<PAGE> 1
FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________.
Commission File Number 0-22223
-------
PEOPLES-SIDNEY FINANCIAL CORPORATION
------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 31-1499862
- -------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
101 E. Court Street, Sidney, Ohio 45365
----------------------------------------
(Address of principal executive offices)
(937) 492-6129
--------------
(Issuer's telephone number)
Check whether the small business issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the small business issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ ] No [ X ]*
As of April 30, 1997, the latest practicable date, 1,785,375 shares of the small
business issuer's common shares, no par value, were issued and outstanding.
* The small business issuer's Registration Statement on Form S-1 was declared
effective on March 14, 1997. The small business issuer has conducted no business
except the offering of its shares and preparation to acquire Peoples Federal
Savings and Loan Association. The financial information contained in this Form
10-QSB is, therefore, provided for Peoples Federal Savings and Loan Association.
<PAGE> 2
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
INDEX
Page
----
PART I - FINANCIAL INFORMATION (UNAUDITED)
Balance Sheets ............................................. 3
Statements of Income ....................................... 4
Statements of Changes in Retained Earnings.................. 5
Statements of Cash Flows ................................... 6
Notes to Financial Statements .............................. 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 13
PART II - OTHER INFORMATION....................................... 20
SIGNATURES ....................................................... 21
2.
<PAGE> 3
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
--------------- ----------------
<S> <C> <C>
ASSETS
Cash and amounts due from depository
institutions $ 462,531 $ 365,614
Interest-bearing deposits in other banks 2,554,538 1,355,195
Overnight deposits 1,000,000
--------------- ----------------
Total cash and cash equivalents 3,017,069 2,720,809
Time deposits with other financial institutions 1,100,000
Securities held to maturity (Estimated fair value of
$1,986,250 and $2,575,990 at March 31, 1997
and June 30, 1996) 1,999,141 2,598,404
Loans receivable, net 86,219,384 78,232,660
Accrued interest receivable 649,024 622,962
Premises and equipment, net 766,593 797,671
Federal Home Loan Bank stock available for sale 702,500 667,000
Other assets 379,974 142,469
--------------- ----------------
Total assets $ 93,733,685 $ 86,881,975
=============== ================
LIABILITIES
Deposits $ 81,382,871 $ 77,317,506
Other borrowings 2,500,000
Accrued expense and other liabilities 334,774 351,932
--------------- ----------------
Total liabilities 84,217,645 77,669,438
Commitments and contingencies
MEMBERS' EQUITY
Retained earnings - substantially restricted 9,516,040 9,212,537
--------------- ----------------
Total liabilities and members' equity $ 93,733,685 $ 86,881,975
=============== ================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
3.
<PAGE> 4
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF INCOME
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------- ---------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 1,722,638 $ 1,518,229 $ 5,031,133 $ 4,508,841
Securities 28,828 37,241 92,000 113,291
Interest-bearing deposits and
overnight deposits 25,199 79,974 71,557 205,539
Dividends on Federal Home
Loan Bank stock 11,920 11,216 35,598 33,371
------------- ------------- ------------- --------------
Total interest income 1,788,585 1,646,660 5,230,288 4,861,042
INTEREST EXPENSE
Deposits 1,017,264 949,347 2,981,100 2,762,304
Other borrowings 26,446 60,665
------------- ------------- ------------- --------------
Total interest expense 1,043,710 949,347 3,041,765 2,762,304
------------- ------------- ------------- --------------
NET INTEREST INCOME 744,875 697,313 2,188,523 2,098,738
Provision for loan losses 55,621 36,402 97,397 72,066
------------- ------------- ------------- --------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 689,254 660,911 2,091,126 2,026,672
------------- ------------- ------------- --------------
Noninterest income
Service fees and other charges 16,544 24,722 46,963 51,242
------------- ------------- ------------- --------------
Noninterest expense
Compensation and benefits 186,058 167,857 553,045 515,181
Occupancy and equipment 33,986 36,128 101,649 97,970
Computer processing expense 41,475 40,118 113,088 102,214
FDIC deposit insurance premiums 2,449 42,306 546,540 122,326
State franchise taxes 35,100 31,726 98,552 88,495
Other 88,878 71,942 265,362 212,841
------------- ------------- ------------- --------------
Total noninterest expense 387,946 390,077 1,678,236 1,139,027
------------- ------------- ------------- --------------
INCOME BEFORE INCOME TAXES 317,852 295,556 459,853 938,887
Provision for income taxes 108,070 100,489 156,350 319,222
------------- ------------- ------------- --------------
NET INCOME $ 209,782 $ 195,067 $ 303,503 $ 619,665
============= ============= ============= ==============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
4.
