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 March 31, 2002
-----------------
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)
<Table>
Mississippi 64-0709834
-------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
Lameuse and Howard Avenues, Biloxi, Mississippi 39533
---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</Table>
(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 May 1, 2002, there were 15,000,000
shares of $1 par value common stock authorized, and 5,600,666 shares issued and
outstanding.
Page 1 of 19
PART I
FINANCIAL INFORMATION
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<Table>
<Caption>
March 31, December 31, and March 31, 2002 2001 2001
- ------------------------------------ ------------ ------------ ------------
ASSETS
Cash and due from banks $ 28,817,023 $ 32,034,976 $ 37,498,149
Held to maturity securities, market value of
$27,533,000 - March 31, 2002;
$38,986,000 - December 31, 2001;
$93,467,000 - March 31, 2001 27,036,649 38,278,962 92,845,616
Available for sale securities, at market value 152,667,409 142,902,274 73,051,036
Federal Home Loan Bank stock, at cost 1,884,600 1,870,500 1,808,600
Federal funds sold 17,650,000 4,800,000
Loans 328,057,936 347,168,766 368,893,004
Less: Unearned income 14,655
Allowance for loan losses 6,005,479 5,658,210 4,693,883
------------ ------------ ------------
Loans, net 322,052,457 341,510,556 364,184,466
Bank premises and equipment, net of
accumulated depreciation of $13,612,000 -
March 31, 2002; $13,292,000 - December 31,
2001; and $11,940,000 - March 31, 2001 17,864,255 18,117,908 18,669,785
Other real estate 1,663,226 1,799,527 1,679,382
Accrued interest receivable 3,301,387 3,728,850 4,330,134
Other assets 5,966,749 6,768,669 6,342,009
------------ ------------ ------------
TOTAL ASSETS $578,903,755 $587,012,222 $605,209,177
============ ============ ============
</Table>
Page 2 of 19
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
<Table>
<Caption>
March 31, December 31, and March 31, 2002 2001 2001
- ------------------------------------ ------------- ------------- -------------
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand, non-interest bearing $ 74,319,213 $ 76,215,302 $ 72,783,454
Savings and demand, interest bearing 163,052,165 145,248,560 163,857,318
Time, $100,000 or more 103,211,827 105,446,070 138,984,591
Other time deposits 77,395,168 85,632,730 81,818,092
------------- ------------- -------------
Total deposits 417,978,373 412,542,662 457,443,455
Accrued interest payable 716,072 613,762 1,095,221
Federal funds purchased and securities sold
under agreements to repurchase 69,498,290 82,488,859 58,433,099
Borrowings from Federal Home Loan Bank 5,567,196 5,548,988 5,158,681
Notes payable 398,586 336,251 266,984
Other liabilities 5,043,493 5,412,674 4,681,842
------------- ------------- -------------
TOTAL LIABILITIES 499,202,010 506,943,196 527,079,282
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 15,000,000 shares
authorized, 5,604,439, 5,620,239 and 5,638,504
shares issued and outstanding at March 31,
2002, December 31, 2001 and March 31, 2001
respectively 5,604,439 5,620,239 5,638,504
Surplus 65,780,254 65,780,254 65,780,254
Undivided profits 7,532,978 7,052,559 6,067,923
Unearned compensation (174,043) (174,043) (484,840)
Accumulated other comprehensive income 958,117 1,790,017 1,128,054
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 79,701,745 80,069,026 78,129,895
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 578,903,755 $ 587,012,222 $ 605,209,177
============= ============= =============
</Table>
See Selected Notes to Consolidated Financial Statements.
