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, 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)
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, 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 20
PART I
FINANCIAL INFORMATION
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<Table>
<Caption>
June 30, December 31, and June 30, 2002 2001 2001
- ---------------------------------------------- ------------ ------------ ------------
ASSETS
Cash and due from banks $ 34,279,455 $ 32,034,976 $ 39,329,475
Available for sale securities 145,853,839 142,902,274 94,726,096
Held to maturity securities, market value of
$22,860,000 - June 30, 2002;
$38,986,000 - December 31, 2001;
$67,444,000 - June 30, 2001 22,284,964 38,278,962 66,833,477
Federal Home Loan Bank Stock, at cost 1,898,500 1,870,500 1,833,600
Federal funds sold 32,950,000 8,050,000
Loans 321,315,212 347,168,766 360,414,015
Less: Unearned income 10,037
Allowance for loan losses 6,139,267 5,658,210 5,298,052
------------ ------------ ------------
Loans, net 315,175,945 341,510,556 355,105,926
Bank premises and equipment, net of
accumulated depreciation of $14,079,000 -
June 30, 2002; $13,292,000 - December 31,
2001; and $12,417,000 - June 30, 2001 17,492,344 18,117,908 18,488,002
Other real estate 1,307,861 1,799,527 2,613,702
Accrued interest receivable 2,896,104 3,728,850 3,981,690
Other assets 6,194,993 6,768,669 5,504,884
------------ ------------ ------------
TOTAL ASSETS $580,334,005 $587,012,222 $596,466,852
============ ============ ============
</Table>
Page 2 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
<Table>
<Caption>
June 30, December 31, and June 30, 2002 2001 2001
- --------------------------------------------------- ------------- ------------- -------------
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 76,328,355 $ 76,215,302 $ 75,690,472
Savings and demand, interest bearing 156,103,639 145,248,560 132,400,382
Time, $100,000 or more 103,607,691 105,446,070 145,032,104
Other time deposits 76,173,464 85,632,730 82,798,548
------------- ------------- -------------
Total deposits 412,213,149 412,542,662 435,921,506
Accrued interest payable 578,011 613,762 948,253
Federal funds purchased and securities sold
agreements to repurchase under 74,975,144 82,488,859 71,791,721
Borrowings from the Federal Home Loan Bank 5,754,701 5,548,988 5,244,695
Notes payable 372,612 336,251 301,307
Other liabilities 5,905,713 5,412,674 4,996,959
------------- ------------- -------------
TOTAL LIABILITIES 499,799,330 506,943,196 519,204,441
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 15,000,000 shares
authorized, 5,600,666, 5,620,239 and 5,628,238
shares issued and outstanding at June 30, 2002,
December 31, 2001 and June 30, 2001,
respectively 5,600,666 5,620,239 5,628,238
Surplus 65,780,254 65,780,254 65,780,254
Undivided profits 7,519,298 7,052,559 5,114,497
Unearned compensation (159,043) (174,043) (492,706)
Accumulated other comprehensive income 1,793,500 1,790,017 1,232,128
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 80,534,675 80,069,026 77,262,411
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 580,334,005 $ 587,012,222 $ 596,466,852
============= ============= =============
</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 June 30, For The Six Months Ended June 30,
------------------------------- ---------------------------------
2002 2001 2002 2001
------------- ------------- ------------- --------------
INTEREST INCOME:
Interest and fees on loans $ 5,101,836 $ 7,399,107 $ 10,130,226 $ 15,534,740
Interest and dividends on investments:
U. S. Treasury 359,933 613,020 693,196 1,300,756
U. S. Government agencies and
corporations 1,380,876 1,416,354 2,859,853 2,785,554
States and political subdivisions 90,867 137,873 184,934 276,619
Other investments 14,146 90,947 135,145 314,694
Interest on federal funds sold 44,868 30,382 107,080 59,970
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME 6,992,526 9,687,683 14,110,434 20,272,333
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Time deposits of $100,000 or more 877,127 2,041,260 1,923,968 4,176,101
Other deposits 1,323,220 2,227,341 2,701,741 4,796,519
Mortgage indebtedness 2,122 2,312 4,289 4,672
Borrowings from Federal Home Loan
Bank 90,991 118,135 181,939 250,575
Federal funds purchased and securities
sold under agreements to repurchase 303,335 592,467 621,204 1,316,422
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE 2,596,795 4,981,515 5,433,141 10,544,289