<PAGE> 5
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF CHANGES IN RETAINED EARNINGS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
-------------------------------- ---------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $ 9,306,258 $ 8,785,409 $ 9,212,537 $ 8,360,811
Net income 209,782 195,067 303,503 619,665
--------------- -------------- -------------- ---------------
BALANCE, END OF PERIOD $ 9,516,040 $ 8,980,476 $ 9,516,040 $ 8,980,476
=============== ============== ============== ===============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
5.
<PAGE> 6
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS LOAN ASSOCIATION
STATEMENTS OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 303,503 $ 619,665
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 40,004 41,725
Provision for loan losses 97,397 72,066
FHLB stock dividends (35,500) (33,200)
Gain on sale of premises and equipment (8,890)
Change in
Accrued interest receivable and
other assets (264,304) (89,665)
Accrued expense and other liabilities (17,158) (25,150)
Deferred loan fees (6,441) (25,047)
------------- --------------
Net cash from operating activities 117,501 551,504
CASH FLOWS FROM INVESTING ACTIVITIES
Securities held to maturity
Purchases (2,498,047)
Maturities 600,000 2,500,000
Proceeds from maturities of time deposits
in other financial institutions 1,100,000
Purchase of time deposits in other financial
institutions (1,000,000)
Net increase in loans (8,120,332) (2,946,208)
Premises and equipment expenditures (8,926) (37,920)
Proceeds from sale of premises and equipment 10,000
Proceeds from sale of real estate owned 42,652 11,938
------------- --------------
Net cash from investing activities (6,386,606) (3,960,237)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 4,065,365 6,934,326
Net change in Federal Home Loan Bank advances 2,500,000
------------ --------------
Net cash from financing activities 6,565,365 6,934,326
------------- --------------
Net change in cash and cash equivalents 296,260 3,525,593
Cash and cash equivalents at beginning of period 2,720,809 1,840,168
------------- --------------
Cash and cash equivalents at end of period $ 3,017,069 $ 5,365,761
============= ==============
Supplemental disclosures of
cash flow information
Cash paid during the year for
Interest $ 3,085,140 $ 2,787,507
Income taxes 100,000 296,000
Noncash transactions
Transfer from loans to real estate owned 42,652 11,938
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
6.
<PAGE> 7
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the financial position of Peoples Federal Savings and Loan Association
("Association") at March 31, 1997, and its results of operations and cash flows
for the periods presented. All such adjustments are normal and recurring in
nature. The accompanying financial statements have been prepared in accordance
with the instructions of Form 10-QSB and therefore do not purport to contain all
the necessary financial disclosures required by generally accepted accounting
principles that might otherwise be necessary in the circumstances and should be
read in conjunction with the financial statements and notes thereto of the
Association for the fiscal year ended June 30, 1996. Reference is made to the
accounting policies of the Association described in the notes to financial
statements contained in the Association's 1996 financial statements. The
Association has consistently followed these policies in preparing this Form
10-QSB.
The Association is engaged primarily in the business of making residential real
estate loans and accepting deposits. Its operations are conducted solely
through its main office located in Sidney, Ohio. The Association's market area
consists of Shelby and surrounding counties.
To prepare financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions based on
available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The collectibility of loans, fair values of financial
instruments, and status of contingencies are particularly subject to change.
The provision for income taxes is based upon the effective tax rate expected to
be applicable for the entire year. The Association follows the liability method
of accounting for income taxes. The liability method provides that deferred tax
assets and liabilities are recorded based on the difference between the tax
basis of assets and liabilities and their carrying amounts for financial
reporting purposes, using enacted tax rates.
The Association classifies securities into held-to-maturity and
available-for-sale categories. Held-to-maturity securities are those which the
Association has the positive intent to hold to maturity, and are reported at
amortized cost. Available-for-sale securities are those which the Association
may sell, if needed, for liquidity, asset-liability management, or other reasons
even if the Association does not presently intend such sale. Available-for-sale
securities are reported at fair value, with unrealized gains or losses included
as a separate component of equity, net of tax.
Realized gains and losses on securities are determined on the specific security
sold. Interest and dividend income, adjusted by amortization of purchase
premium or discount, is included in earnings.
- --------------------------------------------------------------------------------
(Continued)
7.
<PAGE> 8
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The allowance for loan losses is a valuation allowance, increased by the
provision for loan losses and decreased by charge-offs, net of recoveries.
