<PAGE>
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 March 31, 1998
---------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commisson file number 33-88802
----------
PEOPLES FINANCIAL CORP., INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
Pennsylvania 25-1469914
____________________________________________________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Ford Street and Fourth Avenue, Ford City, PA 16226
____________________________________________________________________________
(Address of principal executive offices)
(412) 763-1221
____________________________________________________________________________
(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 [X] 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: May 1, 1998
-------------
As of May 1, 1998, there were 882,168 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 1. FINANCIAL STATEMENTS
ITEM 1. Consolidated Balance Sheets - March 31, 1998
(unaudited) and December 31, 1997 1
Consolidated Statements of Income -
Three months ended March 31, 1998 and 1997 (unaudited) 2
Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 (unaudited) 3
Notes to Consolidated Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operation 5
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 9
ITEM 2. Changes in Securities 9
ITEM 3. Defaults Upon Senior Securities 9
ITEM 4. Submission of Matters to a Vote of Security Holders 9
ITEM 5. Other Information 9
ITEM 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(See Accountant's Compilation Report)
<CAPTION>
March 31,
1998 December 31,
ASSET (Unaudited) 1997
---------- ------------
<S> <C> <C>
Cash and due from banks $ 8,632,609 $ 7,003,534
Federal funds sold 9,000,000 4,075,000
Available-for-sale Securities 40,704,837 38,069,171
Held-to-maturity Securities 31,994,078 32,378,224
Federal Home Loan Bank Stock 740,200 740,200
Loans receivable, net 156,573,712 152,395,769
Premises and equipment, net 3,354,743 3,459,173
Other assets 2,698,525 2,149,627
------------ ------------
Total Assets $253,698,704 $240,270,698
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-interest bearing $ 23,321,361 $ 23,343,039
Interest bearing 176,863,984 167,229,668
------------ ------------
Total Deposits 200,185,345 190,572,707
Accrued interest and other liabilities 13,801,450 12,285,041
------------ ------------
Total Liabilities 213,986,795 202,857,748
STOCKHOLERS' EQUITY
Common stock, par value 264,650 264,650
Additional paid-in capital 3,932,656 3,932,656
Retained earnings 15,846,752 15,298,374
Unrealized holding gains on
securities available for sale 19,667,851 17,917,270
------------ ------------
Total stockholders' equity 39,711,909 37,412,950
------------ ------------
Total Liabilities and Stockholders equity $253,698,704 $240,270,698
============ ============
The accompanying notes are an integral part of thises consolidated
financial statements.
</TABLE>
Page 1
<PAGE>
<TABLE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Three Months Ended March 31,
Interest Income 1998 1997
------------- -----------
<S> <C> <C>
Loans $ 3,345,024 $ 2,893,478
Investment securities 715,665 645,079
Interest-bearing deposits 32,665 465
Federal funds sold 72,526 110,688
------------ ------------
Total interest income 4,165,880 3,649,710
Interest Expense
Deposits 2,006,908 1,766,695
------------- ------------
Net Interest Income 2,158,972 1,883,015
Provision for Loan Losses 30,000 20,000
------------- ------------
Net Interest Income after Provision for
Loan Losses 2,128,972 1,863,015
Other Income
Service fees 160,210 187,950
Net investment gains 236,212 199,696
Other 7,609 227,767
------------- ------------
404,031 615,413
Other Expenses
Salaries 525,274 536,884
Pension and other employee benefits 209,348 139,863
Occupancy expense 269,842 255,590
Legal & professional 56,173 39,242
Regulatory Fees 13,745 13,308
Data Processing 43,557 57,741
Other 379,819 452,468
-------------- ------------
1,497,758 1,495,096
Income Before Income Taxes 1,035,245 983,332
Provision for Income Taxes 266,325 198,418
--------------- ------------
Net Income $ 768,920 $ 784,914
=============== ===============
Net Income per Share of Common Stock $ 0.87 $ 0.89
=============== ===============
Net Income per Share of Common Stock $ 0.87 $ 0.89
(fully diluted) =============== ===============
Shares Used in Computing Net Income
per Share of Common Stock $ 0.89 $ 882,168 $ 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>
Three Months Ended March 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
------------- --------
<S> <C> <C>
Net Income $ 768,920 $ 784,914
Adjustments to reconcile net cash from
operating activities:
Depreciation and amortization 129,373 158,932
Net accretion/amortization of premiums
and discounts (4,510) (1,888)
Gain on sale of investments (236,211) (199,696)
Provision for loan losses 30,000 20,000
Loss on sale/disposal of assets (1,095) 6,688
Reinvestment stock dividends (12,811) (19,465)
Increase (decrease) in cash due to changes in
assets and liabilities:
Other assets (315,877) (27,366)
Accrued interest and other liabilities 383,048 481,497
------------ -------------
Net Cash from Operating Activities 740,837 1,203,616
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available
for sale 253,041 344,875
Proceeds from maturities held to maturity 7,995,262 1,445,000
Purchase of securities held to maturity (7,577,905) (3,964,375)
Purchase of securities available for sale 0 0
Net purchases of FHLB Stock 0 (170,700)
Net loans made to customers (4,220,400) (724,285)
Premises and equipment expenditures (36,104) (80,923)
------------ ------------
Net Cash Used by Investing Activities (3,586,106) (3,150,408)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 9,619,886 5,283,138
Proceeds from issuance of common stock 0 0
Dividends paid (220,542) (211,198)
------------ ------------
Net Cash from Financing Activities 9,399,344 5,071,940
------------ ------------
Net Cash in Cash and Cash Equivalents 6,554,075 3,125,148
Cash and Cash Equivalents at Beginning of
Period 11,078,534 16,269,707
------------ -----------
Cash and Cash Equivalents at End of Period $17,632,609 $19,394,855
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
Page 3
<PAGE>
PEOPLES FINANCIAL CORP., INC.