------------ ------------ ------------ ------------
NET INTEREST INCOME 4,395,731 4,706,168 8,677,293 9,728,044
Provision for losses on loans 167,709 1,332,230 612,935 1,407,230
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOSSES ON LOANS 4,228,022 3,373,938 8,064,358 8,320,814
------------ ------------ ------------ ------------
OTHER OPERATING INCOME:
Trust department income and fees 235,367 264,077 483,009 495,867
Service charges on deposit accounts 1,661,928 1,537,704 3,279,333 2,967,859
Other service charges, commissions
and fees 70,071 81,983 138,049 153,573
Other income 153,759 130,435 1,115,168 452,928
------------ ------------ ------------ ------------
TOTAL OTHER OPERATING INCOME $ 2,121,125 $ 2,014,199 $ 5,015,559 $ 4,070,227
------------ ------------ ------------ ------------
</Table>
Page 4 of 20
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,
-------------------------------- ---------------------------------
2002 2001 2002 2001
------------- ------------- ------------- --------------
OTHER OPERATING EXPENSE:
Salaries and employee benefits $ 2,673,181 $ 2,826,008 $ 5,897,910 $ 5,513,778
Net occupancy 330,122 295,899 670,163 577,591
Equipment rentals, depreciation and
maintenance 767,349 692,115 1,461,943 1,392,828
Other expense 1,791,894 1,773,657 3,369,260 3,031,792
------------- ------------- ------------- -------------
TOTAL OTHER OPERATING EXPENSE 5,562,546 5,587,679 11,399,276 10,515,989
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 786,601 (199,542) 1,680,641 1,875,052
INCOME TAXES (BENEFIT) 128,201 (81,996) 355,681 587,999
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 658,400 $ (117,546) $ 1,324,960 $ 1,287,053
============= ============= ============= =============
</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>
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 unreal-
ized gain
on
available
for sale
securities,
net of tax 648,722 648,722 648,722
-----------
Total
compre-
hensive
income $ 1,935,775
===========
Purchase of
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>
Page 6 of 20
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,
2002 5,620,239 $ 5,620,239 $ 65,780,254 $ 7,052,559 $ (174,043) $ 1,790,017 $ 80,069,026
Compre-
hensive
Income:
Net income 1,324,960 $ 1,324,960 1,324,960
Net
unrealized
gain on
available
for sale
securities,
net of tax 195,780 195,780 195,780
Reclassifi-
cation
adjustment
for
available
for sale
securities
called or
sold in
current
year, net of
tax (192,297) (192,297) (192,297)
-----------
Total
compre-
hensive
income $ 1,328,443
===========
Allocation
of ESOP
shares 15,000 15,000
Issuance of
stock 7,142 7,142 92,846 99,988
Retirement
of common
stock (26,715) (26,715) (278,987) (305,702)
Dividend
declared
($ . 12 per
share) (672,080) (672,080)
--------- ----------- ------------- ------------ ----------- ----------- -----------
Balance,
June 30,
2002 5,600,666 $ 5,600,666 $ 65,780,254 $ 7,519,298 $ (159,043) $ 1,793,500 $ 80,534,675
========= =========== ============= ============ =========== =========== ============
</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 Six Months Ended June 30, 2002 2001
- ------------------------------------------------------------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,324,960 $ 1,287,053
Adjustments to reconcile net income to net cash provided
by operating activities:
Loss on sales of other real estate 93,939 4,410
Gain on sale or liquidation of available for sale securities (180,868)
Depreciation and amortization 920,000 991,000
Provision for losses on loans 612,935 1,407,230
Provision for losses on other real estate 300,259 473,500
Stock issued under incentive plan 99,988 99,983
Changes in assets and liabilities:
Accrued interest receivable 832,746 516,023
Other assets 1,074,689 1,296,810
Accrued interest payable (35,751) (80,311)
Other liabilities 207,417 (354,635)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,250,314 5,641,063
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales, maturities and calls of held to
maturity securities 16,050,000 86,995,000
Investment in held to maturity securities (56,002) (55,776,522)
Proceeds from sales, maturities and calls of available
for sale securities 66,110,014 22,115,086
Investment in available for sale securities (68,876,428) (67,695,375)
Investment in Federal Home Loan Bank (28,000) (186,300)
Loans, net 25,263,894 14,312,715
Proceeds from sales of other real estate 555,250 112,189
Acquisition of premises and equipment (294,436) (1,145,730)
