10-Q 1 l12150ae10vq.txt PEOPLES OHIO FINANCIAL CORP 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended December 31, 2004 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period ------------------------------------------------------ Commission File Number 0-49619 PEOPLES OHIO FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Ohio 31-1795575 ------------------------------- --------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 635 South Market Street, Troy, Ohio 45373 ----------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Issuer's Telephone Number, including Area Code (937) 339-5000 -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILLED ALL REPORTS REQUIRED TO BE FILED BY SECTION 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 FILLING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ----------------- ------------------- INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT). YES NO X ----------------- ------------------- As of FEBRUARY 14, 2005, there were 7,267,289 common shares of the registrant issued and outstanding. 1 PEOPLES OHIO FINANCIAL CORPORATION INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 31, 2004 and June 30, 2004. Condensed Consolidated Statements of Income for the three and six months ended December 31, 2004 and 2003. Condensed Consolidated Statement of Shareholders' Equity for the six months ended December 31, 2004. Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2004 and 2003. Notes to Condensed Consolidated Financial Statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Item 4. Controls and Procedures. PART II. OTHER INFORMATION Item 1. Legal Proceedings. Item 2. Unregistered Sales of Equity 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. SIGNATURE PAGE INDEX TO EXHIBITS 2 ITEM 1. FINANCIAL STATEMENTS PEOPLES OHIO FINANCIAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to condensed consolidated financial statements 3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED DECEMBER 30, 2004 AND 2003 (UNAUDITED)

See notes to condensed consolidated financial statements 4 PEOPLES OHIO FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 2004 AND 2003 (UNAUDITED)

See notes to condensed consolidated financial statements 5 PEOPLES OHIO FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED DECEMBER 31, 2004 (UNAUDITED)

See notes to condensed consolidated financial statements 6 PEOPLES OHIO FINANCIAL CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2004 (1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Form 10-Q instructions and Article 10 of Regulation S-X, and, in the opinion of management, reflect all adjustments necessary to present fairly the financial position as of December 31, 2004 and June 30, 2004, the results of operations and the cash flows for the three and six-month periods ended December 31, 2004 and 2003. All adjustments to the financial statements were normal and recurring in nature. These results have been determined on the basis of accounting principles generally accepted in the United States of America. The results of operations for the three and six-month periods ended December 31, 2004, are not necessarily indicative of results for the entire fiscal year. The condensed consolidated balance sheet of Peoples Ohio Financial Corporation (the "Company") as of June 30, 2004 has been derived from the audited consolidated balance sheet of the Company as of that date. The condensed consolidated financial statements are those of the Company and Peoples Savings Bank of Troy (the "Bank"). Certain information and footnote disclosures normally included in the Company's financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's 2004 Annual Report to Shareholders. (2) Earnings Per Share The following table is for the three and six-month period ending December 31, 2004 and 2003 and reflects the weighted average number of shares of common stock for both basic and diluted earnings per share ("EPS") as well as the dilutive effect of stock options.

Options to purchase 193,870 shares of common stock with exercise prices ranging from $4.20 to $8.13 per share were outstanding at December 31, 2004, but were not included in the computation of diluted EPS because such exercise prices were greater than the average market price of the common shares. 7 (3) Stock Options The Company has a stock-based employee compensation plan. The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the grant date. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. The proforma effect on income for the periods presented includes the effect of forfeitures.

