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, 2004
[ ] 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 12B-2 OF THE EXCHANGE ACT).
YES [ ] NO [X]
As of NOVEMBER 8, 2004, there were 7,250,089 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, 2004 and June 30, 2004.
Condensed Consolidated Statements of Income
for the three months ended September 30,
2004 and 2003.
Condensed Consolidated Statement of
Shareholders' Equity for three months ended
September 30, 2004.
Condensed Consolidated Statements of Cash
Flows for the three months ended September
30, 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. Unregistered Sales of Equity 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.
SIGNATURE PAGE
INDEX TO EXHIBITS
2
ITEM 1. FINANCIAL STATEMENTS
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 JUNE 30
2004 2004
(UNAUDITED)
----------------- ------------------
ASSETS
Cash and cash equivalents $ 7,979,773 $ 10,875,107
Held-to -maturity securities (fair value $545,000 and $543,000) 514,367 516,429
Available-for-sale securities 15,313,277 15,725,636
Loans, net of allowance for loan losses of $1,046,394 and $1,047,887 156,094,244 150,734,679
Premises and equipment 4,305,862 4,399,413
Federal Home Loan Bank stock 5,545,600 5,487,000
Interest receivable 891,954 730,940
Bank-owned life insurance 4,242,054 4,196,239
Other assets 525,476 530,095
----------------- ------------------
Total assets $ 195,412,607 $ 193,195,538
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 109,159,977 $ 114,223,395
Federal Home Loan Bank (FHLB) advances 59,825,540 53,295,390
Interest payable 59,353 63,091
Other liabilities 1,816,776 756,830
----------------- ------------------
Total liabilities 170,861,646 168,338,706
----------------- ------------------
Commitments and Contingent Liabilities - -
Equity from ESOP Shares 470,480 465,999
----------------- ------------------
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 7,583,652 shares issued less
ESOP shares of 112,019 and 112,019 7,471,633 7,471,633
Additional paid-in capital 24,424 24,424
Treasury stock, at cost, 333,563 and 287,424 shares (1,395,218) (1,200,907)
Unrealized Gain on Available-for-Sale Securities 17,804 1,474
Retained earnings 17,961,838 18,094,209
----------------- ------------------
Total shareholders' equity 24,080,481 24,390,833
----------------- ------------------
$ 195,412,607 $ 193,195,538
================= ==================
See notes to condensed consolidated financial statements
3
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
THREE MONTHS ENDED
30-SEP
2004 2003
(UNAUDITED) (UNAUDITED)
--------------- -------------
INTEREST INCOME
Interest and fees on loans $ 2,480,863 $ 2,723,021
Interest on mortgage-backed securities and other securities 152,728 114,758
Other interest and dividend income 74,084 73,527
--------------- -------------
Total interest income 2,707,675 2,911,306
--------------- -------------
INTEREST EXPENSE
Deposits 286,488 350,579
Borrowings 702,986 787,779
--------------- -------------
Total interest expense 989,474 1,138,358
--------------- -------------
Net interest income 1,718,201 1,772,948
PROVISION FOR LOAN LOSSES 30,000 30,000
--------------- -------------
Net interest income after
provision for loan losses 1,688,201 1,742,948
--------------- -------------
OTHER INCOME
Service charges on deposit accounts and other 76,501 278,287
Overdraft / NSF fees 232,264
Fiduciary activities 132,600 150,090
Increase in cash value of bank owned life insurance 49,024 44,112
Other income 52,444 51,176
--------------- -------------
Total other income 542,833 523,665
--------------- -------------
OTHER EXPENSES
Salaries and employee benefits 720,258 728,438
Net occupancy expenses 109,212 119,696
Equipment expenses 34,492 38,156
Professional Services 74,408 29,326
Advertising 34,026 26,914
Data processing fees 183,769 146,945
State of Ohio franchise taxes 75,000 66,165
Other expenses 378,494 354,692
--------------- -------------
