1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
--------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
For the transition period from ____________ to _______________
Commission File No. 0-28838
PEOPLES FINANCIAL CORPORATION
-------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 34-1822228
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
211 Lincoln Way East, Massillon, Ohio 44646
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(330) 832-7441
- --------------------------------------------------------------------------------
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
- --------------------------------------------------------------------------------
report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: MAY 10, 2001 -1,234,085
common shares ---------------------------
- --------------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Page 1 of 19 pages
2
INDEX
-----
PEOPLES FINANCIAL CORPORATION
Page
----
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION 17
SIGNATURES 19
Page 2 of 19 pages
3
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
PEOPLES FINANCIAL CORPORATION
(In thousands, except share data)
MARCH 31, SEPTEMBER 30,
ASSETS 2001 2000
Cash and due from banks $ 338 $ 437
Interest-bearing deposits in other financial institutions 1,612 1,191
------- ---------
Cash and cash equivalents 1,950 1,628
Securities available for sale 460 518
Securities held to maturity - (market value of $896 and $984
as of March 31, 2001 and September 30, 2000) 859 946
Mortgage-backed and related securities available for sale 6,480 6,847
Mortgage-backed and related securities held to maturity
(market value of $2,277 and $2,559 as of March 31, 2001
and September 30, 2000) 2,214 2,521
Loans receivable - net 88,958 84,834
Office premises and equipment - net 1,571 1,588
Stock in Federal Home Loan Bank 1,073 993
Accrued interest receivable 354 350
Prepaid expenses and other assets 111 213
--------- ----------
Total assets $104,030 $100,438
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 73,673 $ 70,758
Advances from the Federal Home Loan Bank 19,300 18,650
Other liabilities 268 290
Accrued federal income taxes 9 116
Deferred federal income taxes 325 309
------- ----------
Total liabilities 93,575 90,123
Shareholders' equity
Preferred stock - authorized 1,000,000 shares without par
value; no shares issued - -
Common stock - authorized 6,000,000 shares without par
or stated value; 1,491,012 shares issued - -
Additional paid-in capital 7,360 7,360
Retained earnings 6,130 6,020
Accumulated comprehensive income, unrealized gains
on securities designated as available
for sale, net of related tax effects 343 313
Treasury shares, at cost - 256,927 shares (3,378) (3,378)
--------- ---------
Total shareholders' equity 10,455 10,315
-------- --------
Total liabilities and shareholders' equity $104,030 $100,438
======= =======
See notes to consolidated financial statements
Page 3 of 19 pages
4
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
PEOPLES FINANCIAL CORPORATION
(In thousands, except share data)
SIX MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
Interest income
Loans $3,379 $2,860 $1,718 $1,465
Mortgage-backed and related securities 327 345 159 179
Securities 69 76 34 34
Interest-bearing deposits and other 28 73 12 23
------ ------- ------- -------
Total interest income 3,803 3,354 1,923 1,701
Interest expense
Deposits 1,908 1,606 962 815
Borrowings 592 395 268 209
------ ------- ------- -------
Total interest expense 2,500 2,001 1,230 1,024
-------- -----
Net interest income 1,303 1,353 693 677
Provision for losses on loans 6 6 3 3
------ ------- ------- -------
Net interest income after provision for
losses on loans 1,297 1,347 690 674
Other income
Gain on sale of securities available for sale 159 387 63 319
Other operating 72 27 38 13
------ ------- ------- -------
Total other income 231 414 101 332
General, administrative and other expense
Employee compensation and benefits 597 811 293 548
Occupancy and equipment 171 128 85 59
Franchise taxes 75 92 33 44
Federal deposit insurance premiums 15 14 11 4
Data processing 72 57 37 29
Advertising 39 26 20 19
Other operating 178 181 103 98
------ ------- ------- -------
Total general, administrative and other expense 1,147 1,309 582 801
------ ------- ------- -------