Page 3 of 19
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<Table>
<Caption>
For the Quarters Ended March 31, 2002 2001
- -------------------------------- ----------- -----------
INTEREST INCOME:
Interest and fees on loans $ 5,028,390 $ 8,135,633
Interest and dividends on investments:
U.S. Treasury 333,263 687,736
U.S. Government agencies and corporations 1,478,977 1,369,200
States and political subdivisions 94,067 138,746
Other investments 120,999 223,747
Interest on federal funds sold 62,212 29,588
----------- -----------
TOTAL INTEREST INCOME 7,117,908 10,584,650
----------- -----------
INTEREST EXPENSE:
Time deposits of $100,000 or more 1,046,841 2,134,841
Other deposits 1,378,521 2,569,178
Borrowings from Federal Home Loan Bank 90,948 132,440
Mortgage indebtedness 2,167 2,360
Federal funds purchased and securities sold under
agreements to repurchase 317,869 723,955
----------- -----------
TOTAL INTEREST EXPENSE 2,836,346 5,562,774
----------- -----------
NET INTEREST INCOME 4,281,562 5,021,876
Provision for losses on loans 445,226 75,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS $ 3,836,336 $ 4,946,876
----------- -----------
</Table>
Page 4 of 19
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
<Table>
<Caption>
For the Quarters Ended March 31, 2002 2001
- -------------------------------- ---------- ----------
OTHER OPERATING INCOME:
Trust department income and fees $ 247,642 $ 231,790
Service charges on deposit accounts 1,617,405 1,430,155
Other service charges, commissions and fees 67,978 71,590
Other income 961,409 322,493
---------- ----------
TOTAL OTHER OPERATING INCOME 2,894,434 2,056,028
---------- ----------
OTHER OPERATING EXPENSE:
Salaries and employee benefits 3,224,729 2,687,770
Net occupancy 340,041 281,692
Equipment rentals, depreciation and maintenance 694,594 700,713
Other expense 1,577,366 1,258,135
---------- ----------
TOTAL OTHER OPERATING EXPENSE 5,836,730 4,928,310
---------- ----------
INCOME BEFORE INCOME TAXES 894,040 2,074,594
Income taxes 227,480 669,995
---------- ----------
NET INCOME $ 666,560 $1,404,599
========== ==========
</Table>
See Selected Notes to Consolidated Financial Statements.
Page 5 of 19
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<Table>
<Caption>
Accumu-
lated
Other
# of Unearned Compre-
Common Common Undivided Compen- hensive Comprehen-
Shares Stock Surplus Profits sation Income sive 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
Comprehensive
Income:
Net income 1,404,599 $ 1,404,599 1,404,599
Net unrealized
gain on
available for
sale securities,
net of tax 544,648 544,648 544,648
-------------
Total compre-
hensive income $ $1,949,247
=============
Allocation of
ESOP shares 51,000 51,000
Effect of stock
retirement on
accrued
dividends 15,545 15,545
Retirement of
common stock (156,703) (156,703) (2,446,051) (2,602,754)
----------- ---------- ----------- ----------- --------- ------------ -------------
BALANCE,
MARCH 31,
2001 5,638,504 $5,638,504 $65,780,254 $ 6,067,923 $(484,840) $ 1,128,054 $ 78,129,895
=========== ========== =========== =========== ========== ============ =============
</Table>
Page 6 of 19
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
(Unaudited)
<Table>
<Caption>
Accumu-
lated
# of Unearned Other
Common Common Undivided Compen- Comprehen- Comprehensive
Shares Stock Surplus Profits sation sive Income Income Total
--------- ---------- ----------- ----------- --------- ----------- ------------- -----------
BALANCE,
JANUARY 1, 2002 5,620,239 $5,620,239 $65,780,254 $ 7,052,559 $(174,043) $1,790,017 $80,069,026
Comprehensive
Income:
Net income 666,560 $ 666,560 666,560
Net unrealized
loss on
available for
sale
securities, net
of tax (724,495) (724,495) (724,495)
Reclassification
adjustment for
available for
sale securities
called or sold
in current (107,405) $ (107,405) (107,405)
year, net of tax ----------
Total
comprehensive $ (165,340)
loss ==========
Issuance of
stock for stock
incentive plan 7,142 7,142 92,846 99,988
Retirement of
common stock (22,942) (22,942) (278,987) (301,929)
--------- ---------- ----------- ----------- --------- --------- -----------
BALANCE,
MARCH 31,
2002 5,604,439 $5,604,439 $65,780,254 $ 7,532,978 $(174,043) $ 958,117 $79,701,745
========= ========== =========== =========== ========= ========= ===========
</Table>
See Selected Notes to Consolidated Financial Statements.
