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, 1998
[ ] 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 5, 1999, the latest practicable date, 1,696,106 shares of the
issuer's common shares, $.01 par value, were outstanding.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive 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
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
Item 1. Financial Statements
December 31, June 30,
1998 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions $ 845,462 $ 655,188
Interest-bearing deposits in other financial institutions 2,419,819 2,292,065
Overnight deposits -- 2,000,000
------------- -------------
Total cash and cash equivalents 3,265,281 4,947,253
Time deposits in other financial institutions 600,000 100,000
Securities available for sale 3,511,870 4,015,890
Federal Home Loan Bank stock available for sale 877,100 846,500
Loans receivable, net 97,284,460 94,052,531
Accrued interest receivable 745,776 722,401
Premises and equipment, net 2,025,188 973,403
Other real estate owned 62,643 --
Other assets 88,190 245,339
------------- -------------
Total assets $ 108,460,508 $ 105,903,317
============= =============
LIABILITIES
Deposits $ 81,888,861 $ 79,053,686
Borrowed funds 7,700,000 7,000,000
Accrued expense and other liabilities 383,252 223,615
------------- -------------
Total liabilities 89,972,113 86,277,301
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 17,854 17,854
Additional paid-in capital 10,765,951 10,717,991
Retained earnings 10,589,312 10,581,096
Treasury stock, 72,500 shares at cost (1,283,437) --
Unearned employee stock-ownership plan shares (1,609,595) (1,702,114)
Unrealized gain on securities available for sale 8,310 11,189
------------- -------------
Total shareholders' equity 18,488,395 19,626,016
------------- -------------
Total liabilities and shareholders' equity $ 108,460,508 $ 105,903,317
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $1,929,743 $1,866,886 $3,802,046 $3,702,996
Securities 57,509 62,725 121,542 126,288
Interest-bearing demand and
overnight deposits 25,251 89,931 73,978 170,715
Dividends on Federal Home
Loan Bank stock 15,207 14,188 30,676 28,122
---------- ---------- ---------- ----------
Total interest income 2,027,710 2,033,730 4,028,242 4,028,121
Interest expense
Deposits 978,473 1,013,726 1,956,414 1,992,991
Other borrowings 111,838 -- 220,152 --
---------- ---------- ---------- ----------
Total interest expense 1,090,311 1,013,726 2,176,566 1,992,991
---------- ---------- ---------- ----------
Net interest income 937,399 1,020,004 1,851,676 2,035,130
Provision for loan losses 16,139 9,677 52,919 35,760
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 921,260 1,010,327 1,798,757 1,999,370
---------- ---------- ---------- ----------
Noninterest income
Service fees and other charges 20,123 15,253 34,414 31,121
---------- ---------- ---------- ----------
Noninterest expense
Compensation and benefits 405,330 244,787 788,364 467,800
Occupancy and equipment 73,348 42,245 120,650 81,671
Computer processing expense 41,303 37,002 84,185 73,928
FDIC deposit insurance premiums 11,424 12,121 23,334 24,831
State franchise taxes 76,100 35,080 144,456 70,161
Other 149,507 129,743 304,498 263,444
---------- ---------- ---------- ----------
Total noninterest expense 757,012 500,978 1,465,487 981,835
---------- ---------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(continued)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income before income taxes 184,371 524,602 367,684 1,048,656
Provision for income taxes 66,660 186,651 132,797 373,146
---------- ---------- ---------- ----------
Net income $ 117,711 $ 337,951 $ 234,887 $ 675,510
========== ========== ========== ==========
Earnings per common share - basic $ .07 $ .20 $ .14 .40
========== ========== ========== ==========
Earnings per common share - diluted $ .07 $ .20 $ .14 .40
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 117,711 $ 337,951 $ 234,887 $ 675,510
Other comprehensive income
Unrealized gain/(loss) on available for
sale securities arising during the
period (17,206) (947) (4,363) 10,248
Tax effect 5,850 323 1,484 (3,484)
--------- --------- --------- ---------
Other comprehensive income (11,356) (624) (2,879) 6,764
--------- --------- --------- ---------
Comprehensive income $ 106,355 $ 337,327 $ 232,008 $ 682,274
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited)
Six Months Ended
December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Balance, beginning of period $ 19,626,016 $ 25,711,713
Net income for period 234,887 675,510
Cash dividends of $.14 per share in 1998 and $.12 per share
in 1997 (226,671) (198,330)
Purchase of 72,500 shares of treasury stock, at cost (1,283,437) --
Commitment to release 7,624 and 5,100 employee stock
ownership plan shares in 1998 and 1997, at fair value 140,479 84,426