Federal funds sold (32,950,000) (8,050,000)
Other assets (213,843) 628,690
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ 5,560,449 $ (8,690,247)
------------ ------------
</Table>
Page 8 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<Table>
<Caption>
For The Six Months Ended June 30, 2002 2001
- ----------------------------------------------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand and savings deposits, net increase $ 10,968,132 $ 2,478,102
Time deposits, net increase (decrease) (11,297,645) 19,719,327
Principal payments on notes (21,438) (7,040)
Retirement of common stock (305,702) (2,873,495)
Cash dividends (674,428) (621,928)
Federal funds purchased and securities sold under
agreements to repurchase (7,513,715) 6,452,637
Notes payable 72,799
Borrowings from Federal Home Loan Bank 205,713 (17,914,812)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,566,284) 7,232,791
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,244,479 4,183,607
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 32,034,976 35,145,868
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 34,279,455 $ 39,329,475
============ ============
</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 Six Months Ended June 30, 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. The statements include information required for interim
financial statements.
2. The results of operations for the six months ended June 30, 2002 and 2001,
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 5,611,596 and 5,635,079 for the six months ended June 30, 2002
and 2001, respectively.
4. At June 30, 2002 and 2001, the total recorded investment in impaired loans
amounted to $7,008,000 and $217,000. The average recorded investment in impaired
loans amounted to approximately $7,195,000 and $219,000 at June 30, 2002 and
2001, respectively. The amount of that recorded investment in impaired loans for
which there is a related allowance for loan losses was $6,800,000 at June 30,
2002. The allowance for losses related to these loans amounted to approximately
$1,830,000 at June 30, 2002. The amount of interest not accrued on these loans
did not have a significant effect on earnings for the six months ended June 30,
2002 and 2001.
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, 2002 31, 2001 June 30, 2001
------------- -------------- -------------
Balance, beginning of period $ 5,658,210 $ 4,567,565 $ 4,567,565
Recoveries 352,424 560,577 248,914
Loans charged off (484,302) (1,972,932) (925,657)
Provision for loan losses 612,935 2,503,000 1,407,230
------------- ------------- -------------
Balance, end of period $ 6,139,267 $ 5,658,210 $ 5,298,052
============= ============= =============
</Table>
Page 10 of 20
6. The Company has defined cash and cash equivalents to include cash and due
from banks. The Company paid $5,469,000 and $10,544,000 for the six months ended
June 30, 2002 and 2001, respectively, and $18,768,000 for the twelve months
ended December 31, 2001, for interest on deposits and borrowings. Income tax
payments totaled $815,000 and $692,000 for the six months ended June 30, 2002
and 2001, respectively, and $1,847,000 for the twelve months ended December 31,
2001. Loans transferred to other real estate amounted to $458,000 and $2,143,000
for the six months ended June 30, 2002 and 2001, respectively, and $2,073,000
for the twelve months ended December 31, 2001.
7. The income tax effect on the accumulated other comprehensive income was
$2,000 and $333,000 at June 30, 2002 and 2001, 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 June 30, 2002, June 30, 2001 and December 31, 2001,
and the related consolidated statements of income, shareholders' equity, and
cash flows for the six months ended June 30, 2002 and June 30, 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.
August 2, 2002
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 six months ended June 30, 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
Net income for the six months ended June 30, 2002, was $1,325,000 compared with
$1,287,000 for the same period in 2001. The negative trend in the net interest
margin the Company has experienced for the prior five quarters became slightly
more favorable during the quarter ended June 30, 2002. This positive trend is
largely the result of the repricing of time deposits at more favorable rates and
the maturity of highly priced brokered deposits. The Company anticipates that
this positive trend will continue throughout the remaining quarters of 2002.
