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 March 31, 1997
[ ] 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
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Peoples Savings Financial Corporation
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(Exact name of registrant as specified in its charter)
Pennsylvania 25 - 1720517
- ------------------------------- --------------------------------
(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______
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 May 8, 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 March 31, 1997 and June 30, 1996 3
Consolidated Statement of Income (Unaudited)
for the Nine Months ended March 31, 1997 and 1996 4
Consolidated Statement of Income (Unaudited)
for the Three Months ended March 31, 1997 and 1996 5
Consolidated Statement of Cash Flows (Unaudited)
for the Nine Months ended March 31, 1997 and 1996 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 Holder 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)
March 31, June 30,
1997 1996
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ASSETS
Cash and due from banks $ 116,248 $ 115,026
Interest-bearing deposits with other
institutions 1,353,147 627,318
Investment securities (market value of $4,030,442
and $3,648,567) 4,073,974 3,694,375
Mortgage-backed securities (market value of
$6,344,606 and $7,415,043) 6,414,821 7,466,452
Loans receivable (net of allowance for loan
losses of $244,865 and $227,171) 31,515,829 32,126,518
Accrued interest receivable 286,754 278,533
Premises and equipment 55,420 64,001
Federal Home Loan Bank stock, at cost 361,100 358,900
Other assets 338,521 121,346
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TOTAL ASSETS $44,515,814 $44,852,469
=========== ===========
LIABILITIES
Deposits accounts $34,849,313 $35,864,622
Advances from Federal Home Loan Bank 500,000 -
Accrued interest payable and other liabilities 11,472 75,766
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TOTAL LIABILITIES 35,360,785 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 45,297 45,297
Additional paid-in capital 4,263,745 4,222,897
Retained earnings-substantially restricted 5,332,893 5,205,770
Unearned shares held by Employee Stock Ownership Plan (213,788) (254,790)
Unearned shares held by Management Stock Bonus Plan (79,255) (113,230)
Treasury stock (10,450 shares, at cost) (193,863) (193,863)
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TOTAL STOCKHOLDERS' EQUITY 9,155,029 8,912,081
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $44,515,814 $44,852,469
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
3
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Nine Months Ended March 31,
1997 1996
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INTEREST INCOME
Loans $ 1,994,670 $ 1,926,688
Mortgage-backed securities 349,367 471,054
Investment securities:
Taxable 190,333 100,547
Exempt from federal income tax 21,203 46,020
Interest-bearing deposits with other
institutions 37,344 34,165
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Total interest income 2,592,917 2,578,474
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INTEREST EXPENSE
Deposits 1,230,489 1,331,948
Other 45,325 14,742
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Total interest expense 1,275,814 1,346,690
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NET INTEREST INCOME 1,317,103 1,231,784
Provision for loan losses 18,000 18,000
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NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,299,103 1,213,784
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NONINTEREST INCOME
Service charges on deposit accounts 23,097 19,590
Other income 11,755 33,330
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Total noninterest income 34,852 52,920
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NONINTEREST EXPENSE
Compensation and employee benefits 368,896 361,193
Occupancy and equipment 37,369 45,547
Deposit insurance premiums 260,830 63,000
Professional fees 61,560 56,950
Data processing charges 77,664 76,241
Other expenses 193,586 188,879
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Total noninterest expense 999,905 791,810
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Income before income taxes 334,050 474,894
Income taxes 122,897 154,082
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NET INCOME $ 211,153 $ 320,812
=========== ===========
EARNINGS PER SHARE
Primary $ 0.47 $ 0.73
Fully Diluted 0.48 0.73
AVERAGE SHARES OUTSTANDING
Primary 445,081 439,506
Fully Diluted 444,297 439,609
See accompanying notes to the unaudited consolidated financial statements.
4
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended March 31,
1997 1996
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INTEREST INCOME
Loans $ 653,436 $ 653,972
Mortgage-backed securities 107,018 148,257
Investment securities:
Taxable 65,035 31,856
Exempt from federal income tax 5,316 11,940
Interest-bearing deposits with other
institutions 14,781 13,253
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Total interest income 845,586 859,278
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INTEREST EXPENSE
Deposits 396,061 440,477
Other 19,335 2,570
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Total interest expense 415,396 443,047
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NET INTEREST INCOME 430,190 416,231
Provision for loan losses 6,000 6,000
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NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 424,190 410,231
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NONINTEREST INCOME
Service charges on deposit accounts 7,163 6,046
Other income 3,691 4,053
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Total noninterest income 10,854 10,099
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NONINTEREST EXPENSE
Compensation and employee benefits 120,970 112,677
Occupancy and equipment 11,130 15,191
Deposit insurance premiums (15,917) 21,000
Professional fees 21,050 20,300
Data processing charges 26,762 26,020
Other expenses 69,082 60,078
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Total noninterest expense 233,077 255,266
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Income before income taxes 201,967 165,064
Income taxes 117,000 52,500
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NET INCOME $ 84,967 $ 112,564
============= =============
EARNINGS PER SHARE
Primary $ 0.19 $ 0.26
Fully Diluted 0.19 0.26
AVERAGE SHARES OUTSTANDING
Primary 445,557 439,776
Fully Diluted 445,339 439,609
See accompanying notes to the unaudited consolidated financial statements.