Management estimates the allowance balance required based on past loan loss
experience, known and inherent risks in the portfolio, information about
specific borrower situations and estimated collateral values, economic
conditions, and other factors. Allocations of the allowance may be made for
specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
Statement of Financial Accounting Standards (SFAS) No. 114, as amended by SFAS
No. 118, was adopted at July 1, 1995. These statements require recognition and
measurement of impaired loans. Loans are considered to be impaired if full
principal and interest payments are not anticipated. Impaired loans are reduced
to the present value of expected future cash flows or to the fair value of
collateral, by allocating a portion of the allowance for loan losses to such
loans. If these allocations cause the allowance for loan losses to require an
increase, such increase is reported as bad debt expense. The effect of adopting
these standards did not materially affect the allowance for loan losses as of
or for any of the periods presented.
Smaller-balance homogenous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one- to four-family
residences, residential construction loans, credit card, automobile, home
equity and second mortgage loans. Commercial loans and mortgage loans secured
by other properties are evaluated individually for impairment. When analysis of
borrower operating results and financial condition indicate that underlying
cash flows of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Often this is associated
with a delay or shortfall of payments of 30 days or more. The accrual of
interest is discontinued on a loan-by-loan basis, depending on the severity of
delinquencies and management's estimates of the collateral value. These loans
are often considered impaired. Impaired loans, or portions thereof, are charged
off when deemed uncollectible. The nature of disclosures for impaired loans
generally is considered comparable to prior nonaccrual loan disclosures.
Interest on loans is accrued over the term of the loans based upon the
principal outstanding. Under SFAS No. 114, as amended by SFAS No. 118, the
carrying value of impaired loans is periodically adjusted to reflect cash
payments, revised estimates of future cash flows and increases in the present
value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such and other cash payments are
reported as reductions in carrying value. Increases or decreases in carrying
value due to changes in estimates of future payments or the passage of time are
reported as reductions or increases in bad debt expense.
Loan fees collected and certain direct costs associated with originating and
acquiring loans are deferred over the contractual life of the related loans, as
an adjustment of the yield.
- --------------------------------------------------------------------------------
(Continued)
8.
<PAGE> 9
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - ADOPTION OF PLAN OF CONVERSION
On November 8, 1996, the Board of Directors of the Association, unanimously
adopted a Plan of Conversion to convert from a federally chartered mutual
savings and loan association to a federally chartered stock savings and loan
association with the concurrent formation of a holding company. The conversion
was consummated on April 25, 1997 by amending the Association's charter and the
sale of the Holding Company's common stock in an amount equal to the market
value of the Association after giving effect to the conversion. Common shares
of the Holding Company were offered in accordance with the plan of conversion.
A total of 1,785,375 common shares of the Holding Company were sold at $10.00
per share and net proceeds from the sale were $17,217,944 after deducting the
costs of conversion.
The Holding Company retained 50% of the net proceeds from the sale of common
shares. The remainder of the net proceeds were invested in the capital stock
issued by the Association to the Holding Company as a result of the conversion.
At the time of conversion, the Association established a liquidation account in
an amount equal to its regulatory capital as of the latest practicable date
prior to the conversion at which such regulatory capital can be determined. The
liquidation account will be maintained for the benefit of eligible depositors
who continue to maintain their accounts at the Association after the
conversion. The liquidation account will be reduced annually to the extent
that eligible depositors have reduced their qualifying deposits. Subsequent
increases will not restore an eligible account holder's interest in the
liquidation account. In the event of a complete liquidation, each eligible
depositor will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held. The Association may not pay dividends that would reduce
stockholders' equity below the required liquidation account balance.
Under Office of Thrift Supervision (OTS) regulations, limitations have been
imposed on all "capital distributions" by savings institutions, including cash
dividends. The regulation establishes a three-tiered system of restrictions,
with the greatest flexibility afforded to thrifts which are both
well-capitalized and given favorable qualitative examination ratings by the
OTS.
- --------------------------------------------------------------------------------
(Continued)
9.
<PAGE> 10
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES
The amortized cost and estimated fair values of securities are summarized as
follows:
<TABLE>
<CAPTION>
March 31, 1997
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government agencies $ 1,999,141 $ - $ 12,891 $ 1,986,250
============== ========== =========== ===============
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government agencies $ 2,598,404 $ 600 $ 23,014 $ 2,575,990
============== ========== =========== ===============
</TABLE>
The amortized cost and estimated fair values of securities, by contractual
maturity, are as follows at March 31, 1997:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 999,141 $ 992,575
Due after one year through five years 1,000,000 993,675
-------------- ---------------
$ 1,999,141 $ 1,986,250
============== ===============
</TABLE>
Actual maturities could differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
No securities were sold during the three- and nine-month periods ended March
31, 1997 and 1996.
- --------------------------------------------------------------------------------
(Continued)
10.
