FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
For the transition period from ____________ to _______________
Commission File No. 0-28838
PEOPLES FINANCIAL CORPORATION
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(Exact name of small business issuer as specified in its charter)
Ohio 34-1822228
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
211 Lincoln Way East, Massillon, Ohio 44646
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(Address of principal executive offices)
(330) 832-7441
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August , 2000 - 1,234,085
common shares
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Page 1 of 18 pages
<PAGE>
INDEX
PEOPLES FINANCIAL CORPORATION
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION 17
SIGNATURES 18
Page 2 of 18 pages
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
PEOPLES FINANCIAL CORPORATION
(In thousands, except share data)
June 30, September 30,
ASSETS 2000 1999
<S> <C> <C>
Cash and due from banks $ 302 $ 157
Interest-bearing deposits in other financial institutions 1,235 2,463
------ ------
Cash and cash equivalents 1,537 2,620
Investment securities designated as available for sale -
at market 559 1,150
Investment securities held to maturity - at cost, approximate
market value of $989 and $2,000 as of June 30, 2000
and September 30, 1999 945 1,956
Mortgage-backed and related securities designated
as available for sale - at market 7,192 7,394
Mortgage-backed and related securities held to maturity - at
amortized cost, approximate market value of $2,767 and
$3,152 as of June 30, 2000 and September 30, 1999 2,743 3,218
Loans receivable - net 82,412 73,084
Office premises and equipment - at depreciated cost 1,346 1,389
Stock in Federal Home Loan Bank - at cost 974 924
Accrued interest receivable 320 311
Prepaid federal income taxes 129 230
Prepaid expenses and other assets 247 161
------ ------
Total assets $98,404 $92,437
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $69,048 $66,276
Advances from the Federal Home Loan Bank 18,500 11,000
Other liabilities 137 285
Deferred federal income taxes 450 675
------ ------
Total liabilities 88,135 78,236
Shareholders' equity
Preferred stock - authorized 1,000,000 shares without par
value; no shares issued - -
Common stock - authorized 6,000,000 shares without par
or stated value; 1,491,012 shares issued - -
Additional paid-in capital 7,360 7,360
Retained earnings - restricted 6,003 9,874
Accumulated comprehensive income, unrealized gains
on securities designated as available
for sale, net of related tax effects 284 729
Shares acquired by stock benefit plans - (625)
Less 256,927 and 225,904 treasury shares, at cost (3,378) (3,137)
------ ------
Total shareholders' equity 10,269 14,201
------ ------
Total liabilities and shareholders' equity $98,404 $92,437
====== ======
</TABLE>
Page 3 of 18 pages
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
PEOPLES FINANCIAL CORPORATION
(In thousands, except share data)
Nine months ended Three months ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest income
Loans $4,404 $3,885 $1,544 $1,322
Mortgage-backed and related securities 525 574 180 184
Investment securities 110 120 34 34
Interest-bearing deposits and other 95 70 22 24
----- ----- ----- -----
Total interest income 5,134 4,649 1,780 1,564
Interest expense
Deposits 2,442 2,375 836 777
Borrowings 663 202 268 82
----- ----- ----- -----
Total interest expense 3,105 2,577 1,104 859
----- ----- ----- -----
Net interest income 2,029 2,072 676 705
Provision for losses on loans 9 9 3 3
----- ----- ----- -----
Net interest income after provision for
losses on loans 2,020 2,063 673 702
Other income
Gain on sale of investment and mortgage-backed
securities designated as available for sale 387 469 - 118
Other operating 41 38 14 13
----- ----- ----- -----
Total other income 428 507 14 131
General, administrative and other expense
Employee compensation and benefits 1,082 886 271 305
Occupancy and equipment 191 187 63 56
Franchise taxes 135 157 43 51
Federal deposit insurance premiums 17 30 3 10
Data processing 86 84 29 26
Advertising 44 27 18 9
Other operating 277 254 96 75
----- ----- ----- -----
Total general, administrative and other expense 1,832 1,625 523 532
----- ----- ----- -----
Earnings before income taxes 616 945 164 301
Federal income taxes
Current 190 343 51 107
Deferred 6 (11) - -
----- ----- ----- -----
Total federal income taxes 196 332 51 107
----- ----- ----- -----
NET EARNINGS $ 420 $ 613 $ 113 $ 194
===== ===== ===== =====
EARNINGS PER SHARE
Basic $0.34 $0.48 $0.09 $0.15
==== ==== ==== ====
Diluted $0.34 $0.48 $0.09 $0.15
==== ==== ==== ====
