<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
---------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 Identification No.)
incorporation or organization)
Lameuse and Howard Avenues, Biloxi, Mississippi 39533
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(228) 435-5511
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Peoples Financial Corporation has only one class of common stock authorized. At
July 24, 1998, there were 15,000,000 shares of $1 par value common stock
authorized, and 1,476,336 shares issued and outstanding.
Page 1 of 18
<PAGE> 2
PART I
FINANCIAL INFORMATION
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31, and June 30, 1998 1997 1997
- ---------------------------------- ---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 29,977,082 $ 20,611,495 $ 31,912,528
Available for sale securities 32,081,876 47,677,562 52,488,162
Held to maturity securities, market value
of $116,903,000 - June 30, 1998; $103,793,000 -
December 31, 1997; $98,961,000 - June 30, 1997 116,076,083 102,835,564 98,235,185
Federal funds sold 700,000 6,150,000 6,550,000
Loans 271,411,969 251,797,566 235,636,534
Less: Unearned income 6,229 1,314 11,470
Allowance for loan losses 4,359,149 4,434,770 4,455,467
------------ ------------ ------------
Loans, net 267,046,591 247,361,482 231,169,597
Bank premises and equipment, net
of accumulated depreciation of $8,141,000 -
June 30, 1998; $7,762,000 - December 31, 1997;
and $7,296,000 - June 30, 1997 10,847,857 9,424,080 8,807,383
Other real estate 577,537 512,370 446,384
Accrued interest receivable 3,616,059 3,619,917 3,790,385
Other assets 7,123,341 3,376,662 3,364,594
Intangible assets 47,354 189,397 337,077
------------ ------------ ------------
Total assets $468,093,780 $441,758,529 $437,101,295
============ ============ ============
</TABLE>
Page 2 of 18
<PAGE> 3
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31, and June 30, 1998 1997 1997
- ---------------------------------- ---- ---- ----
<S> <C> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand, non-interest bearing $ 74,068,331 $ 67,580,617 $ 71,369,923
Savings and demand, interest bearing 176,131,304 160,499,479 165,355,414
Time, $100,000 or more 73,262,425 83,700,139 75,620,996
Other time deposits 64,197,217 60,774,594 58,659,063
------------- ------------- -------------
Total deposits 387,659,277 372,554,829 371,005,396
Accrued interest payable 737,027 726,763 814,151
Federal funds purchased and securities
sold under agreements to repurchase 4,507,412
Notes payable 209,102 215,094 220,928
Other liabilities 3,960,359 2,490,081 2,376,110
------------- ------------- -------------
TOTAL LIABILITIES 397,073,177 375,986,767 374,416,585
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 15,000,000
shares authorized, 1,476,336 shares
issued and outstanding at June 30, 1998,
December 31, 1997 and June 30, 1997,
after giving retroactive effect to two
for one stock split effective
September 15, 1997 1,476,336 1,476,336 1,476,336
Surplus 58,188,094 58,188,094 53,188,094
Undivided profits 11,111,017 5,924,027 8,207,276
Accumulated other comprehensive income 245,156 183,305 (186,996)
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 71,020,603 65,771,762 62,684,710
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 468,093,780 $ 441,758,529 $ 437,101,295
============= ============= =============
</TABLE>
See Selected Notes to Consolidated Financial Statements.
