U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _____________
Commission file number 33-88802
----------------------------------
PEOPLES FINANCIAL CORP., INC.
--------------------------------------------------------
(Exact name of small business issuer as specified in its
charter)
Pennsylvania 25-1469914
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Ford Street and Fourth Avenue, Ford City, PA 16226
--------------------------------------------------------
(Address of principal executive offices)
(412) 763-1221
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(Issuer's telephone number)
--------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 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 ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
dates: June 30, 1997
-------------------------
As of June 30, 1997, there were 879,990 shares of the
Registrant's common stock, $0.30 par value, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes _____ No [X]
---
<PAGE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
INDEX PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Balance Sheets -
June 30, 1997 (unaudited) and
December 31, 1996 1
Consolidated Statements of Income -
Six months ended June 30, 1997 and
1996 (unaudited) 2
Consolidated Statements of Cash Flow -
Six months ended June 30, 1997 and
1996 (unaudited) 3
Notes to Consolidated Financial Statements 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operation 5
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 8
ITEM 2. Changes in Securities 8
ITEM 3. Defaults Upon Senior Securities 8
ITEM 4. Submission of Matters to a Vote of
Security Holders 8
ITEM 5. Other Information 8
ITEM 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30
1997 December 31
(Unaudited) 1996
----------- ------------
<S> <C> <C>
ASSET
Cash and due from banks $ 8,757,751 $ 8,944,707
Federal funds sold 2,775,000 7,325,000
Securities available for sale 29,918,467 25,315,225
Investment securities, at cost 31,333,118 25,674,119
Federal Home Loan Bank stock 740,200 569,500
Loans, net 140,431,409 136,050,197
Premises and equipment, net 3,566,830 3,748,922
Other assets 3,162,594 3,184,521
------------ ------------
Total Assets $220,685,369 $210,812,191
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-interest bearing $ 22,266,690 $ 20,860,522
Interest bearing 157,628,546 155,404,110
------------ ------------
Total deposits 179,895,236 176,264,632
Accrued interest and
other liabilities 9,761,250 7,679,408
------------ ------------
Total Liabilities 189,656,486 183,944,040
STOCKHOLDERS' EQUITY
Common stock, par value 264,247 264,247
Additional paid-in capital 3,849,750 3,849,750
Retained earnings 14,375,579 13,377,522
Unrealized holding gains on
securities available for sale 12,539,307 9,376,632
------------ -------------
Total stockholders' equity 31,028,883 26,868,151
------------ -------------
Total Liabilities and
Stockholders Equity $220,685,369 $210,812,191
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
Page 1
<PAGE>
<TABLE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Six Months Ended June 30
--------------------------
Interest Income 1997 1996
---------- --------
<S> <C> <C>
Loans $ 5,910,207 $ 5,225,238
Investment securities 1,338,913 1,375,040
Interest bearing deposits 950 3,150
Federal funds sold 242,399 189,791
------------ -------------
Total interest income 7,492,469 6,793,219
Interest Expense
Deposits 3,598,912 3,169,816
------------ -------------
Net Interest Income 3,893,557 3,623,403
Provision for Loan Losses 25,000 -
------------ --------------
Net Interest Income after
Provision for Loan Losses 3,868,557 3,623,403
Other Income
Service fees 321,645 328,503
Net investment gains 354,014 285,418
Other 226,304 8,326
------------ ------------
901,963 622,247
Other Expenses
Salaries 985,210 1,046,674
Pension and other employee benefits 358,716 364,509
Occupancy expense 507,823 468,746
Legal & professional 127,830 111,749
Regulatory 25,603 15,736
Data Processing 77,849 89,870
Other 844,695 804,804
------------- ------------
2,927,726 2,902,088
Income Before Income Taxes 1,842,794 1,343,562
Provision for Income Taxes 422,357 251,150
------------- ------------
Net Income $ 1,420,437 $ 1,092,412
============= =============
Net Income per Share of Common
Stock $ 1.61 $ 1.24
============== ============
Shares Used in Computing Net
Income per Share of Common
Stock 879,990 879,990
============== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
Page 2
<PAGE>
<TABLE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six Months Ended June 30
--------------------------
CASH FLOWS FROM OPERATING 1997 1996
ACTIVITIES ---------- --------
<S> <C> <C>
Net Income $ 1,420,437 $ 1,092,000
Adjustments to reconcile net
cash from operating activities:
Depreciation and amortization 326,111 260,000
Net accretion/amortization of
premiums and discounts (7,205) (11,000)
Gain on sale of investments (281,054) (285,000)
Provision for loan losses 25,000 0
Loss on sale/disposal of assets 22,265 0
Reinvestment stock dividends (37,278) (41,000)
Increase (decrease) in cash due to
changes in assets and liabilities:
Other assets (16,274) (317,000)
Accrued interest and other
liabilities 452,585 672,000
---------- ----------
Net Cash from Operating Activities 1,904,587 1,370,000
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities
available for sale 482,754 1,851,000
Proceeds from maturities of
