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 December 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 [ X ] No [ ]
As of February 2, 1998, the latest practicable date, 1,785,375 shares of the
small business issuer's common shares, $.01 par value, were issued and
outstanding.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
Consolidated Balance Sheets ..............................................
Consolidated Statements of Income ........................................
Condensed Consolidated Statements of Changes in Shareholders' Equity......
Consolidated Statements of Cash Flows ....................................
Notes to Consolidated Financial Statements ...............................
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................
Item 3. Quantitative and Qualitative Disclosure about Market Risk.........
PART II - OTHER INFORMATION.....................................................
SIGNATURES .....................................................................
<PAGE>
Item 1. Financial Statements
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, June 30,
1997 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions ........... $ 629,438 $ 297,722
Interest-bearing deposits in other banks .................... 1,429,668 1,498,104
Overnight deposits .......................................... 2,500,000 1,000,000
------------- -------------
Total cash and cash equivalents ........................ 4,559,106 2,795,826
Time deposits with other financial institutions ............. 2,000,000 5,000,000
Securities available for sale ............................... 3,022,505 2,012,802
Securities held to maturity (Estimated fair value of $999,450
and $1,996,795 at December 31, 1997 and June 30, 1997) .... 999,844 1,999,375
Loans receivable, net ....................................... 93,238,470 88,924,339
Accrued interest receivable ................................. 743,860 735,462
Premises and equipment, net ................................. 778,773 755,286
Federal Home Loan Bank stock available for sale ............. 790,500 762,500
Other assets ................................................ 105,536 156,772
------------- -------------
Total assets ........................................... $ 106,238,594 $ 103,142,362
============= =============
LIABILITIES
Deposits .................................................... $ 79,614,991 $ 77,045,430
Accrued expense and other liabilities ....................... 343,520 385,219
------------- -------------
Total liabilities ...................................... 79,958,511 77,430,649
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares authorized,
none issued and outstanding
Common stock, $.01 par value, 3,500,000 shares authorized,
1,785,375 shares issued and outstanding ................... 17,854 17,854
Additional paid-in capital .................................. 17,267,513 17,234,087
Retained earnings ........................................... 10,254,162 9,776,982
Unearned employee stock ownership plan shares ............... (1,275,280) (1,326,280)
Unrealized gain on securities available for sale ............ 15,834 9,070
------------- -------------
Total shareholder's equity ............................. 26,280,083 25,711,713
------------- -------------
Total liabilities and shareholders' equity ............. $ 106,238,594 $ 103,142,362
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income
Loans, including fees ........ $1,866,886 $1,700,008 $3,702,996 $3,308,495
Securities ................... 62,725 29,344 126,288 63,172
Interest-bearing deposits and
overnight deposits ......... 89,931 19,915 170,715 46,358
Dividends on Federal Home
Loan Bank stock ............ 14,188 11,942 28,122 23,678
---------- ---------- ---------- ----------
Total interest income .... 2,033,730 1,761,209 4,028,121 3,441,703
Interest expense
Deposits ..................... 1,013,726 1,016,407 1,992,991 1,963,836
Other borrowings ............. -- 13,206 -- 34,219
---------- ---------- ---------- ----------
Total interest expense ... 1,013,726 1,029,613 1,992,991 1,998,055
---------- ---------- ---------- ----------
Net interest income ............... 1,020,004 731,596 2,035,130 1,443,648
Provision for loan losses ......... 9,677 23,468 35,760 41,776
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses ....... 1,010,327 708,128 1,999,370 1,401,872
---------- ---------- ---------- ----------
Noninterest income
Service fees and other charges 15,253 17,689 31,121 30,419
---------- ---------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Noninterest expense
Compensation and benefits .... 244,787 197,145 467,800 366,987
Occupancy and equipment ...... 42,245 32,013 81,671 67,663
Computer processing expense .. 37,002 36,047 73,928 71,613
FDIC deposit insurance
premiums ................... 12,121 44,155 24,831 544,091
State franchise taxes ........ 35,080 31,726 70,161 63,452
Other ........................ 129,743 95,154 263,444 176,484
---------- ---------- ---------- ----------
Total noninterest expense 500,978 436,240 981,835 1,290,290
---------- ---------- ---------- ----------
Income before income taxes ........ 524,602 289,577 1,048,656 142,001
Provision for income taxes ........ 186,651 98,456 373,146 48,280
---------- ---------- ---------- ----------
Net income ........................ $ 337,951 $ 191,121 $ 675,510 $ 93,721
========== ========== ========== ==========
Earnings per common share ......... $ .20 $ -- $ .40 $ --
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited)
Six Months
Ended December 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Balance at beginning of period .............................. $ 25,711,713 $ 9,212,537
Net income for period ....................................... 675,510 93,721
Cash dividends of $.12 per share ............................ (198,330) --
Commitment to release 5,100 employee stock ownership plan
