<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
----------------------------------------
Commission File Number 2-98268
---------------------------------------------
PEOPLES FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Mississippi 64-0709834
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number
Lameuse and Howard Avenues, Biloxi, Mississippi 39533
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
601-435-5511
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------- ------------------------
<S> <C>
None None
</TABLE>
Securities registered pursuant to Section 12 (g) of the Act:
NONE
-----------------------------------------------------------------
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. X
---
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 1998 was approximately $76,780,000. For purposes of
this calculation only, shares held by non-affiliates are deemed to consist of
(a) shares held by all shareholders other than directors and executive officers
plus (b) shares held by directors and executive officers as to which beneficial
ownership has been disclaimed.
On March 1, 1998 the registrant had outstanding 1,476,336 shares of common
stock, par value of $1.00 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1997 are incorporated by reference into Parts I, II and III of this
report. Portions of the Registrant's Definitive Proxy Statement issued in
connection with the Annual Meeting of Shareholders to be held April 15, 1998,
are incorporated by reference into Part III of this report.
<PAGE> 2
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
THE REGISTRANT
Peoples Financial Corporation (the "Company") was established as a one bank
holding company on December 18, 1984. Under a "Reorganization and Merger
Agreement" dated March 21, 1985, and approved on July 8, 1985, Peoples Financial
Corporation acquired all the outstanding stock of consenting shareholders of The
Peoples Bank of Biloxi (the "Bank") on September 30, 1985, in exchange for
25,086 shares of its common stock. A settlement was reached with dissenting
shareholders to acquire their stock at $1,000.00 per share, and this amount was
paid during 1986, with interest at 9% per annum. The transaction was accounted
for as a pooling-of-interest. The Company is now engaged, through its
subsidiary, in the banking business. The Bank is the Company's principal asset
and primary source of revenue.
NONBANK SUBSIDIARY
On August 22, 1985, PFC Service Corp. ("PFC") was chartered and began operations
as the second wholly-owned subsidiary of Peoples Financial Corporation on
October 3, 1985. The purpose of PFC is principally the leasing of automobiles
and equipment under direct financing and sales-type leases expiring in various
periods through 1993. The Bank acquired all remaining leases from PFC during
1990. PFC is inactive at this time.
ACQUISITIONS
On August 19, 1988, the Company acquired Gulf National Bank ("GNB") and merged
GNB into the Bank with shareholders of GNB receiving shares of 4% convertible
preferred stock. The preferred stock was mandatorily convertible into Company
common stock five years and one month after August 19, 1988, at the rate of one
share of common stock for each 24 shares of preferred stock. This conversion was
executed on September 19, 1993.
On August 16, 1991, the Company purchased certain assets and assumed the insured
deposits of the Main Office of the former Southern Federal Bank for Savings from
the Resolution Trust Corporation and merged those assets and deposits into the
Bank.
THE BANK
The Bank, which was originally chartered in 1896 in Biloxi, Mississippi,
currently offers many customary banking services to its customers including
interest bearing and non-interest bearing checking accounts; savings accounts;
certificates of deposit; IRA accounts; business, real estate, construction,
personal and installment loans; collection services; trust services; safe
deposit box facilities; night drop facilities and automated teller machines. The
Bank is a state chartered bank
1
<PAGE> 3
whose deposits are insured under the Federal Insurance Act. The Bank is not a
member of the Federal Reserve System. The legal name of the Bank was changed to
The Peoples Bank, Biloxi, Mississippi, during 1991.
The Bank has a large number of customers acquired over a period of many years
and is not dependent upon a single customer or upon a few customers. The Bank
also provides services to customers representing a wide variety of industries
including seafood, retail, hospitality, gaming and construction.
The Main Office, operations center and trust services of the Bank are located in
downtown Biloxi, MS. The Bank also has eleven (11) branches from Bay St. Louis,
MS, to Ocean Springs, MS. The Bank has automated teller machines ("ATM") at its
Main Office, all branch locations and at numerous non-proprietary locations.
At December 31, 1997, the Bank employed 203 full-time employees and 34 part-time
employees.
COMPETITION
The Bank is in direct competition with approximately eight (8) commercial banks
and three (3) non-bank institutions. These banks range in size from
approximately $27 million to approximately $4.4 billion. The Bank also competes
for deposits and loans with insurance companies, finance companies and
automobile finance companies.
TRUST SERVICES
The Bank's Asset Management and Trust Services Department offers personal trust,
agencies and estate services including living and testamentary trusts,
executorships, guardianships, and conservatorships. Benefit accounts maintained
by the Department primarily include self-directed individual retirement
accounts. Escrow management, stock transfer and bond paying agency accounts are
available to corporate customers.
MISCELLANEOUS
The Bank holds no patents, licenses (other than licenses required to be obtained
from appropriate bank regulatory agencies), franchises or concessions. During
1994, the Bank obtained the rights to the registered trademark, "The Mint".
There has been no significant change in the kind of services offered by the Bank
during the last three fiscal years.
The Bank has not engaged in any research activities relating to the development
of new services or the improvement of existing services except in the normal
course of its business activities. The Bank presently has no plans for any new
line of business requiring the investment of a material amount of total assets.
2
<PAGE> 4
Most of the Bank's business originates from within Harrison, Hancock and west
Jackson Counties in Mississippi; however, some business is obtained from
Claiborne County and the other counties in southern Mississippi. There has been
no material effect upon the Bank's capital expenditures, earnings or competitive
position as a result of federal, state or local environmental regulations.
REGULATION AND SUPERVISION
The Company is a registered one bank holding company under the Bank Holding
Company Act. As such, the Company is required to file periodic reports and such
additional information as the Federal Reserve may require. The Federal Reserve
Board may also make examinations of the Company and its subsidiaries. The Bank
Holding Company Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before it may acquire substantially all
the assets of any bank or ownership or control of any voting shares of any bank
if, after the acquisition, it would own or control, directly or indirectly, more
than 5 percent of the voting shares of the bank.
A bank holding company is generally prohibited from engaging in, or acquiring
direct or indirect control of, voting shares of any company engaged in
non-banking activities. One of the principal exceptions to this prohibition is
for activities found by the Federal Reserve to be so closely related to banking
or the managing or controlling of banks as to be a proper incident thereto. Some
of the activities the Federal Reserve Board has determined by regulation to be
closely related to banking are the making and servicing of loans, performing
certain bookkeeping or data processing services, acting as fiduciary or
investment or financial advisor, making equity or debt investments in
corporations or projects designed primarily to promote community welfare,
leasing transactions if the functional equivalent of an extension of credit and
mortgage banking or brokerage.
A bank holding company and its subsidiaries are also prohibited from acquiring
any voting shares of or interest in, any banks located outside the state in
which the operations of the bank holding company's subsidiaries are located,
unless the acquisition is specially authorized by the statute of the state in
which the target is located. Certain southern states, including Mississippi,
have enacted legislation which authorizes interstate acquisitions of a banking
organization by bank holding companies within the south, subject to certain
conditions and restrictions.
The Bank is subject to the regulation of and examination by the Mississippi
Department of Banking and Consumer Finance ("Department of Banking") and the
Federal Deposit Insurance Corporation ("FDIC"). Areas subject to regulation
include reserves, investments, loans, mergers, branching, issuance of
securities, payment of dividends, capital adequacy, management practices and all
other aspects of banking operations. In addition to regular examinations, the
Bank must furnish periodic reports to its regulatory authorities containing a
full and accurate statement of affairs. The Bank is subject to deposit insurance
assessments by the FDIC and the Department of Banking.
3
<PAGE> 5
The earnings of commercial banks and bank holding companies are affected not
only by general economic conditions but also by the policies of various
governmental regulatory authorities, including the Federal Reserve Board. In
particular, the Federal Reserve Board regulates money and credit conditions, and
interest rates, primarily through open market operations in U. S. Government
securities, varying the discount rate of member and nonmember bank borrowing,
setting reserve requirements against bank deposits and regulating interest rates
payable by banks on certain deposits. These policies influence to a varying
extent the overall growth and distribution of bank loans, investments and
deposits and the interest rates charged on loans. The monetary policies of the
Federal Reserve Board have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
SUPPLEMENTAL STATISTICAL INFORMATION
Schedules I-A through VII present certain statistical information regarding the
Company. This information is not audited and should be read in conjunction with
the Company's Consolidated Financial Statements and Notes to Consolidated
Financial Statements found at pages 7 - 33 of the 1997 Annual Report to
Shareholders.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
AND DIFFERENTIALS
Net Interest Income, the difference between Interest Income and Interest
Expense, is the most significant component of the Company's earnings. For
interest analytical purposes, Management adjusts Net Interest Income to a
"taxable equivalent" basis using a 34% Federal Income Tax rate on tax-exempt
items (primarily interest on municipal securities).
Another significant statistic in the analysis of Net Interest Income is the
effective interest differential, also called the net yield on earning assets.
The net yield is the difference between the rate of interest earned on earning
assets and the effective rate paid for all funds, non-interest bearing as well
as interest bearing. Since a portion of the Bank's deposits do not bear
interest, such as demand deposits, the rate paid for all funds is lower than the
rate on interest bearing liabilities alone.
Recognizing the importance of interest differential to total earnings,
Management places great emphasis on managing interest rate spreads. Although
interest differential is affected by national, regional and area economic
conditions, including the level of credit demand and interest rates, there are
significant opportunities to influence interest differential through appropriate
loan and investment policies which are designed to maximize the interest
differential while maintaining sufficient liquidity and availability of
"incremental funds" for purposes of meeting existing commitments and investment
in lending and investment opportunities that may arise.
4
<PAGE> 6
The information included in Schedule I-F presents the change in interest income
and interest expense along with the reason(s) for these changes. The change
attributable to volume is computed as the change in volume times the old rate.
The change attributable to rate is computed as the change in rate times the old
volume. The change in rate/volume is computed as the change in rate times the
change in volume.
SUMMARY OF LOAN LOSS EXPERIENCE
In the normal course of business, the Bank assumes risks in extending credit.
The Bank manages these risks through its lending policies, loan review
procedures and the diversification of its loan portfolio. Although it is not
possible to predict loan losses with complete accuracy, Management constantly
reviews the characteristics of the loan portfolio to determine its overall risk
profile and quality.
Constant attention to the quality of the loan portfolio is achieved by the loan
review process. Throughout this ongoing process, Management is advised of the
condition of individual loans and of the quality profile of the entire loan
portfolio. Any loan or portion thereof which is classified "loss" by regulatory
examiners or which is determined by Management to be uncollectible because of
such factors as the borrower's failure to pay interest or principal, the
borrower's financial condition, economic conditions in the borrower's industry
or the inadequacy of underlying collateral, is charged-off.
Provisions are charged to operating expense based upon historical loss
experience, and additional amounts are provided when, in the opinion of
Management, such provisions are not adequate based upon the current factors
affecting loan collectibility.
The allocation of the allowance for loan losses by loan category is based on the
factors mentioned in the preceding paragraphs. Accordingly, since all of these
factors are subject to change, the allocation is not necessarily indicative of
the breakdown of future losses.
The comments concerning the provision for loan losses and the allowance for loan
losses presented in "Management's Discussion and Analysis" at pages 2 - 5 of the
1997 Annual Report to Shareholders are incorporated herein by reference.
RETURN ON EQUITY AND ASSETS
The information under the captions "Five-Year Comparative Summary of Selected
Financial Information" on page 1 and "Management's Discussion and Analysis" on
pages 2 - 5 of the 1997 Annual Report are incorporated herein by reference.
5
<PAGE> 7
DIVIDEND PAYOUT
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Dividend payout ratio 13.69% 12.98% 11.17%
===== ===== =====
</TABLE>
6
<PAGE> 8
SCHEDULE I-A
Distribution of Average Assets, Liabilities and Shareholders'
Equity for the Periods Indicated (2)
<TABLE>
<CAPTION>
Years Ended December 31, (In
thousands) 1997 1996 1995
- ----------------------------- ---- ---- ----
<S> <C> <C> <C>
ASSETS:
Cash and due from financial institutions $ 24,324 $ 24,431 $ 22,580
Available for sale securities:
Taxable securities 50,522 52,263 3,503
Other securities 730 925 319
Held to maturity securities:
Taxable securities 98,110 143,270 151,105
Non-taxable securities 5,838 4,717 4,501
Net loans (1) 230,306 219,652 220,095
Federal funds sold and securities purchased under
agreements to resell 9,216 11,032 11,387
Other assets 16,802 11,991 16,554
-------- -------- --------
TOTAL ASSETS $435,848 $468,281 $430,044
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Non-interest bearing deposits $ 67,835 $ 66,215 $ 72,036
Interest bearing deposits 299,625 339,438 301,541
-------- -------- --------
Total deposits 367,460 405,653 373,577
Federal funds purchased and securities sold under
agreements to repurchase 1,624 1,941 1,414
Other liabilities 3,931 3,585 3,394
-------- -------- --------
Total liabilities 373,015 411,179 378,385
Shareholders' equity 62,833 57,102 51,659
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $435,848 $468,281 $430,044
======== ======== ========
</TABLE>
(1) Gross loans and discounts, net of unearned income and allowance for loan
losses.
(2) All averages are computed on a daily basis with the exception of deposits,
which were computed on a monthly basis. Daily averages were not available
for deposits.
7
<PAGE> 9
SCHEDULE I-B
Average Amount Outstanding for Major Categories of Interest Earning Assets
and Interest Bearing Liabilities for the Periods Indicated
<TABLE>
<CAPTION>
Years Ended December 31, (In thousands) 1997 1996 1995
- --------------------------------------- ---- ---- ----
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans (1) (2) $ 234,744 $ 224,231 $ 224,819
Federal funds sold and securities
purchased under agreements to resell 9,216 11,032 11,387
Available for sale securities:
Taxable securities 50,522 52,263 3,503
Other securities 730 945 319
Held to maturity securities:
Taxable securities 98,110 143,270 151,105
Non-taxable securities 5,838 4,717 4,501
---------- ---------- ----------
TOTAL INTEREST EARNING ASSETS $ 399,160 $ 436,458 $ 395,634
========== ========== ==========
INTEREST BEARING LIABILITIES:
Savings and negotiable interest $ 161,635 $ 185,537 $ 189,454
bearing deposits
Time deposits 137,990 153,901 112,087
Federal funds purchased and securities sold
under agreements to repurchase 1,624 1,941 1,414
Other borrowed funds 220 232 243
---------- ---------- ----------
TOTAL INTEREST BEARING LIABILITIES $ 301,469 $ 341,611 $ 303,198
========== ========== ==========
</TABLE>
(1) Net of unearned income.
(2) Includes nonaccrual loans.
(3) All averages are computed on a daily basis with the exception of deposits,
which were computed on a monthly basis. Daily averages were not available
for deposits.
