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, 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 (I.R.S. Employer Identification No.)
incorporation or organization)
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
October 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 23
PART I
FINANCIAL INFORMATION
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
September 30, December 31, and September 30, 2002 2001 2001
------------ ------------ ------------
ASSETS
CASH AND DUE FROM BANKS $ 40,104,878 $ 32,034,976 $ 31,457,089
Held to maturity securities, market value of
$19,148,000 - September 30, 2002;
$38,986,000 - December 31, 2001;
$58,143,000 - September 30, 2001 18,589,305 38,278,962 57,240,890
Available for sale securities, at market value 147,882,866 142,902,274 121,554,970
Federal Home Loan Bank stock, at cost 1,912,600 1,870,500 1,853,500
Federal funds sold 3,450,000 13,950,000
Loans 324,830,140 347,168,766 347,609,083
Less: Allowance for loan losses 5,105,876 5,658,210 5,256,778
------------ ------------ ------------
Loans, net 319,724,264 341,510,556 342,352,305
Bank premises and equipment, net of accumulated
depreciation of $14,534,000 - September 30,
2002; $13,292,000 - December 31, 2001; and
$12,860,000 - September 30, 2001 17,198,524 18,117,908 18,453,245
Other real estate 1,620,509 1,799,527 2,582,253
Accrued interest receivable 2,923,366 3,728,850 3,952,057
Other assets 11,387,284 6,768,669 5,418,671
------------ ------------ ------------
TOTAL ASSETS $564,793,596 $587,012,222 $598,814,980
============ ============ ============
</Table>
Page 2 of 23
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
<Table>
<Caption>
September 30, December 31, and September 30, 2002 2001 2001
--------------- --------------- ---------------
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand, non-interest bearing $ 77,035,214 $ 76,215,302 $ 74,287,930
Savings and demand, interest bearing 169,153,779 145,248,560 138,286,064
Time, $100,000 or more 79,302,974 105,446,070 143,283,793
Other time deposits 73,935,836 85,632,730 81,276,325
--------------- --------------- ---------------
Total deposits 399,427,803 412,542,662 437,134,112
Accrued interest payable 518,307 613,762 1,013,575
Federal funds purchased and securities sold under
agreements to repurchase 71,169,774 82,488,859 70,418,317
Borrowings from Federal Home Loan Bank 5,982,614 5,548,988 5,492,359
Notes payable 357,582 336,251 305,207
Other liabilities 5,416,258 5,412,674 5,117,405
--------------- --------------- ---------------
TOTAL LIABILITIES 482,872,338 506,943,196 519,480,975
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 15,000,000 shares
authorized, 5,600,666 shares issued and
outstanding at September 30, 2002, 5,620,239
shares issued and outstanding at December 31,
2001 and 5,626,039 shares issued and
outstanding at September 30, 2001 5,600,666 5,620,239 5,626,039
Surplus 65,780,254 65,780,254 65,780,254
Undivided profits 8,664,342 7,052,559 6,388,504
Unearned compensation (155,043) (174,043) (470,197)
Accumulated other comprehensive income 2,031,039 1,790,017 2,009,405
--------------- --------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 81,921,258 80,069,026 79,334,005
--------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 564,793,596 $ 587,012,222 $ 598,814,980
=============== =============== ===============
</Table>
See Selected Notes to Condensed Consolidated Financial Statements.