Earnings before income taxes 381 452 209 205
Federal income taxes
Current 122 139 67 65
Deferred - 6 - -
------ ------- ------- -------
Total federal income taxes 122 145 67 65
------ ------- ------- -------
NET EARNINGS $ 259 $ 307 $ 142 $ 140
====== ======= ======= =======
EARNINGS PER SHARE
Basic $.21 $.24 $.11 $.11
=== === === ===
Diluted $.21 $.24 $.11 $.11
=== === === ===
See notes to consolidated financial statements
Page 4 of 19 Pages
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
PEOPLES FINANCIAL CORPORATION
(In thousands)
FOR THE SIX MONTHS FOR THE THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2001 2000 2001 2000
Net earnings $259 $307 $142 $140
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period 135 (137) (6) (45)
Reclassification adjustment for realized gains
included in earnings, net of tax of $54 and $132
for the six months ended March 31, 2001 and 2000
and $21 and $109 for the three months ended
March 31, 2001 and 2000 respectively (105) (255) (42) (210)
--- --- -- ---
Comprehensive income (loss) $289 $ (85) $ 94 $(115)
=== ===== == ====
See notes to consolidated financial statements
Page 5 of 19 Pages
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
PEOPLES FINANCIAL CORPORATION
For the six months ended March 31,
(In thousands)
2001 2000
Cash flows from operating activities:
Net earnings for the period $ 259 $ 307
Adjustments to reconcile net earnings to net cash
from operating activities (172) 109
------- -----
Net cash from operating activities 87 416
Cash flows from investing activities:
Principal repayments on mortgage-backed and related securities 776 1,197
Purchase of mortgage-backed and related securities available for sale - (1,026)
Proceeds from sale of securities 162 395
Principal repayments and maturities of securities 87 1,012
Purchase of Federal Home Loan Bank stock (42)
Loan principal repayments 9,111 6,843
Loan disbursements (13,213) (12,246)
Purchase of office premises and equipment (64) (4)
---------- ----------
Net cash from investing activities (3,183) (3,829)
--------- -------
Cash flows from financing activities:
Net increase in deposit accounts 2,916 3,592
Proceeds from Federal Home Loan Bank advances 29,300 32,000
Repayment of Federal Home Loan Bank advances (28,650) (28,000)
Cash dividends paid on common stock (148) (4,143)
---------- ------
Net cash from financing activities 3,418 3,449
-------- ------
Net increase in cash and cash equivalents 322 36
Cash and cash equivalents at beginning of period 1,628 2,620
------ ------
Cash and cash equivalents at end of period $ 1,950 $ 2,656
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 229 $ 25
======= ========
Interest on deposits and borrowings $ 2,519 $ 1,969
====== ======
Supplemental disclosure of noncash investing activities:
Unrealized net losses on securities available for sale,
net of related tax effects $ (30) $ (392)
======= =======
See notes to consolidated financial statements
Page 6 of 19 Pages
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
PEOPLES FINANCIAL CORPORATION
For the six and three month periods ended March 31, 2001 and 1999
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. Accordingly, these financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto of Peoples Financial Corporation included in the Annual Report on Form
10-KSB for the year ended September 30, 2000. However, in the opinion of
management, all adjustments (consisting of only normal recurring accruals) which
are necessary for a fair presentation of the consolidated financial statements
have been included. The results of operations for the six- and three-month
periods ended March 31, 2001, are not necessarily indicative of the results
which may be expected for an entire fiscal year.
2. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
Peoples Financial Corporation ("PFC" or the "Corporation") and Peoples Federal
Savings and Loan Association of Massillon ("Peoples Federal" or the
"Association"). All significant intercompany items have been eliminated.
3. Use of Estimates
----------------
To prepare financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the
financial statements and the disclosures provided, and future results could
differ. The allowance for loan losses and fair values of financial instruments
are particularly subject to change.
