<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 September 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
October 30, 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>
September 30, December 31, and September 30, 1998 1997 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 21,752,574 $ 20,611,495 $ 26,541,659
Held to maturity securities, market value of
$127,139,000 - September 30, 1998;
$103,793,000 - December 31, 1997;
$96,398,000 - September 30, 1997 125,534,041 102,835,564 95,494,177
Available for sale securities, at market value 24,770,793 47,677,562 50,960,008
Federal funds sold 3,250,000 6,150,000 28,550,000
Loans 275,553,018 251,797,566 239,274,306
Less: Unearned income 2,715 1,314 5,449
Allowance for loan losses 4,294,844 4,434,770 4,269,063
--------------------------------------------------
Loans, net 271,255,459 247,361,482 234,999,794
Bank premises and equipment, net of
accumulated depreciation of $8,511,000
- September 30, 1998; $7,762,000
- December 31, 1997; and $7,454,000
- September 30, 1997 14,329,555 9,424,080 9,311,816
Other real estate 593,941 512,370 413,463
Accrued interest receivable 3,153,969 3,619,917 3,186,226
Other assets 3,639,989 3,376,662 3,347,449
Intangible assets 189,397 260,428
--------------------------------------------------
TOTAL ASSETS $468,280,321 $441,758,529 $453,065,020
==================================================
</TABLE>
Page 2 of 18
<PAGE> 3
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31, and September 30, 1998 1997 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 65,237,244 $ 67,580,617 $ 92,164,728
Savings and demand, interest bearing 161,537,468 160,499,479 167,354,162
Time, $100,000 or more 72,988,277 83,700,139 65,638,872
Other time deposits 68,174,053 60,774,594 59,998,624
--------------------------------------------------
Total deposits 367,937,042 372,554,829 385,156,386
Accrued interest payable 910,943 726,763 719,303
Federal funds purchased and securities sold
under agreements to repurchase 22,933,242
Notes payable 206,044 215,094 218,031
Other liabilities 4,072,834 2,490,081 2,847,872
--------------------------------------------------
TOTAL LIABILITIES 396,060,105 375,986,767 388,941,592
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 15,000,000 shares
authorized, 1,476,336 shares issued and
outstanding at September 30, 1998, December
31, 1997 and September 30, 1997 1,476,336 1,476,336 1,476,336
Surplus 58,188,094 58,188,094 53,188,094
Undivided profits 12,173,721 5,924,027 9,297,843
Accumulated other comprehensive income 382,065 183,305 161,155
--------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 72,220,216 65,771,762 64,123,428
--------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $468,280,321 $441,758,529 $453,065,020
==================================================
</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 September 30, For The Nine Months Ended September 30,
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 6,311,621 $ 5,579,046 $18,291,832 $16,082,013
Interest and dividends on securities:
U. S. Treasury 1,235,402 1,227,648 3,783,102 4,100,339
U. S. Government agencies and
corporations 744,395 940,237 2,362,287 2,925,234
States and political subdivisions 107,969 97,027 267,259 315,815
Other investments 270,000 14,469 279,342
Interest on federal funds sold 130,191 131,835 338,143 416,534
-----------------------------------------------------------------
TOTAL INTEREST INCOME 8,529,578 8,245,793 25,057,092 24,119,277
-----------------------------------------------------------------
INTEREST EXPENSE:
Time deposits of $100,000 or more 1,022,082 973,793 3,129,930 3,216,787
Other deposits 2,415,870 2,207,425 6,994,747 6,395,360
Mortgage indebtedness 2,799 2,959 8,518 8,991
Federal funds purchased and securities
sold under agreements to repurchase 152,350 4,532 258,152 68,488
-----------------------------------------------------------------
TOTAL INTEREST EXPENSE 3,593,101 3,188,709 10,391,347 9,689,626
-----------------------------------------------------------------
NET INTEREST INCOME 4,936,477 5,057,084 14,665,745 14,429,651
Provision for losses on loans
-----------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOSSES ON LOANS 4,936,477 5,057,084 14,665,745 14,429,651
-----------------------------------------------------------------
OTHER OPERATING INCOME:
Trust department income and fees 145,571 167,637 574,264 515,090
Service charges on deposit accounts 1,045,344 983,461 2,912,215 2,905,993
Other service charges, commissions and
fees 67,553 59,730 208,154 205,477
Gain on securities 31,849 27,175 57,129 667,788
Other income 286,529 101,537 5,508,989 313,126