Change in unrealized gain on securities available for sale (2,879) 6,764
------------ ------------
Balance, end of period $ 18,488,395 $ 26,280,083
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 234,887 $ 675,510
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 45,242 24,272
Provision for loan losses 52,919 35,760
FHLB stock dividends (30,600) (28,000)
Compensation expense related to ESOP shares 140,479 84,426
Change in
Accrued interest receivable and other assets 133,233 42,056
Accrued expense and other liabilities 161,120 (45,184)
Deferred loan fees 8,311 4,548
----------- -----------
Net cash from operating activities 745,591 793,388
Cash flows from investing activities
Purchases of securities available for sale -- (999,141)
Maturities of securities available for sale 500,000 --
Maturities of securities held to maturity -- 1,000,000
Proceeds from maturities of time deposits in other financial
institutions -- 5,000,000
Purchase of time deposits in other financial institutions (500,000) (2,000,000)
Net increase in loans (3,355,603) (4,354,439)
Premises and equipment expenditures (1,097,027) (47,759)
----------- -----------
Net cash from investing activities (4,452,630) (1,401,339)
Cash flows from financing activities
Net increase in deposits 2,835,175 2,569,561
Net change in short-term Federal Home Loan Bank advances 700,000 --
Purchase of treasury stock (1,283,437) --
Cash dividends paid (226,671) (198,330)
----------- -----------
Net cash from financing activities 2,025,067 2,371,231
----------- -----------
Net change in cash and cash equivalents (1,681,972) 1,763,280
Cash and cash equivalents at beginning of period 4,947,253 2,795,826
----------- -----------
Cash and cash equivalents at end of period $ 3,265,281 $ 4,559,106
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PEOPLES-SIDNEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
Six Months Ended
December 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 2,180,326 $ 1,998,237
Income taxes 21,000 386,000
Noncash transactions
Transfer from loans to other real estate owned 62,444 --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED 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, 1998 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 consolidated financial
statements and notes thereto of the Corporation for the fiscal year ended June
30, 1998, included in its 1998 Annual Report. Reference is made to the
accounting policies of the Corporation described in the notes to consolidated
financial statements contained in its 1998 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"), a federal stock savings and loan 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 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 disclosures provided, and future results could differ.
The allowance for loan losses, fair values of financial instruments and status
of contingencies are particularly subject to change.
Income tax expense is based on the effective tax rate expected to be applicable
for the entire year. Income tax expense 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 expected future tax consequences of
temporary differences between the carrying amounts and tax basis 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.
Basic earnings per share ("EPS") is based on net income divided by the weighted
average number of shares outstanding during the period. Diluted EPS shows the
dilutive effect of unearned management recognition plan ("MRP") shares and the
additional common shares issuable under stock options.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The weighted average number of shares outstanding for basic and diluted EPS was
1,601,560 and 1,614,245 for the three and six months ended December 31, 1998.
The weighted average number of shares outstanding for basic and diluted EPS was
1,656,175 and 1,654,895 for the three and six months ended December 31, 1997.
Unreleased employee stock ownership plan shares are not considered outstanding
for determining the weighted average number of shares used in calculating both
basic and diluted EPS. Unearned MRP shares are not considered to be outstanding
shares for determining the weighted average number of shares used in calculating
basic EPS. Stock options granted did not have a dilutive effect on EPS for the
three and six months ended December 31, 1998 as the exercise price of
outstanding options was greater than the average market price for the period.
Unearned MRP shares did not have a dilutive effect on EPS, as no shares had been
purchased by the MRP plan as of December 31, 1998. Unearned MRP shares and stock
options did not have a dilutive effect on the weighted average shares
outstanding for the three and six months ended December 31, 1997 as neither MRP
shares or stock options were granted until May 22, 1998.
