FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
--------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-28838
PEOPLES FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-1822228
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
211 Lincoln Way East
Massillon, Ohio 44646
(Address of principal (Zip Code)
executive office)
Issuers' telephone number, including area code: (330) 832-7441
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
As of February 9, 2000, the latest practicable date, 1,265,108 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 16 pages
<PAGE>
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 11
PART II - OTHER INFORMATION 15
SIGNATURES 16
Page 2 of 16 pages
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
PEOPLES FINANCIAL CORPORATION
(In thousands, except share data)
December 31, September 30,
ASSETS 1999 1999
<S> <C> <C>
Cash and due from banks $ 1,387 $ 157
Interest-bearing deposits in other financial institutions 1,309 2,463
------ ------
Cash and cash equivalents 2,696 2,620
Investment securities designated as available for sale -
at market 969 1,150
Investment securities held to maturity - at cost, approximate
market value of $989 and $2,000 as of December 31, 1999
and September 30, 1999 945 1,956
Mortgage-backed and related securities designated
as available for sale - at market 6,869 7,394
Mortgage-backed and related securities held to maturity - at
amortized cost, approximate market value of $3,288 and
$3,152 as of December 31, 1999 and September 30, 1999 3,091 3,218
Loans receivable - net 75,475 73,084
Office premises and equipment - at depreciated cost 1,363 1,389
Stock in Federal Home Loan Bank - at cost 940 924
Accrued interest receivable 253 311
Prepaid federal income taxes 151 230
Prepaid expenses and other assets 54 161
------ ------
Total assets $92,806 $92,437
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $68,540 $66,276
Advances from the Federal Home Loan Bank 13,000 11,000
Other liabilities 428 285
Deferred federal income taxes 604 675
------ ------
Total liabilities 82,572 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 6,044 9,874
Accumulated comprehensive income, unrealized gains
on securities designated as available
for sale, net of related tax effects 592 729
Shares acquired by stock benefit plans (625) (625)
Less 225,904 treasury shares, at cost (3,137) (3,137)
------- ------
Total shareholders' equity 10,234 14,201
------ ------
Total liabilities and shareholders' equity $92,806 $92,437
====== ======
</TABLE>
Page 3 of 16 pages
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
PEOPLES FINANCIAL CORPORATION
For the three months ended December 31,
(In thousands, except share data)
1999 1998
<S> <C> <C>
Interest income
Loans $1,395 $1,265
Mortgage-backed and related securities 166 203
Investment securities 42 48
Interest-bearing deposits and other 50 29
----- -----
Total interest income 1,653 1,545
Interest expense
Deposits 791 807
Borrowings 186 56
----- -----
Total interest expense 977 863
----- -----
Net interest income 676 682
Provision for losses on loans 3 3
----- -----
Net interest income after provision for
losses on loans 673 679
Other income
Gain on sale of investment securities
designated as available for sale 68 228
Other operating 14 12
----- -----
Total other income 82 240
General, administrative and other expense
Employee compensation and benefits 263 293
Occupancy and equipment 69 68
Franchise taxes 48 56
Federal deposit insurance premiums 10 10
Data processing 28 29
Advertising 7 10
Other operating 83 80
------ -----
Total general, administrative and other expense 508 546
------ -----
Earnings before income taxes 247 373
Federal income taxes
Current 80 129
Deferred - -
----- -----
Total federal income taxes 80 129
----- -----
NET EARNINGS $ 167 $ 244
===== =====
EARNINGS PER SHARE
Basic $.13 $.19
=== ===
Diluted $.13 $.19
=== ===
</TABLE>
Page 4 of 16 pages
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PEOPLES FINANCIAL CORPORATION
For the three months ended December 31,
(In thousands)
1999 1998
<S> <C> <C>
Net earnings $167 $ 244
Other comprehensive income, net of tax:
Unrealized holding gains on securities during
the period, net of tax of $47 and $117 in 1999 and
1998, respectively (92) 227
Reclassification adjustment for gains included in net
Earnings, net of tax of $23 and $77 in 1999 and
1998, respectively (45) (150)
--- -----
Comprehensive income $ 30 $ 321
=== =====
Accumulated comprehensive income $592 $1,172
=== =====
</TABLE>
Page 5 of 16 pages
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PEOPLES FINANCIAL CORPORATION
For the three months ended December 31,
(In thousands)
1999 1998
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 167 $ 244