Page 3 of 18
<PAGE> 4
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For The Quarters Ended June 30, For The Six Months Ended June 30,
------------------------------- ---------------------------------
1998 1997 1998 1997
------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 6,051,874 $ 5,355,372 $11,980,211 $10,502,967
Interest and dividends on investments:
U. S. Treasury 1,315,044 1,308,148 2,547,700 2,872,691
U. S. Government agencies
and corporations 751,745 990,008 1,617,892 1,984,997
States and political subdivisions 101,688 105,604 159,290 218,788
Other investments 14,469 2,332 14,469 9,342
Interest on federal funds sold 108,512 144,816 207,952 284,699
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 8,343,332 7,906,280 16,527,514 15,873,484
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Time deposits of $100,000 or more 1,089,934 1,086,423 2,107,848 2,242,994
Other deposits 2,343,755 2,114,714 4,578,877 4,187,935
Mortgage indebtedness 2,839 2,997 5,719 6,032
Federal funds purchased and securities
sold under agreements to repurchase 45,189 8,854 105,802 63,956
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 3,481,717 3,212,988 6,798,246 6,500,917
----------- ----------- ----------- -----------
NET INTEREST INCOME 4,861,615 4,693,292 9,729,268 9,372,567
Provision for losses on loans
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES ON LOANS 4,861,615 4,693,292 9,729,268 9,372,567
----------- ----------- ----------- -----------
OTHER OPERATING INCOME:
Trust department income and fees 223,572 156,870 428,693 347,453
Service charges on deposit accounts 988,705 979,156 1,866,871 1,922,532
Other service charges, commissions and fees 69,098 80,191 140,601 145,747
Gain on sale of securities 3,435 25,280 640,613
Other income 92,882 103,475 5,222,460 211,589
----------- ----------- ----------- -----------
TOTAL OTHER OPERATING INCOME $ 1,377,692 $ 1,319,692 $ 7,683,905 $ 3,267,934
----------- ----------- ----------- -----------
</TABLE>
Page 4 of 18
<PAGE> 5
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (continued)
(Unaudited)
<TABLE>
<CAPTION>
For The Quarters Ended June 30, For The Six Months Ended June 30,
------------------------------- ---------------------------------
1998 1997 1998 1997
------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
OTHER OPERATING EXPENSE:
Salaries and employee benefits $2,155,931 $1,978,367 $4,330,913 $3,885,340
Net occupancy 224,208 201,221 478,110 417,022
Equipment rentals, depreciation
and maintenance 485,160 398,945 986,720 817,026
Other expense 1,407,415 1,287,250 3,028,016 2,583,158
---------- ---------- ---------- ----------
TOTAL OTHER OPERATING EXPENSE 4,272,714 3,865,783 8,823,759 7,702,546
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,966,593 2,147,201 8,589,414 4,937,955
INCOME TAXES 682,160 746,360 2,944,760 1,730,610
---------- ---------- ---------- ----------
NET INCOME $1,284,433 $1,400,841 $5,644,654 $3,207,345
========== ========== ========== ==========
</TABLE>
See Selected Notes to Consolidated Financial Statements.
Page 5 of 18
<PAGE> 6
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
# of Other
Common Common Undivided Comprehensive Comprehensive
Shares Stock Surplus Profits Income Income Total
------ ------ ------- --------- ------------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1,
1997,
as
previously
reported 738,168 $ 738,168 $53,926,262 $ 5,428,068 $ 261,706 $ 60,354,204
Two-for-one
stock split in
1997 738,168 738,168 (738,168)
--------- ---------- ---------- ----------- -------------- -----------
Balance,
January 1,
1997, as
restated 1,476,336 1,476,336 53,188,094 5,428,068 261,706 60,354,204
Comprehensive
Income:
Net income 3,207,345 $3,207,345 3,207,345
Net unrealized
loss on
available for
sale
securities,
net of tax (55,206) (55,206) (55,206)
Reclassification
adjustment for
available for
sale
securities
called or sold
in current
year, net of
tax (393,496) (393,496) (393,496)
------------
Total
comprehensive
income $ 2,758,643
============
Cash
dividends,
(.29 per
share) (428,137) (428,137)
---------- ----------- ----------- ----------- -------------- ------------
Balance, June
30, 1997 1,476,336 $ 1,476,336 $53,188,094 $ 8,207,276 $ (186,996) $ 62,684,710
========== =========== =========== =========== ============== ============
</TABLE>
Page 6 of 18
<PAGE> 7
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
# of Other
Common Common Undivided Comprehensive Comprehensive
Shares Stock Surplus Profits Income Income Total
------ ------ ------- --------- ------------- ------------- -----
<S> <C> <C> C> <C> <C> <C> <C>
Balance,
January 1,
1997, 1,476,336 $ 1,476,336 $ 58,188,094 $ 5,924,027 $ 183,305 $65,771,762
Comprehensive
Income:
Net income 5,644,654 $ 5,644,654 5,644,654
Net unrealized
gain on
available for
sale
securities,
net of tax 64,118 64,118 64,118
Reclassification
adjustment for
available for
sale
securities
called or sold
in current
year, net of
tax (2,267) (2,267) (2,267)
------------
Total
comprehensive
income $ 5,706,505
============
Cash
dividends,
(.31 per share) (457,664) (457,664)
---------- ----------- ------------ ------------ ----------- -----------
Balance, June
30, 1998 1,476,336 $ 1,476,336 $ 58,188,094 $ 11,111,017 $ 245,156 $71,020,603
========== =========== ============ ============ =========== ===========
</TABLE>
See Selected Notes to Consolidated Financial Statements.
