1
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 June 30, 2001
---------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-30050
-----------------------------
PEOPLES FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Mississippi 64-0709834
- ----------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Lameuse and Howard Avenues, Biloxi, Mississippi 39533
- ----------------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
(228) 435-5511
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed 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 filing
requirements for the past 90 days.
Yes X No
------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Peoples Financial Corporation has only one class of common stock authorized. At
July 31, 2001, there were 15,000,000 shares of $1 par value common stock
authorized, and 5,628,238 shares issued and outstanding.
Page 1 of 20
2
PART I
FINANCIAL INFORMATION
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<Table>
<Caption>
June 30, December 31, and June 30, 2001 2000 2000
------------ ------------ ------------
ASSETS
Cash and due from banks $ 39,329,475 $ 35,145,868 $ 33,690,622
Available for sale securities 94,726,096 48,167,770 41,263,586
Held to maturity securities, market value of
$67,444,000 - June 30, 2001;
$97,946,000 - December 31, 2000;
$103,564,000 - June 30, 2000 66,833,477 98,051,955 105,292,874
Federal Home Loan Bank Stock, at cost 1,833,600 1,647,300 1,647,300
Federal funds sold 8,050,000
Loans 360,414,015 377,485,768 370,175,118
Less: Unearned income 10,037 9,612 15,296
Allowance for loan losses 5,298,052 4,567,565 4,153,855
------------ ------------ ------------
Loans, net 355,105,926 372,908,591 366,005,967
Bank premises and equipment, net of
accumulated depreciation of $12,417,000 -
June 30, 2001; $11,427,000 - December 31,
2000; and $10,711,000 - June 30, 2000 18,488,002 18,333,272 18,655,870
Other real estate 2,613,702 1,061,081 117,207
Accrued interest receivable 3,981,690 4,497,713 2,995,829
Other assets 5,504,884 7,430,384 5,695,152
------------ ------------ ------------
TOTAL ASSETS $596,466,852 $587,243,934 $575,364,407
============ ============ ============
</Table>
Page 2 of 20
3
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
<Table>
<Caption>
June 30, December 31, and June 30, 2001 2000 2000
------------- ------------- -------------
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 75,690,472 $ 68,080,764 $ 74,820,606
Savings and demand, interest bearing 132,400,382 137,531,988 161,260,097
Time, $100,000 or more 145,032,104 126,353,164 87,317,766
Other time deposits 82,798,548 81,758,161 63,930,598
------------- ------------- -------------
Total deposits 435,921,506 413,724,077 387,329,067
Accrued interest payable 948,253 1,028,564 724,090
Federal funds purchased and securities sold under
agreements to repurchase 71,791,721 65,339,084 69,555,335
Borrowings from the Federal Home Loan Bank 5,244,695 23,159,507 34,000,000
Notes payable 301,307 291,481 350,405
Other liabilities 4,996,959 4,984,364 4,560,120
------------- ------------- -------------
TOTAL LIABILITIES 519,204,441 508,527,077 496,519,017
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 15,000,000 shares
authorized, 5,628,238, 5,795,207 and 5,862,671
shares issued and outstanding at June 30, 2001,
December 31, 2000 and June 30, 2000,
respectively 5,628,238 5,795,207 5,862,674
Surplus 65,780,254 65,780,254 65,780,254
Undivided profits 5,114,497 7,093,830 8,020,800
Unearned compensation (492,706) (535,840) (647,910)
Accumulated other comprehensive income 1,232,128 583,406 (170,428)
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 77,262,411 78,716,857 78,845,390
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 596,466,852 $ 587,243,934 $ 575,364,407
============= ============= =============
</Table>
See Selected Notes to Consolidated Financial Statements.
