<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-------------------------------------------
Commission File Number 2-98268
-------------------------------------------
PEOPLES FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Mississippi 64-0709834
---------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number
Lameuse and Howard Avenues, Biloxi, Mississippi 39533
-------------------------------------------------------------
(Address of principal executive offices) (Zip code)
228-435-5511
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------------
None None
Securities registered pursuant to Section 12 (g) of the Act:
NONE
------------------------------------------------------------
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. X
----
Cover Page 1 of 2 Pages
<PAGE> 2
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 1999 was approximately $131,004,000. For purposes of
this calculation only, shares held by non-affiliates are deemed to consist of
(a) shares held by all shareholders other than directors and executive officers
plus (b) shares held by directors and executive officers as to which beneficial
ownership has been disclaimed.
On March 1, 1999 the registrant had outstanding 2,952,672 shares of common
stock, par value of $1.00 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1998 are incorporated by reference into Parts I, II and III of this
report. Portions of the Registrant's Definitive Proxy Statement issued in
connection with the Annual Meeting of Shareholders to be held April 14, 1999,
are incorporated by reference into Part III of this report.
Cover Page 2 of 2 Pages
<PAGE> 3
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
THE REGISTRANT
Peoples Financial Corporation (the "Company") was established as a one bank
holding company on December 18, 1984. Under a "Reorganization and Merger
Agreement" dated March 21, 1985, and approved on July 8, 1985, Peoples Financial
Corporation acquired all the outstanding stock of consenting shareholders of The
Peoples Bank of Biloxi (the "Bank") on September 30, 1985, in exchange for
25,086 shares of its common stock. A settlement was reached with dissenting
shareholders to acquire their stock at $1,000.00 per share, and this amount was
paid during 1986, with interest at 9% per annum. The transaction was accounted
for as a pooling-of-interest. The Company is now engaged, through its
subsidiary, in the banking business. The Bank is the Company's principal asset
and primary source of revenue.
NONBANK SUBSIDIARY
On August 22, 1985, PFC Service Corp. ("PFC") was chartered and began operations
as the second wholly-owned subsidiary of Peoples Financial Corporation on
October 3, 1985. The purpose of PFC was principally the leasing of automobiles
and equipment under direct financing and sales-type leases that expired in
various periods through 1993. The Bank acquired all remaining leases from PFC
during 1990. PFC is inactive at this time.
ACQUISITIONS
On August 19, 1988, the Company acquired Gulf National Bank ("GNB") and merged
GNB into the Bank with shareholders of GNB receiving shares of 4% convertible
preferred stock. The preferred stock was mandatorily convertible into Company
common stock five years and one month after August 19, 1988, at the rate of one
share of common stock for each 24 shares of preferred stock. This conversion was
executed on September 19, 1993.
On August 16, 1991, the Company purchased certain assets and assumed the insured
deposits of the Main Office of the former Southern Federal Bank for Savings from
the Resolution Trust Corporation and merged those assets and deposits into the
Bank.
THE BANK
The Bank, which was originally chartered in 1896 in Biloxi, Mississippi,
currently offers many customary banking services to its customers including
interest bearing and non-interest bearing checking accounts; savings accounts;
certificates of deposit; IRA accounts; business, real estate, construction,
personal and installment loans; collection services; trust services; safe
deposit box facilities; night drop facilities and automated teller machines. The
Bank is a state chartered bank
1
<PAGE> 4
whose deposits are insured under the Federal Insurance Act. The Bank is not a
member of the Federal Reserve System. The legal name of the Bank was changed to
The Peoples Bank, Biloxi, Mississippi, during 1991.
The Bank has a large number of customers acquired over a period of many years
and is not dependent upon a single customer or upon a few customers. The Bank
also provides services to customers representing a wide variety of industries
including seafood, retail, hospitality, gaming and construction.
The Main Office, operations center and trust services of the Bank are located in
downtown Biloxi, MS. The Bank also has eleven (11) branches from Bay St. Louis,
MS, to Ocean Springs, MS. The Bank has automated teller machines ("ATM") at its
Main Office, all branch locations and at numerous non-proprietary locations.
At December 31, 1998, the Bank employed 212 full-time employees and 33 part-time
employees.
COMPETITION
The Bank is in direct competition with approximately eight (8) commercial banks
and three (3) non-bank institutions. These banks range in size from
approximately $27 million to approximately $4.4 billion. The Bank also competes
for deposits and loans with insurance companies, finance companies and
automobile finance companies.
TRUST SERVICES
The Bank's Asset Management and Trust Services Department offers personal trust,
agencies and estate services including living and testamentary trusts,
executorships, guardianships, and conservatorships. Benefit accounts maintained
by the Department primarily include self-directed individual retirement
accounts. Escrow management, stock transfer and bond paying agency accounts are
available to corporate customers.
MISCELLANEOUS
The Bank holds no patents, licenses (other than licenses required to be obtained
from appropriate bank regulatory agencies), franchises or concessions. During
1994, the Bank obtained the rights to the registered trademark, "The Mint".
There has been no significant change in the kind of services offered by the Bank
during the last three fiscal years.
The Bank has not engaged in any research activities relating to the development
of new services or the improvement of existing services except in the normal
course of its business activities. The Bank presently has no plans for any new
line of business requiring the investment of a material amount of total assets.
2
<PAGE> 5
Most of the Bank's business originates from within Harrison, Hancock and west
Jackson Counties in Mississippi; however, some business is obtained from
Claiborne County and the other counties in southern Mississippi. There has been
no material effect upon the Bank's capital expenditures, earnings or competitive
position as a result of federal, state or local environmental regulations.
REGULATION AND SUPERVISION
The Company is a registered one bank holding company under the Bank Holding
Company Act. As such, the Company is required to file periodic reports and such
additional information as the Federal Reserve may require. The Federal Reserve
Board may also make examinations of the Company and its subsidiaries. The Bank
Holding Company Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before it may acquire substantially all
the assets of any bank or ownership or control of any voting shares of any bank
if, after the acquisition, it would own or control, directly or indirectly, more
than 5 percent of the voting shares of the bank.
A bank holding company is generally prohibited from engaging in, or acquiring
direct or indirect control of, voting shares of any company engaged in
non-banking activities. One of the principal exceptions to this prohibition is
for activities found by the Federal Reserve to be so closely related to banking
or the managing or controlling of banks as to be a proper incident thereto. Some
of the activities the Federal Reserve Board has determined by regulation to be
closely related to banking are the making and servicing of loans, performing
certain bookkeeping or data processing services, acting as fiduciary or
investment or financial advisor, making equity or debt investments in
corporations or projects designed primarily to promote community welfare,
leasing transactions if the functional equivalent of an extension of credit and
mortgage banking or brokerage.
A bank holding company and its subsidiaries are also prohibited from acquiring
any voting shares of or interest in, any banks located outside the state in
which the operations of the bank holding company's subsidiaries are located,
unless the acquisition is specially authorized by the statute of the state in
which the target is located. Certain southern states, including Mississippi,
have enacted legislation which authorizes interstate acquisitions of a banking
organization by bank holding companies within the south, subject to certain
conditions and restrictions.
The Bank is subject to the regulation of and examination by the Mississippi
Department of Banking and Consumer Finance ("Department of Banking") and the
Federal Deposit Insurance Corporation ("FDIC"). Areas subject to regulation
include reserves, investments, loans, mergers, branching, issuance of
securities, payment of dividends, capital adequacy, management practices and all
other aspects of banking operations. In addition to regular examinations, the
Bank must furnish periodic reports to its regulatory authorities containing a
full and accurate statement of affairs. The Bank is subject to deposit insurance
assessments by the FDIC and the Department of Banking.
3
<PAGE> 6
The earnings of commercial banks and bank holding companies are affected not
only by general economic conditions but also by the policies of various
governmental regulatory authorities, including the Federal Reserve Board. In
particular, the Federal Reserve Board regulates money and credit conditions, and
interest rates, primarily through open market operations in U. S. Government
securities, varying the discount rate of member and nonmember bank borrowing,
setting reserve requirements against bank deposits and regulating interest rates
payable by banks on certain deposits. These policies influence to a varying
extent the overall growth and distribution of bank loans, investments and
deposits and the interest rates charged on loans. The monetary policies of the
Federal Reserve Board have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
SUPPLEMENTAL STATISTICAL INFORMATION
Schedules I-A through VII present certain statistical information regarding the
Company. This information is not audited and should be read in conjunction with
the Company's Consolidated Financial Statements and Notes to Consolidated
Financial Statements found at pages 17 - 41 of the 1998 Annual Report to
Shareholders.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND
INTEREST RATES AND DIFFERENTIALS
Net Interest Income, the difference between Interest Income and Interest
Expense, is the most significant component of the Company's earnings. For
interest analytical purposes, Management adjusts Net Interest Income to a
"taxable equivalent" basis using a 34% Federal Income Tax rate on tax-exempt
items (primarily interest on municipal securities).
Another significant statistic in the analysis of Net Interest Income is the
effective interest differential, also called the net yield on earning assets.
The net yield is the difference between the rate of interest earned on earning
assets and the effective rate paid for all funds, non-interest bearing as well
as interest bearing. Since a portion of the Bank's deposits do not bear
interest, such as demand deposits, the rate paid for all funds is lower than the
rate on interest bearing liabilities alone.
Recognizing the importance of interest differential to total earnings,
Management places great emphasis on managing interest rate spreads. Although
interest differential is affected by national, regional and area economic
conditions, including the level of credit demand and interest rates, there are
significant opportunities to influence interest differential through appropriate
loan and investment policies which are designed to maximize the interest
differential while maintaining sufficient liquidity and availability of
"incremental funds" for purposes of meeting existing commitments and investment
in lending and investment opportunities that may arise.
4
<PAGE> 7
The information included in Schedule I-F presents the change in interest income
and interest expense along with the reason(s) for these changes. The change
attributable to volume is computed as the change in volume times the old rate.
The change attributable to rate is computed as the change in rate times the old
volume. The change in rate/volume is computed as the change in rate times the
change in volume.
SUMMARY OF LOAN LOSS EXPERIENCE
In the normal course of business, the Bank assumes risks in extending credit.
The Bank manages these risks through its lending policies, loan review
procedures and the diversification of its loan portfolio. Although it is not
possible to predict loan losses with complete accuracy, Management constantly
reviews the characteristics of the loan portfolio to determine its overall risk
profile and quality.
Constant attention to the quality of the loan portfolio is achieved by the loan
review process. Throughout this ongoing process, Management is advised of the
condition of individual loans and of the quality profile of the entire loan
portfolio. Any loan or portion thereof which is classified "loss" by regulatory
examiners or which is determined by Management to be uncollectible because of
such factors as the borrower's failure to pay interest or principal, the
borrower's financial condition, economic conditions in the borrower's industry
or the inadequacy of underlying collateral, is charged-off.
Provisions are charged to operating expense based upon historical loss
experience, and additional amounts are provided when, in the opinion of
Management, such provisions are not adequate based upon the current factors
affecting loan collectibility.
The allocation of the allowance for loan losses by loan category is based on the
factors mentioned in the preceding paragraphs. Accordingly, since all of these
factors are subject to change, the allocation is not necessarily indicative of
the breakdown of future losses.
The comments concerning the provision for loan losses and the allowance for loan
losses presented in "Management's Discussion and Analysis" at pages 10 - 16 of
the 1998 Annual Report to Shareholders are incorporated herein by reference.
RETURN ON EQUITY AND ASSETS
The information under the captions "Five-Year Comparative Summary of Selected
Financial Information" on page 9 and "Management's Discussion and Analysis" on
pages 10 - 16 of the 1998 Annual Report are incorporated herein by reference.
5
<PAGE> 8
DIVIDEND PAYOUT
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Dividend payout ratio 11.09% 13.69% 12.98%
======= ======= =======
</TABLE>
6
<PAGE> 9
SCHEDULE I-A
Distribution of Average Assets, Liabilities and Shareholders' Equity
for the Periods Indicated (2)
<TABLE>
<CAPTION>
Years Ended December 31, (In thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
ASSETS:
Cash and due from financial institutions $ 30,547 $ 24,324 $ 24,431
Available for sale securities:
Taxable securities 27,202 50,522 52,263
Non-taxable securities 790
Other securities 641 730 925
Held to maturity securities:
Taxable securities 111,257 98,110 143,270
Non-taxable securities 6,301 5,838 4,717
Net loans (1) 264,047 230,306 219,652
Federal funds sold 8,601 9,216 11,032
Other assets 21,370 16,802 11,991
-------- -------- --------
TOTAL ASSETS $470,756 $435,848 $468,281
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Non-interest bearing deposits $ 79,028 $ 67,835 $ 66,215
Interest bearing deposits 304,617 299,625 339,438
-------- -------- --------
Total deposits 383,645 367,460 405,653
Federal funds purchased and securities sold under
agreements to repurchase 11,343 1,624 1,941
Other liabilities 5,035 3,931 3,585
-------- -------- --------
Total liabilities 400,023 373,015 411,179
Shareholders' equity 70,733 62,833 57,102
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $470,756 $435,848 $468,281
======== ======== ========
</TABLE>
(1) Gross loans and discounts, net of unearned income and allowance for loan
losses.
(2) All averages are computed on a daily basis with the exception of deposits,
which were computed on a monthly basis. Daily averages were not available
for deposits.
7
<PAGE> 10
SCHEDULE I-B
Average (2) Amount Outstanding for Major Categories of Interest Earning Assets
and Interest Bearing Liabilities for the Periods Indicated
<TABLE>
<CAPTION>
Years Ended December 31, (In thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans (1) $268,393 $234,744 $224,231
Federal funds sold 8,601 9,216 11,032
Available for sale securities:
Taxable securities 27,202 50,522 52,263
Non-taxable securities 790
Other securities 641 730 945
Held to maturity securities:
Taxable securities 111,257 98,110 143,270
Non-taxable securities 6,301 5,838 4,717
-------- -------- --------
TOTAL INTEREST EARNING ASSETS $423,185 $399,160 $436,458
======== ======== ========
INTEREST BEARING LIABILITIES:
Savings and negotiable interest bearing deposits $153,839 $161,635 $185,537
Time deposits 150,778 137,990 153,901
Federal funds purchased and securities sold
under agreements to repurchase 11,343 1,624 1,941
Other borrowed funds 209 220 232
-------- -------- --------
TOTAL INTEREST BEARING LIABILITIES $316,169 $301,469 $341,611
======== ======== ========
</TABLE>
(1) Net of unearned income. Includes nonaccrual loans.
(2) All averages are computed on a daily basis with the exception of deposits,
which were computed on a monthly basis. Daily averages were not available
for deposits.