shares at fair value ...................................... 84,426 --
Change in unrealized gain on securities available for sale .. 6,764 --
------------ ------------
Balance at end of period .................................... $ 26,280,083 $ 9,306,258
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income ................................................. $ 675,510 $ 93,721
Adjustments to reconcile net income to net cash from
operating activities
Depreciation ........................................... 24,272 26,493
Provision for loan losses .............................. 35,760 41,776
FHLB stock dividends ................................... (28,000) (23,600)
Gain on sale of premises and equipment ................. -- --
Compensation expense on ESOP shares .................... 84,426 --
Change in
Accrued interest receivable and other assets ...... 42,056 (23,136)
Accrued expense and other liabilities ............. (45,184) (92,087)
Deferred loan fees ................................ 4,548 (3,204)
----------- -----------
Net cash from operating activities ............ 793,388 19,963
Cash flows from investing activities
Purchases of securities available for sale ................. (999,141) --
Maturities of securities held to maturity .................. 1,000,000 500,000
Proceeds from maturities of time deposits in other financial
institutions ............................................. 5,000,000 1,100,000
Purchase of time deposits in other financial institutions .. (2,000,000) --
Net increase in loans ...................................... (4,354,439) (7,074,278)
Premises and equipment expenditures ........................ (47,759) (929)
Proceeds from sale of real estate owned .................... -- 42,652
----------- -----------
Net cash from investing activities ..................... (1,401,339) (5,432,555)
Cash flows from financing activities
Net increase in deposits ................................... 2,569,561 3,912,436
Net change in short-term Federal Home Loan Bank advances ... -- 1,500,000
Cash dividends paid ........................................ (198,330) --
----------- -----------
Net cash from financing activities ..................... 2,371,231 5,412,436
----------- -----------
Net change in cash and cash equivalents ......................... 1,763,280 (156)
Cash and cash equivalents at beginning of period ................ 2,795,826 2,720,809
----------- -----------
Cash and cash equivalents at end of period ...................... $ 4,559,106 $ 2,720,653
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
Six Months Ended
December 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest ............................................... $ 1,998,237 $ 2,007,158
Income taxes ........................................... 386,000 80,000
Noncash transactions
Transfers from loans to real estate owned .............. -- 42,652
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
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-Sidney Financial Corporation (the
"Corporation") at December 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 consolidated 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 Corporation for the fiscal year ended June 30, 1997,
included in its 1997 Annual Report. Reference is made to the accounting policies
of the Corporation described in the notes to financial statements contained in
its 1997 Annual Report. The Corporation has consistently followed these policies
in preparing this Form 10-QSB.
The accompanying consolidated financial statements include accounts of the
Corporation and its wholly-owned subsidiary, Peoples Federal Savings and Loan
Association (the "Association"). All significant intercompany transactions and
balances have been eliminated.
The Corporation's and Association's revenues, operating income and assets are
primarily from the financial institution industry. The Corporation 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 Corporation'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 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 the sum of the current-year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax
assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Earnings per common share is computed under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which was
adopted retroactively by the Corporation on December 31, 1997. SFAS No. 128
requires dual presentation of basic and diluted earnings per share ("EPS") for
entities with complex capital structures. Basic EPS includes no dilution and is
computed by dividing income available to common shareholders by the
weighted-average common shares outstanding for the period. Diluted EPS reflects
potential dilution of securities that could share in earnings such as stock
options, warrants or other common stock equivalents. Adoption of SFAS No. 128
did not change the earnings per share amounts previously reported as the
Corporation currently has no common stock equivalents.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings per share computations are based on the weighted-average number of
shares of common stock outstanding during the year. As more fully discussed in
Note 2, the Association converted from mutual to stock ownership with the
concurrent formation of a holding company effective April 25, 1997. The weighted
average number of shares outstanding for the three- and six-month periods ended
December 31, 1997 were 1,656,175 and 1,654,895. Unreleased ESOP shares are not
considered to be outstanding shares for determining weighted average number of
shares used in the earnings per common share calculation. No earnings per common
share is shown for the three and six months ended December 31, 1996, as before
April 25, 1997, the Association was a mutual company. The financial information
for the three and six months ended December 31, 1996, reflects the Association
before the conversion.