Page 3 of 20
4
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<Table>
<Caption>
For The Quarters Ended June 30, For The Six Months Ended June 30,
------------------------------- ---------------------------------
2001 2000 2001 2000
----------- ----------- -------------- --------------
INTEREST INCOME:
Interest and fees on loans $ 7,399,107 $ 8,220,162 $15,534,740 $15,829,273
Interest and dividends on investments:
U.S. Treasury 613,020 823,049 1,300,756 1,708,974
U.S. Government agencies and
corporations 1,416,354 1,256,764 2,785,554 2,443,768
States and political subdivisions 137,873 132,732 276,619 269,232
Other investments 90,947 51,433 314,694 96,031
Interest on federal funds sold 30,382 5,723 59,970 36,191
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 9,687,683 10,489,863 20,272,333 20,383,469
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Time deposits of $100,000 or more 2,041,260 1,116,202 4,176,101 2,247,243
Other deposits 2,227,341 2,166,020 4,796,519 4,397,451
Mortgage indebtedness 2,312 2,498 4,672 4,919
Borrowings from Federal Home Loan
Bank 118,135 426,514 250,575 426,514
Federal funds purchased and securities
sold under agreements to repurchase 592,467 822,632 1,316,422 1,420,378
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 4,981,515 4,533,866 10,544,289 8,496,505
----------- ----------- ----------- -----------
NET INTEREST INCOME 4,706,168 5,955,997 9,728,044 11,886,964
Provision for losses on loans 1,332,230 52,500 1,407,230 105,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOSSES ON LOANS 3,373,938 5,903,497 8,320,814 11,781,964
----------- ----------- ----------- -----------
OTHER OPERATING INCOME:
Trust department income and fees 264,077 191,294 495,867 482,079
Service charges on deposit accounts 1,537,704 1,282,453 2,967,859 2,518,786
Other service charges, commissions
and fees 81,983 82,363 153,573 147,622
Other income 130,435 184,543 452,928 268,957
----------- ----------- ----------- -----------
TOTAL OTHER OPERATING INCOME $ 2,014,199 $ 1,740,653 $ 4,070,227 $ 3,417,444
----------- ----------- ----------- -----------
</Table>
Page 4 of 20
5
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (continued)
(Unaudited)
<Table>
<Caption>
For The Quarters Ended June 30, For The Six Months Ended June 30,
------------------------------- ---------------------------------
2001 2000 2001 2000
------------ ------------ ------------- -----------
OTHER OPERATING EXPENSE:
Salaries and employee benefits $ 2,826,008 $ 2,638,124 $ 5,513,778 $ 5,284,656
Net occupancy 295,899 254,124 577,591 503,597
Equipment rentals, depreciation and
maintenance 692,115 690,513 1,392,828 1,299,976
Other expense 1,773,657 1,276,751 3,031,792 2,648,152
----------- ----------- ----------- -----------
TOTAL OTHER OPERATING EXPENSE 5,587,679 4,859,512 10,515,989 9,736,381
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (199,542) 2,784,638 1,875,052 5,463,027
INCOME TAXES (BENEFIT) (81,996) 888,400 587,999 1,767,500
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (117,546) $ 1,896,238 $ 1,287,053 $ 3,695,527
=========== =========== =========== ===========
</Table>
See Selected Notes to Consolidated Financial Statements.
