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 March 31, 2000
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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
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(Exact name of small business issuer as specified in its charter)
Ohio 34-182
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(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)
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(Former name, former address and former fiscal year, if changed since last
report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.
Yes [ ] No [ ]
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 12, 2000 - 1,234,085 common
shares
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Page 1 of 18 pages
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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 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION 17
SIGNATURES 18
Page 2 of 18 pages
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
PEOPLES FINANCIAL CORPORATION
(In thousands, except share data)
March 31, September 30,
ASSETS 2000 1999
<S> <C> <C>
Cash and due from banks $ 353 $ 157
Interest-bearing deposits in other financial institutions 2,303 2,463
------ ------
Cash and cash equivalents 2,656 2,620
Investment securities designated as available for sale -
at market 608 1,150
Investment securities held to maturity - at cost, approximate
market value of $989 and $2,000 as of March 31, 2000
and September 30, 1999 945 1,956
Mortgage-backed and related securities designated
as available for sale - at market 7,421 7,394
Mortgage-backed and related securities held to maturity - at
amortized cost, approximate market value of $2,995 and
$3,152 as of March 31, 2000 and September 30, 1999 2,951 3,218
Loans receivable - net 78,498 73,084
Office premises and equipment - at depreciated cost 1,341 1,389
Stock in Federal Home Loan Bank - at cost 956 924
Accrued interest receivable 305 311
Prepaid federal income taxes 110 230
Prepaid expenses and other assets 161 161
------ ------
Total assets $95,952 $92,437
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $69,868 $66,276
Advances from the Federal Home Loan Bank 15,000 11,000
Other liabilities 250 285
Deferred federal income taxes 477 675
------ ------
Total liabilities 85,595 78,236
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 - restricted 6,038 9,874
Accumulated comprehensive income, unrealized gains
on securities designated as available
for sale, net of related tax effects 337 729
Shares acquired by stock benefit plans - (625)
Less 256,927 and 225,904 treasury shares, at cost (3,378) (3,137)
------ ------
Total shareholders' equity 10,357 14,201
------ ------
Total liabilities and shareholders' equity $95,952 $92,437
====== ======
</TABLE>
Page 3 of 18 pages
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
PEOPLES FINANCIAL CORPORATION
(In thousands, except share data)
Six months ended Three months ended
March 31, March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest income
Loans $2,860 $2,563 $1,465 $1,298
Mortgage-backed and related securities 345 390 179 187
Investment securities 76 86 34 38
Interest-bearing deposits and other 73 46 23 17
----- ----- ----- -----
Total interest income 3,354 3,085 1,701 1,540
Interest expense
Deposits 1,606 1,598 815 791
Borrowings 395 120 209 64
----- ----- ----- -----
Total interest expense 2,001 1,718 1,024 855
----- ----- ----- -----
Net interest income 1,353 1,367 677 685
Provision for losses on loans 6 6 3 3
----- ----- ----- -----
Net interest income after provision for
losses on loans 1,347 1,361 674 682
Other income
Gain on sale of investment securities
designated as available for sale 387 351 319 123
Other operating 27 25 13 13
----- ----- ----- -----
Total other income 414 376 332 136
General, administrative and other expense
Employee compensation and benefits 811 581 548 288
Occupancy and equipment 128 131 59 63
Franchise taxes 92 106 44 50
Federal deposit insurance premiums 14 20 4 10
Data processing 57 58 29 29
Advertising 26 18 19 8
Other operating 181 179 98 99
----- ----- ----- -----
Total general, administrative and other expense 1,309 1,093 801 547
----- ----- ----- -----
Earnings before income taxes 452 644 205 271
Federal income taxes
Current 139 236 65 96
Deferred 6 (11) - -
----- ----- ----- -----
Total federal income taxes 145 225 65 96
----- ----- ----- -----
NET EARNINGS $ 307 $ 419 $ 140 $ 175
===== ===== ===== =====
EARNINGS PER SHARE
Basic $.24 $.33 $.11 $.14
=== === === ===
Diluted $.24 $.33 $.11 $.14
=== === === ===
</TABLE>
Page 4 of 18 Pages
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PEOPLES FINANCIAL CORPORATION
(In thousands)
For the six months For the three months
ended March 31, ended March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net earnings $307 $419 $ 140 $175
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period (137) 95 (45) (132)
Reclassification adjustment for realized gains
included in earnings (255) (232) (210) (82)
--- --- ---- ---
Comprehensive income (loss) $(85) $282 $(115) $(39)
=== === ==== ===
</TABLE>
Page 5 of 18 Pages
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PEOPLES FINANCIAL CORPORATION
For the six months ended March 31,
(In thousands)
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 307 $ 419
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation of premises and equipment 53 59
Amortization of premiums and discounts on investment securities
and mortgage-backed securities, net 7 20
Gain on sale of investment and mortgage-backed
securities designated as available for sale (387) (351)
Amortization expense of stock benefit plans 384 -
Amortization of deferred loan fees - net (27) (10)
Provision for losses on loans 6 6
Recovery of loss on investments 10 4
Federal Home Loan Bank stock dividends (33) (15)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 6 (21)
Prepaid expenses and other assets - (316)
Other liabilities (36) 118
Federal income taxes:
Current 120 (329)
Deferred 6 (11)
------ ------
Net cash provided by (used in) operating activities 416 (427)
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed and related securities 1,197 2,856
Purchase of mortgage-backed and related securities designated
as available for sale (1,026) (2,258)
Proceeds from sale of investment securities 395 357
Principal repayments and maturities of investment securities 1,012 1,012
Loan principal repayments 6,843 11,316
Loan disbursements (12,246) (15,473)
Purchase of office premises and equipment (4) (36)
------ ------
Net cash used in investing activities (3,829) (2,226)
------ ------
Net cash used in operating and investing activities
(balance carried forward) (3,413) (2,653)
------ ------
</TABLE>
Page 6 of 18 Pages
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
For the six months ended March 31,
(In thousands)
2000 1999
<S> <C> <C>
Net cash used in operating and investing activities
(balance brought forward) $(3,413) $(2,653)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 3,592 1,175
Proceeds from Federal Home Loan Bank advances 32,000 5,500
Repayment of Federal Home Loan Bank advances (28,000) (4,000)
Purchase of treasury shares - (769)
Cash dividends paid on common stock (4,143) (395)
------ ------
Net cash provided by financing activities 3,449 1,511
------ ------
Net increase (decrease) in cash and cash equivalents 36 (1,142)
Cash and cash equivalents at beginning of period 2,620 2,421
------ ------
Cash and cash equivalents at end of period $ 2,656 $ 1,279
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 25 $ 825
====== ======
Interest on deposits and borrowings $ 1,969 $ 1,717
====== ======
Supplemental disclosure of noncash investing activities:
Unrealized net losses on securities designated as
available for sale, net of related tax effects $ (392) $ (137)
====== ======
</TABLE>
Page 7 of 18 Pages
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PEOPLES FINANCIAL CORPORATION
For the six and three month periods ended March 31, 2000 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, 1999. 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, 2000, 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. Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires entities to
recognize all derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods of
accounting for hedging transactions, prescribes the items and transactions that
may be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. On adoption, entities are permitted to transfer
held-to-maturity debt securities to the available-for-sale or trading category
without calling into question their intent to hold other debt securities to
maturity in the future. SFAS No. 133 is not expected to have a material impact
on the Corporation's financial position or results of operations.
