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FORM 10-Q
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 the quarterly period ended June 30, 2004
______________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 000-29949
________
PEOPLES COMMUNITY BANCORP, INC.
____________________________________________________________________________
(Exact name of registrant as specified in its charter)
Maryland 31-1686242
_______________________________ _______________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6100 West Chester Road, West Chester, Ohio 45069
____________________________________________________________________________
(Address of principal executive office)
Registrant's telephone number, including area code: (513) 870-3530
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by checkmark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of August 13, 2004, the latest practicable date, 3,898,910
shares of the registrant's common stock, $.01 par value, were
issued and outstanding.
Page 1 of 23
Peoples Community Bancorp, Inc.
INDEX
Page
____
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 21
SIGNATURES 22
2
PEOPLES COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, September 30,
ASSETS 2004 2003
(Unaudited)
Cash and due from banks $ 11,425 $ 4,905
Interest-bearing deposits in other financial institutions 1,694 5,118
------- -------
Cash and cash equivalents 13,119 10,023
Certificates of deposit 221 221
Investment securities designated as available for sale - at market 2,397 2,156
Mortgage-backed securities designated as available for sale - at market 207,935 133,828
Loans receivable - net 583,416 554,351
Office premises and equipment - at depreciated cost 16,787 13,056
Real estate acquired through foreclosure 393 1,293
Federal Home Loan Bank stock - at cost 10,727 10,221
Accrued interest receivable on loans 2,632 2,089
Accrued interest receivable on mortgage-backed securities and
other investments 795 480
Prepaid expenses and other assets 1,313 488
Goodwill 5,306 5,528
Prepaid federal income taxes 2,551 1,506
Deferred federal income taxes 4,574 3,443
------- -------
Total assets $852,166 $738,683
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $464,342 $455,900
Advances from the Federal Home Loan Bank 295,500 218,500
Other borrowed money - 1,400
Guaranteed preferred beneficial interests in junior subordinated debentures 12,887 12,500
Accrued interest payable 54 709
Other liabilities 4,678 2,975
------- -------
Total liabilities 777,461 691,984
Stockholders' equity
Common stock - 15,000,000 shares of $.01 par value authorized;
3,898,910 and 2,522,088 shares issued at June 30, 2004 and September 30,
2003, respectively 39 25
Additional paid-in capital 51,741 24,478
Retained earnings - restricted 24,837 23,171
Shares acquired by stock benefit plan (843) (286)
Accumulated comprehensive loss, unrealized losses on
securities designated as available for sale, net of related tax effects (1,069) (689)
------- -------
Total stockholders' equity 74,705 46,699
------- -------
Total liabilities and stockholders' equity $852,166 $738,683
======= =======
See notes to unaudited consolidated financial statements.
3
Peoples Community Bancorp, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except share data)
Nine months ended Three months ended
June 30, June 30,
2004 2003 2004 2003
Interest income
Loans $25,771 $26,450 $ 8,761 $8,679
Mortgage-backed securities 3,765 1,166 1,140 467
Investment securities 31 21 6 5
Interest-bearing deposits and other 378 475 133 141
------ ------ ------ -----
Total interest income 29,945 28,112 10,040 9,292
Interest expense
Deposits 8,491 8,702 2,846 2,787
Borrowings 6,115 5,350 2,033 1,816
------ ------ ------ -----
Total interest expense 14,606 14,052 4,879 4,603
------ ------ ------ -----
Net interest income 15,339 14,060 5,161 4,689
Provision for losses on loans 2,700 3,298 900 1,188
------ ------ ------ -----
Net interest income after provision
for losses on loans 12,639 10,762 4,261 3,501
Other income
Gain on sale of loans 87 - 47 -
Gain on sale of securities - 493 - 493
Gain on sale of real estate 206 - - -
Other operating 539 436 189 151
------ ------ ------ -----
Total other income 832 929 236 644
General, administrative and other expense
Employee compensation and benefits 5,509 3,874 1,845 1,417
Occupancy and equipment 1,539 1,269 541 411
Franchise taxes 532 384 180 168
Data processing 740 387 241 148
Other operating 1,744 1,641 553 537
------ ------ ------ -----
Total general, administrative and other expense 10,064 7,555 3,360 2,681
------ ------ ------ -----
Earnings before income taxes 3,407 4,136 1,137 1,464
Federal income taxes
Current 1,310 1,831 705 498
Deferred (152) (423) (319) -
------ ------ ------ -----
Total federal income taxes 1,158 1,408 386 498
------ ------ ------ -----
NET EARNINGS $ 2,249 $ 2,728 $ 751 $ 966
====== ====== ====== =====
EARNINGS PER SHARE
Basic $.79 $1.10 $.21 $.39
=== ==== === ===
Diluted $.78 $1.09 $.21 $.38
=== ==== === ===
DIVIDENDS PER SHARE $.21 $ - $.16 $ -
=== ==== === ===
See notes to unaudited consolidated financial statements.
4
Peoples Community Bancorp, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
For the nine months For the three months
ended June 30, ended June 30,
2004 2003 2004 2003
Net earnings $2,249 $2,728 $ 751 $ 966
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities during
the period, net of taxes (benefits) of $(196), $36, $(568)
and $32 for the respective periods (380) 69 (1,103) 63
Reclassification adjustment for realized gains included in
earnings, net of taxes of $168 for each of the 2003 periods - (325) - (325)
------ ----- ------ ----
Comprehensive income $ 1,869 $2,472 $ (352) $ 704
====== ===== ====== ====
Accumulated comprehensive loss $(1,069) $ (193) $(1,069) $(193)
====== ===== ====== ====
See notes to unaudited consolidated financial statements.