Under a new accounting standard adopted on July 1, 1998, SFAS No. 130,
"Reporting Comprehensive Income," comprehensive income is reported for all
periods. Comprehensive income includes both net income and other comprehensive
income. Other comprehensive income includes the change in unrealized gains and
losses on securities available for sale.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997. 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
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 will be effective beginning with the
Corporation's 1999 annual financial statements. Adoption of the Standard is not
expected to have a significant impact on the Corporation's financial statements.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," will also be effective in fiscal 1999. SFAS 132 amends the disclosure
requirements of previous pension and other postretirement benefit accounting
standards by requiring additional disclosures about such plans as well as
eliminating some disclosures no longer considered useful. SFAS 132 also allows
greater aggregation of disclosures for employers with multiple defined benefit
plans. SFAS 132 is not expected to have a significant impact on the
Corporation's financial statements.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
will be effective in fiscal 2000. SFAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting is that
the hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. SFAS 133 does not allow hedging of a
security which is classified as held to maturity, accordingly, upon adoption of
SFAS 133, companies may reclassify any security from held to maturity to
available for sale if they wish to be able to hedge the security in the future.
Management does not expect the adoption SFAS 133 to have a significant impact on
the Corporation's financial statements.
SFAS No. 134, "Accounting for Mortgage-backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," will be effective on January 1, 1999. SFAS 134 amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities" by changing the way
companies involved in mortgage banking account for certain securities and other
interests they retain after securitizing mortgage loans that were held for sale.
SFAS 134 allows any retained mortgage-backed securities after a securitization
of mortgage loans held for sale to be classified based on holding intent in
accordance with SFAS 115 except in cases where the retained mortgage-backed
security is committed to be sold before or during the securitization process in
which case it must be classified as trading. Previously, under SFAS 65, all
retained mortgage-backed securities were required to be classified as trading.
SFAS 134 is not expected to have a significant impact on the Corporation's
financial statements.
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 was invested in 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
before 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.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN ASSOCIATION
WITH THE CONCURRENT FORMATION OF A HOLDING COMPANY (Continued)
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.
NOTE 3 - SECURITIES
The amortized cost and estimated fair values of securities are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
December 31, 1998
Securities available for sale
U.S. Government agencies $ 3,499,279 $ 12,986 $ (395) $ 3,511,870
============== ========== =========== ===============
June 30, 1998
Securities available for sale
U.S. Government agencies $ 3,998,936 $ 21,459 $ (4,505) $ 4,015,890
============== ========== =========== ===============
</TABLE>
Amortized cost and estimated fair values of securities at December 31, 1998, 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 in one year or less $ 999,829 $ 1,003,910
Due after one year through five years 2,499,450 2,507,960
-------------- ---------------
$ 3,499,279 $ 3,511,870
============== ===============
</TABLE>
No securities were sold during the three- or six-month periods ended December
31, 1998 and 1997. No securities were pledged as collateral at December 31, 1998
or June 30, 1998.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ ------------
<S> <C> <C>
Mortgage loans:
1-4 family residential $ 80,356,047 $ 79,690,787
Multi-family residential 628,854 654,871
Commercial real estate 8,871,216 6,608,207
Real estate construction and
development 6,176,078 6,776,389
Land 632,739 867,755
Total mortgage loans 96,664,934 94,598,009
Consumer and other loans 3,273,572 2,154,474
------------ ------------
Total loans receivable 99,938,506 96,752,483
Less:
Allowance for loan losses (456,502) (425,642)
Loans in process (1,993,860) (2,078,937)
Deferred loan fees (203,684) (195,373)
------------ ------------
$ 97,284,460 $ 94,052,531
============ ============
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 446,145 $ 412,695 $ 425,642 $ 397,159
Provision for losses 16,139 9,677 52,919 35,760
Charge-offs (6,344) (4,489) (22,621) (15,036)
Recoveries 562 192 562 192
--------- --------- --------- ---------
Balance at end of period $ 456,502 $ 418,075 $ 456,502 $ 418,075
========= ========= ========= =========
</TABLE>
As of and for the three and six months ended December 31, 1998 and 1997, no
loans were considered impaired within the scope of SFAS No. 114.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - OTHER BORROWINGS
At December 31, 1998 and June 30, 1998, the Association had a cash management
line of credit enabling it to borrow up to $5,360,000 and $5,100,000 from 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
$700,000 at December 31, 1998 while there were no such borrowings at June 30,
1998. 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
$17,542,000, including the line of credit. The Association had one fixed-rate
borrowing, with an interest rate of 6.13%, totaling $7,000,000 at December 31,
1998 and June 30, 1998. The original term of the borrowing was 120 months with
interest due monthly and principal due upon maturity on June 25, 2008. Advances
under the borrowing agreements are collateralized by a blanket pledge of the
Association's residential mortgage loan portfolio and its FHLB 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 the
Corporation's financial condition or results of operations.