Page 7 of 19 pages
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
PEOPLES FINANCIAL CORPORATION
For the six and three month periods ended March 31, 2001 and 1999
4. Earnings Per Share
------------------
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period. Weighted-average common shares outstanding
totaled 1,234,085 for both the six- and three-month periods ended March 31,
2001. Weighted-average common shares outstanding totaled 1,263,074 and 1,261,017
for the six and three-month periods ended March 31, 2000, respectively.
Diluted earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares to be issued under PFC's stock
option plan. Weighted-average common shares deemed outstanding for purposes of
computing diluted earnings per share were the same as those for basic earnings
per share for all periods presented.
Options to purchase 116,617 shares of common stock at a weighted-average
exercise price of $12.39 per share were outstanding at March 31, 2001 and 2000,
but were excluded from the computation of common share equivalents because their
exercise prices were greater than the average market price of the common shares.
5. Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 2001
consolidated financial statement presentation.
Page 8 of 19 pages
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PEOPLES FINANCIAL CORPORATION
Note Regarding Forward-Looking Statements
- -----------------------------------------
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, PFC's operations and PFC's actual results could differ
significantly from those discussed in the forward-looking statements. Some of
the factors that could cause or contribute to such differences are discussed
herein but also include changes in the economy and interest rates in the nation
and PFC's market area generally. See Exhibit 99 hereto, which is incorporated
herein by reference.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of allowance for
loan losses and the effect of certain recent accounting pronouncements.
Discussion of Financial Condition Changes from September 30, 2000 to March 31,
- -------------------------------------------------------------------------------
2001
- ----
PFC's assets totaled $104.0 million as of March 31, 2001, an increase of $3.6
million, or 3.6%, over the September 30, 2000 total. The increase in assets was
funded primarily by an increase in deposits of $2.9 million and an increase in
advances from the Federal Home Loan Bank ("FHLB") of $650,000. The increase in
assets was comprised primarily of increases in loans receivable of $4.1 million,
partially offset by net decreases in securities and mortgage-backed securities
of $819,000.
Cash and cash equivalents totaled $2.0 million at March 31, 2001, an increase of
$322,000, or 19.8%, over the total at September 30, 2000.
Securities totaled $1.3 million at March 31, 2001, a decrease of $145,000, or
9.9%, over the total at September 30, 2000. This decrease resulted primarily
from a net decrease of $56,000 in unrealized gains and maturities of $87,000.
Mortgage-backed securities totaled $8.7 million at March 31, 2001, a decrease of
$674,000, or 7.2%, from the total at September 30, 2000. This decrease resulted
primarily from principal repayments of $776,000, partially offset by an increase
in net unrealized gains of $102,000. Proceeds from principal repayments were
primarily used to fund loan originations.
Net loans receivable totaled $89.0 million at March 31, 2001, an increase of
$4.1 million, or 4.9%, over the September 30, 2000 total. The increase is
attributable to Peoples Federal's continued focus on its marketing program to
originate new fixed and adjustable-rate mortgage loans and home equity loans and
lines of credit at the main office and the branch lending office, and
disbursements of loans in process. The allowance for loan losses totaled
$234,000 at March 31, 2001, a decrease of $1,000, from the balance at September
30, 2000. Consumer loans of $7,000 were written off in March 2001 offset by the
provision for losses on loans of $6,000 for the six months ended March 31, 2001.
The allowance represented .25% and .26% of total loans at March 31, 2001 and
September 30, 2000, respectively. Nonperforming loans totaled $ 194,000 and
$223,000 at March 31, 2001 and September 30, 2000, respectively.
Page 9 of 19 pages
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Discussion of Financial Condition Changes from September 30, 2000 to March 31,
- ------------------------------------------------------------------------------
2001 (continued)
- ----
Deposits totaled $73.7 million at March 31, 2001, an increase of $2.9 million,
or 4.1%, over the September 30, 2000 amount. During the six months ended March
31, 2001, certificates of deposit increased by $2.8 million and premium savings
accounts increased by $788,000, as Peoples Federal offered rates designed to
maintain certificates and control interest costs. NOW accounts decreased by
$7,000 and passbook deposits and statement savings accounts decreased by
$652,000 during the period.