(4) New Accounting Pronouncement Not Yet Adopted In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment ("SFAS 123(R)"). SFAS 123(R) addresses all forms of share-based payment awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS 123(R) will require the Company to expense share based-payment awards with compensation cost for share based-payment transactions measured at fair value. Prior to SFAS 123(R), only certain pro forma disclosures of fair value were required. Management does not anticipate that the adoption of this standard will have a significant impact on the Company's consolidated net income and net income per share. SFAS 123(R) requires registrants to record compensation expense for all awards granted after adopting the standard as well as record compensation expense for the unvested portion of previously granted awards outstanding at the date of adoption. In addition, registrants may elect to restate prior period financial statements, basing the amounts on the expense previously calculated and reported in pro forma footnote disclosures. SFAS 123(R) requires the Company to adopt the new accounting provision no later than the first quarter of fiscal 2006. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Peoples Ohio Financial Corporation (the "Company") is based in west central Ohio and is the parent company of Peoples Savings Bank of Troy (the "Bank"). The Company was formed during the year ended June 30, 2002 to provide various benefits to the Bank, as well as to take advantage of a more effective structure for expanded financial activities. The Bank, a state chartered savings bank, was originally chartered in 1890. The Bank is primarily engaged in attracting deposits from Miami and northern Montgomery counties and originating mortgage loans throughout those same areas. All references to the Company include the Bank unless otherwise indicated. FORWARD LOOKING STATEMENTS In addition to historical information, this Form 10-Q may include certain forward-looking statements based upon current management expectations. The Company's actual results could differ materially from those management expectations. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the composition or quality of the Bank's loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices. A further description of the risks and uncertainties to the business are included in detail under the caption "Liquidity and Capital Resources of the Company and the Bank." APPLICATION OF CRITICAL ACCOUNTING POLICIES The Company's condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and reporting practices followed within the thrift industry. The application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Management believes the allowance for loan loss policy is a critical accounting policy requiring significant estimates and assumptions in the preparation of the condensed consolidated financial statements. The allowance for loan losses provides coverage for probable losses inherent in the Company's loan portfolio. Management evaluates the adequacy of the allowance for credit losses each quarter based on changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of significant management estimates. Many factors can affect management's estimates of specific and expected losses, including volatility of default probabilities, rating migrations, loss severity and economic and political conditions. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs. The Company determines the amount of the allowance based on relative risk characteristics of the loan portfolio. The allowance recorded for commercial loans is based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience. The allowance recorded for homogeneous consumer loans is based on an analysis of loan mix, risk characteristics of the portfolio, fraud loss and bankruptcy experiences, and historical losses, adjusted for current trends, for each homogeneous category or group of loans. The allowance for credit losses relating to impaired loans is based on the loan's observable market price, the collateral for certain collateral-dependent loans, or the discounted cash flows using the loan's effective interest rate. Regardless of the extent of the Company's analysis of customer performance, portfolio trends or risk management processes, certain inherent but undetected losses are probable within the loan portfolio. This is due to several factors including inherent delays in obtaining information regarding a customer's financial condition or changes in their unique business conditions, the judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic or customer-specific conditions affecting the 9 identification and estimation of losses for larger non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are among other factors. The Company estimates a range of inherent losses related to the existence of these exposures. The estimates are based upon the Company's evaluation of imprecision risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment. Other accounting policies followed by the Company are presented in Note 1 to the consolidated financial statements. These policies, along with the disclosures presented in the the audited financial statements and notes thereto included in the Company's 2004 Annual Report to Shareholders, and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. FINANCIAL CONDITION Total consolidated assets of the Company at December 31, 2004 were $188,560,000, compared to $193,196,000 at June 30, 2004, a decline of $4.6 million or 2.4%. CASH AND CASH EQUIVALENTS declined $4.6 million or 42.6%, from $10,875,000 at June 30, 2004 to $6,242,000 at December 31, 2004. Management uses its short -term "cash accounts" to hold funds generated from these regular banking activities as it evaluates investment (loan) alternatives. INVESTMENT SECURITIES declined $10.8 million or 66.3%, from $16,242,000 at June 30, 2004 to $5,472,000 at December 31, 2004. This decline was the result of management shifting proceeds from maturing investment securities to the Bank's loan portfolio as demand for loans in nearly every category increased. NET LOANS increased $10.9 million or 7.2%, from $150,735,000 at June 30, 2004, to $161,606,000 at December 31, 2004. The following table illustrates changes in the Bank's loan portfolio by category for each period presented.

The Bank continues to be a strong residential lender throughout the communities in which it operates. The increase in residential single-family mortgages was the result of an active marketing campaign that began during the fourth quarter of fiscal 2004 and continued through the second quarter of fiscal 2005. Management continued its focus on shorter-term residential construction single family mortgage, commercial real estate, commercial business and home equity lending resulting in the increase of both the residential construction and home improvement loan portfolios during the period. 10 THE ALLOWANCE FOR LOAN LOSSES declined from $1,048,000 at June 30, 2004 to $838,000 at December 31, 2004. This decrease was the result of a provision for loan losses of $60,000 during the six months ended December 31, 2004 and net charge-offs of $270,000. The ratio of the Company's allowance for loan losses to gross loans was 0.49% and 0.67% at December 31, 2004 and June 30, 2004, respectively. The allowance for loan losses is maintained to absorb loan losses based on management's continuing review and evaluation of the loan portfolio and its judgment regarding the impact of economic conditions on the portfolio. The following table compares non-performing loans, which are loans past due 90 days or more and non-accruing loans, at December 31, 2004 and June 30, 2004.