Page 3 of 23
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<Table>
<Caption>
For The Quarters Ended For The Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
INTEREST INCOME:
Interest and fees on loans $ 5,072,790 $ 6,802,440 $ 15,203,016 $ 22,337,180
Interest and dividends on securities:
U. S. Treasury 364,879 376,268 1,058,075 1,677,024
U. S. Government agencies and
corporations 1,097,900 1,517,564 3,957,753 4,303,118
States and political subdivisions 78,762 147,012 263,696 423,631
Other investments 107,512 68,973 242,657 383,667
Interest on federal funds sold 65,234 126,558 172,314 186,528
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME 6,787,077 9,038,815 20,897,511 29,311,148
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Time deposits of $100,000 or more 660,740 1,817,369 2,584,708 5,993,470
Other deposits 1,214,692 1,941,726 3,916,433 6,738,245
Borrowing from Federal Home Loan
Bank 93,757 87,080 275,696 337,655
Mortgage indebtedness 2,067 2,265 6,356 6,937
Federal funds purchased and securities
sold under agreements to repurchases 308,619 537,536 929,823 1,853,958
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE 2,279,875 4,385,976 7,713,016 14,930,265
------------ ------------ ------------ ------------
NET INTEREST INCOME 4,507,202 4,652,839 13,184,495 14,380,883
Provision for losses on loans 135,841 73,746 748,776 1,480,976
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOSSES ON LOANS 4,371,361 4,579,093 12,435,719 12,899,907
------------ ------------ ------------ ------------
OTHER OPERATING INCOME:
Trust department income and fees 205,537 249,880 688,546 745,747
Service charges on deposit accounts 1,775,274 1,659,283 5,054,607 4,627,142
Other service charges, commissions and
fees 67,932 62,949 205,981 216,522
Gain on sale of securities 243,126 243,126
Other income 321,876 176,003 1,437,044 628,931
------------ ------------ ------------ ------------
TOTAL OTHER OPERATING INCOME $ 2,370,619 $ 2,391,241 $ 7,386,178 $ 6,461,468
------------ ------------ ------------ ------------
</Table>
Page 4 of 23
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
<Table>
<Caption>
For The Quarters Ended September 30, For The Nine Months Ended September 30,
-------------------------------------- ---------------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
OTHER OPERATING EXPENSE:
Salaries and employee benefits $ 2,575,306 $ 2,574,594 $ 8,473,216 $ 8,088,372
Net occupancy 356,743 328,153 1,026,906 905,744
Equipment rentals, depreciation and 673,557 673,292 2,135,500 2,066,120
maintenance
Other expense 1,585,629 1,515,689 4,954,889 4,547,481
-------------- -------------- -------------- --------------
TOTAL OTHER OPERATING EXPENSE 5,191,235 5,091,728 16,590,511 15,607,717
-------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAXES 1,550,745 1,878,606 3,231,386 3,753,658
Income taxes 405,701 576,000 761,382 1,163,999
-------------- -------------- -------------- --------------
NET INCOME $ 1,145,044 $ 1,302,606 $ 2,470,004 $ 2,589,659
============== ============== ============== ==============
</Table>
See Selected Notes to Condensed Consolidated Financial Statements.
Page 5 of 23
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<Table>
<Caption>
Unearned
# of Common Undivided Compensa-
Shares Stock Surplus Profits tion
------------- ------------- ------------- ------------- -------------
Balance, January 1, 2001 5,795,207 $ 5,795,207 $ 65,780,254 $ 7,093,830 $ (535,840)
Comprehensive Income:
Net income 2,589,659
Net unrealized gain on available for
sale securities, net of tax
Reclassification adjustment for
available for sale securities sold in
current year, net of tax
Total comprehensive income
Purchase of shares by ESOP (45,357)
Allocation of ESOP shares 111,000
Retirement of stock (176,054) (176,054) (2,728,239)
Issuance of stock 6,886 6,886 93,097
Effect of stock retirement on
accrued dividends 15,545
Cash dividends, ($.12 per share) (675,388)
------------- ------------- ------------- ------------- -------------
Balance, September 30, 2001 5,626,039 $ 5,626,039 $ 65,780,254 $ 6,388,504 $ (470,197)
============= ============= ============= ============= =============
<Caption>
Accumu-
lated Other Compre-
Comprehen- hensive
sive Income Income Total
------------- ------------- -------------
Balance, January 1, 2001 $ 583,406 $ 78,716,857
Comprehensive Income:
Net income $ 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
Reclassification 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 shares by ESOP (45,357)
Allocation of ESOP shares 111,000
Retirement of stock (2,904,293)
Issuance of stock 99,983
Effect of stock retirement on
accrued dividends 15,545