Page 5 of 20
6
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<Table>
<Caption>
Accumulated
# of Unearned Other Compre-
Common Common Undivided Compen- Comprehen- hensive
Shares Stock Surplus Profits sation sive Income Income Total
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance,
January 1,
2000 5,905,344 $ 5,905,344 $ 65,759,086 $ 6,837,628 $ (624,842) $ (110,330) $ 77,766,886
Compre-
hensive
Income:
Net income 3,695,527 $ 3,695,527 3,695,527
Net unreal-
ized loss
on
available
for sale
securities,
net of tax (60,098) (60,098) (60,098)
------------
Total
compre-
hensive
income $ 3,635,429
============
Purchase of
shares by
ESOP (83,068) (83,068)
Allocation
of ESOP
shares 60,000 60,000
Retirement
of common
stock (42,670) (42,670) 21,168 (1,276,927) (1,298,429)
Dividend
declared,
($ .11 per
share) (644,894) (644,894)
Cash
dividends
($ .10 per
share) (590,534) (590,534)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance,
June 30,
2000 5,862,674 $ 5,862,674 $ 65,780,254 $ 8,020,800 $ (647,910) $ (170,428) $ 78,845,390
============ ============ ============ ============ ============ ============ ============
</Table>
Page 6 of 20
7
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
(Unaudited)
<Table>
<Caption>
Accumulated
# of Unearned Other Compre-
Common Common Undivided Compen- Comprehen- hensive
Shares Stock Surplus Profits sation sive Income Income Total
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------
Balance,
January 1,
2001 5,795,207 $ 5,795,207 $ 65,780,254 $ 7,093,830 $ (535,840) $ 583,406 $ 78,716,857
Compre-
hensive
Income
Net income 1,287,053 $1,287,053 1,287,053
Net
unrealized
gain on
available
for sale
securities,
net of tax 648,722 648,722 648,722
----------
Total
compre-
hensive
income $1,935,775
==========
Purchase of
common
shares by
ESOP (37,866) (37,866)
Allocation
of ESOP
shares 81,000 81,000
Issuance of
stock 6,886 6,886 93,097 99,983
Retirement
of common
stock (173,855) (173,855) (2,699,640) (2,873,495)
Dividend
declared
($ .12 per
share) (675,388) (675,388)
Effect of
stock
retirement
on accrued
dividends 15,545 15,545
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance,
June 30,
2001 5,628,238 $ 5,628,238 $ 65,780,254 $ 5,114,497 $ (492,706) $ 1,232,128 $ 77,262,411
============ ============ ============ ============ ============ ============ ============
</Table>
See Selected Notes to Consolidated Financial Statements.
Page 7 of 20
8
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
For The Six Months Ended June 30, 2001 2000
- ----------------------------------------------------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,287,053 $ 3,695,527
Adjustments to reconcile net income to net cash provided
by operating activities:
Loss on sales of other real estate 4,410
Gain on sale of bank premises (76,328)
Depreciation and amortization 991,000 876,000
Provision for losses on loans 1,407,230 105,000
Provision for losses on other real estate 473,500
Stock issued under incentive plan 99,983
Changes in assets and liabilities:
Accrued interest receivable 516,023 789,794
Other assets 1,296,810 80,319
Accrued interest payable (80,311) (44,853)
Other liabilities (354,635) 298,369
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,641,063 5,723,828
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales, maturities and calls of held to maturity
securities 86,995,000 32,000,000
Investment in held to maturity securities (55,776,522) (22,020,084)
Proceeds from sales, maturities and calls of available for sale
securities 22,115,086 132,312
Investment in available for sale securities (67,695,375) (8,411,210)
Investment in Federal Home Loan Bank (186,300)
Loans, net 14,312,715 (37,921,688)
Proceeds from sales of other real estate 112,189
Proceeds from sale of bank premises 195,865
Acquisition of premises and equipment (1,145,730) (2,670,987)
Federal funds sold (8,050,000)
Other assets 628,690 (2,352,205)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES $ (8,690,247) $(41,047,997)
------------ ------------
</Table>
Page 8 of 20
9
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<Table>
<Caption>
For The Six Months Ended June 30, 2001 2000
- ------------------------------------------------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand and savings deposits, net increase (decrease) $ 2,478,102 $ (2,505,164)
Time deposits, net increase (decrease) 19,719,327 (4,846,926)
Principal payments on notes (7,040) (6,792)
Retirement of common stock (2,873,495) (1,298,429)
Cash dividends (621,928) (590,534)
Federal funds purchased and securities sold under
agreements to repurchase 6,452,637 8,721,658
Borrowings from Federal Home Loan Bank (17,914,812) 34,000,000
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,232,791 33,473,813
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,183,607 (1,850,356)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 35,145,868 35,540,978
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 39,329,475 $ 33,690,622
============ ============
</Table>
See Selected Notes to Consolidated Financial Statements.
Page 9 of 20
10
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2001 and 2000
1. The accompanying unaudited consolidated financial statements have been
prepared with the accounting policies in effect as of December 31, 2000 as set
forth in the Notes to the Consolidated Financial Statements of Peoples Financial
Corporation and Subsidiaries (the Company). In the opinion of Management, all
adjustments necessary for a fair presentation of the condensed consolidated
financial statements have been included and are of a normal recurring nature.