5
Peoples Community Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended June 30,
(In thousands)
2004 2003
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 2,249 $ 2,728
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of premiums and discounts on investment and
mortgage-backed securities, net 909 990
Amortization of deferred loan origination fees (1,208) (1,122)
Amortization expense of stock benefit plan 416 346
Compensation expense related to vested stock options 138 102
Amortization of premiums on loans 788 -
Depreciation and amortization - net 681 578
Provision for losses on loans 2,700 3,298
Federal Home Loan Bank stock dividends (310) (312)
Investment securities dividends (40) (29)
Gain on sale of securities - (493)
Gain on sale of real estate (206) -
Gain on sale of loans (87) -
Proceeds from sale of loans and loan participations 7,135 113
Loans originated for sale in the secondary market (7,095) -
Increase (decrease) in cash, due to changes in:
Accrued interest receivable on loans (543) 219
Accrued interest receivable on mortgage-backed securities (315) 26
Prepaid expenses and other assets (438) 11
Accrued interest payable (655) (22)
Other liabilities 1,703 395
Federal income taxes
Current (1,606) (1,698)
Deferred (152) (423)
-------- --------
Net cash provided by operating activities 4,064 4,707
Cash flows provided by (used in) investing activities:
Purchases of investment securities - (1,000)
Proceeds from sale of investment securities designated as
available for sale - 28
Purchase of mortgage-backed securities (109,269) (93,345)
Principal repayments on mortgage-backed securities 33,476 22,627
Proceeds from sale of mortgage-backed securities
designated as available for sale - 68,361
Principal repayments on loans 164,950 194,735
Loan disbursements (195,845) (210,560)
Purchase of office premises and equipment (4,696) (1,586)
Proceeds from sale of real estate acquired
through foreclosure 987 -
Purchase of Federal Home Loan Bank stock (196) -
-------- --------
Net cash used in investing activities (110,593) (20,740)
-------- --------
Net cash used in operating and investing activities
(balance carried forward) (106,529) (16,033)
See notes to unaudited consolidated financial statements.
6
Peoples Community Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
For the nine months ended June 30,
(In thousands)
2004 2003
Net cash used in operating and investing activities
(balance brought forward) $(106,529) $(16,033)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 8,442 36,348
Proceeds from Federal Home Loan Bank advances and other borrowings 153,000 59,950
Repayment of Federal Home Loan Bank advances and other borrowings (77,400) (59,000)
Proceeds from issuance of common stock 26,866 -
Shares acquired by ESOP (700) -
Dividends paid on common shares (583) -
-------- -------
Net cash provided by financing activities 109,625 37,298
-------- -------
Net increase in cash and cash equivalents 3,096 21,265
Cash and cash equivalents at beginning of period 10,023 26,637
-------- -------
Cash and cash equivalents at end of period $ 13,119 $ 47,902
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 2,000 $ 3,530
======== =======
Interest on deposits and borrowings $ 15,261 $ 14,074
======== =======
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as available
for sale, net of related tax effects $ (380) $ (256)
======== =======
Transfers from loans to real estate acquired through foreclosure $ 513 $ 2,863
======== =======
Loans disbursed to facilitate sale of real estate acquired through
foreclosure $ 339 $ 1,592
======== =======
Loans disbursed to facilitate sale of real estate $ 490 $ -
======== =======
See notes to unaudited consolidated financial statements.
7
Peoples Community Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine and three month periods ended June 30, 2004 and 2003
1. Basis of Presentation
_____________________
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and,
therefore, do not include information or footnotes necessary for
a complete presentation of consolidated financial position,
results of operations and cash flows in conformity with
accounting principles generally accepted in the United States of
America. Accordingly, these financial statements should be read
in conjunction with the consolidated financial statements and
notes thereto of Peoples Community Bancorp, Inc. ("Peoples
Bancorp" or the "Company") included in the Annual Report on Form
10-K for the year ended September 30, 2003. However, in the
opinion of management, all adjustments (consisting of only normal
recurring accruals), which are necessary for a fair presentation
of the consolidated financial statements, have been included.
The results of operations for the nine- and three-month periods
ended June 30, 2004 are not necessarily indicative of the results
which may be expected for the entire fiscal year. The
consolidated statement of financial condition of the Company as
of September 30, 2003 has been derived from the audited statement
of financial condition of the Company as of that date.
On April 27, 2004, Peoples Community Bancorp completed a
secondary offering of 1,365,674 shares of common stock. The net
proceeds of the offering, totaling approximately $26.8 million,
will be used to fund Peoples Community Bancorp's growth strategy
and for general corporate purposes.
2. Business Combinations
_____________________
On July 25, 2003, Peoples Bank sold Kenwood Savings Bank,
including $10.0 million in deposits and $10.1 million of loans,
to Fort Washington Trust Company, a subsidiary of The Western and
Southern Life Insurance Company.
On September 26, 2003, Peoples Bank acquired two Ohio branch
offices from Ameriana Bank and Trust, including $32.8 million in
loans and $55.6 million in deposits. Peoples Bank recorded
approximately $2.3 million in goodwill as a result of this
transaction.
On March 16, 2004, Peoples Community Bancorp announced that it
had entered into a stock purchase agreement with various
stockholders of Columbia Bancorp, Inc., Cincinnati, Ohio, a
privately held bank holding company, to acquire 69,925 shares
held by these stockholders for an aggregate purchase price of
$2.5 million. These shares represent approximately 38% of
Columbia's presently issued and outstanding common stock. This
proposed stock purchase is subject to regulatory approval.
Assuming regulatory approval, Peoples Community Bancorp, Inc.
would become a bank holding company. Peoples Community Bancorp,
Inc. does not anticipate any significant changes to its
operations if it becomes a bank holding company.
3. Principles of Consolidation
___________________________
The accompanying consolidated financial statements include the
accounts of the Company and the Bank, its wholly-owned
subsidiary. All significant intercompany items have been
eliminated. In December 2003, FASB issued a revision to FIN 46
to clarify certain provisions that affected the accounting for
trust preferred securities. As a result of the provisions in FIN
46, Peoples Bancorp Capital Trust I was deconsolidated as of June
30, 2004, with the Company accounting for its investment in
Peoples Community Bancorp Capital Trust I as assets, its
subordinated debentures as debt, and the interest paid thereon as
interest expense. The Company had always classified the trust
preferred securities as debt, but eliminated its common stock
investment.