Page 8 of 18 pages
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
For the six and three month periods ended March 31, 2000 and 1999
4. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period less shares in the ESOP that are unallocated and
not committed to be released. Weighted-average common shares outstanding totaled
1,263,074 and 1,261,017 for the six and three-month periods ended March 31,
2000. The weighted-average common shares outstanding includes no unallocated
shares due to the transfer of remaining unallocated ESOP shares to treasury
stock prior to January 1, 2000. Weighted-average common shares outstanding,
which gives effect to 32,516 unallocated ESOP shares, totaled 1,278,213 and
1,251,585 for the six and three-month periods ended March 31, 1999.
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 $12.38 per share were outstanding at March 31, 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. Deferred Compensation Plan
In March, 2000 a Deferred Compensation Plan was established to replace the
Recognition and Retention Plan (RRP) which was terminated as of the same date.
Certain assets of the RRP Trust were returned to PFC and an expense provision of
$274,000 was recorded upon termination to recognize total vested benefits to
participants of $363,000. The estimated annual expense of the Deferred
Compensation Plan is approximately $15,000.
6. Reclassifications
Certain prior year amounts have been reclassified to conform to the 2000
consolidated financial statement presentation.
Page 9 of 18 pages
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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
losses on loans and the effect of certain recent accounting pronouncements.
Discussion of Financial Condition Changes from September 30, 1999 to March 31,
2000
PFC's assets totaled $96.0 million as of March 31, 2000, an increase of $3.5
million, or 3.8%, over the September 30, 1999 total. The increase in assets was
funded primarily by an increase in deposits of $3.6 million and an increase in
advances from the Federal Home Loan Bank ("FHLB") of $4.0 million. These
increases were offset by a decrease in shareholders' equity of $3.8 million, or
27.1%, caused mostly by payment of a special dividend in November 1999 and
regular dividends in November 1999 and February 2000 for a total of $4.1
million. The increase in assets was comprised primarily of increases in loans
receivable of $5.4 million, offset by net decreases in investment securities and
mortgage-backed securities of $1.8 million.
Cash and cash equivalents totaled $2.7 million at March 31, 2000, an increase of
$36,000, or 1.4%, over the total at September 30, 1999.
Investment securities totaled $1.6 million at March 31, 2000, a decrease of $1.6
million, or 50.0%, from the total at September 30, 1999. This decrease resulted
primarily from a net decrease of $534,000 in unrealized gains and maturities of
$1.0 million. Proceeds from maturities were primarily used to fund loan
originations.
Mortgage-backed securities totaled $10.4 million at March 31, 2000, a decrease
of $240,000, or 2.3%, from the total at September 30, 1999. This decrease
resulted primarily from principal repayments of $1.2 million and an increase in
net unrealized losses of $61,000, offset by purchases totaling $1.0 million.
Proceeds from principal repayments were primarily used to purchase
mortgage-backed securities and fund loan originations.
Page 10 of 18 pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Discussion of Financial Condition Changes from September 30, 1999 to March 31,
2000 (continued)
Net loans receivable totaled $78.5 million at March 31, 2000, an increase of
$5.4 million, or 7.4%, over the September 30, 1999 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 at
the main office and the branch lending office, and disbursements on construction
loans. The allowance for loan losses totaled $229,000 at March 31, 2000, an
increase of $16,000, including $10,000 from loss recoveries, over the balance at
September 30, 1999. The allowance represented .27% of total loans at both March
31, 2000 and September 30, 1999. Nonperforming loans totaled $36,000 at March
31, 2000 and $114,000 at September 30, 1999.
Deposits totaled $69.9 million at March 31, 2000, an increase of $3.6 million,
or 5.4%, over the September 30, 1999 amount. During the six months ended March
31, 2000, certificates of deposit increased by $3.0 million, as Peoples Federal
offered rates designed to maintain certificates and control interest cost.
Passbook deposits and NOW accounts increased by $344,000 and $371,000
respectively, during the period. Money market demand accounts decreased by
$74,000 during the period.
Advances from the FHLB totaled $15.0 million at March 31, 2000, an increase of
$4.0 million, or 36.4%, over the September 30, 1999 amount, as PFC used advances
primarily to fund payment of dividends. At March 31, 2000, variable rate
advances were comprised of $5.5 million maturing in December 2000 and $3.0
million maturing in March 2001. At March 31, 2000, fixed rate advances were
comprised of $3.5 million maturing in April 2000 and $1.0 million maturing in
each of May, June and July 2000.
Peoples Federal is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision (the "OTS"). At March 31, 2000, the Association's
regulatory capital was well in excess of such minimum capital requirements.
Comparison of Operating Results for the Six-Month Periods Ended March 31, 2000
and 1999
General
Net earnings for the six months ended March 31, 2000, totaled $307,000, compared
to $419,000 for the same period in 1999, a decrease of $112,000, or 26.7%. The
decline in earnings resulted primarily from a decrease in net interest income of
$14,000, or 1.0%, and an increase in general, administrative and other expense
of $216,000, or 19.8%, which were partially offset by an increase in gain on
sale of investment securities of $36,000, or 10.3%, and a decrease in federal
income taxes of $80,000, or 35.6%.
Page 11 of 18 pages
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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, 2000
and 1999 (continued)
Net Interest Income
Interest income on loans for the six months ended March 31, 2000, increased by
$297,000, or 11.6%, over the 1999 period. This increase resulted primarily from
a $9.0 million, or 13.5%, increase in the average net loan portfolio balance
outstanding, partially offset by a decrease in weighted-average yield from 7.64%
for the six months ended March 31, 1999 to 7.51% in the 2000 period. Interest
income on mortgage-backed and related securities, investment securities and
interest-bearing deposits decreased by $28,000, or 5.4%, from the 1999 period.
This decrease resulted from a $2.3 million decrease in average portfolio
balances outstanding, partly offset by an increase in weighted average yield
from 5.80% in the 1999 period to 6.29% in the 2000 period.
Interest expense on deposits increased by $8,000, or .5%, for the six months
ended March 31, 2000, as compared to 1999. This increase resulted primarily from
a $2.4 million increase in average deposit balances outstanding, partially
offset by a decrease in weighted-average interest rate from 4.81% for the six
months ended March 31, 1999 to 4.67% in the comparable 2000 period. Interest
expense on FHLB advances increased by $275,000, or 229.2% for the six months
ended March 31, 2000, as compared to 1999. The fiscal 2000 average advances
outstanding from the FHLB increased to $13.7 million from $5.0 million in fiscal
1999, and the weighted-average interest rate increased to 5.78% in fiscal 2000
from 4.79% in fiscal 1999.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $14,000, or 1.0%, for the six months ended
March 31, 2000, compared to 1999. The interest rate spread increased to 2.45%
for the six months ended March 31, 2000, as compared to 2.44% for the
corresponding 1999 six-month period. The net interest margin decreased to 2.95%
for the six months ended March 31, 2000, as compared to 3.21% for the comparable
1999 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 losses on loans by $6,000 during both the six months
ended March 31, 2000 and 1999. There can be no assurance that the allowance for
losses on loans of Peoples Federal will be adequate to cover losses on
nonperforming loans in the future.