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, more credit
risk than the amount reported in the financial statements.
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.
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, 1998 and June 30, 1998, the Corporation had commitments to
make fixed-rate commercial and residential real estate mortgage loans at current
market rates totaling $878,000 and $621,000, and variable-rate commercial and
residential real estate mortgage loans at current market rates totaling $835,000
and $687,000. Loan commitments are generally for 30 days. The interest rates on
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK (Continued)
fixed-rate commitments ranged from 6.75% to 7.75% at December 31, 1998 and 7.50%
to 8.25% at June 30, 1998. The interest rates on variable-rate commitments
ranged from 7.00% to 7.50% at December 31, 1998 and 7.25% to 8.00% at June 30,
1998. The Corporation also had unused lines of credit totaling $931,000 and
$548,000 at December 31, 1998 and June 30, 1998.
At December 31, 1998 and June 30, 1998, compensating balances of $456,000 and
$299,000 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 terms of one to three
years, and an annual salary and performance review by the Board of Directors, 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.
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.
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 $62,776
and $140,479 for the three and six months ended December 31, 1998.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
The ESOP shares as of December 31, 1998 and June 30, 1998 were as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---------- ----------
<S> <C> <C>
Allocated shares 24,031 24,031
Shares committed to be released for allocation 7,624 --
Unreleased shares 137,175 144,799
---------- ----------
Total ESOP shares 168,830 168,830
========== ==========
Fair value of unreleased shares $2,297,681 $2,588,282
========== ==========
</TABLE>
NOTE 8 - STOCK OPTION AND INCENTIVE PLAN
Upon approval of the Stock Option and Incentive Plan by the shareholders of the
Corporation on May 22, 1998, the Board of Directors granted options to purchase
138,809 shares of common stock at an exercise price of $20.00 to certain
employees, officers and directors of the Association and Corporation. No options
had been previously awarded. One-fifth of the options awarded become first
exercisable on each of the first five anniversaries of the date of grant. The
option period expires 10 years from the date of grant. No options were
exercisable at December 31, 1998 or June 30, 1998. In addition, 39,729 options
to purchase common stock are reserved for future grants.
NOTE 9 - MANAGEMENT RECOGNITION PLAN
A Management Recognition Plan ("MRP") was adopted by the Board of Directors and
approved by the shareholders of the Corporation on May 22, 1998. The MRP will be
used as a means of providing directors and certain key employees of the
Association and Corporation with an ownership interest in the Corporation in a
manner designed to compensate such directors and key employees for services to
the Association and Corporation. The MRP will purchase 71,415 common shares,
which is equal to 4% of the common shares sold in connection with the
conversion. As of December 31, 1998, no shares have been purchased.
In conjunction with the adoption of the MRP on May 22, 1998, the Board of
Directors awarded 57,128 shares to certain directors, officers and employees of
the Association and Corporation. No shares had been previously awarded.
One-fifth of such shares will be earned and nonforfeitable on each of the first
five anniversaries of the date of the award. In the event of the death or
disability of a participant, however, the participant's shares will be deemed to
be earned and nonforfeitable upon such date. At December 31, 1998 and June 30,
1998, there were 14,287 shares reserved for future awards. Compensation expense
related to MRP shares is based upon the cost of the shares. For the three and
six months ended December 31, 1998, the Corporation has accrued compensation
expense totaling $60,000 and $120,000 based upon the estimated cost of the
number of shares earned during the period. No compensation expense was
recognized during the three and six months ended December 31, 1997.