8
<PAGE> 10
SCHEDULE I-C
Interest Earned or Paid on the Major Categories of Interest Earning Assets
and Interest Bearing Liabilities for the Periods Indicated
<TABLE>
<CAPTION>
Years Ended December 31, (In
thousands) 1997 1996 1995
- ---------------------------- ---- ---- ----
INTEREST EARNED ON:
<S> <C> <C> <C>
Loans (2) $ 21,777 $ 20,414 $ 21,364
Federal funds sold and securities 500 582 667
purchased under agreements to
resell
Available for sale securities:
Taxable securities 3,270 3,343 198
Other securities 297 45 17
Held to maturity securities:
Taxable securities 5,976 8,460 8,840
Non-taxable securities 628 612 603
-------- -------- --------
TOTAL INTEREST EARNED (1) $ 32,448 $ 33,456 $ 31,689
======== ======== ========
INTEREST PAID ON:
Savings and negotiable interest
bearing deposits $ 5,091 $ 5,951 $ 5,879
Time deposits 7,757 8,332 6,403
Federal funds purchased and securities
sold under agreements to repurchase 97 110 77
Other borrowed funds 12 13 13
-------- -------- --------
TOTAL INTEREST PAID $ 12,957 $ 14,406 $ 12,372
======== ======== ========
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1997, 1996 and 1995.
(2) Loan fees of $395, $334 and $444 for 1997, 1996 and 1995, respectively, are
included in these figures.
9
<PAGE> 11
SCHEDULE I-D
Average Interest Rate Earned or Paid for Major Categories of
Interest Earning Assets and Interest Bearing Liabilities
for the Periods Indicated
<TABLE>
<CAPTION>
Years Ended December 31, (In thousands) 1997 1996 1995
- --------------------------------------- ---- ---- ----
<S> <C> <C> <C>
AVERAGE RATE EARNED ON:
Loans 9.28% 9.10% 9.50%
Federal funds sold and securities
purchased under agreements to resell 5.43 5.28 5.85
Available for sale securities:
Taxable securities 6.47 6.39 5.65
Other securities (3) 40.7 4.76 5.33
Held to maturity securities:
Taxable securities 6.07 5.90 5.85
Non-taxable securities (2) 10.76 12.97 13.40
----- ----- -----
TOTAL (weighted average rate) (1) 8.13% 7.67% 8.01%
===== ===== =====
AVERAGE RATE PAID ON:
Savings and negotiable interest 3.15% 3.21% 3.10%
bearing deposits
Time deposits 5.62 5.41 5.71
Federal funds purchased and securities
sold under agreements to repurchase 5.97 5.67 5.45
Other borrowed funds 5.43 5.60 5.35
----- ----- -----
TOTAL (weighted average rate) 4.30% 4.22% 4.08%
===== ===== =====
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1997, 1996 and 1995.
(2) Relates to accounting for bonds purchased at a discount prior to January 1,
1992. Such bonds were reflected on the books at cost. The effect of not
adjusting for the accretion of discount for bonds acquired prior to January
1, 1992, is not material to the financial statements. However, the yields
are higher during the period in which these bonds mature as a result of all
accretion being recognized at maturity.
(3) In 1997, a dividend of $270 was received on stock held as available for sale
at a market value of $640.
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<PAGE> 12
SCHEDULE I-E
Net Interest Earnings and Net Yield on Interest Earning Assets
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands except percentages) 1997 1996 1995
- ----------------------------------- ---- ---- ----
<S> <C> <C> <C>
Total interest income (1) $32,448 $33,456 $31,689
Total interest expense 12,957 14,406 12,372
------- ------- -------
Net interest earnings $19,491 $19,050 $19,317
======= ======= =======
Net yield on interest earning assets 4.88% 4.36% 4.88%
======= ======= =======
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1997, 1996 and 1995.
11
<PAGE> 13
SCHEDULE I-F
Analysis of Changes In Interest Income and Interest Expense
(In thousands)
<TABLE>
<CAPTION>
Attributable to:
----------------------------------
Increase Rate /
1997 1996 (Decrease) Volume Rate Volume
---- ---- ---------- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:(1)
Loans (2) (3) $ 21,777 $ 20,414 $ 1,363 $ 957 $ 388 $ 18
Federal funds sold and
securities purchased under
agreements to resell 500 582 (82) (96) 16 (2)
Available for sale
securities:
Taxable securities 3,270 3,343 (73) (111) 40 (2)
Other securities 297 45 252 (10) 339 (77)
Held to maturity securities:
Taxable securities 5,976 8,460 (2,484) (2,667) 267 (84)
Non-taxable securities 628 612 16 145 (105) (24)
-------- -------- -------- -------- -------- --------
Total $ 32,448 $ 33,456 $ (1,008) $ (1,782) $ 945 $ (171)
======== ======== ======== ======== ======== ========
INTEREST EXPENSE:
Savings and negotiable
interest bearing deposits $ 5,091 $ 5,951 $ (860) $ (770) $ (104) $ 14
Time deposits 7,757 8,332 (575) (861) 319 (33)
Federal funds purchased
and securities sold under
agreements to repurchase 97 110 (13) (18) 6 (1)
Other borrowed funds 12 13 (1) (1) (1) 1
-------- -------- -------- -------- -------- --------
Total $ 12,957 $ 14,406 $ (1,449) $ (1,650) $ 220 $ (19)
======== ======== ======== ======== ======== ========
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1997 and 1996.
(2) Loan fees are included in these figures.
(3) Includes interest on nonaccrual loans.
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<PAGE> 14
SCHEDULE I-F (continued)
Analysis of Changes in Interest Income and Interest Expense
(In thousands)
<TABLE>
<CAPTION>
Attributable to:
--------------------------------------
Increase Rate /
1996 1995 (Decrease) Volume Rate Volume
---- ---- ---------- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:(1)
Loans (2) (3) $ 20,414 $ 21,364 $ (950) $ (56) $ (896) $ 2
Federal funds sold and
securities purchased under
agreements to resell 582 667 (85) (21) (66) 2
Available for sale
securities:
Taxable securities 3,343 198 3,145 2,756 26 363
Other securities 45 17 28 33 (2) (3)
Held to maturity securities:
Taxable securities 8,460 8,840 (380) (458) 83 (5)
Non-taxable securities 612 603 9 29 (19) (1)
-------- -------- -------- -------- -------- --------
Total $ 33,456 $ 31,689 $ 1,767 $ 2,283 $ (874) $ 358
======== ======== ======== ======== ======== ========
INTEREST EXPENSE:
Savings and negotiable
interest bearing deposits $ 5,951 $ 5,879 $ 72 $ (118) $ 194 $ (4)
Time deposits 8,332 6,403 1,929 2,389 (335) (125)
Federal funds purchased
and securities sold under
agreements to repurchase 110 77 33 29 3 1
Other borrowed funds 13 13 -0- (1) 1 -0-
-------- -------- -------- -------- -------- --------
Total $ 14,406 $ 12,372 $ 2,034 $ 2,299 $ (137) $ (128)
======== ======== ======== ======== ======== ========
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1996 and 1995.
(2) Loan fees are included in these figures.
(3) Includes interest on nonaccrual loans.
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<PAGE> 15
SCHEDULE II-A
Securities Portfolio
Book Value of Securities Portfolio at the Dates Indicated
<TABLE>
<CAPTION>
December 31, (In thousands): 1997 1996 1995
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Available for sale securities:
U. S. Government, agency and corporate $ 46,442 $ 51,921 $ 20,145
obligations
States and political subdivisions 595
Other securities 641 1,238 685
--------- --------- ---------
Total $ 47,678 $ 53,159 $ 20,830
========= ========= =========
Held to maturity securities:
U. S. Government, agency and corporate $ 97,161 $ 122,090 $ 160,656
obligations
States and political subdivisions 5,674 5,780 4,486
--------- --------- ---------
Total $ 102,835 $ 127,870 $ 165,142
========= ========= =========
</TABLE>
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<PAGE> 16
SCHEDULE II-B
Maturity of Securities Portfolio at December 31, 1997
And Weighted Average Yields of Such Securities
<TABLE>
<CAPTION>
Maturity
(In thousands except percentage data)
-------------------------------------------------------------------------------------------------
After one but After five but
Within one year within five years within ten years After ten years
--------------- ----------------- ---------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for
sale
securities:
U. S.
Government,
agency and
corporate
obligations $ 2,988 5.86% $ 18,888 5.93% $ 20,586 6.65% $ 3,980 7.13%
States and
political
subdivisions 595 4.98%
Other 641 40.70%
-------- ---- -------- ---- -------- ---- ------- -----
Totals $ 2,988 5.86% $ 18,888 5.93% $ 20,586 6.65% $ 5,216 23.20%
======== ==== ======== ==== ======== ==== ======= =====
Held to
maturity
securities:
U. S.
Government,
agency and
corporate
obligations $ 53,243 7.13% $ 40,900 6.48% $ 3,018 6.28%
States and
political
subdivisions 290 5.15% 2,343 9.88% 1,892 5.63% 1,149 5.64%
-------- ---- -------- ---- -------- ---- ------- -----
Totals $ 53,533 7.12% $ 43,243 6.50% $ 4,910 6.05% $ 1,149 5.64%
======== ==== ======== ==== ======= ==== ======= ====
</TABLE>
Note: The weighted average yields are calculated on the basis of cost. Average
yields on investments in states and political subdivisions are based on
their contractual yield.
15
<PAGE> 17
SCHEDULE III-A
Loan Portfolio
Loans by Type Outstanding (1)
<TABLE>
<CAPTION>
December 31, (In thousands): 1997 1996 1995 1994 1993
- ---------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate, construction $ 14,819 $ 14,704 $ 16,473 $ 14,056 $ 5,333
Real estate, mortgage 154,653 137,766 138,254 131,584 118,838
Loans to finance agricultural
production and other loans
to farmers 12,501 10,483 9,962 11,259 6,528
Commercial and industrial
loans 50,224 48,057 39,228 42,505 30,675
Loans to individuals for
household, family and
other consumer expenditures 13,125 11,179 11,903 13,114 12,533
Obligations of states and
political subdivisions 5,257 4,496 5,469 6,752 7,636
All other loans 1,219 1,824 2,780 3,572 3,599
--------- --------- --------- --------- ---------
Totals $ 251,798 $ 228,509 $ 224,069 $ 222,842 $ 185,142
========= ========= ========= ========= =========
</TABLE>
(1) No foreign debt outstanding.
16
<PAGE> 18
SCHEDULE III-B
Maturities and Sensitivity to Changes in
Interest Rates of the Loan Portfolio as of December 31, 1997
<TABLE>
<CAPTION>
Maturity (In thousands)
--------------------------------------------------------
Over one
One year or year through
less 5 years Over 5 years Total
----------- ------------ ------------ -----
<S> <C> <C> <C> <C>
Loans:
Real estate, construction $ 10,098 $ 3,742 $ 979 $ 14,819
Real estate, mortgage 41,084 100,687 12,882 154,653
Loans to finance
agricultural production
and other loans to
farmers 9,018 3,483 12,501
Commercial and
industrial loans 23,868 24,471 1,885 50,224
Loans to individuals for
household, family and
other consumer
expenditures 5,630 7,472 23 13,125
Obligations of states and
political subdivisions 2,677 201 2,379 5,257
All other loans 479 680 60 1,219
---------- ---------- ---------- ----------
Totals $ 92,854 $ 140,736 $ 18,208 $ 251,798
========== ========== ========== ==========
Loans with pre-
determined interest rates $ 41,052 $ 81,206 $ 4,883 $ 127,141
Loans with floating
interest rates 51,802 59,530 13,325 124,657
---------- ---------- ---------- ----------
Totals $ 92,854 $ 140,736 $ 18,208 $ 251,798
========== ========== ========== ==========
</TABLE>
17
<PAGE> 19
SCHEDULE III-C
Non-Performing Loans
<TABLE>
<CAPTION>
December 31, (In thousands): 1997 1996 1995 1994 1993
- ---------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
non-accrual basis (1) $ 1,167 $ 546 $ 610 $ 138 $ 1,628
Loans which are contractually
past due 90 or more days as
to interest or principal
payment, but are not
included above 2,882 3,026 146 474 536
Loans the term of which have
been renegotiated to provide
a reduction or deferral of
interest or principal because
of a deterioration in the
financial position of the
borrower, but are not
included above (2) 2,176 2,304 2,328 2,502 2,703
</TABLE>
(1) The Bank places loans on a nonaccrual status when, in the opinion of
Management, they possess sufficient uncertainty as to timely collection of
interest or principal so as to preclude the recognition in reported earnings
of some or all of the contractual interest. The amount of interest that
would have been earned on these loans had they been on accrual during 1997
was approximately $104. The Bank did receive $47 in interest payments during
1997 so that the net effect of recording income on nonaccrual loans on the
cash basis was to reduce interest income by approximately $57 in 1997.
(2) Foregone interest on loans whose interest rates were renegotiated was $19 in
1997. These loans were renegotiated for a second time in March of 1996 at a
current market rate.
18
<PAGE> 20
SCHEDULE IV-A
Summary of Loan Loss Expenses
(In thousands except percentage data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average amount of loans
outstanding (1) $ 234,744 $ 224,231 $ 224,819 $ 198,044 $ 185,911
========= ========= ========= ========= =========
Balance of allowance for
loan losses at the
beginning of period $ 4,523 $ 4,353 $ 4,901 $ 5,100 $ 4,206
Loans charged-off:
Commercial, financial and
agricultural 379 77 601 79 384
Consumer and other 56 62 101 58 143
--------- --------- --------- --------- ---------
Total loans charged-off 435 139 702 137 527
Recoveries of loans
previously charged-off:
Commercial, financial and
agricultural 294 403 63 142 1,045
Consumer and other 53 56 91 96 101
--------- --------- --------- --------- ---------
Total recoveries 347 459 154 238 1,146
--------- --------- --------- --------- ---------
Net loans (recovered) charged- 88 (320) 548 (101) (619)
off
Provision for (reduction of) loan
losses charged to operating
expense (150) (300) 275
--------- --------- --------- --------- ---------
Balance of allowance for
loan losses at end
of period $ 4,435 $ 4,523 $ 4,353 $ 4,901 $ 5,100
========= ========= ========= ========= =========
Ratio of net charge-offs
during period to average
loans outstanding 0.04% (0.14)% 0.24% (0.05)% (0.33)%
========= ========= ========= ========= =========
</TABLE>
(1) Net of unearned income.
