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 September 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
October 31, 2001, there were 15,000,000 shares of $1 par value common stock
authorized, and 5,626,039 shares issued and outstanding.
Page 1 of 20
PART I
FINANCIAL INFORMATION
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<Table>
<Caption>
September 30, December 31, and September 30, 2001 2000 2000
- -------------------------------------------- ------------ ------------ ------------
ASSETS
Cash and due from banks $ 31,457,089 $ 35,145,868 $ 33,062,113
Held to maturity securities, market value of
$58,143,000 - September 30, 2001;
$97,946,000 - December 31, 2000;
$100,965,000 - September 30, 2000 57,240,890 98,051,955 101,976,213
Available for sale securities, at market value 121,554,970 48,167,770 43,944,913
Federal Home Loan Bank Stock, at cost 1,853,500 1,647,300 1,647,300
Federal funds sold 13,950,000
Loans 347,611,178 377,485,768 368,010,640
Less: Unearned income 2,095 9,612 11,349
Allowance for loan losses 5,256,778 4,567,565 7,025,868
------------ ------------ ------------
Loans, net 342,352,305 372,908,591 360,973,423
Bank premises and equipment, net of accumulated
depreciation of $12,860,000 - September 30,
2001; $11,427,000 - December 31, 2000; and
$11,017,000 - September 30, 2000 18,453,245 18,333,272 18,439,156
Other real estate 2,582,253 1,061,081 167,530
Accrued interest receivable 3,952,057 4,497,713 4,614,368
Other assets 5,418,671 7,430,384 6,480,163
------------ ------------ ------------
TOTAL ASSETS $598,814,980 $587,243,934 $571,305,179
============ ============ ============
</Table>
Page 2 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
<Table>
<Caption>
September 30, December 31, and September 30, 2001 2000 2000
- --------------------------------------------- ------------- ------------- -------------
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand, non-interest bearing $ 74,287,930 $ 68,080,764 $ 75,826,785
Savings and demand, interest bearing 138,286,064 137,531,988 152,428,470
Time, $100,000 or more 143,283,793 126,353,164 118,660,031
Other time deposits 81,276,325 81,758,161 71,849,359
------------- ------------- -------------
Total deposits 437,134,112 413,724,077 418,764,645
Accrued interest payable 1,013,575 1,028,564 876,751
Federal funds purchased and securities sold under
agreements to repurchase 70,418,317 65,339,084 64,109,843
Borrowings from Federal Home Loan Bank 5,492,359 23,159,507 5,117,100
Notes payable 305,207 291,481 308,930
Other liabilities 5,117,405 4,984,364 3,692,554
------------- ------------- -------------
TOTAL LIABILITIES 519,480,975 508,527,077 492,869,823
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 15,000,000 shares
authorized, 5,626,039 shares issued and
outstanding at September 30, 2001, 5,795,207
shares issued and outstanding at December 31,
2000 and 5,833,982 shares issued and
outstanding at September 30, 2000 5,626,039 5,795,207 5,833,982
Surplus 65,780,254 65,780,254 65,780,254
Undivided profits 6,388,504 7,093,830 7,264,807
Unearned compensation (470,197) (535,840) (579,840)
Accumulated other comprehensive income 2,009,405 583,406 136,153
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 79,334,005 78,716,857 78,435,356
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 598,814,980 $ 587,243,934 $ 571,305,179
============= ============= =============
</Table>
See Selected Notes to Consolidated Financial Statements.