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation of premises and equipment 27 28
Amortization of premiums and discounts on investment securities
and mortgage-backed securities, net 4 8
Gain on sale of investment securities designated
as available for sale (68) (228)
Amortization of deferred loan fees (12) (2)
Provision for losses on loans 3 3
Recovery of loss on investments - 4
Federal Home Loan Bank stock dividends (16) (15)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 58 14
Prepaid expenses and other assets 107 30
Other liabilities 126 125
Accrued interest payable 17 -
Prepaid federal income taxes 79 (311)
------ -----
Net cash provided by (used in) operating activities 492 (100)
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed and related securities 619 1,240
Proceeds from sale of investment securities 69 232
Principal repayments and maturities of investment securities 1,012 12
Loan principal repayments 3,851 6,783
Loan disbursements (6,232) (9,870)
Purchase of office premises and equipment - (35)
------ -----
Net cash used in investing activities (681) (1,638)
------ -----
Net cash used in operating and investing
activities (balance carried forward) (189) (1,738)
------ -----
</TABLE>
Page 6 of 16 pages
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
For the three months ended December 31,
(In thousands)
1999 1998
<S> <C> <C>
Net cash used in operating and
investing activities (balance brought forward) $ (189) $(1,738)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 2,263 781
Proceeds from Federal Home Loan Bank advances 18,000 5,000
Repayment of Federal Home Loan Bank advances (16,000) (4,000)
Purchase of treasury shares - (769)
Cash dividends paid (3,998) (203)
----- -----
Net cash provided by financing activities 265 809
----- -----
Net increase (decrease) in cash and cash equivalents 76 (929)
Cash and cash equivalents at beginning of period 2,620 2,421
----- -----
Cash and cash equivalents at end of period $ 2,696 $1,492
===== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ - $ 440
===== =====
Interest on deposits and borrowings $ 960 $ 863
===== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (137) $ 77
===== =====
</TABLE>
Page 7 of 16 pages
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PEOPLES FINANCIAL CORPORATION
For the three month periods ended December 31, 1999 and 1998
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 three-month period ended
December 31, 1999, 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 16 pages
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
For the three month periods ended December 31, 1999 and 1998
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
1,265,108 for the three-month period ended December 31, 1999. Weighted-average
common shares outstanding, which gives effect to 32,516 unallocated ESOP shares,
totaled 1,304,261 for the three-month period ended December 31, 1998. There were
no unallocated ESOP shares during the three-month period ended December 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 totaled 1,265,108 for the three-month
period ended December 31, 1999 and 1,304,261 for the three-month period ended
December 31, 1998.
Options to purchase 116,617 and 125,661 shares of common stock at a
weighted-average exercise price of $12.38 and $12.51 per share were outstanding
at December 31, 1999 and 1998, respectively, but were excluded from the
computation of common share equivalents because their exercise prices were
greater than the average market price of the common shares.
5. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1999
consolidated financial statement presentation.
Page 9 of 16 pages
<PAGE>
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, legislative changes with respect to the federal thrift charter
and the effect of certain recent accounting pronouncements.
Discussion of Financial Condition Changes from
September 30, 1999 to December 31, 1999
PFC's assets totaled $92.8 million as of December 31, 1999, an increase of
$369,000, or .4%, over the September 30, 1999 total. The increase in assets was
funded primarily by an increase in deposits of $2.3 million and an increase in
advances from the Federal Home Loan Bank ("FHLB") of $2.0 million. These
increases were offset by a decrease in shareholders' equity of $4.0 million, or
27.9%, caused mostly by payment of regular and special dividends totaling $4.0
million in November 1999. The increase in assets was comprised primarily of
increases in loans receivable of $2.4 million, offset by net decreases to
investment securities and mortgage-backed securities of $1.8 million.
Cash and cash equivalents totaled $2.7 million at December 31, 1999, an increase
of $76,000, or 2.9%, over the total at September 30, 1999.