SFAS No. 129, "Disclosures of Information about Capital Structure," became
effective for the Corporation as of December 31, 1997. SFAS No. 129 consolidated
existing accounting guidance relating to disclosure about a company's capital
structure. SFAS No. 129 did not affect the Corporation's disclosures.
In June 1997, the Financial Account Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income." SFAS 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. It does not require a specific format for that financial
statement, but requires an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
SFAS No. 130 requires an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Standard significantly changes the way
public business enterprises report information about operating segments in
annual financial statements, and requires those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about an
enterprise's reportable operating segments which is based on reporting
information the way management organizes the segments within the enterprise for
making operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, the Standard requires significantly more information be disclosed for
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
each reportable segment than is presently being reported in annual financial
statements. The Standard also requires selected information be reported in
interim financial statements. SFAS No. 131 is effective for financial statements
for periods beginning after December 15, 1997.
NOTE 2 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN ASSOCIATION
WITH THE CONCURRENT FORMATION OF A HOLDING COMPANY
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, Peoples-Sidney
Financial Corporation. The conversion was consummated on April 25, 1997, by
amending the Association's charter and selling 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 Corporation were offered in
accordance with the plan of conversion. A total of 1,785,375 common shares of
the Corporation were sold at $10.00 per share and net proceeds from the sale
were $17,217,944 after deducting the costs of conversion.
The Corporation 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 Corporation 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. 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.
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 greatest flexibility afforded to thrifts that are both well-capitalized and
given favorable qualitative examination ratings by the OTS.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - SECURITIES
The amortized cost and estimated fair values of securities are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Government agencies .. $2,998,515 $ 25,397 $ 1,407 $3,022,505
========== =========== ========== ==========
Securities held to maturity
U.S. Government agencies .. $ 999,844 $ -- $ 394 $ 999,450
========== =========== ========== ==========
<CAPTION>
June 30, 1997
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Government agencies .... $1,999,060 $ 13,742 $ -- $2,012,802
========== =========== ============ ==========
Securities held to maturity
U.S. Government agencies .. $1,999,375 $ -- $ 2,580 $1,996,795
========== =========== ============ ==========
</TABLE>
The amortized cost and estimated fair values of securities at December 31, 1997,
by contractual maturity, are shown below. 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.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---------- ----------
<S> <C> <C>
Securities available for sale
Due after one year through five years . $2,998,515 $3,022,505
========== ==========
Securities held to maturity
Due in one year or less ............... $ 999,844 $ 999,450
========== ==========
</TABLE>
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
No securities were sold during the three- or six-month periods ended December
31, 1997 and 1996. No securities were pledged as collateral at December 31, 1997
or June 30, 1997.
NOTE 4 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ ------------
<S> <C> <C>
Mortgage loans:
1-4 family residential ................. $ 79,512,080 $ 75,808,323
Multi-family residential ............... 376,496 219,153
Commercial real estate ................. 6,235,556 5,842,476
Real estate construction and development 6,642,905 6,551,430
Land ................................... 1,112,005 1,446,838
------------ ------------
Total mortgage loans ............... 93,879,042 89,868,220
Consumer and other loans .................... 2,285,914 2,314,263
------------ ------------
Total loans receivable ............. 96,164,956 92,182,483
Less:
Allowance for loan losses .............. (418,075) (397,159)
Loans in process ....................... (2,345,674) (2,702,795)
Deferred loan fees ..................... (162,737) (158,190)
------------ ------------
$ 93,238,470 $ 88,924,339
============ ============
</TABLE>
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 412,695 $ 320,543 $ 397,159 $ 307,308
Provision for loan losses .... 9,677 23,468 35,760 41,776
Charge-offs .................. (4,489) (6,546) (15,036) (11,619)
Recoveries ................... 192 3,010 192 3,010
--------- --------- --------- ---------
Balance at end of period ..... $ 418,075 $ 340,475 $ 418,075 $ 340,475
========= ========= ========= =========
</TABLE>
As of and for the three and six months ended December 31, 1997 and 1996, there
were no loans for which impairment was required to be evaluated on an individual
loan by loan basis in accordance with SFAS No. 114.
NOTE 5 - OTHER BORROWINGS
At December 31, 1997 and June 30, 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. No borrowings were outstanding on this line of credit at December 31,
1997 or June 30, 1997. As a member of the Federal Home Loan Bank system, the
Association has the ability to obtain additional borrowings up to a maximum
total of approximately $15,810,000, including the line of credit. 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, CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
Various contingent liabilities are not reflected in the financial statements,
including claims and legal actions arising in the ordinary course of business.