8
Peoples Community Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three month periods ended June 30, 2004 and 2003
4. Earnings Per Share
__________________
Basic earnings per share is based upon the weighted-average
shares outstanding during the period, less 49,280 and 33,320
unallocated ESOP shares as of June 30, 2004 and 2003,
respectively. Diluted earnings per share is computed by taking
into consideration common shares outstanding and dilutive
potential common shares to be issued under the Company's stock
option plan. The computations were as follows:
For the nine months ended For the three months ended
June 30, June 30,
2004 2003 2004 2003
Weighted-average common shares
outstanding (basic) 2,843,156 2,469,942 3,541,441 2,474,983
Dilutive effect of assumed exercise
of stock options 36,489 39,831 35,151 42,169
Weighted-average common shares --------- --------- --------- ---------
outstanding (diluted) 2,879,645 2,509,773 3,576,592 2,517,152
========= ========= ========= =========
Options to purchase 53,360 shares of common stock at a weighted-
average exercise price of $23.21 were outstanding at June 30,
2004, but were excluded from the computation of diluted earnings
per share for the nine and three month periods ended June 30,
2004, because the exercise price was greater than the average
market price of the common shares.
5. Effects of Recent Accounting Pronouncements
___________________________________________
There were no recent accounting pronouncements or developments
through June 30, 2004 that would have a material effect on the
Company's consolidated financial statements.
6. Stock Option Plan
_________________
During fiscal 2001 the Board of Directors adopted the Peoples
Community Bancorp, Inc. Stock Option and Incentive Plan (the
"Plan") that provides for the issuance of 197,773 shares of
authorized but unissued shares of common stock at fair value at
the date of grant. Through June 30, 2004, the Company has
granted options for 170,797 shares, net of forfeitures, under the
Plan. The Plan provides that one-fifth of the options granted
become exercisable on each of the first five anniversaries of the
date of grant. The remaining shares in the Plan may be granted
to employees in increments of 20% per year based on management's
discretion.
The Company accounts for the Plan in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation," which contains a
fair value-based method for valuing stock-based compensation that
entities may use, which measures compensation cost at the grant
date based on the fair value of the award. Compensation is then
recognized over the service period, which is usually the vesting
period. Alternatively, SFAS No. 123 permits entities to continue
to account for stock options and similar equity instruments under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." Entities that continue to
account for stock options using APB Opinion No. 25 are required
to make pro forma disclosures of net earnings and earnings per
share, as if the fair value-based method of accounting defined in
SFAS No. 123 had been applied.
It is the Company's policy to recognize expense related to the
vesting of its stock options in accordance with the provisions of
SFAS No. 123. Total expense related to options for the nine
month periods ended June 30, 2004 and 2003 amounted to $138,000
and $102,000, respectively.
9
Peoples Community Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three month periods ended June 30, 2004 and 2003
6. Stock Option Plan (continued)
_________________
The fair value of the option grants are estimated on the date of
grant using the modified Black-Scholes options-pricing model with
the following assumptions used for grants in fiscal 2004, 2003
and 2002: dividend yield of 2.5% and no dividend yield for 2003
and 2002, respectively; expected volatility of 26.6%, 21.4% and
20.0%, respectively; a risk-free interest rate of 4.6%, 3.6% and
2.0%, respectively, and an expected life of ten years for all
grants.
A summary of the status of the Plan for the nine months ended
June 30, 2004 and for the fiscal years ended September 30, 2003
and 2002, is presented below:
Nine months ended Year ended
June 30, September 30,
2004 2003 2002
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
Outstanding at beginning of period 144,528 $16.75 120,329 $15.34 94,861 $14.00
Granted 26,969 23.20 26,391 23.22 25,728 20.25
Exercised - - (468) 14.00 - -
Forfeited (1,161) 18.49 (1,724) 17.99 (260) 14.00
------- ----- ------- ----- ------- -----
Outstanding at end of period 170,336 $17.76 144,528 $16.75 120,329 $15.34
======= ===== ======= ===== ======= =====
Options exercisable at period-end 70,824 $16.94 42,152 $14.73 18,924 $14.00
======= ===== ======= ===== ======= =====
Weighted-average fair value of
options granted during the period $ 4.50 $ 9.41 $ 6.19
===== ===== =====
The weighted-average fair value of options granted during the
period is lower than those in previous periods due to the current
payment of dividends on the stock and the present value of these
future dividend payments over the life of the option. In
calculating the fair value of the options, the present value of
these dividends reduces the final fair value of the options.
The following information applies to options outstanding at June
30, 2004:
Number outstanding 117,317
Range of exercise prices $14.00 - $20.25
Number outstanding 53,019
Exercise price $23.20 - $23.22
Weighted-average exercise price $17.76
Weighted-average remaining contractual life 7.92 years
10
Peoples Community Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
_______
Peoples Bancorp's profitability depends primarily on net interest
income, which is the difference between interest and dividend
income on interest-earning assets, principally loans, mortgage-
backed securities, investment securities and interest-earning
deposits in other financial institutions, and interest expense,
principally on interest-bearing deposits and borrowings from the
Federal Home Loan Bank of Cincinnati. Net interest income is
dependent upon the level of interest rates and the extent to
which such rates are changing. Peoples Bancorp's profitability
also depends, to a lesser extent, on the level of other income,
the provision for losses on loans, general, administrative and
other expenses and federal income taxes.
Peoples Bancorp's operations and profitability are subject to
changes in interest rates, applicable statutes and regulations
and general economic conditions, as well as other factors beyond
management's control.
Critical Accounting Policies
____________________________
The "Management's Discussion and Analysis of Financial Condition
and Results of Operations," as well as disclosures found
elsewhere in this quarterly report, are based upon the Company's
consolidated financial statements, which are prepared in
accordance with US GAAP. The preparation of these financial
statements requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues
and expenses. Several factors are considered in determining
whether or not a policy is critical in the preparation of
financial statements. These factors include, among other things,
whether the estimates are significant to the financial
statements, the nature of the estimates, the ability to readily
validate the estimates with other information, including third
parties or available prices, and sensitivity of the estimates to
changes in economic conditions and whether alternative accounting
methods may be utilized under US GAAP.