-----------------------------------------------------------------
TOTAL OTHER OPERATING INCOME $ 1,576,846 $ 1,339,540 $ 9,260,751 $ 4,607,474
-----------------------------------------------------------------
</TABLE>
Page 4 of 18
<PAGE> 5
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For The Quarters Ended September 30, For The Nine Months Ended September 30,
- -------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTHER OPERATING EXPENSE:
Salaries and employee benefits $ 2,227,026 $ 1,987,226 $ 6,557,939 $ 5,872,566
Net occupancy 246,710 285,233 724,820 702,255
Equipment rentals, depreciation and 513,013 421,210 1,499,733 1,238,236
maintenance
Other expense 1,233,502 1,369,667 4,261,518 3,952,825
-----------------------------------------------------------------------
TOTAL OTHER OPERATING EXPENSE 4,220,251 4,063,336 13,044,010 11,765,882
-----------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 2,293,072 2,333,288 10,882,486 7,271,243
Income taxes 713,650 799,820 3,658,410 2,530,430
-----------------------------------------------------------------------
NET INCOME $ 1,579,422 $ 1,533,468 $ 7,224,076 $ 4,740,813
=======================================================================
</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
Other
Common Undivided Comprehensive Comprehensive
# of 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
Comprehen-
sive Income:
Net income 4,740,813 $ 4,740,813 4,740,813
Net
unrealized
gain on
available for
sale
securities, net
of tax 312,490 312,490 312,490
Reclassifica-
tion
adjustment
for available
for sale
securities
called or sold
in current
year, net of
tax (413,041) (413,041) (413,041)
----------------
Total
comprehen-
sive income $ 4,640,262
================
Cash
dividends,
(.58999 per
share) (871,038) (871,038)
-------------------------------------------------------------------------- --------------
Balance,
September
30, 1997 1,476,336 $ 1,476,336 $ 53,188,094 $ 9,297,843 $ 161,155 $ 64,123,428
========================================================================== ==============
</TABLE>
Page 6 of 18
<PAGE> 7
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ( Continued)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Undivided Comprehensive Comprehensive
# of Shares Stock Surplus Profits Income Income Total
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1,
1998 1,476,336 $ 1,476,336 $ 58,188,094 $ 5,924,027 $ 183,305 $ 65,771,762
Comprehen-
sive Income:
Net income 7,224,076 $ 7,224,076 7,224,076
Net
unrealized
gain on
available for
sale
securities, net
of tax 225,775 225,775 225,775
Reclassifica-
tion
adjustment
for available
for sale
securities
called or sold
in current
year, net of
tax (27,015) (27,015) (27,015)
----------------
Total
comprehen-
sive income $ 7,422,836
================
Cash
dividends,
( .66 per
share) (974,382) (974,382)
-------------------------------------------------------------------------- --------------
Balance,
September
30, 1998 1,476,336 $ 1,476,336 $ 58,188,094 $ 12,173,721 $ 382,065 $ 72,220,216
========================================================================== ==============
</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 Nine Months Ended September 30, 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,224,076 $ 4,740,813
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales and calls of securities (59,129) (667,788)
Gain on sales of other real estate (11,478) (1,999)
Gain on sale of bank premises (5,083,867)
Depreciation and amortization 1,139,397 1,000,565
Provision for losses on other real estate 44,736 55,498
Changes in assets and liabilities:
Accrued interest receivable 465,948 705,239
Other assets 179,065 14,120
Accrued interest payable 184,180 (286,205)
Other liabilities 1,484,626 806,576
------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,567,554 6,366,819
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of held to
maturity securities 79,795,000 57,975,000
Investment in held to maturity securities (102,488,660) (25,598,894)
Proceeds from maturities, sales and calls of
available for sale securities 23,725,000 2,667,788
Investment in available for sale securities (466,991) (14,891)
Loans made (24,297,883) (11,234,898)
Proceeds from sale of bank premises 5,996,754
Acquisition of premises and equipment (6,768,362) (1,450,748)
Proceeds from sales of other real estate 289,077 2,000
Federal funds sold 2,900,000 (28,550,000)
Other assets (442,433) (138,917)
------------------------------------
NET CASH USED IN INVESTING ACTIVITIES $ (21,758,498) $ (6,343,560)
------------------------------------
</TABLE>
Page 8 of 18
<PAGE> 9