In the opinion of management, after consultation with legal counsel, ultimate
disposition of these matters is not expected to have a material effect on
financial condition or results of operation.
Some financial instruments are used in the normal course of business to meet
financing needs of customers and reduce exposure to interest rate changes. These
financial instruments include commitments to extend credit, standby letters of
credit and financial guarantees. These involve, to varying degrees, credit risk
more than reported in the financial statements.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Exposure to credit loss if the other party does not perform is represented by
contractual amount for commitments to extend credit, standby letters of credit
and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans. The amount of
collateral obtained, if deemed necessary, on extension of credit is based on
management's credit evaluation and generally consists of residential or
commercial real estate.
NOTE 6 - COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK (Continued)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many commitments are expected to expire
without being used, total commitments do not necessarily represent future cash
requirements.
As of December 31, 1997 and June 30, 1997, the Corporation had commitments to
make fixed-rate commercial and residential real estate mortgage loans at current
market rates totaling $330,000 and $156,000, and variable-rate commercial and
residential real estate mortgage loans at current market rates totaling $471,000
and $876,000. Loan commitments are generally for 30 days. The interest rates on
fixed-rate commitments ranged from 7.75% to 8.25% at December 31, 1997 and were
8.25% at June 30, 1997. The interest rates on variable-rate commitments ranged
from 7.00% to 7.75% at December 31, 1997 and 7.25% to 8.50% at June 30, 1997.
The Corporation also had unused lines of credit totaling $583,000 and $622,000
at December 31, 1997 and June 30, 1997.
At December 31, 1997 and June 30, 1997, compensating balances of $364,000 and
$298,000 were required as deposits with various correspondent banks. These
balances do not earn interest.
The Association entered into employment agreements with certain officers of the
Corporation and Association. The agreements provide for a term of one to three
years, and a salary and performance review by the Board of Directors not less
often than annually, as well as inclusion of the employee in any
formally-established employee benefit, bonus, pension and profit-sharing plans
for which management personnel are eligible. The agreements provide for
extensions for a period of one year on each annual anniversary date, subject to
review and approval of the extension by disinterested members of the Board of
Directors of the Association. The employment agreements also provide for
vacation and sick leave.
NOTE 7 - EMPLOYEE STOCK OWNERSHIP PLAN
The Corporation offers an employee stock ownership plan ("ESOP") for the benefit
of substantially all employees of the Corporation and Association. During July
1997, the ESOP received a favorable determination letter from the Internal
Revenue Service on the qualified status of the ESOP under applicable provisions
of the Internal Revenue Code.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
The ESOP borrowed funds from the Corporation in order to acquire common shares
of the Corporation. The loan is secured by shares purchased with loan proceeds
and will be repaid by ESOP with funds from the Association's discretionary
contributions to the ESOP and earnings on ESOP assets. All dividends on
unallocated shares received by the ESOP are used to pay debt service. Shares
purchased with loan proceeds are held in a suspense account for allocation among
participants as the loan is repaid. As payments are made and shares are released
from the suspense account, such shares will be validly issued, fully paid and
nonassessable.
The Corporation accounts for the ESOP in accordance with Statement of Position
("SOP") 93-6. Accordingly, shares pledged as collateral are reported as unearned
ESOP shares in the Consolidated Balance Sheets. As shares are released from
collateral, the Corporation reports compensation expense equal to the current
market price of the shares and the shares become outstanding for
earnings-per-share computations. Dividends on allocated ESOP shares are recorded
as a reduction of retained earnings; dividends on unallocated ESOP shares are
recorded as a reduction of debt and accrued interest. ESOP compensation expense
was $44,365 and $84,426 for the three and six months ended December 31, 1997.
The ESOP shares as of December 31, 1997 and June 30, 1997 were as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
---------- ----------
<S> <C> <C>
Allocated shares ......................... $ 10,202 $ 10,202
Shares released for allocation ........... 5,100 --
Unreleased shares ........................ 127,528 132,628
---------- ----------
Total ESOP shares .................... $ 142,830 $ 142,830
========== ==========
Fair value of unreleased shares .......... $2,280,201 $1,865,081
========== ==========
</TABLE>
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. 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-Sidney Financial Corporation (the "Corporation") as of
December 31, 1997, compared to June 30, 1997, and results of operations for the
three and six months ended December 31, 1997, compared with the same periods in
1996. This discussion is designed to provide a more comprehensive review of
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 involving risks and
uncertainties. Economic circumstances, the Corporation's operations and actual
results could differ significantly from those discussed in the forward-looking
statements. Some 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.