8
<PAGE> 11
SCHEDULE I-C
Interest Earned or Paid on the Major Categories of Interest Earning Assets
and Interest Bearing Liabilities for the Periods Indicated
<TABLE>
<CAPTION>
Years Ended December 31, (In thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
INTEREST EARNED ON:
Loans (2) $ 24,412 $ 21,777 $ 20,414
Federal funds sold 493 500 582
Available for sale securities:
Taxable securities 1,673 3,270 3,343
Non-taxable securities 68
Other securities 27 297 45
Held to maturity securities:
Taxable securities 6,426 5,976 8,460
Non-taxable securities 528 628 612
-------- -------- --------
TOTAL INTEREST EARNED (1) $ 33,627 $ 32,448 $ 33,456
======== ======== ========
INTEREST PAID ON:
Savings and negotiable interest bearing
deposits $ 5,457 $ 5,091 $ 5,951
Time deposits 7,968 7,757 8,332
Federal funds purchased and securities
sold under agreements to repurchase 553 97 110
Other borrowed funds 12 12 13
-------- -------- --------
TOTAL INTEREST PAID $ 13,990 $ 12,957 $ 14,406
======== ======== ========
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1998, 1997 and 1996.
(2) Loan fees of $501, $395 and $334 for 1998, 1997 and 1996, respectively, are
included in these figures.
9
<PAGE> 12
SCHEDULE I-D
Average Interest Rate Earned or Paid for Major Categories of
Interest Earning Assets and Interest Bearing Liabilities
for the Periods Indicated
<TABLE>
<CAPTION>
Years Ended December 31, (In thousands) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
AVERAGE RATE EARNED ON:
Loans 9.10% 9.28% 9.10%
Federal funds sold 5.73 5.43 5.28
Available for sale securities:
Taxable securities 6.15 6.47 6.39
Non-taxable securities 8.61
Other securities (2) 4.21 40.70 4.76
Held to maturity securities:
Taxable securities 5.78 6.07 5.90
Non-taxable securities 8.38 10.76 12.97
---------- ---------- ----------
TOTAL (weighted average rate) (1) 7.95% 8.13% 7.67%
========== ========== ==========
AVERAGE RATE PAID ON:
Savings and negotiable interest bearing
deposits 3.55% 3.15% 3.21%
Time deposits 5.28 5.62 5.41
Federal funds purchased and securities
sold under agreements to repurchase 4.88 5.97 5.67
Other borrowed funds 5.74 5.43 5.60
---------- ---------- ----------
TOTAL (weighted average rate) 4.42% 4.30% 4.22%
========== ========== ==========
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1998, 1997 and 1996.
(2) In 1997, a dividend of $270 was received on stock held as available for
sale at a market value of $640.
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<PAGE> 13
SCHEDULE I-E
Net Interest Earnings and Net Yield on Interest Earning Assets
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands except percentages) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C> <C>
Total interest income (1) $33,627 $32,448 $33,456
Total interest expense 13,990 12,957 14,406
------- ------- -------
Net interest earnings $19,637 $19,491 $19,050
======= ======= =======
Net yield on interest earning assets 4.64% 4.88% 4.36%
======= ======= =======
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1998, 1997 and 1996.
11
<PAGE> 14
SCHEDULE I-F
Analysis of Changes In Interest Income and Interest Expense
(In thousands)
<TABLE>
<CAPTION>
Attributable to:
-----------------------------------
Increase Rate /
1998 1997 (Decrease) Volume Rate Volume
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:(1)
Loans (2) (3) $ 24,412 $ 21,777 $ 2,635 $ 3,122 $ (426) $ (61)
Federal funds sold 493 500 (7) (33) 28 (2)
Available for sale securities:
Taxable securities 1,673 3,270 (1,597) (1,509) (163) 75
Non-taxable securities 68 68 68
Other securities 27 297 (270) (36) (266) 32
Held to maturity securities:
Taxable securities 6,426 5,976 450 801 (309) (42)
Non-taxable securities 528 628 (100) 50 (139) (11)
--------- --------- --------- --------- --------- ---------
Total $ 33,627 $ 32,448 $ 1,179 $ 2,463 $ (1,275) $ (9)
========= ========= ========= ========= ========= =========
INTEREST EXPENSE:
Savings and negotiable
interest bearing deposits $ 5,457 $ 5,091 $ 366 $ (243) $ 639 $ (30)
Time deposits 7,968 7,757 211 719 (465) (43)
Federal funds purchased and
securities sold under
agreements to repurchase 553 97 456 580 (18) (106)
Other borrowed funds 12 12
--------- --------- --------- --------- --------- ---------
Total $ 13,990 $ 12,957 $ 1,033 $ 1,056 $ 156 $ (179)
========= ========= ========= ========= ========= =========
</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.
(3) Includes interest on nonaccrual loans.
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<PAGE> 15
SCHEDULE I-F (continued)
Analysis of Changes in Interest Income and Interest Expense
(In thousands)
<TABLE>
<CAPTION>
Attributable to:
-----------------------------------
Increase Rate /
1997 1996 (Decrease) Volume Rate Volume
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:(1)
Loans (2) (3) $ 21,777 $ 20,414 $ 1,363 $ 957 $ 388 $ 18
Federal funds sold 500 582 (82) (96) 16 (2)
Available for sale securities:
Taxable securities 3,270 3,343 (73) (111) 40 (2)
Other securities 297 45 252 (10) 339 (77)
Held to maturity securities:
Taxable securities 5,976 8,460 (2,484) (2,667) 267 (84)
Non-taxable securities 628 612 16 145 (105) (24)
--------- --------- --------- --------- --------- ---------
Total $ 32,448 $ 33,456 $ (1,008) $ (1,782) $ 945 $ (171)
========= ========= ========= ========= ========= =========
INTEREST EXPENSE:
Savings and negotiable
interest bearing deposits $ 5,091 $ 5,951 $ (860) $ (770) $ (104) $ 14
Time deposits 7,757 8,332 (575) (861) 319 (33)
Federal funds purchased and
securities sold under
agreements to repurchase 97 110 (13) (18) 6 (1)
Other borrowed funds 12 13 (1) (1) (1) 1
--------- --------- --------- --------- --------- ---------
Total $ 12,957 $ 14,406 $ (1,449) $ (1,650) $ 220 $ (19)
========= ========= ========= ========= ========= =========
</TABLE>
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 1997 and 1996.
(2) Loan fees are included in these figures.
(3) Includes interest on nonaccrual loans.
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<PAGE> 16
SCHEDULE II-A
Securities Portfolio
Book Value of Securities Portfolio at the Dates Indicated
<TABLE>
<CAPTION>
December 31, (In thousands): 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Available for sale securities:
U. S. Government, agency and corporate $ 9,921 $ 46,442 $ 51,921
obligations
States and political subdivisions 2,275 595
Other securities 641 641 1,238
-------- -------- --------
Total $ 12,837 $ 47,678 $ 53,159
======== ======== ========
Held to maturity securities:
U. S. Government, agency and corporate $128,175 $ 97,161 $122,090
obligations
States and political subdivisions 6,549 5,674 5,780
-------- -------- --------
Total $134,724 $102,835 $127,870
======== ======== ========
</TABLE>
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<PAGE> 17
SCHEDULE II-B
Maturity of Securities Portfolio at December 31, 1998
And Weighted Average Yields of Such Securities
<TABLE>
<CAPTION>
Maturity
(In thousands except percentage data)
--------------------------------------------------------------------------------------------------
After one but After five but
Within one year within five years within ten years After ten years
---------------------- ---------------------- --------------------- ---------------------
Amount Yield Amount Yield Amount Yield Amount Yield
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for
sale securities:
U. S
Government,
agency and
corporate
obligations $ 2,036 5.59% $ 3,982 5.34% $ 2,920 5.33% $ 983 6.40%
States and
political
subdivisions 1,562 4.28% 713 5.05%
Other 641 4.21%
--------- --------- --------- --------- --------- --------- --------- ---------
Totals $ 2,036 5.59% $ 3,982 5.34% $ 4,482 5.02% $ 2,337 5.55%
========= ========= ========= ========= ========= ========= ========= =========
Held to
maturity
securities:
U. S
Government,
agency and
corporate
obligations $ 66,286 5.03% $ 41,853 6.06% $ 20,036 5.64% $
States and
political
subdivisions 781 4.99% 1,635 6.30% 2,371 5.58% 1,762 5.35%
--------- --------- --------- --------- --------- --------- --------- ---------
Totals $ 67,067 5.03% $ 43,488 6.07% $ 22,407 5.63% $ 1,762 5.35%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
Note: The weighted average yields are calculated on the basis of cost. Average
yields on investments in states and political subdivisions are based on
their contractual yield.
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<PAGE> 18
SCHEDULE III-A
Loan Portfolio
Loans by Type Outstanding (1)
<TABLE>
<CAPTION>
December 31, (In thousands): 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Real estate, construction $ 24,836 $ 14,819 $ 14,704 $ 16,473 $ 14,056
Real estate, mortgage 179,123 154,653 137,766 138,254 131,584
Loans to finance agricultural
production and other loans
to farmers 13,493 12,501 10,483 9,962 11,259
Commercial and industrial
loans 49,633 50,224 48,057 39,228 42,505
Loans to individuals for
household, family and other
consumer expenditures 15,717 13,125 11,179 11,903 13,114
Obligations of states and
political subdivisions 6,809 5,257 4,496 5,469 6,752
All other loans 1,904 1,219 1,824 2,780 3,572
-------- -------- -------- -------- --------
Totals $291,515 $251,798 $228,509 $224,069 $222,842
======== ======== ======== ======== ========
</TABLE>
(1) No foreign debt outstanding.
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<PAGE> 19
SCHEDULE III-B
Maturities and Sensitivity to Changes in
Interest Rates of the Loan Portfolio as of December 31, 1998
<TABLE>
<CAPTION>
Maturity (In thousands)
--------------------------------------------------------------
Over one year
One year or through 5
less years Over 5 years Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Loans:
Real estate, construction $ 18,627 $ 4,288 $ 1,921 $ 24,836
Real estate, mortgage 39,979 125,672 13,472 179,123
Loans to finance
agricultural production and
other loans to farmers 12,937 556 13,493
Commercial and industrial
loans 28,493 20,335 805 49,633
Loans to individuals for
household, family and
other consumer
expenditures 7,014 8,659 44 15,717
Obligations of states and
political subdivisions 4,280 986 1,543 6,809
All other loans 878 1,026 1,904
-------- -------- -------- --------
Totals $112,208 $161,522 $ 17,785 $291,515
======== ======== ======== ========
Loans with pre-determined
interest rates $ 49,496 $ 84,834 $ 7,217 $141,547
Loans with floating
interest rates 62,712 76,688 10,568 149,968
-------- -------- -------- --------
Totals $112,208 $161,522 $ 17,785 $291,515
======== ======== ======== ========
</TABLE>
17
<PAGE> 20
SCHEDULE III-C
Non-Performing Loans
<TABLE>
<CAPTION>
December 31, (In thousands): 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
non-accrual basis (1) $ 490 $ 1,167 $ 546 $ 610 $ 138
Loans which are contractually
past due 90 or more days as to
interest or principal payment,
but are not included above 718 2,882 3,026 146 474
</TABLE>
(1) The Bank places loans on a nonaccrual status when, in the opinion of
Management, they possess sufficient uncertainty as to timely collection of
interest or principal so as to preclude the recognition in reported
earnings of some or all of the contractual interest. The amount of interest
that would have been earned on these loans had they been on accrual during
1998 was approximately $19. The Bank did receive $22 in interest payments
during 1998 so that the net effect of recording income on nonaccrual loans
on the cash basis was to reduce interest income by approximately $3 in
1998.
18
<PAGE> 21
SCHEDULE IV-A
Summary of Loan Loss Expenses
(In thousands except percentage data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Average amount of loans
outstanding (1) $ 268,393 $ 234,744 $ 224,231 $ 224,819 $ 198,044
========= ========= ========= ========= =========
Balance of allowance for loan
losses at the beginning of period $ 4,435 $ 4,523 $ 4,353 $ 4,901 $ 5,100
Loans charged-off:
Commercial, financial and
agricultural 406 379 77 601 79
Consumer and other 60 56 62 101 58
--------- --------- --------- --------- ---------
Total loans charged-off 466 435 139 702 137
Recoveries of loans previously
charged-off:
Commercial, financial and
agricultural 361 294 403 63 142
Consumer and other 52 53 56 91 96
--------- --------- --------- --------- ---------
Total recoveries 413 347 459 154 238
--------- --------- --------- --------- ---------
Net loans (recovered) charged- 53 88 (320) 548 (101)
off
Provision for (reduction of) loan
losses charged to operating
expense (150) (300)
--------- --------- --------- --------- ---------
Balance of allowance for
loan losses at end of period $ 4,382 $ 4,435 $ 4,523 $ 4,353 $ 4,901
========= ========= ========= ========= =========
Ratio of net charge-offs during
period to average loans
outstanding 0.02% 0.04% (0.14)% 0.24% (0.05)%
========= ========= ========= ========= =========
</TABLE>
(1) Net of unearned income.
19
<PAGE> 22
SCHEDULE IV-B
Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------------- ------------------- ------------------- ------------------- -------------------
% of
% of % of Loans % of % of
Loans Loans to Loans Loans
Balance at December to Total to Total Total to Total to Total
31, ( In thousands) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate,
construction $ 292 9 $ 296 6 $ 294 6 $ 329 7 $ 281 6
Real estate,
mortgage 2,674 61 2,706 61 2,755 60 2,765 62 2,561 59
Loans to finance
agricultural
production and
other loans to
farmers 247 5 250 5 210 5 199 4 225 5
Commercial and
industrial loans 868 17 878 20 961 21 785 18 1,250 19
Loans to individuals
for household,
family and other
consumer
expenditures 259 5 262 5 223 5 238 5 262 6
Obligations of states
and political
subdivisions -0- 2 -0- 2 -0- 2 -0- 3 -0- 3
All other loans 23 1 24 1 36 1 18 1 71 2
Unallocated 19 N/A 19 N/A 44 N/A 19 N/A 251 N/A
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Totals $ 4,382 100 $ 4,435 100 $ 4,523 100 $ 4,353 100 $ 4,901 100
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
20
<PAGE> 23
SCHEDULE V
Summary of Average Deposits and Their Yields
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
Years Ended December
31, (In thousands
except for percentage
data) Amount Rate Amount Rate Amount Rate
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits in
domestic offices $ 79,028 N/A $ 67,835 N/A $ 66,215 N/A
Negotiable interest
bearing deposits
in domestic offices 127,191 3.64% 126,108 3.43% 149,314 3.44%
Savings deposits in
domestic offices 26,648 3.09% 35,527 2.18% 36,223 2.25%
Time deposits in
domestic offices 150,778 5.28% 137,990 5.62% 153,901 5.41%
-------- -------- -------- -------- -------- --------
Total deposits $383,645 3.50% $367,460 3.50% $405,653 3.52%
======== ======== ======== ======== ======== ========
</TABLE>
Certificates of deposit outstanding in amounts $100,000 or more (in thousands)
by the amount of time remaining until maturity as of December 31, 1998, are as
follows:
<TABLE>
<S> <C> <C>
Remaining maturity:
3 months or less $ 38,320
Over 3 through 6 months 18,807
Over 6 months through 12 months 9,295
Over 12 months 1,658
---------------------
Total $ 68,080
=====================
</TABLE>
21
<PAGE> 24
SCHEDULE VI
Short Term Borrowings
(In thousands except percentage data)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Amount outstanding at December 31, $ 28,151 $ 16,500
Weighted average interest rate at
December 31, 4.11% N/A 6.00%
Maximum outstanding at any month-end
during year $ 28,151 $ 9,325 $ 16,500
Average amount outstanding during year $ 11,343 $ 1,624 $ 1,941
Weighted average interest rate 4.88% 5.97% 5.67%
</TABLE>
Note: Short term borrowings include federal funds purchased from other banks and
securities sold under agreements to repurchase.