Total other expenses 1,609,659 1,510,332
--------------- -------------
INCOME BEFORE FEDERAL INCOME TAX 621,375 756,281
FEDERAL INCOME TAX EXPENSE 199,661 242,616
--------------- -------------
NET INCOME $ 421,714 $ 513,665
=============== =============
PER SHARES DATA:
BASIC EARNINGS PER SHARE $ 0.06 $ 0.07
DILUTED EARNINGS PER SHARE $ 0.06 $ 0.07
DIVIDENDS PER SHARE $ 0.065 $ 0.060
4
PEOPLES OHIO FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
(UNAUDITED) (UNAUDITED)
------------ ------------
OPERATING ACTIVITIES
Net income $ 421,714 $ 513,665
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan losses 30,000 30,000
Depreciation and amortization 96,903 95,773
Investment securities amortization (accretion), net (6,389) 216,245
Federal Home Loan Bank stock dividends (58,600) (53,100)
Net change in other assets/ other liabilities 870,329 2,457,998
------------ ------------
Net cash provided by operating activites 1,353,957 3,260,581
------------ ------------
INVESTING ACTIVITIES
Net change in loans (5,389,565) 9,916,153
Proceeds from maturities of securities held to maturity 2,062 81,886
Proceeds from maturities of securities available for sale 418,748 190,000
Purchases of securities- available for sale 0 (6,000,000)
Purchase of Bank Owned Life Insurance 0 (4,049,642)
Purchases of premises and equipment (3,352) (27,781)
------------ ------------
Net cash provided (used) by investing activities (4,972,107) 110,616
------------ ------------
FINANCING ACTIVITIES
Net change in
Interest-bearing demand and savings deposits (4,606,152) 9,295,886
Certificates of deposit (457,266) (1,583,023)
Proceeds from FHLB advances 15,732,000 0
Repayment of FHLB advances (9,201,850) (11,224,805)
Cash dividends (471,624) (442,645)
Proceeds from exercise of stock options (370,020) 39,037
Purchase/Reissuance of treasury stock 97,728 (285,348)
------------ ------------
Net cash provided (used) by financing activities 722,816 (4,200,898)
------------ ------------
Net Change in Cash and Cash Equivalents (2,895,334) (829,701)
Cash and cash equivalents, Beginning of Period 10,875,107 15,835,436
------------ ------------
Cash and cash equivalents, End of Period $ 7,979,773 $ 15,005,735
============ ============
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, 2004
(UNAUDITED)
Additional Unrealized Gain Total
Common paid-in Retained Treasury on AFS shareholders'
stock capital earnings Stock Securities equity
---------- --------- ----------- ----------- ---------------- ------------
BALANCE AT JUNE 30, 2004 $7,471,633 $24,424 $18,094,209 ($1,200,907) $ 1,474 $24,390,833
Net income - - 421,714 421,714
Cash dividends declared
on common stock ($.065 per share) - (471,624) 471,624)
Exercise of stock options (77,981) 175,709 97,728
Purchase of treasury stock, net
- (370,020) (370,020)
Net change in Unrealized Gain/Loss
on AFS Securities 16,330 16,330
Net change in equity from ESOP
shares - (4,480) (4,480)
---------- ------- ----------- ----------- ------- -----------
BALANCE AT SEPT 30, 2004 $7,471,633 $24,424 $17,961,838 ($1,395,218) $17,804 $24,080,481
========== ======= =========== =========== ======= ===========
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, 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 September 30, 2004 and June 30, 2004, the results of
operations and the cash flows for the three-month periods ended September 30,
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 months ended September 30, 2004, are not necessarily indicative of
results for the entire fiscal year.
The condensed consolidated balance sheet of the Peoples Ohio Financial
Corporation (the "Company") as of June 30, 2004 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 2004 Annual Report to Shareholders.
(2) Earnings Per Share
The following table is for the three-month period ending September 30, 2004 and
2003 and reflects the weighted average number of shares of common stock for both
basic and diluted earnings per share ("EPS") as well as the dilutive effect of
stock options.