On November 8, 1996, the Board of Directors of Peoples Federal Savings and Loan
(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, Peoples-Sidney Financial Corporation. The conversion was consummated on
April 25, 1997, by amending the Association's charter and selling the holding
company's common stock in an amount equal to the market value of the
Association, after giving effect to the conversion. A total of 1,785,375 common
shares of the Corporation were sold at $10.00 per share and net proceeds from
the sale were $17,217,944 after deducting the costs of conversion.
The Corporation 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 Corporation because of the conversion.
The Corporation is a thrift holding company, primarily engaged in the business
of attracting savings deposits from the general public and investing such funds
in permanent mortgage loans secured by one- to four-family residential real
estate located in Shelby, Logan, Auglaize, Miami, Darke and Champaign Counties,
Ohio. The Corporation also originates, to a lesser extent, loans for the
construction of one- to four-family residential real estate loans secured by
multi-family residential real estate (over four units) and nonresidential real
estate and consumer loans, and invests in U.S. government obligations,
interest-bearing deposits in other financial institutions and other investments
permitted by applicable law.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Total assets at December 31, 1997 were $106.2 million compared to $103.1 million
at June 30, 1997, an increase of $3.1 million, or 3.0%. The increase in total
assets was primarily due to an increase in loans. The Corporation was able
reinvest proceeds from maturities of time deposits in other financial
institutions in higher yielding loans. Additional funding for loan growth was
provided by increased deposits.
Loans receivable increased $4.3 million from $88.9 million at June 30, 1997 to
$93.2 million at December 31, 1997. The Corporation experienced increases in all
mortgage loan categories except for land loans. The largest increase was in one-
to four-family residential real estate loans which increased $3.7 million. These
increases are reflective of a strong local economy coupled with attractive loan
rates and products compared to local competition. The Corporation's consumer
loan portfolio remained relatively unchanged between June 30, 1997 and December
31, 1997. Consumer loans remain a small portion of the entire loan portfolio and
represented only 2.4% and 2.5% of gross loans at December 31, 1997 and June 30,
1997.
A $3.0 million decrease in time deposits with other financial institutions was
the result of redirection of funds provided from the maturities of such
investments, in addition to increased deposits, to provide for loan growth. The
excess of such funds were invested in overnight deposits to provide additional
liquidity for future loan growth. Overnight funds increased $1.5 million from
$1.0 million at June 30, 1997 to $2.5 million at December 31, 1997. Total
securities remained relatively unchanged as the Corporation replaced a matured
held-to-maturity security with an available-for-sale security.
Total deposits increased $2.6 million from $77.0 million at June 30, 1997 to
$79.6 million at December 31, 1997. The Corporation experienced the largest
increases in savings accounts and certificates of deposit as they increased $1.4
million and $1.5 million, respectively. Offsetting such increases was a $342,000
decrease in negotiable order of withdrawal ("NOW") accounts. Savings accounts
increased primarily due a large deposit received during the second quarter. Had
the large deposit not been received, savings accounts would have seen a
decrease. Management believes the decline in savings and NOW accounts is the
result of normal patterns of consumer use of funds during the Corporation's
second quarter as the Corporation has experienced such cyclical patterns in the
past. Certificate of deposit growth has been due to normal operating procedures
as the Corporation has not used any special promotions to attract increased
volume. Almost all certificates of deposit 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 ("FHLB") of Cincinnati.
There were no advances outstanding at December 31, 1997, or June 30, 1997. The
advances are variable rate and can be prepaid at any time without penalty.
Additional advances may be obtained from the FHLB to fund future loan growth and
liquidity as needed.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Operating results of the Corporation are affected by general economic
conditions, monetary and fiscal policies of federal agencies and regulatory
policies of agencies that regulate financial institutions. The Corporation's
cost of funds is influenced by interest rates on competing investments and
general market rates of interest. Lending activities are influenced by demand
for real estate loans and other types of loans, which in turn is affected by
interest rates at which such loans are made, general economic conditions and
availability of funds for lending activities.
The Corporation's net income primarily depends on its net interest income, which
is the difference between 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 on the interest rate environment and 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 Corporation earned net income of $338,000 and $676,000 for the three and six
months ended December 31, 1997, compared to net income of $191,000 and $94,000
for the three and six months ended December 31, 1996. The increase in income for
the three months ended December 31, 1997 was due to an increase in net interest
income partly offset by increased noninterest expense. The increase in net
income for the six months ended December 31, 1997 was due to an increase in net
interest income and a decrease in FDIC deposit insurance premiums which resulted
from the special deposit insurance assessment recognized as expense in the six
months ended December 31, 1996. The special assessment is more fully discussed
below.