22
<PAGE> 25
SCHEDULE VII
Interest Sensitivity/Gap Analysis
<TABLE>
<CAPTION>
December 31, 1998 (In 0 - 3 4 - 12 1 - 5 Over 5
thousands) Months Months Years Years Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Loans (1) $ 44,898 $ 67,268 $ 161,074 $ 17,785 $ 291,025
Available for sale securities 2,036 3,982 6,819 12,837
Held to maturity securities 30,933 34,097 62,853 6,841 134,724
--------- --------- --------- --------- ---------
Total assets $ 75,831 $ 103,401 $ 227,909 $ 31,445 $ 438,586
========= ========= ========= ========= =========
FUNDING SOURCES:
Interest bearing deposits $ 236,698 $ 58,026 $ 10,609 $ $ 305,333
Long-term funds 3 10 59 131 203
--------- --------- --------- --------- ---------
Total funding sources $ 236,701 $ 58,036 $ 10,668 $ 131 $ 305,536
========= ========= ========= ========= =========
REPRICING/MATURITY
GAP:
Period $(160,870) $ 45,365 $ 217,241 $ 31,314
Cumulative (160,870) (115,505) 101,736 133,050
Period Gap/Total Assets (36.68)% 10.34% 49.53% 7.14%
Cumulative Gap/Total (36.68)% (26.34)% 23.19% 30.33%
Assets
</TABLE>
(1) Amounts stated include fixed and variable rate investments of the balance
sheet that are still accruing interest. Variable rate instruments are
included in the next period in which they are subject to a change in rate.
The principal portions of scheduled payments on fixed rate instruments are
included in periods in which they become due or mature.
23
<PAGE> 26
ITEM 2 - PROPERTIES
The principal properties of the Company are its 13 business locations, including
the Main Office, which is located at 152 Lameuse Street in Biloxi, MS. All such
properties are owned by the Company. The operations center is subject to a
mortgage from the Small Business Administration. The address of the Main Office
and branch locations are listed on page 44 of the Annual Report to Shareholders.
ITEM 3 - LEGAL PROCEEDINGS
The information included in Note J to the Consolidated Financial Statements
included in the 1998 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS
None.
PART II
ITEM 5 - MARKET INFORMATION
The information provided on page 2 of the 1998 Annual Report is incorporated
herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information under the caption "Five Year Comparative Summary of Selected
Financial Information" on page 9 of the 1998 Annual Report is incorporated
herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 10 - 16 of the 1998
Annual Report is incorporated herein by reference.
24
<PAGE> 27
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The following consolidated financial statements of the Company and consolidated
subsidiaries and the independent auditors' report appearing on pages 17 - 42 of
the 1998 Annual Report are incorporated herein by reference:
Consolidated Statements of Condition on pages 17 and 18
Consolidated Statements of Income on page 19
Consolidated Statements of Shareholders' Equity on pages 20 - 21
Consolidated Statements of Cash Flows on page 22
Notes to Consolidated Financial Statements on pages 23 - 41
Independent Auditors' Report on page 42
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in Sections II and VIII contained in the Proxy Statement in
connection with the Annual Meeting of Shareholders to be held April 14, 1999,
which was filed by the Company in definitive form with the Commission on March
9, 1999, is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information in Section V contained in the Proxy Statement in connection with
the Annual Meeting of Shareholders to be held April 14, 1999, which was filed by
the Company in definitive form with the Commission on March 9, 1999, is
incorporated herein by reference.
25
<PAGE> 28
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in Sections III and IV contained in the Proxy Statement in
connection with the Annual Meeting of Shareholders to be held April 14, 1999,
which was filed by the Company in definitive form with the Commission on March
9, 1999, is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in Sections V, VI, VII and VIII contained in the Proxy Statement
in connection with the Annual Meeting of Shareholders to be held April 14, 1999,
which was filed by the Company in definitive form with the Commission on March
9, 1999, and is incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Index of Financial Statements:
See Item 8.
(a) 2. Index of Financial Schedules:
All other schedules have been omitted as not applicable or not required
or because the information has been included in the financial statements or
applicable notes.
(a) 3. Index of Exhibits:
<TABLE>
<CAPTION>
Incorporated by
Reference to Exhibit
Registration or Form of Number in
Description File Number Report Date of Report Report
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(3.1) Articles of 33-15595 10-K 12/31/93 3.1
Incorporation
(3.2) By-Laws 33-15595 10-K 12/31/93 3.2
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
Incorporated by
Reference to Exhibit
Registration or Form of Number in
Description File Number Report Date of Report Report
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(10.1) Description of Automobile 33-15595 10-K 12/31/88 10.1
Plan
(10.2) Description of Directors' 33-15595 10-K 12/31/88 10.2
Deferred Income Plan
(10.3) Description of Executive 33-15595 10-K 12/31/88 10.3
Supplemental Plan
(10.4) Split-Dollar Insurance 33-15595 10-K 12/31/93 10.4
Agreement
(10.5) Deferred Compensation Plan 33-15595 10-K 12/31/93 10.5
(13) Annual Report to
Shareholders for year ended
December 31, 1998 * (C)
(21) Proxy Statement for Annual
Meeting of Shareholders to
be held April 14, 1999
(22) Subsidiaries of the 33-15595 10-K 12/31/88 22
registrant
(23) Consent of Certified Public
Accountants *
(27) Financial Data Schedule *
</TABLE>
(b) No report on Form 8-K was filed during the fourth quarter of the year ended
December 31, 1998.
(c) Furnished for the information of the Commission only and not deemed "filed"
except for those portions which are specifically incorporated herein.
* Filed herewith.
27
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PEOPLES FINANCIAL CORPORATION
(Registrant)
Date: March 24, 1999
----------------------------------------
BY: /s/ Chevis C. Swetman
----------------------------------------------
Chevis C. Swetman, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
BY: /s/ Drew Allen BY: /s/ Chevis C. Swetman
----------------------------------- -----------------------------------
Date: March 24, 1999 Date: March 24, 1999
----------------------------------- -----------------------------------
Drew Allen Chevis C. Swetman
Director President, Chief Executive Officer and
Director
BY: /s/ William A. Barq BY: /s/ F. Walker Tucei
----------------------------------- -----------------------------------
Date: March 24, 1999 Date: March 24, 1999
----------------------------------- -----------------------------------
William A. Barq F. Walker Tucei
Director Director
BY: /s/ Andy Carpenter BY: /s/ Lauri A. Wood
----------------------------------- -----------------------------------
Date: March 24, 1999 Date: March 24, 1999
----------------------------------- -----------------------------------
Andy Carpenter Lauri A. Wood
Executive Vice President and Director Principal Financial and Accounting Officer
</TABLE>
28
<PAGE> 31
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
Incorporated by
Reference to Exhibit
Registration or Form of Number in
Description File Number Report Date of Report Report
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(3.1) Articles of 33-15595 10-K 12/31/93 3.1
Incorporation
(3.2) By-Laws 33-15595 10-K 12/31/93 3.2
(10.1) Description of Automobile 33-15595 10-K 12/31/88 10.1
Plan
(10.2) Description of Directors' 33-15595 10-K 12/31/88 10.2
Deferred Income Plan
(10.3) Description of Executive 33-15595 10-K 12/31/88 10.3
Supplemental Plan
(10.4) Split-Dollar Insurance 33-15595 10-K 12/31/93 10.4
Agreement
(10.5) Deferred Compensation Plan 33-15595 10-K 12/31/93 10.5
(13) Annual Report to
Shareholders for year ended
December 31, 1998 * (C)
(21) Proxy Statement for Annual
Meeting of Shareholders to
be held April 14, 1999
(22) Subsidiaries of the 33-15595 10-K 12/31/88 22
registrant
(23) Consent of Certified Public
Accountants *
(27) Financial Data Schedule *
</TABLE>
(c) Furnished for the information of the Commission only and not deemed "filed"
except for those portions which are specifically incorporated herein.
* Filed herewith.
<PAGE> 1
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
Five-Year Comparative Summary of Selected Financial Information (in thousands
except per share data)
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET SUMMARY
Total assets $ 488,171 $ 441,759 $ 448,110 $ 446,305 $ 414,989
Available for sale securities 12,837 47,678 53,159 20,830 198
Held to maturity securities 134,724 102,836 127,870 165,142 159,498
Loans, net of unearned discount 291,513 251,796 228,492 224,046 222,830
Deposits 381,602 372,555 368,132 376,172 348,190
Long term notes payable 203 215 227 438 623
Shareholders' equity 73,545 65,772 60,354 54,582 48,441
SUMMARY OF OPERATIONS
Interest income $ 33,425 $ 32,235 $ 33,248 $ 31,485 $ 27,185
Interest expense 13,990 12,956 14,406 12,372 9,522
----------- ----------- ----------- ----------- -----------
Net interest income 19,435 19,279 18,842 19,113 17,663
Provision for loan losses (150) (300)
----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 19,435 19,279 18,992 19,113 17,963
Non-interest income 11,220 6,241 5,564 5,240 3,962
Non-interest expense (17,274) (16,065) (15,417) (14,535) (13,467)
----------- ----------- ----------- ----------- -----------
Income before taxes 13,381 9,455 9,139 9,818 8,458
Applicable income taxes 4,591 3,088 2,993 3,147 2,842
----------- ----------- ----------- ----------- -----------
Net income $ 8,790 $ 6,367 $ 6,146 $ 6,671 $ 5,616
=========== =========== =========== =========== ===========
PER SHARE DATA
Basic earnings per share $ 2.98 $ 2.16 $ 2.08 $ 2.26 $ 1.90
Dividends per share 0.33 0.30 0.28 0.26 0.23
Book Value 24.91 22.28 20.44 18.49 16.41
Weighted average number of
shares 2,952,672 2,952,672 2,952,672 2,952,672 2,952,672
SELECTED RATIOS
Return on average assets 1.87% 1.42% 1.36% 1.53% 1.41%
Return on average equity 12.62 10.10 10.69 12.94 12.24
Capital formation rate 11.82 8.98 10.57 12.68 11.82
Primary capital to average
assets 16.60 15.62 14.36 13.54 13.42
Risk-based capital ratios:
Tier 1 24.65 25.58 24.95 23.64 21.48
Total 25.90 26.83 26.20 24.89 22.73
</TABLE>
NOTE: ALL SHARE AND PER SHARE DATA HAVE BEEN GIVEN RETROACTIVE EFFECT FOR THE
TWO FOR ONE STOCK SPLIT EFFECTIVE NOVEMBER 22, 1995, THE TWO FOR ONE STOCK SPLIT
EFFECTIVE OCTOBER 16, 1996, THE TWO FOR ONE STOCK SPLIT EFFECTIVE SEPTEMBER 15,
1997 AND THE TWO FOR ONE STOCK SPLIT EFFECTIVE NOVEMBER 16, 1998.
<PAGE> 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Peoples Financial Corporation and Subsidiaries
The following presents Management's discussion and analysis of the
consolidated financial condition and results of operations of Peoples Financial
Corporation and Subsidiaries (the Company) for the years ended December 31,
1998, 1997 and 1996. These comments highlight the significant events for these
years and should be considered in combination with the Consolidated Financial
Statements and Notes to Consolidated Financial Statements included in this
annual report.
OVERVIEW
Net income was $8,790,000 for the year ended December 31, 1998, as compared to
$6,367,000 for the year ended December 31, 1997. The increase in earnings was
primarily attributable to the gain realized for book purposes of $3,300,000, net
of taxes, from the sale of a branch location. The transaction was structured for
tax purposes to qualify the transaction as a like-kind exchange, and thus
minimize the current tax payment associated with the sale. The proceeds of the
transaction were invested in replacement properties, which the Company plans to
use for future branch locations. The exchange was completed on August 4, 1998.
FINANCIAL CONDITION
Federal Funds Sold
Federal funds sold decreased $6,150,000 at December 31, 1998, as compared with
December 31, 1997, as a result of the management of the Company's liquidity
position.
Available for Sale Securities
Available for sale securities decreased $34,841,000 at December 31, 1998 as
compared with December 31, 1997 primarily as a result of maturities and calls of
these securities during the year. The Company chose to reinvest the proceeds
from these maturities and calls in shorter term U. S. Treasury securities, which
have been classified as held to maturity.
Gross unrealized gains were $522,000, $492,000 and $1,083,000 and gross
unrealized losses were $63,000, $215,000 and $685,000 for available for sale
securities at December 31, 1998, 1997 and 1996, respectively. A realized gain of
$668,000 was the result of the sale of shares of Hibernia Corporation and call
of other debt securities during 1997. There were no significant realized gains
or losses from calls or sales of available for sale securities during 1998 and
1996.
Held to Maturity Securities
Held to maturity securities increased $31,888,000 at December 31, 1998,
compared with December 31, 1997. The increase in these securities is directly
attributable to the management by the Company of its liquidity position, as
discussed above.
Gross unrealized gains were $1,392,000, $1,067,000 and $1,237,000, while gross
unrealized losses were $192,000, $109,000 and $228,000, at December 31, 1998,
1997 and 1996, respectively. There were no significant realized gains or losses
from calls or sales of these investments for the years ended December 31, 1998,
1997 and 1996.
The Company's held to maturity portfolio consists primarily of U. S. Treasury
securities, which is indicative of Management's conservative investment policy
of maximizing return on investments while maintaining proper liquidity and risk
factors.
Loans
The Company's loan portfolio increased $39,717,000 at December 31, 1998, as
compared with December 31, 1997, and $23,289,000 at December 31, 1997, as
compared with December 31, 1996. The portfolio
<PAGE> 3
includes commercial and consumer loans primarily in its trade area of Harrison,
Hancock and west Jackson counties. The continued growth in the portfolio is
primarily a product of the increased real estate and commercial and industrial
loan demand as a result of improved economic conditions in the trade area. The
increases in these categories are illustrated on the schedule summarizing loans
included in Note C to the Consolidated Financial Statements. The Company
anticipates that this demand will remain steady into 1999.
Bank Premises and Equipment
Bank premises and equipment increased $6,500,000 at December 31, 1998, as
compared with December 31, 1997, primarily as a result of the acquisition of
real estate to be used for future branch locations in Harrison and Stone
Counties. During 1998, the Company also completed the acquisition of computer
hardware and software related to its data processing conversion.
Other Real Estate
The Other Real Estate (ORE) portfolio decreased $238,000 at December 31, 1998
as compared with December 31, 1997 due to the sale of several properties during
1998.