Cash dividends, ($.12 per share) (675,388)
------------- -------------
Balance, September 30, 2001 $ 2,009,405 $ 79,334,005
============= =============
</Table>
Page 6 of 23
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
(Unaudited)
<Table>
<Caption>
Unearned
# of Common Undivided Compensa-
Shares Stock Surplus Profits tion
------------- ------------- ------------- ------------- -------------
Balance, January 1, 2002 5,620,239 $ 5,620,239 $ 65,780,254 $ 7,052,559 $ (174,043)
Comprehensive Income:
Net income 2,470,004
Net unrealized gain on available for
sale securities, net of tax
Reclassification adjustment for
available for sale securities
sold or liquidated in current
year, net of tax
Total comprehensive income
Allocation of ESOP shares 19,000
Retirement of stock (26,715) (26,715) (278,987)
Issuance of stock 7,142 7,142 92,846
Cash dividends, ($.12 per share) (672,080)
------------- ------------- ------------- ------------- -------------
Balance, September 30, 2002 5,600,666 $ 5,600,666 $ 65,780,254 $ 8,664,342 $ (155,043)
============= ============= ============= ============= =============
<Caption>
Accumu-
lated Other Compre-
Comprehen- hensive
sive Income Income Total
------------- ------------- -------------
Balance, January 1, 2002 $ 1,790,017 $ 80,069,026
Comprehensive Income:
Net income $ 2,470,004 2,470,004
Net unrealized gain on available for
sale securities, net of tax 464,758 464,758 464,758
Reclassification adjustment for
available for sale securities sold
or liquidated in current
year, net of tax (223,736) (223,736) (223,736)
-------------
Total comprehensive income $ 2,711,026
=============
Allocation of ESOP shares 19,000
Retirement of stock (305,702)
Issuance of stock 99,988
Cash dividends, ($.12 per share) (672,080)
------------- -------------
Balance, September 30, 2002 $ 2,031,039 $ 81,921,258
============= =============
</Table>
See Selected Notes to Condensed Consolidated Financial Statements.
Page 7 of 23
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
For The Nine Months Ended September 30, 2002 2001
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,470,004 $ 2,589,659
Adjustments to reconcile net income to net cash provided
by operating activities:
(Gain) loss on sales of other real estate 71,466 (36,932)
Gain on liquidation or sale of available for sale securities (199,951) (243,126)
Stock issued under incentive plan 99,988 99,983
Gain on sale of bank premises (42,539)
Depreciation and amortization 1,394,000 1,434,000
Provision for losses on loans 748,776 1,480,976
Provision for losses on other real estate 470,259 475,455
Changes in assets and liabilities:
Accrued interest receivable 805,484 545,656
Other assets 978,926 1,341,255
Accrued interest payable (95,455) (14,989)
Other liabilities 226,542 42,383
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,927,500 7,714,320
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of held to maturity
securities 19,745,000 120,620,000
Investment in held to maturity securities (55,343) (79,808,935)
Proceeds from maturities, sales and calls of available for sale
securities 110,217,242 37,276,932
Investment in available for sale securities (114,634,061) (108,266,877)
Investment in Federal Home Loan Bank stock (42,100) (206,200)
Loans repaid 20,077,086 26,912,165
Proceeds from sale of bank premises 153,120
Acquisition of premises and equipment (585,197) (1,553,973)
Proceeds from sales of other real estate 597,723 293,451
Federal funds sold (3,450,000) (13,950,000)
Other assets (5,268,871) 670,458
-------------- --------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ 26,754,599 $ (18,012,979)
-------------- --------------
</Table>
Page 8 of 23
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<Table>
<Caption>
For The Nine Months Ended September 30, 2002 2001
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand and savings deposits, net increase $ 24,725,131 $ 6,961,242
Time deposits, net increase (decrease) (37,839,990) 16,448,793
Principal payments on notes (32,468) (10,631)
Notes payable 72,799
Cash dividends (1,346,508) (1,297,316)
Retirement of stock (305,702) (2,904,293)
Federal funds purchased and securities sold under
agreements to repurchase (11,319,085) 5,079,233
Borrowings from Federal Home Loan Bank 433,626 (17,667,148)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (25,612,197) 6,609,880
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,069,902 (3,688,779)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 32,034,976 35,145,868
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 40,104,878 $ 31,457,089
============ ============
</Table>
See Selected Notes to Condensed Consolidated Financial Statements.