Three Months Ended
September 30,
--------------------------------
2004 2003
--------- ---------
Weighted average number of common shares
outstanding (basic EPS) 7,273,138 7,400,942
Dilutive effect of stock options 146,967 215,489
--------- ---------
Weighted average number of common shares
and equivalents outstanding (diluted EPS) 7,420,105 7,616,431
========= =========
Options to purchase 135,370 shares of common stock with exercise prices ranging
from $6.81 to $8.13 per share were outstanding at September 30, 2004, but were
not included in the computation of diluted EPS because such exercise prices were
greater than the average market price of the common shares.
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
SEPTEMBER 30, ---------------------------
(amounts in thousands except per share data) 2004 2003
-------------------------------------------- ------ ------
Net income, as reported $ 422 $ 513
Less: Total stock-based employee
compensation cost determined under the
fair value based method, net of income
taxes (11) (5)
------ ------
Pro forma net income $ 411 $ 508
====== ======
Earnings per share:
Basic - as reported 0.6 0.7
Basic - pro forma 0.6 0.7
Diluted - as reported 0.6 0.7
Diluted - pro forma 0.6 0.7
8
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."
9
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America and
reporting practices followed within the thrift industry. The application of
these principles requires management to make estimates, assumptions, and
judgments that affect the amounts reported in the financial statements and
accompanying notes. These estimates, assumptions, and judgments are based on
information available as of the date of the financial statements; as this
information changes, the financial statements could reflect different estimates,
assumptions, and judgments.
Management believes the allowance for loan loss policy is a critical accounting
policy requiring significant estimates and assumptions in the preparation of the
consolidated financial statements. The allowance for loan losses provides
coverage for probable losses inherent in the Company's loan portfolio.
Management evaluates the adequacy of the allowance for credit losses each
quarter based on changes, if any, in underwriting activities, the loan portfolio
composition (including product mix and geographic, industry or customer-specific
concentrations), trends in loan performance, regulatory guidance and economic
factors. This evaluation is inherently subjective, as it requires the use of
significant management estimates. Many factors can affect management's estimates
of specific and expected losses, including volatility of default probabilities,
rating migrations, loss severity and economic and political conditions. The
allowance is increased through provisions charged to operating earnings and
reduced by net charge-offs.
The Company determines the amount of the allowance based on relative risk
characteristics of the loan portfolio. The allowance recorded for commercial
loans is based on reviews of individual credit relationships and an analysis of
the migration of commercial loans and actual loss experience. The allowance
recorded for homogeneous consumer loans is based on an analysis of loan mix,
risk characteristics of the portfolio, fraud loss and bankruptcy experiences,
and historical losses, adjusted for current trends, for each homogeneous
category or group of loans. The allowance for credit losses relating to impaired
loans is based on the loan's observable market price, the collateral for certain
collateral-dependent loans, or the discounted cash flows using the loan's
effective interest rate.
Regardless of the extent of the Company's analysis of customer performance,
portfolio trends or risk management processes, certain inherent but undetected
losses are probable within the loan portfolio. This is due to several factors
including inherent delays in obtaining information regarding a customer's
financial condition or changes in their unique business conditions, the
judgmental nature of individual loan evaluations, collateral assessments and the
interpretation of economic trends. Volatility of economic or customer-specific
conditions affecting the identification and estimation of losses for larger
non-homogeneous credits and the sensitivity of assumptions utilized to establish
allowances for homogenous groups of loans are among other factors. The Company
estimates a range of inherent losses related to the existence of these
exposures. The estimates are based upon the Company's evaluation of imprecision
risk associated with the commercial and consumer allowance levels and the
estimated impact of the current economic environment.
Other accounting policies followed by the Company are presented in Note 1 to the
consolidated financial statements. These policies, along with the disclosures
presented in the the audited financial statements and notes thereto included in
the Company's 2004 Annual Report to Shareholders, and in this financial review,
provide information on how significant assets and liabilities are valued in the
financial statements and how those values are determined
10
FINANCIAL CONDITION
Total consolidated assets of the Company at September 30, 2004 were
$195,413,000, compared to $193,196,000 at June 30, 2004, a increase of
$2,217,000 or 1.1%.