Gains realized on sales of ORE were $335,768, $1,999 and $145,850 for the
years ended December 31, 1998, 1997 and 1996, respectively.
During 1996, after receiving regulatory approval, the Company transferred
property with a book value of $130,650 from other real estate into bank
premises.
Deposits
Total deposits increased $9,047,000 at December 31, 1998, as compared with
December 31, 1997, and $4,423,000 at December 31, 1997, as compared with
December 31, 1996. Significant increases or decreases in total deposits and/or
significant fluctuations among the different types of deposits are anticipated
by Management as customers in the casino industry and county and municipal areas
reallocate their resources periodically. The Company has managed its funds
including planning the timing of investment maturities so as to achieve
appropriate liquidity.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
Federal funds purchased and securities sold under agreements to repurchase
increased $28,051,000 at December 31, 1998, as compared with December 31, 1997.
This fluctuation is directly related to the introduction of a non-deposit
product during the current year.
Other Liabilities
Other liabilities increased $1,356,000 at December 31, 1998, as compared with
December 31, 1997, as the result of deferred taxes on the gain relating to the
sale of bank premises which was structured as a like-kind exchange for tax
purposes.
Shareholders' Equity
During 1998, 1997 and 1996, there were significant events that impacted the
components of shareholders' equity. These events are detailed in Note G to the
Consolidated Financial Statements included in this report.
Strength, security and stability have been the hallmark of the Company since
its founding in 1985 and of its bank subsidiary since its founding in 1896. A
strong capital foundation is fundamental to the continuing prosperity of the
Company and the security of its customers and shareholders. There are numerous
indicators of capital adequacy including primary capital ratios and capital
formation rates. The Five-Year Comparative Summary of Selected Financial
Information presents these ratios for those periods. This summary is included in
the annual report to shareholders. The Company's total risk-based capital ratio
at December 31, 1998, 1997 and 1996 was 25.90%, 26.83% and 26.20% as compared
with the required standard of 8%. The Five-Year Comparative Summary of Selected
Financial Information presents these figures.
<PAGE> 4
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, the amount by which interest income on loans, investments
and other interest earning assets exceeds interest expense on deposits and other
borrowed funds, is the single largest component of the Company's income.
Management's objective is to provide the largest possible amount of income while
balancing interest rate, credit, liquidity and capital risk.
Total interest income increased $1,189,000 for the year ended December 31,
1998, as compared with the year ended December 31, 1997, and had decreased
$1,012,000 for the year ended December 31, 1997, as compared with the year ended
December 31, 1996. These fluctuations in interest income are primarily due to
the increases and decreases in volume in investments and loans.
Total interest expense increased $1,033,000 for the year ended December 31,
1998, as compared with the year ended December 31, 1997, and had decreased
$1,449,000 for the year ended December 31, 1997, as compared with the year ended
December 31, 1996. The decrease in total interest expense in 1997 is
attributable to the decrease in volume in deposits during 1997, particularly
during the second quarter. The increase in 1998 was the result of both increases
in interest bearing deposits during this year as well as the increase in rates
earned on these deposits.
Provision for Loan Losses
During 1998 and 1997, the Company made no adjustments to its provision for
loan losses. During 1996, the Company reduced its allowance for loan losses by
$150,000. The Company has not provided for its allowance for loan losses since
the first quarter of 1993. The reserve is currently 1.50% of loans, net of
unearned income. Management continuously monitors the Company's relationships
with its loan customers, especially those in concentrated industries such as
seafood, gaming and hotel/motel, and their direct and indirect impact on its
operations. Any possible losses have been considered in the computation of the
allowance for loan losses. Based on current conditions and giving full
consideration to the increase in loans, Management has determined that the
allowance is adequate.
Gain on Sale of Securities
During 1997, the Company sold the shares of common stock of Hibernia
Corporation it had carried in its available for sale portfolio at a realized
gain of $640,000.
Gain on Sale of Bank Premises
Gain on sale of bank premises reflects the gain realized for book purposes of
$5,083,000 as a result of the sale of one of the branch locations during the
current year.
Salaries and Employee Benefits
Salaries and employee benefits increased $1,073,000 for the year ended
December 31, 1998, as compared with the year ended December 31, 1997, as the
result of an increase in health insurance and an increase in employee salaries
during the current year.
Equipment, Rentals, Depreciation and Maintenance
Equipment, rentals, depreciation and maintenance increased $496,000 for the
year ended December 31, 1998, as compared with the year ended December 31, 1997,
primarily due to increased depreciation of $309,000 on the computer hardware and
software acquired during the prior eighteen months.
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
<PAGE> 5
funds. Management monitors these funds requirements in such a manner as to
satisfy these demands and provide the maximum earnings on its earning assets.
Deposits, payment of principal and interest on loans, proceeds from maturities
of investment securities and earnings on investment securities are the principal
sources of funds for the Company. At December 31, 1998, cash and due from banks,
investment securities and federal funds sold were 47% of total deposits, as
compared with 48% and 57% at December 31, 1997 and 1996, respectively.
NEW ACCOUNTING REQUIREMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income" and SFAS 131, "Disclosure about Segments of an
Enterprise and Related Information." In February 1998, the Financial Accounting
Standards Board issued SFAS 132, "Employers' Discloures about Pensions and Other
Postretirement Benefits." These Statements are effective for periods beginning
after December 15, 1997. SFAS 130 requires the disclosure of comprehensive
income within the financial statements. SFAS 130 was implemented by the Company
during 1998. SFAS 131 requires the disclosure of certain information relating to
operating segments. The Company has evaluated the disclosure prescribed by
Statement 131 and has determined that this Statement is not applicable to the
Company at this time. SFAS 132 revises current disclosures for employers'
pension and other postretirement benefit plans. SFAS 132 was implemented by the
Company during 1998.
In February 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," and in October
1998, issues SFAS 134, "Accounting for Mortgaged Back Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise." These statements are effective for fiscal years beginning after
December 31, 1998. The Company has evaluated the provisions of these Statements
and has determined that their implementation will not have a material impact on
its financial statements.
YEAR 2000
The banking industry will be critically impacted by the advent of the Year
2000. 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 was completed by December 31,
1998, with final testing to be 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.
<PAGE> 6
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market prices
and rates. Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency exchange rate risk
and commodity price risk, do not arise in the normal course of the Company's
business activities. Also, the Company does not currently nor does it plan in
the immediate future to engage in trading activities or use derivative or
off-balance sheet instruments to control interest rate risk.
The Company has risk management policies in place to monitor and limit
exposure to market risk. The Asset/Liability ("ALCO") Committee, consisting of
the President and the Investment Officers, is responsible for the day-to-day
operating guidelines, approval of strategies affecting net interest income and
coordination of activities within policy limits established by the Board of
Directors based on the Company's tolerance for risk. Specifically, the key
objectives of the Company's asset/liability management program are to manage the
exposure of planned net interest margins to unexpected changes due to interest
rate fluctuations. These efforts will also affect loan pricing policies, deposit
interest rate policies, asset mix and volume guidelines and liquidity. The ALCO
committee reports to the Board of Directors on a quarterly basis.
The Company has implemented a conservative approach to its asset/liability
management. The net interest margin is managed on a daily basis largely as a
result of the management of the liquidity needs of the bank subsidiary. The
Company generally follows a policy of investing in short term U. S. Government
securities with maturities of two years or less. The loan portfolio consists of
a 50% - 50% blend of fixed and floating rate loans. It is the general loan
policy to offer loans with maturities of five years or less. On the liability
side, more than 60% of the deposits are demand and savings transaction accounts.
Additionally, the vast majority of the certificates of deposit mature within
eighteen months. The short term nature of the financial assets and liabilities
allow the Company to meet the dual requirements of liquidity and interest rate
risk management.
The interest rate sensitivity tables below provide additional information
about the Company's financial instruments that are sensitive to changes in
interest rates. The tabular disclosure reflects contractual interest rate
repricing dates and contractual maturity dates. Loan maturities have been
adjusted for reserve for loan losses. There have been no adjustments for such
factors as prepayment risk, early calls of investments, the effect of the
maturity of balloon notes or the early withdrawal of deposits. The Company does
not believe that the aforementioned factors have a significant impact on
expected maturity.
<PAGE> 7
Interest rate sensitivity at December 31, 1998 was as follows (in thousands):
<TABLE>
<CAPTION>
12/31/98
Fair
1999 2000 2001 2002 2003 Beyond Total Value
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net $ 110,407 $ 19,252 $ 48,974 $ 40,458 $ 50,524 $ 17,516 $ 287,131 $ 288,425
Average rate 8.18% 8.49% 8.24% 8.12% 8.45% 8.56% 8.15%
Investment
securities 67,066 19,212 20,259 9,043 18,321 13,660 147,561 148,761
Average rate 5.20% 5.66% 6.12% 6.04% 6.04% 4.84% 5.39%
Total Financial
Assets 177,473 38,464 69,233 49,501 68,845 31,176 434,692 437,186
Average rate 7.35% 7.36% 7.73% 7.82% 7.95% 7.42% 7.44%
Deposits 294,724 4,417 1,882 2,586 1,724 305,333 306,006
Average rate 4.29% 5.39% 5.25% 5.54% 5.49% 4.44%
Long-term funds 13 14 14 15 16 131 203 185
Average rate 5.38% 5.38% 5.38% 5.38% 5.38% 5.38% 5.38%
Total Financial
Liabilities 294,737 4,431 1,896 2,601 1,740 131 305,536 306,191
Average rate 4.29% 5.39% 5.25% 5.54% 5.49% 5.38% 4.44%
</TABLE>
<PAGE> 8
Interest rate sensitivity at December 31, 1997 was as follows (in thousands):
<TABLE>
<CAPTION>
12/31/97
Fair
1998 1999 2000 2001 2002 Beyond Total Value
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net $ 88,751 $ 28,021 $ 29,748 $ 52,201 $ 30,462 $ 18,178 $ 247,361 $ 247,210
Average rate 8.91% 9.67% 9.68% 9.70% 9.71% 9.30% 9.36%
Investment
securities 56,521 26,699 15,162 19,291 980 31,861 150,514 151,471
Average rate 5.68% 6.16% 6.26% 6.34% 6.46% 6.53% 6.10%
Total Financial
Assets 145,272 54,720 44,910 71,492 31,442 50,039 397,875 398,681
Average rate 7.98% 8.34% 8.83% 9.05% 9.64% 7.77% 8.43%
Deposits 296,056 3,889 2,458 711 1,860 304,974 305,159
Average rate 4.48% 5.29% 5.62% 4.86% 5.71% 4.67%
Long-term funds 12 13 13 14 16 147 215 189
Average rate 5.38% 5.38% 5.38% 5.38% 5.38% 5.38% 5.38%
Total Financial
Liabilities 296,068 3,902 2,471 725 1,876 147 305,189 305,348
Average rate 4.48% 5.29% 5.62% 4.88% 5.71% 5.38% 4.67%
</TABLE>
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 form 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.
<PAGE> 9
Market Information
Peoples Financial Corporation and Subsidiaries
The common stock of Peoples Financial Corporation is not listed or traded on an
exchange or over-the-counter. Trading in the stock is very limited. Most
transactions in Company stock occur between existing shareholders or members of
the family of existing shareholders. The prices listed in the table below are
based on sale prices as stated to the transfer agent, and after restatement to
give retroactive effect for the 2 for 1 stock split effective September 15,
1997, and the 2 for 1 stock split effective November 16, 1998. These do not
represent all sales.
<TABLE>
<CAPTION>
Dividend per
Year Quarter High Low share
- ----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1998 1st $ 48 $ 47 .16
2nd 48 47
3rd 47 47 .17
4th 61 47
1997 1st 20 20 .15
2nd 25 24
3rd 30 26 .15
4th 46 30
</TABLE>
There were 520 holders of record of common stock of the Company at January 31,
1999, and 2,952,672 shares issued and outstanding.
The principal source of funds to the Company for payment of dividends is the
earnings of the bank subsidiary. The Commissioner of Banking and Consumer
Finance of the State of Mississippi must approve all dividends paid to the
Company by its bank subsidiary. Although Management cannot predict what
dividends, if any, will be paid in the future, the Company has paid regular
semiannual cash dividends since its founding in 1985.