5
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended March 31,
1997 1996
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OPERATING ACTIVITIES
Net income $ 211,153 $ 320,812
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 18,000 18,000
Provision for depreciation 9,461 9,135
Amortization of discounts and premiums 14,086 1,258
Decrease (increase) in accrued interest
receivable (8,221) 16,250
Decrease in accrued interest payable (2,637) (5,868)
Amortization of ESOP and MSBP unearned
compensation 115,825 91,302
Other, net (139,284) (82,314)
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Net cash provided by operating activities 218,383 368,575
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INVESTING ACTIVITIES
Proceeds from the maturities of investment
securities 370,000 2,260,000
Purchases of investment securities (752,200) (2,047,047)
Principal repayments on mortgage-backed
securities 1,034,676 1,534,136
Purchases of mortgage-backed securities - (250,000)
Decrease (increase) in loans receivable, net 458,611 (1,796,123)
Increase in Federal Home Loan Bank stock (2,200) (12,500)
Purchases of premises and equipment (880) (6,674)
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Net cash provided by (used for)
investing activities 1,108,007 (318,208)
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FINANCING ACTIVITIES
Increase (decrease) in deposits, net (1,015,309) 601,439
Advance from FHLB 500,000 -
Cash dividends (84,030) -
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Net cash provided by (used for)
financing activities (599,339) 601,439
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Increase in cash and cash equivalents 727,051 651,806
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 742,344 515,337
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CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,469,395 $ 1,167,143
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 1,278,451 $ 1,352,558
Income taxes 170,822 183,019
See accompanying notes to the unaudited consolidated financial statements.
6
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-QSB 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 - PENDING ACCOUNTING STANDARDS
- -------------------------------------
On March 3, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share." This statement
redefines the standards for computing earnings per share (EPS) previously
found in Accounting Principles Board opinion No. 15, Earnings Per Share.
Statement 128 establishes new standards for computing and presenting EPS
and requires dual presentation of "basic" and "diluted" EPS on the face of
income statement for all entities with complex capital structures. Under
Statement 128, basic EPS is to be computed based upon income available to
common shareholders and the weighted average number of common shares
outstanding for the period. Diluted EPS is to reflect the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the Company. Statement
128 also requires the restatement of all prior-period EPS data presented.
The Corporation will adopt Statement 128 for all periods ending after
December 15, 1997 and based on current estimates, does not believe the
effect on adoption will have a significant impact on the Company's
financial position or results of operations.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
-------------------
Total assets at March 31, 1997 of $44,516,000, decreased by approximately
$337,000, or .75%, from the $44,853,000 reported at June 30, 1996. The modest
growth within interest-bearing deposits and investment securities of
approximately $726,000 and $380,000, respectively, was offset by
declines experienced in mortgage-backed securities and loans of approximately
$1,052,000 and $611,000, respectively.
The increases in interest-bearing deposits and investment securities are
primarily being funded by maturities and principal repayments of loans and
mortgage-backed securities. Mortgage-backed securities are typically used
to supplement the loan portfolio in periods of inadequate loan demand.
Currently, the Company has relatively significant commitments to fund loans as
a direct result of a no fee mortgage loan campaign. Principal repayments
from mortgage-backed securities principal repayments are being retained as
interest-bearing deposits.
Deposits declined by approximately $1,015,000 or 2.8%, and resulted primarily
from a decrease of approximately $1,000,000 in certificates of deposits
outstanding. The decrease experienced in these deposit instruments reflects
the impact of promotional campaigns extended by competitors within the
Company's market areas.
Equity capital increased by $243,000 or 2.7% during the nine months ended
March 31, 1997, as a result of net income of $211,000 and recognition of
shares in the Management Stock Bonus Plan and the Employee Stock Ownership
Plan amounting to $116,000. Cash dividends paid of approximately $84,000
lessened the impact of these other events.
Management monitors risk-based capital and leverage capital ratios in order to
assess compliance with regulatory guidelines. At March 31, 1997, 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 NINE MONTHS ENDED MARCH 31, 1997 AND 1996
- -----------------------------------------------------------
Net interest income for 1997 experienced a marked increase of 6.9% compared to
1996 as increases in gross interest income and decreases in gross
interest expense netted to approximately $85,000. Changes within the Savings
Bank's asset mix have resulted in increases in interest on taxable investments
and loans being offset by decreases in interest on tax exempt investment
securities and mortgage-backed securities. At the same time, a 5.2% decrease
in gross interest expense attributable to lower cost of funds associated
primarily with the decline in the volume of certificates of deposit
outstanding, has fueled the increase in net interest income.
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 1997 and 1996.
Noninterest income is typically made up of service fees on deposit accounts.