CASH AND CASH EQUIVALENTS declined $2,895,000, from $10,875,000 at June 30, 2004
to $7,980,000 at September 30, 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 increased $5.4 million or 3.6 %, from $150,735,000 at June 30, 2004,
to $156,094,000 at September 30, 2004. The following table illustrates changes
in the Bank's loan portfolio by category for each period presented.
BALANCE BALANCE
SEPTEMBER 30, JUNE 30,
2004 2004 CHANGE CHANGE
(000'S) (000'S) ($'S) (%)
------------- --------- --------- ----------
Residential single-family mortgages $ 107,356 $ 104,471 $ 2,885 2.8%
Other residential and commercial mortgages 28,269 27,582 687 2.5
------------- --------- --------- ----------
Total mortgage loans 135,625 132,053 3,572 2.7
Construction 9,839 8,473 1,366 16.1
Commercial business 6,199 6,714 (515) (7.7)
Consumer 1,752 2,282 (530) (23.2)
Home improvement 7,085 6,016 1,069 17.8
Deposit and other 229 264 (35) (13.3)
------------- --------- --------- ----------
Gross loans 160,729 155,802 4,927 3.2
Deferred loan fees (152) (177) 25 14.1
Undisbursed portion of loans (3,435) (3,842) 407 10.6
Allowance for loan losses (1,048) (1,048) - -
------------- --------- --------- ----------
Total loans, net $ 156,094 $ 150,735 $ 5,359 3.6%
============= ========= ========= ==========
THE ALLOWANCE FOR LOAN LOSSES was unchanged at $1,048,000 at both September 30,
2004 and June 30, 2004. This was the result of a provision for loan losses of
$30,000 during the quarter ended September 30, 2004 and net charge-offs of
$31,000. The ratio of the Company's allowance for loan losses to gross loans was
0.65% and 0.67% at September 30, 2004 and June 30, 2004, 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, 2004 and June 30, 2004.
September 30, June 30,
2004 2004
----------- -----------
Past due 90+ and still accruing $ 757,000 $ 610,000
Non-accrual 618,000 683,000
----------- -----------
Total non-performing loans $ 1,375,000 $ 1,248,000
=========== ===========
Non-performing loans, increased slightly from $1,248,000 at June 30, 2004, to
$1,375,000 at September 30, 2004. Loans past-due 90 days or more and still
accruing increased from $610,000 at June 30, 2004 to $757,000 at September 30,
2004. This increase was primarily attributable to a decline in the status of
eight loans, one commercial ($13,000) and seven first mortgages on single-family
residences ($256,000), and partially offset by improvement in four loans. Three
of those loans were paid-off during the quarter, one commercial loan totaling
$37,000, and two first mortgage loans totaling $125,000. In addition, one first
mortgage loan totaling $38,000 was brought current during the quarter.
11
Non-accrual loans decreased from $683,000 at June 30, 2004 to $618,000 at
September 30, 2004. This decline in non-accrual loans was attributable to the
sale and subsequent removal of one first mortgage loan from 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
76.2% and 84.0% at September 30, 2004 and June 30, 2004, respectively.
Management believes that the problems with these loans are isolated and not
indicative of the loan portfolio in total.
DEPOSITS decreased $5,063,000, or 4.4%, from $114,223,000 at June 30, 2004 to
$109,160,000 at September 30, 2004. The following table illustrates changes in
the various types of deposits for each period presented.
BALANCE BALANCE
SEPTEMBER 30, JUNE 30,
2004 2004 CHANGE CHANGE
(000'S) (000'S) ($'S) (%)
------------ --------- ------ -------
Noninterest bearing accounts $ 14,562 $ 12,672 $ 1,890 14.9%
NOW accounts 17,117 19,964 (2,847) (14.3)
Super NOW accounts 1,917 1,463 454 31.0
Passbook accounts 23,464 23,850 (386) (1.6)
Money market accounts 22,629 26,346 (3,717) (14.1)
Certificates of deposit 29,471 29,928 (457) (1.5)
---------- --------- --------
Total deposits $ 109,160 $ 114,223 ($ 5,063) (4.4)
========== ========= ========
The increase in noninterest bearing and super NOW accounts was primarily
attributable to the opening of new accounts. The decline in NOW and money market
accounts was attributable solely to lower balances being maintained in these
accounts at September 30, 2004 as compared to June 30, 2004. Management noted
that the total number of NOW accounts approximated 2,800 and the total number of
money market accounts approximated 600 for both periods.