<PAGE> 11
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
---- ----
<S> <C> <C>
Mortgage loans:
1-4 family residential $ 73,188,234 $ 65,448,109
Multi-family residential 225,201 485,379
Commercial real estate 5,951,026 5,301,864
Real estate construction 5,361,464 7,090,779
Land 2,384,326 1,342,146
--------------- ---------------
Total mortgage loans 87,110,251 79,668,277
Consumer and other loans 2,447,010 2,549,131
--------------- ----------------
Total loans receivable 89,557,261 82,217,408
Less:
Allowance for loan losses (393,570) (307,308)
Loans in process (2,781,158) (3,507,850)
Deferred loan fees (163,149) (169,590)
--------------- ----------------
$ 86,219,384 $ 78,232,660
=============== ================
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
--------------------------- ----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning
of period $ 340,475 $ 278,857 $ 307,308 $ 250,880
Provision for losses 55,621 36,402 97,397 72,066
Charge-offs (3,229) (15,160) (9,372)
Recoveries 703 132 4,025 1,817
------------ ------------ ------------ ------------
Balance at end
of period $ 393,570 $ 315,391 $ 393,570 $ 315,391
============ ============ ============ ============
</TABLE>
As of and for the three and nine months ended March 31, 1997 and 1996, no loans
were considered impaired within the scope of SFAS No. 114.
- --------------------------------------------------------------------------------
(Continued)
11.
<PAGE> 12
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 5 - OTHER BORROWINGS
At March 31, 1997, the Association had a cash management line of credit
enabling it to borrow up to $5,000,000 with the Federal Home Loan Bank (FHLB)
of Cincinnati. The line of credit must be renewed on an annual basis.
Borrowings outstanding on this line of credit totaled $2,500,000 at March 31,
1997. All borrowings were at 5.95%. There were no borrowings outstanding at
June 30, 1996. Additionally, as a member of the Federal Home Loan Bank system,
the Association has the ability to obtain up to approximately $14,000,000 of
advances from the FHLB. The Association had no borrowings as a result of this
membership at March 31, 1997 or June 30, 1996. Advances under the borrowing
agreements are collateralized by a blanket pledge of the Association's
residential mortgage loan portfolio and Federal Home Loan Bank stock.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Association is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to make loans. The
Association's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to make loans is
represented by the contractual amount of those instruments. The Association
follows the same credit policy to make such commitments as is followed for
those loans recorded in the financial statements.
As of March 31, 1997 and June 30, 1996 the Association had commitments to make
fixed rate commercial and residential real estate mortgage loans at current
market rates approximating $918,000 and $581,000, respectively, and variable
rate commercial and residential real estate mortgage loans at current market
rates approximating $242,000 and $1,708,000, respectively. Loan commitments are
generally for 30 days. The interest rates on fixed rate commitments ranged from
8.00% to 8.50% at March 31, 1997 and 7.25% to 8.50% at June 30, 1996. The
interest rates on variable rate commitments ranged from 7.50% to 8.00% at March
31, 1997 and 7.00% to 8.75% at June 30, 1996.
The Association also had unused lines of credit approximating $572,000 and
$614,000 at March 31, 1997, and June 30, 1996.
Since commitments to make loans and lines of credit may expire without being
used, the amounts do not necessarily represent future cash commitments.
Collateral obtained upon exercise of the commitment is determined using
management's credit evaluation of the borrower, and generally consists of
residential or commercial real estate.
- --------------------------------------------------------------------------------
12.
<PAGE> 13
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
INTRODUCTION
In the following pages, management presents an analysis of the financial
condition of Peoples Federal Savings and Loan Association as of March 31, 1997
compared to June 30, 1996, and results of operations for the three and nine
months ended March 31, 1997 compared with the same periods in 1996. This
discussion is designed to provide a more comprehensive review of the operating
results and financial position than could be obtained from an examination of
the financial statements alone. This analysis should be read in conjunction
with the interim financial statements and related footnotes included herein.
In addition to the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, the Association's operations and the
Association's actual results could differ significantly from those discussed in
the forward-looking statements. Some of the factors that could cause or
contribute to such differences are discussed herein but also include changes in
the economy and interest rates in the nation and the Association's general
market area.