investment securities 5,315,911 3,370,000
Purchase of investment securities (10,943,437) (1,990,000)
Purchase of securities available
for sale 0 (230,000)
Net Sales (purchases) of FHLB Stock (170,700) 0
Net loans made to customers (4,416,885) (7,920,000)
Premises and equipment expenditures (125,795) (172,000)
------------ -----------
Net Cash Used by Investing
Activities (9,858,152) (5,091,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,639,004 4,419,000
Proceeds from issuance of common stock 0 0
Dividends paid (422,395) (405,000)
Repayment of FHLB advances 0 0
----------- ------------
Net Cash from Financing Activities 3,216,609 4,014,000
----------- ------------
Net Change in Cash and Cash
Equivalents (4,736,956) 293,000
Cash and Cash Equivalents at
Beginning of Period 16,269,707 11,226,000
---------- ------------
Cash and Cash Equivalents at End
of Period $ 11,532,751 $ 11,519,000
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
Page 3
<PAGE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
include Peoples Financial Corp., Inc., (the Corporation) and its
wholly owned subsidiary, PFC Bank, and have been prepared in
accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-QSB
and Article 10 of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting primarily of normal recurring accruals) considered
necessary for a fair presentation have been included.
NOTE B - EARNINGS PER SHARE
Shares used in the earnings per share computation are the
weighted average number of shares outstanding during the periods
in question.
NOTE C - RECLASSIFICATIONS
Certain previously reported items have been reclassified to
conform with the current period's classifications. These
reclassifications have no effect on total assets, total
liabilities and stockholders' equity, and net income.
Page 4
<PAGE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
For the six months ended June 30, 1997, the Corporation's total
assets increased over December 31, 1996 by nearly $9.9 million
resulting primarily from increases of $5.7 million in investment
securities, $4.6 million in available-for-sale securities, and a
$4.4 million increase in loans offsetting a decrease of $4.6
million in federal funds sold.
The increase in total liabilities of approximately $5.7 million
from December 31, 1996 to June 30, 1997 is primarily attributable
to increases in deposits of over $3.6 million in the six-month
period ended June 30, 1997.
As of June 30, 1997, PFC Bank had a ratio of non-performing loans
to total assets of .41% as compared to a ratio of .54% as of the
end of December 31, 1996. Included in June 30, 1997,
non-performing loan totals were loans totaling $910,000 which were
delinquent more than 90 days and on non-accrual status. At June
30, 1997, the allowance for possible loan losses was $1,248,000,
which represented .89% of net loans as compared to .91% at the
end of the previous calendar year. Non-performing non-accrual
loans totaled 9.78% of the allowance for possible loan losses, as
compared to 26.48% at December 31, 1996.
In management's opinion, the allowance for possible loan losses
as of June 30, 1997 is adequate to absorb any future loan losses
based on information presently known. There can be no assurance,
however, that additions to the allowance will not be required in
the future to cover losses that are presently unforeseen.
RESULTS OF OPERATIONS
Net Income
For the six-month period ended June 30, 1997, the Corporation
recognized net income of $1,420,000, an increase of $328,000 over
the same period of the prior year.
The operating results of the Corporation are solely dependent
upon the net income generated by its subsidiary, PFC Bank. PFC
Bank also has the benefit of a substantially appreciated
available-for-sale investment portfolio, the strategic
liquidation of portions of which enable the Corporation to absorb
the negative effects of interest rate fluctuation and still
maintain profitable operations.
Net Interest Income
Interest income for the six-month period ended June 30, 1997 was
approximately $7.5 million, an increase of $699,000 from the
six-month period ended June 30, 1996. This increase is attributed to
a $685,000 increase in interest on the loan portfolio. Interest
expense for the six-month period ended June 30, 1997 was
approximately $3.6 million, a $429,000 increase over the same
six-month period ended June 30, 1996. Management attributes this
increase primarily to a $2.2 million increase in interest bearing
deposits since December 31, 1996.
Page 5
<PAGE>
Provision for Loan Losses
The provision for loan losses is based upon management's ongoing
assessment of the inherent risk of loss in the outstanding loan
portfolio. This process is based on the evaluation of individual
loans, past loss experience, current economic conditions, and
other relevant factors. While management uses the best
information available to make such evaluations, future
adjustments to the provision resulting in adjustment to the
allowance for possible loan losses may be necessary. PFC Bank
continues to monitor its loan portfolio on a regular basis and
will make additions to its allowance based on its determination
of the necessary level of the allowance. For the six-month
period ended June 30, 1997, the PFC Bank provided $25,000 to the
provision for loan losses as compared to $0 for the same period
in the previous year. Net charge-offs for the six-month period
ended June 30, 1997 amounted to $31,000.
