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, 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
-----------------
(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 February 9, 1998: 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 December 31, 1997 and June 30, 1997 3
Consolidated Statement of Income (Unaudited)
for the Six Months ended December 31, 1997 and 1996 4
Consolidated Statement of Income (Unaudited)
for the Three Months ended December 31, 1997 and 1996 5
Consolidated Statement of Cash Flows (Unaudited)
for the Six Months ended December 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 - 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Default Upon Senior Securities 13
Item 4. Submissions of Matters to a Vote of Security Holder 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8 - K 13
SIGNATURES 14
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
December 31, June 30,
1997 1997
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ASSETS
Cash and due from banks $ 118,796 $ 116,612
Interest-bearing deposits with other
institutions 1,816,305 2,904,240
Investment securities (market value of $3,598,770
and $2,811,553) 3,594,715 2,824,595
Mortgage-backed securities (market value of
$5,393,897 and $6,104,940) 5,550,852 6,123,442
Loans receivable (net of allowance for loan
losses of $255,680 and $250,865) 32,541,143 31,947,791
Accrued interest receivable 268,257 290,147
Premises and equipment 56,579 60,407
Federal Home Loan Bank stock, at cost 361,100 361,100
Other assets 182,146 206,248
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TOTAL ASSETS $44,489,893 $44,834,582
=========== ===========
LIABILITIES
Deposits accounts $35,088,963 $34,975,539
Advances from Federal Home Loan Bank - 500,000
Accrued interest payable and other liabilities 130,891 174,869
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TOTAL LIABILITIES 35,219,854 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 4,308,987 4,275,914
Retained earnings-substantially restricted 5,346,145 5,338,997
Unearned shares held by Employee Stock Ownership Plan (191,247) (214,241)
Unearned shares held by Management Stock Bonus Plan (45,280) (67,930)
Treasury stock (10,450 shares, at cost) (193,863) (193,863)
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TOTAL STOCKHOLDERS' EQUITY 9,270,039 9,184,174
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $44,489,893 $44,834,582
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
3
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Six Months Ended December 31,
1997 1996
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INTEREST INCOME
Loans $ 1,334,754 $ 1,341,234
Mortgage-backed securities 195,961 242,349
Investment securities:
Taxable 98,329 125,298
Exempt from federal income tax 10,836 15,887
Interest-bearing deposits with other
institutions 55,010 22,563
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Total interest income 1,694,890 1,747,331
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INTEREST EXPENSE
Deposits 837,722 834,428
Other 7,267 25,990
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Total interest expense 844,989 860,418
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NET INTEREST INCOME 849,901 886,913
Provision for loan losses 18,000 12,000
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NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 831,901 874,913
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NONINTEREST INCOME
Service charges on deposit accounts 11,741 15,934
Other income 9,269 8,064
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Total noninterest income 21,010 23,998
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NONINTEREST EXPENSE
Compensation and employee benefits 254,359 247,926
Occupancy and equipment 25,639 26,239
Deposit insurance premiums 11,173 276,747
Professional fees 39,150 40,510
Data processing charges 52,505 50,902
Other expenses 135,616 124,504
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Total noninterest expense 518,442 766,828
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Income before income taxes 334,469 132,083
Income taxes 116,400 5,897
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NET INCOME $ 218,069 $ 126,186
============= =============
EARNINGS PER SHARE
Basic $ 0.52 $ 0.30
Diluted 0.50 0.29
See accompanying notes to the unaudited consolidated financial statements.