Page 9 of 23
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2002 and 2001
1. The accompanying unaudited condensed 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 condensed 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, 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 5,607,913 and 5,632,169 for the nine months ended September 30,
2002 and 2001, respectively.
4. At September 30, 2002 and 2001, the total recorded investment in impaired
loans amounted to $6,557,000 and $1,237,000. The average recorded investment in
impaired loans amounted to approximately $6,273,000 and $1,087,000 at September
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
$6,557,000 at September 30, 2002. The allowance for losses related to these
loans amounted to approximately $1,150,000 at September 30, 2002. Interest not
accrued on these loans did not have a significant effect on earnings for the
nine months ended September 30, 2002 and 2001.
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,
2002 2001 2001
---------------------- ---------------------- ----------------------
Balance, beginning of period $ 5,658,210 $ 4,567,565 $ 4,567,565
Recoveries 523,055 560,577 385,019
Loans charged off (1,824,165) (1,972,932) (1,176,782)
Provision for loan losses 748,776 2,503,000 1,480,976
---------------------- ---------------------- ----------------------
Balance, end of period $ 5,105,876 $ 5,658,210 $ 5,256,778
====================== ====================== ======================
</Table>
Page 10 of 23
6. The Company has defined cash and cash equivalents to include cash and due
from banks. The Company paid $7,808,471 and $14,945,254 for the nine months
ended September 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 $1,410,000 and $1,117,000 for the nine months ended
September 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
$960,000 and $2,253,000 for the nine months ended September 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
$124,000 and $735,000 at September 30, 2002 and 2001, respectively.
Page 11 of 23
Independent Accountants' Review Report
Board of Directors
Peoples Financial Corporation
Biloxi, Mississippi
We have reviewed the accompanying condensed consolidated balance sheets of
Peoples Financial Corporation as of September 30, 2002, September 30, 2001 and
December 31, 2001, and the related condensed consolidated statements of income,
shareholders' equity, and cash flows for the nine months ended September 30,
2002 and September 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.
November 4, 2002
Biloxi, Mississippi
Page 12 of 23
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, 2002 and
2001. These comments highlight the significant events and should be considered
in combination with the Condensed 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, 2002, was $2,470,000 compared
with $2,590,000 for the same period in 2001. The negative trend in the net
interest margin the Company had experienced during 2001 and the first quarter of
2002 has now stabilized. This is the result of aggressive pricing of loans and
the favorable repricing of deposits, specifically large and brokered
certificates of deposit. The Company anticipates that this positive trend will
continue during the fourth quarter of 2002.