Summary of Quarterly Results of Operations (in thousands except per share data)
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
QUARTER ENDED, 1998 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 8,184 $ 8,343 $ 8,530 $ 8,368
Net interest income 4,868 4,862 4,936 4,769
Net income 4,360 1,284 1,579 1,567
Earnings per share 1.48 0.44 0.53 0.53
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended, 1997 March 31 June 30 September 30 December 31
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 7,967 $ 7,906 $ 8,246 $ 8,116
Net interest income 4,679 4,693 5,057 4,850
Net income 1,807 1,401 1,533 1,626
Earnings per share 0.61 0.48 0.52 0.55
</TABLE>
<PAGE> 10
CONSOLIDATED STATEMENTS OF CONDITION
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 30,359,600 $ 20,611,495 $ 26,873,638
Federal funds sold 6,150,000
Available for sale securities 12,836,885 47,677,562 53,159,353
Held to maturity securities, fair value of
$135,924,000 - 1998; $103,793,000 - 1997;
$128,879,000 - 1996 134,723,695 102,835,564 127,870,283
Loans 291,514,748 251,797,566 228,508,895
Less: Unearned income 1,850 1,314 17,295
Allowance for loan losses 4,382,157 4,434,770 4,522,704
------------ ------------ ------------
Loans, net 287,130,741 247,361,482 223,968,896
Bank premises and equipment, net 15,923,450 9,424,080 8,626,068
Other real estate 274,280 512,370 264,962
Accrued interest receivable 3,128,279 3,619,917 3,891,465
Other assets 3,794,213 3,376,662 2,958,967
Intangible assets 189,397 495,993
------------ ------------ ------------
TOTAL ASSETS $488,171,143 $441,758,529 $448,109,625
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 11
CONSOLIDATED STATEMENTS OF CONDITION (continued)
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand, non-interest bearing $ 76,268,636 $ 67,580,617 $ 73,535,221
Savings and demand, interest bearing 167,120,669 160,499,479 153,596,132
Time, $100,000 or more 68,080,406 83,700,139 84,973,369
Other time deposits 70,132,525 60,774,594 56,027,287
------------- ------------- -------------
Total deposits 381,602,236 372,554,829 368,132,009
Accrued interest payable 924,172 726,763 1,005,508
Federal funds purchased and securities
sold under agreements to repurchase 28,050,780 16,500,000
Notes payable 202,946 215,094 226,608
Other liabilities 3,845,616 2,490,081 1,891,296
------------- ------------- -------------
TOTAL LIABILITIES 414,625,750 375,986,767 387,755,421
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 15,000,000
shares authorized, 2,952,672 shares
issued and outstanding at December 31,
1998, 1997 and 1996, after giving
retroactive effect to two for one stock
split effective September 15, 1997 and
two for one stock split effective
November 16, 1998 2,952,672 2,952,672 2,952,672
Surplus 63,711,758 56,711,758 51,711,758
Undivided profits 6,739,151 5,924,027 5,428,068
Unearned compensation (160,900)
Accumulated other comprehensive income 302,712 183,305 261,706
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 73,545,393 65,771,762 60,354,204
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 488,171,143 $ 441,758,529 $ 448,109,625
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 12
CONSOLIDATED STATEMENTS OF INCOME
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 24,411,619 $ 21,776,773 $ 20,414,470
Interest and dividends on securities:
U. S. Treasury 5,086,243 5,342,196 7,992,855
U. S. Government agencies and corporations 3,013,102 3,904,276 3,809,117
States and political subdivisions 393,269 415,011 403,698
Other investments 27,130 297,494 45,322
Interest on federal funds sold 493,488 499,722 582,321
------------ ------------ ------------
TOTAL INTEREST INCOME 33,424,851 32,235,472 33,247,783
------------ ------------ ------------
INTEREST EXPENSE:
Time deposits of $100,000 or more 4,097,194 4,290,114 5,092,411
Other deposits 9,328,234 8,557,223 9,190,266
Mortgage indebtedness 11,275 11,910 12,512
Federal funds purchased and securities
sold under agreements to repurchase 552,935 97,115 110,324
------------ ------------ ------------
TOTAL INTEREST EXPENSE 13,989,638 12,956,362 14,405,513
------------ ------------ ------------
NET INTEREST INCOME 19,435,213 19,279,110 18,842,270
REDUCTION OF ALLOWANCE FOR LOSSES ON LOANS 150,000
------------ ------------ ------------
NET INTEREST INCOME AFTER REDUCTION OF
ALLOWANCE FOR LOSSES ON LOANS 19,435,213 19,279,110 18,992,270
------------ ------------ ------------
OTHER OPERATING INCOME:
Trust department income and fees 1,262,348 1,105,776 932,502
Service charges on deposit accounts 3,973,627 3,828,586 3,763,566
Other service charges, commissions and fees 258,955 266,973 246,579
Gain on sale and calls of securities 115,494 667,728
Gain on sale of bank premises 5,228,741
Other income 380,344 372,232 621,730
------------ ------------ ------------
TOTAL OTHER OPERATING INCOME 11,219,509 6,241,295 5,564,377
------------ ------------ ------------
OTHER OPERATING EXPENSE:
Salaries and employee benefits 8,947,361 7,874,492 7,932,306
Net occupancy 994,740 964,890 780,928
Equipment rentals, depreciation and
maintenance 2,244,288 1,748,030 1,633,110
Other expense 5,087,267 5,478,256 5,071,101
------------ ------------ ------------
TOTAL OTHER OPERATING EXPENSE 17,273,656 16,065,668 15,417,445
------------ ------------ ------------
13,381,066 9,454,737 9,139,202
INCOME BEFORE INCOME TAXES
Income taxes 4,591,560 3,087,740 2,993,145
------------ ------------ ------------
NET INCOME $ 8,789,506 $ 6,366,997 $ 6,146,057
============ ============ ============
BASIC EARNINGS PER SHARE $ 2.98 $ 2.16 $ 2.08
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
Accumulated
Other
Number of Unearned Comprehen-
common Common Undivided Compensa- sive Comprehen-
shares stock Surplus profits tion Income sive Income Total
---------- ------------ ------------ ------------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY
1, 1996 $ 1,476,336 $ 1,476,336 $ 48,188,094 $ 5,075,542 $ (200,000) $ 42,433 $ 54,582,405
Two-for-one
stock
split 1,476,336 1,476,336 (1,476,336)
----------- ------------ ------------ ------------ ----------- ----------- ------------
BALANCE,
JANUARY
1, 1996 AS
RESTATED 2,952,672 2,952,672 46,711,758 5,075,542 (200,000) 42,433 54,582,405
Comprehensive
Income:
Net income 6,146,057 $ 6,146,057 6,146,057
Net
unrealized
gain on
available
for sale
securities,
net of tax (75,239) (75,239) (75,239)
Additional
minimum
liability in
excess of
prior
service
cost, net of
tax 294,512 294,512 294,512
-----------
Total
comprehensive
income $ 6,365,330
===========
Allocation
of ESOP
shares 200,000 200,000
Cash
dividends,
($ .26875
per share) (793,531) (793,531)
Transfer of
undivided
profits 5,000,000 (5,000,000)
----------- ------------ ------------ ------------ ----------- ----------- ------------
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
Accumulated
Other
Number of Unearned Comprehen-
common Common Undivided Compensa- sive Comprehen-
shares stock Surplus profits tion Income sive Income Total
---------- ------------ ------------ ------------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31,
1996 2,952,672 2,952,672 51,711,758 5,428,068 -0- 261,706 60,354,204
Compre-
hensive
Income:
Net
Income 6,366,997 $ 6,366,997 6,366,997
Net
unrealized
gain on
available
for sale
securities,
net of tax 334,640 334,640 334,640
Reclassifi-
cation
adjustment
for
available
for sale
securities
called or
sold in
current
year, net of
tax (413,041) (413,041) (413,041)
-----------
Total
compre-
hensive
income $ 6,288,596
===========
Cash
dividends,
($ .295 per
share) (871,038) (871,038)
Transfer of
undivided
profits 5,000,000 (5,000,000)
---------- ------------ ------------ ------------ ----------- ----------- ------------- -------------
BALANCE,
DECEMBER 31,
1997 2,952,672 2,952,672 56,711,758 5,924,027 -0- 183,305 65,771,762
Comprehensive
Income:
Net income 8,789,506 $ 8,789,506 8,789,506
Net
unrealized
gain on
available
for sale
securities,
net of tax 183,683 183,683 183,683
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
Accumulated
Other
Number of Unearned Comprehen-
common Common Undivided Compensa- sive Comprehen-
shares stock Surplus profits tion Income sive Income Total
---------- ------------ ------------ ------------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reclassifi-
cation
adjustment
available
for sale
securities
called or
sold in
current
year, net of
tax (64,276) (64,276) (64,276)
-----------
Total
comprehensive
income $ 8,908,913
===========
Purchase of
common
shares by
ESOP (220,900) (220,900)
Allocation
of ESOP
shares 60,000 60,000
Cash
dividends,
($ .33 per
share) (974,382) (974,382)
Transfer of
undivided
profits 7,000,000 (7,000,000)
---------- ----------- ------------ ------------ ----------- ------------ -------------
Balance,
December 31,
1998 2,952,672 $ 2,952,672 $ 63,711,758 $ 6,739,151 $ (160,900) $ 302,712 $ 73,545,393
========== =========== ============ ============ =========== ============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
Peoples Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,789,506 $ 6,366,997 $ 6,146,057
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales of other real estate (335,768) (1,999) (145,850)
Gain on sale and calls of securities (115,494) (667,728)
Gain on sale of bank premises (5,228,741)
Depreciation and amortization 1,574,548 1,382,474 1,322,449
Pension plan termination cost 446,230
Reduction of allowance for loan losses (150,000)
Provision for losses on other real estate 88,687 75,638 154,376
Changes in assets and liabilities:
Accrued interest receivable 491,638 271,548 (721,799)
Other assets 164,439 (79,567) 112,665
Accrued interest payable 197,409 (278,745) (134,260)
Other liabilities 1,296,918 598,785 67,553
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,923,142 7,667,403 7,097,421
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, sales and calls of
available for sale securities 43,783,631 7,017,728 19,935,000
Investment in available for sale securities (8,666,154) (961,500) (52,377,557)
Proceeds from maturities and calls of held to
maturity securities 112,885,000 72,858,400 160,217,482
Investment in held to maturity securities (144,756,413) (47,823,681) (122,945,682)
Proceeds from sales of other real estate and other
property 889,077 182,200 322,700
Loans, net increases (40,334,065) (23,895,833) (4,125,383)
Proceeds from sale of bank premises 6,141,628
Acquisition of premises and equipment (8,797,408) (1,873,890) (710,393)
Federal funds sold 6,150,000 (6,150,000)
Other assets (581,990) (323,238) (266,129)
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (33,286,694) (969,814) 50,038
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand and savings deposits, net increase
(decrease) 15,299,432 948,743 (10,846,266)
Time deposits made, net increase (decrease) (6,252,025) 3,474,077 2,806,540
Principal payments on notes (12,148) (11,514) (10,912)
Cash dividends (974,382) (871,038) (793,531)
Federal funds purchased and securities purchased
under agreements to repurchase, net increase
(decrease) 28,050,780 (16,500,000) 4,350,000
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 36,111,657 (12,959,732) (4,494,169)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 9,748,105 (6,262,143) 2,653,290
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 20,611,495 26,873,638 24,220,348
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 30,359,600 $ 20,611,495 $ 26,873,638
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 17
Notes To Consolidated Financial Statements
Peoples Financial Corporation and Subsidiaries
NOTE A - ACCOUNTING POLICIES:
Business of The Company
Peoples Financial Corporation is a one-bank holding company headquartered in
Biloxi, Mississippi. Its two operating subsidiaries are The Peoples Bank,
Biloxi, Mississippi, and PFC Service Corp. Its principal subsidiary is The
Peoples Bank, Biloxi, Mississippi, which provides a full range of banking,
financial and trust services to individuals and small and commercial businesses
operating in 12 locations in Harrison, Hancock and west Jackson counties.
Principles of Consolidation
The consolidated financial statements include the accounts of Peoples
Financial Corporation and its wholly owned subsidiaries, The Peoples Bank,
Biloxi, Mississippi, and PFC Service Corp. All significant intercompany
transactions and balances have been eliminated.
Basis of Accounting
Peoples Financial Corporation and Subsidiaries recognize assets and
liabilities, and income and expense, on the accrual basis of accounting. The
preparation of financial statements in conformity with generally accepted
accounting principles requires Management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Cash and Due from Banks
The Company is required to maintain average reserve balances in its vault or
on deposit with the Federal Reserve Bank. The average amount of these reserve
requirements was approximately $9,347,000, $8,442,000 and $8,388,000 for the
years ending December 31, 1998, 1997 and 1996, respectively.
The Company's bank subsidiary maintained account balances in excess of amounts
insured by the Federal Deposit Insurance Corporation. At December 31, 1998, the
bank subsidiary had excess deposits of $254,254. These amounts were uninsured
and uncollateralized.
Securities
Available for sale securities are stated at fair value. The unrealized
difference, if any, between amortized cost and fair value of these securities is
excluded from earnings and is reported, net of deferred taxes, as a component of
shareholders' equity. Held to maturity securities are stated at cost, adjusted
for amortization of premiums and accretion of discounts. Most of the Company's
portfolio is classified as held to maturity since it has the positive intent and
ability to hold its investments until maturity. Gains or losses, if any, are
recognized as income when realized and are computed based on the amortized cost
of the specific securities sold.
<PAGE> 18
Loans
Loans are stated at the amount of unpaid principal, reduced by unearned income
and the allowance for loan losses. Interest on loans is recognized over the
terms of each loan based on the unpaid principal balances.
Loan origination fees are recognized as income when received. Revenue from
these fees is not material to the financial statements.
The Company places loans on a nonaccrual status when, in the opinion of
Management, they possess sufficient uncertainty as to timely collection of
interest or principal so as to preclude the recognition in reported earnings of
some or all of the contractual interest. Accrued interest on loans classified as
nonaccrual is reversed at the time the loans are placed on nonaccrual.
Allowance for Loan Losses
The allowance for loan losses is based on Management's evaluation of the loan
portfolio under current economic conditions and is an amount that Management
believes will be adequate to absorb probable losses on loans existing at the
reporting date. The evaluation includes the nature and volume of the loan
portfolio, a study of loss experience, a review of delinquencies, the estimated
value of any underlying collateral and an estimate of the possibility of loss
based on the risk characteristics of the portfolio.
Bank Premises and Equipment
Bank premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed primarily by the straight-line method based on the
estimated useful lives of the related assets.
Other Real Estate
Other real estate acquired through foreclosure is carried at the lower of cost
(primarily outstanding loan balance) or estimated market value, less estimated
costs to sell. If, at foreclosure, the carrying value of the loan is greater
than the estimated market value of the property acquired, the excess is charged
against the allowance for loan losses and any subsequent adjustments are charged
to expense. Costs of operating and maintaining the properties, net of related
income and gains (losses) on their disposition, are charged to expense as
incurred.
Intangible Assets
The excess of the purchase price over the value of the net tangible assets
acquired in the Gulf National Bank acquisition on August 19, 1988, was assigned
primarily to the value of core deposits and was being amortized over 10 years.
The core deposits acquired in the main branch of the Southern Federal Bank for
Savings acquisition on August 16, 1991, were being amortized over the estimated
lives of the demand deposits (72 months), savings deposits (84 months) and
certificates (84 months) acquired.
Trust Department Income and Fees
Trust fees are recorded when received. These fees amounted to $1,262,348,
$1,105,776 and $932,502 in 1998, 1997 and 1996, respectively.
<PAGE> 19
Income Taxes
The Company files a consolidated tax return with its wholly owned subsidiaries.
The tax liability of each entity is allocated based on the entity's contribution
to consolidated taxable income.
The provision for applicable income taxes is based upon reported income and
expenses as adjusted for differences between reported income and taxable income.
The primary differences are exempt income on state, county and municipal
securities; differences in provisions for losses on loans as compared to the
amount allowable for income tax purposes; directors' and officers' insurance;
depreciation for income tax purposes over that reported for financial
statements, gains reported under the installment sales method for tax purposes
and the gain on the sale of bank premises which was structured under the
provisions of Section 1031 of the Internal Revenue Code.
Leases
All leases are accounted for as operating leases in accordance with the terms
of the leases.
Earnings Per Share
Basic earnings per share is computed on the basis of the weighted average
number of common shares outstanding, 2,952,672 in 1998, 1997 and 1996.
Statements of Cash Flows
The Company has defined cash and cash equivalents to include cash and due from
banks. The Company paid $13,792,229, $13,235,107 and $14,539,773 in 1998, 1997
and 1996, respectively, for interest on deposits and borrowings. Income tax
payments totaled $2,810,100, $3,199,740 and $2,869,605 in 1998, 1997 and 1996,
respectively. Loans transferred to other real estate amounted to $403,906 and
$503,248 in 1998 and 1997, respectively. No loans were transferred to other real
estate in 1996. After receiving regulatory approval, the Company transferred
property with a book value of $130,650 from other real estate into banking
premises during 1996. The income tax effect on the accumulated other
comprehensive income was $61,512, $(40,388) and $112,958, at December 31, 1998,
1997 and 1996, respectively.