TOTAL STOCKHOLDERS' EQUITY declined $311,000 or 1.3.%, from $24,391,000 at June
30, 2004, to $24,080,000 at September 30, 2004. The decrease was the result of
$472,000 in dividends paid to the Company's stockholders, $272,000, net of
options exercised, related to the repurchase of stock, and $4,000 related to the
net change in equity related to the Company's ESOP during the quarter ended
September 30, 2004, offset by $422,000 in net earnings and a $16,000 increase in
the unrealized gain on securities available for sale during the quarter ended
September 30, 2004. During July 2004, the Company's Board of Directors
authorized the repurchase of up 365,000 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, 2004
AND 2003
The Company reported earnings of $422,000 for the three months ended September
30, 2004, a decline of $92,000, or 17.9%, from the $514,000 reported for the
same period in 2003. Basic and diluted earnings per share both declined $0.01 or
14.3% from $0.07 for the three months ended September 30, 2003 to $0.06 for the
three months ended September 30, 2004. The Company's return on average assets
was 0.87% for the three months ended September 30, 2004 compared to 1.00% for
the same period in 2003. Return on average equity was 6.96% for the three months
ended September 30, 2004, compared to 8.48% for the same period in 2003.
Earnings declined as a result of a decline in net interest income of $55,000, or
3.1%, from $1,773,000 reported for the three months ended September 30, 2003 to
$1,718,000 for three months ended September 30, 2004. This decrease was
partially offset by an increase in noninterest income of $19,000 or 3.6%, from
$524,000 reported for three months ended September 30, 2003 to $543,000 three
months ended September, 2004.
NET INTEREST INCOME was $1,718,000 for the three months ended September 30,
2004, $55,000, or 3.1%, less than the $1,773,000 reported for three months ended
September 30, 2003. Total interest income was $2,708,000 for the quarter ended
September 30, 2004, a decline of $203,000, or 7.0% from the $2,911,000 reported
during the quarter ended September 30, 2003. The decline in interest income was
partially offset by a $148,000 decline in interest
12
expense from $1,138,000 for the three months ended September 30 2003, to
$990,000 for the three months ended September 30, 2004.
The decrease in total interest income was primarily attributable to a 50
basis-point decline in the average yield on the Company's loan portfolio from
6.96% during the quarter ended September 30, 2003 to 6.46 % during the quarter
ended September 30, 2004. To a much lesser extent, the decline in total interest
income was also attributable to slight a decline in average loans outstanding
from $154,415,000 during the quarter ended September 30, 2003 to $153,569,000
during the quarter ended September 30, 2004.
Interest expense was $990,000 for the three months ended September 30, 2004,
$148,000 or 13.0%, lower than the $1,138,000 recorded for the three months ended
September 30 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 $169,000, $83,000 or 32.9% lower than the $252,000 recorded in three
months ended September 30, 2003. The average balance of certificates of deposit
declined by $9,412,000, from $39,284,000 for the three months ended September
30, 2003, to $29,872,000 for three months ended September 30, 2004. In addition,
the average rate paid on those certificates of deposit decreased by 31 basis
points, from 2.55% during the three months ended September 30, 2003, to 2.24%
during the three months ended September 30, 2004. Interest expense on FHLB
advances was $703,000, $85,000 or 10.8 % lower than the $788,000 recorded in the
three months ended September 30, 2003. The average balance of FHLB advances
declined by $1,816,000, from $57,316,000 for the three months ended September
30, 2003 to $55,500,000 for the three months ended September 30, 2004. In
addition, the average interest rate paid on those FHLB advances decreased 42
basis points, from 5.45% during the three months ended September 30, 2003, to
5.03% during the same period in 2004.
