EXHIBIT 13
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion and analysis of the financial condition and results of
operations of PFC and Peoples Federal should be read in conjunction with and
with reference to the consolidated financial statements and the notes thereto,
included in the Annual Report.
In addition to the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, the operations of Peoples Federal, 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 changes in interest rates in the nation and PFC's primary market
area.
Without limiting the generality of the foregoing, some of the statements in the
referenced sections of this discussion and analysis are forward looking and are,
therefore, subject to such risks and uncertainties:
1. Management's determination of the amount of the allowance for loan
losses set forth under "Financial Condition," "Comparison of Results
of Operations for the Years Ended September 30, 2000 and 1999" and
"Comparison of Results of Operations for the Years Ended September 30,
1999 and 1998;"
2. The analysis of interest rate risk set forth under "Asset and
Liability Management;"
3. The statement set forth under "Liquidity and Capital Resources" that
Peoples Federal considers its liquidity and capital sufficient to meet
its outstanding short-term and long-term needs;
4. The expected impact of the "Gramm-Leach-Bliley Act," as set forth
under "Potential Impact of Current Legislation on Future Results of
Operations;"
5. Management's estimate as to the effects of recent accounting
pronouncements as set forth under "Effects of Recent Accounting
Pronouncements."
Discussion of Changes in Financial Condition from September 30, 1999 to
September 30, 2000
PFC's consolidated assets totaled $100.4 million at September 30, 2000, an
increase of $8.0 million, or 8.7%, over the $92.4 million total at September 30,
1999. The principal changes in the composition of assets during the year ended
September 30, 2000, consisted of an increase in loans receivable, offset by
decreases in interest-bearing deposits in other financial institutions and
investment and mortgage-backed securities. This increase in assets was funded
primarily from increases of $7.7 million in borrowings and $4.5 million in
deposits, which were partially offset by a $3.9 million decrease in
shareholders' equity, resulting from dividend distributions.
1
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Changes in Financial Condition from September 30, 1999 to
September 30, 2000 (continued)
Interest-bearing deposits in other financial institutions totaled $1.2 million
at September 30, 2000, a decrease of $1.3 million from September 30, 1999
levels. Investment securities and mortgage-backed securities totaled $10.8
million at September 30, 2000, as compared to $13.7 million at September 30,
1999, a decrease of $2.9 million, or 21.0%. Investment securities decreased due
to maturities of a FHLB certificate of deposit and municipal bonds totaling $1.0
million. Mortgage-backed securities decreased due to principal repayments
totaling $2.2 million, partially offset by purchases of $1.0 million. Such
proceeds, coupled with FHLB advances and increases in deposits, were used
principally to fund the growth in the loan portfolio.
Loans receivable totaled $84.8 million at September 30, 2000, an increase of
$11.7 million, or 16.1%, over the $73.1 million total at September 30, 1999.
Loan disbursements of $28.7 million were partially offset by principal
repayments of $17.0 million during the year ended September 30, 2000. The
increase in loans was comprised primarily of an $11.7 million increase in one-
to four-family and construction loans, including a net decrease in undisbursed
loans in process of $1.2 million. Loans secured by nonresidential real estate
and consumer and other loans increased by $243,000 and multi-family real estate
loans decreased by $79,000.
Peoples Federal's allowance for loan losses totaled $235,000 at September 30,
2000, compared to $213,000 at September 30, 1999. Nonperforming loans amounted
to $223,000 at September 30, 2000, compared to $114,000 at September 30, 1999.
The allowance for loan losses represented .26% and .27% of total loans at
September 30, 2000 and 1999, respectively and 105.4% and 186.8% of nonperforming
loans on the same dates.
Management believes that the allowance for loan losses at September 30, 2000 is
appropriate based on the available facts and circumstances. There can be no
assurance, however, that the allowance will be adequate to absorb actual loan
losses during future periods. The amount of loan losses experienced may increase
due to growth in the loan portfolio generally; increases in the amount of the
portfolio consisting of higher risk loan types, such as nonresidential real
estate loans, construction loans and consumer and other loans; economic changes
locally or nationally, including changes in interest rates, employment rates and
property values; and unexpected problems with specific loans. If additions to
the allowance are necessary in future periods, such additions would reduce PFC's
net earnings.
Deposits totaled $70.8 million at September 30, 2000, compared to $66.3 million
at September 30, 1999, an increase of $4.5 million, or 6.8%. The increase in
deposits resulted primarily from growth at a new branch location, coupled with
management's overall pricing strategies. Certificates of deposit increased by
$3.9 million as Peoples Federal generally offered rates designed to increase
certificates and maintain the cost of funds at an acceptable level. NOW accounts
increased by $801,000, while passbook and money market demand deposits decreased
by $211,000 during fiscal 2000.
2
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Changes in Financial Condition from September 30, 1999 to
September 30, 2000 (continued)
Borrowings consisted of advances from the FHLB of $18.7 million at September 30,
2000, compared to $11.0 million at September 30, 1999, an increase of $7.7
million. These borrowings were used primarily to fund the increase in loans.
Shareholders' equity totaled $10.3 million at September 30, 2000, a decrease of
$3.9 million, or 27.4%, from the September 30, 1999 level. The decrease resulted
primarily from payment of regular and special dividends of $4.4 million, and a
reduction in net unrealized gains on securities designated as available for sale
of $416,000, which were partially offset by net earnings of $585,000 and the
effects of terminating stock benefit plans in the amount of $384,000.
Comparison of Results of Operations for the Years Ended September 30, 2000 and
1999
General
The operating results of PFC are affected by general economic conditions, the
monetary and fiscal policies of the U. S. Government and the regulatory policies
of agencies that regulate financial institutions. The net earnings of PFC and
Peoples Federal are primarily dependent on net interest income, which is the
difference between interest earned on loans and other interest-earning assets
and interest expense incurred on deposits and borrowed funds.
Net earnings totaled $585,000 for the year ended September 30, 2000, a decrease
of $169,000, or 22.4%, from net earnings of $754,000 recorded for fiscal 1999.
The decrease in net earnings was due primarily to a decrease in net interest
income of $119,000 and an increase in general, administrative and other expense
of $224,000, which were partially offset by an increase in net gains on the sale
of investment and mortgage-backed securities of $85,000, an increase in other
income of $13,000 and a decrease of $76,000 in the provision for federal income
taxes.
Net Interest Income
Total interest income for the year ended September 30, 2000, totaled $7.0
million, an increase of $696,000, or 11.1%, over the $6.3 million recorded in
fiscal 1999. Interest income on loans increased by $763,000, or 14.6%. The
increase resulted primarily from a $10.3 million, or 15.0%, increase in the
weighted-average outstanding balance of loans receivable, partially offset by a
3 basis point (100 basis points equals one percent) decrease in weighted-average
yield to 7.56% in 2000, from 7.59% in 1999. Interest income on mortgage-backed
securities, investment securities and interest-bearing deposits decreased by
$67,000, or 6.6%. The decrease resulted primarily from a $3.3 million, or 18.5%,
decrease in the average balance of such assets, partially offset by a 62 basis
point increase in weighted-average yield on mortgage-backed securities, a 100
basis point increase in weighted-average yield on investment securities and a
132 basis point increase in weighted-average yield on interest-bearing deposits.
3
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Years Ended September 30, 2000 and
1999 (continued)
Net Interest Income (continued)
Interest expense on deposits totaled $3.3 million for the year ended September
30, 2000, an increase of $160,000, or 5.1%, over the $3.2 million recorded in
fiscal 1999. This increase was due primarily to a $2.3 million, or 3.5%,
increase in the weighted-average outstanding balance of deposits and an increase
in the weighted-average cost of deposits of 6 basis points, to 4.82% in 2000
from 4.74% in 1999. Interest expense on borrowings totaled $997,000 in fiscal
2000, an increase of $655,000, or 191.5%, over fiscal 1999. This increase was
due primarily to a $9.0 million increase in the weighted-average outstanding
balance of advances from the FHLB and an increase in the weighted-average
interest rate paid of 132 basis points, to 6.26% from 4.94%. Peoples Federal had
advances from the FHLB outstanding throughout fiscal 2000 and 1999.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $119,000, or 4.3%, to $2.6 million for the year
ended September 30, 2000. The interest rate spread decreased to 2.31% in fiscal
2000, from 2.43% in fiscal 1999, while the net interest margin decreased to
2.80% in fiscal 2000, from 3.16% in fiscal 1999.
Provision for Losses on Loans
The provision for losses on loans was $12,000 for each of the years ended
September 30, 2000 and 1999. Management believes that the continuation of
periodic increases in the allowance for loan losses is prudent based upon the
inherent risk of loss related to loans, the increase in the outstanding
portfolio balance, current and anticipated economic conditions as measured by
leading economic indicators and local employment data, the level of
nonperforming loans and past loss experience. There can be no assurance that the
loan loss allowance will be adequate to cover losses on nonperforming assets in
the future.
Other Income
Other income totaled $667,000 for the year ended September 30, 2000, compared to
$569,000 for fiscal 1999. FHLMC common stock was sold during the year ended
September 30, 2000 for $616,000, resulting in a gain of $603,000. During the
year ended September 30, 1999, FHLMC common stock was sold for $527,000,
resulting in a gain of $518,000. Other operating income increased by $13,000, or
25.5%, due primarily to increased automated teller machine ("ATM") and NOW fee
income. Also included in other operating income are late charges on loans and
safe deposit box rentals.
4
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Years Ended September 30, 2000 and
1999 (continued)
General, Administrative and Other Expense
General, administrative and other expense totaled $2.4 million for the year
ended September 30, 2000, compared to $2.2 million for fiscal 1999, an increase
of $224,000, or 10.2%. Employee compensation and benefits increased by $155,000,
or 12.9% in fiscal 2000, compared to fiscal 1999. Salaries and wages and
directors fees increased by $125,000 due to normal merit increases, the addition
of an executive officer and hiring of personnel to staff the new branch office.
