SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report - April 2, 1997
PEOPLES FINANCIAL CORP., INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 33-88802 25-1469914
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State or other jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification
Number)
Ford Street and Fourth Avenue, Ford City, PA 16226
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (717) 763-1221
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N/A
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(Former name or former address, if changed since last report)
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Item 1. Changes in Control of Registrant
Not Applicable.
Item 2. Acquisition or Disposition of Assets.
Not Applicable.
Item 3. Bankruptcy or Receivership.
Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant.
Not Applicable.
Item 5. Other Events.
On or about March 28, 1997, the Issuer mailed a Letter
to Shareholders, attached as Item 7, as Exhibit 20.
Item 6. Resignations of Registrant's Directors.
Not Applicable.
Item 7. Financial Statements and Exhibits.
Exhibits:
Exhibit 20 - Letter to Shareholders, dated
March 28, 1997
Item 8. Change in Fiscal Year.
Not Applicable.
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Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
PEOPLES FINANCIAL CORP., INC.
(Registrant)
Dated: April 2, 1997 /s/ R. B. Robertson
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R. B. Robertson, Chairman and
Chief Executive Officer
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EXHIBIT INDEX
PAGE NO.
IN MANUALLY
SIGNED
EXHIBIT NO. ORIGINAL
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20 Letter to Shareholders 5
dated March 28, 1997
EXHIBIT 20
LETTER TO SHAREHOLDERS
DATED MARCH 28, 1997
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Dear Shareholders:
Recently, you received a proxy solicitation statement from
C. Edward Dunmire urging you to vote for his slate of eight
candidates and included statements that were critical of bank
management, and questioned the financial performance and other
matters pertaining to Peoples Financial Corp., Inc. ("Peoples")
and its wholly-owned subsidiary, PFC Bank (the "Bank").
The Board of Directors, in the interest of truth and
accuracy, felt compelled to issue a public response. This
response is not being sent because we think it will be a "close
vote" (because we don't, as we already have received what we
believe to be solid votes representing 77.30% of the issued and
outstanding shares) but because Mr. Dunmire's proxy statement
only tells one side of the story.
It has been less than one year since the Board of Directors
terminated Mr. Dunmire as President and CEO on April 17, 1996.
We are still living with the legacy of Mr. Dunmire and his family
as we start to make what we believe are needed changes. Peoples
itself has undergone tremendous changes during the last three
years during which it bought back a total of 336,996 shares
adjusted for the subsequent 333 for 1 stock split from the Estate
of Paul L. Dunmire, S. Esther Dunmire and related interests and
merged New Bethlehem Bank with and into Peoples Bank of Pa. (now
PFC Bank). These transactions were priced at approximately then
book value adjusted to reflect the fair market value of the
Bank's stock portfolio. As a result, Peoples was for the first
time in decades not subject to control by a single shareholder
and his family.
This lead to a reassessment by the Board of Directors of
past practices including their pros and cons. One major area of
concern was our view that staffing levels and personnel expense
are too high. Prior to December 1, 1995, there never had been a
duly appointed and functioning Compensation Committee. Since
April of last year, the Board of Directors, upon the
recommendation of the Compensation Committee, has taken steps to
reduce total personnel expenses by almost $700,000 per year. We
expect those types of positive actions to impact our bottom line.
After adjusting for certain one-time expenses in both 1996 and
1997, pre-tax operating income is projected to be $555,000 for
the first quarter of 1997 versus $378,000 in the first quarter of
1996, a projected increase of 47%. This is not "declining
performance" as asserted by Mr. Dunmire.
More than $300,000 of this annual reduction is attributable
to Mr. Dunmire himself, for this was his average total yearly
compensation from both the Bank and prior to April 1, 1995, New
Bethlehem Bank. Put differently, Mr. Dunmire's compensation
alone equaled approximately 10% of the expense of the total work
force. Mr. Dunmire states his goal is to reinstate himself and
"hire additional full-time, experienced senior management."
Before accepting Mr. Dunmire's proposal, you may want to consider
the likely price tag.