19
<PAGE> 21
SCHEDULE IV-B
Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------------- ----------------- --------------- ------------------ -----------------
% of
% of % of Loans % of % of
Loans Loans to Loans Loans
Balance at December 31, to Total to Total Total to Total to Total
(In thousands) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- --------------------- ------ -------- ------ -------- ------ ----- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate,
construction $ 296 6 $ 294 6 $ 329 7 $ 281 6 $ 107 3
Real estate,
mortgage 2,706 61 2,755 60 2,765 62 2,561 59 3,565 64
Loans to finance
agricultural
production and
other loans to
farmers 250 5 210 5 199 4 225 5 131 3
Commercial and
industrial loans 878 20 961 21 785 18 1,250 19 614 17
Loans to individuals
for household,
family and other
consumer
expenditures 262 5 223 5 238 5 262 6 251 7
Obligations of states
and political
subdivisions -0- 2 -0- 2 -0- 3 -0- 3 -0- 4
All other loans 24 1 36 1 18 1 71 2 80 2
Unallocated 19 N/A 44 N/A 19 N/A 251 N/A 352 N/A
------ --- ------ --- ------ --- ------ --- ------ ---
Totals $4,435 100 $4,523 100 $4,353 100 $4,901 100 $5,100 100
====== === ====== === ====== === ====== === ====== ===
</TABLE>
20
<PAGE> 22
SCHEDULE V
Summary of Average Deposits and Their Yields
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ----------------- ----------------
Years Ended December
31, (In thousands
except for percentage
data) Amount Rate Amount Rate Amount Rate
- ------------------------ ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Demand deposits in
domestic offices $ 67,835 N/A $ 66,215 N/A $ 72,036 N/A
Negotiable interest
bearing deposits
in domestic offices 126,108 3.43% 149,314 3.44% 152,639 3.30%
Savings deposits in
domestic offices 35,527 2.18% 36,223 2.25% 36,815 2.33%
Time deposits in
domestic
offices 137,990 5.62% 153,901 5.41% 112,087 5.71%
-------- ---- -------- ---- -------- ----
Total deposits $367,460 3.50% $405,653 3.52% $373,577 3.29%
======== ==== ======== ==== ======== ====
</TABLE>
Certificates of deposit outstanding in amounts $100,000 or more (in thousands)
by the amount of time remaining until maturity as of December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
Remaining maturity:
<S> <C>
3 months or less $ 58,338
Over 3 through 6 months
Over 6 months through 12 months 24,369
Over 12 months 993
--------
Total $ 83,700
========
</TABLE>
21
<PAGE> 23
SCHEDULE VI
Short Term Borrowings
(In thousands except percentage data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Amount outstanding at December 31, $ 16,500 $ 12,150
Weighted average interest rate at
December 31, N/A 6.00% 5.00%
Maximum outstanding at any month-end
during year $ 9,325 $ 16,500 $ 12,150
Average amount outstanding during year $ 1,624 $ 1,941 $ 1,414
Weighted average interest rate 5.97% 5.67% 5.45%
</TABLE>
Note: Short term borrowings include federal funds purchased from other banks and
securities sold under agreements to repurchase.
22
<PAGE> 24
SCHEDULE VII
Interest Sensitivity/Gap Analysis
<TABLE>
<CAPTION>
December 31, 1997 (In 0 - 3 4 - 12 1 - 5 Over 5
thousands) Months Months Years Years Total
- --------------------- ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
ASSETS:
Loans(1) $ 146,651 $ 18,724 $ 80,375 $ 4,881 $ 250,631
Available for sale
securities 2,988 18,888 25,802 47,678
Held to maturity
securities 20,973 32,560 43,243 6,059 102,835
---------- ---------- ---------- ---------- ----------
Total assets $ 167,624 $ 54,272 $ 142,506 $ 36,742 $ 401,144
========== ========== ========== ========== ==========
FUNDING SOURCES:
Interest bearing
deposits $ 241,021 $ 55,035 $ 8,918 $ $ 304,974
Long-term funds 2 10 56 147 215
---------- ---------- ---------- ---------- ----------
Total funding sources $ 241,023 $ 55,045 $ 8,974 $ 147 $ 305,189
========== ========== ========== ========== ==========
REPRICING/MATURITY
GAP:
Period $ (73,399) $ (773) $ 133,532 $ 36,595
Cumulative (73,399) (74,172) 59,360 95,955
Period Gap/Total Assets (18.30%) (.19%) 33.29% 9.12%
Cumulative Gap/Total
Assets (18.30%) (18.49%) 14.80% 23.92%
</TABLE>
(1) Amounts stated include fixed and variable rate investments of the balance
sheet that are still accruing interest. Variable rate instruments are
included in the next period in which they are subject to a change in rate.
The principal portions of scheduled payments on fixed rate instruments are
included in periods in which they become due or mature.
23
<PAGE> 25
ITEM 2 - PROPERTIES
The principal properties of the Company are its 13 business locations, including
the Main Office, which is located at 152 Lameuse Street in Biloxi, MS. All such
properties are owned by the Company. The operations center is subject to a
mortgage from the Small Business Administration. The address of the Main Office
and branch locations are listed on page 36 of the Annual Report to Shareholders.
ITEM 3 - LEGAL PROCEEDINGS
The information included in Note J to the Consolidated Financial Statements
included in the 1997 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS
None.
PART II
ITEM 5 - MARKET INFORMATION
The information provided on page 6 of the 1997 Annual Report is incorporated
herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information under the caption "Five Year Comparative Summary of Selected
Financial Information" on page 1 of the 1997 Annual Report is incorporated
herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 2 - 5 of the 1997 Annual
Report is incorporated herein by reference.
24
<PAGE> 26
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The following consolidated financial statements of the Company and consolidated
subsidiaries and the independent auditors' report appearing on pages 7 - 34 of
the 1997 Annual Report are incorporated herein by reference:
Consolidated Statements of Condition on pages 7 and 8
Consolidated Statements of Income on page 9
Consolidated Statements of Shareholders' Equity on page 10
Consolidated Statements of Cash Flows on page 12
Notes to Consolidated Financial Statements on pages 13 - 33
Independent Auditors' Report on page 34
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in Sections II and VIII contained in the Proxy Statement in
connection with the Annual Meeting of Shareholders to be held April 15, 1998,
which was filed by the Company in definitive form with the Commission on March
10, 1998, is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information in Section V contained in the Proxy Statement in connection with
the Annual Meeting of Shareholders to be held April 15, 1998, which was filed by
the Company in definitive form with the Commission on March 10, 1998, is
incorporated herein by reference.
25
<PAGE> 27
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information in Sections III and IV contained in the Proxy Statement in
connection with the Annual Meeting of Shareholders to be held April 15, 1998,
which was filed by the Company in definitive form with the Commission on March
10, 1998, is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in Sections V, VI, VII and VIII contained in the Proxy Statement
in connection with the Annual Meeting of Shareholders to be held April 15, 1998,
which was filed by the Company in definitive form with the Commission on March
10, 1998, and is incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8 - K
(a) 1. Index of Financial Statements:
See Item 8.
(a) 2. Index of Financial Schedules:
All other schedules have been omitted as not applicable or not required
or because the information has been included in the financial statements or
applicable notes.
26
<PAGE> 28
(a) 3. Index of Exhibits:
<TABLE>
<CAPTION>
Incorporated by
Reference to Exhibit
Registration or Form of Number in
Description File Number Report Date of Report Report
----------- ----------- ------ -------------- ------
<S> <C> <C> <C> <C> <C>
(3.1) Articles of 33-15595 10-K 12/31/93 3.1
Incorporation
(3.2) By-Laws 33-15595 10-K 12/31/93 3.2
(10.1) Description of Automobile 33-15595 10-K 12/31/88 10.1
Plan
(10.2) Description of Directors' 33-15595 10-K 12/31/88 10.2
Deferred Income Plan
(10.3) Description of Executive 33-15595 10-K 12/31/88 10.3
Supplemental Plan
(10.4) Split-Dollar Insurance 33-15595 10-K 12/31/93 10.4
Agreement
(10.5) Deferred Compensation Plan 33-15595 10-K 12/31/93 10.5
(13) Annual Report to
Shareholders for year ended
December 31, 1997 * (c)
(21) Proxy Statement for Annual
Meeting of Shareholders to
be held April 15, 1998
(22) Subsidiaries of the 33-15595 10-K 12/31/88 22
registrant
(23) Consent of Certified Public
Accountants *
(27) Financial Data Schedule *
</TABLE>
(b) No report on Form 8-K was filed during the fourth quarter of the year ended
December 31, 1997.
(c) Furnished for the information of the Commission only and not deemed "filed"
except for those portions which are specifically incorporated herein.
* Filed herewith.
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 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.
PEOPLES FINANCIAL CORPORATION
(Registrant)
Date: March 24, 1998
-------------------------------------------
BY: /s/ Chevis C. Swetman
-------------------------------------------
Chevis C. Swetman, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
BY: /s/ Drew Allen BY: /s/ Chevis C. Swetman
--------------------------- ----------------------------------
Date: March 25, 1998 Date: March 24, 1998
--------------------------- ----------------------------------
Drew Allen Chevis C. Swetman
Director President, Chief Executive Officer and
Director
BY: /s/ William A. Barq BY: /s/ F. Walker Tucei
--------------------------- ----------------------------------
Date: March 25, 1998 Date: March 25, 1998
--------------------------- ----------------------------------
William A. Barq F. Walker Tucei
Director Director
BY: /s/ Andy Carpenter BY: /s/ Lauri A. Wood
--------------------------- ----------------------------------
Date: March 25, 1998 Date: March 24, 1998
--------------------------- ----------------------------------
Andy Carpenter Lauri A. Wood
Executive Vice President and Director Principal Financial and Accounting Officer
</TABLE>
28
<PAGE> 30
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Incorporated by
Reference to Exhibit
Registration or Form of Number in
Description File Number Report Date of Report Report
----------- ----------- ------ -------------- ------
<S> <C> <C> <C> <C> <C>
(3.1) Articles of 33-15595 10-K 12/31/93 3.1
Incorporation
(3.2) By-Laws 33-15595 10-K 12/31/93 3.2
(10.1) Description of Automobile 33-15595 10-K 12/31/88 10.1
Plan
(10.2) Description of Directors' 33-15595 10-K 12/31/88 10.2
Deferred Income Plan
(10.3) Description of Executive 33-15595 10-K 12/31/88 10.3
Supplemental Plan
(10.4) Split-Dollar Insurance 33-15595 10-K 12/31/93 10.4
Agreement
(10.5) Deferred Compensation Plan 33-15595 10-K 12/31/93 10.5
(13) Annual Report to
Shareholders for year ended
December 31, 1997 * (c)
(21) Proxy Statement for Annual
Meeting of Shareholders to
be held April 15, 1998
(22) Subsidiaries of the 33-15595 10-K 12/31/88 22
registrant
(23) Consent of Certified Public
Accountants *
(27) Financial Data Schedule *
</TABLE>
(b) No report on Form 8-K was filed during the fourth quarter of the year ended
December 31, 1997.
(c) Furnished for the information of the Commission only and not deemed "filed"
except for those portions which are specifically incorporated herein.
* Filed herewith.
<PAGE> 1
EXHIBIT 13
Five-Year Comparative Summary of Selected Financial Information (in thousands
except per share data)
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET SUMMARY
Total assets $ 441,759 $ 448,110 $ 446,305 $ 414,989 $ 370,134
Available for sale securities 47,678 53,159 20,830 198 198
Held to maturity securities 102,836 127,870 165,142 159,498 157,021
Loans, net of unearned discount 251,796 228,492 224,046 222,830 185,124
Deposits 372,555 368,132 376,172 348,190 324,425
Long term notes payable 215 227 438 623 808
Shareholders' equity 65,772 60,354 54,582 48,441 43,319
SUMMARY OF OPERATIONS
Interest income $ 32,235 $ 33,248 $ 31,485 $ 27,185 $ 23,606
Interest expense 12,956 14,406 12,372 9,522 7,855
----------- ----------- ----------- ----------- -----------
Net interest income 19,279 18,842 19,113 17,663 15,751
Provision for loan losses (150) (300) 275
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 19,279 18,992 19,113 17,963 15,476
Non-interest income 6,241 5,564 5,240 3,962 2,627
Non-interest expense (16,065) (15,417) (14,535) (13,467) (10,899)
----------- ----------- ----------- ----------- -----------
Income before taxes 9,455 9,139 9,818 8,458 7,204
Applicable income taxes 3,088 2,993 3,147 2,842 2,124
----------- ----------- ----------- ----------- -----------
Net income $ 6,367 $ 6,146 $ 6,671 $ 5,616 $ 5,080
=========== =========== =========== =========== ===========
PER SHARE DATA
Basic earnings per share $ 4.31 $ 4.16 $ 4.52 $ 3.80 $ 3.57
Dividends:
Common 0.59 0.55 0.51 0.46 0.36
Preferred 2.00
Book Value 44.55 40.88 36.97 32.81 29.34
Weighted average number of shares 1,476,336 1,476,336 1,476,336 1,476,336 1,278,736
SELECTED RATIOS
Return on average assets 1.42% 1.36% 1.53% 1.41% 1.45%
Return on average equity 10.10% 10.69 12.94 12.24 12.35
Capital formation rate 8.98% 10.57 12.68 11.82 11.22
Primary capital to average assets 15.62% 14.36 13.54 13.42 13.84
Risk-based capital ratios:
Tier 1 25.58 24.95 23.64 21.48 23.21
Total 26.83 26.20 24.89 22.73 24.46
</TABLE>
NOTE: ALL SHARE AND PER SHARE DATA HAVE BEEN GIVEN RETROACTIVE EFFECT FOR THE
TWO FOR ONE STOCK SPLIT EFFECTIVE OCTOBER 26, 1994, THE TWO FOR ONE STOCK SPLIT
EFFECTIVE NOVEMBER 22, 1995, THE TWO FOR ONE STOCK SPLIT EFFECTIVE OCTOBER 16,
1996 AND THE TWO FOR ONE STOCK SPLIT EFFECTIVE SEPTEMBER 15, 1997.
<PAGE> 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Peoples Financial Corporation and Subsidiaries
The following presents Management's discussion and analysis of the
consolidated financial condition and results of operations of Peoples Financial
Corporation and Subsidiaries (the Company) for the years ended December 31,
1997, 1996 and 1995. These comments highlight the significant events for these
years and should be considered in combination with the Consolidated Financial
Statements and Notes to Consolidated Financial Statements included in this
annual report.
OVERVIEW
Net income was $6,367,000 for the year ended December 31, 1997, as compared to
$6,146,000 for the year ended December 31, 1996. The increase in earnings was
primarily attributable to the gain, net of taxes, of $422,000 on the sale of
securities held in the available for sale portfolio. The Company has invested
approximately $1,800,000 in banking premises and equipment during 1997. These
expenditures are largely related to the purchase of hardware and software for
the computer conversion completed during 1997 in the Asset Management and Trust
Services Department and the computer conversion of the bank subsidiary's core
data processing applications to be completed in 1998.
FINANCIAL CONDITION
Federal Funds Sold
Federal funds sold were $6,150,000 at December 31, 1997, as a result of the
Company managing its liquidity position.
Available for Sale Securities
Available for sale securities decreased $5,482,000 at December 31, 1997 as
compared with December 31, 1996 primarily as a result of maturities and sales of
these securities during the year.
Gross unrealized gains were $492,000, $1,083,000 and $542,000 and gross
unrealized losses were $215,000, $685,000 and $31,000 for available for sale
securities at December 31, 1997, 1996 and 1995, respectively. A realized gain of
$668,000 was the result of the sale of shares of Hibernia Corporation and call
of other debt securities during 1997. There were no realized gains or losses
from calls or sales of available for sale securities during 1996 or 1995.
Held to Maturity Securities
Held to maturity securities decreased $25,035,000 at December 31, 1997,
compared with December 31, 1996. The decrease in these securities is directly
attributable to the management by the Company of its liquidity position.