</TABLE>
Page 4 of 18 Pages
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
PEOPLES FINANCIAL CORPORATION
(In thousands)
For the nine months For the three months
ended June 30, ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net earnings $420 $613 $113 $194
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period, net of tax of $(98), $43, $(27)
and $(6) in the respective periods (190) 83 (53) (12)
Reclassification adjustment for realized gains
included in earnings, net of tax of $(132), $(159)
and $(40) in the respective periods (255) (310) - (78)
--- --- --- ---
Comprehensive income (loss) $(25) $386 $ 60 $104
=== === === ===
Accumulated comprehensive income $284 $868 $284 $868
=== === === ===
</TABLE>
Page 5 of 18 Pages
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PEOPLES FINANCIAL CORPORATION
For the nine months ended June 30,
(In thousands)
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 420 $ 613
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation of premises and equipment 80 89
Amortization of premiums and discounts on investment securities
and mortgage-backed securities, net 9 25
Gain on sale of investment and mortgage-backed securities, net (387) (469)
Amortization expense of stock benefit plans 384 -
Amortization of deferred loan fees (46) (17)
Provision for losses on loans 9 9
Recovery of loss on investments 10 4
Federal Home Loan Bank stock dividends (50) (46)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (9) 17
Prepaid expenses and other assets (87) (288)
Other liabilities (198) 153
Accrued interest payable 50 5
Federal income taxes
Current 101 (329)
Deferred 6 (11)
------ ------
Net cash provided by (used in) operating activities 292 (245)
Cash flows provided by (used in) investing activities:
Purchase of mortgage-backed and related securities designated as
available for sale (1,026) (2,258)
Principal repayments on mortgage-backed and related securities 1,601 3,979
Principal repayments and maturities of investment securities 1,012 1,012
Proceeds from sale of investment securities designated as
available for sale 395 477
Loan principal repayments 11,829 16,433
Loan disbursements (21,130) (22,351)
Purchase of office premises and equipment (36) (37)
------ ------
Net cash used in investing activities (7,355) (2,745)
------ ------
Net cash used in operating and investing activities
(balance carried forward) (7,063) (2,990)
------ ------
</TABLE>
Page 6 of 18 Pages
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
PEOPLES FINANCIAL CORPORATION
For the nine months ended June 30,
(In thousands)
2000 1999
<S> <C> <C>
Net cash used in operating and investing activities
(balance brought forward) $(7,063) $(2,990)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 2,772 837
Proceeds from Federal Home Loan Bank advances 46,500 12,000
Repayment of Federal Home Loan Bank advances (39,000) (4,000)
Purchase of treasury shares - (769)
Cash dividends paid on common stock (4,292) (603)
------ ------
Net cash provided by financing activities 5,980 7,465
------ ------
Net increase (decrease) in cash and cash equivalents (1,083) 4,475
Cash and cash equivalents at beginning of period 2,620 2,421
------ ------
Cash and cash equivalents at end of period $ 1,537 $ 6,896
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 95 $ 892
====== ======
Interest on deposits and borrowings $ 3,056 $ 2,572
====== ======
Supplemental disclosure of noncash investing activities:
Decrease in unrealized gains on securities designated
as available for sale, net of related tax effects $ (445) $ (227)
====== ======
</TABLE>
Page 7 of 18 Pages
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PEOPLES FINANCIAL CORPORATION
For the nine and three month periods ended June 30, 2000 and 1999
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. Accordingly, these financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto of Peoples Financial Corporation included in the Annual Report on Form
10-KSB for the year ended September 30, 1999. However, in the opinion of
management, all adjustments (consisting of only normal recurring accruals) which
are necessary for a fair presentation of the consolidated financial statements
have been included. The results of operations for the nine-and three month
periods ended June 30, 2000, are not necessarily indicative of the results which
may be expected for an entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Peoples Financial Corporation ("PFC" or the "Corporation") and Peoples Federal
Savings and Loan Association of Massillon ("Peoples Federal" or the
"Association"). All significant intercompany items have been eliminated.
3. Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires entities to
recognize all derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods of
accounting for hedging transactions, prescribes the items and transactions that
may be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. On adoption, entities are permitted to transfer
held-to-maturity debt securities to the available-for-sale or trading category
without calling into question their intent to hold other debt securities to
maturity in the future. SFAS No. 133 is not expected to have a material impact
on the Corporation's financial position or results of operations.
Page 8 of 18 pages
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
For the nine and three month periods ended June 30, 2000 and 1999
4. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period less shares in the ESOP that are unallocated and
not committed to be released. Weighted-average common shares outstanding totaled
1,253,446 and 1,234,085 for the nine and three-month periods ended June 30,
2000. Weighted-average common shares outstanding, which gives effect to 32,516
unallocated ESOP shares, totaled 1,269,337 and 1,251,585 for the nine and
three-month periods ended June 30, 1999.
Diluted earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares to be issued under PFC's stock
option plan. Weighted-average common shares deemed outstanding for purposes of
computing diluted earnings per share were the same as those for basic earnings
per share for all periods presented.
Options to purchase 116,617 and 125,661 shares of common stock at a
weighted-average exercise price of $12.38 and $12.51 per share were outstanding
at June 30, 2000 and 1999, respectively, but were excluded from the computation
of common share equivalents because their exercise prices were greater than the
average market price of the common shares.
5. Deferred Compensation Plan
In March 2000 a Deferred Compensation Plan was established to replace the
Recognition and Retention Plan (RRP), which was terminated as of the same date.
Certain assets of the RRP Trust were returned to PFC, and an expense provision
of $274,000 was recorded upon termination to recognize total vested benefits to
participants of $363,000. The estimated annual expense of the Deferred
Compensation Plan is approximately $15,000.
6. Reclassifications
Certain prior year amounts have been reclassified to conform to the 2000
consolidated financial statement presentation.
Page 9 of 18 pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PEOPLES FINANCIAL CORPORATION
Note Regarding Forward-Looking Statements
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, PFC's operations and PFC's actual results could differ
significantly from those discussed in the forward-looking statements. Some of
the factors that could cause or contribute to such differences are discussed
herein but also include changes in the economy and interest rates in the nation
and PFC's market area generally. See Exhibit 99 hereto, which is incorporated
herein by reference.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of allowance for
losses on loans and the effect of certain recent accounting pronouncements.
Discussion of Financial Condition Changes from September 30, 1999 to June 30,
2000
PFC's assets totaled $98.4 million as of June 30, 2000, an increase of $6.0
million, or 6.5%, over the September 30, 1999 total. The increase in assets was
funded primarily by an increase in deposits of $2.8 million and an increase in
advances from the Federal Home Loan Bank ("FHLB") of $7.5 million. These
increases were offset by a decrease in shareholders' equity of $3.9 million, due
primarily to payments of a special dividend in November 1999 and regular
quarterly dividends totaling $4.3 million. The increase in assets was comprised
primarily of increases in loans receivable of $9.3 million, offset by net
decreases in investment securities and mortgage-backed securities of $2.3
million.
Cash and cash equivalents totaled $1.5 million at June 30, 2000, a decrease of
$1.1 million, or 41.3%, from the total at September 30, 1999.
Investment securities totaled $1.5 million at June 30, 2000, a decrease of $1.6
million, or 51.6%, from the total at September 30, 1999. This decrease resulted
primarily from a net decrease of $583,000 in unrealized gains and maturities of
$1.0 million. Proceeds from maturities were primarily used to fund loan
originations.
Mortgage-backed securities totaled $9.9 million at June 30, 2000, a decrease of
$677,000, or 6.4%, from the total at September 30, 1999. This decrease resulted
primarily from principal repayments of $1.6 million and an increase in net
unrealized losses of $92,000, offset by purchases totaling $1.0 million.