Page 7 of 18
<PAGE> 8
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For The Six Months Ended June 30, 1998 1997
- --------------------------------- ---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,644,654 $ 3,207,345
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales and calls of securities (25,280) (640,613)
Gain on sales of other real estate (25,973)
Gain on sale of bank premises (5,083,867)
Depreciation and amortization 722,043 668,916
Provision for losses on other real estate 8,779 8,778
Changes in assets and liabilities:
Accrued interest receivable 3,858 101,080
Other assets (28,767) 8,694
Accrued interest payable 10,264 (191,357)
Other liabilities 1,470,278 334,814
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,695,989 3,497,657
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales, maturities and calls of held
to maturity securities 51,650,000 38,775,000
Investment in held to maturity securities (64,890,519) (9,139,902)
Proceeds from sales, maturities and calls of
available for sale securities 15,728,776 640,613
Investment in available for sale securities (10,296) (10,711)
Loans made (20,004,659) (7,380,901)
Proceeds from sales of other real estate 271,577
Acquisition of premises and equipment (957,664) (701,315)
Federal funds sold 5,450,000 (6,550,000)
Other assets 284,179 (31,121)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $(12,478,606) $ 15,601,663
------------ ------------
</TABLE>
Page 8 of 18
<PAGE> 9
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For The Six Months Ended June 30, 1998 1997
- --------------------------------- ---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand and savings deposits, net increase $ 22,119,539 $ 9,593,984
Time deposits, net decrease (7,015,091) (6,720,597)
Principal payments on notes (5,992) (5,680)
Cash dividends (457,664) (428,137)
Federal funds purchased and securities sold
under agreements to repurchase 4,507,412 (16,500,000)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 19,148,204 (14,060,430)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,365,587 5,038,890
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,611,495 26,873,638
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 29,977,082 $ 31,912,528
============ ============
</TABLE>
See Selected Notes to Consolidated Financial Statements.
Page 9 of 18
<PAGE> 10
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 1998 and 1997
1. The accompanying unaudited consolidated financial statements have been
prepared with the accounting policies in effect as of December 31, 1997 as set
forth in the Notes to the Consolidated Financial Statements of Peoples Financial
Corporation and Subsidiaries (the Company). In 1998, the Company adopted SFAS
130, "Reporting Comprehensive Income." SFAS 131, "Disclosure about Segments of
an Enterprise and Related Information" is not applicable to the Company. In the
opinion of Management, all adjustments necessary for a fair presentation of the
condensed consolidated financial statements have been included and are of a
normal recurring nature.
The accompanying unaudited consolidated financial statements have been prepared
also in accordance with the instructions to Form 10-Q and Rule 10-01 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
2. The results of operations for the six months ended June 30, 1998, are not
necessarily indicative of the results to be expected for the full year.
3. Per share data is based on the weighted average shares of common stock
outstanding of 1,476,336 for the six months ended June 30, 1998 and 1997.
4. At June 30, 1998 and 1997, the total recorded investment in impaired loans
amounted to $753,000 and $1,869,000. The amount of that recorded investment in
impaired loans for which there was no related allowance for loan losses was
$685,000 and $1,869,000 at June 30, 1998 and 1997, respectively.
At June 30, 1998, the average recorded investment in impaired loans was
$722,000. During the first six months of 1998, the Company recognized $5,000 in
interest income on impaired loans. During the first six months of 1998, the
Company received $8,000 in interest payments on impaired loans.
5. Transactions in the allowance for loan losses were as follows:
<TABLE>
<S> <C>
Balance, January 1, 1998 $ 4,434,770
Recoveries 240,297
Loans charged off (315,918)
-------------
Balance, June 30, 1998 $ 4,359,149
=============
</TABLE>
6. At June 30, 1998 and 1997, renegotiated and restructured loans amounted to
$2,111,000 and $2,368,000. This loan is currently being serviced at a market
rate of interest with a scheduled maturity of March 15, 1999. The Company
recognized $88,000 and $92,000 in interest income on these loans during the six
months ended June 30, 1998 and 1997, respectively. The amount of
Page 10 of 18
<PAGE> 11
interest that would have been recognized during this period under the original
terms of the loan agreements was $98,000 and $100,000.