A deferred compensation plan was established in fiscal 2000 as the final step
needed to terminate PFC's employee stock benefit plans and eliminate the related
cost. Funds equal to the estimated liability for the deferred compensation plan
were placed in a trust, resulting in expense of $266,000 in fiscal 2000.
Contributions to Peoples Federal's 401(k) benefit plan were frozen during eight
months of fiscal 2000 and all of fiscal 1999. The cost of the 401(k) employee
benefit plan was $12,000 for fiscal 2000. There was no cost in fiscal 1999 for
either of these plans. The termination of the ESOP and the RRP reduced benefit
costs by $279,000 during fiscal 2000, compared to fiscal 1999. Health care costs
increased by $12,000 in fiscal 2000 over fiscal 1999 due to the cost of coverage
for new employees and higher premium rates. Payroll tax expense increased by
$19,000 in fiscal 2000 over fiscal 1999 due to increased compensation and the
timing of FICA taxability of the deferred compensation plan.
Occupancy and equipment expense totaled $269,000 for the year ended September
30, 2000, an increase of $7,000, or 2.7%, over fiscal 1999. Rent expense for
fiscal 2000, totaling $19,000, includes the annual cost for the North Canton
lending office and the cost for a new branch office from the mid-July opening
date to year end. A refund of rental cost realized at the end of the first lease
term of the lending office had reduced fiscal 1999 rent expense to a negligible
amount. Repairs and maintenance for fiscal 2000 decreased by $13,000 compared to
fiscal 1999, principally because less building maintenance was required. Ohio
franchise taxes for the year ended September 30, 2000 were $173,000, a decrease
of $28,000, or 13.9%, from fiscal 1999, principally based on a decline in
shareholders' equity. Data processing totaled $122,000 for fiscal 2000, an
increase of $3,000, or 2.5%, over fiscal 1999, principally due to costs for the
new branch in fiscal 2000 offset by year 2000 compliance testing costs incurred
in fiscal 1999. Advertising totaled $66,000 for fiscal 2000, an increase of
$25,000, or 61.0%, over fiscal 1999, principally due to increased local
newspaper advertising and promotional costs. Other operating expense totaled
$409,000 for fiscal 2000, an increase of $81,000, or 24.7%, over fiscal 1999,
principally due to increased employee seminar attendance, professional fees
connected with the employee benefit plan termination, marketing and supply costs
connected with the new branch office.
Federal Income Taxes
The provision for federal income taxes totaled $284,000 for the year ended
September 30, 2000, a decrease of $76,000, or 21.1%, from the $360,000 provision
recorded in fiscal 1999. The decrease was primarily due to the decrease in net
earnings before taxes of $245,000, or 22.0%. PFC's effective tax rates were
32.7% for fiscal 2000 and 32.3% for fiscal 1999.
5
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Years Ended September 30, 1999 and
1998
General
Net earnings totaled $754,000 for the year ended September 30, 1999, a decrease
of $164,000, or 17.9%, from net earnings of $918,000 recorded for fiscal 1998.
The decrease in net earnings was due primarily to a decrease in net interest
income of $36,000, a decrease in net gains on the sale of investment and
mortgage-backed securities of $165,000 and an increase in general,
administrative and other expense of $108,000, which were partially offset by a
decrease in the provision for losses on loans of $30,000, an increase in other
income of $22,000 and a decrease of $93,000 in the provision for federal income
taxes.
Net Interest Income
Total interest income for the year ended September 30, 1999, totaled $6.3
million, an increase of $154,000, or 2.5%, over the $6.1 million recorded in
fiscal 1998. Interest income on loans increased by $425,000, or 8.8%. The
increase resulted primarily from an $8.2 million increase in the
weighted-average outstanding balance of loans receivable, partially offset by a
32 basis point decrease in weighted-average yield to 7.59% in 1999, from 7.91%
in 1998. Interest income on mortgage-backed securities, investment securities
and interest-bearing deposits decreased by $271,000, or 21.0%. The decrease
resulted primarily from a $2.7 million decrease in the average balance of such
assets and a 73 basis point decrease in weighted-average yield on
mortgage-backed securities, a 31 basis point decrease in weighted-average yield
on investment securities and a 97 basis point decrease in weighted average yield
on interest-bearing deposits.
Interest expense on deposits for the year ended September 30, 1999, totaled $3.2
million, a decrease of $56,000, or 1.7%, from fiscal 1998. This decrease was due
primarily to a decrease in the weighted-average cost of deposits of 20 basis
points, to 4.74% in 1999 from 4.94% in 1998, partially offset by a $1.6 million
increase in the weighted-average outstanding balance of deposits. Interest
expense on borrowings increased to $342,000 in fiscal 1999 from $96,000 in
fiscal 1998. This increase was due primarily to a $5.1 million increase in the
weighted-average outstanding balance of advances from the FHLB, from $1.8
million to $6.9 million, and a decrease in the weighted-average interest rate
paid of 35 basis points. Peoples Federal had advances from the FHLB outstanding
throughout fiscal 1999, compared to only approximately five months in fiscal
1998, while a note payable was outstanding for part of the first month of fiscal
1998 only.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $36,000, or 1.3%, to $2.8 million for the year
ended September 30, 1999. The interest rate spread decreased to 2.43% in fiscal
1999, from 2.53% in fiscal 1998, while the net interest margin decreased to
3.16% in fiscal 1999, from 3.42% in fiscal 1998.
6
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Years Ended September 30, 1999 and
1998 (continued)
Provision for Losses on Loans
The provision for losses on loans totaled $12,000 for the year ended September
30, 1999, a decrease of $30,000, or 71.4%, from the $42,000 provision recorded
in fiscal 1998. Management believes that the continuation of periodic increases
in the allowance for loan losses is prudent based upon the inherent risk of loss
related to loans, the increase in the outstanding portfolio balance, current and
anticipated economic conditions as measured by leading economic indicators and
local employment data, the level of nonperforming loans and past loss
experience.
Other Income
Other income totaled $569,000 for the year ended September 30, 1999, compared to
$712,000 for fiscal 1998. FHLMC common stock was sold during the year ended
September 30, 1999 for $527,000, resulting in a gain of $518,000. During the
year ended September 30, 1998, FHLMC common stock with a book value of $15,000
was sold and a gain of $696,000 was realized, while mortgage-backed and
investment securities with a book value of $3.5 million were sold and a loss of
$13,000 was realized. Other operating income increased by $22,000 due to
increased fee income, including ATM fees of $18,000 in fiscal 1999 compared to
less than $1,000 in fiscal 1998, and safe deposit box rentals. Also included in
other operating income are late charges on loans.
General, Administrative and Other Expense
General, administrative and other expense totaled $2.2 million for the year
ended September 30, 1999, compared to $2.1 million for fiscal 1998, an increase
of $108,000, or 5.2%. Employee compensation and benefits increased by $45,000,
or 3.9% in fiscal 1999, compared to fiscal 1998. Salaries, wages and directors
fees increased by $22,000 due to normal merit increases and hiring of additional
personnel. Contributions to Peoples Federal's 401(k) benefit plan were frozen
during fiscal 1999 and 1998, and in fiscal 1998 an excess provision of $12,000
for Peoples Federal's 401(k) benefit plans was reversed. Other employee benefit
plans increased by $3,000 in fiscal 1999 over fiscal 1998. Other employment
benefits increased by $8,000 primarily due to increases in health insurance
premium rates and payroll taxes.
Occupancy and equipment expense totaled $262,000 for the year ended September
30, 1999, an increase of $40,000, or 18.0%, over fiscal 1998. Depreciation
expense increased by $22,000 primarily due to ATM equipment acquired in the fall
of 1998. Repairs and maintenance increased by $26,000 due to increased building
and ground maintenance, maintenance agreement costs on ATM equipment and winter
weather. A refund of rental cost and an adjustment of utility costs realized at
the end of the first lease term of the North Canton lending office reduced
fiscal 1999 occupancy costs by a net amount of $9,000.
7
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Years Ended September 30, 1999 and
1998 (continued)
General, Administrative and Other Expense (continued)
Ohio franchise taxes were $201,000 for the year ended September 30, 1999, a
decrease of $29,000, or 12.6%, from fiscal 1998. The reduction was due primarily
to a decrease in tax rates from year to year. Data processing totaled $119,000
for fiscal 1999, an increase of $38,000, or 46.9%, over fiscal 1998, principally
due to ATM operations and year 2000 compliance testing. Advertising totaled
$41,000 for fiscal 1999, an increase of $8,000, or 24.2%, over fiscal 1998,
principally due to increased local newspaper advertising. Other operating
expense totaled $328,000 for fiscal 1999, an increase of $6,000, or 1.9%, over
fiscal 1998, principally due to year 2000 compliance costs.
Federal Income Taxes
The provision for federal income taxes totaled $360,000 for the year ended
September 30, 1999, a decrease of $93,000, or 20.5%, from the $453,000 provision
recorded in fiscal 1998. The decrease was primarily due to the decrease in net
earnings before taxes of $257,000, or 18.7%. PFC's effective tax rates were
32.3% for fiscal 1999 and 33.0% for fiscal 1998.
8
<PAGE>
AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA
The following table presents certain information relating to PFC and Peoples
Federal's average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the periods indicated. Such yields and costs are derived by dividing annual
income or expense by the average monthly balance of interest-earning assets or
interest-bearing liabilities, respectively, for the years presented. Average
balances are derived from month-end balances, which include nonaccruing loans in
the loan portfolio, net of the allowance for loan losses.