Page 3 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<Table>
<Caption>
For The Quarters Ended September 30, For The Nine Months Ended September 30,
------------------------------------ ---------------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
INTEREST INCOME:
Interest and fees on loans $ 6,802,440 $ 8,658,054 $ 22,337,180 $ 24,487,327
Interest and dividends on securities:
U. S. Treasury 376,268 673,368 1,677,024 2,382,342
U. S. Government agencies and
corporations 1,517,564 1,306,913 4,303,118 3,750,681
States and political subdivisions 147,012 133,643 423,631 402,875
Other investments 68,973 62,320 383,667 158,351
Interest on federal funds sold 126,558 70,225 186,528 106,416
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME 9,038,815 10,904,523 29,311,148 31,287,992
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Time deposits of $100,000 or more 1,817,369 1,969,185 5,993,470 4,216,428
Other deposits 1,941,726 2,393,239 6,738,245 6,790,690
Borrowing from Federal Home Loan
Bank 87,080 247,445 337,655 673,959
Mortgage indebtedness 2,265 2,452 6,937 7,371
Federal funds purchased and securities
sold under agreements to repurchase 537,536 787,688 1,853,958 2,208,066
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE 4,385,976 5,400,009 14,930,265 13,896,514
------------ ------------ ------------ ------------
NET INTEREST INCOME 4,652,839 5,504,514 14,380,883 17,391,478
Provision for losses on loans 73,746 2,735,000 1,480,976 2,840,000
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOSSES ON LOANS 4,579,093 2,769,514 12,899,907 14,551,478
------------ ------------ ------------ ------------
OTHER OPERATING INCOME:
Trust department income and fees 249,880 206,921 745,747 689,000
Service charges on deposit accounts 1,659,283 1,339,990 4,627,142 3,858,776
Other service charges, commissions and
fees 62,949 75,182 216,522 222,804
Gain on sale of securities 243,126 243,126
Other income 176,003 339,375 628,931 608,332
------------ ------------ ------------ ------------
TOTAL OTHER OPERATING INCOME $ 2,391,241 $ 1,961,468 $ 6,461,468 $ 5,378,912
------------ ------------ ------------ ------------
</Table>
Page 4 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
<Table>
<Caption>
For The Quarters Ended September 30, For The Nine Months Ended September 30,
------------------------------------ ---------------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
OTHER OPERATING EXPENSE:
Salaries and employee benefits $ 2,574,594 $ 2,629,269 $ 8,088,372 $ 7,913,925
Net occupancy 328,153 329,009 905,744 832,606
Equipment rentals, depreciation and
maintenance 673,292 769,114 2,066,120 2,069,090
Other expense 1,515,689 1,314,660 4,547,481 3,962,812
------------ ------------ ------------ ------------
TOTAL OTHER OPERATING EXPENSE 5,091,728 5,042,052 15,607,717 14,778,433
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 1,878,606 (311,070) 3,753,658 5,151,957
Income taxes (benefit) 576,000 (82,000) 1,163,999 1,685,500
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 1,302,606 $ (229,070) $ 2,589,659 $ 3,466,457
============ ============ ============ ============
</Table>
See Selected Notes to Consolidated Financial Statements.
Page 5 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<Table>
<Caption>
Accumu-
Unearned lated Other Compre-
Common Undivided Compensa- Comprehen- hensive
# of Shares Stock Surplus Profits tion 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
Comprehen-
sive Income:
Net income 3,466,457 $ 3,466,457 3,466,457
Net
unrealized
gain on
available for
sale
securities, net
of tax 246,483 246,483 246,483
-----------
Total
comprehen-
sive income $ 3,712,940
===========
Purchase of
shares by
ESOP (83,068) (83,068)
Allocation of
ESOP shares 128,070 128,070
Retirement of
stock (71,362) ( 71,362) 21,168 (1,803,850) (1,854,044)
Cash
dividends,
($.21 per
share) (1,235,428) (1,235,428)
----------- ----------- ------------ ------------ ------------ ------------ ----------- -------------
Balance,
September 30,
2000 5,833,982 $ 5,833,982 $ 65,780,254 $ 7,264,807 $ (579,840) $ 136,153 $ 78,435,356
=========== =========== ============ ============ ============ ============ =============
</Table>
Page 6 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
(Unaudited)
<Table>
<Caption>
Accumu-
Unearned lated Other Compre-
Common Undivided Compensa- Comprehen- hensive
# of Shares Stock Surplus Profits tion 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
Comprehen-
sive Income:
Net income 2,589,659 $ 2,589,659 2,589,659
Net
unrealized
gain on
available for
sale
securities, net
of tax 1,578,929 1,578,929 1,578,929
Reclassifica-
tion
adjustment
for available
for sale
securities
sold in
current year,
net of tax (152,930) (152,930) (152,930)
-----------
Total
comprehensive
income $ 4,015,658
===========
Purchase of
common
shares (45,357) (45,357)
Allocation of
ESOP shares 111,000 111,000
Retirement
of stock (176,054) (176,054) (2,728,239) (2,904,293)
Issuance of
stock 6,886 6,886 93,097 99,983
Effect of
stock
retirement on
accrued
dividends 15,545 15,545
Cash
dividends,
($.12 per
share) (675,388) (675,388)
----------- ----------- ------------ ------------ ------------ ------------ -------------
Balance,
September 30,
2001 5,626,039 $ 5,626,039 $ 65,780,254 $ 6,388,504 $ (470,197) $ 2,009,405 $ 79,334,005
=========== =========== ============ ============ ============ ============ =============
</Table>
See Selected Notes to Consolidated Financial Statements.