Other Income
Other income for the six-month period ended June 30, 1997 was
approximately $902,000, an increase of approximately $280,000
over the six-month period ended June 30, 1996. This increase is
directly attributable to insurance proceeds of $206,000 received
due to a flood in July 1996. The event is disclosed in the Other
Information section, Item 5., of this filing.
Net investment gains were $354,000 for the six-month period ended
June 30, 1997 as compared to $285,000 for the same six-month
period the previous year. These net gains were primarily the
result of the liquidation of a portion of the PFC Bank's
available-for-sale investment portfolio.
Other Expenses
Total other expenses increased by $26,000 for the six-month
period ended June 30, 1997 when compared to the same period in
the prior year. The major components of other expenses represent
normal recurring costs of operations including compensation and
employee benefits, occupancy expense, and data processing.
Maintaining a focus on operating cost control has become
increasingly important and the Corporation has succeeded in
maintaining a relatively stable overhead burden.
Provision for Income Taxes
The Corporation recorded a provision for income taxes of $422,000
for the six-month period ended June 30, 1997, as compared to
$251,000 for the same period ended June 30, 1996. State tax
liabilities are incurred both by PFC Bank, in the form of
Pennsylvania Bank Shares tax, and by the Corporation, as a
separate entity.
Page 6
<PAGE>
Regulatory Activity
Recently, Pennsylvania enacted a law to permit State
chartered banking institutions to sell insurance. This follows a
U. S. Supreme Court decision in favor of nationwide insurance
sales by banks and that also bars states from blocking insurance
sales by national banks in towns with populations of no more than
5,000. PFC Bank is currently evaluating its options regarding
the sale of insurance.
Congress is currently considering legislative reforms to
modernize the financial services industry, including repealing
the Glass Steagall Act, which prohibits commercial banks from
engaging in the securities industry. Consequently, equity
underwriting activities of banks may increase in the near future.
However, the Corporation does not currently anticipate entering
into these activities.
Changes in PFC Bank's FDIC assessment rate, caused by the
enactment of the Deposit Insurance Funds Act of 1996, will
adversely impact, to some extent, the results of operations, net
of income taxes, in a currently estimated amount of $7,300 in
1997. The Act also provides regulatory relief to the financial
services industry relative to environmental risks, frequency of
examinations, and the simplification of forms and disclosures.
From time to time, various types of federal and state
legislation have been proposed that could result in additional
regulation of, and restrictions on, the business of the
Corporation and of PFC Bank. Management cannot predict whether
such legislation will be adopted or, if adopted, how such
legislation would affect the business of the Corporation and PFC
Bank. As a consequence of the extensive regulation of commercial
banking activities in the United States, the Corporation's and
PFC Bank's business is particularly susceptible to being affected
by federal legislation and regulations that may increase the
costs of doing business. Except as specifically described above,
Management believes that the affect of the provisions of the
aforementioned legislation on the liquidity, capital resources,
and results of operations of the Corporation will be immaterial.
Management is not aware of any other current specific
recommendations by regulatory authorities or proposed
legislation, which, if they were implemented, would have a
material adverse effect upon liquidity, capital resources, or
results of operations, although the general cost of compliance
with the numerous and multiple federal and state laws and
regulations does have, and in the future may have, a negative
impact on the Corporation's results of operations.
Further, the business of the Corporation is also affected by
the state of the financial services industry in general. As a
result of legal and industry changes, Management predicts that
the industry will continue to experience an increase in
consolidations and mergers as the financial services industry
strives for greater cost efficiencies and market share.
Management also expects increased diversification of financial
products and services offered by the Bank and its competitors.
Management believes that such consolidations and mergers, and
diversification of products and services may enhance PFC Bank's
competitive position as a community bank.
Page 7
<PAGE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
There have been no matters brought to a vote of security
holders during this quarter.
ITEM 5. Other Information
On April 8, 1997, R.B. Robertson was elected by the
Board of Directors as President of PFC Bank and Peoples
Financial Corp., Inc. Mr. Robertson was elected
president to replace David P. Fennell, who retired
December 31, 1996. Also on April 8, 1997, Frank T.
Baker was elected as Chairman of PFC Bank and Peoples
Financial Corp., Inc.