<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, 1998, compared to June 30, 1998, and results of operations for the
three and six months ended December 31, 1998, compared with the same periods in
1997. 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 the 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 was invested in the capital stock issued by
the Association to the Corporation as a result 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Financial Condition
Total assets at December 31, 1998 were $108.5 million compared to $105.9 million
at June 30, 1998, an increase of $2.6 million, or 2.5%. The increase in total
assets was due to increases in loans and premises and equipment funded by a
decrease in overnight deposits in other financial institutions and proceeds from
increased deposits and borrowings.
Loans receivable increased $3.2 million from $94.1 million at June 30, 1998 to
$97.3 million at December 31, 1998. The increase was primarily in commercial
real estate loans which increased $2.3 million. A decrease in real estate
construction and land development loans was offset by an increase in 1-4 family
residential real estate loans as several construction loans were converted to
more permanent financing upon completion of construction. Changes in other types
of mortgage loans were not significant. The overall increase in total mortgage
loans is reflective of a strong local economy coupled with attractive loan rates
and products compared to local competition. The Corporation has not changed its
philosophy regarding pricing or underwriting standards during the year.
The Corporation's consumer and other loan portfolio increased $1.1 million
between June 30, 1998 and December 31, 1998. Despite the increase, consumer and
other loans remain a small portion of the entire loan portfolio and represented
only 3.3% and 2.2% of gross loans at December 31, 1998 and June 30, 1998.
Premises and equipment increased $1.1 million from $973,000 at June 30, 1998 to
$2.0 million at December 31, 1998. The increase resulted as the Corporation
constructed a new, full-service branch banking office in Anna, Ohio. The
Corporation also purchased additional equipment in connection with the opening
of a new, leased branch facility in Jackson Center, Ohio.
Total deposits increased $2.8 million from $79.1 million at June 30, 1998 to
$81.9 million at December 31, 1998. The Corporation experienced increases in all
types of deposits, however, the majority of the growth was in negotiable order
of withdraw ("NOW") and money market demand deposit accounts, which increased
$2.3 million, and passbook savings accounts, which increased $396,000. The
growth is the result of special promotions offered in connection with the
opening of new branch locations in Anna and Jackson Center, Ohio.
Borrowed funds increased $700,000 from $7.0 million at June 30, 1998 to $7.7
million at December 31, 1998. The Association maintains a $5.4 million
cash-management line of credit with the FHLB under which $700,000 was borrowed
to provide additional liquidity for loan growth. The advance carries a variable
interest 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.
Results of Operations
The 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
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
Net Income. The Corporation earned net income of $118,000 and $235,000 for the
three and six months ended December 31, 1998 compared to $338,000 and $676,000
for the three and six months ended December 31, 1997. The decrease in net income
was primarily due to a decrease in net interest income combined with an increase
in noninterest expense.
Net Interest Income. Net interest income totaled $937,000 and $1,852,000 for the
three and six months ended December 31, 1998 compared to $1,020,000 and
$2,035,000 for the three and six months ended December 31, 1997.
The decreases were the result of additional interest paid on borrowed funds.
Interest and fees on loans increased $63,000 and $99,000, or 3.4% and 2.7% from
$1,867,000 and $3,703,000 for the three and six months ended December 31, 1997
to $1,930,000 and $3,802,000 for the three and six months ended December 31,
1998. The increase in interest income was due to higher average loans
receivable, related primarily to the origination of new commercial real estate
and consumer loans.
Interest earned on interest-bearing demand and overnight deposits decreased
$65,000 and $97,000 for the three and six months ended December 31, 1998 as
compared to the same periods in the prior year. The decrease was the result of
lower average balances coupled with a decrease in the average yield earned on
such investments.
Interest paid on deposits decreased $35,000 and $37,000 for the three and six
months ended December 31, 1998 compared to the three and six months ended
December 31, 1997. There was little change in the interest paid on deposits as
the mix of the deposit portfolio remained fairly stable while the effect of an
increase in the average balance of deposits was offset by a decrease in the
average cost. The average cost of deposits decreased from 5.08% for the six
months ended December 31, 1997 to 4.88% for the six months ended December 31,
1998.
