UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552
FORM 10 - QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from to
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Commission File Number 0 - 22812
Peoples Savings Financial Corporation
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1720517
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
173 Main Street, Ridgway, PA 15853
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(Address of principal executive offices)
(814) 773-3195
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
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State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
Class: Common Stock, par value $.10 per share
Outstanding at January 15, 1997: 442,516
PEOPLES SAVINGS FINANCIAL CORPORATION
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) as of 3
December 31, 1996 and June 30, 1996
Consolidated Statement of Income (Unaudited) 4
for the Six Months ended December 31, 1996 and 1995
Consolidated Statement of Income (Unaudited)
for the Three Months ended December 31, 1996 and 1995 5
Consolidated Statement of Cash Flows (Unaudited)
for the Six Months ended December 31, 1996 and 1995 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Default Upon Senior Securities 11
Item 4. Submissions of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
December 31, June 30,
1996 1996
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ASSETS
Cash and due from banks $ 115,390 $ 115,026
Interest-bearing deposits with other institutions 918,787 627,318
Investment securities (market value of $3,932,760
and $3,648,547) 3,944,269 3,694,375
Mortgage - backed securities (market value of
$6,696,785 and $7,415,043) 6,722,613 7,466,452
Loans receivable (net of allowance for loan
losses of $238,798 and $227,171) 32,210,306 32,126,518
Accrued interest receivable 291,502 278,533
Premises and equipment 58,549 64,001
Federal Home Loan Bank stock, at cost 358,900 358,900
Other assets 235,938 121,346
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TOTAL ASSETS $ 44,856,254 $ 44,852,469
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LIABILITIES
Deposits accounts $ 34,262,470 $ 35,864,622
Advances from Federal Home Loan Bank 1,550,000 -
Accrued interest payable and other liabilities 15,631 75,766
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TOTAL LIABILITIES 35,832,573 35,940,388
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STOCKHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares
authorized; none outstanding - -
Common stock, $.10 par value; 2,000,000 authorized,
452,966 issued and outstanding 45,297 45,297
Additional paid - in capital 4,252,704 4,222,897
Retained earnings - substantially restricted 5,247,926 5,205,770
Unearned shares held by Employee
Stock Ownership Plan (233,331) (254,790)
Unearned shares held by Management Stock Bonus Plan (90,580) (113,230)
Treasury stock (10,450 shares, at cost) (193,863) (193,863)
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TOTAL STOCKHOLDERS' EQUITY 9,028,153 8,912,081
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 44,856,254 $ 44,852,469
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See accompanying notes to the unaudited consolidated financial statements.
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Six Months Ended
December 31,
1996 1995
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INTEREST INCOME
Loans $ 1,341,234 $ 1,272,716
Mortgage - backed securities 242,349 322,797
Investment securities:
Taxable 125,298 68,691
Exempt from federal income tax 15,887 34,080
Interest - bearing deposits with
other institutions 22,563 20,912
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Total interest income 1,747,331 1,719,196
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INTEREST EXPENSE
Deposits 834,428 891,471
Other 25,990 12,172
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Total interest expense 860,418 903,643
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INTEREST INCOME 886,913 815,553
Provision for loan losses 12,000 12,000
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 874,913 803,553
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NONINTEREST INCOME
Service charges on deposit accounts 15,934 13,544
Other income 8,064 29,277
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Total noninterest income 23,998 42,821
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NONINTEREST EXPENSE
Compensation and employee benefits 247,926 248,516
Occupancy and equipment 26,239 30,356
Deposit insurance premiums 276,747 42,000
Professional fees 40,510 36,650
Data processing charges 50,902 50,221
Other expenses 124,504 128,801
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Total noninterest expense 766,828 536,544
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Income before income taxes 132,083 309,830
Income taxes 5,897 101,582
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NET INCOME $ 126,186 $ 208,248
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EARNINGS PER SHARE
Primary $ 0.28 $ 0.48
Fully Diluted 0.28 $ 0.47
AVERAGE SHARES OUTSTANDING
Primary 444,916 439,242
Fully Diluted 443,771 439,784
See accompanying notes to the unaudited consolidated financial statements.