Specifically, the Company anticipated the reallocation of approximately $35
million in March by one of its customers. This event was considered in executing
investment decisions during 1997.
Gross unrealized gains were $1,067,000, $1,237,000 and $2,449,000, while gross
unrealized losses were $109,000, $228,000 and $207,000, at December 31, 1997,
1996 and 1995, respectively. There were no significant realized gains or losses
from calls or sales of these investments for the years ended December 31, 1997,
1996 and 1995.
The Company's held to maturity portfolio consists primarily of U. S. Treasury
securities, which is indicative of Management's conservative investment policy
of maximizing return on investments while maintaining proper liquidity and risk
factors.
Loans
The Company's loan portfolio increased $23,289,000 at December 31, 1997, as
compared with December 31, 1996, and $4,440,000 at December 31, 1996, as
compared with December 31, 1995. The portfolio
<PAGE> 3
includes commercial and consumer loans primarily in its trade area of Harrison,
Hancock and west Jackson counties. The continued growth in the portfolio is
primarily a product of the increased real estate and commercial and industrial
loan demand as a result of improved economic conditions in the trade area. The
increases in these categories are illustrated on the schedule summarizing loans
included in Note C to the Consolidated Financial Statements. The Company
anticipates that this demand will remain steady into 1998.
Banking Premises and Equipment
Banking premises and equipment increased $798,000 at December 31, 1997, as
compared with December 31, 1996, primarily as a result of the acquisition of
hardware and software relating to the data processing conversions referred to in
the Overview.
Other Real Estate
The Other Real Estate (ORE) portfolio increased $247,000 at December 31, 1997
as compared with December 31, 1996 due to the transfer of several properties
into ORE during 1997.
Gains realized on sales of ORE were $1,999, $145,850 and $29,071 for the years
ended December 31, 1997, 1996 and 1995, respectively.
During 1995, the Company received approval from the Department of Banking and
Consumer Finance to purchase certain property in Harrison County. Such property,
which is adjacent to other real estate already acquired by the Company in prior
years from debt previously contracted, is carried in the Other Real Estate
portfolio and is subject to all banking regulations pertaining to ORE. The
purpose of the purchase was to improve the marketability of the previously owned
real estate. During 1996, after receiving regulatory approval, the Company
transferred property with a book value of $130,650 from other real estate into
bank premises.
Deposits
Total deposits increased $4,423,000 at December 31, 1997, as compared with
December 31, 1996, and decreased $8,040,000 at December 31, 1996, as compared
with December 31, 1995. Significant increases or decreases in total deposits
and/or significant fluctuations among the different types of deposits are
anticipated by Management as customers in the casino industry and county and
municipal areas reallocate their resources periodically. The Company has managed
its funds including planning the timing of investment maturities so as to
achieve appropriate liquidity.
Federal Funds Purchased
Federal funds purchased decreased $16,500,000 at December 31, 1997, as
compared with December 31, 1996. This fluctuation is directly related to the
liquidity needs of the bank subsidiary.
Shareholders' Equity
During 1997, 1996 and 1995, there were significant events that impacted the
components of shareholders' equity. These events are detailed in Note G to the
Consolidated Financial Statements included in this report.
Strength, security and stability have been the hallmark of the Company since
its founding in 1985 and of its bank subsidiary since its founding in 1896. A
strong capital foundation is fundamental to the continuing prosperity of the
Company and the security of its customers and shareholders. There are numerous
indicators of capital adequacy including primary capital ratios and capital
formation rates. The Five-Year Comparative Summary of Selected Financial
Information presents these ratios for those periods. This summary is included in
the annual report to shareholders. The decrease in some of the indicators
results from the increase in assets during these years and does not reflect a
softening of the Company's capital position. Management continues to emphasize
the importance of maintaining the appropriate capital levels for the Company.
In 1989, the Federal Reserve Board, Federal Deposit Insurance Corporation
(FDIC) and other regulators mandated compliance with a new capital standard:
risk-based capital ratios. The new ratios were formulated to give consideration
to the risk associated with both on- and off-balance sheet components. Due to
<PAGE> 4
conservative management and the historic strength of its capital, the Company's
risk-based capital ratios are significantly in excess of the minimum standards
as set forth by the regulators. The Company's total risk- based capital ratio at
December 31, 1997, 1996 and 1995 was 26.8%, 26.2% and 24.9% as compared with the
required standard of 8%. The Five-Year Comparative Summary of Selected Financial
Information presents these figures.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, the amount by which interest income on loans, investments
and other interest earning assets exceeds interest expense on deposits and other
borrowed funds, is the single largest component of the Company's income.
Management's objective is to provide the largest possible amount of income while
balancing interest rate, credit, liquidity and capital risk.
Total interest income decreased $1,012,000 for the year ended December 31,
1997, as compared with the year ended December 31, 1996, and had increased
$1,763,000 for the year ended December 31, 1996, as compared with the year ended
December 31, 1995. These fluctuations in interest income are primarily due to
the increases and decreases in volume in investments and loans.
Total interest expense has decreased $1,449,000 for the year ended December
31, 1997, as compared with the year ended December 31, 1996, and increased
$2,033,000 for the year ended December 31, 1996, as compared with the year ended
December 31, 1995. The decrease in total interest expense in 1997 is
attributable to the decrease in volume in deposits during 1997, particularly
during the second quarter. The increase in 1996 was the result of both increases
in interest bearing deposits during this year as well as the increase in rates
earned on these deposits. Specifically, the increase in interest expense on time
deposits of $100,000 or more is attributable to a highly competitive interest
rate environment.
Provision for Loan Losses
During 1995 and 1997, the Company made no adjustments to its provision for
loan losses. During 1996, the Company reduced its allowance for loan losses by
$150,000. The Company has not provided for its allowance for loan losses since
the first quarter of 1993. The reserve is currently 1.76% of loans, net of
unearned income. Management continuously monitors the Company's relationships
with its loan customers, especially those in concentrated industries such as
seafood, gaming and hotel/motel, and their direct and indirect impact on its
operations. Any possible losses have been considered in the computation of the
allowance for loan losses. Based on current conditions and giving full
consideration to the significant increase in loans, Management has determined
that the allowance is adequate and does not anticipate expensing any provision
for loan losses during 1998.
Gain on Sale of Securities
During 1997, the Company sold the shares of common stock of Hibernia
Corporation it had carried in its available for sale portfolio at a realized
gain of $640,000.
LIQUIDITY
Liquidity represents the Company's ability to adequately provide funds to
satisfy demands from depositors, borrowers and other commitments by either
converting assets to cash or accessing new or existing sources of funds.
Management monitors these funds requirements in such a manner as to satisfy
these demands and provide the maximum earnings on its earning assets. Deposits,
payment of principal and interest on loans, proceeds from maturities of
investment securities and earnings on investment securities are the principal
sources of funds for the Company. At December 31, 1997, cash and due from banks,
investment securities and federal funds sold were 48% of total deposits, as
compared with 57% and 56% at December 31, 1996 and 1995, respectively.
<PAGE> 5
NEW ACCOUNTING REQUIREMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS 128,
"Earnings Per Share" and SFAS 129, "Disclosure of Information about Capital
Structure." Both Statements are effective for periods ending after December 15,
1997. SFAS 128 establishes guidelines for the computation and disclosure of
earnings per share. Due the simple structure of its capital, this Statement had
no impact for the Company. SFAS 129 relates to the disclosure of information
about the Company's capital structure. The implementation of SFAS 129 had no
impact for the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income" and SFAS 131, "Disclosure about Segments of an
Enterprise and Related Information." Both Statements are effective for periods
beginning after December 15, 1997. The Company has evaluated the provisions of
both Statements and has determined that their implementation will not have a
material impact on its financial statements.
YEAR 2000
The banking industry will be critically impacted by the advent of the Year
2000. Computer hardware and software as well as other operational systems and
programs may be potentially affected by Year 2000. A failure to ensure
compliance would severely impair the Company's operations.
In response to this issue, the Company has developed a methodology for
assessing, documenting and testing its response to the Year 2000 challenge. The
plan requires completion of all related activities by December 31, 1998 in order
to adequately address Year 2000. The Company believes that its response is
appropriate in relation to the significance of this issue and its possible
effect on operations. The Company believes that the cost of this project will
not be material to the financial statements.
<PAGE> 6
Market Information
Peoples Financial Corporation and Subsidiaries
The common stock of Peoples Financial Corporation is not listed or traded on an
exchange or over-the-counter. Trading in the stock is very limited. Most
transactions in Company stock occur between existing shareholders or members of
the family of existing shareholders. The prices listed in the table below are
based on sale prices as stated to the transfer agent, and after restatement to
give retroactive effect for the 2 for 1 stock split effective October 16, 1996,
and the 2 for 1 stock split effective September 15, 1997. These do not represent
all sales.
<TABLE>
<CAPTION>
Dividend per
Year Quarter High Low share
- ---- ------- ---- --- ------------
<S> <C> <C> <C> <C>
1997 1ST $ 41 $ 41 .29
2ND 50 48
3RD 61 53 .30
4TH 93 61
1996 1st 34 33 .27
2nd 37 37
3rd 40 40 .28
4th 40 38
</TABLE>
There were 442 holders of record of common stock of the Company at January 31,
1998, and 1,476,336 shares issued and outstanding.
The principal source of funds to the Company for payment of dividends is the
earnings of the bank subsidiary. The Commissioner of Banking and Consumer
Finance of the State of Mississippi must approve all dividends paid to the
Company by its bank subsidiary. Although Management cannot predict what
dividends, if any, will be paid in the future, the Company has paid regular
semiannual cash dividends since its founding in 1985.
Summary of Quarterly Results of Operations (in thousands except per share data)
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
QUARTER ENDED, 1997 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ------------------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income $ 7,967 $ 7,906 $ 8,246 $ 8,116
Net interest income 4,679 4,693 5,057 4,850
Net income 1,807 1,401 1,533 1,626
Earnings per share 1.22 0.95 1.04 1.10
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended, 1996 March 31 June 30 September 30 December 31
- ------------------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income $ 8,371 $ 8,318 $8,384 $ 8,175
Net interest income 4,656 4,708 4,758 4,720
Provision for (reduction of)
allowance for loan losses (150)
Net income 1,810 1,273 1,351 1,712
Earnings per share 1.22 0.86 0.92 1.16
</TABLE>
<PAGE> 7
CONSOLIDATED STATEMENTS OF CONDITION
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
- ------------ ---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 20,611,495 $ 26,873,638 $ 24,220,348
Federal funds sold 6,150,000
Available for sale securities 47,677,562 53,159,353 20,829,655
Held to maturity securities, fair value of
$103,793,000 - 1997; $128,879,000 - 1996;
$167,384,000 - 1995 102,835,564 127,870,283 165,142,083
Loans 251,797,566 228,508,895 224,069,011
Less: Unearned income 1,314 17,295 22,531
Allowance for loan losses 4,434,770 4,522,704 4,352,967
------------ ------------ ------------
Loans, net 247,361,482 223,968,896 219,693,513
Bank premises and equipment, net 9,424,080 8,626,068 8,789,642
Other real estate 512,370 264,962 726,838
Accrued interest receivable 3,619,917 3,891,465 3,169,666
Other assets 3,376,662 2,958,967 2,919,601
Intangible assets 189,397 495,993 813,825
------------ ------------ ------------
TOTAL ASSETS $441,758,529 $448,109,625 $446,305,171
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 8
CONSOLIDATED STATEMENTS OF CONDITION (continued)
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
- ------------ ---- ---- ----
<S> <C> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand, non-interest bearing $ 67,580,617 $ 73,535,221 $ 63,255,936
Savings and demand, interest bearing 160,499,479 153,596,132 174,721,683
Time, $100,000 or more 83,700,139 84,973,369 84,117,293
Other time deposits 60,774,594 56,027,287 54,076,823
------------- ------------- -------------
Total deposits 372,554,829 368,132,009 376,171,735
Accrued interest payable 726,763 1,005,508 1,139,768
Federal funds purchased 16,500,000 12,150,000
Notes payable 215,094 226,608 437,520
Other liabilities 2,490,081 1,891,296 1,823,743
------------- ------------- -------------
TOTAL LIABILITIES 375,986,767 387,755,421 391,722,766
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 1,500,000 shares
authorized, 1,476,336 shares issued and
outstanding at December 31, 1997, 1996 and
1995, after giving retroactive effect to two
for one stock split effective September 15,
1997 and two for one stock split effective
October 16, 1996 1,476,336 1,476,336 1,476,336
Surplus 58,188,094 53,188,094 48,188,094
Undivided profits 5,924,027 5,428,068 5,075,542
Unrealized gain on available for sale securities,
net of tax 183,305 261,706 336,945
Additional minimum liability in excess of prior
service cost, net of tax (294,512)
Note payable offset associated with employee
stock ownership plan (200,000)
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 65,771,762 60,354,204 54,582,405
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 441,758,529 $ 448,109,625 $ 446,305,171
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 21,776,773 $ 20,414,470 $ 21,364,008
Interest and dividends on securities:
U. S. Treasury 5,342,196 7,992,855 8,138,663
U. S. Government agencies and corporations 3,904,276 3,809,117 898,990
States and political subdivisions 415,011 403,698 398,584
Other investments 297,494 45,322 17,590
Interest on federal funds sold 499,722 582,321 667,429
------------ ------------ ------------
TOTAL INTEREST INCOME 32,235,472 33,247,783 31,485,264
------------ ------------ ------------
INTEREST EXPENSE:
Time deposits of $100,000 or more 4,290,114 5,092,411 3,315,121
Other deposits 8,557,223 9,190,266 8,967,278
Mortgage indebtedness 11,910 12,512 13,082
Federal funds purchased 97,115 110,324 76,757
------------ ------------ ------------