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For The Nine Months Ended September 30, 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand and savings deposits, net increase (decrease) $ (1,305,384) $ 32,387,537
Time deposits, net decrease (3,312,403) (15,363,160)
Principal payments on notes (9,050) (8,577)
Cash dividends (974,382) (871,038)
Federal funds purchased and securities sold under
agreements to repurchase 22,933,242 (16,500,000)
----------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 17,332,023 (355,238)
----------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,141,079 (331,979)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,611,495 26,873,638
----------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,752,574 $ 26,541,659
==================================
</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 Nine Months Ended September 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 nine months ended September 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 nine months ended September 30, 1998 and 1997.
4. At September 30, 1998 and 1997, the total recorded investment in impaired
loans amounted to $638,000 and $772,000. The amount of that recorded investment
in impaired loans for which there was no related allowance for loan losses was
$638,000 and $722,000 at September 30, 1998 and 1997, respectively.
At September 30, 1998, the average recorded investment in impaired loans was
$639,000. During the first nine months of 1998, the Company recognized $10,000
in interest income on impaired loans. During the first nine months of 1998, the
Company received $11,000 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 294,893
Loans charged off 434,819
------------------
Balance, September 30, 1998 $ 4,294,844
==================
</TABLE>
Page 10 of 18
<PAGE> 11
6. The Company has defined cash and cash equivalents to include cash and due
from banks. The Company paid $10,207,000 and $9,976,000 for the nine months
ended September 30, 1998 and 1997, respectively, for interest on deposits and
borrowings. Income tax payments totaled $1,920,000 and $2,500,000 for the nine
months ended September 30, 1998 and 1997, respectively. Loans transferred to
other real estate amounted to $404,000 and $204,000 for the nine months ended
September 30, 1998 and 1997, respectively.
7. The income tax effect on the accumulated other comprehensive income was
$103,000 and ($52,000) at September 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 nine months ended September 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 nine 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 were invested in replacement properties, and the
exchange was completed on August 4, 1998. The following schedule compares
financial highlights for the nine months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
For the nine months ended September 30, 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Net income per share $ 4.89 $ 3.21
Book value per share $ 48.92 $ 43.43
Return on average total assets 2.10% 1.39%
Return on average shareholders' equity 13.96% 10.16%
Allowance for loan losses as a % of
loans, net of unearned discount 1.56% 1.78%
</TABLE>
Page 11 of 18
<PAGE> 12
FINANCIAL CONDITION
HELD TO MATURITY SECURITIES
Held to maturity securities increased $30 million at September 31, 1998, as
compared with September 31, 1997, as a result of the management of the Company's
liquidity position. There were no significant realized gains or losses on these
investments during the nine months ended September 30, 1998 and 1997,
respectively. Gross unrealized gains for held to maturity securities were
$1,624,000 and $996,000 and gross unrealized losses for held to maturity
securities were $19,000 and $92,000 for the nine months ended September 30, 1998
and 1997, respectively. The following schedule reflects the mix of the held to
maturity investment portfolio at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
September 30, 1998 1997
- -------------------------------------------------------------------------------------
Amount % Amount %
---------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 86,247,040 68.70% $ 75,722,218 79.30%
U. S. Government agencies 32,912,848 26.20% 14,045,907 14.70%
States and political
subdivisions 6,374,153 5.10% 5,726,052 6.00%
---------------------------------------------------------
Totals $ 125,534,041 100.00% $ 95,494,177 100.00%
=========================================================
</TABLE>
AVAILABLE FOR SALE SECURITIES
Available for sale securities decreased $26 million at September 30, 1998, as
compared with September 30, 1997 as a result of calls and maturities. Gross
unrealized gains were $526,000 and $476,000 at September 30, 1998 and 1997,