The peer group comparisons of net overhead expenses to net
interest income or operating profit per employee can result in
misleading inferences. These comparisons do not accurately
reflect the
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unique role the Bank's stock portfolio plays to the overall
financial picture. During the last two years, the unrealized gain
in the Bank's stock portfolio has increased from $11.768 million
to $14.207 million even after realizing gains of $2.3 million
from the sale from the Bank's stock portfolio. This important
source of increasing value to the shareholders is not reflected
in Mr. Dunmire's ratios and distorts comparisons to Mr. Dunmire's
peer group. The Board of Directors is continuing its long-standing policy
to take budgeted gains from the sale of securities. The Bank's stock
portfolio historically has been a material factor in adding value to
shareholders while permitting the Bank flexibility in its long range
planning. Brian Henry, who serves as a director, is assisting in the
management of this bank stock portfolio.
While we believe Mr. Dunmire's ratios are misleading, we
agree that overhead expenses need to be monitored. Accordingly,
Bank management, with the active participation of the Board of
Directors, is now leaving no stone unturned in its efforts to
locate and realize cost savings. Unfortunately, we remain the
prisoners of many spending decisions made in the past, in the
form of unusually high, continuing depreciation expenses. Over
the last ten years of Dunmire family stewardship, the Bank has
been operated on a champagne capital budget. Conversely, going
forward, we intend to live strictly within our means, while
continuing to give the best possible service to our customers.
Mr. Dunmire would have you question how the Bank lends your
money, stating that the credit process is faulty. This is
particularly disturbing to me because I have always instructed
our lending officers to first analyze a proposal as though they
were lending their own money, and then impose a higher standard
because they are lending someone else's money. Furthermore,
virtually every loan granted is scrutinized and passed upon
weekly by the Bank's Loan Committee, consisting of seven Board
members, all of them significant shareholders and actively
engaged. It is true that we have recently focused upon loans
collateralized by real property, but we believe that, in our
market, these generally are the safest and most prudent loans to
make. The results speak for themselves as nonperforming loans to
total loans has decreased from .55 in 1993, .41 in 1994, .44 in
1995 to .24 in 1996, while net charge-offs to total loans have
decreased from .17 in 1993, .11 in 1994, .18 in 1995 to .05 in
1996. These ratios do not generally decrease if the credit
process is faulty.
Mr. Dunmire generally is skeptical about the Bank's
financial management process, questioning whether it is
sufficiently sophisticated to anticipate and respond to interest
rate changes and other such matters. This is more than a bit
ironic, as the Bank continues to employ the basic system and
methodology implemented by Mr. Dunmire himself. One major
difference is that substantially more financial information is
being provided to the full Board after Mr. Dunmire was requested
to do so by Director Brian Henry. Building upon this, we are in
the process of upgrading our financial reporting and control
systems as we grow.
The most dubious yet aggressively made allegation by Mr.
Dunmire is that the Bank now suffers from inexperienced
management. In addition to R. B. Robertson, with eleven years
senior bank management experience,the Bank benefits from the
services of James Kifer, Executive Vice President, with twelve
years experience, and Vice Presidents Paul Barbiaux and Vicki
Barlett, with 17 and 11 years experience, respectively. Our next
level of management and indeed all of our employees are, I
believe, equally competent and qualified to lead the Bank
forward. When considering this issue, please consult your own
personal experience with any of these individuals. Also,
consider the fact that Mr. Dunmire is proposing a slate of
Directors with virtually no experience in the banking business.
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Mr. Dunmire finally alleges that the current management and
Board of Directors are not acting to maximize shareholder value.
Given the financial stake of those involved, this would be
unthinkable. The job has only begun, however, and with your help
we will see it through.
On Behalf of the Board of Directors Nominees
/s/ R. B. Robertson
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R. B. Robertson, Chairman and
Chief Executive Officer
Revocation of Proxy
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In the event you have executed a blue proxy, you may revoke
it at any time before it is voted only: (1) by giving written
notice of revocation (revocation notice attached for your
convenience) to Brian Henry, Secretary, Peoples Financial Corp,
Inc., 363 Broad Street, New Bethlehem, PA 16242; (2) by executing
a later dated proxy (one attached for your convenience) and
giving written notice thereof to the Secretary of the
Corporation; or (3) by voting in person after giving written
notice to the Secretary of the Corporation.
