FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 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
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(Address of principal executive offices)
(330) 832-7441
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(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:
February 11, 2002 - 1,234,085 common shares
- -------------------------------------------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Page 1 of 17 pages
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
Condensed 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 15
SIGNATURES 17
Page 2 of 17 pages
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
PEOPLES FINANCIAL CORPORATION
(In thousands, except share data)
DECEMBER 31, SEPTEMBER 30,
ASSETS 2001 2001
Cash and due from banks $ 267 $ 389
Interest-bearing deposits in other financial institutions 11,522 3,727
--------- ---------
Cash and cash equivalents 11,789 4,116
Securities available for sale 222 266
Securities held to maturity (fair value December 31, 2001 -$906;
September 30, 2001 - $918) 848 860
Mortgage-backed securities available for sale 4,570 4,969
Mortgage-backed securities held to maturity (fair value
December 31, 2001 - $1,647; September 30, 2001 - $1,904) 1,589 1,840
Loans, net 84,084 93,692
Federal Home Loan Bank Stock 1,135 1,119
Premises and equipment ,net 1,521 1,564
Accrued interest receivable 342 374
Other assets 38 403
--------- ---------
Total assets $ 106,138 $ 109,203
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 75,983 $ 75,647
Federal Home Loan Bank advances 19,000 22,000
Accrued expenses and other liabilities 770 1,150
--------- ---------
Total liabilities 95,753 98,797
Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized;
no shares issued -- --
Common stock, no par value; 6,000,000 shares authorized;
1,491,012 shares issued -- --
Additional paid-in capital 7,360 7,360
Retained earnings 6,224 6,195
Accumulated comprehensive income 179 229
Treasury stock, at cost (December 31 and September 30, 2001 -
256,927 shares) (3,378) (3,378)
--------- ---------
Total shareholders' equity 10,385 10,406
--------- ---------
Total liabilities and shareholders' equity $ 106,138 $ 109,203
========= =========
Page 3 of 17 pages
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
PEOPLES FINANCIAL CORPORATION
For the three months ended December 31,
(In thousands, except share data)
2001 2000
Interest income
Loans $1,749 $1,661
Mortgage-backed securities 107 168
Securities:
Taxable 16 21
Tax exempt 13 14
Interest-bearing deposits and other 22 16
------ ------
Total interest income 1,907 1,880
Interest expense
Deposits 922 946
Federal Home Loan Bank advances 257 324
------ ------
Total interest expense 1,179 1,270
------ ------
Net interest income 728 610
Provision for losses on loans 3 3
------ ------
Net interest income after provision for
losses on loans 725 607
Non-interest income
Gain on sale of securities 48 96
Gain on sale of loans 68 --
Other operating 42 34
------ ------
Total non-interest income 158 130
Non-interest expense
Salaries and employee benefits 307 304
Occupancy and equipment 94 86
Franchise taxes 33 42
Federal deposit insurance premiums 3 4
Data processing 39 35
Advertising 12 19
Other 244 75
------ ------
Total general, administrative and other expense 732 565
------ ------
Earnings before income taxes 151 172
Federal income taxes 48 55
------ ------
NET EARNINGS $ 103 $ 117
====== ======
EARNINGS PER SHARE
Basic $ .08 $ .09
====== ======
Diluted $ .08 $ .09
====== ======
Page 4 of 17 pages
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
PEOPLES FINANCIAL CORPORATION
For the three months ended December 31,
(In thousands)
2001 2000
Net earnings $ 103 $ 117
Other comprehensive income, net of taxes:
Unrealized holding gains (losses) on securities during
the period, net of taxes (credits) of $(9) and $73 in
2001 and 2000, respectively (18) 141
Reclassification adjustment for realized gains included in
earnings, net of tax of $16 and $33 in 2001 and
2000, respectively (32) (63)
----- -----
Comprehensive income $ 53 $ 195
----- -----
Accumulated comprehensive income $ 179 $ 391
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Page 5 of 17 pages
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
PEOPLES FINANCIAL CORPORATION
For the three months ended December 31,
(In thousands)
2001 2000
Cash flows from operating activities:
Net income $ 103 $ 117
Adjustments to reconcile net earnings to net cash
provided by ( used in) operating activities (73) 143
-------- --------
Net cash from operating activities 30 260
Cash flows from investing activities:
Principal repayments on mortgage-backed securities 619 395
Activity in available-for-sale securities:
Sales 49 97
Activity in Held-to-maturity securities:
Maturities 12 12
Purchase of Federal Home Loan Bank stock -- (42)
Loan principal repayments 14,648 3,804
Loan disbursements (4,947) (7,073)
Purchase of office premises and equipment -- (13)
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Net cash used in investing activities 10,381 (2,820)
-------- --------
Cash flows from financing activities:
Net increase in deposits 336 1,600
Proceeds from Federal Home Loan Bank advances -- 21,300
Repayment of Federal Home Loan Bank advances (3,000) (19,750)
Dividends paid on common stock (74) (74)
-------- --------
Net cash from financing activities (2,738) 3,076
-------- --------
Net increase (decrease) in cash and cash equivalents 7,673 516
Cash and cash equivalents at beginning of period 4,116 1,628
-------- --------
Cash and cash equivalents at end of period $ 11,789 $ 2,144
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 124 $ 119
======== ========
Interest on deposits and borrowings $ 1,184 $ 1,268
======== ========
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (50) $ 78
======== ========
Page 6 of 17 pages
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
PEOPLES FINANCIAL CORPORATION
For the three month periods ended December 31, 2001 and 2000
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 accounting
principles generally accepted in the United States of America. 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, 2001.
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 three-month period ended December 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. ACQUISITION
On October 2, 2001, a merger agreement was signed between National Bancshares
Corporation and PFC. At the effective time of the merger, each share of PFC will
be exchanged for $12.25 per share, all in cash. The agreement provides for a
subsidiary of National Bancshares Corporation to be merged into PFC, after which
PFC will be merged into National Bancshares Corporation. The shareholders of
Peoples Financial Corporation will be asked to adopt the agreement at a
shareholders' meeting scheduled to be held March 13, 2002. The acquisition is
expected to be consummated in the third fiscal quarter of 2002 and is subject to
approvals by various regulatory authorities and the shareholders of Peoples
Financial Corporation.
4. USE OF ESTIMATES
To prepare financial statements in conformity with accounting principles
generally accepted in the United States, 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 is
particularly subject to change.
Page 7 of 17 pages
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
PEOPLES FINANCIAL CORPORATION
For the three month periods ended December 31, 2001 and 2000
5. 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 of the three-month periods ended December 31, 2001
and December 31, 2000.
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 totaled 1,235,532 for the three-month
period ended December 31, 2001 and 1,234,085 for the three-month period ended
December 31, 2000.
Options to purchase 117,617 and 116,617 shares of common stock at a
weighted-average exercise price of $12.34 and $12.39 per share were outstanding
at December 31, 2001 and 2000, respectively. Included in the computation of
common share equivalents at December 31, 2001 were 6,761 shares. The remaining
shares as of December 31, 2001 and all shares as of December 31, 2000 were
excluded from the computation of common share equivalents because their exercise
prices were greater than the average market price of the common shares and were
dilutive.
6. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 2001
consolidated financial statement presentation.
7. LOANS RECEIVABLE
Loans were as follows:
December 31, September 30,
2001 2001
Residential real estate
One-to-four family $74,108 $83,724
Multi-family 307 309
Construction 12,165 12,184
Nonresidential real estate 3,082 3,179
Consumer and other loans 245 264
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89,907 99,660
Less:
Deferred loan origination fees 108 96
Undisbursed portion of loans in process 5,473 5,633
Allowance for loan losses 242 239
------- -------
$84,084 $93,692
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Page 8 of 17 pages
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, 2001 TO DECEMBER
31, 2001
PFC's assets totaled $106.1 million as of December 31, 2001, a decrease of $3.1
million, or 2.8%, over the September 30, 2001 total. The decrease in assets was
comprised primarily of decreases in loans receivable of $9.6 million and
securities and mortgage-backed securities of $706,000, partially offset by an
increase in cash and cash equivalents of $7.7 million. Federal Home Loan Bank
advances were repaid in the amount of $3.0 million, while customer deposits
increased by $336,000.