FINANCIAL CONDITION
Total assets at March 31, 1997 were $93.7 million compared to $86.9 million at
June 30, 1996, an increase of $6.8 million, or 7.8%. The increase in total
assets was primarily due to increases in loans receivable of $8.0 million,
partially offset by decreases in securities of $599,000 and time deposits with
other financial institutions of $1.1 million. The increase in loans receivable
was largely in 1-4 family residential real estate loans, increasing $7.7
million, and land loans, increasing $1.0 million, offset by a $1.0 million
decrease in real estate construction loans net of loans in process. These
increases are reflective of a strong local economy coupled with attractive loan
rates and products compared to the local competition and the conversion of
construction loans to permanent financing of 1-4 family residences upon
completion of construction. The decrease in securities and time deposits with
other financial institutions was the result of the redirection of funds
provided from the maturities of time deposits and securities and other
available funds to provide for loan growth.
The Association's consumer loan portfolio remained relatively unchanged between
June 30, 1996 and March 31, 1997. Consumer loans are a small portion of the
entire loan portfolio and represented 2.7% and 3.1% of gross loans at March 31,
1997 and June 30, 1996, respectively.
Total deposits increased $4.1 million from $77.3 million at June 30, 1996 to
$81.4 million at March 31, 1997. The Association experienced little change in
savings accounts, negotiable order of withdrawal ("NOW") accounts, money market
accounts and noninterest-bearing demand deposit accounts. The bulk of the
growth was in certificates of deposit with an increase of $3.8 million. The
growth in certificates was the result of several special promotions conducted
by the Association. The portfolio as a percent of total deposits increased
slightly from 69.5% at June 30, 1996 to 70.7% at March 31, 1997. Almost all
certificates of deposit held
- --------------------------------------------------------------------------------
13.
<PAGE> 14
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
by the Association mature in less than five years with the majority maturing in
the next two years.
As a secondary source of liquidity, the Association maintains a $5 million cash
management arrangement with the Federal Home Loan Bank of Cincinnati, under
which it held advances of $2.5 million at March 31, 1997. There were no
advances outstanding at June 30, 1996. Due to continued loan demand, the
Association utilized these funds to originate mortgage loans as well as provide
for short-term liquidity needs. The advances are variable rate and can be
prepaid at any time without a penalty. Additional advances may be obtained from
the Federal Home Loan Bank to fund future loan growth and liquidity as needed.
RESULTS OF OPERATIONS
The operating results of the Association are affected by the general economic
conditions, the monetary and fiscal policies of federal agencies and the
regulatory policies of agencies that regulate financial institutions. The
Association's cost of funds is influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
influenced by the demand for real estate loans and other types of loans, which
in turn is affected by the interest rates at which such loans are made, general
economic conditions and the availability of funds for lending activities.
The Association's net income primarily depends upon its net interest income,
which is the difference between the interest income earned on interest-earning
assets, such as loans and securities, and interest expense incurred on
interest-bearing liabilities, such as deposits and other borrowings. The level
of net interest income is dependent upon the interest rate environment and the
volume and composition of interest-earning assets and interest-bearing
liabilities. Net income is also affected by provisions for loan losses, service
charges, gains on the sale of assets and other income, noninterest expense and
income taxes.
The Association earned net income of $210,000 and $304,000 for the three and
nine months ended March 31, 1997, compared to net income of $195,000 and
$620,000 for the three and nine months ended March 31, 1996. The increase in
income for the three months ended March 31, 1997 was the result of an increase
in net interest income slightly offset by a higher provision for loan losses.
The decrease in net income for the nine months ended March 31, 1997 was
primarily the result of a special deposit insurance assessment, as more fully
discussed below.
Net interest income totaled $745,000 and $2,189,000 for the three and nine
months ended March 31, 1997, as compared to $697,000 and $2,099,000 for the
three and nine months ended March 31, 1996, representing increases of $48,000,
or 6.9%, and $90,000, or 4.3%, respectively. The change in net interest income
is attributable to higher average balances of interest earning assets partially
offset by an overall increase in the cost of funds for an increased volume of
- --------------------------------------------------------------------------------
14.
<PAGE> 15
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
deposits with a larger portion of the deposit base being in higher yielding
certificates of deposit combined with an increased level of borrowed funds.
Interest and fees on loans increased approximately $205,000 and $522,000, or
13.5% and 11.6%, from $1,518,000 and $4,509,000 for the three and nine months
ended March 31, 1996 to $1,723,000 and $5,031,000 for the three and nine months
ended March 31, 1997. The increase in interest income was due to higher average
loans receivable, related to the origination of new 1-4 family first mortgages.
Interest earned on securities totaled $29,000 and $92,000 for the three and
nine months ended March 31, 1997, as compared to $37,000 and $113,000 for the
three and nine months ended March 31, 1996. The decrease was a result of lower
average balances of securities combined with a decreased yield earned.
Interest on interest-bearing deposits and overnight deposits decreased
approximately $55,000 and $134,000 for the three and nine months ended March
31, 1997, as compared to the three and nine months ended March 31, 1996. The
decline was the result of lower average balances of interest-bearing deposits
and overnight funds.