respectively, and gross unrealized losses were $320,000 at September 30, 1997. A
gross realized gain of $640,000 was recorded for the nine months ended September
30, 1997, as a result of the sale of shares of common stock of Hibernia
Corporation held in the available for sale portfolio. The following schedule
reflects the mix of available for sale securities at September 30, 1998 and
1997:
<TABLE>
<CAPTION>
September 30, 1998 1997
- ----------------------------------------------------------------------------------------
Amount % Amount %
----------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 4,036,250 16.30% $ 5,963,750 11.70%
U. S. Government agencies 19,013,090 76.80% 44,354,925 87.00%
States and political
subdivisions 1,080,120 4.40%
Other securities 641,333 2.50% 641,333 1.30%
----------------------------------------------------------
Totals $ 24,770,793 100.00% $ 50,960,008 100.00%
==========================================================
</TABLE>
Page 12 of 18
<PAGE> 13
FEDERAL FUNDS SOLD
Federal funds sold were $3,250,000 at September 30, 1998, as compared with
$28,550,000 at September 30, 1997. This fluctuation is directly related to the
liquidity needs of the bank subsidiary.
LOANS
Loans increased $36,000,000 at September 30, 1998, as compared with September
30, 1997, as a result of the 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, as a % of loans, net of
unearned discount, has decreased from 1.78% at September 30, 1997 to 1.56% at
September 30, 1998. Management continues to monitor the volume and quality of
its loan portfolio and has determined that the allowance is adequate.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment increased $5,018,000 at September 30, 1998, as
compared with September 30, 1997, primarily as a result of the acquisition of
hardware and software relating to the data processing conversion that took place
in early 1998 and the acquisition of real estate to be used for a new operations
center and future branch locations.
DEPOSITS
Significant increases or decreases in total deposits 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. 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 $23,000,000 at September 30, 1998, as compared with September 30,
1997. This fluctuation is entirely due to the introduction of a new non-deposit
product during 1998.
OTHER LIABILITIES
Other liabilities have increased $1,225,000 at September 30, 1998, as compared
with September 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 16.65% at September 30, 1998, as
compared with 15.03% at September 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.
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>
Nine Months Ended September 30, (In
thousands, except percentages) 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Total interest income (1) $25,194 $24,282
Total interest expense 10,391 9,689
------------------------
Net interest earnings $14,803 $14,593
========================
Net yield on interest earning assets 4.72% 4.87%
========================
</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 nine months ended September 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 Nine For the Nine
Months Months
Ended Ended
September September Increase Rate/
30, 1998 30, 1997 (Decrease) Volume Rate Volume
------------------------------------------------------------------------------------------
INTEREST
INCOME: (1)
<S> <C> <C> <C> <C> <C> <C>
Loans (2) $ 18,292 $ 16,082 $ 2,210 $ 2,395 $ (161) $ (24)
Federal funds sold 338 417 (79) (138) 88 (29)
Held to maturity:
Taxable securities 4,754 4,518 236 294 (54) (4)
Non-taxable 174 479 (305) 28 (315) (18)
securities
Available for sale:
Taxable securities 1,391 2,507 (1,116) (929) (297) 110
Non-taxable
securities 231 231 231
Other securities 14 279 (265) (28) (263) 26
------------------------------------------------------------------------------------------
Total $ 25,194 $ 24,282 $ 912 $ 1,853 $ (1,002) $ 61
==========================================================================================
INTEREST
EXPENSE:
Savings and
negotiable interest
bearing deposits $ 4,137 $ 3,838 $ 299 $ 100 $ 194 $ 5
Time deposits 5,987 5,774 213 56 155 2
Federal funds
purchased and
securities sold under
agreements to
repurchase 258 68 190 260 (15) (55)
Mortgage
indebtedness 9 9
------------------------------------------------------------------------------------------
Total $ 10,391 $ 9,689 $ 702 $ 416 $ 334 $ (48)
==========================================================================================
</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 nine months ended September 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.
