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 September 30, 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
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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 November 4, 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 September 30, 1997 and June 30, 1997 3
Consolidated Statement of Income (Unaudited)
for the Three Months ended September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows (Unaudited)
for the Three Months ended September 30, 1997 and 1996 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Default Upon Senior Securities 10
Item 4. Submissions of Matters to a Vote of Security Holder 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8 - K 10
SIGNATURES 11
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, June 30,
1997 1997
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ASSETS
Cash and due from banks $ 107,428 $ 116,612
Interest-bearing deposits with other
institutions 1,429,229 2,904,240
Investment securities (market value of $3,352,612
and $2,811,553) 3,349,306 2,824,595
Mortgage-backed securities (market value of
$5,889,186 and $6,104,940) 5,860,694 6,123,442
Loans receivable (net of allowance for loan
losses of $253,903 and $250,865) 32,420,247 31,947,791
Accrued interest receivable 241,316 290,147
Premises and equipment 57,894 60,407
Federal Home Loan Bank stock, at cost 361,100 361,100
Other assets 163,957 206,248
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TOTAL ASSETS $43,991,171 $44,834,582
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LIABILITIES
Deposits accounts $34,600,023 $34,975,539
Advances from Federal Home Loan Bank - 500,000
Accrued interest payable and other liabilities 153,608 174,869
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TOTAL LIABILITIES 34,753,631 35,650,408
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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 4,293,803 4,275,914
Retained earnings-substantially restricted 5,348,079 5,338,997
Unearned shares held by Employee Stock Ownership Plan (199,171) (214,241)
Unearned shares held by Management Stock Bonus Plan (56,605) (67,930)
Treasury stock (10,450 shares, at cost) (193,863) (193,863)
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TOTAL STOCKHOLDERS' EQUITY 9,237,540 9,184,174
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $43,991,171 $44,834,582
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See accompanying notes to the unaudited consolidated financial statements.
3
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended September 30,
1997 1996
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INTEREST INCOME
Loans $ 664,614 $ 670,534
Mortgage-backed securities 102,953 116,813
Investment securities:
Taxable 45,456 61,691
Exempt from federal income tax 5,403 9,134
Interest-bearing deposits with other
institutions 36,252 9,876
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Total interest income 854,678 868,048
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INTEREST EXPENSE
Deposits 420,159 423,145
Other 7,267 7,959
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Total interest expense 427,426 431,104
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NET INTEREST INCOME 427,252 436,944
Provision for loan losses 9,000 6,000
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NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 418,252 430,944
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NONINTEREST INCOME
Service charges on deposit accounts 5,833 7,172
Other income 7,179 5,374
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Total noninterest income 13,012 12,546
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NONINTEREST EXPENSE
Compensation and employee benefits 135,612 125,443
Occupancy and equipment 14,093 14,822
Deposit insurance premiums 5,566 255,747
Professional fees 20,100 19,260
Data processing charges 26,278 25,215
Other expenses 56,682 59,690
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Total noninterest expense 258,331 500,177
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Income before income taxes 172,933 (56,687)
Income taxes 58,200 (24,182)
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NET INCOME $ 114,733 $ (32,505)
============= =============
EARNINGS PER SHARE
Primary $ 0.26 $ 0.07
Fully Diluted 0.26 0.07
AVERAGE SHARES OUTSTANDING
Primary 448,842 444,827
Fully Diluted 448,842 444,949
See accompanying notes to the unaudited consolidated financial statements.
4
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended September 30,
1997 1996
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OPERATING ACTIVITIES
Net income $ 114,733 $ (32,505)
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 9,000 6,000
Provision for depreciation 1,755 3,129
Amortization of discounts and premiums (140) 7,340
Decrease in accrued interest
receivable 48,831 7,126
Decrease in accrued interest payable 18,999 (1,183)
Amortization of ESOP and MSBP unearned
compensation 44,284 32,770
Increase in Federal Deposit Insurance Premiums - 234,747
Other, net (19,402) (81,966)
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Net cash provided by operating activities 218,060 175,458
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INVESTING ACTIVITIES
Proceeds from the maturities of investment
securities 250,000 190,000
Purchases of investment securities (774,570) (500,000)
Principal repayments on mortgage-backed
securities 258,394 407,631
Purchases of mortgage-backed securities - (250,000)
Increase in loans receivable, net (477,103) (214,802)
Purchases of premises and equipment (2,855) (806)
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Net cash provided by (used for)
investing activities (1,246,134) (117,977)
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FINANCING ACTIVITIES
Increase (decrease) in deposits, net (375,516) (523,392)
Decrease in advance from FHLB (500,000) 1,300,000
Cash dividends (84,218) -
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Net cash provided by (used for)
financing activities (959,734) 776,608
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Increase (decrease) in cash and
cash equivalents (1,484,195) 834,089
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,020,852 742,344
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CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,536,657 $ 1,576,433
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 446,424 $ 432,287
Income taxes 1,166 44,792
See accompanying notes to the unaudited consolidated financial statements.