Dividends on Federal Home Loan Bank (FHLB) stock increased slightly for the
three and nine months ended March 31, 1997, compared to the three and nine
months ended March 31, 1996, primarily due to an increase in the number of
shares of FHLB stock owned.
Interest paid on deposits increased approximately $68,000 and $219,000 for the
three and nine months ended March 31, 1997, as compared the three and nine
months ended March 31, 1996. The increase in interest expense was due to an
increase in average deposit balances combined with an increase in the cost of
funds. The increase in the average cost of deposits was the result of growth in
certificates of deposits resulting from special interest rate promotions for
certificates of deposit.
Interest on the borrowings totaled $26,000 and $61,000 for the three and nine
months ended March 31, 1997. The Association borrowed funds for the first time
from the Federal Home Loan Bank of Cincinnati during fiscal 1997. The
borrowings were used as a source of short-term liquidity to provide funding for
loan demand.
The Association maintains an allowance for loan losses in an amount which, in
management's judgment, is adequate to absorb reasonably foreseeable losses
inherent in the loan portfolio. While management utilizes its best judgment and
information available, the ultimate adequacy of the allowance is dependent upon
a variety of factors, including the performance of the Association's loan
portfolio, the economy, changes in real estate values and interest rates and
the view of the regulatory authorities toward loan classifications. The
provision for loan losses is determined by management as the amount to be added
to the allowance for loan losses after net charge-offs have been deducted to
bring the allowance to a level which is considered
- --------------------------------------------------------------------------------
15.
<PAGE> 16
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
adequate to absorb losses inherent in the loan portfolio. The amount of the
provision is based on management's monthly review of the loan portfolio and
consideration of such factors as historical loss experience, general prevailing
economic conditions, changes in the size and composition of the loan portfolio
and specific borrower considerations, including the ability of the borrower to
repay the loan and the estimated value of the underlying collateral.
The provision for loan losses for the three and nine months ended March 31,
1997 totaled $56,000 and $97,000 compared to $36,000 and $72,000 for the three
and nine months ended March 31, 1996, representing increases of $20,000 and
$25,000, or 55.6% and 34.7%, respectively. The Association has not experienced
significant net charge-offs in any of the periods presented. The Association's
low historical charge-off history is the product of a variety of factors,
including the Association's underwriting guidelines, which generally require a
loan-to-value or projected completed value ratio of 90% for the purchase or
construction of 1-4 family residential properties and 75% for commercial real
estate and land loans, established income information and defined ratios of
debt to income. Notwithstanding the historical charge-off history, however,
management believes that it is prudent to continue to increase the allowance
for loan losses as total loans increase. Accordingly, management anticipates
that it will continue its provisions to the allowance for loan losses at
current levels for the foreseeable future, provided the volume of nonperforming
loans remains low. The allowance for loan losses totaled $394,000, or .44% of
gross loans receivable at March 31, 1997, compared with $315,000, or .42% of
gross loans receivable at March 31, 1996.
Noninterest income includes service fees and other miscellaneous income. For
the three and nine months ended March 31, 1997 noninterest income totaled
$17,000 and $47,000 compared to $25,000 and $51,000 for the three and nine
months ended March 31, 1996. During the three and nine months ended March 31,
1996, a gain of $9,000 was recognized on the sale of premises and equipment.
During the 1997 periods, the Association actually experienced a slight increase
in miscellaneous operating income. However, a gain on the sale of premises and
equipment was not realized resulting in a decrease in overall noninterest
income.
Noninterest expense remained stable for the three months ended March 31, 1997
at $388,000 compared to $390,000 for same period in 1996, while increasing
$539,000 from $1,139,000 for the nine months ended March 31, 1996 to $1,678,000
for the nine months ended March 31, 1997. During the comparable three month
periods, increases in compensation and benefits and other expenses were offset
by a decrease in federal deposit insurance premiums. The increase in
compensation and benefits was the result of normal, annual merit increases,
while the increase other income was not attributable to any significant item.
Federal deposit insurance premiums deceased as a result of the full
capitalization of the Savings Association Insurance Fund (SAIF) of the Federal
Deposit Insurance Corporation (FDIC) as further discussed below.
The increase in noninterest expense during the comparable nine month periods
was due to a special deposit insurance assessment of $456,000 resulting from
legislation passed and enacted into law on September 30, 1996 to recapitalize
the SAIF. The SAIF was below the level required
- --------------------------------------------------------------------------------
16.
