<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, 1999
------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-30050
------------------------------------------
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 26, 1999, there were 15,000,000 shares of $1 par value common stock
authorized, and 2,952,672 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, 1999 1998 1998
- ----------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 31,898,009 $ 30,359,600 $ 29,977,082
Available for sale securities 22,992,765 12,836,885 32,081,876
Held to maturity securities, market value of
$153,877,000 - June 30, 1999;
$135,924,000 - December 31, 1998;
$116,903,000 - June 30, 1998 154,482,682 134,723,695 116,076,083
Federal funds sold 2,750,000 700,000
Loans 302,777,457 291,514,748 271,411,969
Less: Unearned income 10,374 1,850 6,229
Allowance for loan losses 4,126,799 4,382,157 4,359,149
------------ ------------ ------------
Loans, net 298,640,284 287,130,741 267,046,591
Bank premises and equipment, net
of accumulated depreciation of $9,328,000-
June 30, 1999; $8,930,000 - December 31, 1998;
and $8,141,000 - June 30, 1998 17,005,393 15,923,450 10,847,857
Other real estate 154,809 274,280 577,537
Accrued interest receivable 3,297,799 3,128,279 3,616,059
Other assets 3,760,160 3,794,213 7,123,341
Intangible assets 47,354
------------ ------------ ------------
TOTAL ASSETS $534,981,901 $488,171,143 $468,093,780
============ ============ ============
</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, 1999 1998 1998
- --------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand, non-interest bearing $ 98,379,030 $ 76,268,636 $ 74,068,331
Savings and demand, interest bearing 168,078,858 167,120,669 176,131,304
Time, $100,000 or more 69,779,618 68,080,406 73,262,425
Other time deposits 68,211,983 70,132,525 64,197,217
------------- ------------- -------------
Total deposits 404,449,489 381,602,236 387,659,277
Accrued interest payable 780,871 924,172 737,027
Federal funds purchased and securities
sold under agreements to repurchase 50,694,047 28,050,780 4,507,412
Notes payable 196,623 202,946 209,102
Other liabilities 3,864,252 3,845,616 3,960,359
------------- ------------- -------------
TOTAL LIABILITIES 459,985,282 414,625,750 397,073,177
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 15,000,000
shares authorized, 2,952,672 shares
issued and outstanding
at June 30, 1999, December 31,
1998 and June 30, 1998, after giving
retroactive effect to two for one
stock split effective
November 16, 1998 2,952,672 2,952,672 2,952,672
Surplus 63,711,758 63,711,758 56,711,758
Undivided profits 9,050,476 6,739,151 11,111,017
Unearned compensation (600,840) (160,900)
Accumulated other comprehensive income (117,447) 302,712 245,156
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 74,996,619 73,545,393 71,020,603
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 534,981,901 $ 488,171,143 $ 468,093,780
============= ============= =============
</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 For The Six Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 6,349,870 $ 6,051,874 $12,465,915 $11,980,211
Interest and dividends on
investments:
U.S. Treasury 1,273,219 1,315,044 2,456,203 2,547,700
U.S. Government agencies
and corporations 830,693 751,745 1,462,237 1,617,892
States and political
subdivisions 126,810 101,688 240,698 159,290
Other investments 4,093 14,469 88,468 14,469
Interest on federal funds sold 249,949 108,512 423,910 207,952
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 8,834,634 8,343,332 17,137,431 16,527,514
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Time deposits of $100,000 or more 937,196 1,089,934 1,863,474 2,107,848
Other deposits 2,279,830 2,343,755 4,601,599 4,578,877
Mortgage indebtedness 2,673 2,839 5,389 5,719
Federal funds purchased and
securities sold under
agreements to repurchase 366,294 45,189 648,231 105,802
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 3,585,993 3,481,717 7,118,693 6,798,246
----------- ----------- ----------- -----------
NET INTEREST INCOME 5,248,641 4,861,615 10,018,738 9,729,268
Provision for losses on loans 30,000 60,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES ON
LOANS 5,218,641 4,861,615 9,958,738 9,729,268
----------- ----------- ----------- -----------
OTHER OPERATING INCOME:
Trust department income and fees 195,548 223,572 475,963 428,693
Service charges on deposit
accounts 1,221,137 988,705 2,385,401 1,866,871
Other service charges,
commissions and fees 62,799 69,098 118,977 140,601
Gain on sale of securities 3,435 25,280
Other income 76,628 92,882 184,554 5,222,460
----------- ----------- ----------- -----------
TOTAL OTHER OPERATING INCOME $ 1,556,112 $ 1,377,692 $ 3,164,895 $ 7,683,905
----------- ----------- ----------- -----------
</TABLE>
Page 4 of 18
<PAGE> 5
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (continued)
(Unaudited)
<TABLE>
<CAPTION>
For The Quarters For The Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OTHER OPERATING EXPENSE:
Salaries and employee benefits $2,450,551 $2,155,931 $4,847,842 $4,330,913
Net occupancy 170,859 224,208 415,812 478,110
Equipment rentals, depreciation 604,273 485,160 1,179,547 986,720
and maintenance
Other expense 1,402,015 1,407,415 2,298,613 3,028,016