Cash and cash equivalents totaled $11.8 million at December 31, 2001, an
increase of $7.7 million, over the total of $4.1 million at September 30, 2001.
Funds from loan and mortgage-backed securities repayments were retained in cash
and cash equivalents due to the pending merger.
Securities totaled $1.1 million at December 31, 2001, a decrease of $56,000, or
5.0%, from the total at September 30, 2001. This decrease resulted primarily
from a net decrease of $43,000 in unrealized gains, due to the sale of equity
securities at a gain of $48,000, and maturities of $12,000.
Mortgage-backed securities totaled $6.2 million at December 31, 2001, a decrease
of $650,000, or 9.5%, from the total at September 30, 2001. This decrease
resulted primarily from principal repayments of $619,000, and a decrease in net
unrealized gains of $32,000.
Net loans receivable totaled $84.1 million at December 31, 2001, a decrease of
$9.6 million, or 10.3%, from the September 30, 2001 total. Peoples Federal has
continued to focus on its marketing program to originate new fixed and
adjustable-rate mortgage loans and home equity loans at the main office and the
branch lending office. The decrease was principally due to loan principal
repayments of $14.6 million and $8.2 million of loans sold, which exceeded loan
originations of $13.1 million for the quarter ended December 31, 2001. The
allowance for loan losses totaled $242,000 at December 31, 2001, an increase of
$3,000 over the balance at September 30, 2001 due to the provision for the first
quarter. The allowance represented .27% and .24% of total loans at December 31,
2001 and September 30, 2001, respectively. Nonperforming loans totaled $201,000
at December 31, 2001 and $193,000 at September 30, 2001.
Page 9 of 17 pages
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 2001 TO DECEMBER
31, 2001 (continued)
Deposits totaled $76.0 million at December 31, 2001, an increase of $336,000, or
.4%, over the September 30, 2001 amount. During the three months ended December
31, 2001, premium savings accounts and passbook deposits and statement savings
accounts increased by $1.7 million and $239,000, respectively. Certificates of
deposit decreased by $1.6 million and NOW accounts decreased by $17,000 during
the period. Peoples Federal's policy is to offer rates designed to maintain a
relatively stable level of certificates and control interest costs.
Advances from the FHLB totaled $19.0 million at December 31, 2001, a decrease of
$3.0 million, or 13.6%, from the September 30, 2001 amount, as PFC repaid
advances primarily from loan principal repayments. At December 31, 2001,
borrowings included $3.0 million of fixed rate advances maturing in May 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 17 pages
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 2001 TO DECEMBER
31, 2001 (continued)
As of December 31, 2001 and September 30, 2001, management believes that the
Association met all capital adequacy requirements to which it was subject.