The following schedule compares financial highlights for the nine months ended
September 30, 2002 and 2001:
<Table>
<Caption>
For the nine months ended September 30, 2002 2001
- --------------------------------------- ---------------------------- --------------------------
Net income per share $ 0.44 $ 0.46
Book value per share $ 14.63 $ 14.10
Return on average total assets .57% .58%
Return on average shareholders' equity 4.07% 4.37%
Allowance for loan losses as a % of
loans, net of unearned discount 1.57% 1.51%
</Table>
Page 13 of 23
FINANCIAL CONDITION
HELD TO MATURITY SECURITIES
Held to maturity securities decreased $38,652,000 at September 30, 2002, as
compared with September 30, 2001, 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 $559,000 and $933,000 at September 30, 2002 and
2001, respectively, and gross unrealized losses for held to maturity securities
were $31,000 at September 30, 2001. The following schedule reflects the mix of
the held to maturity investment portfolio at September 30, 2002 and 2001:
<Table>
<Caption>
September 30, 2002 2001
- ------------------------- ---------------------------------- ----------------------------------
Amount % Amount %
------------ ------------ ------------ ------------
U. S. Treasury securities $ 5,996,769 32% $ 33,834,690 59%
U. S. Government agencies 8,001,423 43% 17,663,440 31%
States and political
subdivisions 4,591,113 25% 5,742,760 10%
------------ ------------ ------------ ------------
Totals $ 18,589,305 100% $ 57,240,890 100%
============ ============ ============ ============
</Table>
AVAILABLE FOR SALE SECURITIES
Available for sale securities increased $26,328,000 at September 30, 2002, as
compared with September 30, 2001, as the result of the management of the
Company's liquidity position, as discussed above. Gross unrealized gains were
$3,073,000 and $3,035,000 at September 30, 2002 and 2001, respectively, and
gross unrealized losses were $7,000 at September 30, 2002. The following
schedule reflects the mix of available for sale securities at September 30, 2002
and 2001:
<Table>
<Caption>
September 30, 2002 2001
- ------------------------- ---------------------------------- ----------------------------------
Amount % Amount %
------------ ------------ ------------ ------------
U. S. Treasury securities $ 49,544,202 34% $ 6,222,950 5%
U. S. Government agencies 91,264,968 62% 109,407,092 90%
States and political
subdivisions 2,451,317 1% 945,000 1%
Other securities 4,622,379 3% 4,979,928 4%
------------ ------------ ------------ ------------
Totals $147,882,866 100% $121,554,970 100%
============ ============ ============ ============
</Table>
Page 14 of 23
FEDERAL FUNDS SOLD
Federal funds sold were $3,450,000 at September 30, 2002 as direct result of the
management of the bank subsidiary's liquidity position.
LOANS
Loans decreased $22,779,000 at September 30, 2002, as compared with September
30, 2001, as a result of the decreased loan demand in the Company's trade area
which in turn was due to the softening of the local economy. In addition, as
interest rates declined a number of customers paid off several large credits
during the third quarter of 2001. The Company anticipates that loan demand will
be flat throughout the remainder of 2002.
During the third quarter of 2002, the Company had charge-offs of $1,340,000. The
Company had previously provided for these losses during 2001 and the first
quarter of 2002.
OTHER REAL ESTATE
Other real estate decreased $962,000 at September 30,2002 as compared with
September 30, 2001, due to the sale of several parcels of commercial real estate
during the second half of 2001 and the first two quarters of 2002.
ACCRUED INTEREST RECEIVABLE
Accrued interest receivable decreased $1,029,000 at September 30, 2002, as
compared with September 30, 2001, as a result of the decline in interest rates
earned on loans and investments and a decline in the volume of these assets.
OTHER ASSETS
Other assets increased $5,969,000 at September 30, 2002, as compared with
September 30, 2001, due to the investment of $5,000,000 in bank owned life
insurance in 2002.
DEPOSITS
Total deposits decreased $37,706,000 at September 30, 2002, as compared with
September 30, 2001. 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. Additionally, the Company obtained
brokered deposits during 2000, most of which has now matured. 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.
ACCRUED INTEREST PAYABLE
Accrued interest payable decreased $495,000 at September 30, 2002, as compared
with September 30, 2001, as a result of the decline in interest rates paid on
deposits.
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.
Page 15 of 23
One measure of capital adequacy is the primary capital ratio which was 14.97 %
at September 30, 2002, as compared with 14.14% at September 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 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 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>
Nine Months Ended September 30, (In
thousands, except percentages) 2002 2001
- ----------------------------------- ------------ ------------
Total interest income (1) $ 21,033 $ 29,529
Total interest expense 7,713 14,930
------------ ------------
Net interest earnings $ 13,320 $ 14,599
============ ============
Net yield on interest earning assets 3.44% 3.65%
============ ============
</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 nine months ended September 30, 2002
and 2001.