Advances from the FHLB totaled $19.3 million at March 31, 2001, an increase of
$650,000, or 3.5%, over the September 30, 2000 amount, as PFC used advances
primarily to fund loan originations. At March 31, 2001, borrowings included $1.3
million of variable rate advances maturing in fiscal 2001 and fixed rate
advances of $2.0 million maturing in fiscal 2002. The remainder of advances from
the FHLB were comprised of convertible fixed rate advances of $16.0 million with
final maturities currently scheduled for 2010 and 2011.
The Association is subject to the regulatory capital requirements of the Office
of Thrift Supervision (the "OTS"). Failure to meet minimum capital requirements
can initiate certain mandatory - and possibly additional discretionary - actions
by regulators that, if undertaken, could have a direct material effect on the
Association's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Association must meet
specific capital guidelines that involve quantitative measures of the
Association's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Association's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk-weightings, and other factors.
Such minimum capital standards generally require the maintenance of regulatory
capital sufficient to meet each of three tests, hereinafter described as the
tangible capital requirement, the core capital requirement and the risk-based
capital requirement. The tangible capital requirement provides for minimum
tangible capital (defined as stockholders' equity less all intangible assets)
equal to 1.5% of adjusted total assets. The core capital requirement provides
for minimum core capital (tangible capital plus certain forms of supervisory
goodwill and other qualifying intangible assets) generally equal to 4.0% of
adjusted total assets, except for those associations with the highest
examination rating and acceptable levels of risk.
The risk-based capital requirement provides for the maintenance of adjusted core
capital plus general loss allowances equal to 8.0% of risk-weighted assets. In
computing risk-weighted assets, the Association multiplies the value of each
asset on its statement of financial condition by a defined risk-weighting
factor, e.g., one-to-four family residential loans carry a risk-weighted factor
of 50%.
Page 10 of 19 pages
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Discussion of Financial Condition Changes from September 30, 2000 to March 31,
- ------------------------------------------------------------------------------
2001 (continued)
- ----
As of March 31, 2001 and September 30, 2000, management believes that the
Association met all capital adequacy requirements to which it was subject.
AS OF MARCH 31, 2001
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------- ----------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
greater than greater than greater than greater than
Tangible capital $9,286 9.0% or equal to $1,534 or equal to 1.5% or equal to $5,178 or equal to 5.0%
greater than greater than greater than greater than
Core capital $9,286 9.0% or equal to $4,143 or equal to 4.0% or equal to $6,215 or equal to 6.0%
greater than greater than greater than greater than
Risk-based capital $9,724 16.1% or equal to $4,844 or equal to 8.0% or equal to $6,055 or equal to 10.0%
AS OF SEPTEMBER 30, 2000
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------- ----------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
greater than greater than greater than greater than
Tangible capital $9,000 9.0% or equal to $1,503 or equal to 1.5% or equal to $5,011 or equal to 5.0%
Core capital $9,000 9.0% greater than $4,009 greater than 4.0% greater than $6,013 greater than 6.0%
or equal to or equal to or equal to or equal to
Risk-based capital $9,464 16.7% greater than $4,529 greater than 8.0% greater than $5,661 greater than 10.0%
or equal to or equal to or equal to or equal to
Comparison of Operating Results for the Six-Month Periods Ended March 31, 2001
- ------------------------------------------------------------------------------
and 2000
- --------
General
- -------
Net earnings for the six months ended March 31, 2001, totaled $259,0000,
compared to $307,000 for the same period in 2000, a decrease of $48,000, or
15.6%. The decline in earnings resulted primarily from a decrease in net
interest income of $50,000, or 3.7%, and a decrease in gain on sale of
investment securities of $228,000, or 58.9%, which were partially offset by a
decrease in general, administrative and other expense of $162,000, or 12.4%, an
increase in other operating income of $45,000 or 166.7%, and a decrease in
federal income taxes of $23,000, or 15.9%.