TOTAL INTEREST EXPENSE 12,956,362 14,405,513 12,372,238
------------ ------------ ------------
NET INTEREST INCOME 19,279,110 18,842,270 19,113,026
REDUCTION OF ALLOWANCE FOR LOSSES ON LOANS 150,000
------------ ------------ ------------
NET INTEREST INCOME AFTER REDUCTION OF ALLOWANCE
FOR LOSSES ON LOANS 19,279,110 18,992,270 19,113,026
------------ ------------ ------------
OTHER OPERATING INCOME:
Trust department income and fees 1,105,776 932,502 1,013,858
Service charges on deposit accounts 3,828,586 3,763,566 3,384,659
Other service charges, commissions and fees 266,973 246,579 262,970
Gain on sale and calls of securities 667,728
Other income 372,232 621,730 578,361
------------ ------------ ------------
TOTAL OTHER OPERATING INCOME 6,241,295 5,564,377 5,239,848
------------ ------------ ------------
OTHER OPERATING EXPENSE:
Salaries and employee benefits 7,874,492 7,932,306 6,886,597
Net occupancy 964,890 780,928 940,164
Equipment rentals, depreciation and maintenance 1,748,030 1,633,110 1,481,108
Other expense 5,478,256 5,071,101 5,227,131
------------ ------------ ------------
TOTAL OTHER OPERATING EXPENSE 16,065,668 15,417,445 14,535,000
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 9,454,737 9,139,202 9,817,874
Income taxes 3,087,740 2,993,145 3,146,577
------------ ------------ ------------
NET INCOME $ 6,366,997 $ 6,146,057 $ 6,671,297
============ ============ ============
BASIC EARNINGS PER SHARE $ 4.31 $ 4.16 $ 4.52
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 10
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Peoples Financial Corporations and Subsidiaries
<TABLE>
<CAPTION>
Additional
minimum
Unrealized liability in
gain on excess of
Number available for prior
of sale service
common Common Undivided securities, cost, net
shares stock Surplus profits net of tax of tax
--------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY
1, 1995 738,168 $ 738,168 $ 43,176,262 $ 4,901,640 $ 0 $ 0
Two-for-one stock
split 738,168 738,168 (738,168)
--------- ------------ ------------ ------------ ------------ ------------
BALANCE, JANUARY
1, 1995 AS
RESTATED 1,476,336 1,476,336 42,438,094 4,901,640 0 0
Net income 6,671,297
Cash dividends,
( $.50625 per
share) (747,395)
Transfer of
undivided
profits 5,750,000 (5,750,000)
Net change in
unrealized gain on
available for sale
securities, net of
tax 336,945
Additional
minimum
liability in excess
of prior service
cost, net of tax (294,512)
Reduction to note
payable offset
associated with
ESOP
--------- ------------ ------------ ------------ ------------ ------------
BALANCE,
DECEMBER 31,
1995 AS RESTATED 1,476,336 1,476,336 48,188,094 5,075,542 336,945 (294,512)
Net income 6,146,057
Cash dividends,
($.5375 per share) (793,531)
Transfer of
undivided profits 5,000,000 (5,000,000)
Net change in
unrealized gain on
available for sale
securities, net of
tax (75,239)
Additional
minimum
liability in excess
of prior service
cost, net of tax 294,512
Reduction to note
payable offset
associated with
ESOP
--------- ------------ ------------ ------------ ------------ ------------
BALANCE,
DECEMBER 31,
1996 AS RESTATED 1,476,336 1,476,336 53,188,094 5,428,068 261,706 0
Net income 6,366,997
Cash dividends,
($.59 per share) (871,038)
Transfer of
undivided profits 5,000,000 (5,000,000)
Net change in
unrealized gain on
available for sale
securities, net of
tax (78,401)
--------- ------------ ------------ ------------ ------------ ------------
BALANCE,
DECEMBER 31, 1997 1,476,336 $ 1,476,336 $ 58,188,094 $ 5,924,027 $ 183,305 $ -0-
========= ============ ============ ============ ============ ===========
<CAPTION>
Note payable
offset
associated
with ESOP Total
------------ ------------
<S> <C> <C>
BALANCE, JANUARY
1, 1995 $ (375,000) $ 48,441,070
Two-for-one stock
split
------------ ------------
BALANCE, JANUARY
1, 1995 AS
RESTATED (375,000) 48,441,070
Net income 6,671,297
Cash dividends,
( $.50625 per
share) (747,395)
Transfer of
undivided
profits
Net change in
unrealized gain on
available for sale
securities, net of
tax 336,945
Additional
minimum
liability in excess
of prior service
cost, net of tax (294,512)
Reduction to note
payable offset
associated with
ESOP 175,000 175,000
------------ ------------
BALANCE,
DECEMBER 31,
1995 AS RESTATED (200,000) 54,582,405
Net income 6,146,057
Cash dividends,
($.5375 per share) (793,531)
Transfer of
undivided profits
Net change in
unrealized gain on
available for sale
securities, net of
tax (75,239)
Additional
minimum
liability in excess
of prior service
cost, net of tax 294,512
Reduction to note
payable offset
associated with
ESOP 200,000 200,000
------------ ------------
BALANCE,
DECEMBER 31,
1996 AS RESTATED 0 60,354,204
Net income 6,366,997
Cash dividends,
($.59 per share) (871,038)
Transfer of
undivided profits
Net change in
unrealized gain on
available for sale
securities, net of
tax (78,401)
------------ ------------
BALANCE,
DECEMBER 31, 1997 $ -0- $ 65,771,762
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,366,997 $ 6,146,057 $ 6,671,297
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales of other real estate and other
property (1,999) (145,850) (29,071)
Gain on sale and calls of securities (667,728)
Depreciation and amortization 1,382,474 1,322,449 1,297,275
Pension plan termination cost 446,230
Reduction of allowance for loan losses (150,000)
Provision for losses on other real estate 75,638 154,376 159,247
Changes in assets and liabilities:
Accrued interest receivable 271,548 (721,799) 152,548
Other assets (79,567) 112,665 (291,618)
Accrued interest payable (278,745) (134,260) 689,612
Other liabilities 598,785 67,553 335,943
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,667,403 7,097,421 8,985,233
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, sales and calls of
available for sale securities 7,017,728 19,935,000
Investment in available for sale securities (961,500) (52,377,557) (20,120,942)
Proceeds from maturities and calls of held to
maturity securities 72,858,400 160,217,482 111,143,796
Investment in held to maturity securities (47,823,681) (122,945,682) (116,787,670)
Proceeds from sales of other real estate and other
property 182,200 322,700 242,720
Purchase of other real estate (100,708)
Loans, net increases (23,895,833) (4,125,383) (1,817,640)
Acquisition of premises and equipment (1,873,890) (710,393) (1,132,276)
Federal funds sold (6,150,000)
Other assets (323,238) (266,129) (229,054)
------------- ------------- -------------
NET CASH PROVIDED BY ( USED IN) INVESTING
ACTIVITIES (969,814) 50,038 (28,801,774)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand and savings deposits, net increase
(decrease) 948,743 (10,846,266) (26,536,968)
Time deposits made, net increase 3,474,077 2,806,540 54,518,288
Principal payments on notes (11,514) (10,912) (10,342)
Cash dividends (871,038) (793,531) (747,395)
Federal funds purchased, net increase (decrease) (16,500,000) 4,350,000 (3,750,000)
Pension plan additional minimum liability
contributed (215,774)
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (12,959,732) (4,494,169) 23,257,809
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (6,262,143) 2,653,290 3,441,268
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 26,873,638 24,220,348 20,779,080
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 20,611,495 $ 26,873,638 $ 24,220,348
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 12
Notes To Consolidated Financial Statements
Peoples Financial Corporation and Subsidiaries
NOTE A - ACCOUNTING POLICIES:
Business of The Company
Peoples Financial Corporation is a one-bank holding company headquartered in
Biloxi, Mississippi. Its two operating subsidiaries are The Peoples Bank,
Biloxi, Mississippi, and PFC Service Corp. Its principal subsidiary is The
Peoples Bank, Biloxi, Mississippi, which provides a full range of banking,
financial and trust services to individuals and small and commercial businesses
operating in 12 locations in Harrison, Hancock and west Jackson counties.
Principles of Consolidation
The consolidated financial statements include the accounts of Peoples
Financial Corporation and its wholly owned subsidiaries, The Peoples Bank,
Biloxi, Mississippi, and PFC Service Corp. All significant intercompany
transactions and balances have been eliminated.
Basis of Accounting
Peoples Financial Corporation and Subsidiaries recognize assets and
liabilities, and income and expense, on the accrual basis of accounting. The
preparation of financial statements in conformity with generally accepted
accounting principles requires Management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Cash and Due from Banks
The Company is required to maintain average reserve balances in its vault or
on deposit with the Federal Reserve Bank. The average amount of these reserve
requirements was approximately $8,442,000, $8,388,000 and $9,193,000 for the
years ending December 31, 1997, 1996 and 1995, respectively.
The Company's bank subsidiary maintained account balances in excess of amounts
insured by the Federal Deposit Insurance Corporation. At December 31, 1997, the
bank subsidiary had excess deposits of $1,165,367. These amounts were uninsured
and uncollateralized.
Securities
Available for sale securities are stated at fair value. The unrealized
difference, if any, between amortized cost and fair value of these securities is
excluded from earnings and is reported, net of deferred taxes, as a component of
shareholders' equity. Held to maturity securities are stated at cost, adjusted
for amortization of premiums and accretion of discounts. Most of the Company's
portfolio is classified as held to maturity since it has the positive intent and
ability to hold its investments until maturity. Gains or losses, if any, are
recognized as income when realized and are computed based on the amortized cost
of the specific securities sold.
<PAGE> 13
Loans
Loans are stated at the amount of unpaid principal, reduced by unearned income
and the allowance for loan losses. Interest on loans is recognized over the
terms of the loan based on the unpaid principal balances.
Loan origination fees are recognized as income when received. Revenue from
these fees is not material to the financial statements.
The Company places loans on a nonaccrual status when, in the opinion of
Management, they possess sufficient uncertainty as to timely collection of
interest or principal so as to preclude the recognition in reported earnings of
some or all of the contractual interest. Accrued interest on loans classified as
nonaccrual is reversed at the time the loans are placed on nonaccrual.
In June 1993, the Financial Accounting Standards Board issued Statement No.
114, "Accounting by Creditors for Impairment of a Loan" and in October 1994,
issued Statement No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure." These Statements became effective for the
Company on January 1, 1995. SFAS 114 and 118 address loan impairment and the
related measurement methods. The Statements stipulate that loans shall be
identified as being impaired if it is doubtful that all principal and interest
due contractually under the terms of the loan agreement will be collected. When
a loan is impaired as defined by the Statements, measurement of impairment shall
be based on the present value of the expected future cash flows discounted at
that loan's effective interest rate except that, as a practical expedient,
measurement may be based on a loan's observable market price, or the fair value
of the collateral if the loan is collateral dependent. The Company has
determined that all loans which have been classified as impaired are also
collateral dependent. Accordingly, the allowance for losses on these impaired
loans has been computed using the fair value of the underlying collateral. The
loans which have been classified as impaired under SFAS 114 had previously been
identified by the Company as loans for which a specific reserve should be
established. The Company had in prior years computed the allowance on such loans
in a similar manner as that required under SFAS 114. Therefore, no additional
allowance was required at January 1, 1995, in order to implement SFAS 114. The
provisions of SFAS 118 concerning recognition of interest income on impaired
loans allow for the Company to continue its present recognition policies
discussed above.
Allowance for Loan Losses
The allowance for loan losses is based on Management's evaluation of the loan
portfolio under current economic conditions and is an amount that Management
believes will be adequate to absorb probable losses on loans existing at the
reporting date. The evaluation includes the nature and volume of the loan
portfolio, a study of loss experience, a review of delinquencies, the estimated
value of any underlying collateral and an estimate of the possibility of loss
based on the risk characteristics of the portfolio.
Bank Premises and Equipment
Bank premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed primarily by the straight-line method based on the
estimated useful lives of the related assets.
<PAGE> 14
Other Real Estate
Other real estate acquired through foreclosure is carried at the lower of cost
(primarily outstanding loan balance) or estimated market value, less estimated
costs to sell. If, at foreclosure, the carrying value of the loan is greater
than the estimated market value of the property acquired, the excess is charged
against the allowance for loan losses and any subsequent adjustments are charged
to expense. Costs of operating and maintaining the properties, net of related
income and gains (losses) on their disposition, are charged to expense as
incurred.
Intangible Assets
The excess of the purchase price over the value of the net tangible assets
acquired in the Gulf National Bank acquisition on August 19, 1988, was assigned
primarily to the value of core deposits and is being amortized over 10 years.
The core deposits acquired in the main branch of the Southern Federal Bank for
Savings acquisition on August 16, 1991, are being amortized over the estimated
lives of the demand deposits (72 months), savings deposits (84 months) and
certificates (84 months) acquired.
Trust Department Income and Fees
Trust fees are recorded when received. These fees amounted to $1,105,776,
$932,502 and $1,013,858 in 1997, 1996 and 1995, respectively.
Income Taxes
The Company files a consolidated tax return with its wholly owned subsidiaries.
The tax liability of each entity is allocated based on the entity's contribution
to consolidated taxable income.
The provision for applicable income taxes is based upon reported income and
expenses as adjusted for differences between reported income and taxable income.
The primary differences are exempt income on state, county and municipal
securities; differences in provisions for losses on loans as compared to the
amount allowable for income tax purposes; directors' and officers' insurance;
depreciation for income tax purposes over that reported for financial statements
and gains reported under the installment sales method for tax purposes.
Leases
All leases are accounted for as operating leases in accordance with the terms
of the leases.
Earnings Per Share
Basic earnings per share is computed on the basis of the weighted average
number of common shares outstanding, 1,476,336 in 1997, 1996 and 1995.
Statements of Cash Flows
The Company has defined cash and cash equivalents to include cash and due from
banks. The Company paid $13,235,107, $14,539,773 and $11,682,626 in 1997, 1996
and 1995, respectively, for interest on deposits and borrowings. Income tax
payments totaled $3,199,740, $2,869,605 and $3,498,388 in 1997, 1996 and 1995,
respectively. Loans transferred to other real estate amounted to $503,248 and
$52,500 in 1997 and 1995, respectively. No loans were transferred to other real
estate in 1996. After receiving regulatory approval, the Company transferred
property with a book value of $130,650 from other real estate into banking
premises during 1996.
<PAGE> 15
Reclassifications
Certain reclassifications have been made to the prior year statements to
conform to current year presentation. The reclassifications had no effect on
prior year net income.
