during the nine months ended March 31, 2003. The decline in interest income was
partially offset by a $1,451,000 or 31.3% decline in interest expense from
$4,640,000 for the nine months ended March 31 2003, to $3,189,000 for the nine
months ended March 31, 2004.
The decrease in total interest income was attributable to a decline in average
loans outstanding from $182,936,000 during the nine months ended March 31, 2003,
to $150,480,000 during the nine months ended March 31, 2004. 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 impact of 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 the decline in total interest income. Management noted
that the average yield on the Company's loan portfolio remained stable at 6.80%
during the nine months ended March 31, 2004 compared to 6.81% for the nine
months ended March 31, 2004.
Interest expense was $3,189,000 for the nine months ended March 31, 2004,
$1,451,000 or 31.3%, lower than the $4,640,000 recorded for the nine months
ended March 31 2003, 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 $484,000, $139,000 or 22.3% lower than the $623,000 recorded in nine
months ended March 31, 2003. The average balance of certificates of deposit
declined by $15,453,000, from $42,094,000 for the nine months ended March 31,
2003, to $26,671,000 for nine months ended March 31, 2004. This decline in
volume was somewhat offset by an increase in the average rate paid on those
certificates of deposit of 44 basis points, from 2.90% during the nine months
ended March 31, 2003, to 3.34% during the nine months ended December 31 2004.
Interest expense on FHLB advances was $2,216,000, $578,000 or 20.7% lower than
the $2,794,000 recorded in the nine months ended March 31, 2003. The average
balance of FHLB advances declined by $18,446,000, from $71,489,000 for the nine
months ended March 31, 2003 to $53,043,000 for the nine months ended March 31,
2004. 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 48
basis points, from 5.07% during the nine months ended March 31 2003, to 5.55%
during the same period in 2004, as lower rate advances matured. 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 $1,652,000, from $59,469,000 for the nine months ended March 31, 2003,
to $61,121,000 for the nine months ended March 31, 2004, while the average
balance of the Company's savings accounts increased $6,229,000 during the same
period. 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 nine months ended March 31 2004, in comparison
to the same period in 2003.
THE PROVISION FOR LOAN LOSSES was $100,000 for nine months ended March 31, 2004
compared to $110,000 for the same period in 2003. 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 the nine months ended March 31, 2004 were $44,000 compared to
$155,000 during the same period in 2003. 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 $1,583,000 for nine months ended March 31, 2004, $385,000
or 32.1% higher than the $1,198,000 reported for the nine months ended March 31,
2003. The increase was primarily attributable to a $300,000 increase in service
charges earned on deposit accounts and a $147,000 increase in the cash surrender
value of life insurance. These increases were somewhat offset by a $79,000
decline in income generated from fiduciary activities (trust services).
11
NONINTEREST EXPENSE was $4,797,000 for nine months ended March 31, 2004,
$402,000 or 9.1% higher than the $4,395,000 reported for the nine months ended
March 31, 2003. While most noninterest expense categories experienced slight
increases, salaries and employee benefits increased $54,000 or 2.5%, data
processing fees increased $80,000 or 20.5% other noninterest expense increased
$217,000 or 18.0% from $1,207,000 for nine months ended March 31, 2003, to
$1,424,000 for the same period in 2004. The increase in salaries and employee
benefits were the result of normal salary increases while the increase in data
processing fees was attributable to periodic maintenance on the Bank's
processing hardware. The $217,000 increase in other noninterest expense was
attributable to a $36,000 increase in advertising expense, $26,000 increase in
office supplies expense, a $11,000 increase in regulatory examination fees which
were both the result of "timing differences" a $76,000 increase in "one time"
professional fees primarily related to a data processing conversion at the
Bank's trust department and research related to new business ventures, $8,000
increase in administrative expenses related to the Bank's purchase of life
insurance which was made in July 2003, a $15,000 increase in the Bank's merchant
services fees due to heavier usage than the previous period, a $7,000 increase
in expenses related to the Bank's internet banking product which was introduced
in March 2003 and $21,000 in fees related to the Bank's overdraft privilege
product which was also introduced in March of 2003.
TOTAL INCOME TAX EXPENSE was $610,000 (an effective tax rate of 31.8%) for the
nine months ended March 31, 2004, compared to $1,051,000 (an effective tax rate
of 34.5%) during the nine months ended March 31, 2003.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
The Company reported earnings of $405,000 for the three months ended March 31,
2004, a decline of $242,000, or 37.4%, from the $647,000 reported for the same
period in 2003. Basic earnings per share decreased $0.03, or 33.3%, from $0.09
for the three months ended March 31, 2003, to $0.06 for the three months ended
March 31, 2004. Diluted earnings per share decreased $0.03, or 37.5%, from $0.08
for the three months ended March 31, 2003, to $0.05 for the three months ended
March 31, 2004. The Company's return on average assets was 0.84% for the three
months ended March 31, 2004 compared to 1.19% for the same period in 2003 while
return on average equity was 6.66% for the three months ended March 31, 2004
compared to 10.70% for the same period 2003.
NET INTEREST INCOME was $1,743,000 for the three months ended March 31, 2004,
$309,000, or 15.1%, less than the $2,052,000 reported for three months ended
March 31, 2003.