The following schedule compares financial highlights for the six months ended
June 30, 2002 and 2001:
<Table>
<Caption>
For the six months ended June 30, 2002 2001
- --------------------------------------------- ------------ ------------
Net income per share $ 0.24 $ 0.23
Book value per share $ 14.38 $ 13.72
Return on average total assets .45% .43%
Return on average shareholders' equity 3.30% 3.30%
Allowance for loan losses as a % of
loans, net of unearned discount 1.91% 1.47%
</Table>
Page 13 of 20
FINANCIAL CONDITION
HELD TO MATURITY SECURITIES
Held to maturity securities decreased $44,549,000 at June 30, 2002, as compared
with June 30, 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 available for sale securities. Gross unrealized gains
were $576,000 and $627,000 and gross unrealized losses were $1,000 and $17,000
at June 30, 2002 and 2001, respectively. The following schedule reflects the mix
of the held to maturity securities portfolio at June 30, 2002 and 2001:
<Table>
<Caption>
June 30, 2002 2001
- -------------------------- ----------------------------- -----------------------------
Amount % Amount %
------------ ------------ ------------ ------------
U. S. Treasury securities $ 8,995,016 40.40% $ 32,840,110 49.10%
U. S. Government agencies 8,002,206 35.90% 28,122,326 42.10%
States and political
subdivisions 5,287,742 23.70% 5,871,041 8.80%
------------ ------------ ------------ ------------
Totals $ 22,284,964 100.00% $ 66,833,477 100.00%
============ ============ ============ ============
</Table>
AVAILABLE FOR SALE SECURITIES
Available for sale securities increased $51,128,000 at June 30, 2002, as
compared with June 30, 2001, as the result of the management of the Company's
liquidity position, as discussed above. Gross unrealized gains were $2,715,000
and $1,882,000 and gross unrealized losses were $7,000 and $23,000 at June 30,
2002 and 2001, respectively. The following schedule reflects the mix of
available for sale securities at June 30, 2002 and 2001:
<Table>
<Caption>
June 30, 2002 2001
- ------------------------- ------------------------------- -------------------------------
Amount % Amount %
------------- ------------- ------------- -------------
U. S. Treasury securities $ 46,303,855 31.80% $ 6,105,630 6.40%
U. S. Government agencies 93,319,916 63.90% 78,656,909 83.00%
States and political
subdivisions 1,596,106 1.10% 4,973,656 5.30%
Other securities 4,633,962 3.20% 4,989,901 5.30%
------------- ------------- ------------- -------------
Totals $ 145,853,839 100.00% $ 94,726,096 100.00%
============= ============= ============= =============
</Table>
Page 14 of 20
FEDERAL FUNDS SOLD
Federal funds sold were $32,950,000 at June 30, 2002, as a direct result of the
management of the bank subsidiary's liquidity position.
LOANS
Loans decreased $39,100,000 at June 30, 2002, as compared with June 30, 2001, as
a result of decreased loan demand in the Company's trade area which in turn was
due to the 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 loan demand will continue to be flat throughout the remainder
of 2002.
OTHER REAL ESTATE
Other real estate decreased $1,306,000 at June 30, 2002, as compared with June
30, 2001, due to the sale of several parcels of commercial real estate during
the second half of 2001 and the first half of 2002.
ACCRUED INTEREST RECEIVABLE
Accrued interest receivable decreased $1,086,000 at June 30, 2002, as compared
with June 30, 2001, due the decline in interest rates earned on investments and
loans.
DEPOSITS
Total deposits decreased $23,708,000 at June 30, 2002, as compared with June 30,
2001. 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 2000. Brokered deposits amounting to
$10,000,000 matured in July of 2001. The Company may place these funds in other
brokered deposits.
OTHER LIABILITIES
Other liabilities increased $909,000 at June 30, 2002, as compared with June 30,
2001, primarily as a result of an increase in liabilities related to deferred
compensation benefits for a deceased officer of the bank subsidiary.
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 14.70% at June 30, 2002, as
compared with 13.83% at June 30, 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.
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
Page 15 of 20
15, 2001, and on January 15 of the four succeeding years. On June 15, 2001 and
January 15, 2002, a total of 6,886 and 7,142 shares, respectively, of Peoples
Financial Corporation common stock was issued.