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
December 31,
1996 1995
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INTEREST INCOME
Loans $ 670,700 $ 654,109
Mortgage - backed securities 125,536 148,940
Investment securities:
Taxable 63,607 36,898
Exempt from federal income tax 6,753 16,273
Interest - bearing deposits with
other institutions 12,687 12,136
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Total interest income 879,283 868,356
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INTEREST EXPENSE
Deposits 411,283 453,042
Other 18,031 7,344
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Total interest expense 429,314 460,386
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NET INTEREST INCOME 449,969 407,970
Provision for loan losses 6,000 6,000
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 443,969 401,970
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NON INTEREST INCOME
Service charges on deposit accounts 8,762 7,293
Other income 2,690 5,977
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Total noninterest income 11,452 13,270
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NONINTEREST EXPENSE
Compensation and employee benefits 122,483 123,618
Occupancy and equipment 11,417 15,084
Deposit insurance premiums 21,000 21,000
Professional fees 21,250 18,300
Data processing charges 25,687 25,887
Other expenses 64,814 54,837
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Total noninterest expense 266,651 258,726
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Income before income taxes 188,770 156,514
Income taxes 30,079 49,082
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NET INCOME $ 158,691 $ 107,432
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EARNINGS PER SHARE
Primary $ 0.36 $ 0.24
Fully Diluted 0.36 $ 0.24
AVERAGE SHARES OUTSTANDING
Primary 444,970 440,208
Fully Diluted 444,341 440,208
See accompanying notes to the unaudited consolidated financial statements.
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended
December 31,
1996 1995
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OPERATING ACTIVITIES
Net income $ 126,186 $ 208,248
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 12,000 12,000
Provision for depreciation 6,332 6,090
Amortization of discounts and premiums 13,826 1,296
Decrease in accrued interest receivable (12,969) (7,466)
Increase (decrease) in accrued interest payable (9,599) 5,200
Amortization of ESOP and MSBP unearned compensation 73,916 61,293
Other, net (163,302) (67,576)
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Net cash provided by operating activities 46,390 219,085
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INVESTING ACTIVITIES
Proceeds from the maturities of investment securities 250,000 410,000
Purchases of investment securities (500,000) (750,000)
Principal repayments on mortgage - backed securities 730,119 1,091,519
Increase in loans receivable, net (97,614) (1,743,070)
Purchases of premises and equipment (880) (3,170)
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Net cash provided by (used for) investing activities 381,625 (994,721)
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FINANCING ACTIVITIES
Increase (decrease) in deposits, net (1,602,152) 770,254
Advances from Federal Home Loan Bank 1,550,000 500,000
Cash dividends (84,030) -
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Net cash provided by (used for) financing activities (136,182) 1,270,254
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Increase in cash and cash equivalents 291,833 494,618
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 742,344 515,337
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CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,034,177 $ 1,009,955
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 870,017 $ 898,443
Income taxes 108,788 128,112
See accompanying notes to the unaudited consolidated financial statements.
PEOPLES SAVINGS FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Peoples Savings Financial Corporation
("Company") includes its wholly - owned subsidiary Peoples Savings Bank
("Savings Bank"). All significant intercompany items have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q.B. and, therefore,
do not necessarily include all information that would be included in audited
financial statements. The information furnished reflects all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results of operations. All such adjustments are of a normal recurring nature.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
NOTE 2 - STOCK-BASED COMPENSATION
Effective July 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation". This statement
encourages, but does not require, the Company to recognize compensation
expense for all awards of equity instruments issued after December 31, 1995.
The statement establishes a fair value based method of accounting for
stock-based compensation plans. The standard applies to all transactions in
which an entity acquires goods or services by issuing equity instruments or by
incurring liabilities in amounts based on the price of the entity's common
stock or other equity instruments. Statement No. 123 permits companies to
continue to account for such transactions under Accounting Principles Board
No. 25, "Accounting for Stock Issued to Employees", but requires disclosure in
a note to the financial statements pro forma net income and earnings per share
as if the Company had applied the new method of accounting. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and disclose
such information only in the notes to the consolidated financial statements.
The adoption of this standard has no effect on the Company's financial
position or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets at December 31, 1996 of $44,862,000, increased slightly by
approximately $10,000 from the $44,852,000 reported at June 30, 1996.