5
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.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
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Total assets at September 30, 1997 of $43,991,000, decreased by approximately
$844,000, or 1.88%, from the $44,835,000 reported at June 30, 1997. There was
a decline in interest bearing deposits of $1,475,000 and mortgage-backed
securities of $263,000 which was offset by increases in investment securities
and loans of approximately $525,000 and $473,000, respectively.
The decrease in interest-bearing deposits was primarily due to the repayment
of an advance from the Federal Home Loan Bank of $500,000 and purchases of
U.S. Government agency securities of $775,000. Principal repayments on
mortgage-backed securities are typically used to supplement loan demand in
periods of relatively modest growth. Currently, the Company has relatively
significant commitments to fund loans as a direct result of the economic
health of the Bank's market area and the competitive pricing of the Bank's
loan products.
Deposits declined by $376,000 or 1.1%, and resulted primarily from a decrease
of $277,000 in NOW accounts with smaller decreases in other deposit type
accounts. 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 $53,000 for the three months ended September 30,
1997, as a result of net income of $115,000 and recognition of shares in the
Management Stock Bonus Plan and the Employee Stock Ownership Plan amounting to
$44,000. Cash dividends paid of approximately $84,000 reduced the impact of
these other events.
Management monitors risk-based capital and leverage capital ratios in order to
assess compliance with regulatory guidelines. At September 30, 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
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COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
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Net interest income for the three months ended September 30, 1997 experienced
a slight decrease of $10,000 or 2.2% compared to the same period ended 1996 as
decreases in volume resulted in gross interest income outpacing decreases in
gross interest expense. Changes within the Savings Bank's asset mix have
resulted in a 1.5% decrease in gross interest income. The majority of the
decline impacted interest on investment and mortgage-backed securities of
$16,000 and $14,000, respectively; however, this decrease was offset by a
$26,000 increase in interest on interest-bearing deposits with other
institutions. At the same time, gross interest expense remained relatively
stable with only a nominal decline of $4,000. Although there was an increase
in the cost of funds for this period of 7 basis points, this was negated by a
decrease in the average balances of savings deposits and short-term borrowings
of $608,000 and $275,000, respectively.
The provision for loan losses increased by $3,000 to $9,000 for 1997 compared
to $6,000 for 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.
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.
7
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Continued)
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Total noninterest expense decreased $242,000 over the prior year emanating
from a one-time charge in 1996 of approximately $235,000 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 increase in income tax expense of $82,000 for 1997 due to an
increase in pretax income of $230,000 primarily as a result of the SAIF
assessment in 1996.
LIQUIDITY AND CASH FLOWS
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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 September 30, 1997 and June
30, 1997:
September 30, June 30
1997 1997
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(dollars in thousands)
Cash and due from banks $ 107 $ 117
Interest-bearing deposits with other institutions 1,429 2,904
Investment securities maturing in one year or less 3,349 2,825
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Total liquid assets $ 4,885 $ 5,846
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As a percent of total assets 11.3% 13.0%
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.
8
LIQUIDITY AND CASH FLOWS (Continued)
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As of September 30, 1997, the Savings Bank had $1,655,000 in outstanding
mortgage and construction loan commitments. Management believes that it has
adequate sources to meet the actual funding requirements.
RISK ELEMENT
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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.
September 30, June 30
1997 1997
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(dollars in thousands)
Loans on nonaccrual basis $ 691 $ 846
Loans past due 90 days or more 7 -
Renegotiated loans - -
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Total nonperforming loans 698 846
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Other real estate 29 29
Repossessed assets - -
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Total nonperforming assets $ 727 $ 875
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Nonperforming loans as a percent of total loans 2.1% 2.6%
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Nonperforming assets as a percent of total assets 1.7% 2.0%
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During the three month period ended September 30, 1997, loans increased
$472,000 and nonperforming loans decreased $148,000 while the allowance for
loan losses increased $9,000 for the same period. The percentage of the
allowance for loan losses to loans outstanding increased .1% to .8% 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
September 30, 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 remained unchanged over the three 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.
9
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
10
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: November , 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)
11