NOTE B - SECURITIES:
The amortized cost and estimated fair value of securities at December 31,
1997, 1996 and 1995, respectively, are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1997 COST GAINS LOSSES FAIR VALUE
- ----------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available for sale securities:
Debt securities:
U. S. Treasury $ 3,984 $ 4 $ (5) $ 3,983
U. S. Government agencies
and corp 42,627 42 (210) 42,459
States and political
subdivisions 592 3 595
-------- -------- -------- --------
Total debt securities 47,203 49 (215) 47,037
Equity securities 198 443 641
-------- -------- -------- --------
Total available for sale securities $ 47,401 $ 492 $ (215) $ 47,678
======== ======== ======== ========
Held to maturity securities:
U. S. Treasury $ 76,670 $ 690 $ (83) $ 77,277
U. S. Government agencies and
corp 20,491 35 (26) 20,500
States and political subdivisions 5,674 342 6,016
-------- -------- -------- --------
Total held to maturity securities $102,835 $ 1,067 $ (109) $103,793
======== ======== ======== ========
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1996 COST GAINS LOSSES FAIR VALUE
- ----------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available for sale securities:
Debt securities:
U. S. Treasury $ 5,969 $ 2 $ (37) $ 5,934
U. S. Government agencies
and corp 46,594 41 (648) 45,987
-------- -------- -------- --------
Total debt securities 52,563 43 (685) 51,921
Equity securities 198 1,040 1,238
-------- -------- -------- --------
Total available for sale
securities $ 52,761 $ 1,083 $ (685) $ 53,159
======== ======== ======== ========
Held to maturity securities:
U. S. Treasury $108,568 $ 830 $ (188) $109,210
U. S. Government agencies and
corp 13,522 34 (39) 13,517
States and political subdivisions 5,780 373 (1) 6,152
-------- -------- -------- --------
Total held to maturity securities $127,870 $ 1,237 $ (228) $128,879
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1995 COST GAINS LOSSES FAIR VALUE
- ----------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available for sale securities:
Debt securities:
U. S. Treasury $ 2,949 $ 52 $ 3,001
U. S. Government agencies
and corp 17,172 3 (31) 17,144
-------- -------- -------- --------
Total debt securities 20,121 55 (31) 20,145
Equity securities 198 487 685
-------- -------- -------- --------
Total available for sale
securities $ 20,319 $ 542 $ (31) $ 20,830
======== ======== ======== ========
Held to maturity securities:
U. S. Treasury $152,632 $ 1,858 $ (182) $154,308
U. S. Government agencies and
corp 8,024 82 (22) 8,084
States and political subdivisions 4,486 509 (3) 4,992
-------- -------- -------- --------
Total held to maturity securities $165,142 $ 2,449 $ (207) $167,384
======== ======== ======== ========
</TABLE>
<PAGE> 17
The amortized cost and estimated fair value of debt securities at December 31,
1997, (in thousands) by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Estimated fair
Amortized cost value
-------------- ---------
<S> <C> <C>
Available for sale securities:
Due in one year or less $ 2,986 $ 2,988
Due after one year through five
years 18,968 18,888
Due after five years through ten
years 20,658 20,585
Due after ten years 4,591 4,576
-------- --------
Totals $ 47,203 $ 47,037
======== ========
Held to maturity securities:
Due in one year or less $ 53,534 $ 53,534
Due after one year through five
years 43,242 44,024
Due after five years through ten
years 4,910 5,009
Due after ten years 1,149 1,226
-------- --------
Totals $102,835 $103,793
======== ========
</TABLE>
<PAGE> 18
Available for sale securities included equity securities of Hibernia
Corporation. The Company had acquired common and preferred shares of Progressive
Bancorporation in 1993 from a debt previously contracted and had recorded the
shares at their estimated value of $1.00. During 1995, Progressive was acquired
by Hibernia Corporation. As a result of the merger, the Company received cash
for its Progressive preferred shares and common stock of Hibernia in exchange
for the Progressive common. The Company held the Hibernia common as an available
for sale security and recorded the stock at its fair value, with an unrealized
gain of $596,205 recorded, net of deferred tax, as an adjustment to
shareholders' equity. These shares were sold during 1997 at a realized gain of
$640,706.
During 1994, the Company purchased three multi-step up instruments issued by
the Federal Home Loan Bank with a total par value of $4,000,000. These
instruments had original maturity dates in 1996 and 2009 and provided for a call
option by the issuer at each interest payment date until maturity. There was a
fixed increase in the interest rate on an annual basis. The Company purchased
these instruments in the management of its interest rate exposure since these
notes carried a higher rate of interest than other agency notes available at the
time of purchase. Appropriate review of the market value and risk associated
with these investments is performed by Management. These investments were
classified as held to maturity and carried at amortized cost in compliance with
Management's positive intent and ability to hold these investments until
maturity. During 1995 and 1996, these investments were called at par value.
During 1996, the Company purchased a multi-step up instrument issued by the
Federal Home Loan Bank with a par value of $2,000,000 which was due to mature in
2001. This instrument was called at par value during 1997.
Proceeds from maturities and calls of held to maturity debt securities during
1997, 1996 and 1995 were $72,858,400, $160,217,482 and $111,143,796,
respectively. There were no sales of held to maturity debt securities during
1995, 1996 and 1997. Proceeds from maturities and calls of available for sale
debt securities were $6,377,022 and $19,935,000 during 1997 and 1996,
respectively. There were no maturities of available for sale debt securities
during 1995. There were no sales of available for sale debt securities during
1995, 1996 and 1997.
Securities with a carrying value of approximately $147,612,000, $165,515,000
and $172,802,000 at December 31, 1997, 1996 and 1995, respectively, were pledged
to secure public deposits, federal funds purchased and other balances required
by law.
<PAGE> 19
NOTE C - LOANS:
The composition of the loan portfolio was as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Real estate, construction $ 14,819 $ 14,704 $ 16,473
Real estate, mortgage 154,653 137,766 138,254
Loans to finance agricultural
production and other loans to
farmers 12,501 10,483 9,962
Commercial and industrial loans 50,224 48,057 39,228
Loans to individuals for
household, family and other
consumer expenditures 13,125 11,179 11,903
Obligations of states and political
subdivisions (primarily
industrial revenue bonds and
local government tax
anticipation notes) 5,257 4,496 5,469
All other loans 1,219 1,824 2,780
-------- -------- --------
Totals $251,798 $228,509 $224,069
======== ======== ========
</TABLE>
Transactions in the allowance for loan losses are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance, January 1 $ 4,523 $ 4,353 $ 4,901
Recoveries 347 459 154
Loans charged off (435) (139) (702)
Reduction of allowance for loan
losses (150)
------- ------- -------
Balance, December 31 $ 4,435 $ 4,523 $ 4,353
======= ======= =======
</TABLE>
In the ordinary course of business, the Company extends loans to certain
officers and directors and their personal business interests at, in the opinion
of Management, terms and rates comparable to other loans of similar credit
risks. These loans do not involve more than normal risk of collectability and do
not include other unfavorable features.
<PAGE> 20
An analysis of the activity with respect to such loans to related parties is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, January 1 $ 7,891 $ 6,857 $ 6,066
January 1 balance, loans of
officers and directors appointed
during the year 224
New loans and advances 22,358 28,599 24,908
Repayments (21,077) (27,789) (24,117)
-------- -------- --------
Balance, December 31 $ 9,172 $ 7,891 $ 6,857
======== ======== ========
</TABLE>
Industrial revenue bonds with a carrying value of $1,547,120, $3,318,251 and
$4,037,834 at December 31, 1997, 1996 and 1995, respectively, were pledged to
secure public deposits.
Nonaccrual loans amounted to approximately $1,167,000, $546,000 and $610,000
and renegotiated loans amounted to approximately $2,176,072, $2,303,562 and
$2,327,838 at December 31, 1997, 1996 and 1995, respectively. The Company
recognized $181,630 in interest income on renegotiated loans during 1997. The
amount of interest that would have been recognized during 1997 under the
original terms of the loan agreements was $200,525.
The total recorded investment in impaired loans amounted to $1,208,000,
$1,017,000 and $1,443,000 at December 31, 1997, 1996 and 1995, respectively. The
amount of that recorded investment in impaired loans for which there is a
related allowance for loan losses and the amount of that allowance was $149,000
at December 31, 1995. The amount of that recorded investment in impaired loans
for which there is no related allowance for loan losses was $1,208,000,
$1,017,000 and $1,294,000 at December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997, the average recorded investment in impaired loans was
$1,265,000. During 1997, the Company recognized $40,000 in interest income on
impaired loans and received $52,000 in interest payments on impaired loans.
<PAGE> 21
NOTE D - BANK PREMISES AND EQUIPMENT:
Bank premises and equipment are shown as follows (in thousands):
<TABLE>
<CAPTION>
Estimated
December 31, useful lives 1997 1996 1995
- ------------ ------------ ------- ------- -------
<S> <C> <C> <C> <C>
Land $ 1,339 $ 1,314 $ 1,293
Buildings 5-40 years 8,904 8,659 8,369
Furniture, fixtures and equipment 5-10 years 6,943 5,533 5,299
------- ------- -------
Totals, at cost 17,186 15,506 14,961
Less: Accumulated depreciation 7,762 6,880 6,171
------- ------- -------
Totals $ 9,424 $ 8,626 $ 8,790
======= ======= =======
</TABLE>
Depreciation expense charged to operations in 1997, 1996 and 1995 was
$1,075,877, $1,004,617 and $979,442, respectively.
<PAGE> 22
NOTE E - NOTES PAYABLE:
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
- ------------ ---------- ---------- ---------
<S> <C> <C> <C>
Small Business Administration,
outstanding mortgage on property
acquired. The note bears interest at
5-3/8% and is payable at $1,952 monthly
through January 16, 2004 $ 215,094 $ 226,608 $ 237,520
First Alabama Bank, $1,250,000 line of
credit of Peoples Financial Corporation
Employee Stock Ownership Plan, secured
by a pledge of 8,852 shares of Company
common stock at December 31, 1995,
pledge of 36,550 shares of The Peoples
Bank, Biloxi, Mississippi, and the
guarantee of the Company; interest rate
at 85% of the base rate of First
Alabama Bancshares, Inc. (7.225% at
December 31, 1995), plus $43,750
principal quarterly 200,000
---------- ---------- ---------
Totals $ 215,094 $ 226,608 $ 437,520
========== ========== =========
</TABLE>
The maturities of notes payable for each of the next five years are as
follows:
<TABLE>
<S> <C>
1998 $ 12,149
1999 12,819
2000 13,525
2001 14,271
2002 15,058
Thereafter 147,272
---------
Total $ 215,094
=========
</TABLE>
<PAGE> 23
NOTE F - INCOME TAXES:
Federal income taxes payable (or refundable) and deferred taxes (or deferred
charges) as of December 31, 1997, 1996 and 1995, included in other assets or
other liabilities, were as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
- ------------ ------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 776 $ 776 $ 827
Employee benefit plans'
liabilities 479 444 377
Other 192 129 173
------- ------- -------
Deferred tax assets (1,447) (1,349) (1,377)
------- ------- -------
Deferred tax liabilities:
Accumulated depreciation 950 865 795
Installment sales 14 15 16
Unrealized gains on available
for sale securities, charged to
equity 94 134 174
------- ------- -------
Deferred tax liabilities 1,058 1,014 985
------- ------- -------
Net deferred charges (389) (335) (392)
Current refundable (103) (183)
------- ------- -------
Totals $ (492) $ (335) $ (575)
======= ======= =======
</TABLE>
The Company has evaluated the need for a valuation allowance and, based on the
weight of the available evidence, has determined that it is more likely than not
that all deferred tax assets will eventually be realized.
Income taxes consist of the following components (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current $ 3,142 $ 2,936 $ 3,081
Deferred (54) 57 66
------- ------- -------
Totals $ 3,088 $ 2,993 $ 3,147
======= ======= =======
</TABLE>
<PAGE> 24
Deferred income taxes (benefits) resulted from the following (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ------------------------ ----- ----- -----
<S> <C> <C> <C>
Depreciation $ 85 $ 70 $ (2)
Installment sales (1) (1) (1)
Provision for loan losses 51
Officers' and directors' life
insurance (35) (67) (88)
Unrealized gain on available for
sale securities (40) (40) 174
Other (63) 44 (17)
----- ----- -----
Totals $ (54) $ 57 $ 66
===== ===== =====
</TABLE>
Income taxes amounted to less than the amounts computed by applying the U.S.
Federal income tax rate of 34.0% for 1997, 1996 and 1995, to earnings before
income taxes. The reason for these differences is shown below (in thousands):
<TABLE>
<CAPTION>
Years Ended December 1997 1996 1995
31, Amount % Amount % Amount %
- -------------------- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Taxes computed at
statutory rate $ 3,215 34.0 $ 3,107 34.0 $ 3,338 34.0
Increase (decrease)
resulting from:
Tax-exempt interest
income (250) (2.6) (288) (3.2) (286) (2.8)
Deductible dividends to
ESOP (1) (0.1) (3) (0.1)
Non-deductible interest 33 0.3 36 0.4 31 0.3
Non-deductible
amortization 98 1.1 100 1.1 92 1.0
Other, net (8) (0.1) 39 0.5 (25) (0.3)
------- ---- ------- ---- ------- ----
Total income taxes $ 3,088 32.7 $ 2,993 32.7 $ 3,147 32.1
======= ==== ======= ==== ======= ====
</TABLE>
<PAGE> 25
During a prior year, the Internal Revenue Service began an audit of the
Company's 1994 and 1993 returns. As a result of the examination, adjustments
were proposed by the Internal Revenue Service. The Company agreed with the
adjustments and paid an assessment of $102,000 on July 23, 1996, which included
interest of $17,000.
NOTE G - SHAREHOLDERS' EQUITY:
On November 22, 1995, the Company's Board of Directors approved a two for one
stock split of the common shares of the Company. As a result of this split,
shareholders holding a total of 184,542 shares of Company stock received an
additional 184,542 common shares. On October 4, 1996, the Company's Board of
Directors approved a two for one stock split of the common shares of the
Company. As a result of this split, shareholders holding a total of 369,084
shares of Company stock received an additional 369,084 common shares. On August
27, 1997, the Company's Board of Directors approved a two for one stock split of
the common shares of the Company. As a result of this split, shareholders
holding a total of 738,168 shares of Company stock received an additional
738,168 common shares. The Consolidated Statements of Condition and
Shareholders' Equity have been restated to give retroactive effect to these
splits. Additionally, all share and per share data have also been given
retroactive effect for these splits.
Banking regulations limit the amount of dividends that may be paid without
prior approval of the Commissioner of Banking and Consumer Finance of the State
of Mississippi. At December 31, 1997, approximately $1,699,562 of undistributed
earnings of the bank subsidiary included in consolidated surplus and retained
earnings was available for future distribution to the Company as dividends,
subject to approval by the Board of Directors.
NOTE H - OTHER EXPENSES:
Other expenses consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Amortization $ 306,596 $ 317,832 $ 317,832
Advertising 546,308 498,820 346,248
Data processing 965,944 841,174 919,036
FDIC and state banking
assessments 91,368 188,060 467,623
Legal and accounting 354,343 328,788 213,799
Postage and freight 131,160 160,448 111,521
Stationary, printing and supplies 198,984 242,367 284,841
Other real estate 53,299 (15,465) 218,484
ATM expense 1,341,118 1,286,179 1,154,642
Federal Reserve service charges 89,964 96,416 91,163
Conferences and classes 149,316 110,119 138,416
Taxes and licenses 212,036 183,826 192,739
Consulting fees 30,942 27,270 23,100
Trust expense 192,420 151,223 191,175
Other 814,458 654,044 556,512
----------- ----------- -----------
Totals $ 5,478,256 $ 5,071,101 $ 5,227,131
=========== =========== ===========
</TABLE>
<PAGE> 26
NOTE I - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Company 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.
These financial instruments include commitments to extend credit and irrevocable
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance
sheet. The contract amounts of those instruments reflect the extent of
involvement the bank subsidiary has in particular classes of financial
instruments. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and irrevocable letters of credit is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
At December 31, 1997, 1996 and 1995, the Company had outstanding irrevocable
letters of credit aggregating $3,156,909, $1,170,107 and $1,944,505,
respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any conditions established in the agreement.
Irrevocable letters of credit written are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Commitments
and irrevocable letters of credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since some of the
commitments and irrevocable letters of credit may expire without being drawn
upon, the total amounts do not necessarily represent future cash requirements.
The Company evaluated each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained upon extension of credit is based on
Management's credit evaluation of the customer. Collateral obtained varies but
may include equipment, real property and inventory.
The Company generally grants loans to customers in its primary trade area of
Harrison, Hancock and west Jackson counties. The Company also grants loans on a
limited basis in Claiborne County.