The accompanying unaudited consolidated financial statements have been prepared
also in accordance with the instructions to Form 10-Q and Rule 10-01 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The statements include information required for interim
financial statements.
2. The results of operations for the six months ended June 30, 2001 and 2000,
are not necessarily indicative of the results to be expected for the full year.
3. Per share data is based on the weighted average shares of common stock
outstanding of 5,635,079 and 5,885,686 for the six months ended June 30, 2001
and 2000, respectively.
4. At June 30, 2001 and 2000, the total recorded investment in impaired loans
amounted to $217,000 and $44,000. The amount of that recorded investment in
impaired loans for which there was no related allowance for loan losses was
$217,000 and $44,000 at June 30, 2001 and 2000, respectively. The amount of
interest not accrued on these loans did not have a significant effect on
earnings for the six months ended June 30, 2001 and 2000.
5. Transactions in the allowance for loan losses were as follows:
<Table>
<Caption>
For the six For the year For the six
months ended ended December months ended
June 30, 2001 31, 2000 June 30, 2000
--------------- --------------- ---------------
Balance, beginning of period $ 4,567,565 $ 4,338,149 $ 4,338,149
Recoveries 248,914 698,382 65,893
Loans charged off (925,657) (4,660,666) (355,187)
Provision for loan losses 1,407,230 4,191,700 105,000
--------------- --------------- ---------------
Balance, end of period $ 5,298,052 $ 4,567,565 $ 4,153,855
=============== =============== ===============
</Table>
6. The Company has defined cash and cash equivalents to include cash and due
from banks. The Company paid $10,544,000 and $8,541,000 for the six months ended
June 30, 2001 and 2000, respectively, and $10,354,000 for the twelve months
ended December 31, 2000, for interest on
Page 10 of 20
11
deposits and borrowings. Income tax payments totaled $692,000 and $1,715,000 for
the six months ended June 30, 2001 and 2000, respectively, and $3,630,000 for
the twelve months ended December 31, 2000. Loans transferred to other real
estate amounted to $2,143,000 and $42,000 for the six months ended June 30, 2001
and 2000, respectively, and $1,053,500 for the twelve months ended December 31,
2000. After receiving regulatory approval, the Company transferred property with
a book value of $19,000 from ORE to banking premises during the six months ended
June 30, 2000.
7. The income tax effect on the accumulated other comprehensive income was
$333,000 and ($31,000) at June 30, 2001 and 2000, respectively.
Page 11 of 20
12
Independent Accountants' Review Report
Board of Directors
Peoples Financial Corporation
Biloxi, Mississippi
We have reviewed the accompanying consolidated balance sheets of Peoples
Financial Corporation as of June 30, 2001, June 30, 2000 and December 31, 2000,
and the related consolidated statements of income, shareholders' equity, and
cash flows for the six months ended June 30, 2001 and June 30, 2000. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles for interim financial
statements.
/s/ Piltz, Williams, LaRosa & Co.
PILTZ, WILLIAMS, LAROSA & CO.
July 17, 2001
Biloxi, Mississippi
Page 12 of 20
13
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following presents Management's discussion and analysis of the consolidated
financial condition and results of operations of Peoples Financial Corporation
and Subsidiaries (the Company) for the six months ended June 30, 2001 and 2000.
These comments highlight the significant events and should be considered in
combination with the Consolidated Financial Statements included in this report
on Form 10-Q.
FORWARD-LOOKING INFORMATION
Congress passed the Private Securities Litigation Act of 1995 in an effort to
encourage corporations to provide information about a company's anticipated
future financial performance. This act provides a safe harbor for such
disclosure which protects the companies from unwarranted litigation if actual
results are different from management expectations. This report contains
forward-looking statements and reflects industry conditions, company performance
and financial results. These forward-looking statements are subject to a number
of factors and uncertainties which could cause the Company's actual results and
experience to differ from the anticipated results and expectations expressed in
such forward-looking statements.