Page 7 of 19
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
For the Quarters Ended March 31, 2002 2001
- -------------------------------- ------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 666,560 $ 1,404,599
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sales of other real estate (9,500) 5,000
Gain on sale of available for sale securities (152,203)
Stock incentive plan 99,988
Depreciation 453,000 513,000
Provision for losses on loans 445,226 75,000
Provision for losses on other real estate 112,640
Changes in assets and liabilities:
Accrued interest receivable 427,463 167,579
Other assets 870,308 719,545
Accrued interest payable 102,310 66,657
Other liabilities 596,928 56,951
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,612,720 3,008,331
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of held to
maturity securities 11,300,000 43,995,000
Investment in held to maturity securities (57,687) (38,788,661)
Proceeds from maturities, sales and calls of
available for sale securities 31,028,292 10,036,625
Investment in available for sale securities (41,899,873) (34,097,243)
Investment in Federal Home Loan Bank (14,100) (161,300)
Proceeds from sales of other real estate 170,000 47,000
Loans, net (increase) decrease 18,876,034 8,008,824
Acquisition of premises and equipment (199,347) (849,513)
Federal funds sold (17,650,000) (4,800,000)
Other assets 66,680 368,830
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ 1,619,999 $(16,240,438)
------------ ------------
</Table>
Page 8 of 19
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<Table>
<Caption>
For the Quarters Ended March 31, 2002 2001
- -------------------------------- ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand and savings deposits, net increase $ 15,907,516 $ 31,028,020
Time deposits, net increase (decrease) (10,471,805) 12,691,358
Principal payments on notes (10,464) (3,497)
Notes payable 72,799
Borrowings from Federal Home Loan Bank 18,208 (18,000,826)
Retirement of common stock (301,929) (2,602,754)
Cash dividends (674,428) (621,928)
Federal funds purchased and securities sold
under agreements to repurchase, net decrease (12,990,569) (6,905,985)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,450,672) 15,584,388
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,217,953) 2,352,281
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 32,034,976 35,145,868
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 28,817,023 $ 37,498,149
============ ============
</Table>
See Selected Notes to Consolidated Financial Statements.
Page 9 of 19
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 2002 and 2001
1. The accompanying unaudited consolidated financial statements have been
prepared with the accounting policies in effect as of December 31, 2001 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.
2. The results of operations for the quarter ended March 31, 2002, are not
necessarily indicative of the results to be expected for the full year. Per
share data is based on the weighted average shares of common stock outstanding
of 5,621,390 and 5,642,423 for the quarters ended March 31, 2002 and 2001,
respectively.
3. At March 31, 2002 and 2001, the total recorded investment in impaired loans,
for which there was no related allowance for loan losses, amounted to $7,544,000
and $2,487,000, respectively. The amount of interest not accrued on these loans
did not have a significant effect on earnings for the quarters ended March 31,
2002 and 2001.
4. Transactions in the allowance for loan losses were as follows:
<Table>
Balance, January 1, 2002 $5,658,210
Provision for loan losses 445,226
Recoveries 189,261
Loans charged off (287,218)
----------
Balance, March 31, 2002 $6,005,479
==========
</Table>
5. The Company has defined cash and cash equivalents to include cash and due
from banks. The Company paid $2,734,000 and $5,496,000 for the quarters ended
March 31, 2002 and 2001, respectively, for interest on deposits and borrowings.
Income tax payments of $75,000 were made during the quarter ended March 31,
2002. No income tax payments were made during the quarter ended March 31, 2001.
Loans transferred to other real estate amounted to $137,000 and $670,000 for the
quarters ended March 31, 2002 and 2001, respectively. The income tax effect on
the accumulated other comprehensive income was ($429,000) and $281,000 at March
31, 2002 and 2001, respectively.
6. Certain reclassifications, which had no effect on prior year net income, have
been made to the prior period statements to conform to current year
presentation.
Page 10 of 19
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 March 31, 2002, March 31, 2001 and December 31,
2001, and the related consolidated statements of income, shareholders' equity,
and cash flows for the three months ended March 31, 2002 and March 31, 2001.
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.
April 28, 2002
Biloxi, Mississippi
Page 11 of 19
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 quarters ended March 31, 2002 and 2001.
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
During the first quarter of 2002, net income was $667,000, compared with net
income of $1,408,000 for the first quarter of 2001. This decrease was primarily
the result of the continuing decline in the net interest margin, which began in
2001. The analysis of the changes in interest income and interest expense on
page 16 presents the effect that declining interest rates has had, as well as
the fact that interest rates earned on loans has declined faster than has
interest rates paid on deposits.