---------- ---------- ---------- ----------
TOTAL OTHER OPERATING EXPENSE 4,627,698 4,272,714 8,741,814 8,823,759
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 2,147,055 1,966,593 4,381,819 8,589,414
INCOME TAXES 733,386 682,160 1,509,486 2,944,760
---------- ---------- ---------- ----------
NET INCOME $1,413,669 $1,284,433 $2,872,333 $5,644,654
========== ========== ========== ==========
</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 Unearned Other Compre-
Common Common Undivided Compen- Comprehen- hensive
Shares Stock Surplus Profits sation sive Income Income Total
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1,
1998, as
previously
reported 1,476,336 $1,476,336 $58,188,094 $ 5,924,027 $ -0- $ 183,305 $ 65,771,762
Two-for-one
stock
split in
1998 1,476,336 1,476,336 (1,476,336)
--------- ---------- ----------- ----------- ----- --------- ------------
Balance,
January 1,
1998, as
restated 2,952,672 2,952,672 56,711,758 $5,924,027 -0- 183,305 65,771,762
Compre-
hensive
Income:
Net income 5,644,654 $5,644,654 5,644,654
Net unreal-
ized gain
on
available
for sale
securities,
net of tax 64,118 64,118 64,118
Reclassifi-
cation
adjustment
for
available
for sale
securities
called or
sold in
current
year, net
of
tax (2,267) (2,267) (2,267)
----------
Total
compre-
hensive
income $5,706,505
==========
Cash
dividends
(.155 per
share) (457,664) (457,664)
--------- ---------- ----------- ----------- ----- --------- ------------
Balance,
June 30,
1998 2,952,672 $2,952,672 $56,711,758 $11,111,017 $ -0- $ 245,156 $ 71,020,603
========= ========== =========== =========== ===== ========= ============
</TABLE>
Page 6 of 18
<PAGE> 7
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
# of Unearned Other Compre-
Common Common Undivided Compen- Comprehen- hensive
Shares Stock Surplus Profits sation sive Income Income Total
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1999 2,952,672 $ 2,952,672 $63,711,758 $ 6,739,151 $(160,900) $ 302,712 $ 73,545,393
Comprehensive
Income:
Net income 2,872,333 $ 2,872,333 2,872,333
Net
unrealized
loss on
available
for sale
securities,
net of tax (420,159) (420,159) (420,159)
------------
Total
comprehensive
income $ 2,452,174
============
Purchase
of common
shares by
ESOP (600,840) (600,840)
Allocation
of ESOP
shares 160,900 160,900
Cash
dividends
(.19 per
share) (561,008) (561,008)
--------- ----------- ----------- ----------- --------- --------- ------------
Balance,
June 30, 1999 2,952,672 $ 2,952,672 $63,711,758 $ 9,050,476 $(600,840) $(117,447) $ 74,996,619
========= =========== =========== =========== ========= ========= ============
</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, 1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,872,333 $ 5,644,654
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales and calls of securities (25,280)
Gain on sales of other real estate (449,529) (25,973)
Gain on sale of bank premises (5,083,867)
Depreciation and amortization 773,459 722,043
Provision for losses on loans 60,000
Provision for losses on other real estate 8,779
Changes in assets and liabilities:
Accrued interest receivable (169,520) 3,858
Other assets 470,834 (28,767)
Accrued interest payable (143,301) 10,264
Other liabilities 18,636 1,470,278
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,432,912 2,695,989
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales, maturities and calls of held
to maturity securities 67,120,000 51,650,000
Investment in held to maturity securities (86,878,987) (64,890,519)
Proceeds from sales, maturities and calls of
available for sale securities 1,189,430 15,728,776
Investment in available for sale securities (11,986,349) (10,296)
Loans made (12,009,483) (20,004,659)
Proceeds from sales of other real estate 569,000 271,577
Acquisition of premises and equipment (1,855,402) (957,664)
Federal funds sold (2,750,000) 5,450,000
Other assets (215,901) 284,179
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES $(46,817,692) $(12,478,606)
------------ ------------
</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, 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand and savings deposits, net increase $ 23,068,583 $ 22,119,539
Time deposits, net decrease (221,330) (7,015,091)
Principal payments on notes (6,323) (5,992)
Cash dividends (561,008) (457,664)
Federal funds purchased and securities sold
under agreements to repurchase 22,643,267 4,507,412
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 44,923,189 19,148,204
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,538,409 9,365,587
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 30,359,600 20,611,495
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,898,009 $ 29,977,082
============ ============
</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, 1999 and 1998
1. The accompanying unaudited consolidated financial statements have been
prepared with the accounting policies in effect as of December 31, 1998 as set
forth in the Notes to the Consolidated Financial Statements of Peoples Financial
Corporation and Subsidiaries (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, 1999, 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 2,952,672 for the six months ended June 30, 1999 and 1998.