Non-performing loans, declined from $1,248,000 at June 30, 2004, to $1,056,000 at December 31, 2004. Loans past-due 90 days or more and still accruing declined from $610,000 at June 30, 2004 to $530,000 at December 31, 2004. This decline was primarily attributable to one credit relationship involving a $375,000 commercial real estate loan, which was classified as a non-accrual loan during the first quarter of fiscal year 2005, was acquired and subsequently disposed of during the second quarter of fiscal year 2005. Non-accrual loans decreased from $683,000 at June 30, 2004 to $526,000 at December 31, 2004. In addition to the aforementioned credit relationship, two additional single-family credit relationships that had been classified as non-accrual loans were acquired and sold during the second quarter of fiscal year 2005. These dispositions were somewhat offset by the classification of a $454,000 single-family loan to non-accrual status during the second quarter of fiscal year 2005. Management continues to work closely with its delinquent borrowers to bring these loans current. The ratio of the Company's allowance for loan losses to non-performing loans was 79.4% and 84.0% at December 31, 2004 and June 30, 2004, respectively. Management believes that the problems with these loans are isolated and not indicative of the loan portfolio in total. DEPOSITS decreased $4,986,000, or 4.4%, from $114,223,000 at June 30, 2004 to $109,237,000 at December 31, 2004. The following table illustrates changes in the various types of deposits for each period presented.

The increases in NOW accounts was primarily attributable to the opening of new accounts. The Company has deposit relationships with several municipalities and school districts. It is the nature of these accounts to fluctuate as tax revenues are collected and disbursed. The decline in the Company's money market accounts is primarily attributable to fluctuations in these "public fund" accounts. TOTAL STOCKHOLDERS' EQUITY increased $94,000, or 0.4%, from $24,391,000 million at June 30, 2004, to $24,485,000 million at December 31, 2004. The increase was the result of $862,000 in net earnings, $201,000 contributed from the exercise of options, and $9,000 related to the net change in equity related to the Company's ESOP. These increases 11 to stockholders' equity were somewhat offset by $472,000 in dividends paid to the Company's stockholders, $502,000 related to the repurchase of stock, and a $4,000 decrease in the unrealized gain on securities available for sale during the six month period ended December 31, 2004. During July 2004, the Company's Board of Directors authorized the repurchase of up 365,000 shares of the Company's common stock. Treasury stock purchases are made on the open market and used for general corporate purposes. RESULTS OF OPERATIONS--COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 2004 AND 2003 The Company reported earnings of $862,000 for the six months ended December 31, 2004, a decline of $42,000, or 4.7%, from the $904,000 reported for the same period in 2003. Basic and fully diluted earnings per share were unchanged at $0.12 for the six months ended December 31, 2004, and 2003. The Company's return on average assets was 0.90% for the six months ended December 31, 2004 compared to 0.90% for the same period in 2003. Return on average equity was 7.09% for the six months ended December 31, 2004, compared to 7.43% for the same period in 2003. The decline in earnings was primarily a result of an increase in noninterest expense of $48,000, or 1.5%, from $3,133,000 reported for the six months ended December 31, 2003 to $3,181,000 for six months ended December 31, 2004. NET INTEREST INCOME was $3,486,000 for the six months ended December 31, 2004, virtually the same as the $3,490,000 reported for six months ended December 31, 2003. Total interest income was $5,463,000 for the six months ended December 31, 2004, a decline of $208,000, or 3.7% from the $5,671,000 reported during the six months ended December 31, 2003. This decline in interest income was offset by a $204,000 or 9.4% decline in interest expense from $2,181,000 for the six months ended December 31 2003, to $1,977,000 for the six months ended December 31, 2004. While total interest income was virtually unchanged when comparing the six months ended December 31, 2004, to the same period in 2003. Average loans outstanding increased from $151,881,000 during the six months ended December 31, 2003, to $155,000,000 during the six months ended December 31, 2004. This increase was the result of strong demand for residential construction, commercial real estate and home equity loans during the period and a continued effort by management to grow this shorter-term portion of its loan portfolio. This increase in average loans outstanding was mitigated by the continued low interest rate environment's impact on the average yield of the Company's loan portfolio. Management noted that the average yield on the Company's loan portfolio declined 37 basis points from 6.82% during the six months ended December 31, 2003 to 6.45% during the six months ended December 31, 2004. Interest expense was $1,977,000 for the six months ended December 