Interest - bearing deposits and investments experienced modest growth of
approximately $291,000 and $250,000, respectively, while mortgage - backed
securities declined by $744,000.
Overall, loans remained virtually unchanged during the period as demand for
singles family mortgages was offset by the payoff of a participation loan.
Historically, the Bank's loan portfolio is subject to seasonal fluctuations in
loan demand.
Deposits declined by $1,602,000 or 4.5% to $34,262,000. This decrease consist
almost entirely in certificates of deposits and savings accounts which
resulted from management's decision to minimize costs in the current rate
environment by drawing of the bank's line of credit with the Federal Home Loan
Bank for $1,550,000.
Equity capital increased by $122,000 and resulted from net income for the
period coupled with recognition of shares in the Management Stock Bonus Plan
and the Employee Stock Ownership Plan amounting to $74,000 offset by dividends
paid for the period.
Management monitors risk - based capital and leverage capital ratios in order
to assess compliance with regulatory guidelines. At December 31, 1996, the
Savings Bank exceeded the 8.00% minimum risk - based capital requirement and
the leveraged capital ratio of 3.00% of tangible assets.
RESULTS OF OPERATION
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
Net income for the six months ended December 31, 1996 was $126,000, which
represented a 39% decrease from the same six months ended 1995.
Net interest income for 1996 experienced a slight increase compared to 1995 as
increases in interest income were coupled with decreases in interest expense
totaling $71,000, or 8.75%. The Savings Bank's loan demand coupled with the
current rate environment is resulting in an asset mix which is more favorable
to loans and is exhibited by the corresponding income generated. As a result
of the loan growth, gross interest income on loans increased $52,000 while
interest on mortgage - backed securities declined due to reduced levels of
outstanding average balances. At the same time, interest expense decreased
primarily, as a result of a decrease in the cost of funds from 4.9% in 1995 to
4.7% in 1996.
Management's continuing evaluation of the loan portfolio, giving consideration
to historical experience, the volume and type of lending conducted, the volume
of nonperforming assets, the local economic conditions and standard practice
within the industry, indicates the allowance for loan losses is adequate. As
a result, the provision for loan losses remained the same for 1996 and 1995.
Noninterest income is typically made up of service fees on deposit accounts.
These service charges on deposit accounts remained relatively constant during
the two periods. Management believes its fees are competitive with similar
fees charged by other institutions in its market area. During 1995, the
Company received $13,000 in principal payments on mortgage - backed securities
which had been previously written - off due to the inability to collect
payments from the instruments trustee. These repayments are included in other
income.
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
Noninterest expense is primarily made up of employee compensation and
benefits, occupancy and furniture expense, data processing charges, and other
noninterest expenses. Federal deposit insurance premiums rose substantially
due to the passage of SAIF legislation which required a one - time assessment
to recapitalize the SAIF. The Savings Bank's portion amounted to
approximately $235,000. Other noninterest expenses for 1996 remained
relatively unchanged compared to 1995.
As of December 31, 1996, an income tax expense of $6,000 was significantly
less than the prior period primarily due to a recognition of the SAIF
assessment described above.
RESULTS OF OPERATION
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Net income increased $51,000 from $108,000 for the three months ended December
31, 1995 to $159,000 for the same period ended 1996.
Net interest income rose $42,000, or 10.3%, from 1995 to 1996. Interest
fluctuations mirrored their principal balances. As noted above, there were
slight increases in interest income due to increased loan volume coupled with
higher yielding investment securities. These increases in interest income
were offset somewhat by declining mortgage-backed securities balances.
Interest expense dropped as a result of declining market rates for deposit
accounts and management's decision to supplant higher yielding deposit
accounts with Advances from Federal Home Loan Bank.
There was a decrease in income tax expense of $19,000 for the three months
ended December 31, 1996 compared to the same period ended 1995. The effective
tax rate for 1996 was 15.1% compared to 31.4% for 1995.