4. At June 30, 1999 and 1998, the total recorded investment in impaired loans
amounted to $251,000 and $753,000. The amount of that recorded investment in
impaired loans for which there was no related allowance for loan losses was
$251,000 and $685,000 at June 30, 1999 and 1998, respectively.
At June 30, 1999, the average recorded investment in impaired loans was
$250,000. During the first six months of 1999, the Company recognized $7,000 in
interest income on impaired loans. During the first six months of 1999, the
Company received $5,000 in interest payments on impaired loans.
5. Transactions in the allowance for loan losses were as follows:
<TABLE>
<S> <C>
Balance, January 1, 1999 $ 4,382,157
Recoveries 41,212
Loans charged off (356,570)
Provision for loan losses 60,000
------------
Balance, June 30, 1999 $ 4,126,799
============
</TABLE>
6. The Company has defined cash and cash equivalents to include cash and due
from banks. The Company paid $7,262,000 and $6,788,000 for the six months ended
June 30, 1999 and 1998, respectively, for interest on deposits and borrowings.
Income tax payments totaled $1,506,000 and $1,110,000 for the six months ended
June 30, 1999 and 1998, respectively. Loans transferred to
Page 10 of 18
<PAGE> 11
other real estate amounted to $320,000 for the six months ended June 30, 1998.
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 which was
settled in August of 1998.
7. The income tax effect on the accumulated other comprehensive income was
($216,000) and $32,000 at June 30, 1999 and 1998, 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, 1999 and 1998.
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
Net income for the six months ended June 30, 1999, was $2,872,000, which was a
decrease of $2,773,000, as compared with the six months ended June 30, 1998.
This decrease was primarily attributable to the gain recognized for book
purposes of $3,300,000, net of taxes, during the first quarter of 1998 as the
result of the sale of a branch location. During the first quarter of 1999, the
Company recognized a gain, net of taxes, of $293,000 from the sale of other real
estate.
The following schedule compares financial highlights for the six months ended
June 30, 1999 and 1998:
<TABLE>
<CAPTION>
For the six months ended June 30, 1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Net income per share $ 0.97 $ 1.91
Book value per share $25.40 $24.05
Return on average total assets 1.11% 2.46%
Return on average shareholders' equity 7.73% 16.53%
Allowance for loan losses
as a % of loans, net of unearned discount 1.36% 1.61%
</TABLE>
Page 11 of 18
<PAGE> 12
FINANCIAL CONDITION
HELD TO MATURITY SECURITIES
Held to maturity securities increased $38,407,000 at June 30, 1999, as compared
with June 30, 1998, as a result of the management of the Company's liquidity
position. As funds were available either from the maturity of available for sale
securities or the increase in deposits, they were invested in short-term U.S.
Treasury and U. S. Government Agency securities, which have been classified as
held to maturity. Gross unrealized gains were $537,000 and $970,000 and gross
unrealized losses were $1,143,000 and $143,000 at June 30, 1999 and 1998,
respectively. There were no significant realized gains or losses on these
investments during the six months ended June 30, 1999 and 1998, respectively.