31, 2004, $204,000 or 9.4%, lower than the $2,181,000 recorded for the six months ended December 31 2003, as interest expense paid on certificates of deposit and Federal Home Loan Bank ("FHLB") advances declined significantly in comparison to the same period in the previous year. Interest expense on certificates of deposit was $331,000, $153,000 or 31.6% lower than the $484,000 recorded in six months ended December 31, 2003. The average balance of certificates of deposit declined by $7,018,000, from $38,387,000 for the six months ended December 31, 2003, to $31,369,000 for six months ended December 31, 2004. This decline in average certificates of deposit outstanding was partially offset by an increase in the average rate paid on those certificates of 32 basis points, from 2.50% during the six months ended December 31, 2003, to 2.82% during the six months ended December 31 2004. Interest expense on FHLB advances was $1,411,000, for the six months ended December 31, 2004, $92,000 or 6.1% lower than the $1,503,000 recorded in the six months ended December 31, 2003. While the average balance of FHLB advances remained fairly stable, increasing $1,076,000, from $54,262,000 for the six months ended December 31, 2003 to $55,338,000 for the six months ended December 31, 2004, the average rate paid on those advances declined 43 basis points, from 5.49% during the six months ended December 31 2003, to 5.06% during the same period in 2004. The remaining change in interest expense was attributable to a$41,000 increase in the amount of interest paid to the Company's demand deposit and savings account customers. THE PROVISION FOR LOAN LOSSES was $60,000 for six months ended December 31, 2004 and the same period in 2003. The provision for both periods reflects management's analysis of the Bank's loan portfolio based on information that is currently available to it at such time. In particular, management considers the level of non-performing loans and potential problem loans. Net charge-offs for the six months ended December 31, 2004 were $270,000 compared to $62,000 during the same period in 2003. While management believes that the allowance for loan losses is 12 sufficient based on information currently available to it, no assurances can be made that future events, conditions, or regulatory directives will not result in increased provisions for loan losses which may adversely effect income. NONINTEREST INCOME was $1,037,000 for six months ended December 31, 2004, $11,000 or 1.1% less than the $1,048,000 reported for the six months ended December 31, 2003. The decline was attributable to a $52,000 reduction in income generated from fiduciary activities (trust services). This decreases was somewhat offset by a $40,000 increase in service charges earned on deposit accounts which were the result of normal fee increases over the prior period. NONINTEREST EXPENSE was $3,181,000 for six months ended December 31, 2004, $48,000 or 1.5% higher than the $3,133,000 reported for the six months ended December 31, 2003. Growth in the following noninterest expense categories contributed to the increase: professional services increased $99,000 or 134.3%, data processing fees increased $59,000 or 20.5% and State of Ohio franchise taxes increased $18,000 or 13.6%. These increases in noninterest expense were somewhat offset by declines in salaries and employee benefits which declined $68,000 or 4.6%, occupancy expense which declined $15,000 or 6.5%, other noninterest expenses which declined $28,000 or 3.7%. The increase in other professional services was attributable to fees related to compliance with provisions set forth in the Sarbanes-Oxley Act of 2002, and fees for services provided to the Bank's wealth management (formerly trust) services. The increase in data processing fees was attributable to periodic maintenance on the Bank's processing hardware. Partially offsetting these increases were declines in salary and employee benefits primarily due to a $62,000 reduction in employee from fiscal 2004 to fiscal 2005. The decline in other noninterest expense, as well as, several of the other noninterest expense categories was the result of management's continued focus on controlling the Bank's noninterest expense. TOTAL INCOME TAX EXPENSE was $419,000 (an effective tax rate of 32.7%) for the six months ended December 31, 2004, compared to $441,000 (an effective tax rate of 32.8%) during the six months ended December 31, 2003. RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003. The Company reported earnings of $441,000 for the three months ended December 31, 2004, an increase of $51,000, or 13.1%, from the $390,000 reported for the same period in 2003. Both basic and diluted earnings per share increased $0.01, or 20.0%, from $0.05 for the three months ended December 31, 2003, to $0.06 for the three months ended December 31, 2004. The Company's return on average assets was 0.92% for the three months ended December 31, 2004 compared to 0.79% for the same period in 2003 while return on average equity was 7.26% for the three months ended December 31, 2004 compared to 6.42% for the same period 2003. NET INTEREST INCOME was $1,767,000 for the three months ended December 31, 2004, $50,000, or 