LIQUIDITY AND CASH FLOWS
To ensure that the Savings Bank can satisfy customer credit needs for current
and future commitments and deposit withdrawal requirements, the Savings Bank
manages the liquidity position by ensuring that there are adequate short-term
funding sources available for those needs. Liquid assets consists of cash and
due from banks and investment securities maturing in one year or less. The
following table shows these liquidity sources at December 31, 1996 and June
30, 1996:
December 31, June 30,
1996 1996
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(dollars in thousands)
Cash and due from banks $ 115 $ 115
Interest - bearing deposits with other institutions 919 627
Investment securities maturing in one year or less 244 2,151
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Total liquid assets $ 1,278 $ 2,893
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As a percent of total assets 2.85% 6.45%
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The Savings Bank's primary sources of funds are deposits, amortization and
prepayment of loans, maturities of investment securities, and funds provided
from operations. While scheduled loan repayments are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions, and competition. In addition,
the Savings Bank invests excess funds in overnight deposits which provide
liquidity to meet lending requirements.
The Savings Bank has other sources of liquidity if a need for additional funds
arises. Additional sources of funds include Federal Home Loan Bank ("FHLB")
of Pittsburgh advances and the ability to borrow against mortgage-backed and
other securities. At December 31, 1996, the Savings Bank had advances from
the Federal Home Loan Bank of Pittsburgh amounting to $1,550,000.
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
LIQUIDITY AND CASH FLOWS (Continued)
As of December 31, 1996, the Savings Bank had $419,000 in outstanding mortgage
and construction loan commitments. Management believes that it has adequate
sources to meet the actual funding requirements.
RISK ELEMENT
The table below presents information concerning nonperforming assets including
nonaccrual loans, renegotiated loans, loans 90 days or more past due, other
real estate loans, and repossessed assets. A loan is classified as nonaccrual
when, in the opinion of management, there are serious doubts about
collectibility of interest and principal. At the time the accrual of interest
is discontinued, future income is recognized only when cash is received.
Renegotiated loans are those loans which terms have been renegotiated to
provide a reduction or deferral of principal or interest as a result of the
deterioration of the borrower.
December 31, June 30,
1996 1996
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(dollars in thousands)
Loans on nonaccrual basis $ 804 $ 434
Loans past due 90 days or more 7 8
Renegotiated loans - -
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Total nonperforming loans 811 442
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Other real estate - -
Repossessed assets - -
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Total nonperforming assets $ 811 $ 442
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Nonperforming loans as a percent of total loans 2.50% 1.37%
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Nonperforming assets as a percent of total assets 1.81% 0.99%
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During the six month period ended December 31, 1996, loans increased $84,000
and nonperforming loans increased $369,000 while the allowance for loan losses
increased $12,000 for the same period. The percentage of allowance for loan
losses to loans outstanding remained .7% during this time period.
Management believes the level of the allowance for loan losses at December 31,
1996 is sufficient; however, there can be no assurance that the current
allowance for loan losses will be adequate to absorb all future loan losses.
The relationship between the allowance for loan losses and outstanding loans
is a function of the credit quality and known risk attributed to the loan
portfolio. The on - going loan review program and credit approval process is
used to determine the adequacy of the allowance for loan losses.
PART II - OTHER INFORMATION
Item 1 - Legal proceedings
NONE
Item 2 - Changes in securities
NONE
Item 3 - Defaults upon senior securities
NONE
Item 4 - Submission of matters to a vote of security holders
On October 17, 1996, a special meeting of the Company's shareholders was
held to ratify Jane Weilacher and Roger Hasselman to the Board of Directors
for a term of three years and to appoint S.R. Snodgrass, A.C. as auditors
for June 30, 1997. Both of these plans were ratified by the following
measures:
Ratification of Jane Weilacher to Board of Directors
Total votes cast 347,554
Votes for 345,354
Votes against 2,200
Ratification of Roger Hasselman to Board of Directors
Total votes cast 347,554
Votes for 342,093
Votes against 5,461
Ratification of S.R. Snodgrass, A.C. as auditors
Total votes cast 347,554
Votes for 346,886
Votes against 668
Item 5 - Other information
NONE
Item 6 - Exhibits and reports on Form 8-K
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Peoples Savings Financial Corporation
Date: January 17, 1997
By:
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Glenn R. Pentz, Jr.
Chief Financial Officer, Treasurer and Secretary
(Principal Executive and Financial Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Peoples Savings Financial Corporation
Date: January 17, 1997
By: \s\ Glenn R. Pentz, Jr.
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Glenn R. Pentz, Jr.
Chief Financial Officer, Treasurer and Secretary
(Principal Executive and Financial Officer)