On Friday, July 19, 1996, Clarion County, Pennsylvania,
including the New Bethlehem area experienced tremendous
flooding. PFC Bank experienced substantial flood
damage. One branch office was completely submerged,
while the operations center absorbed considerable
damage. It has been one year and the bank has
completely recovered from the flooding. As expected,
the event did not have a material impact on the
Corporation's financial position.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Registrant's Articles of Incorporation (incorporated
by reference to Exhibit 4.1 to Registrant's
Registration Statement No. 33-88802 on Form S-4, filed January 27,
1995).
3(ii) Registrant's By-Laws (incorporated by reference to
Exhibit 4.2 to Registrant's Registration Statement No.
33-88802 on Form S-4, filed January 27, 1995).
10(i) Settlement Agreement and Release, dated December 30,
1996, among C. Edward Dunmire, the Registrant, and
Peoples Bank of PA (incorporated by reference to Exhibit 10(i) to
Registrant's Annual Report on Form 10-KSB, filed March 28, 1997).
Page 8
<PAGE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
PART II. OTHER INFORMATION (cont.)
ITEM 6. Exhibits and Reports on Form 8-K (cont.)
10(ii) General Release of David Fennell (incorporated by
reference to Exhibit 10(ii) to the Registrant's
Annual Report on Form 10-KSB, filed March 28, 1997).
11 Statement re: Computation of Earnings Per Share.
(included herein at Part I, Item 1 of this Form
10-QSB).
27 Financial Data Schedule.
(b) Reports on Form 8-K
The registrant filed the following current reports on Form
8-K during the quarter ended June 30, 1997:
1. Current Report on Form 8-K, dated March 28, 1997,
re: Letter to Shareholders.
2. Current Report on Form 8-K, dated April 11, 1997, re:
Results of Shareholders Meeting.
Page 9
<PAGE>
SIGNATURES
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 thereunto duly authorized.
Dated: August 8, 1997
--------------
PEOPLES FINANCIAL CORP., INC.
(Registrant)
/s/ R. B. Robertson
- ------------------------
R.B. Robertson
President & Chief Executive Officer
/s/ James L. Kifer
- ----------------------
James L. Kifer
Executive Vice President & Asst. Secretary
Page 10
<PAGE>
PAGE NO.
IN MANUALLY
SIGNED
EXHIBIT NO. ORIGINAL
- ----------- ----------
3(i) Registrant's Articles of Incorporation
(incorporated by reference to Exhibit 4.1
to Registrant's Registration Statement
No. 33-88802 on Form S-4, filed
January 27, 1995).
3(ii) Registrant's By-Laws (incorporated by
reference to Exhibit 4.2 to Registrant's
Registration Statement No. 33-88802 on
Form S-4, filed January 27, 1995).
10(i) Settlement Agreement and Release, dated
December 30, 1996, among C. Edward Dunmire,
the Registrant, and Peoples Bank of PA
(incorporated by Reference to Exhibit 10(i)
to Registrant's Annual Report on Form 10-KSB,
filed March 28, 1997).
10(ii)General Release of David Fennell (incorporated
by reference to Exhibit 10(ii) to the
Registrant's Annual Report on Form 10-KSB, filed
March 28, 1997).
11 Statement re: Computation of Earnings Per Share. 3
(included herein at Part I, Item 1 of this
Form 10-QSB).
27 Financial Data Schedule 14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,747
<INT-BEARING-DEPOSITS> 11
<FED-FUNDS-SOLD> 2,775
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,658
<INVESTMENTS-CARRYING> 31,333
<INVESTMENTS-MARKET> 31,494
<LOANS> 141,679
<ALLOWANCE> 1,248
<TOTAL-ASSETS> 220,685
<DEPOSITS> 179,895
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,761
<LONG-TERM> 0
0
0
<COMMON> 264
<OTHER-SE> 30,765
<TOTAL-LIABILITIES-AND-EQUITY> 220,685
<INTEREST-LOAN> 5,910
<INTEREST-INVEST> 1,582
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,493
<INTEREST-DEPOSIT> 3,599
<INTEREST-EXPENSE> 3,599
<INTEREST-INCOME-NET> 3,894
<LOAN-LOSSES> 25
<SECURITIES-GAINS> 354
<EXPENSE-OTHER> 2,928
<INCOME-PRETAX> 1,843
<INCOME-PRE-EXTRAORDINARY> 1,843
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,420
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.61
<YIELD-ACTUAL> 7.30
<LOANS-NON> 122
<LOANS-PAST> 788
<LOANS-TROUBLED> 151
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,254
<CHARGE-OFFS> 44
<RECOVERIES> 13
<ALLOWANCE-CLOSE> 1,248
<ALLOWANCE-DOMESTIC> 1,248
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