<PAGE> 17
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
by law because a significant portion of the assessments paid into the SAIF by
thrifts, like the Association, were used to pay the cost of prior thrift
failures. The legislation called for a one-time assessment estimated at $.0657
for each $100 in deposits held as of March 31, 1995. As a result of the
recapitalization of the SAIF, the disparity between Association and thrift
insurance assessments was reduced. Thrifts had been paying assessments of $.23
per $100 of deposits, which, for most thrifts, was reduced to $.064 per $100 in
deposits in January 1997 and will be reduced to $.024 per $100 in deposits by no
later than January 2000.
The legislation also provides for the merger of the SAIF and the Bank Insurance
Fund (BIF) effective January 1, 1999, assuming there are no savings
associations under federal law. Under separate proposed legislation, Congress
is considering the elimination of the federal thrift charter and the separate
federal regulation of thrifts. As a result, the Association would be required
to convert to a different financial institution charter and possibly become
subject to more restrictive activity limits. The Association cannot predict the
impact of any such legislation until it is enacted.
The volatility of income tax expense is primarily attributable to the change in
net income before income taxes. The provision for income taxes totaled $108,000
and $156,000 for the three and nine months ended March 31, 1997 compared to
$100,000 and $319,000 for the three and nine months ended March 31, 1996. The
decrease in tax expense for the comparable nine month periods was largely due
to the tax effect of $(155,000) for the special assessment discussed above. The
effective tax rate was 34.0% for the each of the three and nine month periods
ended March 31, 1997 and 1996.
Prior to the enactment of legislation discussed below, thrifts which met
certain tests relating to the composition of assets had been permitted to
establish reserves for bad debts and to make annual additions thereto which
could, within specified formula limits, be taken as a deduction in computing
taxable income for federal income tax purposes. The amount of the bad debt
reserve deduction for "nonqualifying loans" was computed under the experience
method. The amount of the bad debt reserve deduction for "qualifying real
property loans" could be computed under either the experience method or the
percentage of taxable income method, based on an annual election.
In August 1996, legislation was enacted that repeals the reserve method of
accounting used by many thrifts to calculate their bad debt reserve for federal
income tax purposes. As a result, small thrifts such as the Association must
recapture that portion of the reserve that exceeds the amount that could have
been taken under the experience method for tax years beginning after December
31, 1987. The legislation also requires thrifts to account for bad debts for
federal income tax purposes on the same basis as commercial banks for tax years
beginning after December 31, 1995. The recapture will occur over a six-year
period, the commencement of which will be delayed until the first taxable year
beginning after December 31, 1997, provided the institution meets certain
residential lending requirements. At March 31, 1997, the Association had
approximately $607,000 in bad debt reserves subject to recapture for federal
- --------------------------------------------------------------------------------
17.
<PAGE> 18
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
income tax purposes. The deferred tax liability related to the recapture has
been previously established so there will be no effect on future net income.
LIQUIDITY AND CAPITAL RESOURCES
The Association's liquidity, primarily represented by cash equivalents, is a
result of its operating, investing and financing activities. These activities
are summarized below for the nine months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
------------------------------
1997 1996
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Net income $ 304 $ 620
Adjustments to reconcile net income to net cash from
operating activities (186) (68)
------------ ------------
Net cash from operating activities 118 552
Net cash from investing activities (6,387) (3,960)
Net cash from financing activities 6,565 6,934
------------ ------------
Net change in cash and cash equivalents 296 3,526
Cash and cash equivalents at beginning of period 2,721 1,840
------------ ------------
Cash and cash equivalents at end of period $ 3,017 $ 5,366
============ ============
</TABLE>
The Association's principal sources of funds are deposits, loan repayments,
maturities of securities, and other funds provided by operations. The
Association also has the ability to borrow from the FHLB. While scheduled loan
repayments and maturing investments are relatively predictable, deposit flows
and early loan prepayments are more influenced by interest rates, general
economic conditions, and competition. The Association maintains investments in
liquid assets based upon management's assessment of (1) need for funds, (2)
expected deposit flows, (3) yields available on short-term liquid assets and
(4) objectives of the asset/liability management program.
OTS regulations presently require the Association to maintain an average daily
balance of investments in United States Treasury, federal agency obligations
and other investments having maturities of five years or less in an amount
equal to 5% of the sum of the Association's average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. The
liquidity requirement, which may be changed from time to time by the OTS to
reflect changing economic conditions, is intended to provide a source of
relatively liquid funds upon which the Association may rely, if necessary, to
fund deposit withdrawals or other short-term funding needs. At March 31, 1997,
the Association's regulatory liquidity was 6.3%. At such date, the Association
had commitments to originate fixed-rate commercial and residential loans
totaling $918,000, and variable rate commercial and residential real estate
mortgage loans totaling $242,000. Loan commitments are generally for 30 days.