Investment securities totaled $1.9 million at December 31, 1999, a decrease of
$1.2 million, or 38.4%, from the total at September 30, 1999. This decrease
resulted primarily from a net decrease of $179,000 in unrealized gains and
maturities of $1.0 million. Proceeds from maturities were primarily used to fund
loan originations.
Mortgage-backed securities totaled $10.0 million at December 31, 1999, a
decrease of $652,000, or 6.1%, from the total at September 30, 1999. This
decrease resulted primarily from principal repayments of $619,000 and an
increase in net unrealized losses of $29,000. Proceeds from principal repayments
were primarily used to fund loan originations.
Page 10 of 16 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 December 31, 1999 (continued)
Net loans receivable totaled $75.5 million at December 31, 1999, an increase of
$2.4 million, or 3.3%, 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 $216,000 at December 31, 1999, an
increase of $3,000 over the balance at September 30, 1999. The allowance
represented .27% of total loans at December 31, 1999 and at September 30, 1999.
Nonperforming loans totaled $237,000 at December 31, 1999 and $114,000 at
September 30, 1999.
Deposits totaled $68.5 million at December 31, 1999, an increase of $2.3
million, or 3.4%, over the September 30, 1999 amount. During the three months
ended December 31, 1999, certificates of deposit increased by $1.4 million, as
Peoples Federal offered rates designed to maintain certificates and control
interest cost. Passbook deposits and NOW accounts increased by $702,000 and
$194,000 respectively, during the period. Money market demand accounts decreased
by $63,000 during the period.
Advances from the FHLB totaled $13.0 million at December 31, 1999, an increase
of $2.0 million, or 18.2%, over the September 30, 1999 amount, as PFC used
advances primarily to fund payment of dividends. At December 31, 1999, variable
rate advances, due in December 2000, totaled $10.5 million and fixed rate
advances were comprised of $1.5 million maturing in April 2000 and $1.0 million
maturing in June 2000.
Peoples Federal is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision (the "OTS"). At December 31, 1999, the
Association's regulatory capital was well in excess of such minimum capital
requirements.
Comparison of Operating Results for the Three-Month Periods
Ended December 31, 1999 and 1998
General
Net earnings for the three months ended December 31, 1999, totaled $167,000,
compared to $244,000 for the same period in 1998, a decrease of $77,000, or
31.6%. The decline in earnings resulted primarily from decreases in net interest
income of $6,000, or .9% and in the gain on sale of investment securities of
$160,000, or 70.2%, which were partially offset by decreases in general,
administrative and other expense of $38,000 and federal income taxes of $49,000.
Page 11 of 16 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 December 31, 1999 and 1998 (continued)
Net Interest Income
Interest income on loans for the three months ended December 31, 1999, increased
by $130,000, or 10.3%, over the 1998 period. This increase resulted primarily
from an $8.5 million, or 12.8%, increase in the average net loan portfolio
balance outstanding, partially offset by a decrease in weighted-average yield
from 7.63% in the three months ended December 31, 1998 to 7.46% in the 1999
period. Interest income on mortgage-backed and related securities, investment
securities and interest-bearing deposits decreased by $22,000, or 7.9%, from the
1998 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 6.04% in the 1998 quarter to 6.33% in the 1999 quarter.
Interest expense on deposits decreased by $16,000, or 2.0%, for the three months
ended December 31, 1999, as compared to 1998. This decrease resulted from a
decrease in the weighted-average cost of funds from 4.90% in 1998 to 4.63% in
1999, which was partially offset by a $2.2 million, or 3.3%, increase in average
deposit balances outstanding. Interest expense on FHLB advances increased by
$130,000, or 232.1% for the three months ended December 31, 1999, as compared to
1998. The 1999 average advances outstanding from the FHLB increased to $13.0
million from $4.7 million in 1998 and the weighted-average interest rate
increased to 5.73% in 1999 from 4.81% in 1998.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $6,000, or .9%, for the three months ended
December 31, 1999, compared to 1998. The interest rate spread increased to 2.45%
for the three months ended December 31, 1999, as compared to 2.39% for the
corresponding 1998 three-month period. The net interest margin decreased to
2.97% for the three months ended December 31, 1999, as compared to 3.20% for the
comparable 1998 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 December 31, 1999 and 1998. 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 16 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 December 31, 1999 and 1998 (continued)
Other Income
Other income totaled $82,000 for the three months ended December 31, 1999, a
decrease of $158,000, or 65.8%, from the 1998 amount. The decrease was the
result of selling fewer shares of FHLMC common stock during the three months
ended December 31, 1999 than in the comparable 1998 period, partially offset by
an increase of $2,000 in other operating income for 1999 over 1998. FHLMC common
stock with a book value of $1,000 was sold in December 1999 for $69,000
resulting in a realized gain of $68,000, while FHLMC common stock with a book
value of $4,000 was sold in November 1998 for $232,000 resulting in a realized
gain of $228,000. 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 decreased by $38,000, or 7.0%, for the
three months ended December 31, 1999, compared to the same period in 1998.