Page 12 of 18 pages
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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, 2000
and 1999 (continued)
Other Income
Other income totaled $414,000 for the six months ended March 31, 2000, an
increase of $38,000, or 10.1%, over the comparable period in 1999. The increase
was the result of selling a greater number of shares of FHLMC common stock
during the six months ended March 31, 2000 than in the comparable 1999 period,
and an increase of $2,000 in other operating income for fiscal 2000 over 1999.
FHLMC common stock with a book value of $8,000 was sold during the six months
ended March 31, 2000 for a total of $395,000 resulting in a realized gains of
$387,000, while FHLMC common stock with a book value of $6,000 was sold during
the six months ended March 31, 1999 for a total of $357,000 resulting in a
realized gain of $351,000. Other operating income increased by $2,000, primarily
due to increased ATM fee income. Also included in other operating income are
safe deposit box rentals and late charges on loans.
General, Administrative and Other Expense
General, administrative and other expense increased by $216,000, or 19.8%, for
the six months ended March 31, 2000, compared to the same period in 1999.
Employee compensation and benefits increased by $230,000, or 39.6%. Significant
increases in employee compensation and benefits were due to the establishment of
the Deferred Compensation Plan, hiring of new employees, normal wage increases
and resumption of contributions to the 401(k) plan. Establishment of the
Deferred Compensation Plan is the final action needed to close PFC's employees
stock benefit plans and eliminate the related cost. As a result of terminating
the ESOP, employee compensation and benefits decreased by $78,000 from 1999 to
2000. Annual expense related to 401(k) contributions is expected to approximate
$40,000. Advertising increased by $8,000, or 44.4%, primarily due to increased
local media advertising of loan and deposit rates. Ohio franchise taxes for the
six months ended March 31, 2000 decreased by $14,000, or 13.2%, due primarily to
a decrease in tax rates year to year. Federal deposit insurance premiums for the
six month period decreased $6,000, or 30.0%, due to lower assessment rates
beginning January 1, 2000.
Federal Income Taxes
Federal income taxes are based on earnings before taxes for the six month
periods ended March 31, 2000 and 1999. The decrease of $80,000, or 35.6%, in the
provision for income taxes resulted primarily from the $192,000, or 29.8%,
decrease in earnings before income taxes. The effective tax rate was 32.1% for
the six months ended March 31, 2000 and 34.9% for the fiscal 1999 period.
Comparison of Operating Results for the Three-Month Periods Ended March 31, 2000
and 1999
General
Net earnings for the three months ended March 31, 2000, totaled $140,000,
compared to $175,000 for the same period in 1999, a decrease of $35,000, or
20.0%. The decline in earnings resulted primarily from a decrease in net
interest income of $8,000 and an increase in general, administrative and other
expense of $254,000, or 46.4%, which were partially offset by an increase in
gain on sale of investment securities of $196,000, or 159.3% and a decrease in
federal income taxes of $31,000, or 32.3%.
Page 13 of 18 pages
<PAGE>
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, 2000
and 1999 (continued)
Net Interest Income
Interest income on loans for the three months ended March 31, 2000, increased by
$167,000, or 12.9%, over the 1999 period. This increase resulted primarily from
a $9.6 million, or 14.2%, increase in the average net loan portfolio balance
outstanding, partially offset by a decrease in weighted-average yield from 7.64%
in the three months ended March 31, 1999 to 7.55% in the 2000 period. Interest
income on mortgage-backed and related securities, investment securities and
interest-bearing deposits decreased by $6,000, or 2.5%, from the 1999 period.
This decrease resulted from a $2.4 million decrease in average portfolio
balances outstanding, partly offset by an increase in weighted average yield
from 5.54% in the 1999 quarter to 6.24% in the 2000 quarter.
Interest expense on deposits increased by $24,000, or 3.0%, for the three months
ended March 31, 2000, as compared to 1999. This increase resulted from an
increase of $2.6 million, or 3.9%, in average deposit balances outstanding,
partially offset by a decrease in weighted-average cost of funds from 4.74% in
1999 to 4.70% in 2000. Interest expense on FHLB advances increased by $145,000,
or 226.6% for the three months ended March 31, 2000, as compared to 1999. The
2000 average advances outstanding from the FHLB increased to $14.3 million from
$5.3 million in 1999 and the weighted-average interest rate increased to 5.84%
in 2000 from 4.78% in 1999.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $8,000, or 1.2%, for the three months ended
March 31, 2000, compared to 1999. The interest rate spread decreased to 2.44%
for the three months ended March 31, 2000, as compared to 2.47% for the
corresponding 1999 three-month period. The net interest margin decreased to
2.92% for the three months ended March 31, 2000, as compared to 3.21% for the
comparable 1999 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 losses on loans by $3,000 during both the three
months ended March 31, 2000 and 1999. There can be no assurance that the
allowance for losses on loans of Peoples Federal will be adequate to cover
losses on nonperforming loans in the future.
Page 14 of 18 pages
<PAGE>
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, 2000
and 1999 (continued)
Other Income
Other income totaled $332,000 for the three months ended March 31, 2000, an
increase of $196,000, or 144.1%, over the 1999 amount. The increase was the
result of selling a greater number of shares of FHLMC common stock during the
three months ended March 31, 2000 than in the comparable 1999 period. FHLMC
common stock with a book value of $7,000 was sold in March 2000 for $326,000
resulting in a realized gain of $319,000, while FHLMC common stock with a book
value of $2,000 was sold in March 1999 for $125,000 resulting in a realized gain
of $123,000. Other operating income amounted to $13,000 for both three month
periods and includes ATM, NOW, 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 increased by $254,000, or 46.4%, for
the three months ended March 31, 2000, compared to the same period in 1999.
Employee compensation and benefits increased by $260,000, or 90.3%. Significant
increases in employee compensation and benefits were due to the establishment of
the Deferred Compensation Plan, hiring of new employees, normal wage increases
and resumption of contributions to the 401(k) plan. Significant decreases in
employee compensation and benefits were due to termination of the ESOP and RRP.
Advertising increased by $11,000, or 137.5%, primarily due to increased local
media advertising of loan and deposit rates. Ohio franchise taxes for the three
months ended March 31, 2000 decreased by $6,000, or 12.0%, due primarily to a
decrease in tax rates year to year. Federal deposit insurance premiums for the
three month period decreased $6,000, or 60.0%, due to lower assessment rates
beginning January 1, 2000.
Federal Income Taxes
Federal income taxes are based on earnings before taxes for the three months
ended March 31, 2000 and 1999. The decrease of $31,000, or 32.3%, in the
provision for income taxes resulted primarily from the $66,000, or 24.4%,
decrease in earnings before income taxes. The effective tax rate was 31.7% for
the three months ended March 31, 2000 and 35.4% for the 1999 quarter.
Year 2000 Compliance Matters
As with most providers of financial services, Peoples Federal's operations are
heavily dependent on information technology systems. During the three years
leading up to January 1, 2000, Peoples Federal addressed the potential problems
associated with the possibility that the computers that control or operate
Peoples Federal's information technology system and infrastructure may not have
been programmed to read four-digit date codes and, upon arrival of the year
2000, may have recognized the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data.