Interest paid on borrowed funds totaled $112,000 and $220,000 for the three and
six months ended December 31, 1998. There were no borrowings during the three or
six months ended December 31, 1997. The increase resulted as the Corporation
borrowed $7.0 million under a ten-year, fixed-rate, interest-only advance from
the FHLB at the end of fiscal 1998 to fund a $4.00 per share tax-free return of
capital totaling $7.1 million. The Corporation paid the return of capital on
June 26, 1998 as a means to reduce the excess capital provided from the stock
conversion. The Corporation borrowed an additional $700,000 under its cash
management line of credit during the three months ended December 31, 1998 to
provide liquidity for loan growth.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Provision for Loan Losses. The Corporation maintains an allowance for loan
losses in an amount that, in management's judgment, is adequate to absorb
probable losses inherent in the loan portfolio. While management uses its best
judgment and information available, the ultimate adequacy of the allowance is
dependent on a variety of factors, including performance of the Corporation's
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 probable losses 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 for the three and six months ended December 31,
1998 totaled $16,000 and $53,000 compared to $10,000 and $36,000 for the three
and six months ended December 31, 1997. Charge-offs experienced by the
Corporation have primarily related to consumer and other nonreal estate loans.
As indicated previously, 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 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, as well as a low volume of
nonperforming loans, management believes it is prudent to continue to increase
the allowance for loan losses as total loans increase. The loan growth
experienced by the Corporation from June 30, 1998 to December 31, 1998 was
concentrated in the commercial real estate and consumer loan area. Since such
loan types inherently carry more risk than 1-4 family real estate loans,
management believes it is prudent to provide for potential losses, even
considering the stability in the level of non-performing loans. Accordingly,
management anticipates it will continue its provisions to the allowance for loan
losses as loan growth continues. The allowance for loan losses totaled $457,000,
or .46% of gross loans receivable, at December 31, 1998 compared to $426,000, or
.44% of gross loans receivable, at June 30, 1998
Noninterest income. Noninterest income includes service fees and other
miscellaneous income and totaled $20,000 and $34,000 for the three and six
months ended December 31, 1998 and $15,000 and $31,000 for the three and six
months ended December 31, 1997.
Noninterest expense. Noninterest expense totaled $757,000 and $1,465,000 for the
three and six months ended December 31, 1998 compared to $501,000 and $981,000
for three and six months ended December 31, 1997, an increase of $256,000 and
$484,000, or 51.1% and 49.3%. The increases were the result of increases in
compensation and benefits, occupancy and equipment, state franchise taxes and
other expenses.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Compensation and benefits expense increased $160,000 and $320,000, or 65.6% and
68.5%, for the three and six months ended December 31, 1998 compared to the same
periods in 1997. The increases are the result of normal, annual merit increases,
the addition of new employees and the added expense of employee benefit plans.
The expense related to the ESOP increased due to an increase in the market price
of the Corporation's common stock over the prior period. The Corporation was
also able to allocate more ESOP shares to participants in 1998. Compensation
expense related to the ESOP was $63,000 and $140,000 for the three and six
months ended December 31, 1998 compared to $44,000 and $84,000 for the three and
six months ended December 31, 1997. The Corporation also implemented a
Management Recognition Plan ("MRP") in May 1998 for which the expense totaled
$60,000 and $120,000 for the three and six months ended December 31, 1998.
Occupancy and equipment expense increased $31,000 and $39,000 due to the added
costs of opening two new branch offices during the six months ended December 31,
1998. State franchise taxes increased $41,000 and $74,000 due to the change in
corporate structure during fiscal 1997 and the resulting tax impact of higher
capital levels at the Association and earnings at the Corporation. The third and
fourth quarters of fiscal 1998 were the first periods impacted by the capital
raised in the conversion. The increase in other expense was attributable to
various miscellaneous items.
Income Tax Expense. The volatility of income tax expense is primarily
attributable to the change in income before income taxes. The provision for
income taxes totaled $67,000 and $133,000 for the three and six months ended
December 31, 1998 compared to $187,000 and $373,000 for the three and six months
ended December 31, 1997, representing decreases of $120,000 and $240,000, or
64.2% and 64.3%. The effective tax rates were 36.2% and 36.1% for the three and
six months ended December 31, 1998 and 35.6% for both the three and six months
ended December 31, 1997.