The following schedule reflects the mix of the held to maturity securities
portfolio at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
June 30, 1999 1998
- --------------------------------------------------------- ----------------------------
Amount % Amount %
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 95,217,017 61.60% $ 87,339,924 75.20%
U. S. Government agencies 52,334,301 33.90% 21,863,674 18.90%
States and political
subdivisions 6,931,364 4.50% 6,872,485 5.90%
------------ ------ ------------ ------
Totals $154,482,682 100.00% $116,076,083 100.00%
============ ====== ============ ======
</TABLE>
AVAILABLE FOR SALE SECURITIES
Available for sale securities decreased $9,000,000 as the result of the
management of the Company's liquidity position, as discussed above. Gross
unrealized gains were $454,000 and $469,000 and gross unrealized losses were
$633,000 and $98,000 at June 30, 1999 and 1998, respectively. There were no
significant realized gains or losses on these investments during the six months
ended June 30, 1999 and 1998. The following schedule reflects the mix of
available for sale securities at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
June 30, 1999 1998
- -------------------------------------------------------------- -------------------------
Amount % Amount %
-------------------------- -------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 4,864,690 21.20% $ 3,999,070 12.50%
U. S. Government agencies 15,295,430 66.50% 26,850,270 83.70%
States and political subdivisions 2,191,312 9.50% 591,203 1.80%
Other securities 641,333 2.80% 641,333 2.00%
----------- ------- ----------- -------
Totals $22,992,765 100.00% $32,081,876 100.00%
=========== ======= =========== =======
</TABLE>
Page 12 of 18
<PAGE> 13
FEDERAL FUNDS SOLD
Federal funds sold were $2,750,000 at June 30, 1999, compared with federal funds
sold of $700,000 at June 30, 1998. This fluctuation is directly related to the
liquidity needs of the bank subsidiary.
LOANS
Loans increased $31,365,000 at June 30, 1999, as compared with June 30, 1998, 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
1999. The allowance for loan losses decreased $232,000 due to net charge-offs
during the six months ended June 30, 1999. Likewise, the allowance for loan
losses as a % of loans, net of unearned discount, has decreased from 1.61% at
June 30, 1998, to 1.36% at June 30, 1999. 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 $6,158,000 at June 30, 1999, as compared
with June 30, 1998, as a result of the construction of two branch facilities
during that time.
OTHER REAL ESTATE
Other real estate decreased $423,000 at June 30, 1999, as compared with June 30,
1998, as a result of the sale of ORE during 1999, as discussed in the Overview.
OTHER ASSETS
Other assets decreased $3,363,000 at June 30, 1999, as compared with June 30,
1998, primarily as the result of the completion of a like-kind exchange. The
Company had sold one of its branch locations, such transaction having been
structured as a like-kind exchange for tax purposes. At June 30, 1998, the
Company had recorded a receivable of $4,037,000, which was related to the
exchange and was collected during the third quarter of 1998.
DEPOSITS
Total deposits have increased $16,790,000 at June 30, 1999, as compared with
June 30, 1998. 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 $46,187,000 at June 30, 1999, as compared with June 30, 1998. This
fluctuation is entirely due to the introduction of a new non-deposit product
during the second quarter of 1998.
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 15.34% at June 30, 1999,
Page 13 of 18
<PAGE> 14
as compared with 16.36% at June 30, 1998. the decrease at June 30, 1999,
reflects the significant increase in total assets rather than the softening of
the Company's capital. 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.
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 $387,000 for the second quarter of 1999 as
compared with the second quarter of 1998. Net interest income increased $290,000
for the six months ended June 30, 1999, as compared with the six months ended
June 30, 1998. Total interest income increased $491,000 for the quarter ended
June 30, 1999, as compared with the quarter ended June 30, 1998. Total interest
income increased $610,000 for the six months ended June 30, 1999, as compared
with the six months ended June 30, 1998. Total interest expense increased
$104,000 for the quarter ended June 30, 1999, as compared with quarter ended
June 30, 1998. Total interest expense increased $320,000 for the six months
ended June 30, 1999, as compared with the six months ended June 30, 1998. 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 1999 1998
thousands, except percentages)
- ------------------------------------ ------- -------
<S> <C> <C>
Total interest income (1) $17,261 $16,606
Total interest expense 7,119 6,798
------- -------
Net interest earnings $10,142 $ 9,808
======= =======
Net yield on interest earning assets 4.34% 4.75%
======= =======
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1999 and 1998.
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, 1999 and
1998.
Page 14 of 18
<PAGE> 15
ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
(In Thousands)
<TABLE>
Attributable To:
------------------------------
For the Six For the Six
Months Months
Ended June Ended June Increase Rate/
30, 1999 30, 1998 (Decrease) Volume Rate Volume
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST
INCOME: (1)
Loans (2) $12,466 $11,980 $ 486 $ 1,530 $ (926) $(118)
Federal funds sold 424 208 216 391 (61) (114)
Held to maturity:
Taxable
securities 3,576 3,152 424 833 (324) (85)
Non-taxable
securities 269 135 134 24 93 17
Available for sale:
Taxable
securities 342 1,014 (672) (635) (98) 61
Non-taxable
securities 96 102 (6) 320 (79) (247)
Other securities 88 15 73 73
------- ------- ------- ------- ------- -----
Total $17,261 $16,606 $ 655 $ 2,463 $(1,322) $(486)
======= ======= ======= ======= ======= =====
INTEREST
EXPENSE:
Savings and
negotiable
interest
bearing deposits $ 2,732 $ 2,714 $ 18 $ 154 $ (129) $ (7)
Time deposits 3,734 3,972 (238) 117 (345) (10)
Federal funds
purchased and
securities sold
under agreements
to repurchase 648 106 542 772 (28) (202)
Mortgage
indebtedness 5 6 (1) (3) 5 (3)
------- ------- ------- ------- ------- -----
Total $ 7,119 $ 6,798 $ 321 $ 1,040 $ (497) $(222)
======= ======= ======= ======= ======= =====
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1999 and 1998.