OVERVIEW
Net income for the six months ended June 30, 2001, was $1,287,000 compared with
$3,696,000 for the same period in 2000. The Company recorded a provision for
loan losses of $1,332,000 during the second quarter of 2001. This significant
provision was recorded to provide for potential losses related to an overall
softening of the economy and certain credits. Refer to Provision for Loan Losses
on page 18 for further discussion.
The following schedule compares financial highlights for the six months ended
June 30, 2001 and 2000:
<Table>
<Caption>
For the six months ended June 30, 2001 2000
- ----------------------------------------- ------------ ------------
Net income per share $ 0.23 $ 0.63
Book value per share $ 13.72 $ 13.45
Return on average total assets .43% 1.32%
Return on average shareholders' equity 3.30% 9.44%
Allowance for loan losses as a % of loans,
net of unearned discount 1.47% 1.12%
</Table>
Page 13 of 20
14
FINANCIAL CONDITION
HELD TO MATURITY SECURITIES
Held to maturity securities decreased $38,459,000 at June 30, 2001, as compared
with June 30, 2000, as a result of the management of the Company's liquidity
position. As funds were available from the maturity of these securities, they
were generally invested in available for sale securities. Gross unrealized gains
were $627,000 and $170,000 and gross unrealized losses were $17,000 and
$1,899,000 at June 30, 2001 and 2000, respectively. There were no realized gains
or losses on these investments during the six months ended June 30, 2001 and
2000, respectively. The following schedule reflects the mix of the held to
maturity securities portfolio at June 30, 2001 and 2000:
<Table>
<Caption>
June 30, 2001 2000
- -------------------------- --------------------------- ---------------------------
Amount % Amount %
----------- ----------- ------------ -----------
U. S. Treasury securities $ 32,840,110 49.10% $ 41,737,042 39.60%
U. S. Government agencies 28,122,326 42.10% 57,297,841 54.40%
States and political
subdivisions 5,871,041 8.80% 6,257,991 6.00%
----------- ----------- ------------ -----------
Totals $66,833,477 100.00% $105,292,874 100.00%
=========== =========== ============ ===========
</Table>
AVAILABLE FOR SALE SECURITIES
Available for sale securities increased $53,463,000 at June 30, 2001, as
compared with June 30, 2000, as the result of the management of the Company's
liquidity position, as discussed above. Gross unrealized gains were $1,882,000
and $954,000 and gross unrealized losses were $23,000 and $1,214,000 at June 30,
2001 and 2000, respectively. There were no realized gains or losses on these
investments during the six months ended June 30, 2001 and 2000. The following
schedule reflects the mix of available for sale securities at June 30, 2001 and
2000:
<Table>
<Caption>
June 30, 2001 2000
- --------------------------------- --------------------------- ---------------------------
Amount % Amount %
----------- ----------- ------------ -----------
U. S. Treasury securities $ 6,105,630 6.40% $ 6,793,140 16.50%
U. S. Government agencies 78,656,909 83.00% 25,756,348 62.40%
States and political subdivisions 4,973,656 5.30% 4,147,635 10.00%
Other securities 4,989,901 5.30% 4,566,463 11.10%
----------- ----------- ------------ -----------
Totals $94,726,096 100.00% $ 41,263,586 100.00%
=========== =========== ============ ===========
</Table>
Page 14 of 20
15
FEDERAL FUNDS SOLD
Federal funds sold were $8,050,000 at June 30, 2001, as a direct result of the
management of the bank subsidiary's liquidity position.
LOANS
Loans decreased $9,761,000 at June 30, 2001, as compared with June 30, 2000, as
a result of decreased loan demand in the Company's trade area during 2001. This
decreased demand is the result of the softening of the local economy. In
addition, a number of customers paid off several large credits during the second
quarter of 2001. The Company anticipates that loan demand will be moderate
throughout the remainder of 2001.
OTHER REAL ESTATE
Other real estate increased $2,496,000 at June 30, 2001, as compared with June
30, 2000, due to foreclosure of several parcels of commercial real estate during
the fourth quarter of 2000 and the first half of 2001. The Company is actively
marketing these foreclosed assets.