Page 15 of 18 pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Year 2000 Compliance Matters (continued)
PFC's primary data processing applications are handled by a third-party service
bureau which advised PFC that it transferred to a fully year 2000-compliant
processing system that was fully tested prior to June 30, 1999. Management also
reviewed PFC's ancillary equipment and provided the appropriate remedial
measures. Costs incurred to make Peoples Federal Year 2000 compliant, totaling
approximately $40,000, had been charged to operations during the fiscal years
ended September 30, 1999 and 1998.
Peoples Federal realized no technology-related problems upon arrival of January
1, 2000, and had no interruption of services to its customers.
PFC could incur losses if year 2000 issues adversely affect Peoples Federal's
depositors or borrowers. Such problems could include delayed loan payments due
to year 2000 problems affecting any significant borrowers or impairing the
payroll systems of large employers in Peoples Federal's primary market area.
Because Peoples Federal's loan portfolio is highly diversified with regard to
individual borrowers and types of businesses and Peoples Federal's primary
market area is not significantly dependent upon one employer or industry,
Peoples Federal does not expect, and to date has not realized, any significant
or prolonged difficulties that will affect net earnings or cash flow.
Page 16 of 18 pages
<PAGE>
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
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10 Peoples Federal Savings and Loan Association of
Massillon Deferred Compensation Plan
27 Financial data schedule for the six months ended
March 31, 2000.
99 Safe Harbor under the Private Securities Litigation
Reform Act of 1995.
(b) Reports on Form 8-K: None.
Page 17 of 18 pages
<PAGE>
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: May 12, 2000 By: /s/Paul von Gunten
------------------------- ------------------
Paul von Gunten
President and Chief
Executive Officer
Date: May 12, 2000 By: /s/James R. Rinehart
------------------------- --------------------
James R. Rinehart
Treasurer
Page 18 of 18 Pages
Exhibit 10
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF MASSILLON
DEFERRED COMPENSATION PLAN
Effective March 20, 2000
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF MASSILLON
DEFERRED COMPENSATION PLAN
Effective March 20, 2000, Peoples Federal Savings and Loan Association of
Massillon adopts this Plan to provide deferred compensation to a select group of
its directors, management and highly compensated employees. This Plan is
intended to be an unfunded, nonqualified program of deferred compensation within
the meaning of Title I of ERISA.
ARTICLE I
DEFINITIONS
Whenever used in this Plan, the following words and phrases will have the
meaning given below. Also, the singular form of any term will include the
plural, the plural form will include the singular, the masculine pronoun will
include the feminine and the feminine pronoun will include the masculine. Other
words and phrases also may be defined in the Plan text.
Account means the Deferred Compensation Account described in Article IV.
Affiliate means any entity which, together with the Company, is a member of a
controlled group of corporations or of a commonly controlled group of trades or
businesses [as defined in Code ss.ss.414(b) and (c), as modified by Code
ss.415(h)] or of an affiliated service group [as defined in Code ss.414(m)] or
other organization described in Code ss.414(o).
Beneficiary means the person or persons designated by a Participant under
Section 2.02 to receive any death benefits payable under Section 6.03.
Board means the Company's board of directors.
Change in Control means the earliest of any of the following:
(a) The execution of an agreement for the sale of all, or a material portion,
of the assets of the Company;
(b) The execution of an agreement for a merger or recapitalization of the
Company or any merger or recapitalization whereby the Company is not the
surviving entity;
(c) A change of control of the Company, as defined or determined by the Office
of Thrift Supervision ("OTS"), Department of the Treasury;
(d) The acquisition, directly or indirectly, of the beneficial ownership
[within the meaning of the terms "beneficial ownership" as defined under
Section 13(d) of the Securities Exchange Act of 1934 and the rules
promulgated under that Act] of 25 percent or more of the Company's
outstanding voting securities by any person, trust, entity or group; or
(e) Any offer or announcement, oral or written, by any person or any persons
acting as a group, to acquire control of the Company as to which an
application or notice has been filed with the OTS and that application has
been approved or that notice has not been disapproved.
<PAGE>
(f) However, a Change in Control under this paragraph will be determined
without regard to:
(i) Any acquisition by or through an employee benefit plan maintained by
the Company or any Affiliate;
(ii) Any acquisition through a stock option program maintained by the
Company or any Affiliate;
(iii)Any acquisition through inheritance, gift, bequest or by operation of
law on the death of an individual by distribution from a trust in
existence on the Effective Date; or
(iv) The Company's redemption of its common shares.
Code means the Internal Revenue Code of 1986, as amended.
Committee means the Plan Committee described in Article VII.
Company means Peoples Federal Savings and Loan Association of Massillon and any
successor to it.
Effective Date means March 20, 2000.
Eligible Employee means any common law employee of any Employer if that person
also is a member of a select group of the Employer's management or a highly
compensated employee or any person serving as a member of the board of directors
of any Employer.
Employer means the Company and any Affiliate which, with the Company's consent,
adopts this Plan.
Enrollment Form means the form that each Eligible Employee must complete before
he or she may participate in the Plan. Although a copy of this form is attached
to the Plan, it is not a part of the Plan and may be modified by the Committee
without separate action of the Board.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Inactive Participant means a Participant (a) who is actively performing services
for an Employer but no longer meets the eligibility conditions described in
Section 2.01 or (b) who, for any reason, has stopped performing services for all
Employers but has not received a distribution of his or her entire Account
balance.
Participant means (a) an Eligible Employee who is participating in the Plan as
provided in Section 2.01 or (b) an Inactive Participant.
Plan means the Peoples Federal Savings and Loan Association of Massillon
Deferred Compensation Plan, as described in this document and any amendments to
it.
<PAGE>
Plan Year means the 12-month period ending on each September 30 during which the
Plan is in effect. For the Plan's initial year, the Plan Year will be a short
year, beginning on the Effective Date and ending on September 30, 2000.
RRP means the Peoples Financial Corporation Recognition and Retention Plan and
Trust Agreement.
Spouse or Surviving Spouse means an individual who is legally married to the
Participant.
Trust means the fund created under the Trust Agreement.
Trust Agreement means the separate agreement between the Company and the Trustee
described in Article X.
Trustee means the person appointed to administer the fund created under the
Trust Agreement.
Valuation Date means (a) the last day of each Plan Year or more frequent periods
if the Committee, in its sole discretion, decides that more frequent valuations
are needed for any reason or (b) the date that a Change in Control occurs.
Year of Service means each Plan Year during which a Participant is actively
performing services for an Employer, including periods of service credited under
the RRP.
ARTICLE II
PARTICIPATION
2.01 Eligibility to Participate
(a) In its sole discretion, the Committee will decide which Eligible Employees
may participate in the Plan and the earliest date on which they may
participate. However, subject to the terms of this Section, all persons
participating in the RRP on the Effective Date may participate in this Plan
if they also are Eligible Employees on the Effective Date.