7. The Company has defined cash and cash equivalents to include cash and due
from banks. The Company paid $6,788,000 and $6,692,000 for the six months ended
June 30, 1998 and 1997, respectively, for interest on deposits and borrowings.
Income tax payments totaled $1,110,000 and $1,750,000 for the six months ended
June 30, 1998 and 1997, respectively. Loans transferred to other real estate
amounted to $320,000 and $180,200 for the six months ended June 30, 1998 and
1997, respectively. The Company acquired banking premises in the amount of
$1,959,000 during the six months ended June 30, 1998, as a result of a like-kind
exchange. The Company recorded a receivable of $4,037,000 relating to the
like-kind exchange.
8. The income tax effect on the accumulated other comprehensive income was
$32,000 and $230,000 at June 30, 1998 and 1997, respectively.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 six months ended June 30, 1998 and 1997.
These comments highlight the significant events and should be considered in
combination with the Consolidated Financial Statements included in this report
on Form 10-Q.
OVERVIEW
The significant development during the first six months of 1998 was the sale of
a branch location in Gulfport, MS, for a realized gain, net of taxes, of
$3,300,000 for book purposes. The transaction was structured for tax purposes
under the provisions of Section 1031 of the Internal Revenue Code so as to
qualify most of the transaction for the tax benefits of a like-kind exchange.
The proceeds of the transaction are being reinvested in replacement properties.
All transactions relating to this matter will be completed by August 4, 1998.
The following schedule compares financial highlights for the six months ended
June 30, 1998 and 1997:
<TABLE>
<CAPTION>
For the six months ended June 30, 1998 1997
- --------------------------------- ---- ----
<S> <C> <C>
Net income per share $ 4 $ 2
Book value per share $ 48 $ 42
Return on average total assets 2.46% 1.42%
Return on average shareholders' equity 16.53% 10.42%
Allowance for loan losses as a % of
loans, net of unearned discount 1.61% 1.89%
</TABLE>
Page 11 of 18
<PAGE> 12
FINANCIAL CONDITION
HELD TO MATURITY SECURITIES
There were no significant realized gains or losses on these investments during
the six months ended June 30, 1998 and 1997, respectively. Gross unrealized
gains were $970,000 and $908,000 and gross unrealized losses were $143,000 and
$182,000 for the six months ended June 30, 1998 and 1997, respectively. The
following schedule reflects the mix of the held to maturity securities portfolio
at June 30, 1998 and 1997:
<TABLE>
<CAPTION>
June 30, 1998 1997
- -------- ---- ----
Amount % Amount %
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 87,339,924 75.20% $ 76,816,180 78.20%
U. S. Government agencies 21,863,674 18.90% 15,502,362 15.80%
States and political
subdivisions 6,872,485 5.90% 5,916,643 6.00%
------------ ------- ------------ -------
Totals $116,076,083 100.00% $ 98,235,185 100.00%
============ ====== ============ ======
</TABLE>
AVAILABLE FOR SALE SECURITIES
There were no significant realized gains or losses on these investments during
the six months ended June 30, 1998. A gross realized gain of $640,000 was
recorded for the six months ended June 30, 1997, as a result of the sale of
common stock of Hibernia Corporation held in the available for sale portfolio.
Available for sale securities decreased $20 million as the result of the
management of the Company's liquidity position. Gross unrealized gains were
$469,000 and $476,000 and gross unrealized losses were $98,000 and $761,000 at
June 30, 1998 and 1997, respectively. The following schedule reflects the mix of
available for sale securities at June 30, 1998 and 1997:
<TABLE>
<CAPTION>
June 30, 1998 1997
- -------- ---- ----
Amount % Amount %
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 3,999,070 12.50% $ 5,934,690 11.30%
U. S. Government agencies 26,850,270 83.70% 45,912,139 87.50%
States and political
subdivisions 591,203 1.90%
Other securities 641,333 1.90% 641,333 1.20%
----------- --------- ----------- ---------
Totals $32,081,876 100.00% $52,488,162 100.00%
=========== ========= =========== =========
</TABLE>
Page 12 of 18
<PAGE> 13
FEDERAL FUNDS SOLD
Federal funds sold were $700,000 at June 30, 1998 compared with federal funds
sold of $6,550,000 at June 30, 1997. This fluctuation is directly related to the
liquidity needs of the bank subsidiary.