Net interest income totaled $1,020,000 and $2,035,000 for the three and six
months ended December 31, 1997, as compared to $732,000 and $1,444,000 for the
three and six months ended December 31, 1996, representing increases of
$288,000, or 39.3%, and $591,000, or 40.9%, respectively. The change in net
interest income is attributable to higher average balances of interest-earning
assets being funded with the proceeds from the mutual to stock conversion.
Interest and fees on loans totaled $1,867,000 and $3,703,000 for the three and
six months ended December 31, 1997, compared to $1,700,000 and $3,308,000 for
the three and six months ended December 31, 1996, representing increases of
$167,000, or 9.8%, and $395,000, or 11.9%, respectively. The increase in
interest income was due to higher average loans receivable, related primarily to
the origination of new one- to four-family first mortgages.
Interest earned on securities increased $33,000 and $63,000 for the three and
six months ended December 31, 1997, as compared to the same periods in 1996. The
increase was a result of higher average balances of securities.
Interest on interest-bearing demand and overnight deposits increased $70,000 and
$124,000 for the three and six months ended December 31, 1997, as compared to
the same periods in 1996. The increase was the result of higher average balances
of interest-bearing demand and overnight funds.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Dividends on FHLB stock increased slightly for the three and six months ended
December 31, 1997, compared to the three and six months ended December 31, 1996,
primarily due to an increase in the number of shares of FHLB stock owned.
Interest paid on deposits totaled $1,014,000 and $1,993,000 for the three and
six months ended December 31, 1997 compared to $1,016,000 and $1,964,000 for the
three and six months ended December 31, 1996. Interest expense has changed
little between the comparable periods as the interest rates paid on various
types deposit accounts have remained fairly stable and the Corporation has not
experienced any significant changes in the overall volume or composition of its
deposit portfolio.
Interest on borrowings totaled $13,000 and $34,000 for the three and six months
ended December 31, 1996. The Corporation borrowed funds from the FHLB for the
first time during fiscal 1997. The borrowings were used as a source of
short-term liquidity to provide funding for loan demand before the conversion.
There were no borrowings during the three and six months ended December 31,
1997.
The Corporation maintains an allowance for loan losses in an amount that, 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, ultimate adequacy of the allowance is dependent on a
variety of factors, including performance of the loan portfolio, the economy,
changes in real estate values and interest rates and the view of 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 considered 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 size and composition of the
loan portfolio and specific borrower considerations, including ability of the
borrower to repay the loan and the estimated value of the underlying collateral.
The provision for loan losses totaled $10,000 and $36,000 for the three and six
months ended December 31, 1997, compared to $23,000 and $42,000 for the three
and six months ended December 31, 1996, representing decreases of $13,000, or
56.5%, and $6,000, or 14.3%, respectively. The reduction in the provision is
reflective of the fact that the Corporation has not experienced significant
charge-offs in any periods presented. Charge-offs experienced by the Corporation
have been primarily related to consumer and other non-real estate loans. As
indicated above, such loans make up an insignificant portion of the
Corporation's total loan portfolio. The Corporation's low historical charge-off
history is the product of a variety of factors, including the Corporation's
underwriting guidelines, which generally require a loan-to-value or projected
completed value ratio of 90% for purchase or construction of one- to four-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
it is prudent to continue to increase the allowance for loan losses as total
loans increase. Accordingly, management anticipates it will continue its
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
provisions to the allowance for loan losses at current levels for the near
future, provided the volume of nonperforming loans remains low. The allowance
for loan losses totaled $418,000, or .43% of gross loans receivable at December
31, 1997, compared with $340,000, or .39% of gross loans receivable at December
31, 1996.
Noninterest income includes service fees and other miscellaneous income. For the
three and six months ended December 31, 1997, noninterest income totaled $15,000
and $31,000 compared to $18,000 and $30,000 for the three and six months ended
December 31, 1996.