Page 11 of 19 pages
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Six-Month Periods Ended March 31, 2001
- ------------------------------------------------------------------------------
and 2000 (continued)
- --------------------
Net Interest Income
- -------------------
Interest income on loans for the six months ended March 31, 2001, increased by
$519,000, or 18.1%, over the 2000 period. This increase resulted primarily from
a $12.1 million, or 15.9%, increase in the average net loan portfolio balance
outstanding and an increase in weighted-average yield from 7.51% in the six
months ended March 31, 2000 to 7.66% in the same period for 2001. Interest
income on mortgage-backed and related securities, securities and
interest-bearing deposits decreased by $70,000, or 14.2%, from the 2000 period.
This decrease resulted from a $3.2 million, or 20.6%, decrease in average
portfolio balances outstanding, partly offset by an increase in weighted average
yield from 6.29% for the six months ended March 31, 2000 to 6.81% in the same
period for 2001.
Interest expense on deposits increased by $302,000, or 18.8%, for the six months
ended March 31, 2001, as compared to the same period in 2000. This increase
resulted from an increase of $3.5 million, or 5.1%, in average deposit balances
outstanding, coupled with an increase in the weighted-average cost of funds,
from 4.67% in 2000 to 5.28% in 2001. Interest expense on FHLB advances increased
by $197,000, or 49.9%, for the six months ended March 31, 2001, as compared to
the same period in 2000. The average advances outstanding from the FHLB
increased to $19.5 million in the six months ended March 31, 2001, from $13.7
million in the same period of 2000, and the weighted-average interest rate
increased to 6.07% in 2001 from 5.78% in 2000.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $50,000, or 3.7%, for the six months ended
March 31, 2001, compared to the same period in 2000. The interest rate spread
decreased to 2.11% for the six months ended March 31, 2001, as compared to 2.44%
for the corresponding 2000 six-month period. The net interest margin decreased
to 2.59% for the six months ended March 31, 2001, as compared to 2.92% for the
comparable 2000 period.
Provision for Losses on Loans
- -----------------------------
It is the Association's policy to provide valuation allowances for losses on
loans based on past loan loss experience, changes in the composition of the loan
portfolio, trends in the level of delinquent and problem loans, adverse
situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral and current and anticipated economic conditions in
the primary lending area. The allowance for loan losses is increased by charges
to earnings and decreased by charge-offs (net of recoveries). After considering
the above guidelines, management decided to increase the allowance for loan
losses by $6,000 during both the six- month periods ended March 31, 2001 and
2000. There can be no assurance that the allowance for loan losses of Peoples
Federal will be adequate to cover losses on nonperforming loans in the future.
Page 12 of 19 pages
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Six-Month Periods Ended March 31, 2001
- ------------------------------------------------------------------------------
and 2000 (continued)
- --------------------
Other Income
- ------------
Other income totaled $231,000 for the six months ended March 31, 2001, a
decrease of $183,000, or 44.2%, from the 2000 amount. The decrease was primarily
the result of a smaller gain on sale of FHLMC common stock during the six months
ended March 31, 2001 than for the comparable 2000 period. FHLMC common stock was
sold during the six months ended March 31, 2001 for $162,000, resulting in a
realized gain of $159,000, while FHLMC common stock was sold during the six
months ended March 31, 2000 for $395,000, resulting in a realized gain of
$387,000. Other operating income amounted to $72,000 for six-month period ended
March 31, 2001, an increase of $45,000, or 166.7%, over the comparable 2000
period. The ATM installed at the branch located in the Massillon Marketplace
Wal-Mart and increased ATM transactions at all locations, along with increased
NOW fee income, have been the principal sources of increased other operating
income. Other operating income also includes home equity line of credit and
other fee income, safe deposit box rentals and late charges on loans.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense decreased by $162,000, or 12.4%, for
the six months ended March 31, 2001, compared to the same period in 2000.