Material estimates that are particularly susceptible to
significant change in the near term relate to the determination
of the allowance for loan losses and goodwill impairment. Actual
results could differ from those estimates.
Allowance for Loan Losses
The procedures for assessing the adequacy of the allowance for
loan losses reflect management's evaluation of credit risk after
consideration of all information available. In developing this
assessment, management must rely on estimates and exercise
judgment regarding matters where the ultimate outcome is unknown,
such as economic factors, developments affecting companies in
specific industries and issues with respect to single borrowers.
Depending on changes in circumstances, future assessments of
credit risk may yield materially different results, which may
require an increase or a decrease in the allowance for loan
losses.
The allowance is regularly reviewed by management to determine
whether the amount is considered adequate to absorb probable
losses. This evaluation includes specific loss estimates on
certain individually reviewed loans, statistical loss estimates
for loan pools that are based on historical loss experience, and
general loss estimates that are based upon the size, quality, and
concentration characteristics of the various loan portfolios,
adverse situations that may affect a borrower's ability to repay,
and current economic and industry conditions. Also considered
as part of that judgment is a review of the Bank's trends in
delinquencies and loan losses, as well as trends in delinquencies
and losses for the region and nationally, and economic factors.
11
Peoples Community Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Critical Accounting Policies (continued)
____________________________
Goodwill
The Company has developed procedures to test goodwill for
impairment on an annual basis using September 30 financial data.
The evaluation of possible impairment is outsourced to a third
party. This evaluation is based on the analysis set forth below.
The test involves assigning tangible assets and liabilities,
identified intangible assets and goodwill to reporting units and
comparing the fair value of each reporting unit to its carrying
value including goodwill. The value is determined assuming a
freely negotiated transaction between a willing buyer and a
willing seller, neither being under any compulsion to buy or sell
and both having reasonable knowledge of relevant facts. The
third party selected by management utilizes the following common
approaches to valuing business combination transactions involving
financial institutions to derive the fair value of the reporting
unit: (1) the comparable transactions approach which is
specifically based on earnings, book value, assets and deposit
premium multiples received in recent sales of comparable bank
franchises; and (2) the discounted cash flow ("DCF") approach.
The application of the valuation techniques takes into account
the reporting unit's operating history, the current market
environment and future prospects. As of the most recent
evaluation, the only reporting unit carrying goodwill is the
Bank.
If the fair value of a reporting unit exceeds its carrying
amount, goodwill of the reporting unit is considered not impaired
and no second step is required. If the fair value does not
exceed the carrying amount, a second test is required to measure
the amount of goodwill impairment. The second test of the
overall goodwill impairment compares the implied fair value of
the reporting unit goodwill with the carrying amount of the
goodwill. The impairment loss shall equal the excess of carrying
value over fair value.
After each testing period, the third party compiles a summary of
the test that is then provided to the audit committee for review.
Discussion of Financial Condition Changes from September 30, 2003
_________________________________________________________________
to June 30, 2004
________________
At June 30, 2004, the Company's assets totaled $852.2 million, an
increase of $113.5 million, or 15.4%, compared to September 30,
2003. The increase in assets was comprised primarily of an
increase of $74.1 million in mortgage-backed securities and an
increase of $29.1 million in loans receivable, primarily funded
by a $75.6 million increase in borrowings, $26.8 million raised
in connection with the Company's secondary stock offering and
$8.4 million in new deposits.
Cash and cash equivalents increased by $3.1 million from
September 30, 2003 levels, to a total of $13.1 million at June
30, 2004. Mortgage-backed securities totaled $207.9 million at
June 30, 2004, an increase of $74.1 million, or 55.4%, compared
to September 30, 2003. The purchase of $109.3 million in
mortgage-backed securities during the period was partially offset
by $33.5 million in principal repayments. Management has elected
to purchase long-term, adjustable-rate government agency
securities funded by advances from the Federal Home Loan Bank,
proceeds from the secondary stock offering and deposit growth.
These purchases are designed to provide a strong total return to
the Company and manage interest rate risk.
Loans receivable totaled $583.4 million at June 30, 2004, an
increase of $29.1 million, or 5.2%, over the September 30, 2003
levels. Loan disbursements totaling $202.9 million during the
nine-month period ended June 30, 2004 were partially offset by
principal repayments of $165.0 million and sales of loans in the
secondary market totaling $7.1 million. The Company's volume of
loan disbursements decreased by $7.6 million, or 3.6%, compared
to the loan
12
Peoples Community Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from September 30, 2003
_________________________________________________________________
to June 30, 2004 (continued)
________________
origination volume attained in the nine-month period ended June
30, 2003, due primarily to the continued low interest rate
environment and a corresponding decrease in loan refinancing.
Loan disbursements were comprised of $94.8 million of loans
secured by one- to four-family residential real estate, $29.1
million of loans secured by multi-family real estate, $54.9
million of loans secured by commercial real estate and land and
$24.1 million in commercial lines of credit and other loans.
The allowance for loan losses totaled $10.2 million at June 30,
2004, compared to $9.7 million at September 30, 2003. Due
primarily to a continuing change in the composition and the
relative credit risk of the loan portfolio, $2.7 million was
added to the allowance through the provision for losses on loans
during the nine months ended June 30, 2004, while approximately
$2.3 million of loans were charged-off during the same period.
The charged-off loans were comprised of $604,000 in loans secured
by one- to four-family residential real estate, a $1.4 million
loan secured by multi-family real estate, $51,000 in loans
secured by land and $188,000 in commercial and other loans. The
$1.4 million charge-off on the multi-family property resulted
from a new appraisal obtained on the property which is being
posted for foreclosure.
Over the past three fiscal years, the Bank has placed an
increasing emphasis on multi-family residential loans,
nonresidential real estate and land loans, construction loans,
unsecured commercial loans and to a lesser degree, consumer
loans. Nonresidential real estate lending and unsecured
commercial lending are generally considered to involve a higher
degree of risk than residential real estate lending due to the
relatively larger loan amounts and the effect of general economic
conditions on the successful operation of the related business
and/or income-producing properties. The Bank has endeavored to
reduce such risk by evaluating the credit history and the past
performance of the borrower, the quality of the borrowers'
management, the debt service ratio, the quality and
characteristics of the income stream generated by the business or
the property and appraisals supporting the property's valuation,
as applicable.