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, 1998 and 1997.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended December 31,
1998 1997
------- -------
(Dollars in thousands)
<S> <C> <C>
Net income $ 235 $ 676
Adjustments to reconcile net income to net cash from
operating activities 511 117
------- -------
Net cash from operating activities 746 793
Net cash from investing activities (4,453) (1,401)
Net cash from financing activities 2,025 2,371
------- -------
Net change in cash and cash equivalents (1,682) 1,763
Cash and cash equivalents at beginning of period 4,947 2,796
------- -------
Cash and cash equivalents at end of period $ 3,265 $ 4,559
======= =======
</TABLE>
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 the (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 in an amount equal to 1% 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, 1998, the Association's regulatory liquidity was 7.7%. At
such date, the Corporation had commitments to originate fixed-rate commercial
and residential real estate loans totaling $878,000 and variable-rate commercial
and residential real estate mortgage loans totaling $835,000. 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 Consolidated Financial Statements.
The Association is required by regulations to meet certain minimum capital
requirements, which must be generally as stringent as the requirements
established for commercial banks. Failure to meet minimum capital requirements
can initiate certain mandatory actions that, if undertaken, could have a direct
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
material affect on the Association's financial statements. 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 8.0%
of risk-weighted assets (assets are weighted at percentage levels ranging from
0% to 100% depending on their relative risk). The following table indicates that
the requirement for core capital is 4.0% because that is the level that the OTS
prompt corrective-action regulations require to be considered adequately
capitalized. At December 31, 1998, and June 30, 1998, 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 applicable requirements at December 31, 1998 and June 30, 1998. Management
is not aware of any matter after the latest regulatory exam that would cause the
Association's capital category to change.
At December 31, 1998 and June 30, 1998, the Association's actual capital levels
and minimum required levels were:
<TABLE>
<CAPTION>
Minimum Minimum
Required To Be Required To Be
Adequately Capitalized Well Capitalized
Under Prompt Corrective Under Prompt Corrective
Actual Action Regulations Action Regulations
---------------------- --------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ---- -------- --- ---------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998
Total capital (to risk
weighted assets) $ 16,940 23.7% $ 5,720 8.0% $ 7,150 10.0%
Tier 1 (core) capital to
risk-weighted assets) 16,490 23.1 2,860 4.0 4,290 6.0
Tier 1 (core) capital to
adjusted total assets) 16,490 15.2 4,340 4.0 5,425 5.0
Tangible capital (to
adjusted total assets) 16,490 15.2 1,627 1.5 N/A
June 30, 1998
Total capital (to risk
weighted assets) $ 18,743 27.6% $ 5,426 8.0% $ 6,783 10.0%
Tier 1 (core) capital to
risk-weighted assets) 18,330 27.0 2,713 4.0 4,070 6.0
Tier 1 (core) capital to
adjusted total assets) 18,330 17.3 4,240 4.0 5,300 5.0
Tangible capital (to
adjusted total assets) 18,330 17.3 1,590 1.5 N/A
</TABLE>
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In May 1998, the Board of Directors of the Corporation authorized the purchase
of up to 5% of the Corporation's outstanding common shares over a twelve-month
period to commence on July 1, 1998. The shares will be purchased in the
over-the-counter market. The number of shares to be purchased and the price to
be paid will depend on the availability of shares, the prevailing market prices
and any other considerations which may, in the opinion of the Corporation's
Board of Directors or management, affect the advisability of purchasing shares.
As of December 31, 1998, 72,500 shares have been repurchased at a cost of
$1,283,437.
Year 2000 Issue
The Corporation's lending and deposit activities are almost entirely dependent
upon computer systems which process and record transactions, although the
Corporation can effectively operate with manual systems for brief periods when
its electronic systems malfunction or cannot be accessed. The Corporation
utilizes the services of a nationally-recognized data processing service bureau
which specializes in data processing for financial institutions. In addition to
its basic operating activities, the Corporation's facilities and infrastructure,
such as security systems and communications equipment, are dependent, to varying
degrees, upon computer systems.