Page 7 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
For The Nine Months Ended September 30, 2001 2000
- --------------------------------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,589,659 $ 3,466,457
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sales of other real estate (36,932)
Gain on sales of available for sale securities (243,126)
Stock incentive plan 99,983
Gain on sale of bank premises (317,690)
Depreciation and amortization 1,434,000 1,359,000
Provision for losses on loans 1,480,976 2,840,000
Provision for losses on other real estate 475,455 1,677
Changes in assets and liabilities:
Accrued interest receivable 545,656 (828,745)
Other assets 1,341,255 (413,739)
Accrued interest payable (14,989) 107,808
Other liabilities 42,383 (83,502)
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,714,320 6,131,266
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of held to maturity
securities 120,620,000 48,600,000
Investment in held to maturity securities (79,808,935) (35,303,423)
Proceeds from maturities, sales and calls of available for sale
securities 37,276,932 172,294
Investment in available for sale securities (108,266,877) (10,666,739)
Investment in Federal Home Loan Bank stock (206,200)
Loans made 26,912,165 (35,646,144)
Proceeds from sale of bank premises 469,065
Acquisition of premises and equipment (1,553,973) (2,969,111)
Proceeds from sales of other real estate 293,451
Federal funds sold (13,950,000)
Other assets 670,458 (2,643,158)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES $ (18,012,979) $ (37,987,216)
------------- -------------
</Table>
Page 8 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<Table>
<Caption>
For The Nine Months Ended September 30, 2001 2000
- --------------------------------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand and savings deposits, net increase (decrease) $ 6,961,242 $(10,330,612)
Time deposits, net increase 16,448,793 34,414,100
Principal payments on notes (10,631) (10,197)
Cash dividends (1,297,316) (1,235,428)
Retirement of stock (2,904,293) (1,854,044)
Federal funds purchased and securities sold under
agreements to repurchase 5,079,233 3,276,166
Borrowings from Federal Home Loan Bank (17,667,148) 5,117,100
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,609,880 29,377,085
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,688,779) (2,478,865)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 35,145,868 35,540,978
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,457,089 $ 33,062,113
============ ============
</Table>
See Selected Notes to Consolidated Financial Statements.
Page 9 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 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 nine months ended September 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 5,632,169 and 5,874,958 for the nine months ended September 30,
2001 and 2000, respectively.
4. At September 30, 2001 and 2000, the total recorded investment in impaired
loans amounted to $1,237,000 and $8,720,000. The amount of that recorded
investment in impaired loans for which there was no related allowance for loan
losses was $1,237,000 and $8,720,000 at September 30, 2001 and 2000,
respectively. Interest not accrued on these loans did not have a significant
effect on earnings for the nine months ended September 30, 2001 and 2000.
5. Transactions in the allowance for loan losses were as follows:
<Table>
<Caption>
For the Nine For the Year For the Nine
Months Ended Ended Months Ended
September 30, December 31, September 30,
2001 2000 2000
------------- ------------ -------------
Balance, beginning of period $ 4,567,565 $ 4,338,149 $ 4,338,149
Recoveries 385,019 698,382 227,928
Loans charged off (1,176,782) (4,660,666) (380,209)
Provision for loan losses 1,480,976 4,191,700 2,840,000
------------- ------------ -------------
Balance, end of period $ 5,256,778 $ 4,567,565 $ 7,025,868
============= ============ =============
</Table>
6. The Company has defined cash and cash equivalents to include cash and due
from banks. The Company paid $14,945,254 and $13,788,706 for the nine months
ended September 30, 2001 and 2000, respectively, for interest on deposits and
borrowings. Income tax payments totaled $1,117,000
Page 10 of 20
and $2,590,000 for the nine months ended September 30, 2001 and 2000,
respectively. Loans transferred to other real estate amounted to $2,253,000 and
$94,000 for the nine months ended September 30, 2001 and 2000, respectively.
After receiving regulatory approval, the Company transferred property with a
book value of $19,000 from ORE to banking premises during the nine months ended
September 30, 2000. The income tax effect on the accumulated other comprehensive
income was $735,000 and $127,000 at September 30, 2001 and 2000, respectively.
Page 11 of 20
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 September 30, 2001, September 30, 2000 and December
31, 2000, and the related consolidated statements of income, shareholders'
equity, and cash flows for the nine months ended September 30, 2001 and
September 30, 2000. These financial statements are the representation 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.
November 7, 2001
Biloxi, Mississippi
Page 12 of 20
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 nine months ended September 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 nine months ended September 30, 2001, was $2,590,000 compared
with $3,466,000 for the same period in 2000. This decrease is largely
attributable to the negative trends in interest rates, particularly in 2001.