Nonperforming loans and impaired loans totaled $6.6 million and
$9.6 million at June 30, 2004 and September 30, 2003,
respectively. Nonperforming loans and impaired loans at June 30,
2004 consisted of approximately $3.0 million of one- to four-
family residential loans, $2.3 million in multi-family
residential loans, $56,000 in loans secured by commercial real
estate and land, $1.1 million in construction loans, and $166,000
in commercial and consumer loans.
In spite of the $3.0 million decrease in nonperforming and
impaired loans, the Bank's internally classified loans increased
by $902,000, or 6.8%, to a total of $14.1 million at June 30,
2004, compared to September 30, 2003. The classifications
consisted of loans classified special mention totaling $2.9
million and $11.2 million of loans classified as substandard.
The increase was due primarily to the classification of
approximately $1.2 million of construction loans and $750,000 in
an unsecured commercial line of credit to one borrower who is a
local developer and builder. The loans were classified as
special mention due primarily to the borrower experiencing cash
flow difficulties. As of the date of this report, it is
management's belief that the nonperforming and classified loans
are adequately reserved and no material unreserved losses are
presently anticipated on these loans.
The allowance for loan losses represented 1.60% and 1.57% of
total loans at June 30, 2004 and September 30, 2003,
respectively. The allowance for loan losses represented 154.70%
and 134.15% of nonperforming and impaired loans as of June 30,
2004 and September 30, 2003, respectively. Although management
believes that its allowance for loan losses at June 30, 2004 was
appropriate based upon the available facts and circumstances,
there can be no assurance that additions to such allowance will
not be necessary in future periods, which would adversely affect
the Company's results of operations.
13
Peoples Community Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from September 30, 2003
_________________________________________________________________
to June 30, 2004 (continued)
________________
Deposits totaled $464.3 million at June 30, 2004, an increase of
$8.4 million, or 1.9%, over September 30, 2003 levels. The
increase in deposits was due primarily to management's continuing
focus on deposit growth through marketing and pricing strategies
and continual focus on increasing the branch office network.
Advances from the Federal Home Loan Bank and other borrowings
totaled $295.5 million at June 30, 2004, an increase of $75.6
million, or 34.4%, compared to September 30, 2003 totals.
Proceeds obtained from the advances and other borrowings were
generally used to fund the purchase of mortgage-backed securities
and to fund loan originations.
Stockholders' equity totaled $74.7 million, or 8.8% of total
assets, at June 30, 2004, an increase of $28.0 million, or 60.0%,
over September 30, 2003 levels. The increase resulted primarily
from $26.8 million in proceeds received for 1,365,674 shares of
common stock sold in connection with the Company's secondary
stock offering, net earnings of $2.2 million, and the expense
amortization effects of the stock benefit and option plans
totaling $554,000, which were partially offset by dividends paid
of $583,000 and a $380,000 decrease attributable to the change in
unrealized gains and losses on available for sale securities.
The Bank is required to meet minimum capital standards
promulgated by the Office of Thrift Supervision ("OTS"). At June
30, 2004, the Bank's regulatory capital exceeded each of the
minimum capital requirements.
Comparison of Operating Results for the Three-Month Periods Ended
_________________________________________________________________
June 30, 2004 and 2003
______________________
General
_______
Net earnings amounted to $751,000 for the three months ended June
30, 2004, a decrease of $215,000, or 22.3%, compared to the
$966,000 of net earnings reported for the same period in 2003.
The decrease in earnings resulted primarily from a $679,000 or
25.3 % increase in general, administrative and other expense and
a $408,000 or 63.4% decrease in other income, which were
partially offset by a $472,000 or 10.1% increase in net interest
income, a decrease of $288,000 or 24.2% in the provision for
losses on loans, and a $112,000 or 22.5% decrease in federal
income taxes.
Net Interest Income
___________________
Interest income on loans increased by $82,000, or 0.9% during the
three-month period ended June 30, 2004, compared to the 2003
period, due primarily to a $61.6 million, or 11.8%, increase in
the average portfolio balance outstanding, which was partially
offset by a 64 basis point decrease in the weighted-average
yield, to 5.99% for the 2004 period. The increase in the average
balance was due primarily to the acquisition of two branch
offices of Ameriana Bank and Trust in September 2003 and the
Company's continued strong loan origination volume, while the
decrease in yield reflected a general decrease in market rates
and the corresponding downward repricing of certain adjustable
rate loans, as well as $253,000 of amortization of the premium
paid on the loans purchased from Ameriana.
Interest income on mortgage-backed securities increased by
$673,000, or 144.1%, due primarily to a $153.1 million, or
253.7%, increase in the average balance outstanding, which was
partially offset by a 96 basis point decrease in the weighted-
average yield, to 2.14% in the 2004 period. Management purchased
$8.3 million of adjustable-rate mortgage-backed securities during
the three months ended June 30, 2004, in an effort to manage
liquidity and interest rate risk, as well as to provide interest
income with minimal credit risk, due to the implicit guaranty of
government-sponsored agencies.
14
Peoples Community Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods Ended
_________________________________________________________________
June 30, 2004 and 2003 (continued)
______________________
Net Interest Income (continued)
___________________
Interest income on investment securities and interest-bearing
deposits and other decreased by $7,000, or 4.8%, due primarily to
a $12.4 million, or 44.6%, decrease in the average balance of the
related assets, partially offset by a 151 basis point increase in
the weighted-average yield, to 3.61% in the 2004 period. The
decrease in the average balance of such assets was primarily due
to the reinvestment of excess funds in mortgage-backed securities
and the funding of loan disbursements. The increase in the
weighted-average yield was due to rising interest rates available
on these types of investments period to period.