Page 16 of 23
Analysis of Changes in Interest Income and Interest Expense
(In Thousands)
<Table>
<Caption>
Attributable To:
--------------------------------------------
For the Nine For the Nine
Months Months
Ended Ended
September September Increase Rate/
30, 2002 30, 2001 (Decrease) Volume Rate Volume
------------ ------------ ------------ ------------ ------------ ------------
INTEREST
INCOME: (1)
Loans (2) $ 15,203 $ 22,337 $ (7,134) $ (2,171) $ (5,497) $ 534
Federal funds sold 172 187 (15) 191 (102) (104)
Held to maturity:
Taxable securities 779 3,014 (2,235) (2,154) (285) 204
Non-taxable
securities 293 407 (114) (45) (77) 8
Available for sale:
Taxable securities 4,236 2,966 1,270 2,799 (786) (743)
Non-taxable
securities 107 234 (127) (146) 51 (32)
Other securities 243 384 (141) (11) (133) 3
------------ ------------ ------------ ------------ ------------ ------------
Total $ 21,033 $ 29,529 $ (8,496) $ (1,537) $ (6,829) $ (130)
============ ============ ============ ============ ============ ============
INTEREST
EXPENSE:
Savings and
negotiable interest
bearing deposits $ 1,935 $ 3,355 $ (1,420) $ 313 $ (1,585) $ (148)
Time deposits 4,566 9,376 (4,810) (1,871) (3,671) 732
Borrowings from
FHLB 276 338 (62) (74) 16 (4)
Federal funds
purchased and
securities sold under
agreements to
repurchase 930 1,854 (924) 297 (1,052) (169)
Mortgage
indebtedness 6 7 (1) (1) 1 (1)
------------ ------------ ------------ ------------ ------------ ------------
Total $ 7,713 $ 14,930 $ (7,217) $ (1,336) $ (6,291) $ 410
============ ============ ============ ============ ============ ============
</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 23
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. Based on these analyses, the Company provided
$136,000 during the quarter ended September 30, 2002, and $749,000 during the
nine months ended September 30, 2002, for loan losses, primarily to address
potential losses from one credit. The Company expects to provide for its loan
loss provision on a monthly basis during the fourth quarter of 2002 at a level
consistent with provisions made during the third quarter of 2002.
OTHER INCOME
Other income increased $808,000 for the nine months ended September 30, 2002, as
compared with the nine months ended September 30, 2001, as a result of the gain
realized on proceeds from whole life insurance owned by the bank subsidiary and
the gain realized from the sale of bank premises.
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.
ITEM 4 - CONTROLS AND PROCEDURES
Based on their evaluation, as of a date within 90 days of the filing date of
this Form 10-Q, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as defined in Rule
13a-14( c) and 15d- 14( c) under the Securities Exchange Act of 1934, as
amended) are effective. There have been no significant changes in internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Page 18 of 23
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 23
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 12, 2002
--------------------------------------
By: /S/ Chevis C. Swetman
--------------------------------------
Chevis C. Swetman
Chairman, President and Chief Executive Officer
Date: November 12, 2002
--------------------------------------
By: /s/ Lauri A. Wood
--------------------------------------
Lauri A. Wood
Chief Financial Officer and Controller
(principal financial and accounting officer)
Page 20 of 23
CERTIFICATIONS
I, Chevis C. Swetman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peoples Financial
Corporation.
2. Based on my knowledge, the report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by the report;
3. Based on my knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in the report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as such term is
defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in the quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
Page 21 of 23
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated: November 12, 2002
/s/ Chevis C. Swetman
--------------------------------------
Chevis C. Swetman,
President and Chief Executive Officer
I, Lauri A. Wood, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peoples Financial
Corporation.
2. Based on my knowledge, the report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by the report;
3. Based on my knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in the report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as such term is
defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
the report (the "Evaluation Date"); and
c) presented in the quarterly report our conclusions about
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the board of directors (or persons performing the equivalent functions):
Page 22 of 23
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated: November 12, 2002
/s/ Lauri A. Wood
---------------------------------------
Lauri A. Wood,
Chief Financial Officer
Page 23 of 23
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
23 Consent of Certified Public Accountants
99 Certifications of Chief Executive Officer and Chief Financial Officer
</Table>