These service charges on deposit accounts remained relatively constant during
the period. Management believes its fees are competitive with similar fees
charged by other institutions in its market area. During the nine months
ended March 31, 1996, the Company received $13,000 in principal repayments on
mortgage-backed securities which had been previously written-off due to the
inability to collect payments from the instruments trustee, resulting in
higher other income being recognized during that period.
8
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996 (Continued)
- -----------------------------------------------------------------------
Total noninterest expense increased $208,000 over the prior year emanating
from a one-time charge of approximately $200,000 to recapitalize the SAIF as
required by federal law. Noninterest expense is primarily made up of employee
compensation and benefits, occupancy and furniture expense, data processing
charges, and other noninterest expenses. Absent this SAIF charge, in total,
noninterest expenses for 1997 remained relatively unchanged compared to 1996.
This is the result of management's efforts to minimize increases in overhead
to maintain overall profitability.
There was a decrease in income tax expense of $31,000 for 1997. This stems
from lower results of operations for the current period in comparison to 1996.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
- ------------------------------------------------------------
While the decrease in total interest income for the three months ended March
31, 1997 over the prior period was relatively insignificant, amounting to
$13,700 or 1.6%, several components of this total experienced marked changes.
As a result of a shift in investing strategy, proceeds from maturities of tax
exempt investment securities and principal repayments on mortgage-backed
securities have been utilized to invest in higher rate taxable investment
securities. As a consequence, taxable investment security interest income
increased $33,000 or 104%, while interest on mortgage-backed securities
decreased $41,000 or 27.8% and interest on tax exempt investment securities
decreased $6,600 or 55.5%.
Net interest income nonetheless increased $14,000 or 3.35% due to a
more pronounced decrease in the cost of funds. Total interest expense
decreased $27,700 or 6.2%, despite an increase of $16,800 in interest
on borrowed funds. This increase was more than offset by the $44,000 or 10%
decrease in interest on deposits for the period, primarily emanating from an
election not to retain higher rate maturing savings certificates. To offset
the reduction from this financing source, management relied more heavily on
borrowing through the Federal Home Loan Bank, thus giving rise to the increase
in interest recognized on borrowings for the period.
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 1997 and 1996.
The total noninterest income increase of $1,000 was insignificant, as would be
expected with no significant changes in service charges nor components of
other income. Noninterest expense decreased $22,000 or 8.7%. This was
primarily due to a $37,000 decrease in deposit insurance premiums triggered by
a combination of reduced SAIF rates and recognition of a SAIF refund of
$15,000. The impact of these deposit insurance premium fluctuations were
partially offset by increases in compensation and employee benefits of $8,200
attributable to Employee Stock Ownership Plan expenses incurred and a $9,000
increase in other expenses attributable to the recognition of a $12,000
non-recurring credit during the three months ended March 31, 1996.
Income taxes increased $64,500 or 112.9% over the prior three month period
primarily attributable to more favorable results of operations as well as the
benefits lost from the shift to greater investing in taxable investment
securities over those investment securities which are exempt from federal
income tax.
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 March 31, 1997 and June 30,
1996:
March 31, June 30
1997 1996
-------- --------
(dollars in thousands)
Cash and due from banks $ 116 $ 115
Interest-bearing deposits with other institutions 1,353 627
Investment securities maturing in one year or less 3,835 370
-------- --------
Total liquid assets $ 5,304 $ 1,112
======== ========
As a percent of total assets 11.91% 2.48%
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.
9
LIQUIDITY AND CASH FLOWS (Continued)
- ------------------------------------
As of March 31, 1997, the Savings Bank had $1,913,000 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.
March 31, June 30
1997 1996
-------- --------
(dollars in thousands)
Loans on nonaccrual basis $ 926 $ 434
Loans past due 90 days or more 6 8
Renegotiated loans - -
-------- --------
Total nonperforming loans 932 442
-------- --------
Other real estate 140 -
Repossessed assets - -
-------- --------
Total nonperforming assets $ 1,072 $ 442
======== ========
Nonperforming loans as a percent of total loans 2.96% 1.38%
======= =======
Nonperforming assets as a percent of total assets 2.41% 0.99%
======= =======
During the nine month period ended March 31, 1997, loans decreased $611,000
and nonperforming loans increased $490,000 while the allowance for loan losses
increased $18,000 for the same period. The percentage of allowance for loan
losses to loans outstanding remained .7% during this time period. The
increase in loans on a nonaccrual basis is primarily made up of one to four
family residential mortgages. The collateral requirements on such loans
reduce the risk of potential losses to an acceptable level in management's
opinion.
Management believes the level of the allowance for loan losses at March 31,
1997 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.
Other real estate owned increased $140,000 over the nine month period. In
management's opinion, collateral exists with sufficient value to generate the
proceeds necessary to reduce the risk of potential loss on these properties to
an acceptable level.
10
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
NONE
Item 5 - Other information
NONE
Item 6 - Exhibits and reports on Form 8-K
NONE
11
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: May 12, 1997 By: \s\ Glenn R. Pentz, Jr.
-----------------------------------------
Glenn R. Pentz, Jr.
Chief Financial Officer, Treasurer and
Secretary
(Principal Executive and Financial Officer)
12