Interest expense on deposits increased by $59,000, or 2.1%, due
primarily to an increase of approximately $69.0 million, or
17.6%, in the average balance of deposits outstanding, partially
offset by a 38 basis point decrease in the weighted-average cost
of deposits, to 2.47% for the 2004 period. Interest expense on
borrowings increased by $217,000, or 11.9%, due primarily to a
$127.0 million, or 67.1%, increase in the average balance of
borrowings outstanding, partially offset by a 126 basis point
decrease in the average cost of borrowings, to 2.57% for the 2004
period. Proceeds from advances from the Federal Home Loan Bank
and other borrowings were generally used to fund the purchase of
adjustable rate mortgage-backed securities and to fund loan
originations. The decrease in the average cost of borrowings is
due primarily to the addition of shorter term, lower rate
advances during the period.
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $472,000, or
10.1%, to a total of $5.2 million for the three months ended June
30, 2004, compared to the same period in 2003. The interest rate
spread decreased to 2.42% for the three months ended June 30,
2004, from 2.90% for the comparable 2003 period, while the net
interest margin decreased to 2.54% for the three months ended
June 30, 2004, compared to 3.07% for the same period in 2003.
Provision for Losses on Loans
_____________________________
A provision for losses on loans is charged to earnings to bring
the total allowance for loan losses to a level considered
appropriate by management based on historical loss experience,
the volume and type of lending conducted by the Bank, the status
of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's
market area, and other factors related to the collectibility of
the Bank's loan portfolio. After considering the above factors,
management recorded a provision for losses on loans totaling
$900,000 and $1.2 million for the three-month periods ended June
30, 2004 and 2003, respectively. The provision recorded during
the three-month period ended June 30, 2004 was predicated
primarily upon the change in the portfolio mix taking into
account the increase in loans secured by multi-family and
nonresidential real estate, and unsecured commercial lines of
credit, as well as an increase in both the overall loan portfolio
and the level of the Bank's loan charge-offs year to year. Such
types of lending are generally considered to involve a higher
degree of risk than one- to four-family residential lending.
While management presently believes the Company's allowance for
loan losses is sufficient to absorb inherent losses in the
portfolio, there can be no assurance that the allowance will be
sufficient to cover losses on nonperforming assets in the future.
Other Income
____________
Other income totaled $236,000 for the three months ended June 30,
2004, a decrease of $408,000, or 63.4%, compared to the $644,000
recorded for the same period in 2003. The decrease was primarily
due to the absence of $493,000 in gains on sales of securities in
the current quarter as compared to the same period in 2003, which
were partially offset by a $38,000, or 25.2%, increase in other
operating income, and a $47,000 gain on sale of loans in the
15
Peoples Community Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods Ended
_________________________________________________________________
June 30, 2004 and 2003 (continued)
______________________
Other Income (continued)
____________
secondary market. The increase in other operating income
resulted primarily from increases in fees related to the growth
of loans and deposit transactions from period to period.
In connection with the Ameriana transaction, management initiated
a program to originate and sell certain residential loans in the
secondary market on a servicing released basis. Management
believes that personnel added to the Bank's staff through the
Ameriana transaction possess the requisite experience to promote
this sales activity. This sales activity is being conducted in
order to accommodate consumer demand through origination and sale
of lower-rate, one- to four-family residential loans and as a
means for the Bank to maintain its interest rate risk position.
General, Administrative and Other Expense
_________________________________________
General, administrative and other expense totaled $3.4 million
for the three months ended June 30, 2004, an increase of
$679,000, or 25.3%, compared to the same period in 2003. This
increase resulted primarily from an increase of $428,000, or
30.2%, in employee compensation and benefits, an increase of
$130,000, or 31.6%, in occupancy and equipment, an increase of
$12,000, or 7.1%, in franchise taxes, a $93,000, or 62.8%,
increase in data processing and a $16,000, or 3.0%, increase in
other operating expense.
The increase in employee compensation and benefits was due
primarily to an increase in staffing levels to support the
overall growth and branch structure of the Bank, normal merit
increases, and an increase in health insurance costs and other
employee benefits. The actual number of employees has increased
approximately 21% period to period. The increase in occupancy
and equipment expense primarily reflects increased depreciation
and maintenance costs associated with the Company's new and
acquired branch offices, in accordance with the Company's ongoing
commitment to expand its branch office network. The increase in
franchise taxes reflects the continued growth and profitability
of the Company. The increase in data processing reflects costs
associated with continued growth in loan and deposit accounts and
costs associated with the conversion to a new core processor
which was completed in June 2004. The increase in other
operating expense was due primarily to an increase in costs
related to maintaining real estate acquired through foreclosure
and other operating costs associated with the Company's overall
growth year to year.
In January 2004, the Company entered into an agreement to change
its data processing provider, based upon a six-month evaluation
of available alternatives. The conversion to the new system was
completed in June 2004. The new system provides an enhanced
framework for expanded products and services and continued
growth. The effects of the agreement will require after-tax
expense to be recognized over the next two quarters ending
December 31, 2004 of approximately $72,000 per quarter, or a
total of approximately $144,000.
Federal Income Taxes
____________________
The provision for federal income taxes totaled $386,000 for the
three months ended June 30, 2004, a decrease of $112,000, or
22.5%, compared to the $498,000 provision recorded in the same
period in 2003. This decrease was primarily due to a decrease in
pre-tax earnings of $327,000, or 22.3%. The Company's effective
tax rate was 34.0% for each of the three-month periods ended June
30, 2004 and 2003.
16
Peoples Community Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine-Month Periods Ended
________________________________________________________________
June 30, 2004 and 2003
______________________
General
_______
Net earnings amounted to $2.2 million for the nine months ended
June 30, 2004, a decrease of $479,000, or 17.6%, compared to the
$2.7 million of net earnings reported for the same period in
2003. The decrease in earnings resulted primarily from a $2.5
million increase in general, administrative and other expense and
a $97,000 decrease in other income, partially offset by a $1.3
million increase in net interest income, a decrease of $598,000
in the provision for losses on loans, and a $250,000 decrease in
federal income taxes.