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 September 30, 1998, cash and due from
banks, investment securities and federal funds sold were 47% of total deposits,
as compared with 52% at September 30, 1997.
YEAR 2000 COMPLIANCE
The financial industry will be critically impacted by the advent of the Year
2000. In response to this issue, the Company has established a committee, headed
by a Senior Officer of the Company, to review all computer-based systems which
includes all operations departments and applications as well as other
operational activities. The committee has developed and is in the process of
implementing a plan of action, which has been approved by the Board of
Directors, to ensure that its computer and information systems will function
properly in the Year 2000. This plan incorporates the awareness, assessment,
renovation, validation, and implementation phases as directed by the Federal
Deposit Insurance Corporation (FDIC).
Renovation of systems for Year 2000 compliance is projected to be completed by
December 31, 1998, with final testing to take place in 1999. The Company has
budgeted for projected Year 2000 expenses, and, the Company does not expect the
costs of achieving Year 2000 compliance to have a material effect on the
Company's financial statements. In the event of unforeseen Year 2000 problems,
the Company has established a Year 2000 contingency plan, which has been
approved by the Board of Directors, that addresses potential Year 2000 issues
relating to core application software, trust services software, ATM services and
other operational activities.
Page 16 of 18
<PAGE> 17
Based on the Company's status of its implementation, the Company believes that
completion of its year 2000 action plan will not materially affect the Company's
operations. While the Company has taken steps to insure that its material
vendors and customers are Year 2000 compliant, there is no guarantee that the
systems of these other companies will be Year 2000 compliant on time. As a
result, the Company could be adversely affected by the failure of other
companies to become Year 2000 compliant. The potential impact of such a failure
cannot be quantified at this time.
FORWARD LOOKING INFORMATION - Congress passed the Private Securities Litigation
Act of 1995 in an effort to encourage corporations to provide information about
a company's anticipated future financial performance. This act provides a safe
harbor for such disclosure which protects the companies from unwarranted
litigation if actual results are different from management expectations. This
report contains forward-looking statements and reflects industry conditions,
company performance and financial results. These forward-looking statements are
subject to a number of factors and uncertainties which could cause the
company's actual results and experience to differ from the anticipated results
and expectations expressed in such forward-looking statements.
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: November 12, 1998
-------------------------
By: /s/ Chevis C. Swetman
----------------------------
Chevis C. Swetman
Chairman, President and Chief Executive Officer
Date: November 12, 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
Number Exhibit
- ------ -------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 21,752,574
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,250,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,770,793
<INVESTMENTS-CARRYING> 125,534,041
<INVESTMENTS-MARKET> 127,139,484
<LOANS> 275,553,018
<ALLOWANCE> 4,294,844
<TOTAL-ASSETS> 468,280,321
<DEPOSITS> 367,937,042
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,072,834
<LONG-TERM> 206,044
0
0
<COMMON> 1,476,336
<OTHER-SE> 70,743,880
<TOTAL-LIABILITIES-AND-EQUITY> 468,280,321
<INTEREST-LOAN> 18,291,832
<INTEREST-INVEST> 6,427,117
<INTEREST-OTHER> 338,143
<INTEREST-TOTAL> 25,057,092
<INTEREST-DEPOSIT> 10,124,677
<INTEREST-EXPENSE> 10,391,347
<INTEREST-INCOME-NET> 14,665,745
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 57,129
<EXPENSE-OTHER> 4,261,518
<INCOME-PRETAX> 10,882,486
<INCOME-PRE-EXTRAORDINARY> 10,882,486
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,224,076
<EPS-PRIMARY> 5
<EPS-DILUTED> 5
<YIELD-ACTUAL> 4.72
<LOANS-NON> 601,000
<LOANS-PAST> 618,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,434,770
<CHARGE-OFFS> 434,819
<RECOVERIES> 294,893
<ALLOWANCE-CLOSE> 4,294,844
<ALLOWANCE-DOMESTIC> 4,294,844
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 250,000
</TABLE>