<PAGE> 27
NOTE J - CONTINGENCIES:
In January 1996, a class action suit was filed against the Company's bank
subsidiary related to the placement of collateral protection insurance by the
bank subsidiary. The attempt to certify a class action was unsuccessful. In
October of 1997, the case was settled with the bank subsidiary making an
immaterial cash payment to the plaintiff.
The bank is involved in various other legal matters and claims which are being
defended and handled in the ordinary course of business. None of these matters
is expected, in the opinion of Management, to have a material adverse effect
upon the financial position or results of operations of the Company.
NOTE K - CONDENSED PARENT COMPANY ONLY FINANCIAL INFORMATION:
Peoples Financial Corporation began its operations September 30, 1985, when it
acquired all the outstanding stock of The Peoples Bank, Biloxi, Mississippi. A
condensed summary of its financial information is shown below.
CONDENSED BALANCE SHEETS (in thousands)
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
- ------------ ------- ------- -------
<S> <C> <C> <C>
ASSETS
Investments in subsidiaries, at underlying equity:
Bank subsidiary $65,162 $59,720 $54,135
Nonbank subsidiary 55 55 53
Cash in bank subsidiary 306 48 74
Intangible assets 189 496 813
Other assets 655 656 210
------- ------- -------
TOTAL ASSETS $66,367 $60,975 $55,285
======= ======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Notes payable, nonaffiliates $ 200
Deferred federal income taxes 595 621 503
------- ------- -------
Total liabilities 595 621 703
Shareholders' equity 65,772 60,354 54,582
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $66,367 $60,975 $55,285
======= ======= =======
</TABLE>
<PAGE> 28
CONDENSED STATEMENTS OF INCOME (in thousands)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ------------------------ ------ ------ ------
<S> <C> <C> <C>
INCOME
Earnings of unconsolidated bank subsidiary:
Distributed earnings $ 875 $ 800 $ 740
Undistributed earnings 5,240 5,373 5,952
Earnings of unconsolidated
nonbank subsidiary 1 2 2
Interest income 4 3 3
Other income 288 12 15
------ ------ ------
TOTAL INCOME 6,408 6,190 6,712
------ ------ ------
EXPENSES
Other expense 53 59 52
------ ------ ------
TOTAL EXPENSES 53 59 52
------ ------ ------
INCOME BEFORE BENEFIT FROM
INCOME TAXES 6,355 6,131 6,660
Benefit from income taxes 12 15 11
------ ------ ------
NET INCOME $6,367 $6,146 $6,671
====== ====== ======
</TABLE>
<PAGE> 29
CONDENSED STATEMENTS OF CASH FLOWS (in thousands)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ------------------------ ------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 6,367 $ 6,146 $ 6,671
Adjustments to reconcile net income to
net cash provided by operating
activities:
Net income of unconsolidated
subsidiaries (6,116) (6,175) (6,694)
Changes in assets and
liabilities:
Accrued expenses 3 (3) 4
------- ------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 254 (32) (19)
------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Dividends from unconsolidated
subsidiary 875 800 740
------- ------- -------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 875 800 740
------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends paid (871) (794) (747)
------- ------- -------
NET CASH USED IN FINANCING
ACTIVITIES (871) (794) (747)
------- ------- -------
NET INCREASE (DECREASE) IN CASH 258 (26) (26)
CASH, BEGINNING OF YEAR 48 74 100
------- ------- -------
CASH, END OF YEAR $ 306 $ 48 $ 74
======= ======= =======
</TABLE>
Peoples Financial Corporation paid income taxes of $3,199,740, $2,869,605 and
$3,498,388 in 1997, 1996 and 1995, respectively. No interest was paid during the
three years ended December 31, 1997.
<PAGE> 30
NOTE L - EMPLOYEE BENEFIT PLANS:
The Company sponsored the Peoples Financial Corporation Retirement Plan
(Pension Plan), a non-contributory defined benefit pension plan covering
substantially all salaried, full-time employees. Pension benefits were fully
vested after 7 years and were based on average compensation during years of
service, with 1985 compensation used for each year prior to 1985. A partial
reduction in benefits was provided for each year less than 30 years of service.
The Company's funding policy for years presented was to contribute no more than
the minimum funding requirement for federal income tax purposes.
The following is a summary of the components of net periodic pension cost:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995
- ------------------------ -------- ---------
<S> <C> <C>
Interest cost $ 47,827 $ 72,937
Return on assets (36,147) (66,247)
-------- --------
Net periodic pension cost $ 11,680 $ 6,690
======== ========
</TABLE>
Net pension cost was determined for 1995 based on expected return on assets.
Actual return on plan assets was $80,623 for the year ended December 31, 1995,
resulting in a difference of $14,376 between expected return and actual return
on assets.
Effective December 31, 1991, the Pension Plan was frozen and no additional
benefits accrued under the Plan. The accrued benefit of each participant, other
than a highly compensated employee within the meaning of Section 414(q)(A) or
(B) of the Internal Revenue Code, was equal to the employee's accrued benefit
calculated as of December 31, 1991. The accrued benefit of a highly compensated
employee was equal to the employee's accrued benefit as of the December 31
preceding the Plan year in which the employee became a highly compensated
employee, but no earlier than December 31, 1988. Future credited service counted
for vesting purposes for those participants not fully vested at December 31,
1991. All participants were notified of these events on December 14, 1991, in
accordance with ERISA. No new participants entered the Plan after December 31,
1991. The Pension Plan was amended on December 16, 1994, to comply with the
Internal Revenue Code. The amendment was retroactively effective to January 1,
1989, unless specifically indicated to the contrary.
On June 28, 1995, the Board of Directors of the Company voted to terminate the
Plan effective September 1, 1995. The participants were notified of this event
by June 29, 1995, in accordance with ERISA. Approval was received from the
Internal Revenue Service on March 18, 1996, to terminate the Plan. Upon the
Plan's termination, each participant became 100% vested in their accrued
benefit. All assets of the Plan were distributed to participants either as a
lump sum or by the purchase of an annuity with an insurance carrier on July 18
and August 28, 1996. The lump sum distributions were calculated using the GATT
interest rate in effect as of January 1, 1996 (6.06%) and a 50/50 blend of the
1983 Group Annuity Mortality for males and females. The loss realized as a
result of the termination was $426,747. The Company was obligated to make
further contributions to provide sufficient funds to settle the liabilities of
the Plan. The Company made contributions of $95,890 and $215,774 to the Plan
during 1996 and 1995, respectively, to fulfill its obligation.
<PAGE> 31
The following table sets forth the Pension Plan's funded status at December
31, 1995:
<TABLE>
<CAPTION>
December 31, 1995
- ---------------------------------- -------------
<S> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 1,195,676
------------
Accumulated and projected
benefit obligation 1,195,676
Plan assets at fair value 1,092,326
------------
Projected benefit obligation
greater than plan assets 103,350
Unrecognized net loss from past
experience different from that
assumed and effects of
changes in assumptions 446,230
Additional minimum liability (446,230)
------------
Accrued pension cost $ 103,350
============
</TABLE>
A weighted average discount rate of 6.00% for 1995, and a rate of increase in
future compensation levels of 5% was used in determining the actuarial present
value of the projected benefit obligation.
The Company also sponsors the Peoples Financial Corporation Employee Stock
Ownership Plan (ESOP). Company Management curtailed the Pension Plan in 1991 and
decided to terminate the Plan in 1995 because of their intent to make the ESOP,
which is more flexible than the Pension Plan, the primary benefit plan, and
because of the high cost of administering two plans.
The employee stock ownership plan covers substantially all salaried, full-time
employees. The effective date of the ESOP is December 24, 1984. On November 22,
1989, the plan was amended and restated effective January 1, 1989, to comply
with Internal Revenue Code of 1986 and other regulations, to adopt 401(k)
provisions for the plan, and effective December 31, 1989, to merge the former
Gulf National Bank Profit Sharing Plan into the plan. On December 31, 1991, the
plan was amended effective January 1, 1991, except where specifically indicated
to the contrary, to adjust, among other things, the Employer Discretionary
Matching Contribution and the vesting schedule. On December 16, 1994, the plan
was amended effective January 1, 1989, except where specifically indicated to
the contrary, to comply with the Internal Revenue Code and to clarify the
hardship distribution provisions. Contributions are determined by the Board of
Directors and may be paid either in cash or Peoples Financial Corporation
capital stock. Total contributions to the plan charged to operating expense were
$210,000, $240,000 and $300,000 in 1997, 1996 and 1995, respectively.
<PAGE> 32
In November 1993, Statement of Position 93-6, "Employers' Accounting for
Employee Stock Ownership Plans" was issued. This Statement prescribes the
accounting treatment for transactions involving leveraged esop's. Specifically,
the Statement applied to shares acquired by such plans after December 31, 1992
and was effective for fiscal years beginning after December 15, 1993. The ESOP
was a leveraged esop. All shares held by the ESOP were acquired before that
date. Application of the Statement is limited to disclosure of information
relating to the description and administration of the plan. At December 31,
1997, 1996 and 1995, the ESOP owned 186,779, 188,560 and 188,128 shares of
common stock of the Company. Of these shares, 8,852 shares were held in suspense
at First Alabama Bancshares as security on the line of credit at December 31,
1995. The remaining shares were allocated to participants' accounts. The
agreement with First Alabama provided for the release of shares held as
collateral as payments were made based on a fraction applied to the total shares
held as collateral. The numerator of the fraction was the principal and interest
paid during the plan year and the denominator was the numerator plus the
principal and interest to be paid during all future years. Dividends on
allocated shares are credited to participants' accounts. Dividends on
unallocated shares were used to reduce the principal on the line of credit. The
line of credit was paid off on April 18, 1996, and all shares held as collateral
were released by First Alabama.
The Company established an Executive Supplemental Income Plan and a Directors'
Deferred Income Plan in 1985. These plans provide for non-vested pre-retirement
and post-retirement benefits to certain key executives and directors. The
Company has acquired insurance policies, with the bank subsidiary as owner and
beneficiary, that it may use as a source to pay potential benefits to the plan
participants. These contracts are carried at their cash surrender value, which
amounted to $2,293,656, $2,070,924 and $1,816,846 at December 31, 1997, 1996 and
1995, respectively. The present value of accumulated benefits under these plans,
using an interest rate of 10%, and the projected unit cost method has been
accrued. The accrual amounted to $1,146,192, $1,046,262 and $837,469 at December
31, 1997, 1996 and 1995, respectively.
The Company also has additional plans for non-vested post-retirement benefits
for certain key executives and directors. The Company has acquired insurance
policies, with the bank subsidiary as owner and beneficiary, that it may use as
a source to pay potential benefits to the plan participants. Additionally, there
are two split dollar policies of which certain executive officers are the owners
and beneficiaries, and which are assigned to the bank subsidiary for the
repayment of premiums paid by the Company. These contracts are carried at their
cash surrender value, which amounted to $283,150, $281,937 and $268,891 at
December 31, 1997, 1996 and 1995, respectively. The present value of accumulated
benefits under these plans using an interest rate of 8.50% and the projected
unit cost method has been accrued. The accrual amounted to $263,809, $259,508
and $258,577 at December 31, 1997, 1996 and 1995, respectively.
The Financial Accounting Standards Board issued SFAS 106, "Employers'
Accounting for Post-Retirement Benefits Other Than Pensions." The Statement
requires that the expected cost of providing these post-retirement benefits be
recognized during the period of active employment. The Company provides
post-retirement health insurance to certain of its retired employees. Employees
are eligible to participate in the retiree health plan if they retire from
active service no earlier than their Social Security normal retirement age,
which varies from 65 to 67 based on the year of birth. In addition, the employee
must have at least 25 continuous
<PAGE> 33
years of service with the Company immediately preceding retirement. However, any
active employee who is at least age 65 as of January 1, 1995, does not have to
meet the 25 years of service requirement. Statement 106 was adopted by the
Company on January 1, 1995. The accumulated post-retirement benefit obligation
at that date was $517,599, which the Company has elected to amortize over 20
years. The Company reserves the right to modify, reduce or eliminate these
health benefits.
The following is a summary of the components of the net periodic
postretirement benefit cost:
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ------------------------------ -------- -------- --------
<S> <C> <C> <C>
Service cost $ 39,595 $ 49,154 $ 30,841
Interest cost 41,260 49,381 42,962
Amortization of net transition
obligation 20,600 38,498 25,880
-------- -------- --------
Net periodic postretirement
benefit cost $101,455 $137,033 $ 99,683
======== ======== ========
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.00% in 1997 and 1995, and 7.50% in 1996. The assumed health
care cost trend rate used in measuring the accumulated postretirement benefit
obligation was 9.45% in 1997. The rate was assumed to decrease gradually to
6.00% for 2016 and remain at that level thereafter. If the health care cost
trend rate assumptions were increased 1%, the accumulated postretirement benefit
obligation as of December 31, 1997, would be increased by 20.02%, and the
aggregate of the service and interest cost components of the net periodic
postretirement benefit cost for the year then ended would have increased by
26.47%.
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
- -------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 236,748 $ 185,595 $ 242,875
Eligible to retire 70,923 101,298 116,307
Not eligible to retire 278,203 352,473 358,762
---------- ---------- ----------
Total 585,874 639,366 717,944
Plan assets at fair value -0- -0- -0-
---------- ---------- ----------
Accumulated postretirement
benefit obligation in excess of
plan assets 585,874 639,366 717,944
Unrecognized transition
obligation (350,197) (465,839) (491,719)
Prior service cost not yet
recognized in net periodic post-
retirement benefit cost 95,042
Unrecognized net (gain) loss from
past experience different from
that assumed and from changes
in assumptions 31,734 (77,273) (146,962)
---------- ---------- ----------
Accrued postretirement benefit
cost $ 267,411 $ 191,296 $ 79,263
========== ========== ==========
</TABLE>
<PAGE> 34
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS:
In December 1991, the Financial Accounting Standards Board issued SFAS 107,
"Disclosures About Fair Value of Financial Instruments." SFAS 107 requires all
entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the statement of condition, for
which it is practical to estimate its fair value.
SFAS 107 excluded certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
In preparing these disclosures, Management made highly sensitive estimates and
assumptions in developing the methodology to be utilized in the computation of
fair value. These estimates and assumptions were formulated based on judgments
regarding economic conditions and risk characteristics of the financial
instruments that were present at the time the computations were made. Events may
occur that alter these conditions and thus perhaps change the assumptions as
well. A change in the assumptions might affect the fair value of the financial
instruments disclosed in this footnote. In addition, the tax consequences
related to the realization of the unrealized gains and losses have not been
computed or disclosed herein.
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments.
Cash and Due from Banks
The amount shown as cash and due from banks approximates fair value.
Available for Sale Securities
The fair value of available for sale securities is based on quoted market
prices.
Held to Maturity Securities
The fair value of held to maturity securities is based on quoted market
prices.
Loans
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings for the remaining maturities. The cash flows considered
in computing the fair value of such loans are segmented into categories relating
to the nature of the contract and collateral based on contractual principal
maturities. Appropriate adjustments are made to reflect probable credit losses.
Cash flows have not been adjusted for such factors as prepayment risk or the
effect of the maturity of balloon notes.