(b) Before he or she may participate in the Plan, each Eligible Employee must
complete an Enrollment Form (i) agreeing to the terms specified in the
Enrollment Form and (ii) specifying (A) the time when his or her Account
will be distributed (Section 6.02), (B) how his or her Account will be
distributed (Section 6.06) and (C) his or her Beneficiary.
(c) The elections made in an Enrollment Form will continue to be effective
until changed. Subject to the provisions of this Plan, Participants may
change or revise any of the information made or given in an Enrollment Form
only by completing and delivering to the Committee another completed
Enrollment Form indicating the revised information or elections. Any change
will be effective only after the Committee receives a fully completed and
signed revised Enrollment Form.
(d) An Eligible Employee will continue to participate until the earlier of the
date he or she becomes an Inactive Participant.
<PAGE>
2.02 Designation of Beneficiary
(a) Each Eligible Employee must designate one or more Beneficiaries when he or
she completes an Enrollment Form. Unless a Participant who designates more
than one Beneficiary also specifies the sequence or the portion of the
death benefit to be paid to each Beneficiary, the death benefit will be
paid in equal shares to all named Beneficiaries. The identity of a
Participant's Beneficiary will be based only on the designation in the
Enrollment Form and will not be inferred from any other evidence.
(b) If a Participant has not made an effective Beneficiary designation or if
all of his or her Beneficiaries die before the Participant, Plan death
benefits will be paid to the Participant's Surviving Spouse. If there is no
Surviving Spouse, these death benefits will be paid (i) to the
Participant's issue, then living, per stirpes; or, if there are none (ii)
to the Participant's executors or administrators. Any minor's share of a
Plan death benefit will be paid to the adult who has been appointed to act
as the minor's legal guardian and who has assumed custody and support of
that minor.
(c) The Participant and the Beneficiary (and not the Committee) are responsible
for ensuring that the Committee has the Beneficiary's current address.
ARTICLE III
CONTRIBUTIONS
As of the Effective Date, the Company will transfer to the Trust all cash and
other assets held under the RRP as of the Effective Date, except common shares
of Peoples Financial Corporation. The Company also will make any additional
contributions as needed to ensure that Plan benefits are fully funded, including
contributions calculated under Article V.
ARTICLE IV
PARTICIPANT'S ACCOUNTS; ALLOCATIONS
The Committee will maintain a Deferred Compensation Account for each
Participant. As of the Effective Date, this Account will be credited with an
amount equal to ninety-seven percent (97%) of the cash and the value of Company
stock that, immediately before the termination of the RRP, was credited to the
Participant under the RRP, except cash and company stock earned by the
Participant but not yet distributed to the Participant. For purposes of
establishing the amount of this credit, the value of Company shares will be 1)
the original cost of Company shares paid by the RRP, $15.40, plus, 2) all
ordinary quarterly dividends (not including return of capital and special
dividend) paid since the shares were purchased, $1.695, plus, 3) earnings of
other funds in the RRP trust assignable to such shares, amount not determinable
until approximately March 21, 2000, for a total amount of approximately $19.35.
<PAGE>
ARTICLE V
VALUATION OF FUNDS
As of each Valuation Date, the value of each Participant's Account, determined
as of the most recent Valuation Date but reduced by the amount of any
distributions or withdrawals made since that Valuation Date, will be credited
with simple interest at an annual rate of seven percent. If the Valuation Date
is fewer than 12 months after the most recent Valuation Date, this interest rate
will be prorated based on the number of whole months that have elapsed since the
most recent Valuation Date.
ARTICLE VI
DISTRIBUTION OF BENEFITS
6.01 Distribution Events
The vested value of each Participant's Account will be distributed at the
earliest of (a) the date the Participant specifies in his or her Enrollment Form
(Section 6.02) or (b) the date the Participant (i) dies (Section 6.03), (ii)
becomes disabled (Section 6.04), (iii) incurs a financial hardship (Section
6.05) or (iv) terminates employment with all Employers.
6.02 Specified Date of Distributions
When completing an Enrollment Form, each Participant must specify the date that
the vested value of his or her Account will be distributed. Once made, this
election will continue to apply until it is changed. A Participant may change
his or her distribution date by following the procedure described in Section
2.01. However, the Committee will approve that change only to the extent that it
affects distributions made more than 12 months after the date that request is
received by the Committee.
6.03 Death Benefits
The vested value of the Account maintained for a deceased Participant will be
paid to that Participant's Beneficiary following the Participant's death and in
the form selected in the Enrollment Form. Any Beneficiary claiming a death
benefit under the Plan must provide the Committee with satisfactory proof of the
Participant's death before any death benefit will be paid.
6.04 Disability Benefits
A Participant who becomes disabled will receive a distribution of the vested
value of his or her Account, determined as of the Valuation Date following the
date the disability is established in the form selected in the Enrollment Form.
A Participant will be considered disabled on the date that it is established by
a licensed physician selected by the Committee that he or she is not able to
engage in any substantial gainful activity because of a medically determinable
physical or mental impairment that is expected to result in death or to be of
long, continued and indefinite duration. The Committee will consistently apply
uniform principles when determining if a Participant is disabled.
<PAGE>
6.05 Hardship Withdrawals
In its sole discretion, the Committee may distribute all or a portion of the
vested value of a Participant's or Beneficiary's Account before the date
otherwise determined under this Article if the Committee decides that the
applicant has encountered a severe financial hardship. For these purposes, an
applicant will have incurred a "severe financial hardship" only if he or she
needs an immediate distribution to meet a current and heavy financial expense
associated with (i) a sudden or unexpected illness or accident incurred by the
applicant or a member of the applicant's immediate family or (ii) the loss of
the applicant's property due to casualty or other similar extraordinary and
unforeseeable circumstance attributable to events beyond the applicant's
control. A distribution based on financial hardship will be made in a lump sum
and will not be larger than the smaller of (iii) the amount needed to meet the
immediate financial need created by the hardship or (iv) the value of the
applicant's Account as of the most recent Valuation Date. If a financial event
qualifies as a "hardship" under both this Plan and a tax-qualified retirement
plan, an applicant may not withdraw any amount from the tax-qualified retirement
plan until he or she has made the maximum withdrawal allowable under this Plan
and any withdrawal rights under the tax-qualified retirement plan will not be
available for purposes of calculating the amount that may be withdrawn from this
Plan.
6.06 Amount and Payment of Withdrawals
All distributions made from the Plan to a Participant or to his or her
Beneficiary will be effective as of the Valuation Date immediately preceding the
date the distribution is to be made and will be paid in the form the Participant
selected from among those described in the Enrollment Form. These distribution
forms will be limited to (i) a single lump sum payment of the full value of the
Participant's Account or (ii) a series of monthly, quarterly or annual
installments (whichever the Participant selected) for a period not longer than
ten years. A Participant or Beneficiary may change the form of distribution by
following the procedures described in Section 2.01. However, unless it relates
to a hardship distribution described in Section 6.05, the Committee will approve
that change only to the extent that it affects distributions made more than 12
months after the date that request is received by the Committee. Once a
Participant's Account has been fully distributed, the Company, all Employers,
the Plan and the Trust will have no further liability to the Participant or to
his or her Beneficiary.