4
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended December 31,
1997 1996
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INTEREST INCOME
Loans $ 670,140 $ 670,700
Mortgage-backed securities 93,008 125,536
Investment securities:
Taxable 52,873 63,607
Exempt from federal income tax 5,433 6,753
Interest-bearing deposits with other
institutions 18,758 12,687
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Total interest income 840,212 879,283
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INTEREST EXPENSE
Deposits 417,563 423,145
Other - 18,031
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Total interest expense 417,563 429,314
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NET INTEREST INCOME 422,649 449,969
Provision for loan losses 9,000 6,000
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NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 413,649 443,969
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NONINTEREST INCOME
Service charges on deposit accounts 5,908 8,762
Other income 2,090 2,690
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Total noninterest income 7,998 11,452
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NONINTEREST EXPENSE
Compensation and employee benefits 118,747 122,483
Occupancy and equipment 11,546 11,417
Deposit insurance premiums 5,607 21,000
Professional fees 19,050 21,250
Data processing charges 26,227 25,687
Other expenses 78,934 64,814
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Total noninterest expense 260,111 266,651
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Income before income taxes 161,536 188,770
Income taxes 58,200 30,079
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NET INCOME $ 103,336 $ 158,691
============= =============
EARNINGS PER SHARE
Basic $ 0.24 $ 0.38
Diluted 0.23 0.36
See accompanying notes to the unaudited consolidated financial statements.
5
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended December 31,
1997 1996
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OPERATING ACTIVITIES
Net income $ 218,069 $ 126,186
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 18,000 12,000
Provision for depreciation 3,510 6,332
Amortization of discounts and premiums (1,493) 13,826
Decrease (increase) in accrued interest
receivable 21.890 (12,969)
Increase (decrease) in accrued interest payable 31,801 (9,599)
Amortization of ESOP and MSBP unearned
compensation 78,717 73,916
Other, net (123,486) (163,302)
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Net cash provided by operating activities 247,008 46,390
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INVESTING ACTIVITIES
Proceeds from the maturities of investment
securities 500,000 250,000
Purchases of investment securities (1,270,056) (500,000)
Principal repayments on mortgage-backed
securities 562,913 730,119
Increase in loans receivable, net (546,610) (97,614)
Purchases of premises and equipment (3,295) (880)
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Net cash provided by (used for)
investing activities (757,048) 381,625
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FINANCING ACTIVITIES
Increase (decrease) in deposits, net 113,424 (1,602,152)
Proceeds from advance from FHLB - 1,550,000
Repayment of advance from FHLB (500,000) -
Cash dividends (189,135) -
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Net cash used for
financing activities (575,711) (136,182)
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Increase (decrease)in cash and cash equivalents (1,085,751) 291,833
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 $ 1,935,101 $ 1,034,177
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 876,790 $ 870,017
Income taxes 52,966 108,788
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 Bank
("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 - EARNINGS PER SHARE
- ---------------------------
In February 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 following table sets forth the computation of basic and diluted earnings
per share. There were no convertable securities which would effect the
numerator in calculating basic and diluted earnings per share; therefore, net
income as presented on the Consolidated Statement of Income (Unaudited) will
be used as the numberator. The following tables set forth a reconciliation of
the denominator of the basic and diluted earnings per share computation.
Six Months Ended December 31,
1997 1996
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Denominator
Denominator for basic earnings per
share - weighted - average shares 422,214 417,886
Employee stock options 17,634 17,654
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Denominator for diluted earnings per
share - adjusted weighted - average
average assumed conversions 439,848 435,539
============= =============
Three Months Ended December 31,
1997 1996
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Denominator
Denominmator for basic earnings per
share - weighted - average shares 423,014 418,686
Employee stock options 17,817 17,308
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Denominator for diluted earnings per
share - adjusted weighted - average
average assumed conversions 440,830 435,994
============= =============
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
-------------------
Total assets at December 31, 1997 of $44,489,000, decreased by approximately
$345,000, or .80%, from the $44,835,000 reported at June 30, 1997. There was
a decline in interest bearing deposits of $1,088,000 and mortgage-backed
securities of $573,000 which was offset by increases experienced in investment
securities and loans of approximately $770,000 and $593,000, 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 to fund a net
increase in investment securities of $770,000. The Company purchased $775,000
in U. S. Government Agency securities and $500,000 in corporate securities
while maturities of U. S. Government Agency securities provided $500,000 in
funds to be reinvested
Principal repayments on mortgage-backed securities amounted to $562,000 and
are typically reinvested in like securities or used to supplement loan demand
in periods of loan growth. Currently, the Company has relatively significant
commitments to fund loans as a direct result of the economic health of the
Company's market area and the competitive pricing, therefore all of the
mortgage-backed securities repayments have been used to fund loan products.