DEPOSITS
Total deposits increased $48,592,000 at June 30, 2001, as compared with June 30,
2000. Significant increases or decreases in total deposits are anticipated by
Management as customers in the casino industry and county and municipal areas
reallocate their resources periodically. As discussed above, the Company has
managed its funds including planning the timing and classification of investment
maturities and using other funding sources and their maturity so as to achieve
appropriate liquidity. Specifically, the Company obtained brokered deposits of
$30,000,000 during the third quarter of 2001. Brokered deposits amounting to
$10,000,000 matured in July of 2001. The Company may place these funds in other
brokered deposits.
BORROWINGS FROM FEDERAL HOME LOAN BANK
The Company borrowed from the Federal Home Loan Bank in the management of
liquidity position.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
Strength, security and stability have been the hallmark of the Company since its
founding in 1985 and of its bank subsidiary since its founding in 1896. A strong
capital foundation is fundamental to the continuing prosperity of the Company
and the security of its customers and shareholders. One measure of capital
adequacy is the primary capital ratio which was 13.83% at June 30, 2001, as
compared with 14.79% at June 30, 2000. These ratios are well above the
regulatory minimum of 6.00%. Management continues to emphasize the importance of
maintaining the appropriate capital levels of the Company.
On May 23, 2001, the Company's Board of Directors approved a stock incentive
program for two executive officers. Under this plan, whole shares valued as of
the distribution date at $50,000 are to be distributed to each of these officers
who continue to meet the eligibility requirements on June 15, 2001, and on
January 15 of the four succeeding years. On June 15, 2001, a total of 6,886
shares of Peoples Financial Corporation common stock was issued.
Page 15 of 20
16
On June 27, 2001, the Company's Board of Directors approved a semi-annual
dividend of $.12 per share. The dividend had a record date of July 9, 2001 and
a distribution date of July 16, 2001.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, the amount by which interest income on loans, investments
and other interest earning assets exceeds interest expense on deposits and other
borrowed funds, is the single largest component of the Company's income.
Management's objective is to provide the largest possible amount of income while
balancing interest rate, credit, liquidity and capital risk.
Net interest income decreased $1,250,000 for the second quarter of 2001 as
compared with the second quarter of 2000. Net interest income decreased
$2,159,000 for the six months ended June 30, 2001, as compared with the six
months ended June 30, 2000. Total interest income decreased $802,000 for the
quarter ended June 30, 2001, as compared with the quarter ended June 30, 2000.
Total interest income decreased $111,000 for the six months ended June 30, 2001,
as compared with the six months ended June 30, 2000. Total interest expense
increased $448,000 for the quarter ended June 30, 2001, as compared with quarter
ended June 30, 2000. Total interest expense increased $2,048,000 for the six
months ended June 30, 2001, as compared with the six months ended June 30, 2000.
The following schedule summarizes net interest earnings and net yield on
interest earning assets:
NET INTEREST EARNINGS AND NET YIELD ON INTEREST EARNING ASSETS
<Table>
<Caption>
Six Months Ended June 30, (In
thousands, except percentages) 2001 2000
- ------------------------------ ----------- -----------
Total interest income (1) $ 20,415 $ 20,520
Total interest expense 10,544 8,497
----------- -----------
Net interest earnings $ 9,871 $ 12,023
=========== ===========
Net yield on interest earning assets 3.71% 4.76%
=========== ===========
</Table>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 2001 and 2000.
The schedule on page 17 provides an analysis of the change in total interest
income and total interest expense for the six months ended June 30, 2001 and
2000.