Proceeds from principal repayments were primarily used to purchase
mortgage-backed securities and fund loan originations.
Page 10 of 18 pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Discussion of Financial Condition Changes from September 30, 1999 to June 30,
2000 (continued)
Net loans receivable totaled $82.4 million at June 30, 2000, an increase of $9.3
million, or 12.8%, over the September 30, 1999 total. The increase is
attributable to Peoples Federal's continued focus on its marketing program to
originate new fixed and adjustable-rate mortgage loans and home equity loans at
the main office and the branch lending office, and disbursements on construction
loans. The allowance for loan losses totaled $232,000 at June 30, 2000, an
increase of $19,000, including $10,000 from loss recoveries, over the balance at
September 30, 1999. The allowance represented .26% and .27% of total loans at
June 30, 2000 and September 30, 1999, respectively. Nonperforming loans totaled
$210,000 at June 30, 2000 and $114,000 at September 30, 1999.
Deposits totaled $69.0 million at June 30, 2000, an increase of $2.8 million, or
4.2%, over the September 30, 1999 amount. During the nine months ended June 30,
2000, certificates of deposit increased by $2.6 million, as Peoples Federal
offered rates designed to maintain certificates and control interest cost. NOW
accounts increased by $414,000 during the period. Passbook deposits and money
market demand accounts decreased by $19,000 and $174,000, respectively during
the period.
Advances from the FHLB totaled $18.5 million at June 30, 2000, an increase of
$7.5 million, or 68.2%, over the September 30, 1999 amount, as PFC used advances
primarily to fund loan originations and payment of dividends. At June 30, 2000,
variable rate advances were comprised of $5.5 million maturing in December 2000
and $3.0 million maturing in March 2001, while fixed rate advances were
comprised of $5.3 million maturing in July, August and September 2000 and $4.7
million maturing in October and November 2000.
The Association is subject to the regulatory capital requirements of the Office
of Thrift Supervision (the "OTS"). Failure to meet minimum capital requirements
can initiate certain mandatory - and possibly additional discretionary - actions
by regulators that, if undertaken, could have a direct material effect on the
Association's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Association must meet
specific capital guidelines that involve quantitative measures of the
Association's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Association's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk-weightings, and other factors.
Such minimum capital standards generally require the maintenance of regulatory
capital sufficient to meet each of three tests, hereinafter described as the
tangible capital requirement, the core capital requirement and the risk-based
capital requirement. The tangible capital requirement provides for minimum
tangible capital (defined as stockholders' equity less all intangible assets)
equal to 1.5% of adjusted total assets. The core capital requirement provides
for minimum core capital (tangible capital plus certain forms of supervisory
goodwill and other qualifying intangible assets) generally equal to 4.0% of
adjusted total assets except for those associations with the highest examination
rating and acceptable levels of risk.
The risk-based capital requirement provides for the maintenance of adjusted core
capital plus general loss allowances equal to 8.0% of risk-weighted assets. In
computing risk-weighted assets, the Association multiplies the value of each
asset on its statement of financial condition by a defined risk-weighting
factor, e.g., one-to-four family residential loans carry a risk-weighted factor
of 50%.
Page 11 of 18 pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Discussion of Financial Condition Changes from September 30, 1999 to June 30,
2000 (continued)
As of June 30, 2000 and September 30, 1999, management believes that the
Association met all capital adequacy requirements to which it was subject.
<TABLE>
<CAPTION>
As of June 30, 2000
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $8,823 9.0% =>$1,474 =>1.5% =>$4,913 => 5.0%
Core capital $8,823 9.0% =>$3,931 =>4.0% =>$5,896 => 6.0%
Risk-based capital $9,299 17.9% =>$4,153 =>8.0% =>$5,191 =>10.0%
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1999
To be "well-
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>
Comparison of Operating Results for the Nine-Month Periods Ended June 30, 2000
and 1999
General
Net earnings for the nine months ended June 30, 2000, totaled $420,000, compared
to $613,000 for the same period in 1999, a decrease of $193,000, or 31.5%. The
decline in earnings resulted primarily from a decrease in net interest income of
$43,000, or 2.1%, a decrease in gain on sale of investment securities of
$82,000, or 17.5%, and an increase in general, administrative and other expense
of $207,000, or 12.7%, which were partially offset by a decrease in federal
income taxes of $136,000, or 41.0%.