Net Interest Income
___________________
Interest income on loans decreased by $679,000, or 2.6% during
the nine-month period ended June 30, 2004, compared to the 2003
period, due primarily to a 157 basis point decrease in the
weighted-average yield, to 5.95% for the 2004 period, which was
partially offset by a $108.6 million, or 23.2%, increase in the
average portfolio balance outstanding. The increase in the
average balance was due primarily to the acquisition of two
branch offices of Ameriana Bank and Trust in September 2003, the
Company's loan origination volume and declining repayment rate on
the loan portfolio during the current nine-month period, while
the decrease in yield reflected a general decrease in market
rates and the corresponding downward repricing of adjustable rate
loans, as well as $788,000 of amortization of the premium paid on
the loans acquired in the Ameriana transaction.
Interest income on mortgage-backed securities increased by $2.6
million, or 222.9%, due primarily to a $151.0 million, or 305.7%,
increase in the average balance outstanding, which was partially
offset by a 64 basis point decrease in the weighted-average
yield, to 2.51% in the 2004 period. Management purchased $109.3
million of adjustable-rate mortgage-backed securities during the
nine months ended June 30, 2004, in an effort to manage liquidity
and interest rate risk, as well as to provide interest income
with minimal credit risk, due to the implicit guaranty of
government-sponsored agencies.
Interest income on investment securities and interest-bearing
deposits and other decreased by $87,000, or 17.5%, due primarily
to a $10.4 million, or 39.5%, decrease in the average balance of
the related assets, partially offset by a 91 basis point increase
in the weighted-average yield, to 3.42% in the 2004 period. The
decrease in the average balance of such assets was primarily due
to the reinvestment of excess funds in mortgage-backed securities
and the funding of loan disbursements.
Interest expense on deposits decreased by $211,000, or 2.4%, due
primarily to a 78 basis point decrease in the weighted-average
cost of deposits, to 2.52% for the 2004 period, partially offset
by an increase of approximately $100.5 million, or 28.8%, in the
average balance of deposits outstanding. The increase in the
average balance was due primarily to the acquisition of two
branch offices of Ameriana Bank and Trust in September 2003.
Interest expense on borrowings increased by $765,000, or 14.3%,
due primarily to a $144.1 million, or 86.9%, increase in the
average balance of borrowings outstanding, partially offset by a
167 basis point decrease in the average cost of borrowings, to
2.63% for the 2004 period. . Proceeds from advances from the
Federal Home Loan Bank and other borrowings were generally used
to fund the purchase of adjustable rate mortgage-backed
securities and to fund loan originations. The decrease in the
average cost of borrowings is due primarily to the addition of
shorter term, lower rate advances during the period.
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $1.3 million,
or 9.1%, to a total of $15.3 million for the nine months ended
June 30, 2004, compared to the same period in 2003. The interest
rate spread decreased to 2.46% for the nine months ended June 30,
2004, from 3.24% for the comparable 2003 period, while the net
interest margin decreased to 2.58% for the nine months ended June
30, 2004, compared to 3.44% for the same period in 2003.
17
Peoples Community Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine-Month Periods Ended
________________________________________________________________
June 30, 2004 and 2003 (continued)
______________________
Provision for Losses on Loans
_____________________________
A provision for losses on loans is charged to earnings to bring
the total allowance for loan losses to a level considered
appropriate by management based on historical loss experience,
the volume and type of lending conducted by the Bank, the status
of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's
market area, and other factors related to the collectibility of
the Bank's loan portfolio. After considering the above factors,
management recorded a provision for losses on loans totaling $2.7
million and $3.3 million for the nine-month periods ended June
30, 2004 and 2003, respectively. The provision recorded during
the period ended June 30, 2004 was predicated primarily upon a
change in the portfolio mix taking into account the increase in
loans secured by multi-family and nonresidential real estate, and
unsecured commercial lines of credit, a $29.1 million, or 5.2%,
growth in the loan portfolio, as well as the increases in the
level of the Bank's internally classified loans and loans charged-
off year to year, as previously discussed. Such types of lending
are generally considered to involve a higher degree of risk than
one- to four-family residential lending. While management
presently believes the Company's allowance for loan losses is
sufficient to absorb inherent losses in the portfolio, there can
be no assurance that the allowance will be sufficient to cover
losses on nonperforming assets in the future.
Other Income
____________
Other income totaled $832,000 for the nine months ended June 30,
2004, a decrease of $97,000, or 10.4%, compared to $929,000
recorded for the same period in 2003. The decrease was primarily
due to the absence of $493,000 in gains on sales of securities in
the current nine month period as compared to the same period in
2003, which was partially offset by $206,000 in gains recorded on
the sale of real estate during the period ended June 30, 2004, a
$103,000, or 23.6%, increase in other income, and an $87,000 gain
recorded on the sale of loans in the secondary market.
In connection with the Ameriana transaction, management initiated
a program during the quarter ended December 31, 2003, to
originate and sell certain residential loans in the secondary
market on a servicing released basis. Management believes that
personnel added to the Bank's staff through the Ameriana
transaction possess the requisite experience to promote this
sales activity. This sales activity is being conducted in order
to accommodate consumer demand through origination and sale of
lower-rate, one- to four-family residential loans and as a means
for the Bank to maintain its interest rate risk position.
General, Administrative and Other Expense
_________________________________________
General, administrative and other expense totaled $10.1 million
for the nine months ended June 30, 2004, an increase of $2.5
million, or 33.2%, compared to the same period in 2003. This
increase resulted primarily from an increase of $1.6 million, or
42.2%, in employee compensation and benefits, an increase of
$270,000, or 21.3%, in occupancy and equipment, an increase of
$148,000, or 38.5%, in franchise taxes, a $353,000, or 91.2%,
increase in data processing, and a $103,000, or 6.3%, increase in
other operating expense.