The following schedule compares financial highlights for the quarters ended
March 31, 2002 and 2001:
<Table>
<Caption>
For the quarters ended March 31, 2002 2001
- -------------------------------- ---- ----
Net income per share $ 0.12 $ 0.25
Book value per share $14.22 $13.86
Return on average total assets .45% .94%
Return on average shareholders' equity 3.34% 7.17%
Allowance for loan losses as a % of loans,
net of unearned discount 1.83% 1.27%
</Table>
Page 12 of 19
FINANCIAL CONDITION
HELD TO MATURITY SECURITIES
Held to maturity securities decreased $65,809,000 at March 31, 2002, compared
with March 31, 2001, 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 short term U. S. Government Agency securities, which
have been classified as available for sale. Gross unrealized gains for held to
maturity securities were $508,000 and $647,000 and gross unrealized losses for
held to maturity securities were $12,000 and $26,000 at March 31, 2002 and 2001,
respectively. The following schedule reflects the mix of the held to maturity
investment portfolio at March 31, 2002 and 2001:
<Table>
<Caption>
March 31, 2002 2001
- --------- ----------------------- --------------------
Amount % Amount %
----------- ------ ----------- ------
U. S. Treasury $ 9,992,703 36.90% $48,594,761 52.30%
U. S. Government agencies 11,502,925 42.50% 38,375,992 41.30%
States and political
subdivisions 5,541,021 20.60% 5,874,863 6.40%
----------- ------ ----------- ------
Totals $27,036,649 100.00% $92,845,616 100.00%
=========== ====== =========== ======
</Table>
AVAILABLE FOR SALE SECURITIES
Available for sale securities increased $79,616,000 at March 31, 2002, compared
with March 31, 2001, in the management of the Company's liquidity position, as
discussed above. Gross unrealized gains were $1,792,000 and $1,724,000 and gross
unrealized losses were $347,000 and $21,000 at March 31, 2002 and 2001,
respectively. The following schedule reflects the mix of available for sale
securities at March 31, 2002 and 2001:
<Table>
<Caption>
March 31, 2002 2001
- --------- ------------------------ ----------------------
Amount % Amount %
----------- ------ ----------- ------
U. S. Treasury $ 42,960,506 28.10% $ 6,125,010 8.40%
U. S. Government agencies 103,529,540 67.80% 56,930,351 77.90%
States and political subdivisions 1,548,215 1.00% 5,006,812 6.90%
Other securities 4,629,148 3.10% 4,988,863 6.80%
------------ ------ ------------ ------
Totals $152,667,409 100.00% $ 73,051,036 100.00%
============ ====== ============ ======
</Table>
Page 13 of 19
FEDERAL FUNDS SOLD
Federal funds sold were $17,650,000 at March 31, 2002, as a direct result of the
management of the bank subsidiary's liquidity position.
LOANS
Loans decreased $40,835,000 at March 31, 2002, as compared with March 31, 2001,
as a result of the decreased loan demand in the Company's trade area, which in
turn was due to a softening of the local economy. In addition, a number of
customers paid off several large credits during the second half of 2001. The
Company anticipates that this demand will continue to be flat into the second
quarter of 2002.
ACCRUED INTEREST RECEIVABLE
Accrued interest receivable decreased $1,029,000 at March 31, 2002, as compared
with March 31, 2001, due to the decline in interest rates earned on investments
and loans.
DEPOSITS
Total deposits decreased $39,465,000 at March 31, 2002, as compared with March
31, 2001. Significant increases or decreases in total deposits and/or
significant fluctuations among the different types of deposits from quarter to
quarter 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 2000. Of
these brokered deposits, $10,000,000 were redeemed during the third quarter of
2001.
ACCRUED INTEREST PAYABLE
Accrued interest payable decreased $379,000 at March 31, 2002, as compared with
March 31, 2001, due to the decline in interest rates paid on deposits.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Federal funds purchased and securities sold under agreements to repurchase
increased $11,065,000 at March 31, 2002, as compared with March 31, 2001, as the
result of the management of the Company's liquidity position and the
reallocation of funds by certain customers between deposit products and
non-deposit products.
BORROWINGS FROM FEDERAL HOME LOAN BANK
The Company acquired funds from the Federal Home Loan Bank in the management of
its 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 14.56% at March 31, 2002, as
compared with 13.83% at March 31, 2001. 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.
Page 14 of 19
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>
Quarters Ended March 31, (In
thousands, except percentages) 2002 2001
- ------------------------------ ------- -------
Total interest income (1) $ 7,166 $10,656
Total interest expense 2,836 5,563
------- -------
Net interest earnings $ 4,330 $ 5,093
======= =======
Net yield on interest earning assets 3.26% 3.82%
======= =======
</Table>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 2002 and 2001.