NOTE B - SECURITIES:
The amortized cost and estimated fair value of securities at December 31,
1998, 1997 and 1996, respectively, are as follows (in thousands):
<PAGE> 20
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1998 COST GAINS LOSSES FAIR VALUE
- ----------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available for sale securities:
Debt securities:
U. S. Treasury $ 2,995 $ 37 $ (5) $ 3,027
U. S. Government agencies
and corp 5,999 1 (51) 5,949
States and political subdivisions 2,246 36 (7) 2,275
Other securities 940 5 945
--------- -------- -------- ---------
Total debt securities 12,180 79 (63) 12,196
Equity securities 198 443 641
--------- -------- -------- ---------
Total available for sale securities $ 12,378 $ 522 $ (63) $ 12,837
========= ======== ======== =========
Held to maturity securities:
U. S. Treasury $ 90,244 $ 936 $ (70) $ 91,110
U. S. Government agencies and corp 37,931 112 (122) 37,921
States and political subdivisions 6,549 344 6,893
--------- -------- -------- ---------
Total held to maturity securities $ 134,724 $ 1,392 $ (192) $ 135,924
========= ======== ======== =========
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
December 31, 1997 cost gains losses fair value
- ----------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available for sale securities:
Debt securities:
U. S. Treasury $ 3,984 $ 4 $ (5) $ 3,983
U. S. Government agencies
and corp 42,627 42 (210) 42,459
States and political subdivisions 592 3 595
--------- -------- -------- ---------
Total debt securities 47,203 49 (215) 47,037
Equity securities 198 443 641
--------- -------- -------- ---------
Total available for sale securities $ 47,401 $ 492 $ (215) $ 47,678
========= ======== ======== =========
Held to maturity securities:
U. S. Treasury $ 76,670 $ 690 $ (83) $ 77,277
U. S. Government agencies and
corp 20,491 35 (26) 20,500
States and political subdivisions 5,674 342 6,016
--------- -------- -------- ---------
Total held to maturity securities $ 102,835 $ 1,067 $ (109) $ 103,793
========= ======== ======== =========
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
December 31, 1996 cost gains losses fair value
- ----------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available for sale securities:
Debt securities:
U. S. Treasury $ 5,969 $ 2 $ (37) $ 5,934
U. S. Government agencies
and corp 46,594 41 (648) 45,987
--------- -------- -------- ---------
Total debt securities 52,563 43 (685) 51,921
Equity securities 198 1,040 1,238
--------- -------- -------- ---------
Total available for sale securities $ 52,761 $ 1,083 $ (685) $ 53,159
========= ======== ======== =========
Held to maturity securities:
U. S. Treasury $ 108,568 $ 830 $ (188) $ 109,210
U. S. Government agencies and corp 13,522 34 (39) 13,517
States and political subdivisions 5,780 373 (1) 6,152
--------- -------- -------- ---------
Total held to maturity securities $ 127,870 $ 1,237 $ (228) $ 128,879
========= ======== ======== =========
</TABLE>
The amortized cost and estimated fair value of debt securities at December 31,
1998, (in thousands) by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<PAGE> 23
<TABLE>
<CAPTION>
ESTIMATED FAIR
AMORTIZED COST VALUE
--------------- --------------
<S> <C> <C>
Available for sale securities:
Due in one year or less $ 1,999 $ 2,036
Due after one year through five
years 3,996 3,982
Due after five years through ten
years 4,493 4,482
Due after ten years 1,692 1,696
--------- ---------
Totals $ 12,180 $ 12,196
========= =========
Held to maturity securities:
Due in one year or less $ 67,066 $ 67,150
Due after one year through five
years 43,488 44,413
Due after five years through ten
years 22,408 22,497
Due after ten years 1,762 1,864
--------- ---------
Totals $ 134,724 $ 135,924
========= =========
</TABLE>
Available for sale securities included equity securities of Hibernia
Corporation. The Company had acquired common and preferred shares of Progressive
Bancorporation in 1993 from a debt previously contracted and had recorded the
shares at their estimated value of $1.00. During 1995, Progressive was acquired
by Hibernia Corporation. As a result of the merger, the Company received cash
for its Progressive preferred shares and common stock of Hibernia in exchange
for the Progressive common. The Company held the Hibernia common as an available
for sale security and recorded the stock at its fair value, with an unrealized
gain of $596,205 recorded, net of deferred tax, as an adjustment to
shareholders' equity. These shares were sold during 1997 at a realized gain of
$640,706.
During 1994, the Company purchased three multi-step up instruments issued by
the Federal Home Loan Bank with a total par value of $4,000,000. These
instruments had original maturity dates in 1996 and 2009 and provided for a call
option by the issuer at each interest payment date until maturity. There was a
fixed increase in the interest rate on an annual basis. The Company purchased
these instruments in the management of its interest rate exposure since these
notes carried a higher rate of interest than other agency notes available at the
time of purchase. Appropriate review of the
<PAGE> 24
market value and risk associated with these investments was performed by
Management. These investments were classified as held to maturity and carried at
amortized cost in compliance with Management's positive intent and ability to
hold these investments until maturity. During 1995 and 1996, these investments
were called at par value. During 1996, the Company purchased a multi-step up
instrument issued by the Federal Home Loan Bank with a par value of $2,000,000
which was due to mature in 2001. This instrument was called at par value during
1997.
Proceeds from maturities and calls of held to maturity debt securities during
1998, 1997 and 1996 were $112,885,000, $72,858,400 and $160,217,482,
respectively. There were no sales of held to maturity debt securities during
1996, 1997 and 1998. Proceeds from maturities and calls of available for sale
debt securities were $43,783,631, $6,377,022 and $19,935,000 during 1998, 1997
and 1996, respectively. There were no sales of available for sale debt
securities during 1996, 1997 and 1998.
Securities with a carrying value of approximately $126,670,000, $147,612,000
and $165,515,000 at December 31, 1998, 1997 and 1996, respectively, were pledged
to secure public deposits, federal funds purchased and other balances required
by law.
NOTE C - LOANS:
The composition of the loan portfolio was as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
- ------------ ---- ---- ----
<S> <C> <C> <C>
Real estate, construction $ 24,836 $ 14,819 $ 14,704
Real estate, mortgage 179,123 154,653 137,766
Loans to finance agricultural
production and other loans to
farmers 13,493 12,501 10,483
Commercial and industrial loans 49,633 50,224 48,057
Loans to individuals for
household, family and other
consumer expenditures 15,717 13,125 11,179
Obligations of states and political
subdivisions (primarily industrial
revenue bonds and local
government tax anticipation
notes) 6,809 5,257 4,496
All other loans 1,904 1,219 1,824
--------- --------- ---------
Totals $ 291,515 $ 251,798 $ 228,509
========= ========= =========
</TABLE>
<PAGE> 25
Transactions in the allowance for loan losses are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance, January 1 $ 4,435 $ 4,523 $ 4,353
Recoveries 413 347 459
Loans charged off (466) (435) (139)
Reduction of allowance for loan
losses (150)
------- ------- -------
Balance, December 31 $ 4,382 $ 4,435 $ 4,523
======= ======= =======
</TABLE>
In the ordinary course of business, the Company extends loans to certain
officers and directors and their personal business interests at, in the opinion
of Management, terms and rates comparable to other loans of similar credit
risks. These loans do not involve more than normal risk of collectability and do
not include other unfavorable features.
An analysis of the activity with respect to such loans to related parties is
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, January 1 $ 9,172 $ 7,891 $ 6,857
January 1 balance, loans of
officers and directors appointed
during the year 75 224
New loans and advances 22,098 22,358 28,599
Repayments (18,735) (21,077) (27,789)
-------- -------- --------
Balance, December 31 $ 12,610 $ 9,172 $ 7,891
======== ======== ========
</TABLE>
Industrial revenue bonds with a carrying value of $1,408,856, $1,547,120 and
$3,318,251 at December 31, 1998, 1997 and 1996, respectively, were pledged to
secure public deposits.
Nonaccrual loans amounted to approximately $490,000, $1,167,000 and $546,000
at December 31, 1998, 1997 and 1996, respectively.
The total recorded investment in impaired loans amounted to $490,000,
$1,208,000 and $1,017,000 at December 31, 1998, 1997 and 1996, respectively. The
amount of that recorded investment in impaired loans for which there is no
related allowance for loan losses was $490,000, $1,208,000 and $1,017000 at
December 31, 1998, 1997 and 1996, respectively.
At December 31, 1998, the average recorded investment in impaired loans was
$493,000. During 1998, the Company recognized $19,000 in interest income on
impaired loans and received $22,000 in interest payments on impaired loans.
<PAGE> 26
NOTE D - BANK PREMISES AND EQUIPMENT:
Bank premises and equipment are shown as follows (in thousands):
<TABLE>
<CAPTION>
Estimated
December 31, useful lives 1998 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Land $ 4,463 $ 1,339 $ 1,314
Buildings 5-40 years 11,370 8,904 8,659
Furniture, fixtures and equipment 3-10 years 9,020 6,943 5,533
---------- ---------- ----------
Totals, at cost 24,853 17,186 15,506
Less: Accumulated depreciation 8,930 7,762 6,880
---------- ---------- ----------
Totals $ 15,923 $ 9,424 $ 8,626
========== ========== ==========
</TABLE>
Depreciation expense charged to operations in 1998, 1997 and 1996 was
$1,385,151, $1,075,877 and $1,044,617, respectively.
NOTE E - NOTES PAYABLE:
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Small Business Administration,
outstanding mortgage on property
acquired. The note bears interest
at 5 3/8% & is payable at $1,952
monthly through January 2004 $ 202,946 $ 215,094 $ 226,608
========== ========== ==========
</TABLE>
The maturities of notes payable for each of the next five years are as
follows:
<TABLE>
<S> <C>
1999 $ 12,819
2000 13,525
2001 14,271
2002 15,058
2003 15,885
THEREAFTER 131,388
-----------
TOTAL $ 202,946
===========
</TABLE>
<PAGE> 27
NOTE F - INCOME TAXES:
Federal income taxes payable (or refundable) and deferred taxes (or deferred
charges) as of December 31, 1998, 1997 and 1996, included in other assets or
other liabilities, were as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 776 $ 776 $ 776
Employee benefit plans'
liabilities 531 479 444
Other 229 192 129
---------- ---------- ----------
Deferred tax assets (1,536) (1,447) (1,349)
---------- ---------- ----------
Deferred tax liabilities:
Accumulated depreciation 1,016 950 865
Deferred gain on sale of bank
premises 1,582
Installment sales 14 14 15
Unrealized gains on available
for sale securities, charged to
equity 156 94 134
---------- ---------- ----------
Deferred tax liabilities 2,768 1,058 1,014
---------- ---------- ----------
Net deferred taxes (charges) 1,232 (389) (335)
Current payable (refundable) 125 (103)
---------- ---------- ----------
Totals $ 1,357 $ (492) $ (335)
========== ========== ==========
</TABLE>
<PAGE> 28
Income taxes consist of the following components (in thousands):
<TABLE>
Years Ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current $ 2,971 $ 3,142 $ 2,936
Deferred 1,621 (54) 57
---------- ---------- ----------
Totals $ 4,592 $ 3,088 $ 2,993
========== ========== ==========
</TABLE>
Deferred income taxes (benefits) resulted from the following (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation $ 66 $ 85 $ 70
Installment sales (1) (1)
Provision for loan losses 51
Officers' and directors' life
insurance (52) (35) (67)
Deferred gain on sale of bank
premises 1,582
Unrealized gain on available for
sale securities 62 (40) (40)
Other (37) (63) 44
---------- ---------- ----------
Totals $ 1,621 $ (54) $ 57
========== ========== ==========
</TABLE>
Income taxes amounted to less than the amounts computed by applying the U.S.
Federal income tax rate of 34.0% for 1998, 1997 and 1996, to earnings before
income taxes. The reason for these differences is shown below (in thousands):
<PAGE> 29
<TABLE>
<CAPTION>
Years Ended December 1998 1997 1996
31, AMOUNT % Amount % Amount %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Taxes computed at
statutory rate $ 4,550 34.0 $ 3,215 34.0 $ 3,107 34.0
Increase (decrease)
resulting from:
Tax-exempt interest
income (187) (1.3) (250) (2.6) (288) (3.2)
Deductible dividends to
ESOP (1) (0.1)
Non-deductible interest 32 0.2 33 0.3 36 0.4
Non-deductible
amortization 64 0.5 98 1.1 100 1.1
Other, net 133 0.9 (8) (0.1) 39 0.5
------- ------- ------- ------- ------- -------
Total income taxes $ 4,592 34.3 $ 3,088 32.7 $ 2,993 32.7
======= ======= ======= ======= ======= =======
</TABLE>
During a prior year, the Internal Revenue Service began an audit of the
Company's 1994 and 1993 returns. As a result of the examination, adjustments
were proposed by the Internal Revenue Service. The Company agreed with the
adjustments and paid an assessment of $102,000 on July 23, 1996, which included
interest of $17,000.
NOTE G - SHAREHOLDERS' EQUITY:
On October 4, 1996, the Company's Board of Directors approved a two for one
stock split of the common shares of the Company. As a result of this split,
shareholders holding a total of 369,084 shares of Company stock received an
additional 369,084 common shares. On August 27, 1997, the Company's Board of
Directors approved a two for one stock split of the common shares of the
Company. As a result of this split, shareholders holding a total of 738,168
shares of Company stock received an additional 738,168 common shares. On October
28, 1998, the Company's Board of Directors approved a two for one stock split of
the common shares of the Company. As a result of this split, shareholders
holding a total of 1,476,336 shares of Company stock received an additional
1,476,336 common shares. The Consolidated Statements of Condition and
Shareholders' Equity have been restated to give retroactive effect to these
splits. Additionally, all share and per share data have also been given
retroactive effect for these splits.
Banking regulations limit the amount of dividends that may be paid without
prior approval of the Commissioner of Banking and Consumer Finance of the State
of Mississippi. At December 31, 1998, approximately $3,792,912 of undistributed
earnings of the bank subsidiary included in
<PAGE> 30
consolidated surplus and retained earnings was available for future distribution
to the Company as dividends, subject to approval by the Board of Directors.
NOTE H - OTHER EXPENSES:
Other expenses consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Amortization $ 189,416 $ 306,596 $ 317,832
Advertising 539,792 546,308 498,820
Data processing 501,388 965,944 841,174
FDIC and state banking
assessments 98,817 91,368 188,060
Legal and accounting 311,100 354,343 328,788
Postage and freight 181,120 131,160 160,448
Stationary, printing and supplies 243,940 198,984 242,367
Other real estate (231,430) 53,299 (15,465)
ATM expense 1,487,583 1,341,118 1,286,179
Federal Reserve service charges 104,017 89,964 96,416
Conferences and classes 151,663 149,316 110,119
Taxes and licenses 244,860 212,036 183,826
Consulting fees 24,108 30,942 27,270
Trust expense 383,364 192,420 151,223
Other 857,529 814,458 654,044
----------- ----------- -----------
Totals $ 5,087,267 $ 5,478,256 $ 5,071,101
=========== =========== ===========
</TABLE>
NOTE I - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and irrevocable
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance
sheet. The contract amounts of those instruments reflect the extent of
involvement the bank subsidiary has in particular classes of financial
instruments. The
<PAGE> 31
Company's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and
irrevocable letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
At December 31, 1998, 1997 and 1996, the Company had outstanding irrevocable
letters of credit aggregating $5,479,053 , $3,156,909 and $1,170,107,
respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any conditions established in the agreement.