LOANS
Loans increased $35,775,000 at June 30, 1998, as compared with June 30, 1997, as
a result of increased loan demand in the Company's trade area. The Company
anticipates that this increased demand will continue throughout the remainder of
1998. The allowance for loan losses decreased $96,000 due to net charge-offs
during the six months ended June 30, 1998. Likewise, the allowance for loan
losses as a % of loans, net of unearned discount, has decreased from 1.89% at
June 30, 1997, to 1.61% at June 30, 1998. Management continues to monitor the
volume and quality of its loan portfolio and has determined that the allowance
is adequate.
OTHER REAL ESTATE
Other real estate increased $130,000 as June 30, 1998, as compared with June 30,
1997, as a result of an increase in properties transferred to Other Real Estate
due to foreclosure.
OTHER ASSETS
Other assets increased $3,759,000 at June 30, 1998, as compared with June 30,
1997, primarily as a result of the receivable relating to the like-kind exchange
described in the Overview.
DEPOSITS
Total deposits have increased $16,654,000 at June 30, 1998, as compared with
June 30, 1997. Significant increases or decreases in total deposits are
anticipated by Management as customers in the casino industry and county and
municipal areas reallocate their resources periodically. As discussed above, the
Company has managed its funds including planning the timing of investment
maturities so as to achieve appropriate liquidity.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Federal funds purchased and securities sold under agreements to repurchase
increased $4,500,000 at June 30, 1998, as compared with June 30, 1997. This
fluctuation is entirely due to the introduction of a new non-deposit product
during the second quarter of 1998.
OTHER LIABILITIES
Other liabilities have increased $1,584,000 at June 30, 1998, as compared with
June 30, 1997, primarily as the result of deferred taxes on the gain on the sale
of property pursuant to a like-kind exchange for tax purposes.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
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. One measure of capital
adequacy is the primary capital ratio which was 16.36% at June 30, 1998, as
compared with 15.21% at June 30, 1997. These ratios are well above the
regulatory minimum of 6.00%. Management continues to emphasize the importance of
maintaining the appropriate capital levels of the Company.
Page 13 of 18
<PAGE> 14
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.
Net interest income increased $168,000 for the second quarter of 1998 as
compared with the second quarter of 1997. Net interest income increased $357,000
for the six months ended June 30, 1998, as compared with the six months ended
June 30, 1997. Total interest income increased $437,000 for the quarter ended
June 30, 1998, as compared with the quarter ended June 30, 1997. Total interest
income increased $654,000 for the six months ended June 30, 1998, as compared
with the six months ended June 30, 1997. Total interest expense increased
$269,000 for the quarter ended June 30, 1998, as compared with quarter ended
June 30, 1997. Total interest expense increased $297,000 for the six months
ended June 30, 1998, as compared with the six months ended June 30, 1997. The
following schedule summarizes net interest earnings and net yield on interest
earning assets:
NET INTEREST EARNINGS AND NET YIELD ON INTEREST EARNING ASSETS
<TABLE>
<CAPTION>
Six Months Ended June 30, (In
thousands, except percentages) 1998 1997
- ----------------------------- ---- ----
<S> <C> <C>
Total interest income (1) $ 16,606 $ 15,985
Total interest expense 6,798 6,501
--------- ---------
Net interest earnings $ 9,808 $ 9,484
========= =========
Net yield on interest earning assets 4.75% 4.73%
========= =========
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1998 and 1997.
The schedule on page 15 provides an analysis of the change in total interest
income and total interest expense for the six months ended June 30, 1998 and
1997.