<TABLE>
<CAPTION>
Year ended September 30,
2000 1999
Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 1,812 $ 111 6.13% $ 2,246 $ 108 4.81%
Investment securities 2,753 145 5.27 3,841 164 4.27
Mortgage-backed and related securities 10,103 697 6.90 11,916 748 6.28
Loans receivable (1) 79,369 6,002 7.56 69,039 5,239 7.59
------ ----- ---- ------ ----- ----
Total interest-earning assets 94,037 6,955 7.40 87,042 6,259 7.19
Non-interest-earning assets
Cash and amounts due from depository institutions 527 264
Premises and equipment, net 1,373 1,442
Other non-earning assets 645 522
------ ------
Total assets $96,582 $89,270
====== ======
Interest-bearing liabilities:
NOW accounts $ 2,418 26 1.08 $ 1,942 24 1.24
Money market accounts 2,550 64 2.51 2,624 58 2.21
Passbook savings accounts 11,001 222 2.02 10,778 216 2.00
Certificates of deposit 53,017 3,011 5.68 51,311 2,865 5.58
Borrowings 15,950 997 6.26 6,917 342 4.94
------ ----- ---- ------ ----- ----
Total interest-bearing liabilities 84,936 4,320 5.09 73,572 3,505 4.76
----- ---- ----- ----
Non-interest-bearing liabilities 1,039 1,325
------ ------
Total liabilities 85,975 74,897
Shareholders' equity 10,607 14,373
------ ------
Total liabilities and shareholders' equity $96,582 $89,270
====== ======
Net interest income; interest rate spread $2,635 2.31% $2,754 2.43%
===== ==== ===== ====
Net interest margin (net interest income as a percent
of average interest-earning assets) 2.80% 3.16%
==== ====
Average interest-earning assets to average interest-
bearing liabilities 110.72% 118.31%
====== ======
</TABLE>
<TABLE>
<CAPTION>
Year ended September 30,
1998
Average Interest
outstanding earned/ Yield/
balance paid rate
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 3,443 $ 199 5.78%
Investment securities 4,850 222 4.58
Mortgage-backed and related securities 12,413 870 7.01
Loans receivable (1) 60,876 4,814 7.91
------ ----- ----
Total interest-earning assets 81,582 6,105 7.48
Non-interest-earning assets
Cash and amounts due from depository institutions 273
Premises and equipment, net 1,403
Other non-earning assets 401
------
Total assets $83,659
======
Interest-bearing liabilities:
NOW accounts $ 1,698 22 1.30
Money market accounts 2,590 62 2.39
Passbook savings accounts 10,799 217 2.01
Certificates of deposit 50,013 2,918 5.83
Borrowings 1,814 96 5.29
------ ----- ----
Total interest-bearing liabilities 66,914 3,315 4.95
----- ----
Non-interest-bearing liabilities 1,432
------
Total liabilities 68,346
Shareholders' equity 15,313
------
Total liabilities and shareholders' equity $83,659
======
Net interest income; interest rate spread $2,790 2.53%
===== ====
Net interest margin (net interest income as a percent
of average interest-earning assets) 3.42%
====
Average interest-earning assets to average interest-
bearing liabilities 121.92%
======
</TABLE>
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
the allowance for loan losses.
9
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Rate/Volume Table
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected PFC and Peoples Federal's interest income and expense during the
years indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume), and (iii)
total changes in rate and volume. The combined effects of changes in both volume
and rate, which cannot be separately identified, have been allocated
proportionately to the change due to volume and the change due to rate:
<TABLE>
<CAPTION>
Year ended September 30,
2000 vs. 1999 1999 vs. 1998
Increase Increase
(decrease) (decrease)
due to due to
Volume Rate Total Volume Rate Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Interest-bearing deposits $(26) $ 29 $ 3 $(58) $ (33) $ (91)
Investment securities (57) 38 (19) (43) (15) (58)
Mortgage-backed and related securities (125) 74 (51) (32) (90) (122)
Loans receivable 781 (18) 763 619 (194) 425
--- --- ---- --- ---- ---
Total interest income 573 123 696 486 (332) 154
Interest expense attributable to:
NOW accounts 5 (3) 2 3 (1) 2
Money market accounts (1) 8 7 1 (5) (4)
Passbook savings accounts 4 2 6 - (1) (1)
Certificates of deposit 97 48 145 73 (126) (53)
Borrowings 565 90 655 252 (6) 246
--- --- ---- --- ---- ---
Total interest expense 670 145 815 329 (139) 190
--- --- ---- --- ---- ---
Increase (decrease) in net interest income $(97) $(22) $(119) $157 $(193) $(36)
=== === ==== === ==== ===
</TABLE>
Asset and Liability Management
Peoples Federal, like other financial institutions, is subject to interest rate
risk to the extent that its interest-earning assets reprice differently than its
interest-bearing liabilities. As part of its effort to monitor and manage
interest rate risk, Peoples Federal uses the Net Portfolio Value ("NPV")
methodology adopted by the OTS as part of its capital regulations. Although
Peoples Federal is not currently subject to the NPV regulation because such
regulation does not apply to institutions with less than $300 million in assets
and risk-based capital in excess of 12%, the application of the NPV methodology
can illustrate Peoples Federal's degree of interest rate risk.
10
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset and Liability Management (continued)
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing and other liabilities. The application of the methodology
attempts to quantify interest rate risk as the change in the NPV which would
result from a theoretical 200 basis point change in market interest rates. Both
a 200 basis point increase in market interest rates and a 200 basis point
decrease in market interest rates are considered. If the NPV would decrease more
than 2% of the present value of the institution's assets with either an increase
or a decrease in market rates, the institution must deduct 50% of the amount of
the decrease in excess of such 2% in the calculation of the institution's
risk-based capital. See "Liquidity and Capital Resources."
At September 30, 2000, 2% of the present value of Peoples Federal's assets was
approximately $2.0 million. Because the interest rate risk of a 200 basis point
increase in market interest rates (which was greater than the interest rate risk
of a 200 basis point decrease) was $4.8 million at September 30, 2000, Peoples
Federal would have been required to deduct approximately $1.4 million (50% of
the approximate $2.8 million difference) from its capital in determining whether
Peoples Federal met its risk-based capital requirement. Regardless of such
reduction, however, Peoples Federal's risk-based capital at September 30, 2000,
would still have exceeded the regulatory requirement by $3.5 million.
Presented below, as of September 30, 2000 and 1999, is an analysis of Peoples
Federal's interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts of 100 basis points in market interest rates. The
table also contains the policy limits set by the Board of Directors of Peoples
Federal as the minimum NPV ratio that the Board of Directors deems advisable in
the event of various changes in interest rates. Such limits have been
established with consideration of the dollar impact of various rate changes and
Peoples Federal's strong capital position and reflect the institution's
objective of moderate interest rate risk exposure. The declaration of the $3.00
special dividend in September 30, 1999, caused Peoples Federal to fall short of
the Board's preexisting NPV limit. Management has developed a strategic plan
which includes strategies to originate adjustable-rate mortgage ("ARM") loans
and to originate fixed-rate loans for sale in the secondary market. The plan's
goal is to increase the NPV ratio to the Board of Directors limit by June 2003.
As illustrated in the table, Peoples Federal's NPV is more sensitive to rising
rates than declining rates. Such difference in sensitivity occurs principally
because, as rates rise, borrowers do not prepay fixed-rate loans as quickly as
they do when interest rates are declining. At September 30, 2000, fixed-rate
loans constituted approximately 83.8% of Peoples Federal's loan portfolio. In
addition, because Peoples Federal has not originated loans in accordance with
traditional secondary market guidelines, the sale of fixed-rate loans may be
difficult. As a result, in a rising interest rate environment, the amount of
interest Peoples Federal would receive on its loans would increase relatively
slowly as loans are slowly prepaid and new loans at higher rates are made.
Moreover, the interest Peoples Federal would pay on its deposits would increase
rapidly because Peoples Federal's deposits generally have shorter periods of
repricing. Assumptions in calculating the amounts in this table are OTS
assumptions.
11
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset and Liability Management (continued)
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
Board limit
Change in interest rate minimum $ Change NPV $ Change NPV
(Basis Points) NPV ratio % in NPV ratio % in NPV ratio %
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+300 6.0% $(7,300) 2.9% $(7,743) 1.8%
+200 7.0 (4,832) 5.4 (5,098) 4.9
+100 8.0 (2,341) 7.7 (2,440) 7.7
- 9.0 - 9.8 - 10.1
-100 10.0 1,822 11.4 1,913 11.8
-200 11.0 2,766 12.1 3,489 13.2
-300 12.0 3,384 12.6 5,095 14.6
</TABLE>
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making the risk calculations.
If interest rates rise, Peoples Federal's net interest income will be negatively
affected. Moreover, rising interest rates may negatively affect Peoples
Federal's earnings due to diminished loan demand.
Liquidity and Capital Resources
Peoples Federal's principal sources of funds are deposits, borrowings from the
FHLB, loan and mortgage-backed securities repayments, maturities of securities
and other funds provided by operations. While scheduled loan repayments and
maturing investments are relatively predictable, deposit flows and loan and
mortgage-backed securities prepayments are more influenced by interest rates,
general economic conditions and competition. Peoples Federal maintains
investments in liquid assets based upon management's assessment of (1) the need
for funds, (2) expected deposit flows, (3) the yield available on short-term
liquid assets and (4) the objectives of the asset/liability management program.
12
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
OTS regulations at September 30, 2000, required Peoples Federal to maintain an
average daily balance of cash, investments in United States Treasury and agency
securities and other investments having maturities of five years or less in an
amount not less than 4% of the sum of Peoples Federal's average daily balance of
net withdrawable deposit accounts and advances from the FHLB. The liquidity
requirement, which may be changed from time to time by the OTS to reflect
changing economic conditions, is intended to provide a source of relatively
liquid funds upon which Peoples Federal may rely if necessary to fund deposit
withdrawals or other short-term funding needs. At September 30, 2000, Peoples
Federal's regulatory liquidity ratio was 12.3%. At such date, Peoples Federal
had commitments to originate loans totaling $1.9 million and, in addition, had
undisbursed loans in process of $5.3 million. At September 30, 2000, Peoples
Federal had no commitments to purchase or sell loans. At September 30, 2000,
Peoples Federal also had commitments for capital expenditures for equipment
totaling approximately $50,000. Peoples Federal considers its liquidity and
capital sufficient to meet its outstanding short- and long-term needs.