Irrevocable letters of credit written are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Commitments
and irrevocable letters of credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since some of the
commitments and irrevocable letters of credit may expire without being drawn
upon, the total amounts do not necessarily represent future cash requirements.
The Company evaluated each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained upon extension of credit is based on
Management's credit evaluation of the customer. Collateral obtained varies but
may include equipment, real property and inventory.
The Company generally grants loans to customers in its primary trade area of
Harrison, Hancock and west Jackson counties. The Company also grants loans on a
limited basis in Claiborne County.
NOTE J - CONTINGENCIES:
In January 1996, a class action suit was filed against the Company's bank
subsidiary related to the placement of collateral protection insurance by the
bank subsidiary. The attempt to certify a class action was unsuccessful. In
October of 1997, the case was settled with the bank subsidiary making an
immaterial cash payment to the plaintiff.
The bank is involved in various other legal matters and claims which are being
defended and handled in the ordinary course of business. None of these matters
is expected, in the opinion of Management, to have a material adverse effect
upon the financial position or results of operations of the Company.
NOTE K - CONDENSED PARENT COMPANY ONLY FINANCIAL INFORMATION:
Peoples Financial Corporation began its operations September 30, 1985, when it
acquired all the outstanding stock of The Peoples Bank, Biloxi, Mississippi. A
condensed summary of its financial information is shown below.
<PAGE> 32
CONDENSED BALANCE SHEETS (in thousands)
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investments in subsidiaries, at
underlying equity:
Bank subsidiary $ 73,530 $ 65,162 $ 59,720
Nonbank subsidiary 56 55 55
Cash in bank subsidiary 28 306 48
Intangible assets 189 496
Other assets 661 655 656
---------- ---------- ----------
TOTAL ASSETS $ 74,275 $ 66,367 $ 60,975
========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Notes payable, nonaffiliates $ 161 $ $
Deferred federal income taxes 569 595 621
---------- ---------- ----------
Total liabilities 730 595 621
Shareholders' equity 73,545 65,772 60,354
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 74,275 $ 66,367 $ 60,975
========== ========== ==========
</TABLE>
<PAGE> 33
CONDENSED STATEMENTS OF INCOME (in thousands)
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
INCOME
Earnings of unconsolidated bank
subsidiary:
Distributed earnings $ 750 $ 875 $ 800
Undistributed earnings 8,085 5,240 5,373
Earnings of unconsolidated
nonbank subsidiary 1 1 2
Interest income 2 4 3
Other income 14 288 12
---------- ---------- ----------
TOTAL INCOME 8,852 6,408 6,190
---------- ---------- ----------
EXPENSES
Other expense 58 53 59
---------- ---------- ----------
TOTAL EXPENSES 58 53 59
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 8,794 6,355 6,131
Income taxes (4) 12 15
---------- ---------- ----------
NET INCOME $ 8,790 $ 6,367 $ 6,146
========== ========== ==========
</TABLE>
<PAGE> 34
CONDENSED STATEMENTS OF CASH FLOWS (in thousands)
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 8,790 $ 6,367 $ 6,146
Adjustments to reconcile net
income to net cash provided
by operating activities:
Net income of unconsolidated (8,836) (6,116) (6,175)
subsidiaries
Changes in assets and liabilities:
Accrued expenses (8) 3 (3)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) (54) 254 (32)
OPERATING ACTIVITIES
---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Dividends from unconsolidated 750 875 800
subsidiary
---------- ---------- ----------
NET CASH PROVIDED BY INVESTING 750 875 800
ACTIVITIES
---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends paid (974) (871) (794)
---------- ---------- ----------
NET CASH USED IN FINANCING (974) (871) (794)
ACTIVITIES
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH (278) 258 (26)
CASH, BEGINNING OF YEAR 306 48 74
---------- ---------- ----------
CASH, END OF YEAR $ 28 $ 306 $ 48
========== ========== ==========
</TABLE>
Peoples Financial Corporation paid income taxes of $2,810,100, $3,199,740 and
$2,869,605 in 1998, 1997 and 1996, respectively. No interest was paid during the
three years ended December 31, 1998.
<PAGE> 35
NOTE L - EMPLOYEE BENEFIT PLANS:
The Company sponsored the Peoples Financial Corporation Retirement Plan
(Pension Plan), a non-contributory defined benefit pension plan covering
substantially all salaried, full-time employees. Pension benefits were fully
vested after 7 years and were based on average compensation during years of
service, with 1985 compensation used for each year prior to 1985. A partial
reduction in benefits was provided for each year less than 30 years of service.
The Company's funding policy for years presented was to contribute no more than
the minimum funding requirement for federal income tax purposes.
The following is a summary of the components of net periodic pension cost:
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------
<S> <C>
Interest cost $ 47,827
Return on assets (36,147)
----------
Net periodic pension cost $ 11,680
==========
</TABLE>
Effective December 31, 1991, the Pension Plan was frozen and no additional
benefits accrued under the Plan. The accrued benefit of each participant, other
than a highly compensated employee within the meaning of Section 414(q)(A) or
(B) of the Internal Revenue Code, was equal to the employee's accrued benefit
calculated as of December 31, 1991. The accrued benefit of a highly compensated
employee was equal to the employee's accrued benefit as of the December 31
preceding the Plan year in which the employee became a highly compensated
employee, but no earlier than December 31, 1988. Future credited service counted
for vesting purposes for those participants not fully vested at December 31,
1991. All participants were notified of these events on December 14, 1991, in
accordance with ERISA. No new participants entered the Plan after December 31,
1991. The Pension Plan was amended on December 16, 1994, to comply with the
Internal Revenue Code. The amendment was retroactively effective to January 1,
1989, unless specifically indicated to the contrary.
On June 28, 1995, the Board of Directors of the Company voted to terminate
the Plan effective September 1, 1995. The participants were notified of this
event by June 29, 1995, in accordance with ERISA. Approval was received from the
Internal Revenue Service on March 18, 1996, to terminate the Plan. Upon the
Plan's termination, each participant became 100% vested in their accrued
benefit. All assets of the Plan were distributed to participants either as a
lump sum or by the purchase of an annuity with an insurance carrier on July 18
and August 28, 1996. The lump sum distributions were calculated using the GATT
interest rate in effect as of January 1, 1996 (6.06%) and a 50/50 blend of the
1983 Group Annuity Mortality for males and females. The loss realized as a
result of the termination was $426,747. The Company was obligated to make
further contributions to provide sufficient funds to settle the liabilities of
the Plan. The Company made a contribution of $95,890 to the Plan during 1996 to
fulfill its obligation.
<PAGE> 36
The Company also sponsors the Peoples Financial Corporation Employee Stock
Ownership Plan (ESOP). Company Management curtailed the Pension Plan in 1991 and
decided to terminate the Plan in 1995 because of their intent to make the ESOP,
which is more flexible than the Pension Plan, the primary benefit plan, and
because of the high cost of administering two plans.
The employee stock ownership plan covers substantially all salaried, full-time
employees. The effective date of the ESOP is December 24, 1984. On November 22,
1989, the plan was amended and restated effective January 1, 1989, to comply
with Internal Revenue Code of 1986 and other regulations, to adopt 401(k)
provisions for the plan, and effective December 31, 1989, to merge the former
Gulf National Bank Profit Sharing Plan into the plan. On December 31, 1991, the
plan was amended effective January 1, 1991, except where specifically indicated
to the contrary, to adjust, among other things, the Employer Discretionary
Matching Contribution and the vesting schedule. On December 16, 1994, the plan
was amended effective January 1, 1989, except where specifically indicated to
the contrary, to comply with the Internal Revenue Code and to clarify the
hardship distribution provisions. Contributions are determined by the Board of
Directors and may be paid either in cash or Peoples Financial Corporation
capital stock. Total contributions to the plan charged to operating expense were
$260,000, $210,000 and $240,000 in 1998, 1997 and 1996, respectively.
The Company accounts for all shares acquired after the December 15, 1993,
effective date of Statement of Position 93-6, "Employers' Accounting for
Employee Stock Ownership Plans" in accordance with the statement of position.
Accordingly, the debt of The Parent Company and the shares pledged as collateral
are reported as unearned compensation in equity. The Peoples Bank, Biloxi,
Mississippi's loan asset and the Parent Company's debt liability eliminate in
consolidation. As shares are committed to be released, the Company reports
compensation expense equal to the current market price of the shares, and the
shares become outstanding for net income per share computations. Dividends on
allocated ESOP shares are recorded as a reduction of retained earnings;
dividends on unallocated ESOP shares are recorded as a reduction of debt and
accrued interest.
Compensation expense of $6,068,311, $5,520,368 and $5,228,487 relating to the
ESOP was recorded during 1998, 1997 and 1996, respectively. The ESOP held
387,626, 373,554 and 377,120 allocated shares and 3,537 suspense shares at
December 31, 1998. The fair value of the suspense shares at December 31, 1998
was $194,535. Since the Company stock is not readily tradable on an established
market, the plan requires the Company to issue a "put option" to any Participant
who receives a distribution of Company Stock. The fair value of all shares
subject to this put option was $21,319,430 at December 31, 1998.
The Company established an Executive Supplemental Income Plan and a Directors'
Deferred Income Plan in 1985. These plans provide for non-vested pre-retirement
and post-retirement benefits to certain key executives and directors. The
Company has acquired insurance policies, with the bank subsidiary as owner and
beneficiary, that it may use as a source to pay potential benefits to the plan
participants. These contracts are carried at their cash surrender value, which
amounted to $2,418,146, $2,293,656 and $2,070,924 at December 31, 1998, 1997 and
1996, respectively. The present value of accumulated benefits under these plans,
using an interest rate of 10%, and the projected unit cost method has been
accrued. The accrual amounted to $1,288,261, $1,146,192 and $1,046,262 at
December 31, 1998, 1997 and 1996, respectively.
<PAGE> 37
The Company also has additional plans for non-vested post-retirement benefits
for certain key executives and directors. The Company has acquired insurance
policies, with the bank subsidiary as owner and beneficiary, that it may use as
a source to pay potential benefits to the plan participants. Additionally, there
are two split dollar policies of which certain executive officers are the owners
and beneficiaries, and which are assigned to the bank subsidiary for the
repayment of premiums paid by the Company. These contracts are carried at their
cash surrender value, which amounted to $340,824 , $283,150 and $281,937 at
December 31, 1998, 1997 and 1996, respectively. The present value of accumulated
benefits under these plans using an interest rate of 8.50% and the projected
unit cost method has been accrued. The accrual amounted to $273,877, $263,809
and $259,508 at December 31, 1998, 1997 and 1996, respectively.
The Company provides post-retirement health insurance to certain of its
retired employees. Employees are eligible to participate in the retiree health
plan if they retire from active service no earlier than their Social Security
normal retirement age, which varies from 65 to 67 based on the year of birth. In
addition, the employee must have at least 25 continuous years of service with
the Company immediately preceding retirement. However, any active employee who
is at least age 65 as of January 1, 1995, does not have to meet the 25 years of
service requirement. The accumulated post-retirement benefit obligation at
January 1, 1995, was $517,599, which the Company elected to amortize over 20
years. The Company reserves the right to modify, reduce or eliminate these
health benefits.
The following is a summary of the components of the net periodic
postretirement benefit cost:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Service cost $ 38,373 $ 39,595 $ 49,154
Interest cost 40,136 41,260 49,381
Amortization of net transition
obligation 20,600 20,600 38,498
---------- ---------- ----------
Net periodic postretirement
benefit cost $ 99,109 $ 101,455 $ 137,033
========== ========== ==========
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 6.50% in 1998, 7.00% in 1997 and 7.50% in 1996. The assumed
health care cost trend rate used in measuring the accumulated postretirement
benefit obligation was 7.50% in 1998. The rate was assumed to decrease gradually
to 5.00% for 2003 and remain at that level thereafter. If the health care cost
trend rate assumptions were increased 1.00%, the accumulated postretirement
benefit obligation as of December 31, 1998, would be increased by 22.48%, and
the aggregate of the service and interest cost components of the net periodic
postretirement benefit cost for the year then ended would have increased by
27.40%. If the health care cost trend rate assumptions were decreased 1.00%, the
accumulated postretirement benefit obligation as of December 31, 1998, would be
decreased by 17.27%, and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for the year then
ended would have decreased by 20.39%.
The following is a reconciliation of the accumulated postretirement benefit
obligation:
<TABLE>
<S> <C>
Accumulated postretirement benefit
obligation as of December 31, 1997 $ 585,874
Service cost 38,373
Interest cost 40,136
Actuarial loss 55,784
Benefits paid (24,992)
----------
Accumulated postretirement benefit
obligation as of December 31, 1998 $ 695,175
==========
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 238,265 $ 236,748 $ 185,595
Eligible to retire 79,446 70,923 101,298
Not eligible to retire 377,464 278,203 352,473
---------- ---------- ----------
Total 695,175 585,874 639,366
Plan assets at fair value -0- -0- -0-
---------- ---------- ----------
Accumulated postretirement
benefit obligation in excess of
plan assets 695,175 585,874 639,366
Unrecognized transition
obligation (329,597) (350,197) (465,839)
Prior service cost not yet
recognized in net periodic post-
retirement benefit cost 95,042
Unrecognized net (gain) loss from
past experience different from
that assumed and from changes
in assumptions (24,050) 31,734 (77,273)
---------- ---------- ----------
Accrued postretirement benefit
cost $ 341,528 $ 267,411 $ 191,296
========== ========== ==========
</TABLE>
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS:
In December 1991, the Financial Accounting Standards Board issued SFAS 107,
"Disclosures About Fair Value of Financial Instruments." SFAS 107 requires all
entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the statement of condition, for
which it is practical to estimate its fair value.
SFAS 107 excluded certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
In preparing these disclosures, Management made highly sensitive estimates and
assumptions in developing the methodology to be utilized in the computation of
fair value. These estimates and assumptions were formulated based on judgments
regarding economic conditions and risk characteristics of the financial
instruments that were present at the time the computations were
<PAGE> 39
made. Events may occur that alter these conditions and thus perhaps change the
assumptions as well. A change in the assumptions might affect the fair value of
the financial instruments disclosed in this footnote. In addition, the tax
consequences related to the realization of the unrealized gains and losses have
not been computed or disclosed herein.
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments.
Cash and Due from Banks
The amount shown as cash and due from banks approximates fair value.
Available for Sale Securities
The fair value of available for sale securities is based on quoted market
prices.
Held to Maturity Securities
The fair value of held to maturity securities is based on quoted market
prices.
Loans
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings for the remaining maturities. The cash flows considered
in computing the fair value of such loans are segmented into categories relating
to the nature of the contract and collateral based on contractual principal
maturities. Appropriate adjustments are made to reflect probable credit losses.
Cash flows have not been adjusted for such factors as prepayment risk or the
effect of the maturity of balloon notes.
Accrued Interest Receivable
The amount shown as accrued interest receivable approximates fair value.