Page 14 of 18
<PAGE> 15
ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
(In Thousands)
<TABLE>
<CAPTION>
Attributable To:
-----------------------------
For the Six For the Six
Months Months
Ended June Ended June Increase Rate/
30, 1998 30, 1997 (Decrease) Volume Rate Volume
------------ ------------ ---------- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST
INCOME: (1)
Loans (2) $ 11,980 $ 10,503 $1,477 $ 1,534 $ (50) $ (7)
Federal funds
sold 208 285 (77) (123) 80 (34)
Held to maturity:
Taxable
securities 3,152 3,169 (17) 18 (34) (1)
Non-taxable
securities 135 331 (196) (6) (193) 3
Available
for sale:
Taxable
securities 1,014 1,688 (674) (560) (170) 56
Non-taxable
securities 102 102 102
Other securities 15 9 6 (1) 9 (2)
-------- -------- ------ ------- ----- ----
Total $ 16,606 $ 15,985 $ 621 $ 964 $(358) $ 15
======== ======== ====== ======= ===== ====
INTEREST
EXPENSE:
Savings
and
negotiable
interest bearing
deposits $ 2,714 $ 2,518 $ 196 $ 79 $ 113 $ 4
Time deposits 3,972 3,913 59 225 (157) (9)
Federal funds
purchased and
securities sold
under agreements
to repurchase 106 64 42 69 (13) (14)
Mortgage
indebtedness 6 6
------- ------- ------ ------- ----- ----
Total $ 6,798 $ 6,501 $ 297 $ 373 $ (57) $(19)
======= ======= ====== ======= ===== ====
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1998 and 1997.
(2) Loan fees are included in these figures. Includes nonaccrual loans.
Page 15 of 18
<PAGE> 16
PROVISION FOR LOAN LOSSES
The Company has not charged a provision for loan losses to operating expense
since 1993. The Company carefully monitors the quality and volume of its loan
portfolio. Based on current conditions, Management feels that the allowance for
loan losses is adequate and does not anticipate any provision for loan losses
during 1998.
OTHER INCOME
During the six months ended June 30, 1998, the Company realized a gain of
$5,083,000 for book purposes as the result of the sale of one of its branch
locations, as mentioned previously in the Overview.
OTHER EXPENSE
Other expense increased $445,000 for the six months ended June 30, 1998, as
compared with the same period during 1997, largely as the result of expenses
relating to the computer conversion.
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,
payments 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 June 30, 1998, cash and due from banks,
investment securities and federal funds sold were 46% of total deposits, as
compared with 51% at June 30, 1997.
Page 16 of 18
<PAGE> 17
PART II
OTHER INFORMATION
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
Page 17 of 18
<PAGE> 18
SIGNATURES
Pursuant to the requirement 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: July 31, 1998
-------------------------------
By: /s/ CHEVIS C. SWETMAN
-------------------------------
Chevis C. Swetman
Chairman, President and Chief Executive Officer
Date: July 31, 1998
-------------------------------
By: /s/ LAURI A. WOOD
-------------------------------
Lauri A. Wood
Chief Financial Officer and Controller
(principal financial and accounting officer)
Page 18 of 18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 29,977,082
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,081,876
<INVESTMENTS-CARRYING> 116,076,083
<INVESTMENTS-MARKET> 116,903,000
<LOANS> 271,411,969
<ALLOWANCE> 4,359,149
<TOTAL-ASSETS> 468,093,780
<DEPOSITS> 387,659,277
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,960,359
<LONG-TERM> 209,102
0
0
<COMMON> 1,476,336
<OTHER-SE> 69,544,267
<TOTAL-LIABILITIES-AND-EQUITY> 468,093,780
<INTEREST-LOAN> 11,980,211
<INTEREST-INVEST> 4,339,351
<INTEREST-OTHER> 207,952
<INTEREST-TOTAL> 16,527,514
<INTEREST-DEPOSIT> 6,686,725
<INTEREST-EXPENSE> 6,798,246
<INTEREST-INCOME-NET> 9,729,268
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 25,280
<EXPENSE-OTHER> 3,028,016
<INCOME-PRETAX> 8,589,414
<INCOME-PRE-EXTRAORDINARY> 8,589,414
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,644,654
<EPS-PRIMARY> 4
<EPS-DILUTED> 4
<YIELD-ACTUAL> 4.75
<LOANS-NON> 713,000
<LOANS-PAST> 915,000
<LOANS-TROUBLED> 2,111,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,434,770
<CHARGE-OFFS> 315,918
<RECOVERIES> 240,297
<ALLOWANCE-CLOSE> 4,359,149
<ALLOWANCE-DOMESTIC> 4,359,149
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 250,000
</TABLE>