<PAGE>
6.07 Vested Benefits
Subject to Sections 6.09 and 9.01, the benefit payable under the Plan to any
Participant will equal the greater of the amount determined by application of
paragraph (a) or (b):
(a) Subject to Sections 6.09 and 9.01 and to the other provisions of this
Section, the percentage of the undistributed value of his Account will be
determined under the following schedule:
Years of Service Vested Percentage
Less than 1 0 percent
1 20 percent
2 40 percent
3 60 percent
4 80 percent
5 or more 100 percent
Any forfs that arise from a Participant's termination of employment before
he or she is fully vested will be applied to reduce the Company's future Plan
funding obligations.
(b) Regardless of his or her Years of Service, a Participant's Deferred
Compensation Account will be fully vested and nonforfeitable if (i) the
Participant dies while actively employed by the Company or any Affiliate or
(ii) the Participant becomes disabled (as defined in Section 6.04) while
actively employed by the Company or any Affiliate.
6.08 Distribution of Benefits and Order of Distribution
Benefit distributions will begin not later than 60 days after the date the
benefit is payable.
6.09 Effect of Change in Control
Subject to Section 6.10(a), and regardless of any other provision of the Plan or
the Trust Agreement or of any conflicting Participant election, each Participant
will be fully vested in his or her Account immediately upon the occurrence of a
Change in Control. Also, all amounts credited to Participants' Accounts will be
distributed in a lump sum as soon as practicable after a Change in Control
occurs.
6.10 Special Provisions Related to "Golden Parachute" Amounts and Accelerated
Income Tax Liabilities
(a) If any provision of this Plan or of the Trust Agreement, when combined with
similar provisions under any other plan, program or contract between an
Employer and any Participant, results in a "golden parachute" payment
larger than the limit prescribed in Code ss.280G, the Committee and the
Trustee will proportionately reduce benefits payable under this Plan and
any other plan, program or contract to the limit prescribed by Code
ss.280G.
<PAGE>
(b) If the Internal Revenue Service or any other taxing authority establishes
that a Participant or Beneficiary is in constructive receipt of any Plan
benefit, the Committee will direct the Trustee to distribute (and the
Trustee will immediately distribute) to the Participant a lump sum amount
equal to the smaller of (i) the Participant's or Beneficiary's Account
value or (ii)(A) the amount of which the Participant is deemed to be in
constructive receipt plus (B) the additional amount the Participant needs
to pay the additional taxes, interest and penalties arising from that
determination.
ARTICLE VII
PLAN COMMITTEE
7.01 Appointment of Committee
The Board will appoint a committee of at least three persons to administer the
Plan. A Committee member may resign at any time by sending written notice to the
Board specifying the effective date of his or her termination (which must always
be prospective). Vacancies in the Committee will be filled by the Board as the
need arises. Also, in its sole discretion, the Board may remove any Committee
member at any time by giving written notice of removal to the affected Committee
member and specifying the effective date of that action (which must always be
prospective).
7.02 Powers and Duties
The Committee is fully empowered to exercise complete discretion to administer
the Plan and to construe and apply all of its provisions. The Committee may
delegate any of its powers and duties to any other person or organization. These
powers and duties include:
(a) Deciding which employees are Eligible Employees, which of them may
participate in the Plan and the value of their benefit;
(b) Resolving disputes that may arise with regard to the rights of Eligible
Employees, Participants and their legal representatives or Beneficiaries
under the terms of the Plan. Subject to Section 7.08, the Committee's
decisions in these matters will be final in each case;
(c) Obtaining from each Employer, Participant and Beneficiary information that
the Committee needs to determine any Participant's or Beneficiary's rights
and benefits under the Plan. The Committee may rely conclusively upon any
information furnished by an Employer, a Participant or Beneficiary;
(d) Compiling and maintaining all records it needs to administer the Plan;
(e) Upon request, furnishing the Company with reasonable and appropriate
reports of its administration of the Plan;
(f) Authorizing the distribution of all benefits that are payable under the
Plan;
(g) Engaging legal, administrative, actuarial, investment, accounting,
consulting and other professional services that the Committee believes are
necessary and appropriate;
(h) Adopting rules and regulations for the administration of the Plan that are
not inconsistent with the terms of the Plan; and
(i) Doing and performing any other acts provided for in the Plan.
<PAGE>
7.03 Actions by the Committee
The Committee may act at a meeting by the vote or assent of a majority of its
members or in writing without a meeting in an action signed by all members of
the Committee. The Committee will appoint one of its members to act as a
secretary to record all Committee actions. The Committee also may authorize one
or more of its members to execute papers and perform other ministerial duties on
behalf of the Committee.
7.04 Interested Committee Members
No member of the Committee may participate in any Committee action that directly
and uniquely affects that member's individual interest in the Plan; these
matters will be determined by a majority of the remainder of the Committee.
7.05 Indemnification
(a) The Company will indemnify and hold harmless any Committee member or
employee who performs services to or on behalf of the Plan ("Indemnified Party")
against all liabilities and all reasonable expenses (including attorney fees and
amounts paid in settlement other than to the Employer) incurred or paid in
connection with any threatened or pending action, suit or proceeding brought by
any party in connection with the Plan. However, this indemnification will not
extend to any Indemnified Party whose conduct in connection with the Plan is
found to have been grossly negligent or wrongful. This determination will be
based on any final judgment rendered in connection with the action, suit or
proceeding complaining of the conduct or its effect or, if no final judgment is
rendered, by a majority of the Board or by independent counsel to whom the Board
has referred the matter.
(b) The obligations under this Section may be satisfied, in the Company's
discretion, through the purchase of a policy or policies of insurance providing
equivalent protection.
7.06 Conclusiveness of Action
Subject to Section 7.08, any action on matters within the discretion of the
Committee will be conclusive, final and binding upon all Participants and upon
all persons claiming any rights hereunder, including Beneficiaries.
7.07 Payment of Expenses
(a) Committee members will not be separately compensated for their services as
Committee members. However, the Employer will reimburse Committee members for
all appropriate expenses they incur while carrying out their Plan duties.
(b) The compensation or fees of accountants, counsel and other specialists and
any other costs of administering the Plan will be paid by the Company or
allocated among Employers.
7.08 Claims Procedure
(a) Filing Claims. Any Participant or Beneficiary who believes that he or she
is entitled to an unpaid Plan benefit may file a claim with the Committee.
<PAGE>
(b) Notification to Claimant. If a claim is wholly or partially denied, the
Committee will send a written notice of denial to the claimant. This notice
must be written in a manner calculated to be understood by the claimant and
must include:
(i) The specific reason or reasons for which the claim was denied;
(ii) Specific reference to pertinent Plan provisions, rules, procedures or
protocols upon which the Committee relied to deny the claim;
(iii)A description of any additional material or information that the
claimant may file to perfect the claim and an explanation of why this
material or information is necessary; and
(iv) A description of the steps the claimant may take to appeal an adverse
determination.
The Committee will render its decision within 90 days of receiving a benefit
claim. However, if special circumstances (such as the need for additional
information) require additional time, this decision will be rendered as soon as
possible, but not later than 180 days after receipt of the claim and only if the
Committee notifies the claimant, in writing, that it needs more time to review a
claim and why that additional time is needed. If the Committee does not issue
its decision within this period, the claim will be deemed to have been denied.