Employee compensation and benefits decreased by $214,000, or 26.4%. Hiring of
new employees, principally for the branch located in the Massillon Marketplace
Wal-Mart, and the effect of normal merit increases added $106,000 to employee
compensation for fiscal 2001 over fiscal 2000. Principally due to the increased
compensation, payroll taxes increased by $6,000 in fiscal 2001 over fiscal 2000.
Increased cost of health insurance, principally due to increased insurance
premiums and premiums for new employees, added $14,000 to the cost of employee
compensation and benefits. The provision to establish the Deferred Compensation
Plan of $261,000 was recorded in March 2000, while no deferred compensation
expense provision has been required in fiscal 2001. Termination of the
Recognition and Retention Plan decreased benefit costs by $80,000 for the six
months ended March 31, 2001, compared to the same period in 2000, while
resumption of employer contributions to the 401(k) plan increased benefit costs
by $2,000 year to year.
Occupancy and equipment for the six months ended March 31, 2001, increased
$43,000, or 33.6%. Increases in occupancy and equipment expense for fiscal 2001
compared to 2000 were $28,000 for depreciation and $16,000 for rent, both
principally due to operation of the branch located in the Massillon Marketplace
Wal-Mart.
Advertising increased by $13,000, or 50.0%, primarily due to increased local
media advertising of loan and deposit rates and new product and branch
promotions. Data processing increased by $15,000, or 26.3%, principally due to
the new branch and new products. Federal deposit insurance premiums increased by
$1,000, or 7.1%.
Page 13 of 19 pages
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Six-Month Periods Ended March 31, 2001
- ------------------------------------------------------------------------------
and 2000 (continued)
- --------------------
General, Administrative and Other Expense (continued)
- -----------------------------------------
Ohio franchise taxes for the six months ended March 31, 2001, decreased by
$17,000, or 18.5%, compared to the 2000 period, due to a decrease in
shareholders' equity and a decrease in tax rates.
Federal Income Taxes
- --------------------
Federal income taxes are based on earnings before taxes for the six months ended
March 31, 2001 and 2000. The decrease of $23,000, or 15.9%, in the provision for
income taxes resulted primarily from the $71,000, or 15.7%, decrease in earnings
before income taxes. The effective tax rates amounted to 32.0% and 32.1% for the
six months ended March 31, 2001 and 2000, respectively.
Comparison of Operating Results for the Three-Month Periods Ended March 31,
- ---------------------------------------------------------------------------
2001 and 2000
- -------------
General
- -------
Net earnings for the three months ended March 31, 2001, totaled $142,000,
compared to $140,000 for the same period in 2000, an increase of $2,000, or
1.4%. The increase in earnings resulted primarily from an increase in net
interest income of $16,000, or 2.4%, an increase in other operating income from
$13,000 in fiscal 2000 to $38,000 in fiscal 2001 and a decrease in general,
administrative and other expense of $219,000, or 27.3%, which were partially
offset by a decrease in gain on sale of investment securities of $256,000, or
80.3% and an increase in federal income taxes of $2,000, or 3.1%.
Net Interest Income
- -------------------
Interest income on loans for the three months ended March 31, 2001, increased by
$253,000, or 17.3%, over the 2000 period. This increase resulted primarily from
a $11.3 million, or 14.6%, increase in the average net loan portfolio balance
outstanding and an increase in weighted-average yield from 7.55% in the three
months ended March 31, 2000 to 7.73% in the 2001 period. Interest income on
mortgage-backed and related securities, investment securities and
interest-bearing deposits decreased by $31,000, or 13.1%, from the 2000 period.