Page 12 of 18 pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Nine-Month Periods Ended June 30, 2000
and 1999 (continued)
Net Interest Income
Interest income on loans for the nine months ended June 30, 2000, increased by
$519,000, or 13.4%, over the 1999 period. This increase resulted primarily from
a $9.7 million, or 14.3%, increase in the average net loan portfolio balance
outstanding, partially offset by a decrease in weighted-average yield from 7.62%
for the nine months ended June 30, 1999 to 7.56% in the 2000 period. Interest
income on mortgage-backed and related securities, investment securities and
interest-bearing deposits decreased by $34,000, or 4.5%, from the 1999 period.
This decrease resulted from a $2.9 million decrease in average portfolio
balances outstanding, partly offset by an increase in weighted average yield
from 5.64% in the 1999 period to 6.41% in the 2000 period.
Interest expense on deposits increased by $67,000, or 2.8%, for the nine months
ended June 30, 2000, as compared to 1999. This increase resulted primarily from
a $2.4 million, or 3.3%, increase in average deposit balances outstanding,
partially offset by a decrease in the weighted-average interest rate, from 4.77%
for the nine months ended June 30, 1999 to 4.74% in the comparable 2000 period.
Interest expense on FHLB advances increased by $461,000, or 228.2%, for the nine
months ended June 30, 2000, as compared to 1999. The fiscal 2000 average
advances outstanding from the FHLB increased to $14.9 million from $6.1 million
in fiscal 1999, and the weighted-average interest rate increased to 5.94% in
fiscal 2000 from 4.41% in fiscal 1999.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $43,000, or 2.1%, for the nine months ended
June 30, 2000, compared to 1999. The interest rate spread decreased to 2.42% for
the nine months ended June 30, 2000, as compared to 2.46% for the corresponding
1999 nine-month period. The net interest margin decreased to 2.91% for the nine
months ended June 30, 2000, as compared to 3.21% for the comparable 1999 period.
Provision for Losses on Loans
It is the Association's policy to provide valuation allowances for estimated
losses on loans based on past loan loss experience, changes in the composition
of the loan portfolio, trends in the level of delinquent and problem loans,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral and current and anticipated
economic conditions in the primary lending area. The allowance for loan losses
is increased by charges to earnings and decreased by charge-offs (net of
recoveries). After considering the above guidelines, management decided to
increase the allowance for losses on loans by $9,000 during both the nine months
ended June 30, 2000 and 1999. There can be no assurance that the allowance for
losses on loans of Peoples Federal will be adequate to cover losses on
nonperforming loans in the future.
Page 13 of 18 pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Nine-Month Periods Ended June 30, 2000
and 1999 (continued)
Other Income
Other income totaled $428,000 for the nine months ended June 30, 2000, a
decrease of $79,000, or 15.6%, from the comparable period in 1999. The decrease
was the result of smaller gains on the sale of FHLMC common stock during the
nine months ended June 30, 2000 than in the comparable 1999 period, partly
offset by an increase of $3,000 in other operating income for fiscal 2000 over
1999. FHLMC common stock with a book value of $8,000 was sold during the nine
months ended June 30, 2000 for a total of $395,000 resulting in a realized gains
of $387,000, while FHLMC common stock with a book value of $8,000 was sold
during the nine months ended June 30, 1999 for a total of $477,000 resulting in
a realized gain of $469,000. Other operating income increased primarily due to
increased ATM fee income. Also included in other operating income are safe
deposit box rentals and late charges on loans.
General, Administrative and Other Expense
General, administrative and other expense increased by $207,000, or 12.7%, for
the nine months ended June 30, 2000, compared to the same period in 1999.