(c) Review Procedure. If a claim has been wholly or partially denied, the
affected claimant, or his or her authorized representative, may:
(i) Request that the Committee reconsider its initial denial by filing a
written appeal no more than 60 days after receiving written notice
that all or part of the initial claim was denied;
(ii) Review pertinent documents and other material upon which the Committee
relied when denying the initial claim; and
(iii)Submit a written description of the reasons for which the claimant
disagrees with the Committee's initial adverse decision.
An appeal of an initial denial of benefits and all supporting material must be
made in writing and directed to the Committee. The Committee is solely
responsible for reviewing all benefit claims and appeals and taking all
appropriate steps to implement its decision.
The Committee's decision on review will be sent to the claimant in writing and
will include specific reasons for the decision, written in a manner calculated
to be understood by the claimant, as well as specific references to the
pertinent Plan provisions, rules, procedures or protocols upon which the
Committee relied to deny the appeal.
<PAGE>
The Committee will render its decision within 60 days of receiving a benefit
appeal. However, if special circumstances (such as the need to hold a hearing on
any matter pertaining to the denied claim) require additional time, this
decision will be rendered as soon as possible, but not later than 120 days after
receipt of the claimant's written appeal and only if the Committee notifies the
claimant, in writing, that it needs more time to review an appeal and why that
additional time is needed. If the Committee does not issue its decision within
this period, the claim will be deemed to have been denied.
ARTICLE VIII
AMENDMENT TO THE PLAN
8.01 Right to Amend
(a) Subject to paragraph (b), the Company may modify, alter or amend the Plan or
the Trust Agreement at any time. However, no amendment may affect any
Participant's or Beneficiary's right to receive the value of benefits accrued
under the Plan before the effective date of that amendment.
(b) Regardless of the rights reserved in Section 9.01(a), none of the Company,
any Affiliate or any successor to any of them may amend either the Plan or the
Trust Agreement after a Change in Control.
8.02 Amendment Procedure
The Board of Directors may exercise the Company's right to amend the Plan.
ARTICLE IX
TERMINATION OF THE PLAN
9.01 Right to Terminate
(a) Subject to paragraph (b), the Company may terminate the Plan or the Trust in
whole or in part at any time by the vote or the written action of its Board of
Directors. Each Participant affected by a full or partial Plan termination or by
a complete discontinuance of contributions will be 100 percent vested in the
value of all of his or her Account. Also, the Committee may (i) distribute an
affected Participant's Account at the time the Plan terminates or partially
terminates, even if this date is earlier than the date benefits otherwise would
be distributed under Article VI or (ii) hold those benefits until they are
otherwise payable under the terms of the Plan.
(b) Coincident with any termination of the Trust and consistent with the terms
of the Trust Agreement, the Trustee will distribute all benefits, discharge all
remaining Trust expenses and pay any remaining Trust assets to the Company
(c) Regardless of the rights reserved in Section 9.01(a), none of the Company,
any Affiliate or any successor to any of them may terminate the Trust Agreement
after a Change in Control.
<PAGE>
9.02 Plan Merger and Consolidation
If the Plan is merged into, or consolidated with, any other plan, each affected
Participant will be entitled to a vested benefit immediately after the merger,
consolidation or transfer (determined as if the surviving plan had then
terminated) at least equal to the vested benefit he or she had accrued
immediately before the merger or consolidation (determined as if the Plan
terminated immediately before that merger or consolidation).
9.03 Successor Employer
Except as provided in Section 6.09, if any Employer dissolves into, reorganizes,
merges into or consolidates with another business entity, provision may be made
by which the successor will continue the Plan, in which case, the successor will
be substituted for the Employer under the terms and provisions of this Plan. The
substitution of the successor for the Employer will constitute an assumption by
the successor of all Plan liabilities and the successor will have all of the
powers, duties and responsibilities of the Employer under the Plan.
ARTICLE X
FUNDING
This Plan constitutes an unfunded, unsecured promise by the Company to pay only
those benefits that are accrued by Participants under the terms of the Plan.
However, the Company will segregate assets into a trust for the purpose of
holding assets from which all or part of a Plan benefit may be paid. As of the
Effective Date, the Company will transfer to the Trust the amount credited to
Accounts under Article IV. Although neither the Company nor any Affiliate is
liable for the payment of Plan benefits that are actually paid from the Trust
established for that purpose, the Company and each Affiliate are obliged to pay
any benefits not paid from the Trust. Also, Participants, Beneficiaries and
other persons claiming a Plan benefit through them have only the rights of
general unsecured creditors and do not have any interest in, or right to, any
specific asset of any Employer. Nothing in this Plan constitutes a guaranty by
the Company, any Affiliate or any other entity or person that the assets of the
Employer or any Affiliate will be sufficient to pay Plan benefits.
ARTICLE XI
MISCELLANEOUS
11.01 Voluntary Plan
The Plan is purely voluntary on the part of each Employer; neither the
establishment of the Plan nor any amendment to it nor the creation of any fund
or account nor the payment of any benefits may be construed as giving any person
(a) a legal or equitable right against any Employer or the Committee other than
those specifically granted under the Plan or conferred by affirmative action of
the Committee or any Employer in a manner that is consistent with the terms and
provisions of this Plan or (b) the right to be retained in the service of any
Employer. All Participants remain subject to discharge to the same extent as
though this Plan had not been established.
11.02 Non-alienation of Benefits
The right of a Participant, Beneficiary or any other person to receive Plan
benefits may not be assigned, transferred, pledged or encumbered except as
provided in the Participant's Beneficiary designation, by will or by applicable
laws of descent and distribution. Any attempt to assign, transfer, pledge or
encumber a Plan benefit will be null and void and of no legal effect.
<PAGE>
11.03 Inability to Receive Benefits
Any Plan benefit payable to a Participant or Beneficiary who is declared
incompetent will be paid to the guardian, conservator or other person legally
charged with the care of his or her person or estate. Also, if the Committee, in
its sole discretion, concludes that a Participant or Beneficiary is unable to
manage his or her financial affairs, the Committee may, but is not required to,
direct the Company or Trustee to distribute Plan benefits to any one or more of
his or her Spouse, lineal ascendants or descendants or other close living
relatives of the Participant or Beneficiary who demonstrates to the satisfaction
of the Committee the propriety of those distributions. Any payment made under
this Section will completely discharge the Plan's liability with respect to that
payment. The Committee is not required to see to the application of any
distribution made to any person.
11.04 Lost Participants
Each Participant is obliged to keep the Committee apprised of his or her current
mailing address and that of his or her Beneficiary. The Committee's obligation
to search for any Participant or Beneficiary is limited to sending a registered
or certified letter to the Participant's or Beneficiary's last known address.
Any amounts credited to the Account of any Participant or Beneficiary who does
not file a claim for benefits with the Committee will be forfeited no later than
12 months after benefits are otherwise payable and, in the Company's discretion,
be used to reduce future Employer contributions. However, this forfeited benefit
will be restored and paid if the Committee subsequently approves a claim for
benefits under the procedures described in Section 7.08.
11.05 Limitation of Rights
Nothing in the Plan, expressed or implied, is intended or may be construed as
conferring upon or giving to any person, firm or association (other than the
Company, an Affiliate, Participants, their Beneficiaries and their successors in
interest) any right, remedy or claim under or by reason of this Plan.