This decrease resulted from a $2.8 million, or 18.8%, decrease in average
portfolio balances outstanding, partly offset by an increase in weighted average
yield from 6.24% in the 2000 quarter to 6.69% in the 2001 quarter.
Page 14 of 19 pages
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Three-Month Periods Ended March 31,
- --------------------------------------------------------------------------
2001 and 2000 (continued)
- -------------------------
Net Interest Income (continued)
- -------------------
Interest expense on deposits increased by $147,000, or 18.0%, for the three
months ended March 31, 2001, as compared to the same period in 2000. This
increase resulted from an increase of $3.5 million, or 5.0%, in average deposit
balances outstanding, coupled with an increase in the weighted-average cost of
funds, from 4.70% in 2000 to 5.29% in 2001. Interest expense on FHLB advances
increased by $59,000, or 28.2%, for the three months ended March 31, 2001, as
compared to the same period in 2000. This increase resulted from an increase of
$5.2 million, or 36.5%, in average FHLB advance balances outstanding, partially
offset by a decrease in weighted-average cost of funds, from 5.84% in 2000 to
5.48% in 2001.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $16,000, or 2.4%, for the three months ended
March 31, 2001, compared to the same period in 2000. The interest rate spread
decreased to 2.28% for the three months ended March 31, 2001, as compared to
2.44% for the corresponding 2000 three-month period. The net interest margin
decreased to 2.74% for the three months ended March 31, 2001, as compared to
2.92% for the comparable 2000 period.
Provision for Losses on Loans
- -----------------------------
It is the Association's policy to provide valuation allowances for estimated
losses on loans based on past loan loss experience, changes in the composition
of the loan portfolio, trends in the level of delinquent and problem loans,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral and current and anticipated
economic conditions in the primary lending area. The allowance for loan losses
is increased by charges to earnings and decreased by charge-offs (net of
recoveries). After considering the above guidelines, management decided to
increase the allowance for loan losses by $3,000 during both of the three month
periods ended March 31, 2001 and 2000. There can be no assurance that the
allowance for loan losses of Peoples Federal will be adequate to cover losses on
nonperforming loans in the future.
Other Income
- ------------
Other income totaled $101,000 for the three months ended March 31, 2001, a
decrease of $231,000, or 69.6%, over the 2000 amount. The decrease was primarily
the result of a smaller gain on sale of FHLMC common stock during the three
months ended March 31, 2001 than for the comparable 2000 period. FHLMC common
stock was sold in January 2001 for $64,000, resulting in a realized gain of
$63,000, while FHLMC common stock was sold in March 2000 for $326,000, resulting
in a realized gain of $319,000. Other operating income amounted to $38,000 for
three-month period ended March 31, 2001, an increase of $25,000, or 192.3%, over
the comparable 2000 period. The ATM installed at the branch located in the
Massillon Marketplace Wal-Mart and increased ATM transactions at all locations
along with increased NOW fee income have been the principal sources of increased
other operating income. Other operating income also includes home equity line of
credit and other fee income, safe deposit box rentals and late charges on loans.
Page 15 of 19 pages
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Three-Month Periods Ended March 31,
- ---------------------------------------------------------------------------
2001 and 2000 (continued)
- -------------------------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense decreased by $219,000, or 27.3%, for
the three months ended March 31, 2001, compared to the same period in 2000.
Employee compensation and benefits decreased by $255,000, or 46.5%. Hiring of
new employees, principally for the branch located in the Massillon Marketplace
Wal-Mart, and the effect of normal merit increases added $41,000 to employee
compensation for fiscal 2001 over fiscal 2000. Principally due to the increased
compensation, payroll taxes increased by $5,000 in fiscal 2001 over fiscal 2000.