The increase in employee compensation and benefits was due
primarily to an increase in staffing levels to support the
overall growth and branch structure of the Bank, normal merit
increases, and an increase in health insurance costs and other
employee benefits. From June 2003 to June 2004, the Company
increased its staffing complement by approximately 23 full-time
equivalent employees, including approximately nineteen employees
who were added in the purchase of two Ohio branch offices from
Ameriana Bank and Trust in September 2003. The increase in
occupancy and equipment expense primarily reflects increased
depreciation and maintenance costs associated with the Company's
new and acquired branch offices, in accordance with the Company's
ongoing commitment to expand its
18
Peoples Community Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine-Month Periods Ended
________________________________________________________________
June 30, 2004 and 2003 (continued)
______________________
General, Administrative and Other Expense (continued)
_________________________________________
branch office network. The increase in data processing reflects
continued growth in loan and deposit accounts, as well as
expenses related to the conversion of systems for the accounts
acquired from Ameriana and Kenwood and the overall costs
associated with a full data conversion to a new core processor in
June 2004. The increase in franchise taxes reflects the continued
growth and profitability of the Company. The increase in other
operating expense was due primarily to an increase in costs
related to maintaining real estate acquired through foreclosure,
and an increase in other operating costs associated with the
Company's overall growth year to year.
During January 2004, the Company entered into an agreement to
change its data processing provider, based upon a nine-month
evaluation of available alternatives. The conversion to this new
system was completed in June 2004. The new system provides an
enhanced framework for expanded products and services and
continued growth. The effects of the agreement will require
after-tax expense to be recognized over the next two quarters
ending December 31, 2004 of approximately $72,000, per quarter,
or a total of approximately $144,000.
Federal Income Taxes
____________________
The provision for federal income taxes totaled $1.2 million for
the nine months ended June 30, 2004, a decrease of $250,000, or
17.8%, compared to the $1.4 million provision recorded in the
same period in 2003. This decrease was primarily due to a
decrease in pre-tax earnings of $729,000, or 17.6%. The
Company's effective tax rates were 34.0% for both of the nine-
month periods ended June 30, 2004 and 2003.
Impact of Inflation and Changing Prices
_______________________________________
The financial statements and related financial data presented
herein have been prepared in accordance with instructions to Form
10-Q, which require the measurement of financial position and
operating results in terms of historical dollars, without
considering changes in relative purchasing power over time due to
inflation.
Unlike most industrial companies, virtually all of the Bank's
assets and liabilities are monetary in nature. As a result,
interest rates generally have a more significant impact on a
financial institution's performance than does the effect of
inflation.
Forward-Looking Statements
__________________________
This Form 10-Q contains certain forward-looking statements and
information relating to the Company that are based on the beliefs
of management as well as assumptions made by and information
currently available to management. In addition, in those and
other portions of this document, the words "anticipate,"
"believe," "estimate," "expect," "intend," "should" and similar
expressions, or the negative thereof, as they relate to the
Company or the Company's management, are intended to identify
forward-looking statements. Such statements reflect the current
views of the Company with respect to future looking events and
are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize or
should underlying assumptions prove incorrect, actual results may
vary from those described herein as anticipated, believed,
estimated, expected or intended. The Company does not intend to
update these forward-looking statements.
19
Peoples Community Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
__________________________________________________________
There has been no material change in the Company's market risk
since the Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended September 30, 2003.
ITEM 4: Controls and Procedures
_______________________
(a) Our management evaluated, with the participation of our
Chief Executive Officer and Chief Financial Officer, the
effectiveness of our disclosure controls and procedures (as
defined under Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this
report. Based on such evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that our disclosure
controls and procedures are designed to ensure that information
required to be disclosed by us in the reports that we file or
submit under the Securities and Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods
specified in the SEC's rules and regulations and are operating in
an effective manner.
(b) No change in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934) occurred during the most recent
fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
20
Peoples Community Bancorp, Inc.
PART II
ITEM 1. Legal Proceedings
_________________
Not applicable
ITEM 2. Changes in Securities, Use of Proceeds and Issuer
___________________________________________________
Purchases of Equity Securities
______________________________
Not applicable
ITEM 3. Defaults Upon Senior Securities
_______________________________
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
___________________________________________________
None.
ITEM 5. Other Information
_________________
On April 27, 2004, Peoples Community Bancorp
completed a secondary offering of 1,365,674 shares of
common stock. The net proceeds of the offering
totaling approximately $26.8 million have been and will
continue to be used to fund Peoples Community Bancorp's
growth strategy and for general corporate purposes.
ITEM 6. Exhibits and Reports on Form 8-K
________________________________
Reports on Form 8-K:
Peoples Community Bancorp filed
a Form 8-K dated April 28, 2004
under Item 12 in order to file
its press release reporting the
consummation of rights offering
and sale of common stock, along
with earnings for the period
ended March 31, 2004. No
financial statements were filed.
Peoples Community Bancorp filed
a Form 8-K dated June 1, 2004 in
order to file its press release
announcing a cash dividend
declared and payable on June 30,
2004. Additionally, the Company
announced its intent to
voluntarily reduce the shares to
be allocated to the employee
stock ownership plan from
150,000 to 35,000 as part of its
recent stock offering.
Peoples Community Bancorp filed
a Form 8-K dated July 23, 2004
in order to file its press
release announcing the
resignation of Grant Thornton
LLP as the independent public
accountants for Peoples
Community Bancorp, Inc. due to
independence issues associated
with the Company's employment of
a former employee of Grant
Thornton LLP.
Peoples Community Bancorp filed
a Form 8-K dated July 30, 2004
in order to file its press
release announcing the
appointment of BKD, LLP as
independent auditors for the
fiscal year ending September 30,
2004.
Peoples Community Bancorp filed
a Form 8-K/A dated August 4,
2004 in order to file its press
release announcing the
appointment of BKD, LLP as
independent auditors for the
fiscal year ending September 30,
2004 actually occurred on July
29, 2004 with the signing of the
engagement letter and not on
July 23, 2004 as previously
reported.
21
Exhibits:
31.1 Written statement of Chief Executive Officer furnished
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350
31.2 Written statement of Chief Financial Officer furnished
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350
32.1 Written statement of Chief Executive Officer furnished
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350
32.2 Written statement of Chief Financial Officer furnished
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350
22
SIGNATURES
__________
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: August 16, 2004 By: /s/Jerry D. Williams
_______________ ____________________
Jerry D. Williams
President
Date: August 16, 2004 By: /s/Teresa A. O'Quinn
_______________ _______________________
Teresa A. O'Quinn
Chief Financial Officer
23