<PAGE>
11.06 Invalid Provision
If any provision of this Plan is held to be illegal or invalid for any reason,
the Plan will be construed and enforced as if the offending provision had not
been included in the Plan. However, that determination will not affect the
legality or validity of the remaining parts of this Plan.
11.07 One Plan
This Plan may be executed in any number of counterparts, each of which will be
deemed to be an original.
11.08 Effect of Adoption by Affiliates
With the permission of the Company, any Affiliate may adopt this Plan for the
benefit of its Eligible Employees. In doing so, however, each Affiliate
delegates to the Company the power to maintain, amend or terminate the Plan and
to undertake all ministerial and discretionary acts associated with maintenance
of the Plan.
11.09 Governing Law
The Plan will be governed by, and construed in accordance with, the laws of the
United States and, to the extent applicable, the laws of Ohio.
IN WITNESS WHEREOF, the undersigned authorized officer of the Company has
executed this Plan to be effective as of March 20, 2000.
PEOPLES FEDERAL SAVINGS AND LOAN
ASSOCIATION OF MASSILLON
By: /s/ Paul von Gunten
Print Name: Paul von Gunten
Title: President
Date: 03.20.00
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 353
<INT-BEARING-DEPOSITS> 2,303
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,029
<INVESTMENTS-CARRYING> 3,896
<INVESTMENTS-MARKET> 3,984
<LOANS> 78,498
<ALLOWANCE> 229
<TOTAL-ASSETS> 95,952
<DEPOSITS> 69,868
<SHORT-TERM> 15,000
<LIABILITIES-OTHER> 727
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 10,357
<TOTAL-LIABILITIES-AND-EQUITY> 95,952
<INTEREST-LOAN> 2,860
<INTEREST-INVEST> 421
<INTEREST-OTHER> 73
<INTEREST-TOTAL> 3,354
<INTEREST-DEPOSIT> 1,606
<INTEREST-EXPENSE> 2,001
<INTEREST-INCOME-NET> 1,353
<LOAN-LOSSES> 6
<SECURITIES-GAINS> 387
<EXPENSE-OTHER> 1,309
<INCOME-PRETAX> 452
<INCOME-PRE-EXTRAORDINARY> 307
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 307
<EPS-BASIC> .24
<EPS-DILUTED> .24
<YIELD-ACTUAL> 2.45
<LOANS-NON> 36
<LOANS-PAST> 14
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 213
<CHARGE-OFFS> 0
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 229
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 229
</TABLE>
EXHIBIT 99
Safe Harbor Under the Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their companies, so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those discussed in the statement. Peoples
Financial Corporation ("PFC") desires to take advantage of the "safe harbor"
provisions of the Act. Certain information, particularly information regarding
future economic performance and finances and plans and objectives of management,
contained or incorporated by reference in PFC's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 2000, is forward-looking. In some cases,
information regarding certain important factors that could cause actual results
of operations or outcomes of other events to differ materially from any such
forward-looking statement appearing together with such statement. In addition,
forward-looking statements are subject to other risks and uncertainties
affecting the financial institutions industry, including, but not limited to,
the following:
Interest Rate Risk
PFC's operating results are dependent to a significant degree on its
net interest income, which is the difference between interest income from loans,
investments and other interest-earning assets and interest expense on deposits,
borrowings and other interest-bearing liabilities. The interest income and
interest expense of PFC change as the interest rates on interest-earning assets
and interest-bearing liabilities change. Interest rates may change because of
general economic conditions, the policies of various regulatory authorities and
other factors beyond PFC's control. In a rising interest rate environment, loans
tend to prepay slowly and new loans at higher rates increase slowly, while
interest paid on deposits increases rapidly because the terms to maturity of
deposits tend to be shorter than the terms to maturity or prepayment of loans.
Such differences in the adjustment of interest rates on assets and liabilities
may negatively affect PFC's income.
Possible Inadequacy of the Allowance for Loan Losses
PFC maintains an allowance for loan losses based upon a number of
relevant factors, including, but not limited to, trends in the level of
nonperforming assets and classified loans, current and anticipated economic
conditions in the primary lending area, past loss experience, possible losses
arising from specific problem loans and changes in the composition of the loan
portfolio. While the Board of Directors of PFC believes that it uses the best
information available to determine the allowance for loan losses, unforeseen
market conditions could result in material adjustments, and net earnings could
be significantly adversely affected if circumstances differ substantially from
the assumptions used in making the final determination.
<PAGE>
Loans not secured by one- to four-family residential real estate are
generally considered to involve greater risk of loss than loans secured by one-
to four-family residential real estate due, in part, to the effects of general
economic conditions. The repayment of multifamily residential and nonresidential
real estate loans generally depends upon the cash flow from the operation of the
property, which may be negatively affected by national and local economic
conditions. Construction loans may also be negatively affected by such economic
conditions, particularly loans made to developers who do not have a buyer for a
property before the loan is made. The risk of default on consumer loans
increases during periods of recession, high unemployment and other adverse
economic conditions. When consumers have trouble paying their bills, they are
more likely to pay mortgage loans than consumer loans. In addition, the
collateral securing such loans, if any, may decrease in value more rapidly than
the outstanding balance of the loan.
Competition
Peoples Federal Savings and Loan Association of Massillon ("Peoples
Federal") competes for deposits with other savings associations, commercial
banks and credit unions and issuers of commercial paper and other securities,
such as shares in money market mutual funds. The primary factors in competing
for deposits are interest rates and convenience of office location. In making
loans, Peoples Federal competes with other savings associations, commercial
banks, consumer finance companies, credit unions, leasing companies, mortgage
companies and other lenders. Competition is affected by, among other things, the
general availability of lendable funds, general and local economic conditions,
current interest rate levels and other factors which are not readily
predictable. The size of financial institutions competing with Peoples Federal
is likely to increase as a result of changes in statutes and regulations
eliminating various restrictions on interstate and inter-industry branching and
acquisitions. Such increased competition may have an adverse effect upon PFC.
Legislation and Regulation that may Adversely Affect PFC's Earnings
Peoples Federal is subject to extensive regulation by the Office of
Thrift Supervision (the "OTS") and the Federal Deposit Insurance Corporation
(the "FDIC") and is periodically examined by such regulatory agencies to test
compliance with various regulatory requirements. As a savings and loan holding
company, PFC is also subject to regulation and examination by the OTS. Such
supervision and regulation of Peoples Federal and PFC are intended primarily for
the protection of depositors and not for the maximization of shareholder value
and may affect the ability of the company to engage in various business
activities. The assessments, filing fees and other costs associated with
reports, examinations and other regulatory matters are significant and may have
an adverse effect on PFC's net earnings.
The FDIC is authorized to establish separate annual assessment rates
for deposit insurance of members of the Bank Insurance Fund (the "BIF") and the
Savings Association Insurance Fund (the "SAIF"). The FDIC has established a
risk-based assessment system for both SAIF and BIF members. Under such system,
assessments may vary depending on the risk the institution poses to its deposit
insurance fund. Such risk level is determined by reference to the institution's
capital level and the FDIC's level of supervisory concern about the institution.