Increased cost of health insurance, principally due to increased insurance
premiums and premiums for new employees, added $9,000 to the cost of employee
compensation and benefits. The provision to establish the Deferred Compensation
Plan of $261,000 was recorded in March 2000, while no deferred compensation
expense provision has been required in fiscal 2001. Termination of the
Recognition and Retention Plan decreased benefit costs by $44,000 for the three
months ended March 31, 2001, compared to the same period in 2000. Decreases in
employee deferrals and employer matching contributions reduced benefit costs of
the 401(k) plan by $5,000 for fiscal 2001 over fiscal 2000.
Occupancy and equipment for the three months ended March 31, 2001, increased
$26,000, or 44.1%. Increases in occupancy and equipment expense for fiscal 2001
compared to 2000 were $14,000 for depreciation and $8,000 for rent, both
principally due to operation of the branch located in the Massillon Marketplace
Wal-Mart and $4,000 for equipment repairs and maintenance.
Data processing increased by $8,000, or 27.6%, principally due to the new branch
and new products. Federal deposit insurance premiums increased by $7,000, or
175.0%, as premium rates were increased. Advertising increased by $1,000, or
5.3%, primarily due to increased local media advertising of loan and deposit
rates and new product and branch promotions. Other operating expense increased
by $5,000, or 5.1%, primarily due to increases in loan expense and office
supplies and expense, partially offset by decreases in employee education and
related travel costs, professional expenses and investor relations costs.
Ohio franchise taxes for the three months ended March 31, 2001, decreased by
$11,000, or 25.0%, compared to the 2000 period, due primarily to a decrease in
shareholders' equity and decreased tax rates.
Federal Income Taxes
- --------------------
Federal income taxes are based on earnings before taxes for the three months
ended March 31, 2001 and 2000. The increase of $2,000, or 3.1%, in the provision
for income taxes resulted primarily from the $4,000, or 2.0%, increase in
earnings before income taxes. The effective tax rates amounted to 32.1% and
31.7% for the three months ended March 31, 2001 and 2000, respectively.
Page 16 of 19 pages
17
PART II
-------
PEOPLES FINANCIAL CORPORATION
ITEM 1. Legal Proceedings
-----------------
Not applicable
ITEM 2. Changes in Securities
---------------------
Not applicable
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
ITEM 5. Other Information
-----------------
Not applicable
Page 17 of 19 pages
18
PART II (Continued)
-------------------
PEOPLES FINANCIAL CORPORATION
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
11. Statement regarding Computation of Earnings per common Share.
Basic earnings per share is computed by dividing net income by the
weighted average number of shares outstanding during the period.
Diluted earnings per share is computed using the weighted average
number of shares determined for the basic computation plus the number
of shares of common stock that would be issued assuming all
contingently issuable shares having a dilutive effect on earnings per
share were outstanding for the period.
The weighted average number of common shares outstanding for basic and
diluted earnings per share computations were as follows:
Six Months Ended Three Months Ended
March 31, March 31,
--------- ---------
2000 1999 2000 1999
---- ---- ---- ----
Numerator:
Net income (in thousands) $259 $307 $142 $140
Denominator:
Weighted-average common
shares outstanding
(basic and diluted) 1,234,085 1,263,074 1,234,085 1,261,017
Earnings per share:
Basic $.21 $.24 $.11 $.11
Diluted $.21 $.24 $.11 $.11
99. Safe Harbor under the Private Securities Litigation Reform Act of
1995.
(b) Reports on Form 8-K:
A Form 8-K reporting a change in independent public accountants was
filed by the registrant dated April 25, 2001, which was amended on
April 26, 2001.
Page 18 of 19 pages
19
SIGNATURES
----------
PEOPLES FINANCIAL CORPORATION
Pursuant to the requirements 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.
Date: 5/14/01 By: /s/Paul von Gunten
----------------------- --------------------------------
Paul von Gunten
President and Chief
Executive Officer
Date: 5/14/01 By: /s/James R. Rinehart
----------------------- --------------------------------
James R. Rinehart
Treasurer
Page 19 of 19 pages