Deposits
The fair value of non-interest bearing demand and interest bearing savings and
demand deposits is the amount reported in the financial statements. The fair
value of time deposits is estimated by discounting the cash flows using current
rates of time deposits with similar remaining maturities. The cash flows
considered in computing the fair value of such deposits are based on contractual
maturities, since approximately 98% of time deposits provide for automatic
renewal at current interest rates.
Federal Funds Purchased and Securities Sold under Agreements to Repurchase
The amount shown as federal funds purchased and securities sold under
agreements to repurchase approximates fair value.
Notes Payable
The fair value of notes payable is computed by discounting the cash flows
using current borrowing rates.
<PAGE> 40
Accrued Interest Payable
The amount shown as accrued interest payable approximates fair value.
Irrevocable Letters of Credit
The fair value of irrevocable letters of credit is estimated using the fees
currently charged to enter into similar agreements.
The following table presents carrying amounts and estimated fair values for
financial assets and financial liabilities at December 31, 1998, 1997 and 1996
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
CARRYING FAIR Carrying Fair Carrying Fair
AMOUNT VALUE Amount Value Amount Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $ 30,360 $ 30,360 $ 20,611 $ 20,611 $ 26,874 $ 26,874
Available for sale
securities 12,837 12,837 47,678 47,678 53,159 53,159
Held to maturity
securities 134,724 135,924 102,836 103,793 127,870 128,879
Loans, net 287,131 288,425 247,361 247,210 223,969 225,492
Accrued interest
receivable 3,128 3,128 3,620 3,620 3,891 3,891
Financial Liabilities:
Deposits:
Non-interest bearing 76,269 76,269 67,581 67,581 73,535 73,535
Interest bearing 305,333 306,006 304,974 305,159 294,597 294,728
---------- ---------- ---------- ---------- ---------- ----------
Total deposits 381,602 382,275 372,555 372,740 368,132 368,263
Federal funds
purchased and
securities sold under
agreements to repurchase 28,051 28,051 16,500 16,500
Notes payable 203 185 215 189 227 198
Accrued interest
payable 924 924 727 727 1,005 1,005
Irrevocable letters
of credit -- 55 -- 32 -- 12
</TABLE>
<PAGE> 41
NOTE N - REGULATORY MATTERS:
The bank subsidiary is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by the regulators that, if undertaken, could have a
direct material effect on the bank's subsidiary's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the bank subsidiary must meet specific capital guidelines that involve
quantitative measures of the bank subsidiary's assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. The
bank subsidiary's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the bank subsidiary to maintain minimum amounts and ratios of total and
Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets.
As of December 31, 1998, the most recent notification from the Federal Deposit
Insurance Corporation categorized the bank subsidiary as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized, the bank subsidiary must have a total risk-based capital ratio of
10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a
leverage capital ratio of 5% or greater. There are no conditions or events since
that notification that Management believes have changed the bank subsidiary's
category.
The bank subsidiary's actual capital amounts and ratios and required minimum
capital amounts and ratios for 1998, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
For Capital Adequacy
Actual Purposes
------------------------- -------------------------
Amount Ratio Amount Ratio
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1998:
Total Capital (to Risk Weighted Assets) $77,125,631 25.90% $23,768,820 8.00%
Tier 1 Capital (to Risk Weighted Assets) 73,403,581 24.65 11,884,160 4.00
Tier 1 Capital (to Average Assets) 73,403,581 15.78 18,601,800 4.00
December 31, 1997:
Total Capital (to Risk Weighted Assets) 68,186,611 26.83 20,333,200 8.00
Tier 1 Capital (to Risk Weighted Assets) 65,010,555 25.58 10,166,600 4.00
Tier 1 Capital (to Average Assets) 65,010,555 14.61 17,800,360 4.00
December 31, 1996:
Total Capital (to Risk Weighted Assets 62,072,284 26.20 18,952,160 8.00
Tier 1 Capital (to Risk Weighted Assets) 59,111,009 24.95 9,476,080 4.00
Tier 1 Capital (to Average Assets) 59,111,009 12.63 18,713,857 4.00
</TABLE>
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
Peoples Financial Corporation and Subsidiaries
Board of Directors
Peoples Financial Corporation and Subsidiaries
Biloxi, Mississippi
We have audited the accompanying consolidated statements of condition of
Peoples Financial Corporation and Subsidiaries as of December 31, 1998, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's Management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Peoples
Financial Corporation and Subsidiaries at December 31, 1998, 1997 and 1996, and
the results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Certified Public Accountants
/s/ Piltz, Williams, LaRosa & Co.
PILTZ, WILLIAMS, LAROSA & CO.
Biloxi, Mississippi
January 19, 1999
<PAGE> 43
Board of Directors
Peoples Financial Corporation
Chevis C. Swetman, Chairman of the Board
Andy Carpenter, Vice Chairman
Drew Allen, President, Allen Beverages, Inc.
William A. Barq, Former Owner and President (retired),
Barq's Bottling Co., Inc.
F. Walker Tucei, Executive Vice-President (retired),
The Peoples Bank, Biloxi, Mississippi
Officers
Peoples Financial Corporation
Chevis C. Swetman, President and CEO
Andy Carpenter, Executive Vice-President
Jeannette E. Romero, First Vice-President
Thomas J. Sliman, Second Vice-President
Robert M. Tucei, Vice-President
David M. Hughes, Vice-President
A. Wes Fulmer, Vice-President and Secretary
M. O. Lawrence, III, Vice-President
Lauri A. Wood, Chief Financial Officer and Controller
Board of Directors
The Peoples Bank, Biloxi, Mississippi
Chevis C. Swetman, Chairman
William A. Barq, Vice-Chairman, Former Owner and President (retired), Barq's
Bottling Co., Inc.
Drew Allen, President, Allen Beverages, Inc.
Andy Carpenter, Executive Vice-President, The Peoples Bank, Biloxi, Mississippi
Tyrone J. Gollott, Secretary-Treasurer, Gollott & Sons Transfer & Storage, Inc.
Liz Corso Joachim, President, Frank P. Corso, Inc.
Rex E. Kelly, Director of Corporate Communications, Mississippi Power Company
Dan Magruder, President, Rex Distributing Co., Inc.
Jeffrey H. O'Keefe, President, Bradford-O'Keefe Funeral Homes, Inc.
Lyle M. Page, Partner, Page, Mannino, Peresich, Dickinson & McDermott
F. Walker Tucei, Executive Vice-President (retired), The Peoples Bank,
Biloxi, Mississippi
<PAGE> 44
Officers
The Peoples Bank, Biloxi, Mississippi
SENIOR MANAGEMENT
Chevis C. Swetman, President and CEO
Andy Carpenter, Executive Vice-President
Jeannette E. Romero, Senior Vice-President
Thomas J. Sliman, Senior Vice-President
Robert M. Tucei, Senior Vice-President
David M. Hughes, Senior Vice-President
Lauri A. Wood, Senior Vice-President
A. Wes Fulmer, Senior Vice-President
M. O. Lawrence, III, Senior Vice-President
COMMERCIAL LENDING
Darnell M. Hebert, Assistant Vice-President
CONSUMER LENDING
Brian J. Kozlowski, Loan Officer
COMPLIANCE
Evelyn R. Madison, Compliance Officer
AUDIT AND ACCOUNTING
Gregory M. Batia, Assistant Auditor
Caroline B. Randolph, Trust Auditor
Connie F. Lepoma, Accounting Officer
INVESTMENTS
Peggy M. Byrd, Vice-President
Janet H. Wood, Investment Officer
LOAN PROCESSING
Donna F. Bessetti, Vice-President
Jesse J. Migues, Assistant Vice-President
LOAN REVIEW
Robert E. Smith, Jr., Assistant Vice-President
F. Kay Woodbury, Loan Review Officer
PERSONNEL
Jackie L. Henson, Vice-President
Janis C. Culler, Vice-President - Employee Benefits
Patricia L. Levine, Vice-President
Janice L. Smitherman, Employee Benefits Officer
Jennifer S. Crane, Training Officer
<PAGE> 45
ASSET MANAGEMENT & TRUST SERVICES
M. O. Lawrence, III, Senior Vice-President
Ann F. Guice, Vice-President
Louise C. Johns, Trust Officer
Thomas H. Wicks, Assistant Trust Officer
Daniel A. Bass, Assistant Trust Officer
C. J. Dunaway, Assistant Trust Officer
PROPERTY
Shirley A. Braun, Vice-President
Ray I. Cross, Assistant Vice-President - Appraisals
SECURITY
Robin J. Vignes, Assistant Vice-President
Minh-Tuyet Nguyen, Assistant Security Officer
CASH MANAGEMENT
Larry A. Evans, Cash Management Officer
Gloria A. Cothern, Assistant Vice-President
DATA PROCESSING
Sandra L. York, Vice-President - Information Systems
Dennis J. Burke, Vice-President - Business Solutions
George S. Tranum, Assistant Vice-President - Technical Support
Ronald L. Baldwin, Systems Support Technician
Scott P. Landrum, Data Processing Officer
OPERATIONS/OTHER SERVICES
Cheryl A. Dubaz, Assistant Vice-President - ATM
Susan B. Polovich, Assistant Operations Officer
Charlotte R. Balius, Bankcard Officer
Cassandra F. Reid, Assistant Cashier
Ardell M. Roberts, Assistant Cashier
Hugh J. Kavanagh, Assistant Cashier
Kathy S. Comstock, Savings Officer
Kathleen M. Worrell, Insurance Officer
Yvonne P. Owen, Assistant Cashier
<PAGE> 46
BRANCH LOCATIONS AND OFFICERS
The Peoples Bank, Biloxi, Mississippi
BILOXI BRANCHES
MAIN OFFICE, 152 Lameuse Street, Biloxi, Mississippi 39530, (228) 435-5511
Ralph A. Seymour, Vice-President
VETERANS AVENUE OFFICE, 186 Veterans Avenue, Biloxi, Mississippi 39531,
(228) 897-8711
R. Patrick Byrd, Branch Manager
Diana T. Winland, Loan Officer
WEST BILOXI OFFICE, 2430 Pass Road, Biloxi, Mississippi 39531, (228) 435-8203
Read H. Breeland, Assistant Vice-President
GULFPORT BRANCHES
DOWNTOWN GULFPORT OFFICE, 1105 30th Avenue, Gulfport, Mississippi 39501,
(228) 897-8715
David M. Hughes, Senior Vice-President
John W. McKellar, Vice-President
Brent G. Johnson, Assistant Vice-President
Diana W. Williams, Branch Manager
HANDSBORO OFFICE, 0412 E. Pass Road, Gulfport, Mississippi 39507,
(228) 897-8717
Andrew M. Welter, Assistant Vice-President
ORANGE GROVE OFFICE, 12020 Highway 49 North, Gulfport, Mississippi 39503,
(228) 897-8718
Mark A. Chatham, Assistant Vice-President
William R. Aborn, Loan Officer
OTHER BRANCHES
BAY ST. LOUIS OFFICE, 408 Highway 90 East, Bay St. Louis, Mississippi 39520,
(228) 897-8710
Jeannie M. Deen, Vice-President
Laura A. Elliott, Assistant Branch Manager
Shannon D. Garrett, Loan Officer
DIAMONDHEAD OFFICE, 4408 West Aloha Drive, Diamondhead, Mississippi 39525,
(228) 897-8714
J. Patrick Wild, Assistant Vice-President
D'IBERVILLE-ST. MARTIN OFFICE, 10491 Lemoyne Boulevard, D'Iberville,
Mississippi 39532, (228) 435-8202
Jerome D. Dodge, II, Vice-President
John L. Welter, IV, Loan Officer
LONG BEACH OFFICE, 403 Jeff Davis Avenue, Long Beach, Mississippi 39560
(228) 897-8712
Eric M. Chambless, Branch Manager
OCEAN SPRINGS OFFICE, 2015 Bienville Boulevard, Ocean Springs,
Mississippi 39564, (228) 435-8204
Ronnie F. Harrison, Assistant Vice-President
<PAGE> 47
PASS CHRISTIAN OFFICE, 125 Henderson Avenue, Pass Christian, Mississippi 39571,
(228) 897-8719
Gerald C. Gex, Jr., Assistant Vice-President
SAUCIER OFFICE, (Opening summer 1999)17689 Second Street, Saucier,
Mississippi 39574
James P. Estrada, Assistant Vice-President
SHAREHOLDER INFORMATION
Peoples Financial Corporation and Subsidiaries
DIVIDEND SERVICES/ADDRESS CHANGE/STOCK TRANSFER:
For complete information concerning the common stock of Peoples Financial
Corporation, inquiries should be directed to:
M. O. Lawrence, III, Senior Vice-President
Asset Management & Trust Services Department
P. O. Box 1416, Biloxi, Mississippi 39533-1416
(228) 435-8208
INDEPENDENT AUDITORS:
Piltz, Williams, LaRosa & Company, Biloxi, Mississippi
S.E.C. FORM 10-K REQUESTS:
A copy of the Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission, may be obtained without charge by directing a written
request to:
Lauri A. Wood, Chief Financial Officer and Controller
Peoples Financial Corporation
P. O. Drawer 529, Biloxi, Mississippi 39533-0529
(228) 435-8412
<PAGE> 1
EXHIBIT 23
Consent of Certified Public Accountants
We consent to the use of our reports, dated January 19, 1999, in Form 10-K
filing of the Peoples Financial Corporation.
/s/ Piltz, Williams, LaRosa & Co.
PILTZ, WILLIAMS, LAROSA & CO.
Biloxi, Mississippi
March 15, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 30,359,600
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,836,885
<INVESTMENTS-CARRYING> 134,723,695
<INVESTMENTS-MARKET> 135,924,000
<LOANS> 291,514,748
<ALLOWANCE> 4,382,157
<TOTAL-ASSETS> 488,171,143
<DEPOSITS> 381,602,236
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,845,616
<LONG-TERM> 202,946
0
0
<COMMON> 2,952,672
<OTHER-SE> 70,592,721
<TOTAL-LIABILITIES-AND-EQUITY> 488,171,143
<INTEREST-LOAN> 24,411,619
<INTEREST-INVEST> 8,519,744
<INTEREST-OTHER> 493,488
<INTEREST-TOTAL> 33,424,851
<INTEREST-DEPOSIT> 13,425,428
<INTEREST-EXPENSE> 13,989,638
<INTEREST-INCOME-NET> 19,435,213
<LOAN-LOSSES> 0
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<EXPENSE-OTHER> 5,087,267
<INCOME-PRETAX> 13,381,066
<INCOME-PRE-EXTRAORDINARY> 13,381,066
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<NET-INCOME> 8,789,506
<EPS-PRIMARY> 2.98
<EPS-DILUTED> 2.98
<YIELD-ACTUAL> 4.64
<LOANS-NON> 490,000
<LOANS-PAST> 718,000
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<CHARGE-OFFS> 466,000
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<ALLOWANCE-CLOSE> 4,382,000
<ALLOWANCE-DOMESTIC> 4,382,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 250,000
</TABLE>