Employee compensation and benefits increased by $196,000, or 22.1%. Significant
increases in employee compensation and benefits were due to the establishment of
the Deferred Compensation Plan, hiring of new employees, normal wage increases
and resumption of contributions to the 401(k) plan. Amounts of these increases
for fiscal 2000 over fiscal 1999 are $263,000 for establishment of the Deferred
Compensation Plan, $52,000 for salaries and wages, $12,000 for resumption of
contributions to the 401(k) plan, $6,000 for directors' fees and $21,000 for
other employee benefits. Establishment of the Deferred Compensation Plan was the
final action needed to terminate PFC's employees stock benefit plans and
eliminate the related cost. Termination of the ESOP and the RRP reduced benefit
costs by $158,000 during the nine-month period ended June 30, 2000, compared to
the same period in 1999.
Occupancy and equipment for the nine months ended June 30, 2000 increased by
$4,000 or 2.1%. Data processing increased by $2,000 or 2.4%. Advertising
increased by $17,000, or 63.0%, primarily due to increased local media
advertising of loan and deposit rates and new branch promotion. Other operating
increased by $23,000 or 9.1% primarily due to increased purchase of office
supplies and promotion items for the new branch and increased employee education
and investor relations costs. Ohio franchise taxes for the nine months ended
June 30, 2000 decreased by $22,000, or 14.0%, due primarily to a decrease in tax
rates year to year. Federal deposit insurance premiums for the nine month period
decreased $13,000, or 43.3%, due to lower assessment rates beginning January 1,
2000.
Federal Income Taxes
Federal income taxes are based on earnings before taxes for the nine month
periods ended June 30, 2000 and 1999. The decrease of $136,000, or 41.0%, in the
provision for income taxes resulted primarily from the $329,000, or 34.8%,
decrease in earnings before income taxes. The effective tax rate was 31.8% for
the nine months ended June 30, 2000 and 35.1% for the fiscal 1999 period.
Page 14 of 18 pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Three-Month Periods Ended June 30, 2000
and 1999
General
Net earnings for the three months ended June 30, 2000, totaled $113,000,
compared to $194,000 for the same period in 1999, a decrease of $81,000, or
41.8%. The decline in earnings resulted primarily from a decrease in net
interest income of $29,000, or 4.1%, and a decrease in gain on sale of
investment securities of $118,000, as no investment securities were sold in the
quarter ended June 30, 2000, which were partially offset by a decrease in
general, administrative and other expense of $9,000, or 1.7%, and a decrease in
federal income taxes of $56,000, or 52.3%.
Net Interest Income
Interest income on loans for the three months ended June 30, 2000, increased by
$222,000, or 16.8%, over the 1999 period. This increase resulted primarily from
an $11.0 million, or 15.8%, increase in the average net loan portfolio balance
outstanding and an increase in weighted-average yield from 7.57% in the three
months ended June 30, 1999 to 7.65% in the 2000 period. Interest income on
mortgage-backed and related securities, investment securities and
interest-bearing deposits decreased by $6,000, or 2.5%, from the 1999 period.
This decrease resulted from a $4.0 million decrease in average portfolio
balances outstanding, partly offset by an increase in weighted average yield
from 5.33% in the 1999 quarter to 6.66% in the 2000 quarter.
Interest expense on deposits increased by $59,000, or 7.6%, for the three months
ended June 30, 2000, as compared to 1999. This increase resulted from an
increase of $2.2 million, or 3.3%, in average deposit balances outstanding,
coupled with an increase in the weighted-average cost of funds, from 4.68% in
1999 to 4.87% in 2000. Interest expense on FHLB advances increased by $186,000,
or 226.8%, for the three months ended June 30, 2000, as compared to 1999. The
2000 average advances outstanding from the FHLB increased to $17.3 million from
$8.3 million in 1999, and the weighted-average interest rate increased to 6.19%
in 2000 from 3.95% in 1999.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $29,000, or 4.1%, for the three months ended
June 30, 2000, compared to 1999. The interest rate spread decreased to 2.36% for
the three months ended June 30, 2000, as compared to 2.51% for the corresponding
1999 three-month period. The net interest margin decreased to 2.84% for the
three months ended June 30, 2000, as compared to 3.20% for the comparable 1999
period.