Interest income was $2,751,000 for the three months ended March 31, 2004, a
decrease of $701,000 or 20.3%, from $3,452,000 for the three months ended March
31, 2003. this decline was primarily attributable to a $742,000 or 22.7% decline
in interest income earned on loans from $3,273,000 during the three months ended
March 31, 2003, to $2,531,000 earned during the three months ended March 31,
2004. This decline was the result of both, a lower average balance of total
loans outstanding, which declined from $183.5 million for the quarter ended
March 31, 2003 to $151.1 for the quarter ended March 31, 2004, and a decline in
the overall yield on loans, from 7.14% during the quarter ended March 31, 2003,
to 6.70% during the quarter ended March 31, 2004.
Interest expense was $1,007,000 for the three months ended March 31, 2004, a
decrease of $393,000, or 28.1%, from the $1,400,000 for the three months ended
March 31, 2003. 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. Average total deposits decreased $6.1 million, from
$124.1 million for the quarter ended March 31, 2003, to $118.0 million during
the quarter ended March 31, 2004. In addition, 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 March
31, 2004 was 1.00% compared to 1.61% during the quarter ended March 31, 2003. In
addition, the Bank paid off maturing FHLB advances which resulted in a decline
in the average balance of FHLB advances outstanding from $71.5 million during
the quarter ended March 31, 2003, to $56.6 million during the quarter ended
March 31, 2004, which in turn, lowered the interest expense associated with
those advances.
THE PROVISION FOR LOAN LOSSES was $40,000 for three months ended March 31, 2004
compared to $30,000 for the same period in 2003. 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
recoveries for three months ended March 31, 2004 were $18,000 compared to net
charge-offs of $97,000 during the same period in 2003. 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.
12
NONINTEREST EXPENSE was $1,664,000 for three months ended March 31, 2004,
$221,000 or 15.3% higher than the $1,443,000 reported for the three months ended
March 31, 2003. While each of the other noninterest expense categories
experienced slight increases, other noninterest expense increased $124,000 or
32.9% from $377,000 for three months ended March 31, 2003 compared to $501,000
for the same period in 2004. The $124,000 increase in other noninterest expense
was primarily attributable to a $64,000 increase in "one time" professional fees
primarily related to a data processing conversion at the Bank's trust department
and research related to new business ventures a $5,000 increase in
administrative expenses related to the Bank's purchase of life insurance which
was made in July 2003, a $9,000 increase in the Bank's merchant services fees
due to heavier usage than the previous period, a $8,000 increase in expenses
related to the Bank's internet banking product which was introduced in March
2003 and $17,000 in fees related to the Bank's overdraft privilege product which
was also introduced in March of 2003. The balance of the increase was
attributable to small increases in virtually all other noninterest expense
items.
TOTAL INCOME TAX EXPENSE was $169,000 (an effective tax rate of 29.4%) for the
three months ended March 31, 2004, compared to $341,000 (an effective tax rate
of 34.5%) during the three months ended March 31, 2003.
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.
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 17.56% and
20.05% at March 31, 2004 and 2003, 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 March 31, 2004, the Bank had outstanding commitments on undisbursed mortgage
construction loan of $2,337,000, to originate loans of $3,295,000, open-end
consumer lines of credit of $2,024,000, unused commercial lines of credit of
$5,005,000, unused home equity lines of credit of $5,134,000 and standby letters
of credit of $77,000. As of March 31, 2004, certificates of deposit scheduled to
mature in one year or less totaled $19,660,000. 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 March 31, 2004, the Bank exceeded all
of its regulatory capital requirements with tangible and tier 1 capital both at
$21,728,000 or 11.53% of adjusted total assets, and risk-based capital at $
22,646,000 or 18.34% 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 March 31, 2004, the Bank's cash
and cash equivalents totaled $7,612,000. 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
13
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.
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.
14
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, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
In July 2003, the Company's Board of Directors approved a share
repurchase authorization of up to 373,000 shares. In the quarter ended
March 31, 2004, the Company made the following repurchases of common
stock:
MAXIMUM
TOTAL NUMBER NUMBER OF
OF SHARES SHARES THAT MAY BE
TOTAL NUMBER AVERAGE PURCHASED AS PART PURCHASED UNDER
OF PRICE PAID OF PUBLICLY THE PLANS OR
PERIOD SHARES PURCHASED PER SHARE ANNOUNCED PLANS PROGRAMS
------ ---------------- --------- --------------- --------
January 1-31, 2004 ....................... 56,500 $ 4.16 228,906 373,000
February 1-29, 2004 ...................... 80,700 4.16 309,606 373,000
March 1-31, 2004 ......................... 0 N/A 309,606 373,000
There were no share repurchase plans that expired during the quarter,
and the Company did not terminate any plan prior to its expiration
date.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Not Applicable
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 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Richard J. Dutton, Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Ronald B. Scott, Chief Executive Officer
and Richard J. Dutton, Chief Financial Officer, pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002.
15
b. Reports on Form 8-K
1. On January 22, 2004 the Company filed a Current Report on
Form 8-K reporting information under Item 5, incorporating
by reference a press release dated January 22, 2004,
relating to the Company's unaudited results for the quarter
ended December 31, 2003.
2. On March 23, 2004, the Company filed a Current Report on
Form 8-K reporting information under Item 5, incorporating
by reference a press release dated March 23, 2004, relating
to payment of the 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, 2004 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
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))
31.1 Certification of Ronald B. Scott, Chief Executive Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Richard J. Dutton, Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Ronald B. Scott, Chief Executive Officer, and
Richard J. Dutton, Chief Financial Officer, pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002.
17