PFC's liquidity, primarily represented by cash and cash equivalents, is a result
of the funds used in or provided by PFC's operating, investing and financing
activities. These activities are summarized below for the years ended September
30, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
Year ended September 30,
2000 1999 1998
(In thousands)
<S> <C> <C> <C>
Net earnings $ 585 $ 754 $ 918
Adjustments to reconcile net earnings to
net cash from operating activities (85) (718) 511
----- ----- -----
Net cash from operating activities 500 36 1,429
Net cash from investing activities (9,184) (5,741) (3,239)
Net cash from financing activities 7,692 5,904 (552)
----- ----- ------
Net change in cash and cash equivalents (992) 199 (2,362)
Cash and cash equivalents at
beginning of year 2,620 2,421 4,783
----- ----- -----
Cash and cash equivalents at end
of year $1,628 $2,620 $2,421
===== ===== =====
</TABLE>
13
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
Peoples Federal is required by applicable law and regulation to meet certain
minimum capital standards. Such capital standards include a tangible capital
requirement, a core capital requirement, or leverage ratio, and a risk-based
capital requirement.
The tangible capital requirement requires savings associations to maintain
"tangible capital" of not less than 1.5% of the association's adjusted total
assets. Tangible capital is defined in OTS regulations as core capital minus
intangible assets.
"Core capital" is comprised of common shareholders' equity (including retained
earnings), noncumulative preferred stock and related surplus, minority interests
in consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits of mutual associations. OTS regulations require savings associations to
maintain core capital of at least 4% of the association's total assets, except
for those associations with the highest examination rating and acceptable levels
of risk.
OTS regulations require that savings associations maintain "risk-based capital"
in an amount not less than 8% of "risk-weighted assets." Risk-based capital is
defined as adjusted core capital plus certain additional items of capital, which
in the case of Peoples Federal includes a general loan loss allowance of
$235,000 at September 30, 2000.
Peoples Federal exceeded all of its regulatory capital requirements at September
30, 2000. The following table summarizes Peoples Federal's regulatory capital
requirements and regulatory capital at September 30, 2000:
<TABLE>
<CAPTION>
Excess of
regulatory capital
over current Applicable
Regulatory capital Current requirement requirement asset
Amount Percent Amount Percent Amount Percent total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible capital $9,000 9.0% $1,503 1.5% $7,497 7.5% $100,224
Core capital $9,000 9.0% $4,009 4.0% $4,991 5.0% $100,224
Risk-based capital $9,464 16.7% $4,529 8.0% $4,935 8.7% $ 56,612
</TABLE>
14
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Effect 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. Management adopted SFAS No. 133 effective October 1,
2000, as required, without material impact on the Corporation's financial
position or results of operations.
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", which revises
the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but carries
over most of the provisions of SFAS No. 125 without reconsideration. SFAS No.
140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001, and is effective
for recognition and reclassification of collateral and for disclosures relating
to securitization transactions and collateral for fiscal years ending after
December 15, 2000. SFAS No. 140 is not expected to have a material effect on the
Corporation's financial position or results of operations.
Potential Impact of Current Legislation on Future Results of Operations
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was enacted
into law. The GLB Act makes sweeping changes in the financial services in which
various types of financial institutions may engage. The Glass-Steagall Act,
which had generally prevented banks from affiliating with securities and
insurance firms, was repealed. A new "financial holding company," which owns
only well capitalized and well managed depository institutions, will be
permitted to engage in a variety of financial activities, including insurance
and securities underwriting and agency activities.
15
<PAGE>
Peoples Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Potential Impact of Current Legislation on Future Results of Operations
(continued)
The GLB Act permits unitary savings and loan holding companies in existence on
May 4, 1999, including PFC, to continue to engage in all activities that they
were permitted to engage in prior to the enactment of the Act. Such activities
are essentially unlimited, provided that the thrift subsidiary remains a
qualified thrift lender. Any thrift holding company formed after May 4, 1999,
will be subject to the same restrictions as a multiple thrift holding company.
In addition, a unitary thrift holding company in existence on May 4, 1999, may
be sold only to a financial holding company engaged in activities permissible
for multiple savings and loan holding companies.
The GLB Act is not expected to have a material effect on the activities in which
PFC and Peoples Federal currently engage, except to the extent that competition
with other types of financial institutions may increase as they engage in
activities not permitted prior to enactment of the GLB Act.
16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Peoples Financial Corporation
We have audited the accompanying consolidated statements of financial condition
of Peoples Financial Corporation as of September 30, 2000 and 1999, and the
related consolidated statements of earnings, comprehensive income, shareholders'
equity and cash flows for each of the years in the three year period ended
September 30, 2000. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Peoples Financial
Corporation as of September 30, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the years in the three year period
ended September 30, 2000, in conformity with generally accepted accounting
principles.
/s/GRANT THORNTON LLP
Cincinnati, Ohio
December 5, 2000
17
<PAGE>
Peoples Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,
(In thousands, except share data)
ASSETS 2000 1999
<S> <C> <C>
Cash and due from banks $ 437 $ 157
Interest-bearing deposits in other financial institutions 1,191 2,463
------- ------
Cash and cash equivalents 1,628 2,620
Investment securities designated as available
for sale - at market 518 1,150
Investment securities held to maturity - at cost, approximate market value
of $984 and $2,000 as of September 30, 2000 and 1999 946 1,956
Mortgage-backed securities designated as available for
sale - at market 6,847 7,394
Mortgage-backed securities held to maturity - at amortized cost,
approximate market value of $2,559 and $3,288
as of September 30, 2000 and 1999 2,521 3,218
Loans receivable - net 84,834 73,084
Office premises and equipment - at depreciated cost 1,588 1,389
Stock in Federal Home Loan Bank - at cost 993 924
Accrued interest receivable 350 311
Prepaid federal income taxes - 230
Prepaid expenses and other assets 213 161
------- ------
Total assets $100,438 $92,437
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 70,758 $66,276
Advances from the Federal Home Loan Bank 18,650 11,000
Other liabilities 290 285
Accrued federal income taxes 116 -
Deferred federal income taxes 309 675
------- ------
Total liabilities 90,123 78,236
Commitments - -
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 6,020 9,874
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 313 729
Shares acquired by stock benefit plans - (625)
Less 256,927 and 225,904 treasury shares, at cost (3,378) (3,137)
------- ------
Total shareholders' equity 10,315 14,201
------- ------
Total liabilities and shareholders' equity $100,438 $92,437
======= ======
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
Peoples Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended September 30,
(In thousands, except share data)
2000 1999 1998
<S> <C> <C> <C>
Interest income
Loans $6,002 $5,239 $4,814
Mortgage-backed securities 697 748 870
Investment securities 145 164 222
Interest-bearing deposits and other 111 108 199
----- ----- -----
Total interest income 6,955 6,259 6,105
Interest expense
Deposits 3,323 3,163 3,219
Borrowings 997 342 96
----- ----- -----
Total interest expense 4,320 3,505 3,315
----- ----- -----
Net interest income 2,635 2,754 2,790
Provision for losses on loans 12 12 42
----- ----- -----
Net interest income after
provision for losses on loans 2,623 2,742 2,748
Other income
Gain on sale of investment and mortgage-backed
securities designated as available for sale 603 518 683
Other operating 64 51 29
----- ----- -----
Total other income 667 569 712
General, administrative and other expense
Employee compensation and benefits 1,361 1,206 1,161
Occupancy and equipment 269 262 222
Franchise taxes 173 201 230
Federal deposit insurance premiums 21 40 40
Data processing 122 119 81
Advertising 66 41 33
Other operating 409 328 322
----- ----- -----
Total general, administrative
and other expense 2,421 2,197 2,089
----- ----- -----
Earnings before income taxes 869 1,114 1,371
Federal income taxes
Current 435 381 455
Deferred (151) (21) (2)
----- ----- -----
Total federal income taxes 284 360 453
----- ----- -----
NET EARNINGS $ 585 $ 754 $ 918
===== ===== =====
EARNINGS PER SHARE
Basic $.47 $.60 $.68
=== === ===
Diluted $.47 $.60 $.67
=== === ===
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
Peoples Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year ended September 30,
(In thousands)
2000 1999 1998
<S> <C> <C> <C>
Net earnings $585 $754 $ 918
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities during
the period, net of tax (credits) of $(9), $(12) and $239
for the years ended September 30, 2000, 1999 and 1998 (18) (24) 463
Reclassification adjustment for realized gains included
in earnings, net of tax of $205, $176 and $232 for the
years ended September 30, 2000, 1999 and 1998 (398) (342) (451)
--- --- -----
Comprehensive income $169 $388 $ 930
=== === =====
Accumulated comprehensive income $313 $729 $1,095
=== === =====
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
Peoples Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended September 30, 2000, 1999 and 1998
(In thousands, except share data)
Unrealized
gains on Shares
securities acquired
Additional designated by stock Treasury
Common paid-in Retained as available benefit shares,
stock capital earnings for sale plans at cost Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1997 $- $7,165 $9,779 $1,083 $(1,416) $(1,285) $15,326
Issuance of shares under stock option plan - (25) - - - 101 76
Purchase of treasury shares - - - - - (995) (995)
Amortization expense of stock benefit plans - 147 - - 319 - 466
Dividends of $.55 per share - - (770) - - - (770)
Net earnings for the year ended September 30, 1998 - - 918 - - - 918
Unrealized gains on securities designated as available
for sale, net of related tax effects - - - 12 - - 12
-- ----- ----- ----- ------ ------ ------
Balance at September 30, 1998 - 7,287 9,927 1,095 (1,097) (2,179) 15,033
Purchase of treasury shares - - - - - (768) (768)
Transfer of shares to treasury upon stock benefit plan
termination - - - - 190 (190) -
Amortization expense of stock benefit plans - 73 - - 282 - 355
Dividends of $.62 per share - - (807) - - - (807)
Net earnings for the year ended September 30, 1999 - - 754 - - - 754
Decrease in unrealized gains on securities designated as
available for sale, net of related tax effects - - - (366) - - (366)