Specifically, interest rates on loans have decreased rapidly while interest
rates paid on deposits, especially large certificates of deposits, have not
changed significantly. During the nine months ended September 30, 2001, the
Company had writedowns on its other real estate of $475,000.
The following schedule compares financial highlights for the nine months ended
September 30, 2001 and 2000:
<Table>
<Caption>
For the nine months ended September 30, 2001 2000
- --------------------------------------- -------- --------
Net income per share $ 0.46 $ 0.59
Book value per share $ 14.10 $ 13.44
Return on average total assets .58% .82%
Return on average shareholders' equity 4.37% 5.92%
Allowance for loan losses as a % of
loans, net of unearned discount 1.51% 1.91%
</Table>
Page 13 of 20
FINANCIAL CONDITION
HELD TO MATURITY SECURITIES
Held to maturity securities decreased $44,735,000 at September 30, 2001, as
compared with September 30, 2000, as a result of the management of the Company's
liquidity position. Funds available from the maturity of these securities were
generally invested in available for sale securities. Gross unrealized gains for
held to maturity securities were $933,000 and $196,000 and gross unrealized
losses for held to maturity securities were $31,000 and $1,207,000 at September
30, 2001 and 2000, respectively. The following schedule reflects the mix of the
held to maturity investment portfolio at September 30, 2001 and 2000:
<Table>
<Caption>
September 30, 2001 2000
- ------------- -------------------- --------------------
Amount % Amount %
------------ ----- ------------ -----
U. S. Treasury securities $ 33,834,690 59% $ 33,694,770 33%
U. S. Government agencies 17,663,440 31% 62,127,942 61%
States and political
subdivisions 5,742,760 10% 6,153,501 6%
------------ ----- ------------ -----
Totals $ 57,240,890 100% $101,976,213 100%
============ ===== ============ =====
</Table>
AVAILABLE FOR SALE SECURITIES
Available for sale securities increased $77,610,000 at September 30, 2001, as
compared with September 30, 2000, as the result of the management of the
Company's liquidity position, as discussed above. Gross unrealized gains were
$3,035,000 and $1,030,000 at September 30, 2001 and 2000, respectively, and
gross unrealized losses were $825,000 at September 30, 2000. The following
schedule reflects the mix of available for sale securities at September 30, 2001
and 2000:
<Table>
<Caption>
September 30, 2001 2000
- ------------- -------------------- --------------------
Amount % Amount %
------------ ----- ------------ -----
U. S. Treasury securities $ 6,222,950 5% $ 6,860,020 16%
U. S. Government agencies 109,407,092 90% 28,012,446 64%
States and political
subdivisions 945,000 1% 4,203,585 9%
Other securities 4,979,928 4% 4,868,862 11%
------------ ----- ------------ -----
Totals $121,554,970 100% $ 43,944,913 100%
============ ===== ============ =====
</Table>
Page 14 of 20
FEDERAL FUNDS SOLD
Federal funds sold were $13,950,000 at September 30, 2001 as direct result of
the management of the bank subsidiary's liquidity position.
LOANS
Loans decreased $20,399,000 at September 30, 2001, as compared with September
30, 2000, as a result of the decreased loan demand in the Company's trade area.
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
and third quarters of 2001. The Company anticipates that loan demand will be
moderate throughout the remainder of 2001.
OTHER REAL ESTATE
Other real estate increased $2,415,000 at September 30,2001 as compared with
September 30, 2000, due to the foreclosure of several parcels of commercial real
estate during the fourth quarter of 2000 and the first two quarters of 2001. The
Company is actively marketing these foreclosed assets.
ACCRUED INTEREST RECEIVABLE
Accrued interest receivable decreased $662,000 at September 30, 2001, as
compared with September 30, 2000, as a result of the decline in interest rates
earned on loans and investments in 2001.
OTHER ASSETS
Other assets decreased $1,601,000 at September 30, 2001, as compared with
September 30, 2000, due to the completion of a transaction for which a
receivable had been booked and the redemption of whole life insurance relating
to deferred compensation for officers no longer with the Company.
DEPOSITS
Significant increases or decreases in total deposits or significant fluctuations
among the different types of 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 of investment maturities so as to achieve appropriate
liquidity. Beginning with the third quarter of 2000, the Company has acquired
brokered certificates of deposit in the management of the bank subsidiary's
liquidity position.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Federal funds purchased and securities sold under agreements to repurchase
increased $6,308,000 at September 30, 2001, as compared with September 30, 2000.
This increase is due to the liquidity needs of the bank subsidiary and
periodic reallocation by customers of their non-deposit accounts.