Loans continued to experience moderate growth primarily in 1 to 4 family
mortgages. The economy in the area has remained stable for several years and
the Company competitively prices its products to meet the demands of its
market. Management anticipates maintaining continued growth in the loan
portfolio in the foreseeable future.
Deposits increased by $113,000 or .3%, and resulted primarily from an increase
in time deposit 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 $86,000 for the six months ended December 31,
1997, as a result of net income of $218,000 and recognition of
shares in the Management Stock Bonus Plan and the Employee Stock Ownership
Plan amounting to $79,000. Cash dividends declared of approximately $211,000
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 December 31, 1997, the
Company and the Bank exceeded the 8.00% minimum risk-based capital requirement
and the leveraged capital ratio of 3.00% of tangible assets.
8
RESULTS OF OPERATION
--------------------
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
- ----------------------------------------------------------------
Net income for the six months ended December 31, 1997 increased by $92,000
compared to the same period in 1996. The increase was primarily made up of a
decrease in FDIC insurance of $266,000 offset by a decline in net interest
income of $37,000 and an increase in income tax expense of $111,000.
Net interest income for the six months ended December 31, 1997 experienced a
decline of $37,000 or 4.2% compared to the same period ended 1996 as decreases
in volume and rate on earnings assets resulted in decreases in gross interest
income outpacing decreases in gross interest expense.
Changes within the Bank's asset mix have resulted in a 3.0% decrease in gross
interest income. The majority of the decline impacted interest on investment
and mortgage-backed securities of $32,000 and $46,000, respectively, offset by
a $32,000 increase in interest on interest-bearing deposits. The decline in
interest on investment securities is the result of investments maturing and
being reinvested in lower yielding interest-bearing deposit accounts in
anticipation of required loan demand. The overall yield on investment
securities, including interest-bearing deposits, declined by 78 basis points
(one percent equals 100 basis points) from 6.68% in 1996 to 5.90% in 1997.
The decline in interest on mortgage-backed securities emanates from a decline
in average balance of $1.2 million.
At the same time, gross interest expense decline by $15,000. Interest expense
on deposits remained relatively constant while interest on FHLB advances
declined by $19,000 due to the repayment of those advances during 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.
Total loans increased by $598,000 during the six months ended December 31,
1997. As a result, the provision for loan losses increased by $6,000 to
$18,000 for 1997 compared to $12,000 for 1996.
Noninterest income is typically made up of service fees on deposit accounts
and other fee income. These service charges on deposit accounts and other fee
income remained relatively constant during the period. Management believes
its fees are competitive with similar fees charged by other institutions in
its market area.
Total noninterest expense decreased $248,000 over the prior year emanating
from a one-time charge 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 $111,000 for 1997 due to an
increase in pretax income of $202,000. The income tax expense in 1996 was
lower than normally would be reflected due to the timing of the recognition of
SAIF assessment, as well as other expenses during the period.
9
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
- ----------------------------------------------------------------
Net income for the three months ended December 31, 1997 decreased by $55,000
or 34.9% compared to the same period ended 1996.
Net interest income for the three months ended December 31, 1997 experienced a
decline of $27,000 or 6.1% compared to the same period ended 1996. As noted
above, changes within the Bank's asset mix have resulted in a 4.4% decreases
in gross interest income. The majority of the decline impacted interest on
investment and mortgage-backed securities of $11,000 and $33,000,
respectively, offset by a $6,000 increase in interest on interest-bearing
deposits. These fluctuations have been discussed in greater detail above.