AS OF DECEMBER 31, 2001
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
--------------- ---------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
Tangible capital $ 9,660 9.1% greater than or equal to $1,589 greater than or equal to 1.5%
Core capital $ 9,660 9.1% greater than or equal to $4,236 greater than or equal to 4.0%
Risk-based capital $10,001 17.0% greater than or equal to $4,705 greater than or equal to 8.0%
TO BE "WELL-
CAPITALIZED" UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
------------------------------------------------------------------
AMOUNT RATIO
(Dollars in thousands)
Tangible capital greater than or equal to $5,295 greater than or equal to 5.0%
Core capital greater than or equal to $6,354 greater than or equal to 6.0%
Risk-based capital greater than or equal to $5,881 greater than or equal to 10.0%
AS OF SEPTEMBER 30, 2001
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
-------------- --------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
Tangible capital $9,536 8.8% greater than or equal to $1,628 greater than or equal to 1.5%
Core capital $9,536 8.8% greater than or equal to $4,342 greater than or equal to 4.0%
Risk-based capital $9,893 15.8% greater than or equal to $5,018 greater than or equal to 8.0%
TO BE "WELL-
CAPITALIZED" UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
------------------------------------------------------------------
AMOUNT RATIO
(Dollars in thousands)
Tangible capital greater than or equal to $5,428 greater than or equal to 5.0%
Core capital greater than or equal to $6,513 greater than or equal to 6.0%
Risk-based capital greater than or equal to $6,273 greater than or equal to 10.0%
COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTH PERIODS ENDED DECEMBER 31,
2001 AND 2000
GENERAL
Net earnings for the three months ended December 31, 2001, totaled $103,000,
compared to $117,000 for the same period in 2000, a decrease of $14,000, or
12.0%. The decline in earnings resulted primarily from an increase in general,
administrative and other expense of $167,000, or 29.6% and a decrease in gain on
sale of investment securities of $48,000, or 50.0%. These decreases were
partially offset by an increase in net interest income of $118,000, or 19.3%, a
gain on sale of loans of $68,000 for the three months ended December 31, 2001
with no such gain or loss for the three months ended December 31, 2000, an
increase in other operating income of $8,000, or 23.5%, and a decrease in
federal income taxes of $7,000, or 12.7%.
Page 11 of 17 pages
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 DECEMBER 31,
2001 and 2000 (continued)
NET INTEREST INCOME
Interest income on loans for the three months ended December 31, 2001, increased
by $88,000, or 5.3%, over the 2000 period. This increase resulted primarily from
an $827,000, or .9%, increase in the average net loan portfolio balance
outstanding and an increase in weighted-average yield from 7.58% in the three
months ended December 31, 2000 to 7.90% in the 2001 period. Interest income on
interest-bearing deposits increased by $6,000, or 37.5%, from the 2000 period.
This increase resulted from an increase from $1.1 million to $7.8 million in
average balance outstanding, partly offset by a decrease in weighted average
yield from 6.14% in the 2000 quarter to 1.15% in the 2001 quarter. Interest
income on mortgage-backed and other securities decreased by $67,000, or 33.0%,
from the 2000 period. This decrease resulted from a decrease in weighted average
yield from 7.00% in the 2000 quarter to 6.32% in the 2001 quarter and by a $3.0
million, or 26.0%, decrease in average portfolio balances outstanding.
Interest expense on deposits decreased by $24,000, or 2.5%, for the three months
ended December 31, 2001, as compared to the same period in 2000. This decrease
resulted from a decrease in the weighted-average cost of funds, from 5.27% in
2000 to 4.83% in 2001, partly offset by an increase of $4.6 million, or 6.4%, in
average deposit balances outstanding,. Interest expense on FHLB advances
decreased by $67,000, or 20.7%, for the three months ended December 31, 2001, as
compared to the same period in 2000. The decrease resulted from a decrease in
average advances outstanding from the FHLB of $100,000 in the quarter ended
December 31, 2001, from the same quarter of 2000, and a decrease in the
weighted-average interest rate to 5.32% in 2001 from 6.67% in 2000.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $118,000, or 19.3%, for the three months ended
December 31, 2001, compared to the same period in 2000. The interest rate spread
increased to 2.35% for the three months ended December 31, 2001, as compared to
1.93% for the corresponding 2000 three-month period. The net interest margin
increased to 2.78% for the three months ended December 31, 2001, as compared to
2.44% 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 the three-month
periods ended December 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 17 pages
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 DECEMBER 31,
2001 and 2000 (continued)
NON-INTEREST INCOME
Non-interest income totaled $158,000 for the three months ended December 31,
2001, an increase of $28,000, or 21.5%, over the 2000 amount. The increase was
primarily from gains on sale of loans during the quarter ended December 31, 2001
and an increase in other operating income, partly offset by a smaller gain on
sale of FHLMC common stock during the three months ended December 31, 2001 than
for the comparable 2000 period. Loans originated during the quarter ended
December 31, 2001 in the amount of $8.2 million were sold at a gain of $68,000.