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,
stockholders' equity, and net income.
Page 4
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PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
For the three months ended March 31, 1998, the Corporation's total assets
increased over December 31, 1997 by more than $13.4 million resulting primarily
from increases of approximately $4.9 million in Federal Funds Sold, $4.2 million
in net loans, and $2.6 million in available-for-sale securities.
The increase in total liabilities of approximately $11.1 million from December
31, 1997 to March 31, 1998 is primarily attributable to increases in deposits of
over $9.6 million in the three-month period ended March 31, 1998.
As of March 31, 1998, PFC Bank, the Corporation's wholly owned subsidiary, had a
ratio of non- performing loans to total assets of 0.34% as compared to a ratio
of 0.40% as of the end of December 31, 1997. Included in the first quarter,
non-performing loan totals were loans totaling $858,000 that were delinquent
more than 90 days and held on non-accrual status. At March 31, 1998, the
allowance for possible loan losses was $1,244,000, which represented 0.79% of
net loans as compared to 0.81% at the end of the previous calendar year.
Non-performing loans totaled 15.85% of the allowance for possible loan losses,
as compared to 17.37% at December 31, 1997.
In management's opinion, the allowance for possible loan losses at March 31,
1998 is adequate to absorb future loan losses based on information presently
known. Management cannot assure, 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 three-month period ended March 31, 1998, the Corporation recognized net
income of $769,000, a decrease of $16,000 over the same period of the prior
year.
The operating results of the Corporation are largely 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 three-month period ended March 31, 1998 was $4.2
million, an increase of $516,000 from the three-month period ended March 31,
1997. This increase is attributed to a $452,000 increase in interest on the loan
portfolio. Interest expense for the three-month period ended March 31, 1998 was
approximately $2.0 million, a $0.2 increase over the same three-month period
ended March 31, 1997. Management attributes this increase primarily to the $9.6
million increase in interest bearing deposits since December 31, 1997.
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. Management's risk
assessment 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 three-month period ended March 31,
1998, PFC Bank provided $30,000 to the provision for loan losses as compared to
$20,000 for the same period in the previous year. Net charge-offs for the
three-month period ended March 31, 1998 amounted to $34,000 as compared to
$8,000 for the three month period ended March 31, 1997.
Other Income
Other income for the three-month period ended March 31, 1998 was approximately
$404,000, a decrease of approximately $211,000 over the three-month period ended
March 31, 1997. This decrease is directly attributable to flood insurance
proceeds of $206,000 received in the three month period ended March 31, 1997.
Net investment gains were $236,000 for the three-month period ended March 31,
1998 as compared to $200,000 for the same three-month period the previous year.
These net gains were primarily the result of the liquidation of a portion of PFC
Bank's available-for-sale investment portfolio.
Other Expenses
Total other expenses remained virtually unchanged, increasing by $3,000 for the
three-month period ended March 31, 1998 when compared to the same period in the
prior year. This increase was primarily the result of increases in pension
expense of $69,000 and occupancy expense of $14,000. These increases were offset
by decreases in payroll expense of $12,000 and miscellaneous operating expenses
of $73,000. 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 incurred a provision for income taxes of $266,000 for the
three-month period ended March 31, 1998, as compared to $198,000 for the same
period ended March 31, 1997. 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. The decision 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.