-- ----- ----- ----- ------ ------ ------
Balance at September 30, 1999 - 7,360 9,874 729 (625) (3,137) 14,201
Transfer of shares to treasury upon stock benefit plan
termination - - - - 478 (241) 237
Amortization expense of stock benefit plans - - - - 147 - 147
Dividends of $3.515 per share - - (4,439) - - - (4,439)
Net earnings for the year ended September 30, 2000 - - 585 - - - 585
Decrease in unrealized gains on securities designated as
available for sale, net of related tax effects - - - (416) - - (416)
-- ----- ----- ----- ------ ------ ------
Balance at September 30, 2000 $- $7,360 $6,020 $ 313 $ - $(3,378) $10,315
== ===== ===== ===== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
Peoples Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30,
(In thousands)
2000 1999 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year $ 585 $ 754 $ 918
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of premiums and discounts on
investments and mortgage-backed securities - net 10 30 20
Gain on sale of investment and mortgage-backed
securities designated as available for sale (603) (518) (683)
Amortization of deferred loan origination fees (55) (27) (32)
Depreciation and amortization 117 120 98
Provision for losses on loans 12 12 42
Amortization expense of stock benefit plans 384 355 466
Recovery of loss on investments 10 5 9
Federal Home Loan Bank stock dividends (68) (62) (60)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (40) (13) 18
Prepaid expenses and other assets (52) (74) 392
Other liabilities (56) 3 (91)
Accrued interest payable 61 31 15
Federal income taxes
Current 346 (559) 319
Deferred (151) (21) (2)
------ ------ ------
Net cash provided by operating activities 500 36 1,429
Cash flows provided by (used in) investing activities:
Purchase of investment securities designated as available
for sale - - (999)
Proceeds from sale of investment securities designated
as available for sale 616 527 2,211
Purchase of investment securities designated as
held to maturity - (1,000) -
Principal repayments and maturities of investment securities 1,012 1,012 1,153
Purchase of mortgage-backed securities designated
as available for sale (1,026) (2,258) (4,085)
Proceeds from sale of mortgage-backed securities
designated as available for sale - - 1,998
Principal repayments on mortgage-backed securities 2,246 4,749 4,348
Loan principal repayments 16,984 21,389 22,834
Loan disbursements (28,700) (30,123) (30,552)
Purchase of Federal Home Loan Bank stock (1) - -
Purchase of office premises and equipment (315) (37) (147)
------ ------ ------
Net cash used in investing activities (9,184) (5,741) (3,239)
------ ------ ------
Net cash used in operating and investing
activities (balance carried forward) (8,684) (5,705) (1,810)
------ ------ ------
</TABLE>
22
<PAGE>
Peoples Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended September 30,
(In thousands)
2000 1999 1998
<S> <C> <C> <C>
Net cash used in operating and investing
activities (balance brought forward) $(8,684) $(5,705) $(1,810)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 4,481 479 137
Repayment of note payable - - (3,000)
Proceeds from Federal Home Loan Bank advances 52,900 18,000 4,000
Repayment of Federal Home Loan Bank advances (45,250) (11,000) -
Purchase of treasury shares - (768) (995)
Dividends paid on common stock (4,439) (807) (770)
Proceeds from exercise of stock options - - 76
------ ------ ------
Net cash provided by (used in) financing activities 7,692 5,904 (552)
------ ------ ------
Net increase (decrease) in cash and cash equivalents (992) 199 (2,362)
Cash and cash equivalents at beginning of year 2,620 2,421 4,783
------ ------ ------
Cash and cash equivalents at end of year $ 1,628 $ 2,620 $ 2,421
====== ====== ======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 95 $ 929 $ 135
====== ====== ======
Interest on deposits and borrowings $ 4,259 $ 3,474 $ 3,304
====== ====== ======
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ (416) $ (366) $ 12
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Peoples Financial Corporation (the "Corporation") is a savings and loan
holding company whose activities are primarily limited to holding the stock
of Peoples Federal Savings and Loan Association of Massillon (the
"Association"). The Association conducts a general banking business in
northeast Ohio which consists of attracting deposits from the general public
and applying those funds to the origination of loans for residential,
consumer and nonresidential purposes. The Association's profitability is
significantly dependent on its net interest income, which is the difference
between interest income generated from interest-earning assets (i.e. loans
and investments) and the interest expense paid on interest-bearing
liabilities (i.e. customer deposits and borrowed funds). Net interest income
is affected by the relative amount of interest-earning assets and
interest-bearing liabilities and the interest received or paid on these
balances. The level of interest rates paid or received by the Association
can be significantly influenced by a number of environmental factors, such
as governmental monetary policy, that are outside of management's control.
The consolidated financial information presented herein has been prepared in
accordance with generally accepted accounting principles ("GAAP") and
general accounting practices within the financial services industry. In
preparing consolidated financial statements in accordance with GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues
and expenses during the reporting period. Actual results could differ from
such estimates.
A summary of significant accounting policies which have been consistently
applied in the preparation of the accompanying consolidated financial
statements follows:
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and the Association, and its wholly-owned subsidiary, Massillon
Community Service Corporation ("Massillon") . At September 30, 2000 and
1999, Massillon had no assets and was inactive. All intercompany balances
and transactions have been eliminated in the accompanying consolidated
financial statements.
2. Investment Securities and Mortgage-Backed Securities
The Corporation accounts for investments and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No.
115 requires that investments be categorized as held-to-maturity, trading,
or available for sale. Securities classified as held-to-maturity are carried
at cost only if the Corporation has the positive intent and ability to hold
these securities to maturity. Trading securities and securities designated
as available for sale are carried at fair value with resulting unrealized
gains or losses recorded to operations or shareholders' equity,
respectively. The Corporation's shareholders' equity reflected a net
unrealized gain on securities designated as available for sale totaling
approximately $313,000 and $729,000 at September 30, 2000 and 1999,
respectively.
24
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Investment Securities and Mortgage-Backed Securities (continued)
Realized gains and losses on sales of securities are recognized using the
specific identification method.
3. Loans Receivable
Loans receivable are stated at the principal balance outstanding, adjusted
for deferred loan origination fees and costs and the allowance for loan
losses. Interest is accrued as earned unless the collectibility of the loan
is in doubt. Interest on loans that are contractually past due is charged
off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income
equal to all interest previously accrued, and income is subsequently
recognized only to the extent that cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments has returned to normal, in which case the loan is
returned to accrual status. If the ultimate collectibility of the loan is in
doubt, in whole or in part, all payments received on nonaccrual loans are
applied to reduce principal until such doubt is eliminated.
4. Loan Origination Fees
The Association accounts for loan origination fees and costs in accordance
with SFAS No. 91 "Accounting for Nonrefundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases".
Pursuant to the provisions of SFAS No. 91, origination fees received from
loans, net of certain direct origination costs, are deferred and amortized
to interest income using the level-yield method, giving effect to actual
loan prepayments. Additionally, SFAS No. 91 generally limits the definition
of loan origination costs to the direct costs attributable to originating a
loan, i.e., principally actual personnel costs. Fees received for loan
commitments that are expected to be drawn upon, based on the Association's
experience with similar commitments, are deferred and amortized over the
life of the loan using the level-yield method. Fees for other loan
commitments are deferred and amortized over the loan commitment period on a
straight-line basis.
5. Allowance for Loan Losses
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. When the
collection of a loan becomes doubtful, or otherwise troubled, the
Association records a charge-off equal to the difference between the fair
value of the property securing the loan and the loan's carrying value. Major
loans and major lending areas are reviewed periodically to determine
potential problems at an early date. The allowance for loan losses is
increased by charges to earnings and decreased by charge-offs (net of
recoveries).
25
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Allowance for Loan Losses (continued)
The Association accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". SFAS No. 114 requires
that impaired loans be measured based upon the present value of expected
future cash flows discounted at the loan's effective interest rate or, as an
alternative, at the loan's observable market price or fair value of the
collateral if the loan is collateral dependent.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Association
considers its investment in one- to four-family residential loans and
consumer installment loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. With respect to the
Association's investment in nonresidential and multi-family residential real
estate loans, and its evaluation of impairment thereof, such loans are
generally collateral dependent and, as a result, are carried as a practical
expedient at the lower of cost or fair value.
Collateral dependent loans which are more than ninety days delinquent are
considered to constitute more than a minimum delay in repayment and are
evaluated for impairment under SFAS No. 114 at that time.
At September 30, 2000 and 1999, the Association had no loans that would be
defined as impaired under SFAS No. 114.
6. Real Estate Acquired through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are
recorded if the properties' fair value subsequently declines below the value
determined at the recording date. In determining the lower of cost or fair
value at acquisition, costs relating to development and improvement of
property are capitalized. Costs relating to holding real estate acquired
through foreclosure, net of rental income, are charged against earnings as
incurred.
26
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
7. Office Premises and Equipment
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and
minor renewals are expensed as incurred. For financial reporting,
depreciation and amortization are provided on the straight-line method over
the useful lives of the assets, estimated to be fifty years for the
building, ten to thirty years for building improvements and five to ten
years for furniture and equipment. An accelerated method is used for tax
reporting purposes.