On June 26, 2002, the Company's Board of Directors approved a semi-annual
dividend of $ .12 per share. The dividend had a record date of July 8, 2002 and
a distribution date of July 10, 2002.
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>
Six Months Ended June 30, (In
thousands, except percentages) 2002 2001
- ------------------------------------ ------------ ------------
Total interest income(1) $ 14,206 $ 20,415
Total interest expense 5,433 10,544
------------ ------------
Net interest earnings $ 8,773 $ 9,871
============ ============
Net yield on interest earning assets 3.36% 3.71%
============ ============
</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 17 provides an analysis of the change in total interest
income and total interest expense for the six months ended June 30, 2002 and
2001.
Page 16 of 20
Analysis of Changes in Interest Income and Interest Expense
(In Thousands)
<Table>
<Caption>
Attributable To:
--------------------------------------------
For the Six For the Six
Months Months
Ended Ended
June 30, June 30, Increase Rate/
2002 2001 (Decrease) Volume Rate Volume
------------ ------------ ------------ ------------ ------------ ------------
INTEREST
INCOME:(1)
Loans(2) $ 10,130 $ 15,535 $ (5,405) $ (1,672) $ (4,183) $ 450
Federal funds sold 107 60 47 263 (40) (176)
Held to maturity:
Taxable securities 584 2,396 (1,812) (1,732) (288) 208
Non-taxable
securities 239 250 (11) (17) 6
Available for sale:
Taxable securities 2,969 1,690 1,279 2,356 (450) (627)
Non-taxable
securities 42 169 (127) (115) (38) 26
Other securities 135 315 (180) (10) (176) 6
------------ ------------ ------------ ------------ ------------ ------------
Total $ 14,206 $ 20,415 $ (6,209) $ (927) $ (5,169) $ (113)
============ ============ ============ ============ ============ ============
INTEREST
EXPENSE:
Savings and nego-
tiable interest
bearing deposits $ 1,308 $ 2,409 $ (1,101) $ 106 $ (1,156) $ (51)
Time deposits 3,318 6,563 (3,245) (1,041) (2,620) 416
Borrowings from
FHLB 182 251 (69) (81) 18 (6)
Federal funds pur-
chased and secur-
ities sold under
agreements to
repurchase 621 1,316 (695) (206) (779) 290
Mortgage
indebtedness 4 5 (1) 1 (1) (1)
------------ ------------ ------------ ------------ ------------ ------------
Total $ 5,433 $ 10,544 $ (5,111) $ (1,221) $ (4,538) $ 648
============ ============ ============ ============ ============ ============
</Table>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 2002 and 2001.
(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. These analyses are utilized in the
computation of the adequacy of the allowance for loan losses. Based on these
analyses, the Company provided $612,000 for loan losses, primarily to address
potential losses from one credit, during the six months ended June 30, 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 $311,000 for the six months ended
June 30, 2002, as compared with the six months ended June 30, 2001. This
increase was due to the introduction of an overdraft protection product in April
2001.
OTHER INCOME
Other income increased $662,000 for the six months ended June 30, 2002, as
compared with the six months ended June 30, 2001, primarily as a result of the
gain realized on proceeds from whole life insurance owned by the bank
subsidiary.
OTHER EXPENSE
Other expense increased $337,000 for the six months ended June 30, 2002, as
compared with the same period during 2001, due to write-downs of other real
estate of $300,000 in 2002.
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 2002, as necessary.
Page 18 of 20
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
Exhibit 99 Certifications of Chief Executive Officer and Chief
Financial Officer
(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: August 8, 2002
----------------------------------
By: /s/ Chevis C. Swetman
--------------------------------------
Chevis C. Swetman
Chairman, President and Chief Executive Officer
Date: August 7, 2002
--------------------------------------
By: /s/ Lauri A. Wood
--------------------------------------
Lauri A. Wood
Chief Financial Officer and Controller
(principal financial and accounting officer)
Page 20 of 20
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
Exhibit 23 Consent of Certified Public Accountants
Exhibit 99 Certifications of Chief Executive Officer and Chief
Financial Officer
</Table>