THE PROVISION FOR LOAN LOSSES was $30,000 for three months ended September 30,
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 charge-offs for three months ended September 2004 were $31,000
compared to $35,000 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 $543,000 for three months ended September 30, 2004,
$19,000 or 3.6% higher than the $524,000 reported for the three months ended
September 30, 2003. The increase was primarily attributable to a $31,000
increase in service charges earned on deposit accounts and a $5,000 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).
NONINTEREST EXPENSE was $1,610,000 for three months ended September 30, 2004,
$100,000 or 6.6% higher than the $1,510,000 reported for the three months ended
September 30, 2003. The slight increase was attributable to slight increases in
several expense accounts.
TOTAL INCOME TAX EXPENSE was $199,000 (an effective tax rate of 32.0%) for the
three months ended September 30, 2004, compared to $243,000 (an effective tax
rate of 32.1%) during the three months ended September 30, 2003.
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 17.16 % and
21.55% on September 30, 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
13
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, 2004, the Bank had outstanding commitments to fund existing
construction loans of $3,737,000, originate loans of $8,196,000, open-end
consumer lines of credit of $7,976,000, unused commercial lines of credit of
$5,438,000 and standby letters of credit of $2,969,000. As of September 30,
2004, certificates of deposit scheduled to mature in one year or less totaled
$20,155,000. 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, 2004, the Bank exceeded
all of its regulatory capital requirements with tangible and tier 1 capital both
at $ 22,224,000 or 11.52 % of adjusted total assets, and risk-based capital at $
23,270,000 or 18.45 % 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, 2004, the Bank's
cash and cash equivalents totaled $7,980,000. 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,
2004, 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, 2004.
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. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS
In July 2004, the Company's Board of Directors approved a share
repurchase authorization of up to 365,000 shares. In the quarter
ended September 30, 2004, the Company made the following repurchases
of common stock:
TOTAL MAXIMUM
NUMBER NUMBER OF
OF SHARES SHARES THAT
TOTAL PURCHASED AS MAY BE
NUMBER PART OF PURCHASED
OF AVERAGE PUBLICLY UNDER THE
SHARES PRICE PAID ANNOUNCED PLANS OR
PERIOD PURCHASED PER SHARE PLANS PROGRAMS
------ --------- --------- ------------ -----------
July 1-31, 2004....................... 0 N/A 0 365,000
August 1-31, 2004..................... 62,000 $4.19 62,000 303,000
September 1-30, 2004.................. 26,000 $4.24 88,000 215,000
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
The Company's annual meeting was held on October 26, 2004 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 William J. McGraw, III, Ronald B. Scott and
James S. Wilcox to two-year terms on the Company's Board of
Directors. The vote was 5,235,836 in favor and 333,762
withheld for William J. McGraw, III, 5,286,204 in favor and
283,394 withheld for Ronald B. Scott and 5,435,278 in favor
and 134,320 withheld for James S. Wilcox. Incumbent Directors
who were not nominees for election at the meeting are: Donald
Cooper, Thomas E. Robinson and Richard W. Klockner.
2. The ratification of BKD, LLP to serve as the Company's
independent auditors for the fiscal year ending June 30, 2005.
The vote was 5,424,602 in favor and 117,588 against, with
27,408 abstaining.
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS
a. Exhibits
15
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, perusuent to
Section 906 of The Sarbanes-Oxley Act of 2002
b. Reports on Form 8-K
1. On August 11, 2004, the Company filed a Current Report
on Form 8-K reporting information under Item 5,
incorporating a press release dated August 11, 2004,
relating to the Company's earnings for fiscal year 2004.
2. On September 13, 2004, the Company filed a Current
Report on Form 8-K reporting information under Item 5,
incorporating a press release dated September 13, 2004,
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 12, 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 906 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, perusuent to Section
302 of The Sarbanes-Oxley Act of 2002
17