Noninterest expense totaled $501,000 and $982,000 for the three and six months
ended December 31, 1997, compared to $436,000 and $1,290,000 for same periods in
1996. Increases in compensation and benefits and other expenses were offset by a
decrease federal deposit insurance premiums. The increase in compensation and
benefits was the result of normal, annual merit increases and the Corporation's
establishment of an employee stock ownership plan. Increase in other expense was
attributable to increases in director fees, professional service fees and
printing costs related to the Corporation's first annual report. These increases
were largely due to the mutual to stock conversion. FDIC deposit insurance
expense during the three and six months ended December 31, 1997 was $12,000 and
$25,000, compared to $44,000 and $544,000 for the three and six months ended
December 31, 1996. Included in the prior six-month period was a special deposit
insurance assessment of $456,000 resulting from legislation passed and enacted
into law on September 30, 1996, to recapitalize the Savings Association
Insurance Fund ("SAIF"). The SAIF was below the level required by law because a
significant portion of 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 of $0.657 for each $100 in deposits held as of
March 31, 1995. Because of the recapitalization of the SAIF, the disparity
between the bank and thrift insurance assessments was reduced. Thrifts had been
paying assessments of $0.23 per $100 of deposits, which, for most thrifts, was
reduced to $0.064 per $100 in deposits in January 1997, and will be reduced to
$0.024 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 eliminating the federal thrift charter and the separate federal
regulation of thrifts. Consequently, 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 $187,000
and $373,000, representing an effective tax rate of 35.6%, for the three and six
months ended December 31, 1997, compared to $98,000 and $48,000, representing an
effective tax rate of 34.0%, for the three and six months ended December 31,
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
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
reserves for bad debts and 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 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 or the percentage of taxable income method,
based on an annual election.
In August 1996, legislation was enacted repealing the reserve method of
accounting used by many thrifts to calculate their bad debt reserve for federal
income tax purposes. Therefore, small thrifts, such as the Association, must
recapture that portion of the reserve exceeding 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, 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 December 31, 1997, the Association had
approximately $581,000 in bad debt reserves subject to recapture for federal
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 Corporation's liquidity, primarily represented by cash equivalents, is a
result of operating, investing and financing activities. These activities are
summarized below for the six months ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Six Months
Ended December 31,
1997 1996
------- -------
(Dollars in thousands)
<S> <C> <C>
Net income ........................................... $ 676 $ 94
Adjustments to reconcile net income to net cash from
operating activities ............................... 117 (74)
------- -------
Net cash from operating activities ................... 793 20
Net cash from investing activities ................... (1,401) (5,433)
Net cash from financing activities ................... 2,371 5,413
------- -------
Net change in cash and cash equivalents .............. 1,763 --
Cash and cash equivalents at beginning of period ..... 2,796 2,721
------- -------
Cash and cash equivalents at end of period ........... $ 4,559 $ 2,721
======= =======
</TABLE>
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Corporation'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 on 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 on which the Association may rely, if necessary, to fund deposit
withdrawals or other short-term funding needs. At December 31, 1997, the
Association's regulatory liquidity was 12.6%. At such date, the Corporation had
commitments to originate fixed-rate commercial and residential real estate loans
totaling $330,000, and variable-rate commercial and residential real estate
mortgage loans totaling $471,000. Loan commitments are generally for 30 days.
The Corporation considers its 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 subject to various regulatory capital requirements
administered by federal regulatory agencies. Failure to meet minimum capital
requirements can initiate certain mandatory actions that, if undertaken, could
have a direct material affect on the Association's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Association must meet specific capital guidelines involving
quantitative measures of the Association's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Association's capital amounts and classifications are also subject to
qualitative judgments by regulators about the Association's components, risk
weightings and other factors. At December 31, 1997 and June 30, 1997, management
believes the Association complies with all regulatory capital requirements.
Based on the Association's computed regulatory capital ratios, the Association
is considered well capitalized under the Federal Deposit Act at December 31,
1997 and June 30, 1997.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At December 31, 1997 and June 30, 1997, the Association's actual capital levels
(in thousands) and minimum required levels were:
<TABLE>
<CAPTION>
Minimum
Required To Be
Minimum Required Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Total capital (to risk
weighted assets) $ 18,131 27.1% $ 5,352 8.0% $ 6,689 10.0%
Tier 1 (core) capital to
risk-weighted assets) 17,718 26.5 2,676 4.0 4,014 6.0
Tier 1 (core) capital to
adjusted total assets) 17,718 16.7 3,187 3.0 5,312 5.0
Tangible capital (to
adjusted total assets) 17,718 16.7 1,594 1.5 N/A
June 30, 1997
Total capital (to risk
weighted assets) $ 17,481 26.9% $ 5,208 8.0% $ 6,510 10.0%
Tier 1 (core) capital to
risk-weighted assets) 17,088 26.3 2,604 4.0 3,906 6.0
Tier 1 (core) capital to
adjusted total 17,088 16.6 3,094 3.0 5,156 5.0
Tangible capital (to
adjusted total assets) 17,088 16.6 1,547 1.5 N/A
</TABLE>
In addition to certain federal income tax considerations, the Office of Thrift
Supervision (OTS) regulations impose limitations on payment of dividends and
other capital distributions by savings associations. Under OTS regulations
applicable to converted savings associations, the Association is not permitted
to pay a cash dividend on its common shares if its regulatory capital would, as
a result of payment of such dividends, be reduced below the amount required for
the Liquidation Account, or below applicable regulatory capital requirements
prescribed by the OTS.