Management estimates that changes in PFC Bank's FDIC assessment rate, resulting
from the enactment of the Deposit Insurance Funds Act of 1996, will adversely
impact the results of operations, net of income taxes, in the amount of $23,200
in the year ended December 31, 1998. The act also provides regulatory relief to
the financial services industry relative to environmental risks, frequency of
examinations, and 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 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 liquidity, capital
resources, and results of operation 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 operation, 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>
Year 2000 Compliance
The Corporation is in the process of assessing the cost and extent of
vulnerability of the Company's computer systems to the "Year 2000 problem."
Modification or replacements of computer systems to attain Year 2000 compliance
have begun, and the Corporation expects to attain Year 2000 compliance and
institute appropriate testing of its modifications and replacements before
December 31, 1998. The Corporation believes that, with modifications to existing
software and conversions to new software, the Year 2000 problem will not pose a
significant operational problem for the Corporation. However, because most
computer systems are, by their very nature, interdependent, it is possible that
non- compliant third party computers could "reinfect" the Corporation's computer
systems. The Corporation could be adversely affected by the Year 2000 problem if
it or unrelated parties fail to successfully address the problem. The
Corporation has taken steps to communicate with the unrelated parties with whom
it deals to coordinate Year 2000 compliance.
The financial impact to the Corporation of Year 2000 compliance has not been and
is not anticipated to be material to the Corporation's financial position or
results of operations.
Forward-Looking Statements
From time to time, the Corporation may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Corporation notes that a variety of
factors could cause the Corporation's actual results and experience to differ
materially from the anticipated results or other expectations expressed in the
Corporation's forward-looking statements. The risks and uncertainties that may
affect the operations, performance, development and results of the Corporation's
business include the following: general economic conditions, including their
impact on capital expenditures; business conditions in the banking industry; the
regulatory environment; rapidly changing technology and evolving banking
industry standards; competitive factors, including increased competition with
community, regional and national financial institutions; new service and product
offerings by competitors and price pressures; and similar items.
Page 8
<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
On March 23, 1998, Peoples Financial Corp., Inc. held its Annual
Shareholder's Meeting. During the meeting the following directors were
elected: Frank T. Baker, Marlin F. Foreman, Brian Henry, Darl Hetrick,
Francis E. Kane, Timothy Reddinger, Raliegh B. Robertson, Raliegh B.
Robertson, Jr., J. Jack Sherman, Howard H. Schreckengost, and William
H. Toy.
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Registrant's Articles of Incorporation.
(Incorporated by reference in Registrant's January 27, 1995,
filing of Form S-4).
3(ii) Registrant's By-Laws.
(Incorporated by reference in Registrant's January 27, 1995,
filing of Form S-4).
10(i) Agreement between R.B. Robertson and Bank.
(Incorporated by Reference in the Registrant's September 30, 1997
filing of Form 10-QSB).
10(ii)Settlement Agreement.
(Incorporated by Reference in the Registrant's December 31, 1996
filing of Form 10KSB).
Page 9
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PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
PART II. OTHER INFORMATION (cont.)
ITEM 6. Exhibits and Reports on Form 8-K (cont.)
10(iii) General Release
(Incorporated by Reference in the Registrant's December 31, 1996
filing of Form 10KSB).
11 Statement re: Computation of Earnings Per Share.
(included herein at Part I, Item 1, Page 2 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 March 31, 1998:
No 8-K reports filed in the quarter ended March 31, 1998.
Page 10
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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: May 1, 1998
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
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,694
<INT-BEARING-DEPOSITS> 3,939
<FED-FUNDS-SOLD> 9,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,994
<INVESTMENTS-CARRYING> 41,445
<INVESTMENTS-MARKET> 41,445
<LOANS> 157,817
<ALLOWANCE> 1,244
<TOTAL-ASSETS> 253,699
<DEPOSITS> 200,185
<SHORT-TERM> 0
<LIABILITIES-OTHER> 13,802
<LONG-TERM> 0
<COMMON> 265
0
0
<OTHER-SE> 39,447
<TOTAL-LIABILITIES-AND-EQUITY> 253,699
<INTEREST-LOAN> 3,345
<INTEREST-INVEST> 821
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,166
<INTEREST-DEPOSIT> 2,007
<INTEREST-EXPENSE> 2,007
<INTEREST-INCOME-NET> 2,159
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 236
<EXPENSE-OTHER> 1,498
<INCOME-PRETAX> 1,035
<INCOME-PRE-EXTRAORDINARY> 1,035
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 769
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
<YIELD-ACTUAL> 8.20
<LOANS-NON> 197
<LOANS-PAST> 315
<LOANS-TROUBLED> 141
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,249
<CHARGE-OFFS> 44
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 1,244
<ALLOWANCE-DOMESTIC> 1,244
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