The Corporation is aware of the potential Year 2000 related problems that may
affect the computers which control or operate Corporation's operating systems,
facilities and infrastructure. In 1997, the Corporation began a process of
identifying any Year 2000 related problems that may be experienced by its
computer-operated or computer-dependent systems. The Corporation has examined
its computer hardware and software and determined it will cost approximately
$13,000 to make such systems Year 2000 compliant. The Corporation has contacted
the companies that supply or service the Corporation's computer-operated or
computer-dependent systems to obtain confirmation that each system that is
material to the operations of the Corporation is either currently Year 2000
compliant or is expected to be Year 2000 compliant. With respect to systems that
cannot presently be confirmed as Year 2000 compliant, the Corporation will
continue to work with the appropriate supplier or servicer to ensure all such
systems will be rendered compliant in a timely manner, with minimal expense to
the Corporation or disruption of the Corporation's operations. All of the
identified computer systems affected by the Year 2000 issue are currently in the
renovation, validation or implementation phase of the process of becoming Year
2000 compliant. The Corporation has identified various companies whose services
are deemed critical to the mission of the Corporation and received assurances
that such companies will be Year 2000 compliant. As a contingency plan, however,
the Corporation has determined that if such service providers were to have their
systems fail, the Corporation would implement manual systems until such systems
could be re-established. The Corporation does not anticipate that such
short-term manual systems would have a material adverse effect on the
Corporation's operations. The expense of any change in suppliers or servicers is
not expected to be material to the Corporation. At this time, however, the
expense that may be incurred by the Corporation in connection with Year 2000
issues cannot be determined.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In addition to the possible expense related to its own systems, the Corporation
could incur losses if loan payments are delayed due to Year 2000 problems
affecting any of the Corporation's significant borrowers or impairing the
payroll systems of large employers in the Corporation's primary market area.
Because the Corporation's loan portfolio is highly diversified with regard to
individual borrowers and types of businesses and the Corporation's primary
market area is not significantly dependent on one employer or industry, the
Corporation does not expect any significant or prolonged Year 2000 related
difficulties will affect net earnings or cash flow. At this time, however, the
expense that may be incurred by the Corporation in connection with Year 2000
issues cannot be determined.
<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
On October 9, 1998, the Annual Meeting of the Shareholders of the
Corporation was held. The following members of the Board of Directors
of the Corporation were reelected by the votes set forth below for
terms expiring in 2001:
Douglas Stewart FOR: 1,503,174 WITHHELD: 17,599
James W. Kerber FOR: 1,504,674 WITHHELD: 16,099
One other matter submitted to the Shareholders, for which the
following votes were cast:
Ratification of the selection of Crowe, Chizek and Company LLP as the
auditors of the Corporation for the fiscal year ending June 30, 1999.
FOR: 1,506,892 AGAINST: 9,074 ABSTAIN: 4,807
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 December 31, 1998.
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
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 8, 1999 /s/ Douglas Stewart
-------------------
Douglas Stewart
President
Date: February 8, 1999 /s/ Debra Geuy
--------------
Debra Geuy
Chief Financial Officer
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
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-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 845
<INT-BEARING-DEPOSITS> 3,020
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,512
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 97,284
<ALLOWANCE> 457
<TOTAL-ASSETS> 108,461
<DEPOSITS> 81,889
<SHORT-TERM> 700
<LIABILITIES-OTHER> 383
<LONG-TERM> 7,000
0
0
<COMMON> 18
<OTHER-SE> 18,470
<TOTAL-LIABILITIES-AND-EQUITY> 108,461
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<INTEREST-OTHER> 105
<INTEREST-TOTAL> 4,028
<INTEREST-DEPOSIT> 1,956
<INTEREST-EXPENSE> 2,176
<INTEREST-INCOME-NET> 1,852
<LOAN-LOSSES> 53
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,465
<INCOME-PRETAX> 368
<INCOME-PRE-EXTRAORDINARY> 235
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
<YIELD-ACTUAL> 3.60
<LOANS-NON> 578
<LOANS-PAST> 372
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
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<RECOVERIES> 1
<ALLOWANCE-CLOSE> 457
<ALLOWANCE-DOMESTIC> 457
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