No loans were sold during the three months ended December 31, 2000. Other
operating income amounted to $42,000 for three-month period ended December 31,
2001, an increase of $8,000, or 23.5%, over the comparable 2000 period. Income
from increased ATM transactions 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. FHLMC common stock with a book
value of $1,000 was sold in November 2001 for $49,000, resulting in a gain of
$48,000, while FHLMC common stock with a book value of $1,000 was sold in
December 2000 for $97,000, resulting in a realized gain of $96,000.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE
General, administrative and other expense increased by $167,000, or 29.6%, for
the three months ended December 31, 2001, compared to the same period in 2000.
Employee compensation and benefits increased by $3,000, or 1.0%. Increased cost
of health insurance, principally due to increasing insurance premiums, added
$3,000 to the cost of employee compensation and benefits. Payroll taxes for
fiscal 2001 increased by $6,000 over fiscal 2000 due to an expense adjustment
from September 2001, FICA taxes on deferred compensation payments. A reduction
in the number of employees partly offset by the effect of normal merit increases
reduced employee compensation for fiscal 2001 over fiscal 2000 by $7,000.
Occupancy and equipment for the three months ended December 31, 2001, increased
$8,000, or 9.3%. Increases in occupancy and equipment expense for fiscal 2001
compared to 2000 were $2,000 for depreciation, $3,000 for rent due to operation
of a new ATM, $2,000 for utilities and $1,000 for repairs and maintenance. Data
processing increased by $4,000, or 11.4%, principally due to cost increases and
operation of the new ATM.
Other operating expense for the three months ended December 31, 2001, increased
by $169,000, or 225.3% compared to the same period in 2000. Professional fees
increased by $154,000, primarily due to costs related to the pending acquisition
of PFC. Loan origination costs increased by $9,000, principally due to increased
loan refinancing activity. Charitable contributions increased by $4,000, due to
the timing of Peoples Federal's payments.
Page 13 of 17 pages
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 DECEMBER 31,
2001 and 2000 (continued)
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE (continued)
Ohio franchise taxes for the three months ended December 31, 2001, decreased by
$9,000 compared to the 2000 period, due primarily to a decrease in shareholders'
equity. Federal deposit insurance premiums decreased by $1,000 due to lower
assessment rates.
FEDERAL INCOME TAXES
Federal income taxes are based on earnings before taxes for the three months
ended December 31, 2001 and 2000. The decrease of $7,000, or 12.7%, in the
provision for income taxes resulted primarily from the $21,000, or 12.2%,
decrease in earnings before income taxes. The effective tax rates amounted to
31.8% and 32.0% for the three months ended December 31, 2001 and 2000,
respectively.
Page 14 of 17 pages
PART II
-------
PEOPLES FINANCIAL CORPORATION
ITEM 1. Legal Proceedings
-------------------
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
-----------------------------------------
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 15 of 17 pages
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:
Three Months Ended
December 31,
------------------
2001 2000
---------- ----------
Numerator:
Net income (in thousands) $ 103 $ 117
Denominator:
Weighted-average common
shares outstanding
basic 1,234,085 1,234,085
diluted 1,235,532 1,234,085
Earnings per share:
Basic $ .08 $ .09
Diluted $ .08 $ .09
99. Safe Harbor under the Private Securities Litigation Reform
Act of 1995.
(b) Reports on Form 8-K:
A Form 8-K reporting a merger agreement between PFC and National
Bancshares Corporation was filed by the registrant dated October 2, 2001,
which was amended October 3, 2001.
A Form 8-K announcing the date the annual shareholders meeting will be
held, on March 13, 2002, was filed by the registrant dated January 2,
2002.
Page 16 of 17 pages
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: February 14, 2002 By: /s/Paul von Gunten
--------------------------- -------------------------
Paul von Gunten
President and Chief
Executive Officer
Date: February 14, 2002 By: /s/James R. Rinehart
--------------------------- -------------------------
James R. Rinehart
Treasurer
Page 17 of 17 pages