The Association considers its
- --------------------------------------------------------------------------------
18.
<PAGE> 19
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
liquidity and capital reserves sufficient to meet its outstanding short- and
long-term needs. See Note 6 of the Notes to Financial Statements.
The Association is required by OTS regulations to meet certain minimum capital
requirements, which must be generally as stringent as the requirements
established for banks. Current capital requirements call for tangible capital
of 1.5% of adjusted total assets, core capital (which for the Association
consists solely of tangible capital) of 3.0% of adjusted total assets and
risk-based capital (which for the Association consists of core capital and
general valuation allowances) of 8% of risk-weighted assets (assets are
weighted at percentage levels ranging from 0% to 100% depending on their
relative risk). The OTS has proposed to amend the core capital requirement so
that those associations that do not have the highest examination rating and an
acceptable level of risk will be required to maintain core capital of from 4%
to 5%, depending on the association's examination rating and overall risk. The
Association does not anticipate that it will be adversely affected if the core
capital requirements regulations are amended as proposed.
The following table summarizes the Association's regulatory capital
requirements and actual capital at March 31, 1997.
<TABLE>
<CAPTION>
Excess of Actual
Capital Over Current
(In thousands) Actual capital Current requirement Requirement
---------------------- ------------------------- ------------------ Applicable
Amount Percent Amount Percent Amount Percent Asset Total
------ ------- ------ ------- ------ ------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible capital to
adjusted total assets $ 9,516 10.2% $ 1,406 1.5% $ 8,110 8.7% $ 93,742
Tier 1 (core) capital
to adjusted total
assets 9,516 10.2 2,812 3.0 6,704
Tier 1 (core) capital 7.2 93,742
to risk-weighted
assets 9,516 15.5 2,459 4.0 7,057 11.5 61,481
Total capital to risk-
weighted assets 9,902 16.1 4,918 8.0 4,984 8.1 61,481
</TABLE>
At March 31, 1997, the Association had no material commitments for capital
expenditures.
- --------------------------------------------------------------------------------
19.
<PAGE> 20
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
The small business issuer was incorporated on January 24, 1997.
Pursuant to Delaware law no common shares were issued at
incorporation.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Upon incorporation, the sole shareholder elected by an action in
writing Douglas Stewart, Richard T. Martin, Robert W. Bertsch,
Harry N. Faulkner, James W. Kerber and John W. Sargeant as directors.
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit No. 27: Financial Data Schedule
(b) No current reports on Form 8-K were filed by the small business
issuer during the quarter ended March 31, 1997.
- --------------------------------------------------------------------------------
20.
<PAGE> 21
- --------------------------------------------------------------------------------
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirement of the Securities Exchange Act of 1934, the small
business issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1997 /s/ DOUGLAS STEWART
-------------------- ---------------------------
Douglas Stewart
President
Date: May 14, 1997 /s/ DEBRA GEUY
-------------------- ---------------------------
Debra Geuy
Treasurer
- --------------------------------------------------------------------------------
21.
<PAGE> 22
PEOPLES FEDERAL SAVINGS LOAN ASSOCIATION
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
- ------ ----------- -----------
27 Financial Data Schedule 23
- --------------------------------------------------------------------------------
22.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 462,531
<INT-BEARING-DEPOSITS> 2,554,538
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 1,999,141
<INVESTMENTS-MARKET> 1,986,250
<LOANS> 86,219,384
<ALLOWANCE> 393,570
<TOTAL-ASSETS> 93,733,685
<DEPOSITS> 81,382,871
<SHORT-TERM> 2,500,000
<LIABILITIES-OTHER> 334,774
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 9,516,040
<TOTAL-LIABILITIES-AND-EQUITY> 93,733,685
<INTEREST-LOAN> 5,031,133
<INTEREST-INVEST> 92,000
<INTEREST-OTHER> 107,155
<INTEREST-TOTAL> 5,230,288
<INTEREST-DEPOSIT> 2,981,100
<INTEREST-EXPENSE> 3,041,765
<INTEREST-INCOME-NET> 2,188,523
<LOAN-LOSSES> 97,397
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,678,236
<INCOME-PRETAX> 459,853
<INCOME-PRE-EXTRAORDINARY> 303,503
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 303,503
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.29
<LOANS-NON> 656,419
<LOANS-PAST> 282,487
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 307,308
<CHARGE-OFFS> 15,160
<RECOVERIES> 4,025
<ALLOWANCE-CLOSE> 393,570
<ALLOWANCE-DOMESTIC> 393,500
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 70
</TABLE>