8. Income Taxes
The Corporation accounts for federal income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes". In accordance with SFAS No. 109, a deferred
tax liability or deferred tax asset is computed by applying the current
statutory tax rates to net taxable or deductible temporary differences
between the tax basis of an asset or liability and its reported amount in
the consolidated financial statements that will result in net taxable or
deductible amounts in future periods. Deferred tax assets are recorded only
to the extent that the amount of net deductible temporary differences or
carryforward attributes may be utilized against current period earnings,
carried back against prior years' earnings, offset against taxable temporary
differences reversing in future periods, or utilized to the extent of
management's estimate of future taxable income. A valuation allowance is
provided for deferred tax assets to the extent that the value of net
deductible temporary differences and carryforward attributes exceeds
management's estimates of taxes payable on future taxable income. Deferred
tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
Deferral of income taxes results primarily from the different methods of
accounting for deferred loan origination fees and costs, Federal Home Loan
Bank stock dividends, general loan loss allowances and percentage of
earnings bad debt deductions. Additional temporary differences result from
depreciation computed using accelerated methods for tax purposes.
9. Benefit Plans
The Corporation had an Employee Stock Ownership Plan ("ESOP"), which
provided retirement benefits for substantially all employees who had
completed one year of service and had attained the age of 21. The
Corporation accounted for the ESOP in accordance with Statement of Position
("SOP") 93-6, "Employers' Accounting for Employee Stock Ownership Plans".
SOP 93-6 requires the measure of compensation expense recorded by employers
to equal the fair value of ESOP shares allocated to participants during a
fiscal year. During fiscal 1999, the Association's Board of Directors
adopted a resolution terminating the ESOP. Accordingly, the remaining 18,390
unallocated ESOP shares have been reflected as treasury shares following
retirement of the outstanding ESOP loan. Expense recognized related to the
ESOP totaled approximately $6,000, $218,000 and $215,000 for the fiscal
years ended September 30, 2000, 1999 and 1998, respectively.
27
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
9. Benefit Plans (continued)
The Association also provides retirement benefits through contributions to a
discretionary 401(k) plan. Due to contributions made to the ESOP, the
Association did not make matching contributions to the 401(k) plan during
fiscal 1999 and 1998. The Association's expense for matching contributions
amounted to $12,000 for fiscal 2000.
The Corporation also had a Recognition and Retention Plan ("RRP").
Subsequent to the common stock offering the RRP purchased 59,640 shares of
the Corporation's common stock in the open market. In March 2000, the Board
adopted a resolution terminating the RRP. At that date, a total of 28,617
shares available under the RRP had been earned and distributed to officers
and directors of the Corporation, leaving 20,884 shares unearned and 10,139
shares available for allocation. Accordingly, the remaining unearned and
unallocated shares have been reflected as treasury shares. Provisions
charged to expense for the RRP totaled $80,000 for the fiscal year ended
September 30, 2000 and $147,000 for each of fiscal 1999 and 1998.
In March 2000, a Deferred Compensation Plan was established to replace the
RRP. Certain assets of the RRP Trust were returned to the Corporation, and
expense provisions of $266,000 were recorded in fiscal 2000 to recognize
total vested benefits to participants equal to the value of their unearned
and forfeited RRP accounts.
10. 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 were unallocated
and not committed to be released. Weighted-average common shares deemed
outstanding, which gives effect to a reduction for 31,812 and 45,676
weighted-average unallocated shares held by the ESOP for fiscal 1999 and
1998, totaled 1,248,579, 1,265,566 and 1,354,032 for the fiscal years ended
September 30, 2000, 1999 and 1998, respectively.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under
the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
1,248,579, 1,265,566 and 1,372,595 for the fiscal years ended September 30,
2000, 1999 and 1998, respectively. Incremental shares related to the assumed
exercise of stock options included in the calculation of diluted earnings
per share totaled 18,563 for the fiscal year ended September 30, 1998.
Options to purchase 116,617, 131,422 and 3,000 shares of common stock with a
respective weighted average exercise price of $12.39, $12.38 and $16.44,
were outstanding at September 30, 2000, 1999 and 1998, respectively, but
were excluded from the computation of diluted earnings per share because
their exercise prices were greater than the average market price of the
common shares.
28
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and interest-bearing deposits in other financial
institutions with original terms to maturity of less than ninety days.
12. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value of financial instruments, both assets and
liabilities, whether or not recognized in the consolidated statement of
financial condition, for which it is practicable to estimate that value. For
financial instruments where quoted market prices are not available, fair
values are based on estimates using present value and other valuation
methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair
values presented may not represent amounts that could be realized in an
exchange for certain financial instruments.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments at September
30, 2000 and 1999:
Cash and cash equivalents: The carrying amounts presented in
the consolidated statements of financial condition for cash
and cash equivalents are deemed to approximate fair value.
Investment and mortgage-backed securities: For investment and
mortgage-backed securities, fair value is deemed to equal the
quoted market price.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one- to
four-family residential, multi-family residential and
nonresidential real estate. These loan categories were further
delineated into fixed-rate and adjustable-rate loans. The fair
values for the resultant loan categories were computed via
discounted cash flow analysis, using current interest rates
offered for loans with similar terms to borrowers of similar
credit quality. For loans on deposit accounts and consumer and
other loans, fair values were deemed to equal the historic
carrying values. The historical carrying amount of accrued
interest on loans is deemed to approximate fair value.
Federal Home Loan Bank stock: The carrying amount presented in
the consolidated statements of financial condition is deemed
to approximate fair value.
Deposits: The fair value of NOW accounts, passbook accounts,
and money market demand deposits is deemed to approximate the
amount payable on demand. Fair values for fixed-rate
certificates of deposit have been estimated using a discounted
cash flow calculation using the interest rates currently
offered for deposits of similar remaining maturities.
29
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. Fair Value of Financial Instruments (continued)
Advances from the Federal Home Loan Bank: The fair value of
these advances is estimated using the interest rates currently
offered for advances of similar remaining maturities or, when
available, quoted market prices.
Commitments to extend credit: For fixed-rate and
adjustable-rate loan commitments, the fair value estimate
considers the difference between current levels of interest
rates and committed rates. The difference between the fair
value and notional amount of outstanding loan commitments at
September 30, 2000 and 1999, was not material.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments at September 30 are as
follows:
<TABLE>
<CAPTION>
2000 1999
Carrying Fair Carrying Fair
value value value value
(In thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 1,628 $ 1,628 $ 2,620 $ 2,620
Investment securities 1,464 1,502 3,106 3,150
Mortgage-backed securities 9,368 9,406 10,612 10,682
Loans receivable 84,834 82,232 73,084 71,731
Federal Home Loan Bank stock 993 993 924 924
------ ------ ------ ------
$98,287 $95,761 $90,346 $89,107
====== ====== ====== ======
Financial liabilities
Deposits $70,758 $70,576 $66,276 $66,234
Advances from the Federal Home Loan Bank 18,650 18,655 11,000 10,999
------ ------ ------ ------
$89,408 $89,231 $77,276 $77,233
====== ====== ====== ======
</TABLE>
13. Advertising
Advertising costs are expensed when incurred.
14. Reclassifications
Certain prior year amounts have been reclassified to conform to the 2000
consolidated financial statement presentation.
30
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair value of investment securities at September 30, 2000 and
1999, are as follows:
<TABLE>
<CAPTION>
2000
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
<S> <C> <C> <C> <C>
Held to maturity:
Municipal obligations $946 $ 40 $ 2 $ 984
Available for sale:
FHLMC stock 9 509 - 518
--- --- --- -----
Total investment securities $955 $549 $ 2 $1,502
=== === === =====
</TABLE>
<TABLE>
<CAPTION>
1999
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
<S> <C> <C> <C> <C>
Held to maturity:
Municipal obligations $ 956 $ 47 $ 3 $1,000
Federal Home Loan Bank obligations 1,000 - - 1,000
----- ----- --- -----
1,956 47 3 2,000
Available for sale:
FHLMC stock 22 1,128 - 1,150
----- ----- --- -----
Total investment securities $1,978 $1,175 $ 3 $3,150
===== ===== === =====
</TABLE>
31
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost and estimated fair value of investment securities at
September 30, 2000, including those designated as available for sale, are
shown below by term to maturity.