OTS regulations applicable to all savings and loan associations provide that a
savings association which, immediately prior to and on a pro forma basis after
giving effect to a proposed capital distribution (including a dividend), has
total capital (as defined by OTS regulations) equal to or greater than the
amount of its capital requirements is generally permitted without OTS approval
(but subsequent to 30 days prior notice to the OTS) to make capital
distributions, including dividends, during a calendar year in an amount not to
exceed the greater of (1) 100% of its net earnings to date during the calendar
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
year, plus an amount equal to one-half that which its total capital to assets
ratio exceeded its required capital to assets ratio at the beginning of the
calendar year, or (2) 75% of its net earnings for the most recent four-quarter
period. Savings associations with total capital more than the capital
requirements that have been notified by the OTS that they are in need of more
than normal supervision will be subject to restrictions on dividends. A savings
association failing to meet current minimum capital requirements is prohibited
from making any capital distributions without the prior approval of the OTS.
The Association currently meets all capital requirements and, unless the OTS
determines that the Association is an institution requiring more than normal
supervision, the Association may pay dividends in accordance with the foregoing
provisions of OTS regulations.
In December 1997, the Association acquired real estate in Anna, Ohio, and
announced plans to construct a new, full-service branch banking office. The
total projected cost of construction is expected to be $805,000. As of December
31, 1997, the Association has not paid any costs related such construction.
Year 2000 Issue
Many computer programs use only two digits to identify a year in the date field
and were apparently designed and developed without considering the impact of the
upcoming change in the century. Such programs could erroneously read entries for
the Year 2000 as the Year 1900. This could result in major systems failures and
miscalculations. Rapid and accurate data processing is essential to the
operations of financial institutions, such as the Corporation. The Corporation
has formed a Year 2000 committee to assess the extent to which it and its
outside vendors may be adversely affected by Year 2000 problems. Management has
determined that most programs are or will be capable of identifying the turn of
the century. The issue is closely monitored by management and full compliance is
expected by the end of 1998. While the Corporation does not anticipate that any
Year 2000 computer problems or expenses required to correct such problems will
materially affect its financial condition and results of operations, no
assurance can be given in this regard.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not yet required.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
There are no matters brought to a vote of security holders during the
quarter ended December 31, 1997.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. 27: Financial Data Schedule
(b) Form 8-K was filed on October 10, 1997. Under Item 5, Other
Matters, the Corporation reported the issuance of a press
release to announce its operating results for the quarter ended
September 30, 1997 and the declaration of a $.07 per share cash
dividend payable on November 7, 1997 to shareholders of record
on October 24, 1997.
<PAGE>
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: February 9, 1998 /s/ Douglas Stewart
-------------------
Douglas Stewart
President
Date: February 9, 1998 /s/ Debra Geuy
--------------
Debra Geuy
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILES AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 629
<INT-BEARING-DEPOSITS> 1,430
<FED-FUNDS-SOLD> 2,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,023
<INVESTMENTS-CARRYING> 1,000
<INVESTMENTS-MARKET> 999
<LOANS> 92,238
<ALLOWANCE> 418
<TOTAL-ASSETS> 106,239
<DEPOSITS> 79,615
<SHORT-TERM> 0
<LIABILITIES-OTHER> 344
<LONG-TERM> 0
0
0
<COMMON> 18
<OTHER-SE> 26,262
<TOTAL-LIABILITIES-AND-EQUITY> 106,239
<INTEREST-LOAN> 3,703
<INTEREST-INVEST> 126
<INTEREST-OTHER> 199
<INTEREST-TOTAL> 4,028
<INTEREST-DEPOSIT> 1,993
<INTEREST-EXPENSE> 1,993
<INTEREST-INCOME-NET> 2,035
<LOAN-LOSSES> 36
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 982
<INCOME-PRETAX> 1,049
<INCOME-PRE-EXTRAORDINARY> 676
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 676
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
<YIELD-ACTUAL> 4.00
<LOANS-NON> 876
<LOANS-PAST> 329
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 397
<CHARGE-OFFS> 15
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 418
<ALLOWANCE-DOMESTIC> 418
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