The schedule on page 16 provides an analysis of the change in total interest
income and total interest expense for the quarters ended March 31, 2002 and
2001. Changes in interest income are generally attributable to changes in volume
related to interest-earning assets. Changes in interest expense, while impacted
by changes in volume related to interest-bearing liabilities, were heavily
impacted by the increase in the cost of funds during these time periods.
Page 15 of 19
Analysis of Changes in Interest Income and Interest Expense
(In Thousands)
<Table>
<Caption>
Attributable To:
--------------------------------------
For the For the
Quarter Quarter
Ended Ended
March 31, March 31, Increase Rate/
2002 2001 (Decrease) Volume Rate Volume
---------- ---------- ---------- ---------- ---------- ----------
INTEREST INCOME:(1)
Loans(2)(3) $ 5,028 $ 8,136 $ (3,108) $ (805) $ (2,556) $ 253
Federal funds sold 62 30 32 181 (21) (128)
Held to maturity:
Taxable 354 1,338 (984) (926) (188) 130
Non-taxable 112 127 (15) (8) (8) 1
Available for sale:
Taxable 1,460 718 742 1,338 (208) (388)
Non-taxable 30 84 (54) (57) 9 (6)
Other 120 223 (103) (2) (102) 1
---------- ---------- ---------- ---------- ---------- ----------
Total $ 7,166 $ 10,656 $ (3,490) $ (279) $ (3,074) $ (137)
========== ========== ========== ========== ========== ==========
INTEREST EXPENSE:
Savings and demand,
interest bearing $ 655 $ 1,342 $ (687) $ 70 $ (719) $ (38)
Time deposits 1,770 3,363 (1,593) (374) (1,371) 152
Federal funds
purchased and
securities sold under
agreements to repurchase 318 724 (406) 137 (457) (86)
Borrowings from FHLB 91 132 (41) (46) 7 (2)
Mortgage indebtedness 2 2 1 (1)
---------- ---------- ---------- ---------- ---------- ----------
Total $ 2,836 $ 5,563 $ (2,727) $ (212) $ (2,541) $ 26
========== ========== ========== ========== ========== ==========
</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.
(3) Includes nonaccrual loans.
Page 16 of 19
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. Based on these
analyses, the Company provided $445,000 for loan losses, primarily to address
potential losses from one credit, during the first quarter of 2002. The Company
expects to provide for its loan loss provision on a monthly basis throughout the
remaining quarters of 2002 at a level consistent with provisions made during the
first and third quarters of 2001.
SERVICE CHARGES ON DEPOSIT ACCOUNTS
Service charges on deposit accounts increased $187,000 for the quarter ended
March 31, 2002, as compared with the quarter ended March 31, 2001, as a result
of the introduction of a new overdraft protection product in the second quarter
of 2001.
OTHER INCOME
Other income increased $639,000 for the quarter ended March 31, 2002 as compared
with the quarter ended March 31, 2001, primarily as a result of the gain
realized on proceeds from whole life insurance owned by the bank subsidiary.
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 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 2002, as necessary.
Page 17 of 19
PART II
OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of the Company was held on April 10,
2002.
(b) The following six directors were elected at the meeting to hold office for a
term of one year:
<Table>
<Caption>
Approve Disapprove
------------- ----------
Drew Allen 4,599,824.829 12,213.040
Andy Carpenter 4,655,738.829 12,213.040
Rex E. Kelly 4,659,728.829 12,213.040
Dan Magruder 4,658,966.429 12,213.040
Lyle M. Page 4,658,966.429 12,213.040
Chevis C. Swetman 4,687,043.717 12,213.040
</Table>
Of the 5,625,238 shares outstanding on April 10, shares not voted amounted to
945,658.783 and 13,988 shares voted to abstain.
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 18 of 19
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: May 10, 2002
------------------------------
By: /s/ Chevis C. Swetman
------------------------------
Chevis C. Swetman
Chairman, President and Chief Executive Officer
Date: May 10, 2002
------------------------------
By: /s/ Lauri A. Wood
------------------------------
Lauri A. Wood
Chief Financial Officer and Controller
(principal financial and accounting officer)
Page 19 of 19
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
23 Consent of Certified Public Accountants
</Table>