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
(In thousands)
<S> <C> <C>
Due in one year or less $ 87 $ 87
Due after one year through five years 191 196
Due after five through ten years 36 35
Due after ten years 632 666
--- -----
946 984
FHLMC stock 9 518
--- -----
$955 $1,502
=== =====
</TABLE>
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of mortgage-backed securities at September 30, 2000 and
1999, are shown below:
<TABLE>
<CAPTION>
2000
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
<S> <C> <C> <C> <C>
Held to maturity:
Government National Mortgage
Association participation certificates $1,371 $ 12 $ - $1,383
Federal Home Loan Mortgage
Corporation participation certificates 649 11 - 660
Federal National Mortgage Association
participation certificates 501 15 - 516
----- --- --- -----
Total mortgage-backed securities
held to maturity 2,521 38 - 2,559
Available for sale:
Government National Mortgage
Association participation certificates 1,596 14 5 1,605
Federal Home Loan Mortgage
Corporation participation certificates 2,585 3 46 2,542
Federal National Mortgage Association
participation certificates 1,006 - 28 978
Collateralized mortgage obligation -
FHLMC REMIC 94 2 - 96
Collateralized mortgage obligation -
General Motors Acceptance Corporation 1,032 28 - 1,060
Guardian Savings and Loan participation
certificates 571 - 5 566
----- --- --- -----
Total mortgage-backed securities
available for sale 6,884 47 84 6,847
----- --- --- -----
Total mortgage-backed securities $9,405 $ 85 $ 84 $9,406
===== === === =====
</TABLE>
32
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
<TABLE>
<CAPTION>
1999
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
<S> <C> <C> <C> <C>
Held to maturity:
Government National Mortgage
Association participation certificates $ 1,664 $ 23 $ - $ 1,687
Federal Home Loan Mortgage
Corporation participation certificates 874 18 - 892
Federal National Mortgage Association
participation certificates 680 29 - 709
------ --- --- ------
Total mortgage-backed securities
held to maturity 3,218 70 - 3,288
Available for sale:
Government National Mortgage
Association participation certificates 1,898 12 6 1,904
Federal Home Loan Mortgage
Corporation participation certificates 3,665 13 8 3,670
Federal National Mortgage Association
participation certificates 1,007 - 28 979
Collateralized mortgage obligation -
FHLMC REMIC 121 2 - 123
Guardian Savings and Loan participation
certificates 694 - 10 684
Discovery Resort Limited, partnership notes 34 - - 34
------ --- --- ------
Total mortgage-backed securities
available for sale 7,419 27 52 7,394
------ --- --- ------
Total mortgage-backed securities $10,637 $ 97 $ 52 $10,682
====== === === ======
</TABLE>
The amortized cost and estimated fair values of mortgage-backed securities
at September 30, 2000, including those designated as available for sale, by
contractual term to maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may generally prepay
obligations without prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
(In thousands)
<S> <C> <C>
Due after one through five years $ 85 $ 86
Due after five through ten years 1,700 1,742
Due after ten years 7,620 7,578
----- -----
$9,405 $9,406
===== =====
</TABLE>
33
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at September 30 is as follows:
<TABLE>
<CAPTION>
2000 1999
(In thousands)
<S> <C> <C>
Residential real estate
One- to four-family $74,801 $63,605
Multi-family 313 392
Construction 11,482 12,215
Nonresidential real estate 3,655 3,406
Consumer and other loans 217 223
------ ------
90,468 79,841
Less:
Deferred loan origination fees 61 16
Undisbursed portion of loans in process 5,338 6,528
Allowance for loan losses 235 213
------ ------
$84,834 $73,084
====== ======
</TABLE>
The Association's lending efforts have historically focused on one- to
four-family residential real estate loans, which comprise approximately
$80.7 million, or 95%, of the total loan portfolio at September 30, 2000,
and approximately $69.1 million, or 95% of the total loan portfolio, at
September 30, 1999. Generally, such loans have been underwritten on the
basis of no more than an 80% loan-to-value ratio, which has historically
provided the Association with adequate collateral coverage in the event of
default. Nevertheless, the Association, as with any lending institution, is
subject to the risk that real estate values could deteriorate in its primary
lending area of northeast Ohio, thereby impairing collateral values.
However, management is of the belief that real estate values in the
Association's primary lending area are presently stable.
In the ordinary course of business, the Association has made loans to some
of its directors, officers and their related business interests. In the
opinion of management, such loans are consistent with sound lending
practices and are within applicable regulatory lending limitations. The
balance of such loans totaled approximately $288,000 and $290,000 at
September 30, 2000 and 1999, respectively.
From time to time, the Corporation has retained a director to perform legal
services. Fees paid for such services totaled approximately $17,000 for the
year ended September 30, 2000 and $16,000 in each of the fiscal years 1999
and 1998.
34
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended September 30:
<TABLE>
<CAPTION>
2000 1999 1998
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $213 $196 $145
Provision for losses on loans 12 12 42
Charge-offs - - -
Recoveries 10 5 9
---- --- ---
Balance at end of year $235 $213 $196
=== === ===
</TABLE>
As of September 30, 2000, the Association's allowance for loan losses was
comprised solely of a general loan loss allowance, which is includible as a
component of regulatory risk-based capital.
Nonperforming and nonaccrual loans at September 30, 2000, 1999 and 1998,
totaled $223,000, $114,000 and $115,000, respectively. There was no material
loss of interest income on nonperforming loans for the years ended September
30, 2000, 1999 and 1998.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment at September 30 is comprised of the following:
<TABLE>
<CAPTION>
2000 1999
(In thousands)
<S> <C> <C>
Land $ 355 $ 355
Building and improvements 1,480 1,216
Furniture and equipment 1,050 1,028
----- -----
2,885 2,599
Less accumulated depreciation and
amortization 1,297 1,210
----- -----
$1,588 $1,389
===== =====
</TABLE>
35
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE F - DEPOSITS
Deposits consist of the following major classifications at September 30:
<TABLE>
<CAPTION>
Deposit type and weighted-
average interest rate 2000 1999
Amount % Amount %
(Dollars in thousands)
<S> <C> <C> <C> <C>
NOW accounts
2000 - 0.48% $ 2,865 4.1%
1999 - 1.29% $ 2,064 3.1%
Passbook
2000 - 2.00% 10,189 14.4
1999 - 2.00% 10,869 16.4
Money market demand accounts
2000 - 3.98% 3,072 4.3
1999 - 2.19% 2,603 3.9
------ ------ ------ -----
Total demand, transaction and
passbook deposits 16,126 22.8 15,536 23.4
Certificates of deposit
Original maturities of:
Up to 12 months
2000 - 5.94% 11,010 15.5
1999 - 4.69% 11,085 16.8
Over 12 months to 61 months
2000 - 6.15% 43,569 61.6
1999 - 5.67% 39,567 59.7
Individual retirement accounts
2000 - 1.50% 53 .1
1999 - 1.50% 88 .1
------ ------ ------ -----
Total certificates of deposit 54,632 77.2 50,740 76.6
------ ------ ------ -----
Total deposit accounts $70,758 100.0% $66,276 100.0%
====== ===== ====== =====
</TABLE>
At September 30, 2000 and 1999, the Association had deposit accounts with
balances of $100,000 or more totaling $7.8 million and $5.4 million,
respectively.
Interest expense on deposits is summarized as follows for the years ended
September 30:
<TABLE>
<CAPTION>
2000 1999 1998
(In thousands)
<S> <C> <C> <C>
NOW accounts $ 26 $ 24 $ 22
Passbook 222 216 217
Money market demand accounts 65 58 62
Certificates of deposit 3,010 2,865 2,918
----- ----- -----
$3,323 $3,163 $3,219
===== ===== =====
</TABLE>
36
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE F - DEPOSITS (continued)
Maturities of outstanding certificates of deposit at September 30 are
summarized as follows:
<TABLE>
<CAPTION>
2000 1999
(In thousands)
<S> <C> <C>
Up to one year $28,770 $28,674
Over one year to two years 15,192 12,562
Over two years to three years 6,383 5,144
Over three years to four years 3,861 3,750
Over four years to five years 423 593
Over five years 3 17
------ ------
$54,632 $50,740
====== ======
</TABLE>
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at September 30,
2000 and 1999, by pledges of certain residential mortgage loans totaling
$23.3 million and $16.5 million, respectively, and the Association's
investment in Federal Home Loan Bank stock, are summarized as follows:
<TABLE>
<CAPTION>
Maturing fiscal
Interest rate year ending in 2000 1999
(In thousands)
<S> <C> <C> <C>
5.39% - 5.57% 2000 $ - $11,000
6.76% - 7.00% 2001 18,650 -
------ ------
$18,650 $11,000
====== ======
Weighted-average interest rate
at September 30 6.92% 5.45%
==== ====
</TABLE>
37
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE H - FEDERAL INCOME TAXES
Federal income taxes differ from the amounts computed at the statutory
corporate tax rate for the years ended September 30 as follows:
<TABLE>
<CAPTION>
2000 1999 1998
(In thousands)
<S> <C> <C> <C>
Federal income taxes at statutory rate $295 $379 $466
Increase (decrease) in taxes resulting from:
Interest on municipal obligations (17) (17) (12)
Other 6 (2) (1)
--- --- ---
Federal income taxes per consolidated
financial statements $284 $360 $453
=== === ===
Effective tax rate 32.7% 32.3% 33.0%
==== ==== ====
</TABLE>
The composition of the Corporation's net deferred tax liability at September
30 is as follows:
<TABLE>
<CAPTION>
Taxes (payable) refundable on temporary 2000 1999
differences at statutory rate: (In thousands)
<S> <C> <C>
Deferred tax assets:
Net deferred loan origination costs $ 85 $ 81
General loan loss allowance 80 72
Employee benefit plan expense 135 73
Other 9 -
---- ----
Deferred tax assets 309 226
Deferred tax liabilities:
Federal Home Loan Bank stock dividends (238) (215)
Difference between book and tax depreciation (121) (121)
Percentage of earnings bad debt deduction (100) (189)
Unrealized gains on securities designated as available for sale (159) (374)
Other - (2)
---- ----
Deferred tax liabilities (618) (901)
---- ----
Net deferred tax liability $(309) $(675)
==== ====
</TABLE>
The Association was allowed a special bad debt deduction generally limited
to 8% of otherwise taxable income and subject to certain limitations based
on aggregate loans and deposit account balances at the end of the year. If
the amounts that previously qualified as deductions for federal income taxes
are later used for purposes other than bad debt losses, including
distributions in liquidation, such distributions will be subject to federal
income taxes at the then current corporate income tax rate. Retained
earnings at September 30, 2000, include approximately $2.3 million for which
federal income taxes have not been provided. The amount of unrecognized
deferred tax liability relating to the cumulative bad debt deduction was
approximately $630,000 at September 30, 2000. The Association is required to
recapture as taxable income approximately $560,000 of its bad debt reserve,
which represents the post-1987 additions to the reserve, and is unable to
utilize the percentage of earnings method to compute its reserve in the
future. The Association has provided deferred taxes for this amount and
began to amortize the recapture of its bad debt reserve into taxable income
over a six year period in fiscal 1999.
38
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE I - LOAN COMMITMENTS
The Association is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers, including commitments to extend credit. Such commitments involve,
to varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the consolidated statement of financial condition.
The contract or notional amounts of the commitments reflect the extent of
the Association's involvement in such financial instruments.
The Association's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
is represented by the contractual notional amount of those instruments. The
Association uses the same credit policies in making commitments and
conditional obligations as those utilized for on-balance-sheet instruments.
At September 30, 2000, the Association had outstanding commitments of
approximately $1.9 million to originate loans. Additionally, the Association
had undisbursed loans in process of $5.3 million at September 30, 2000. In
the opinion of management, all loan commitments equaled or exceeded
prevalent market interest rates as of September 30, 2000, and will be funded
from normal cash flow from operations.