Provision for Losses on Loans
It is the Association's policy to provide valuation allowances for estimated
losses on loans based on past loan loss experience, changes in the composition
of the loan portfolio, trends in the level of delinquent and problem loans,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral and current and anticipated
economic conditions in the primary lending area. The allowance for loan losses
is increased by charges to earnings and decreased by charge-offs (net of
recoveries). After considering the above guidelines, management decided to
increase the allowance for losses on loans by $3,000 during both the three
months ended June 30, 2000 and 1999. There can be no assurance that the
allowance for losses on loans of Peoples Federal will be adequate to cover
losses on nonperforming loans in the future.
Page 15 of 18 pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Three-Month Periods Ended June 30, 2000
and 1999 (continued)
Other Income
Other income totaled $14,000 for the three months ended June 30, 2000, a
decrease of $117,000, or 89.3%, from the 1999 amount. The decrease was primarily
the result of not selling shares of FHLMC common stock during the three months
ended June 30, 2000 while selling 2,100 shares in the comparable 1999 period. No
FHLMC common stock was sold during the quarter ended June 30, 2000, while FHLMC
common stock with a book value of $2,000 was sold in June 1999 for $120,000
resulting in a realized gain of $118,000. Other operating income amounted to
$14,000 for three-month period ended June 30, 2000, an increase of $1,000 over
the comparable 1999 period, and includes ATM, NOW, home equity line of credit
and other fee income, safe deposit box rentals and late charges on loans.
General, Administrative and Other Expense
General, administrative and other expense decreased by $9,000, or 1.7%, for the
three months ended June 30, 2000, compared to the same period in 1999. Employee
compensation and benefits decreased by $34,000, or 11.1%. Employee compensation
and benefits decreased by $85,000 due to termination of the ESOP and RRP.
Significant increases in employee compensation and benefits were due to hiring
of new employees, the effect of normal wage increases and increased cost of
benefits. Amounts of these increases for fiscal 2000 over 1999 are $33,000 in
salaries and wages, $13,000 in payroll taxes, principally on deferred
compensation vested amounts and $5,000 in health care costs, due principally to
increased insurance premiums and premiums for new employees.
Ohio franchise taxes for the three months ended June 30, 2000 decreased by
$8,000, or 15.7%, compared to the 1999 period due primarily to a decrease in tax
rates year to year. Federal deposit insurance premiums decreased by $7,000, or
70.0%, due to lower assessment rates beginning January 1, 2000. Occupancy and
equipment for the three months ended June 30, 2000 increased $7,000, or 12.5%.
An allowance for the cost of leasehold improvements of $12,000 was received in
April 1999 from the owner of the building in which Peoples Federal's lending
office is located, decreasing fiscal 1999 rental cost. Significant decreases in
occupancy and equipment expense for fiscal 2000 compared to 1999 were recorded
for depreciation and utilities. Advertising increased by $9,000, or 100.0%,
primarily due to increased local media advertising of loan and deposit rates and
new branch promotion. Data processing increased by $3,000, or 11.5%, due to the
new branch and new products. Other operating increased by $21,000, or 28.0%,
primarily due to increased purchases of office supplies and promotional items
for the new branch and increased employee education and investor relations
costs.
Federal Income Taxes
Federal income taxes are based on earnings before taxes for the three months
ended June 30, 2000 and 1999. The decrease of $56,000, or 52.3%, in the
provision for income taxes resulted primarily from the $137,000, or 45.5%,
decrease in earnings before income taxes. The effective tax rate was 31.1% for
the three months ended June 30, 2000 and 35.5% for the 1999 quarter.
Page 16 of 18 pages
<PAGE>
PART II
PEOPLES FINANCIAL CORPORATION
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial data schedule for the six months ended
June 30, 2000.
99 Safe Harbor under the Private Securities Litigation Reform
Act of 1995.
(b) Reports on Form 8-K: None.
Page 17 of 18 pages
<PAGE>
SIGNATURES
PEOPLES FINANCIAL CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 11, 2000 By: /s/Paul von Gunten
-------------------------------- ----------------------
Paul von Gunten
President and Chief
Executive Officer
Date: August 11, 2000 By: /s/James R. Rinehart
-------------------------------- ----------------------
James R. Rinehart
Treasurer
Page 18 of 18 Pages