Page 16 of 20
17
Analysis of Changes in Interest Income and Interest Expense
(In Thousands)
<Table>
<Caption>
Attributable To:
------------------------------------------------
For the Six For the Six
Months Months
Ended June Ended June Increase
30, 2001 30, 2000 (Decrease) Volume Rate Rate/ Volume
------------ ------------ ------------ ------------ ------------ ------------
INTEREST
INCOME: (1)
Loans (2) $ 15,535 $ 15,829 $ (294) $ 913 $ (1,141) $ (66)
Federal funds sold 60 36 24 41 (8) (9)
Held to maturity:
Taxable securities 2,396 3,204 (808) (724) (108) 24
Non-taxable
securities 250 277 (27) 1 (27) (1)
Available for sale:
Taxable securities 1,690 948 742 914 (88) (84)
Non-taxable securities 169 130 39 41 (1) (1)
Other securities 315 96 219 8 196 15
------------ ------------ ------------ ------------ ------------ ------------
Total $ 20,415 $ 20,520 $ (105) $ 1,194 $ (1,177) $ (122)
============ ============ ============ ============ ============ ============
INTEREST
EXPENSE:
Savings and
negotiable interest
bearing deposits $ 2,409 $ 2,630 $ (221) $ (373) $ 177 $ (25)
Time deposits 6,563 4,015 2,548 1,789 525 234
Borrowings from FHLB 251 427 (176) (145) (47) 16
Federal funds
purchased and
securities sold
under agreements to
repurchase 1,316 1,420 (104) 46 (145) (5)
Mortgage
indebtedness 5 5 (1) 1
------------ ------------ ------------ ------------ ------------ ------------
Total $ 10,544 $ 8,497 $ 2,047 $ 1,316 $ 511 $ 220
============ ============ ============ ============ ============ ============
</Table>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 2001 and 2000.
(2) Loan fees are included in these figures. Includes nonaccrual loans.
Page 17 of 20
18
PROVISION FOR LOAN LOSSES
Management continuously monitors the Company's relationships with its loan
customers, especially those in concentrated industries such as seafood, gaming
and hotel/motel, and their direct and indirect impact on its operations. A
thorough analysis of current economic conditions and the quality of the loan
portfolio are conducted on a quarterly basis. These analyses are utilized in the
computation of the adequacy of the allowance for loan losses. A provision is
charged to income on a monthly basis to absorb potential losses based on these
analyses.
During the second quarter of 2001, the Company identified negative events with
respect to an overall softening of the economy and to specific credits which
required a large increase to the Company's provision for loan losses. The
provision for loan losses for the six months ended June 30, 2001, was
$1,407,000, of which $1,332,000 was provided during the second quarter. The
Company believes that this action will provide sufficient funds to absorb
potential losses. The Company will make additional provisions as it considers
necessary throughout the remaining quarters of 2001.
SERVICE CHARGES ON DEPOSIT ACCOUNTS
Service charges on deposit accounts increased $449,000 for the six months ended
June 30, 2001, as compared with the six months ended June 30, 2000. This
increase was due to the increase in fees for non-sufficient funds during 2000
and the introduction of an overdraft protection product in April 2001.
OTHER EXPENSE
Other expense increased $384,000 for the six months ended June 30, 2001, as
compared with the same period during 2000, due to write-downs of other real
estate of $473,000 in 2001.
LIQUIDITY
Liquidity represents the Company's ability to adequately provide funds to
satisfy demands from depositors, borrowers and other commitments by either
converting assets to cash or accessing new or existing sources of funds.
Management monitors these funds requirements in such a manner as to satisfy
these demands and provide the maximum earnings on its earning assets. Deposits,
payments of principal and interest on loans, proceeds from maturities of
investment securities and earnings on investment securities are the principal
sources of funds for the Company. As discussed previously, the Company has
utilized non-traditional sources of funds including brokered certificates of
deposit and borrowings from the Federal Home Loan Bank. These additional sources
have allowed the Company to satisfy its liquidity needs. The Company will
continue to utilize these sources of funds throughout 2001, as necessary.
Page 18 of 20
19
PART II
OTHER INFORMATION
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 23 Consent of Certified Public Accountants
(b) Reports on Form 8-K
None.
Page 19 of 20
20
SIGNATURES
Pursuant to the requirement of Section 13 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 FINANCIAL CORPORATION
(Registrant)
Date: August 10, 2001
-------------------------------------
By: /s/ Chevis C. Swetman
-------------------------------------
Chevis C. Swetman
Chairman, President and Chief Executive Officer
Date: August 10, 2001
-------------------------------------
By: /s/ Lauri A. Wood
-------------------------------------
Lauri A. Wood
Chief Financial Officer and Controller
(principal financial and accounting officer)
Page 20 of 20
21
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
23 Consent of Certified Public Accountants
</Table>