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 increased by $3,000 to $9,000 for 1997
compared to $6,000 for 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.
There was a increase in income tax expense of $28,000 for 1997. Tax expense
incurred in 1996 was effected by the timing of the recognition of SAIF
assessment, as well as other expenses.
10
LIQUIDITY AND CASH FLOWS
- ------------------------
To ensure that the Bank can satisfy customer credit needs for current
and future commitments and deposit withdrawal requirements, the 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, 1997 and June
30, 1997:
December 31, June 30
1997 1997
-------- --------
(dollars in thousands)
Cash and due from banks $ 119 $ 117
Interest-bearing deposits with other institutions 1,816 2,904
Investment securities maturing in one year or less 3,099 2,825
-------- --------
Total liquid assets $ 5,034 $ 5,846
======== ========
As a percent of total assets 11.2% 13.0%
The 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 Bank invests excess funds in overnight deposits which provide
liquidity to meet lending requirements.
The 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.
As of December 31, 1997, the Bank had $1.2 million in outstanding mortgage and
construction loan commitments. Management believes that it has adequate
sources to meet the actual funding requirements.
11
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 30, June 30
1997 1997
-------- --------
(dollars in thousands)
Loans on nonaccrual basis $ 725 $ 846
Loans past due 90 days or more 11 -
Renegotiated loans - -
-------- --------
Total nonperforming loans 736 846
-------- --------
Other real estate 54 29
Repossessed assets - -
-------- --------
Total nonperforming assets $ 790 $ 875
======== ========
Nonperforming loans as a percent of total loans 2.3% 2.6%
======= =======
Nonperforming assets as a percent of total assets 1.8% 2.0%
======= =======
During the six month period ended December 31, 1997, loans increased $598,000
and nonperforming loans decreased $110,000 while the allowance for loan losses
increased $5,000 for the same period. The percentage of the allowance for
loan losses to loans outstanding increased .1% to .8% during this time period.
There was a decrease in loans on a nonaccrual basis which consists primarily 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 December 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 by $28,000 over the six 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.
A great deal of information has been disseminated about the global computer
crash that may occur in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered ( common programming
practice in earlier years) are expected to read entries for the year 2000 as
the year 1900 and compute payment, interest, or delinquency based on the wrong
date or are expected to unable the compute payment, interest, or delinquency.
Rapid and accurate data processing is essential to our operations. Data
processing is also essential to most other financial institutions and many
other companies.
All of our material data processing that could be affected by this problem is
provided by a third party service bureau. Our service bureaus has advised us
that it expects to resolve this potential problem before the year 2000.
However, if this potential problem is not resolved before the year 2000, we
would likely experience significant data processing delays, mistakes, or
failures. The delays, mistakes, or failures could have a significant adverse
impact on our financial condition and our results of operations.
12
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
(a) The Corporation's annual meeting of shareholders was held on October 23,
1997.
(b) The following directors were elected to a three year term expiring in
2000: Norbert J. Pontzer and William L. Murnaghan.
(c) Shareholders ratified the appointment of S.R. Snodgrass, A.C. as
independent certified public accountants to audit the consolidated
financial statements of the Corporation for the 1997 fiscal year.
The results of the votes from the annual meeting were as follows:
For Against
--------- ---------
Norbert J. Pontzer 365,015 4,302
William L. Murnaghan 365,350 3,967
Other directors of the Corporation consist of Jane Weilacher (term expiring
in 1999), Roger Hasselman (term expiring in 1999), Carl Gamarino (term
expiring in 1998), and Paul Brazinski (term expiring in 1998).
Item 5 - Other information
NONE
Item 6 - Exhibits and reports on Form 8-K
NONE
13
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:
-----------------------------------------
Glenn R. Pentz, Jr.
Chief Financial Officer, Treasurer and
Secretary
(Principal Executive and Financial Officer)
14