NOTE J - LEASE COMMITMENTS
The Association conducts a portion of its operations in leased facilities
under noncancelable operating leases expiring at various dates through
2005.
The minimum rental commitments, excluding sublease income, under operating
leases are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
<S> <C>
2001 $ 44,500
2002 37,100
2003 31,800
2004 31,800
2005 23,900
--------
Total minimum payments required $169,100
=======
</TABLE>
Rental expense for all operating leases for the years ending December 31,
2000 and 1998 totaled approximately $19,000, and $12,000, respectively.
There was no rental expense for the year ended December 31, 1999.
39
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE K - REGULATORY CAPITAL
The Association is subject to the regulatory capital requirements of the
Office of Thrift Supervision (the "OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on the Association's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Association must meet specific capital guidelines
that involve quantitative measures of the Association's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Association's capital amounts and classification
are also subject to qualitative judgments by the regulators about
components, risk-weightings, and other factors.
Such minimum capital standards generally require the maintenance of
regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the core capital requirement
and the risk-based capital requirement. The tangible capital requirement
provides for minimum tangible capital (defined as stockholders' equity less
all intangible assets) equal to 1.5% of adjusted total assets. The core
capital requirement provides for minimum core capital (tangible capital plus
certain forms of supervisory goodwill and other qualifying intangible
assets) generally equal to 4.0% of adjusted total assets, except for those
associations with the highest examination rating and acceptable levels of
risk.
The risk-based capital requirement provides for the maintenance of adjusted
core capital plus general loan loss allowances equal to 8.0% of
risk-weighted assets. In computing risk-weighted assets, the Association
multiplies the value of each asset on its statement of financial condition
by a defined risk-weighting factor, e.g., one-to-four family residential
loans carry a risk-weighted factor of 50%.
During the calendar year, the Association was notified from its regulator
that it was categorized as "well-capitalized" under the regulatory framework
for prompt corrective action. To be categorized as "well-capitalized," the
Association must maintain minimum capital ratios as set forth in the
following table.
As of September 30, 2000 and 1999, management believes that the Association
met all capital adequacy requirements to which it was subject.
<TABLE>
<CAPTION>
As of September 30, 2000
Required
to be "well-
Required capitalized" under
for capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $9,000 9.0% =>$1,503 =>1.5% =>$5,011 => 5.0%
Core capital $9,000 9.0% =>$4,009 =>4.0% =>$6,013 => 6.0%
Risk-based capital $9,464 16.7% =>$4,529 =>8.0% =>$5,661 =>10.0%
</TABLE>
40
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE K - REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>
As of September 30, 1999
Required
to be "well-
Required capitalized" under
for capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $8,160 8.9% =>$1,370 =>1.5% =>$4,568 => 5.0%
Core capital $8,160 8.9% =>$3,655 =>4.0% =>$5,482 => 6.0%
Risk-based capital $8,881 19.3% =>$3,673 =>8.0% =>$4,591 =>10.0%
</TABLE>
The Corporation's management believes that, under the current regulatory
capital regulations, the Association will continue to meets its minimum
capital requirements in the foreseeable future. However, events beyond the
control of management, such as increased interest rates or an economic
downturn in the Association's market area, could adversely affect future
earnings and, consequently, the ability to meet future minimum regulatory
capital requirements.
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE L - CONDENSED FINANCIAL STATEMENTS OF PEOPLES FINANCIAL CORPORATION
The following condensed financial statements summarize the financial
position of Peoples Financial Corporation as of September 30, 2000 and 1999,
and the results of its operations and its cash flows for the years ended
September 30, 2000, 1999 and 1998.
Peoples Financial Corporation
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION
September 30,
(In thousands)
ASSETS 2000 1999
<S> <C> <C>
Cash and due from banks $ 467 $ 1,145
Interest-bearing deposits in other financial institutions 4 13
Investment in Peoples Federal Savings and Loan Association
of Massillon 9,124 8,889
Prepaid expenses and other assets 119 66
Accounts receivable from Peoples Federal Savings and Loan
Association of Massillon 614 4,097
------ ------
Total assets $10,328 $14,210
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities $ 13 $ 9
Shareholders' equity
Additional paid-in capital 7,360 7,360
Retained earnings 6,020 9,874
Unrealized gains on securities designated as available
for sale, net of related tax effects 313 729
Shares acquired by stock benefit plans - (625)
Treasury shares (3,378) (3,137)
------ ------
Total shareholders' equity 10,315 14,201
------ ------
Total liabilities and shareholders' equity $10,328 $14,210
====== ======
</TABLE>
41
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE L - CONDENSED FINANCIAL STATEMENTS OF PEOPLES FINANCIAL CORPORATION
(continued)
Peoples Financial Corporation
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
Year ended September 30,
(In thousands)
2000 1999 1998
<S> <C> <C> <C>
Revenue
Interest income $ 17 $ 46 $ 54
Equity in earnings of subsidiary 650 805 997
--- --- -----
Total revenue 667 851 1,051
Interest expense - - 19
General and administrative expenses 115 123 154
--- --- -----
Earnings before income tax credits 552 728 878
Federal income tax credits (33) (26) (40)
--- --- -----
NET EARNINGS $585 $754 $ 918
=== === =====
</TABLE>
42
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE L - CONDENSED FINANCIAL STATEMENTS OF PEOPLES FINANCIAL CORPORATION
(continued)
Peoples Financial Corporation
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year ended September 30,
(In thousands)
2000 1999 1998
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the year $ 585 $ 754 $ 918
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Undistributed earnings of consolidated subsidiary (650) (805) (997)
Amortization of expense related to stock benefit plans 384 147 147
Increases (decreases) in cash due to changes in:
Other assets (53) 4 330
Other liabilities 4 (16) (65)
----- ----- -----
Net cash provided by operating activities 270 84 333
Cash flows provided by (used in) investing activities:
Dividends received from subsidiary 3,482 2,108 4,090
Repayments on ESOP loan - 336 161
----- ----- -----
Net cash provided by investing activities 3,482 2,444 4,251
Cash flows provided by (used in) financing activities:
Repayment of note payable - - (3,000)
Dividends on common stock (4,439) (807) (770)
Purchase of treasury stock - (768) (995)
Proceeds from exercise of stock options - - 76
----- ----- -----
Net cash used in financing activities (4,439) (1,575) (4,689)
----- ----- -----
Net increase (decrease) in cash and cash equivalents (687) 953 (105)
Cash and cash equivalents at beginning of year 1,158 205 310
----- ----- -----
Cash and cash equivalents at end of year $ 471 $1,158 $ 205
===== ===== =====
</TABLE>
43
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE M - STOCK OPTION PLAN
During fiscal 1997, the Board of Directors adopted a Stock Option Plan that
provided for the issuance of 104,371 shares of authorized, but unissued,
shares of common stock at the fair market value at the date of grant. The
Corporation granted options to purchase 37,275 shares to members of the
Board of Directors and 67,096 shares to certain employees at an exercise
price of $16.00 per share. In order to give effect to a return of capital
distribution paid in fiscal 1997, the number of shares granted under option
and the exercise price were adjusted in fiscal 1998 to 134,427 and $12.41
per share, respectively.
The Corporation accounts for the stock option plan in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," which contains a fair
value-based method for valuing stock-based compensation that entities may
use, which measures compensation cost at the grant date based on the fair
value of the award. Compensation is then recognized over the service period,
which is usually the vesting period. Alternatively, SFAS No. 123 permits
entities to continue to account for stock options and similar equity
instruments under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities that continue to
account for stock options using APB Opinion No. 25 are required to make pro
forma disclosures of net earnings and earnings per share, as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied.
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plan. Accordingly, no compensation cost has
been recognized for the plan. Had compensation cost for the Corporation's
stock option plan been determined based on the fair value at the grant dates
for awards under the plan consistent with the accounting method utilized in
SFAS No. 123, the Corporation's net earnings and earnings per share would
have been reduced to the pro forma amounts indicated below for the years
ended September 30:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C> <C>
Net earnings (In thousands) As reported $585 $754 $918
=== === ===
Pro-forma $585 $752 $917
=== === ===
Earnings per share
Basic As reported $.47 $.60 $.68
=== === ===
Pro-forma $.47 $.59 $.68
=== === ===
Diluted As reported $.47 $.60 $.67
=== === ===
Pro-forma $.47 $.59 $.67
=== === ===
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the modified Black-Scholes options-pricing model with the following
assumptions used for grants in fiscal 1999 and 1998; dividend yield of 1.7%
and expected volatility of 12.0%; risk-free interest rate of 6.5% and
expected life of ten years.
44
<PAGE>
Peoples Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, 1999 and 1998
NOTE M - STOCK OPTION PLAN (continued)
A summary of the status of the Corporation's stock option plan as of
September 30, 2000, 1999 and 1998, and changes during the years then ended,
is presented below:
<TABLE>
<CAPTION>
2000 1999 1998
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 131,422 $12.38 131,262 $12.50 104,371 $16.00
Adjustment for return of capital
distribution - - - - 30,056 (3.59)
Granted - - 5,761 9.69 3,000 16.44
Exercised - - - - (6,165) 12.41
Forfeited (14,805) 12.41 (5,601) 12.41 - -
------- ----- ------- ----- ------- -----
Outstanding at end of year 116,617 $12.39 131,422 $12.38 131,262 $12.50
======= ===== ======= ===== ======= =====
Options exercisable at year-end 70,252 $12.44 46,053 $12.46 20,716 $12.41
======= ===== ======= ===== ======= =====
Weighted-average fair value of
options granted during the year N/A $ 3.41 $ 1.96
=== ===== =====
</TABLE>
The following information applies to options outstanding at September 30,
2000:
Number outstanding 116,617
Range of exercise prices $9.94 - $16.44
Weighted-average exercise price $12.39
Weighted-average remaining contractual life 6.6 years
45