Deposits
The fair value of non-interest bearing demand and interest bearing savings and
demand deposits is the amount reported in the financial statements. The fair
value of time deposits is estimated by discounting the cash flows using current
rates of time deposits with similar remaining maturities. The cash flows
considered in computing the fair value of such deposits are based on contractual
maturities, since approximately 98% of time deposits provide for automatic
renewal at current interest rates.
Federal Funds Purchased
The amount shown as federal funds purchased approximates fair value.
Notes Payable
The fair value of notes payable is computed by discounting the cash flows
using current borrowing rates.
Irrevocable Letters of Credit
The fair value of irrevocable letters of credit is estimated using the fees
currently charged to enter into similar agreements.
<PAGE> 35
The following table presents carrying amounts and estimated fair values for
financial assets and financial liabilities at December 31, 1997, 1996 and 1995
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------------
CARRYING FAIR Carrying Fair Carrying Fair
AMOUNT VALUE Amount Value Amount Value
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Financial Assets:
Cash and due
from banks $ 20,611 $20,611 $ 26,874 $26,874 $ 24,220 $24,220
Available for sale
securities 47,678 47,678 53,159 53,159 20,830 20,830
Held to maturity
securities 102,836 103,793 127,870 128,879 165,142 167,384
Loans, net 247,361 247,210 223,969 225,492 219,694 219,269
Financial
Liabilities:
Deposits:
Non-interest
bearing 67,581 67,581 73,535 73,535 63,256 63,256
Interest
bearing 304,974 305,159 294,597 294,728 312,916 313,095
-------- ------- -------- ------- -------- -------
Total deposits 372,555 372,740 368,132 368,263 376,172 376,351
Federal funds
purchased 16,500 16,500 12,150 12,150
Notes payable 215 189 227 198 438 402
Irrevocable
letters of
credit -- 32 -- 12 -- 19
</TABLE>
<PAGE> 36
NOTE N - REGULATORY MATTERS:
The bank subsidiary is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by the regulators that, if undertaken, could have a
direct material effect on the bank's subsidiary's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the bank subsidiary must meet specific capital guidelines that involve
quantitative measures of the bank subsidiary's assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. The
bank subsidiary's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the bank subsidiary to maintain minimum amounts and ratios of total and
Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets.
As of December 31, 1997, the most recent notification from the Federal Deposit
Insurance Corporation categorized the bank subsidiary as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized, the bank subsidiary must have a total risk-based capital ratio of
10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a
leverage capital ratio of 5% or greater. There are no conditions or events since
that notification that Management believes have changed the bank subsidiary's
category.
The bank subsidiary's actual capital amounts and ratios and required minimum
capital amounts and ratios for 1997, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
For Capital Adequacy
Actual Purposes
------------------------ ------------------------
Amount Ratio Amount Ratio
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS) $ 68,186,611 26.83% $ 20,333,200 8.00%
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS) 65,010,555 25.58 10,166,600 4.00
TIER 1 CAPITAL (TO AVERAGE ASSETS) 65,010,555 14.61 17,800,360 4.00
December 31, 1996:
Total Capital (to Risk Weighted Assets) 62,072,284 26.20 18,952,160 8.00
Tier 1 Capital (to Risk Weighted Assets) 59,111,009 24.95 9,476,080 4.00
Tier 1 Capital (to Average Assets) 59,111,009 12.63 18,713,857 4.00
December 31, 1995:
Total Capital (to Risk Weighted Assets 56,363,238 24.89 18,112,782 8.00
Tier 1 Capital (to Risk Weighted Assets) 53,533,730 23.64 9,056,391 4.00
Tier 1 Capital (to Average Assets) 53,533,730 12.46 17,186,775 4.00
</TABLE>
<PAGE> 37
NOTE O - REAL ESTATE TRANSACTIONS:
During October 1997, the Company completed a review of the accessability and
convenience to its customers of its branch locations. As a result, the Company
has commenced a series of transactions whereby the Company's Highway 90 branch
located at 3300 W. Beach Blvd. in Gulfport, MS, will be sold, with the proceeds
being reinvested into other parcels of real estate which will be needed as
future branch locations and an expanded operations center. The Company expects
the series of transactions to be completed by July 31, 1998. The Company has
received an option on the Highway 90 branch which will result in the Company's
bank subsidiary realizing a gain, net of income taxes, of approximately
$3,300,000 during the first quarter of 1998. The Company has structured the
transaction so as to qualify most of the transaction for the tax benefits of a
like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of
1986. An option has been placed on one parcel of property to be used as
replacement property in the like kind exchange.
<PAGE> 38
INDEPENDENT AUDITORS' REPORT
Peoples Financial Corporation and Subsidiaries
Board of Directors
Peoples Financial Corporation and Subsidiaries
Biloxi, Mississippi
We have audited the accompanying consolidated statements of condition of
Peoples Financial Corporation and Subsidiaries as of December 31, 1997, 1996 and
1995, and the related consolidated statements of income, shareholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's Management. Our responsibility is to express an
opinion on these 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Peoples
Financial Corporation and Subsidiaries at December 31, 1997, 1996 and 1995, and
the results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Certified Public Accountants
PILTZ, WILLIAMS, LAROSA & CO.
Biloxi, Mississippi
January 16, 1998
<PAGE> 39
Board of Directors
Peoples Financial Corporation
Chevis C. Swetman, Chairman of the Board
Andy Carpenter, Vice Chairman
Drew Allen, President, Allen Beverages, Inc.
William A. Barq, Former Owner and President (retired),
Barq's Bottling Co., Inc.
F. Walker Tucei, Executive Vice-President (retired),
The Peoples Bank, Biloxi, Mississippi
Officers
Peoples Financial Corporation
Chevis C. Swetman, President and CEO
Andy Carpenter, Executive Vice-President
Jeannette E. Romero, First Vice-President
Thomas J. Sliman, Second Vice-President
Robert M. Tucei, Vice-President
David M. Hughes, Vice-President
Lauri A. Wood, Chief Financial Officer and Controller
A. Wes Fulmer, Secretary
Board of Directors
The Peoples Bank
Chevis C. Swetman, Chairman
William A. Barq, Vice-Chairman, Former Owner and President (retired), Barq's
Bottling Co., Inc.
Drew Allen, President, Allen Beverages, Inc.
Andy Carpenter, Executive Vice-President, The Peoples Bank, Biloxi, Mississippi
Tyrone J. Gollott, Secretary-Treasurer, Gollott & Sons Transfer & Storage, Inc.
Liz Corso Joachim, President, Frank P. Corso, Inc.
Rex E. Kelly, Director of Corporate Communications, Mississippi Power Company
Dan Magruder, President, Rex Distributing Co., Inc.
Jeffrey H. O'Keefe, President, Bradford-O'Keefe Funeral Homes, Inc.
Lyle M. Page, Partner, Page, Mannino, Peresich, Dickinson & McDermott
F. Walker Tucei, Executive Vice-President (retired), The Peoples Bank, Biloxi,
Mississippi
<PAGE> 40
Officers
The Peoples Bank
SENIOR MANAGEMENT
Chevis C. Swetman, President and CEO
Andy Carpenter, Executive Vice-President
Jeannette E. Romero, Senior Vice-President
Thomas J. Sliman, Senior Vice-President
Robert M. Tucei, Senior Vice-President
David M. Hughes, Senior Vice-President
Lauri A. Wood, Senior Vice-President
A. Wes Fulmer, Senior Vice-President
COMMERCIAL LENDING
Darnell M. Hebert, Assistant Vice-President
CONSUMER LENDING
Brian J. Kozlowski, Loan Officer
COMPLIANCE
Evelyn R. Madison, Compliance Officer
AUDIT AND ACCOUNTING
Gregory M. Batia, Assistant Auditor
Caroline B. Randolph, Assistant Auditor - Trust
Connie F. Lepoma, Accounting Officer
INVESTMENTS
Peggy M. Byrd, Vice-President
Janet H. Wood, Investment Officer
LOAN PROCESSING
Donna F. Bessetti, Vice-President
Jesse J. Migues, Assistant Vice-President
LOAN REVIEW
Robert E. Smith, Jr., Assistant Vice-President
F. Kay Woodbury, Loan Review Officer
PERSONNEL
Jackie L. Henson, Vice-President
Janis C. Culler, Vice-President - Employee Benefits
Patricia L. Levine, Assistant Vice-President
<PAGE> 41
MARKETING
Jeanne S. Adams, Marketing Director
ASSET MANAGEMENT & TRUST SERVICES
M. O. Lawrence, III, Vice-President
Ann F. Guice, Trust Officer
Louise C. Johns, Assistant Trust Officer
Thomas H. Wicks, Assistant Trust Officer
PROPERTY
Shirley A. Braun, Assistant Vice-President
Ray I. Cross, Assistant Vice-President - Appraisals
SECURITY
Robin J. Vignes, Assistant Vice-President
Minh-Tuyet Nguyen, Assistant Security Officer
CASH MANAGEMENT
Larry A. Evans, Cash Management Officer
Gloria A. Cothern, Assistant Vice-President
DATA PROCESSING
Sandra L. York, Vice-President - Information Systems
Dennis J. Burke, Vice-President - Business Solutions
George S. Tranum, Assistant Vice-President - Technical Support
Ronald L. Baldwin, Systems Support Technician
Scott P. Landrum, Data Processing Officer
OPERATIONS/OTHER SERVICES
Cheryl A. Dubaz, Assistant Vice-President - ATM
Susan B. Polovich, Assistant Operations Officer
Charlotte R. Balius, Bankcard Officer
Janice L. Smitherman, Administrative Officer
Cassandra F. Reid, Assistant Cashier
Ardell M. Roberts, Assistant Cashier
Hugh J. Kavanagh, Assistant Cashier
Kathy S. Comstock, Savings Officer
Kathleen M. Worrell, Insurance Officer
Yvonne P. Owen, Assistant Cashier
<PAGE> 42
BRANCH LOCATIONS AND OFFICERS
The Peoples Bank
BILOXI BRANCHES
MAIN OFFICE, 152 Lameuse Street, Biloxi, Mississippi 39530, (228) 435-5511
Ralph A. Seymour, Vice-President
VETERANS AVENUE OFFICE, 186 Veterans Avenue, Biloxi, Mississippi 39531,
(228) 897-8711
R. Patrick Byrd, Branch Manager
WEST BILOXI OFFICE, 2430 Pass Road, Biloxi, Mississippi 39531, (228) 435-8203
Robert A. Brashier, Vice-President
GULFPORT BRANCHES
DOWNTOWN GULFPORT OFFICE, 3014 11th Street, Gulfport, Mississippi 39501,
(228) 897-8715
David M. Hughes, Senior Vice-President
John W. McKellar, Vice-President
Brent G. Johnson, Assistant Vice-President
C. J. Tennant, Commercial Loan Officer
Diana W. Williams, Branch Manager
Shannon D. Garrett, Loan Officer
HANDSBORO OFFICE, 0412 E. Pass Road, Gulfport, Mississippi 39507, (228) 897-8717
Andrew M. Welter, Branch Manager
ORANGE GROVE OFFICE, 12020 Highway 49 North, Gulfport, Mississippi 39503,
(228) 897-8718
Mark A. Chatham, Assistant Vice-President
OTHER BRANCHES
BAY ST. LOUIS OFFICE, 408 Highway 90 East, Bay St. Louis, Mississippi 39520,
(228) 897-8710
Jeannie M. Deen, Vice-President
Read H. Breeland, Assistant Vice-President
DIAMONDHEAD OFFICE, 4408 West Aloha Drive, Diamondhead, Mississippi 39525,
(228) 897-8714
J. Patrick Wild, Assistant Vice-President
D'IBERVILLE-ST. MARTIN OFFICE, 10491 Lemoyne Boulevard, D'Iberville,
Mississippi 39532, (228) 435-8202
Jerome D. Dodge, II, Vice-President
LONG BEACH OFFICE, 403 Jeff Davis Avenue, Long Beach, Mississippi 39560
(228) 897-8712
Eric M. Chambless, Branch Manager
OCEAN SPRINGS OFFICE, 2015 Bienville Boulevard, Ocean Springs,
Mississippi 39564, (228) 435-8204
Ronnie F. Harrison, Assistant Vice-President
PASS CHRISTIAN OFFICE, 125 Henderson Avenue, Pass Christian, Mississippi 39571,
(228) 897-8719
Gerald C. Gex, Jr., Assistant Vice-President
Diana T. Winland, Loan Officer
<PAGE> 43
SHAREHOLDER INFORMATION
Peoples Financial Corporation and Subsidiaries
DIVIDEND SERVICES/ADDRESS CHANGE/STOCK TRANSFER:
For complete information concerning the common stock of Peoples Financial
Corporation, inquiries should be directed to:
M. O. Lawrence, III, Vice-President, Asset Management & Trust
Services Department
P. O. Box 1416, Biloxi, Mississippi 39533-1416
(228) 435-8208
INDEPENDENT AUDITORS:
Piltz, Williams, LaRosa & Company, Biloxi, Mississippi
S.E.C. FORM 10-K REQUESTS:
A copy of the Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission, may be obtained without charge by directing a written
request to:
Lauri A. Wood, Chief Financial Officer and Controller, Peoples Financial
Corporation, P. O. Drawer 529, Biloxi, Mississippi 39533-0529
(228) 435-8412
<PAGE> 1
EXHIBIT 23
Consent of Certified Public Accountants
We consent to the use of our reports, dated January 16, 1998, in Form 10-K
filing of the Peoples Financial Corporation.
PILTZ, WILLIAMS, LAROSA & CO.
Biloxi, Mississippi
March 19, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 20,611,495
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,150,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,677,562
<INVESTMENTS-CARRYING> 102,835,564
<INVESTMENTS-MARKET> 103,793,000
<LOANS> 251,796,252
<ALLOWANCE> 4,434,770
<TOTAL-ASSETS> 441,758,529
<DEPOSITS> 372,554,829
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,490,081
<LONG-TERM> 215,094
0
0
<COMMON> 1,476,336
<OTHER-SE> 64,295,426
<TOTAL-LIABILITIES-AND-EQUITY> 441,758,529
<INTEREST-LOAN> 21,776,773
<INTEREST-INVEST> 9,958,977
<INTEREST-OTHER> 499,722
<INTEREST-TOTAL> 32,235,472
<INTEREST-DEPOSIT> 12,847,337
<INTEREST-EXPENSE> 12,956,362
<INTEREST-INCOME-NET> 19,279,110
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 667,728
<EXPENSE-OTHER> 16,065,668
<INCOME-PRETAX> 9,454,737
<INCOME-PRE-EXTRAORDINARY> 9,454,737
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,366,997
<EPS-PRIMARY> 4
<EPS-DILUTED> 4
<YIELD-ACTUAL> 4.88
<LOANS-NON> 1,167,000
<LOANS-PAST> 2,882,000
<LOANS-TROUBLED> 2,176,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,522,704
<CHARGE-OFFS> 434,934
<RECOVERIES> 347,000
<ALLOWANCE-CLOSE> 4,434,770
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 50,000
</TABLE>