2.9%, greater than the $1,717,000 reported for three months ended December 31, 2003. Interest income was relatively unchanged at $2,755,000 for the three months ended December 31, 2004, compared to $2,760,000 for the three months ended December 31 2003. However, the composition of interest income shifted from interest income earned on investment securities to interest income earned on loans. Interest income earned on loans increased by $35,000 or 1.4%, from $2,541,000 for the three months ended December 31, 2003, to $2,576,000 for the three months ended December 31, 2004. This was attributable to an increase in the average balance of total loans outstanding, from $150.1 million for the quarter ended December 31, 2003 to $158.1 for the quarter ended December 31, 2004. However, the overall yield on loans declined 32 basis points from 6.73% during the quarter ended December 31, 2003, to 6.41% during the quarter ended December 31, 2004. Interest income earned on investment securities and other interest earning assets declined by $40,000 or 18.3%, from $219,000 for the three months ended December 31, 2003, to $179,000 for the three months ended December 31, 2004. This decline was solely the result of management's reinvestment of proceeds from maturing investment securities into the loan portfolio. Interest expense was $988,000 for the three months ended December 31, 2004, a decrease of $55,000 or 5.3%, $1,043,000 for the three months ended December 31 2003. This decline was the result of the lower interest rate environment coupled with a change in the mix of deposits and FHLB advances used to fund the Bank's assets. Average total deposits decreased $4.6 million, from $117.8 million for the quarter ended December 31, 2003, to $113.2 million during the quarter ended December 31, 2004, while the average rate paid on deposit accounts declined 13 slightly from 1.11% during the quarter ended December 31, 2003, to 0.98% during the quarter ended December 31, 2004. While the Bank paid-off maturing long-term FHLB advances, it increased its level of "overnight" borrowing from the FHLB. Accordingly, while the average balance of FHLB borrowings increased from $51.0 million during the quarter ended December 31, 2003, to $55.1 million during the quarter ended December 31, 2004, the average rate paid on those advances declined from 5.19% during the quarter ended December 31, 2003, to 5.11% during the quarter ended December 31, 2004. THE PROVISION FOR LOAN LOSSES was $30,000 for three months ended December 31, 2004 and for the same period in 2003. The provision for both periods reflects management's analysis of the Bank's loan portfolio based on information that is currently available to it at such time. In particular, management considers the level of non-performing loans and potential problem loans. Total charge-offs for three months ended December 2004 were $244,000 compared to $28,000 during the same period in 2003. Included in the $244,000 charged-off during the three months ended December 31, 2004, was $156,000 related to a problem credit that had been specifically reserved for in a prior period. While management believes that the allowance for loan losses is sufficient based on information currently available to it, no assurances can be made that future events, conditions, or regulatory directives will not result in increased provisions for loan losses which may adversely affect income. NONINTEREST EXPENSE was $1,571,000 for three months ended December 31, 2004, $52,000 or 3.2% less than the $1,623,000 reported for the three months ended December 31, 2003. This decline was primarily the result of a $59,000 or 7.8% decline in salary and employee benefits as full time equivalent employees declined from 63 at December 31,2003 to 60 at December 31, 2004. In addition, other noninterest expense declined $17,000 or 3.3%. These declines were partially offset by a $23,000 or 16.3% increase in Data processing expenses from $141,000 for the quarter ending December 31, 2003 to $164,000 for the quarter ending December 31, 2004. TOTAL INCOME TAX EXPENSE was $219,000 (an effective tax rate of 33.2%) for the three months ended December 31, 2004, compared to $198,000 (an effective tax rate of 33.6%) during the three months ended December 31, 2003. LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY AND THE BANK Banking regulations require the Bank to maintain sufficient liquidity to ensure its safe and sound operation. The Bank's regulatory liquidity was 14.28% and 15.80% at December 31, 2004 and 2003, respectively. The primary source of funding for the Company is dividend payments from the Bank. Dividend payments by the Bank have been used primarily by the Company to pay dividends to its stockholders. The Bank's liquidity is a product of its operating, investing and financing activities. The primary investment activity of the Bank is the origination of mortgage loans and, to a lesser extent, commercial and consumer loans. The primary sources of funds are deposits, FHLB borrowings, prepayments and maturities of outstanding loans, mortgage-backed securities, and investments. While scheduled payments of loans and mortgage-backed securities and maturing investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by interest rates, economic conditions and competition. The Bank utilizes FHLB borrowings to leverage its capital base and provide funds for lending and to better manage its interest rate risk. The sole investment of the Company is its investment in the Bank's stock. At December 31, 2004, the Bank had outstanding commitments to fund existing construction loans of $8,023,000, originate loans of $4,046,000, open-end consumer lines of credit of $8,426,000, unused commercial lines of credit of $5,245,000 and standby letters of credit of $2,134,000. As of December 31, 2004, certificates of deposit scheduled to mature in one year or less totaled $21,770,000. Based on historical experience, management believes that a significant portion of maturing deposits will remain with the Bank. Management anticipates that the Bank will continue to have sufficient funds, through deposits, borrowings, and normal operations to meet its commitments. The Bank is required by Office of Thrift Supervision ("OTS") regulations to meet certain minimum capital requirements. At December 31, 2004, the Bank exceeded all of its regulatory capital requirements with tangible and tier 1 capital both at $22,690,000 or 12.15% of adjusted total assets, and risk-based capital at $23,528,000 or 17.61% of risk-weighted assets. The minimum ratios required by the OTS are 1.5% for tangible capital to adjusted total assets, 4.0% for tier 1 capital to adjusted total assets and 8.0% for risk-based capital to risk-weighted assets. The Bank's most liquid assets are cash and cash equivalents. The level of cash and cash equivalents is dependent on the Bank's operating, financing lending and investing activities during any given period. At December 31, 2004, 14 the Bank's cash and cash equivalents totaled $6,242,000. The Company's and Bank's future short-term requirements for cash are not expected to significantly change. However, in the event that the Bank should require funds in excess of its ability to generate them internally, additional sources of funds are available, including additional FHLB advances. With no parent company debt and sound capital levels, the Company should have many options available for satisfying its longer-term cash needs such as borrowing funds, raising equity capital and issuing trust preferred securities. Management is not aware of any current recommendations or government proposals which, if implemented would have a material effect on the Company's liquidity, capital resources or operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no significant change in the Company's market risk since June 30, 2004, except as discussed in the Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2, above. For information regarding the Company's Market Risk, refer to the Company's Form 10-K for the year ending June 30, 2004. ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company's Chief Executive Officer and Chief Financial Officer evaluated, with the participation of the Company's management, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based upon their evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. No changes were made to the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the Company's most recent fiscal quarter that have materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in various legal actions incident to its business, none of which is believed by management to be material to the financial condition of the Company. ITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS In July 2004, the Company's Board of Directors approved a share repurchase authorization of up to 364,118 shares. In the quarter ended December 31, 2004, the Company made the following repurchases of common stock:

There were no share repurchase plans that expired during the quarter, and the Company did not terminate any plan prior to its expiration date. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The information contained in Part II Item 4 of the Company's Form 10-Q filed with the SEC on November 15, 2004, for the period ended September 30, 2004, is incorporated herein by reference. ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS a. Exhibits 3.1 Peoples Ohio Financial Corporation Articles of Incorporation (incorporated by reference to the Form 8-A filed with the SEC on February 8, 2002 (the "Form 8-A"), Exhibit 2(a)) 3.2 Peoples Ohio Financial Corporation Amended and Restated Code of Regulations (Incorporated by reference to the Form 8-A, Exhibit 2(b)) 31.1 Certification of Ronald B. Scott, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Richard J. Dutton, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification of Ronald B. Scott, Chief Executive Officer and Richard J. Dutton, Chief Financial Officer, pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 16 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. PEOPLES OHIO FINANCIAL CORPORATION Dated: February 14, 2005 By /s/ Ronald B. Scott ---------------------------------- Ronald B. Scott President, Chief Executive Officer By /s/ Richard J. Dutton ---------------------------------- Richard J. Dutton Vice-President, Chief Financial Officer 17 INDEX TO EXHIBITS