Employee compensation and benefits decreased by $30,000, or 10.2%, due primarily
to termination of the ESOP in the final quarter of fiscal 1999, offset by an
increase in directors' fees. Ohio franchise taxes for the three months ended
December 31, 1999 decreased by $8,000, or 14.3% from 1998, due primarily to a
decrease in tax rates year to year.
Federal Income Taxes
Federal income taxes are based on earnings before taxes for the three months
ended December 31, 1999 and 1998. The decrease of $49,000, or 38.0%, in the
provision for income taxes resulted primarily from the $126,000, or 33.8%,
decrease in earnings before income taxes. The effective tax rate was 32.4% for
the three months ended December 31, 1999 and 34.6% for the 1998 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 be
programmed to read four-digit date codes and, upon arrival of the year 2000, may
recognized the two-digit code "00" as the year 1900, causing systems to fail to
function or to generate erroneous data.
Page 13 of 16 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 December 31, 1999 and 1998 (continued)
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 has
reviewed PFC's ancillary equipment and provided to 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 earning or cash flow.
Page 14 of 16 pages
<PAGE>
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
On January 26, 2000, the Annual Meeting of PFC's Shareholders
was held. The four directors nominated were elected to terms
expiring in 2002 by the following votes:
James P. Bordner For: 1,103,893 Withheld: 40,863
Alan C. Edie For: 1,115,570 Withheld: 29,186
Thomas E. Shelt For: 1,099,812 Withheld: 44,944
Vince E. Stephan For: 1,098,093 Withheld: 46,663
One other matter was submitted to the shareholders, for which
the following votes were cast.
Ratification of the selection of Grant Thornton LLP as independent
auditors of PFC for the year ending September 30, 2000.
For: 1,135,692 Against: 4,170 Abstain: 4,894
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial data schedule for the three months ended
December 31, 1999.
99 Safe Harbor under the Private Securities Litigation
Reform Act of 1995.
(b) Reports on Form 8-K: None.
Page 15 of 16 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: February 10, 2000 By: /s/Paul von Gunten
Paul von Gunten
President and Chief
Executive Officer
Date: February 10, 2000 By: /s/James R. Rinehart
James R. Rinehart
Treasurer
Page 16 of 16 Pages
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,387
<INT-BEARING-DEPOSITS> 1,309
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,838
<INVESTMENTS-CARRYING> 4,036
<INVESTMENTS-MARKET> 4,277
<LOANS> 75,475
<ALLOWANCE> 216
<TOTAL-ASSETS> 92,806
<DEPOSITS> 68,540
<SHORT-TERM> 13,000
<LIABILITIES-OTHER> 1,032
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 10,234
<TOTAL-LIABILITIES-AND-EQUITY> 92,806
<INTEREST-LOAN> 1,395
<INTEREST-INVEST> 208
<INTEREST-OTHER> 50
<INTEREST-TOTAL> 1,653
<INTEREST-DEPOSIT> 791
<INTEREST-EXPENSE> 977
<INTEREST-INCOME-NET> 676
<LOAN-LOSSES> 3
<SECURITIES-GAINS> 68
<EXPENSE-OTHER> 508
<INCOME-PRETAX> 247
<INCOME-PRE-EXTRAORDINARY> 167
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167
<EPS-BASIC> .13
<EPS-DILUTED> .13
<YIELD-ACTUAL> 2.97
<LOANS-NON> 237
<LOANS-PAST> 14
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 213
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 3
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
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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 December 31, 1999, 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.
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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.