BORROWINGS FROM FEDERAL HOME LOAN BANK
The Company borrowed from the Federal Home Loan Bank in the management of its
liquidity position.
OTHER LIABILITIES
Other liabilities increased $1,425,000 at September 30, 2001, as compared with
September 30, 2000 as a result of the increase in deferred taxes on unrealized
gains on securities and an increase in liabilities relating to deferred
compensation benefits as a result of the decrease in interest rates.
Page 15 of 20
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 14.14 % at September 30, 2001,
as compared with 15.25% at September 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. This incentive
program was established subsequent to the surrender of split dollar policies
that had been obtained on behalf of these executives. On June 27, 2001, the
Company's Board of Directors approved a semi-annual dividend of $ .12 per share.
The dividend has 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. 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>
Nine Months Ended September 30, (In
thousands, except percentages) 2001 2000
- ----------------------------------- -------- --------
Total interest income(1) $ 29,529 $ 31,494
Total interest expense 14,930 13,897
-------- --------
Net interest earnings $ 14,599 $ 17,597
======== ========
Net yield on interest earning assets 3.65% 4.98%
======== ========
</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 nine months ended September 30, 2001
and 2000.
Page 16 of 20
Analysis of Changes in Interest Income and Interest Expense
(In Thousands)
<Table>
<Caption>
Attributable To:
-----------------------------
For the Nine For the Nine
Months Ended Months Ended
September September Increase Rate/
30, 2001 30, 2000 (Decrease) Volume Rate Volume
------------ ------------ ---------- ------- ------- -------
INTEREST
INCOME:(1)
Loans(2) $ 22,337 $ 24,487 $ (2,150) $ 544 $(2,635) $ (59)
Federal funds sold 187 106 81 217 (45) (91)
Held to maturity:
Taxable securities 3,014 4,654 (1,640) (1,407) (333) 100
Non-taxable
securities 407 392 15 (23) 40 (2)
Available for sale:
Taxable securities 2,966 1,479 1,487 1,971 (207) (277)
Non-taxable
securities 234 218 16 30 (12) (2)
Other securities 384 158 226 5 214 7
------------ ------------ ---------- ------- ------- -------
Total $ 29,529 $ 31,494 $ (1,965) $ 1,337 $(2,978) $ (324)
============ ============ ========== ======= ======= =======
INTEREST
EXPENSE:
Savings and
negotiable interest
bearing deposits $ 3,355 $ 3,962 $ (607) $ (397) $ (233) $ 23
Time deposits 9,376 7,046 2,330 2,335 (1) (4)
Borrowings from
FHLB 338 674 (336) (301) (64) 29
Federal funds
purchased and
securities sold under
agreements to
repurchase 1,854 2,208 (354) 21 (371) (4)
Mortgage
indebtedness 7 7 (1) 1
------------ ------------ ---------- ------- ------- -------
Total $ 14,930 $ 13,897 $ 1,033 $ 1,657 $ (668) $ 44
============ ============ ========== ======= ======= =======
</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
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 using the latest available
information. 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 nine months ended September 30, 2001, was
$1,481,000, of which $1,332,000 was provided during the second quarter. The
Company believes that this action will provide funds to absorb potential losses.
The Company will, however, make additional provisions as it considers necessary
during the fourth quarter of 2001.
GAIN ON SALE OF SECURITIES
During the third quarter of 2001, the Company sold securities from its available
for sale portfolio for a realized gain of $243,000, in the management of its
liquidity position.
OTHER EXPENSE
Other expense increased $585,000 for the nine months ended September 30, 2001,
as compared with the nine months ended September 30, 2000, primarily due to
writedowns of other real estate of $475,000 during 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
PART II
OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
On November 1, 2001, the Company filed notice with the Federal Deposit
Insurance Corporation and the Mississippi Department of Banking and Consumer
Finance indicating the intention to close its branch located at 186 Veterans
Avenue in Biloxi, MS. Appropriate notices have been provided to customers. All
lending and lobby service had previously been curtailed at this location on
January 31, 2001. The effective date of the closure of this branch is January
31, 2002. On November 7, 2001, the Company received notice from the FDIC that
it has no objection to the scheduled closing.
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
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: NOVEMBER 13, 2001
-------------------------------------
BY: /s/ CHEVIS C. SWETMAN
-------------------------------------
CHEVIS C. SWETMAN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATE: NOVEMBER 13, 2001
-------------------------------------
BY: /s/ LAURI A. WOOD
-------------------------------------
LAURI A. WOOD
CHIEF FINANCIAL OFFICER AND CONTROLLER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
Page 20 of 20
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
23 Consent of Certified Public Accountants
</Table>