(2) Loan fees are included in these figures. Includes nonaccrual loans.
Page 15 of 18
<PAGE> 16
PROVISION FOR LOAN LOSSES
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. A
thorough analysis of current economic conditions and the quality of the loan
portfolio are conducted on a quarterly basis. These analyses are utilized in the
computation of the adequacy of the allowance for loan losses. During the period
from 1993 until 1998, the Company had not recorded a provision for loan losses.
Beginning in January 1999, the Company began providing $10,000 for loan losses
on a monthly basis and expects to continue to do so throughout 1999. This action
was implemented primarily in response to the large increase in volume of the
loan portfolio and does not indicate a deterioration of its quality.
SERVICE CHARGES ON DEPOSIT ACCOUNTS
Service charges on deposit accounts increased $519,000 for the six months ended
June 30, 1999, as compared with the six months ended June 30, 1998, as the
result of an increase in off-site ATM's during 1999.
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.
SALARIES AND EMPLOYEE BENEFITS
Salaries and employee benefits increased $517,000 for the six months ended June
30, 1999, as compared with the six months ended June 30, 1998, as the result in
an increase in the cost of health insurance provided to employees as well as an
increase in the number of employees during this time frame.
OTHER EXPENSE
Other expense decreased $729,000 for the six months ended June 30, 1999, as
compared with the same period during 1998, largely as the result of expenses
relating to the computer conversion during 1998.
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, 1999, cash and due from banks,
investment securities and federal funds sold were 52% of total deposits, as
compared with 46% at June 30, 1998.
Page 16 of 18
<PAGE> 17
YEAR 2000
In response to the Year 2000 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 was completed by December 31,
1998. Testing of all mission critical systems was completed by June 30, 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
includes all information technology and non-information technology systems. The
Plan, which has been approved by the Board of Directors, also addresses
potential Year 2000 issues relating to core application software, trust services
software, ATM services, liquidity and other operational activities.
While the Company has taken steps to ensure 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.
PART II
OTHER INFORMATION
Item 5 - Other Information
The number of shareholders of the Company increased to more than 500 during
1998. As a result, the Company filed Form 10 with the Commission on April 21,
1999.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(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: August 5, 1999
--------------------------------------
By: /s/ CHEVIS C. SWETMAN
--------------------------------------
Chevis C. Swetman
Chairman, President and Chief Executive Officer
Date: August 5, 1999
--------------------------------------
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 DESCRIPTION
- ------ ------------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 31,898,009
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,750,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,992,765
<INVESTMENTS-CARRYING> 154,482,682
<INVESTMENTS-MARKET> 153,877,000
<LOANS> 302,777,457
<ALLOWANCE> 4,126,799
<TOTAL-ASSETS> 534,981,901
<DEPOSITS> 404,449,489
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,864,252
<LONG-TERM> 196,623
0
0
<COMMON> 2,952,672
<OTHER-SE> 72,043,947
<TOTAL-LIABILITIES-AND-EQUITY> 534,981,901
<INTEREST-LOAN> 12,465,915
<INTEREST-INVEST> 4,247,606
<INTEREST-OTHER> 423,910
<INTEREST-TOTAL> 17,137,431
<INTEREST-DEPOSIT> 6,465,073
<INTEREST-EXPENSE> 7,118,693
<INTEREST-INCOME-NET> 10,018,738
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,298,613
<INCOME-PRETAX> 4,381,819
<INCOME-PRE-EXTRAORDINARY> 4,381,819
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,872,333
<EPS-BASIC> 1
<EPS-DILUTED> 1
<YIELD-ACTUAL> 0.043
<LOANS-NON> 251,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,382,157
<CHARGE-OFFS> 356,570
<RECOVERIES> 41,212
<ALLOWANCE-CLOSE> 4,126,799
<ALLOWANCE-DOMESTIC> 4,126,799
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 200,000
</TABLE>
