<PAGE>
U.S. SECURITIES AND EXHCHANGE COMMISSION
WASHINGTON, DC 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, 1998
[ ] 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
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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 of (IRS Employer Identification No.
incorporation or organization)
Ford Street and Fourth Avenue,Ford City, Pa 16226
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(Address of principal executive offices)
(724) 763-1221
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(Issuer's telephone number)
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(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: August 1, 1998
---------------
As of August 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 I. FINANCIAL STATEMENTS
ITEM 1. Consolidated Blance Sheets -
June 30, 1998 (unaudited) and December 31, 1997 1
Consolidated Statements of Income -
Six months ended June 30, 1998 and 1997 (unaudited) 2
Consolidated Statement of Cash Flows -
Six months ended June 30, 1998 and 1997 (unaudited) 3
Notes to Consolidated Financial Statements 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 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 SHEETS
<CAPTION>
June 30,
1998 December 31,
ASSET (Unaudited) 1997
- ----- ---------- ------------
<S> <C> <C>
Cash and due from banks $ 10,650,978 $ 7,003,534
Federal funds sold 4,800,000 4,075,000
Available-for-sale securities 40,365,087 38,069,171
Held-to-maturity securities 31,002,129 32,378,224
Federal Home Loan Bank stock, at cost 841,500 740,200
Loans receivable, net 161,643,384 152,395,769
Premises and equipment, net 3,234,893 3,459,173
Other assets 2,527,616 2,149,627
------------ ------------
Total Assets $255,065,587 $240,270,698
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-interest bearing $ 25,154,269 $ 23,343,039
Interest bearing 176,619,266 167,229,668
------------- ------------
Total deposits 201,773,535 190,572,707
Accrued interest and other liabilities 13,232,776 12,285,041
------------ -----------
Total Liabilities 215,006,311 202,857,748
STOCKHOLDERS' EQUITY
Common stock, par value 264,650 264,650
Surplus 3,932,656 3,932,656
Retained earnings 16,399,086 15,298,374
Net unrealized holding gains on
securities available for sale 19,462,884 17,917,270
------------ -----------
Total stockholders' equity 40,059,276 37,412,950
------------ -----------
Total Liabilities and
Stockholders Equity $255,065,587 $240,270,698
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 1
<PAGE>
PEOPLES FINANCIAL COPR., INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Six Months Ended June 30,
Interest Income 1998 1997
--------- ---------
<S> <C> <C>
Loans $ 6,791,423 $ 5,910,207
Investment securities 1,476,686 1,338,913
Interest-bearing deposits 114,937 950
Federal funds sold 89,977 242,399
------------ -----------
Total interest income 8,473,023 7,492,469
Interest Expense
Deposits 4,076,295 3,598,912
------------ -----------
Net Interest Income 4,396,728 3,893,557
Provision for Loan Losses 80,000 25,000
------------ -----------
Net Interest Income after Provision for Loan Losses 4,316,728 3,868,557
Other Income
Service fees 305,027 321,645
Net investment gains 376,544 354,014
Other 26,580 226,304
------------ -----------
708,151 901,963
Other Expenses
Salaries 980,215 985,210
Pension and other employee benefits 448,624 358,716
Occupancy expense 527,126 507,823
Legal and professional 96,633 127,830
Regulatory fees 28,095 25,603
Data processing 90,620 77,849
Other 793,887 844,695
------------ ----------
2,965,200 2,927,726
Income Before Income Taxes 2,059,679 1,842,794
Provision for Income Taxes 517,883 422,357
------------ ----------
Net Income $ 1,541,796 $1,420,437
============ ==========
Net Income per Share of Common Stock $ 1.75 $ 1.61
============ ==========
Net Income per Share of Common Stock
(fully diluted) $ 1.75 $ 1.61
============ ==========
Shares Used in Computing Net Income
per Share of Common Stock 882,168 879,990
============ ==========
</TABLE>
The accompanying notes are an integaral part of these consolidated
financial statements.
Page 2
<PAGE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six Months Ended June 30,
1998 1997
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIIVITIES
Net Income $ 1,541,796 $ 1,420,437
Adjustments to reconcile net cash from
operating activities:
Depreciation and amortization 277,938 326,111
Net accretion/amortization of
premiums and discounts (6,798) (7,205)
Gain on sale of investments (376,545) (281,054)
Provision for loan losses 80,000 25,000
Loss on sale/disposal of assets 3,612 22,265
Reinvestment of stock dividends (12,811) (37,278)
Increase (decrease) in cash due to changes in
assets and liabilities:
Other assets (147,803) (16,274)
Accrued interest and other liabilities (80,037) 452,585
------------- ------------
Net Cash From Operating Activities 1,279,352 1,904,587
CASH FLOWS FROMINVESTING ACTIVITIES
Proceeds from sales of securities available
for sale 410,008 482,754
Proceeds from maturities of securities held
to maturity 9,745,262 5,315,911
Purchase of securities held to maturity (8,328,138) (10,943,437)
Net purchases of FHLB Stock (101,300) (170,700)
Net loans made to customers (9,347,591) (4,416,885)
Purchases of Premises and equipment (56,764) (125,795)
------------- ------------
Net Cash Used By Investing Activities (7,678,523) (9,858,152)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 11,212,698 3,639,004
Dividends paid (441,084) (422,395)
------------- -------------
Net Cash From Financing Activities 10,771,614 3,216,609
------------- -------------
Net Change in Cash and Cash Equivalents 4,372,443 (4,736,956)
Cash and Cash Equivalents at Beginning of Period 11,078,535 16,269,707
------------ -------------
Cash and Cash Equivalents at End of Period $15,450,978 $ 11,532,751
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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 (the 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 six months ended June 30, 1998, the Corporation's total assets increased
over December 31, 1997 by nearly $14.8 million resulting primarily from
increases of approximately $9.2 million in net loans and $3.6 million in cash
and due from banks.
The increase in total liabilities of approximately $12.1 million from December
31, 1997 to June 30, 1998 is primarily attributable to increases in deposits of
over $11.2 million in the six-month period ended June 30, 1998.
As of June 30, 1998, PFC Bank, the Corporation's wholly owned subsidiary, had a
ratio of non-performing loans to total assets of 0.26% 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 $662,000 that were delinquent
more than 90 days and held on non-accrual status. At June 30, 1998, the
allowance for possible loan losses was $1,122,000, which represented 0.69% of
net loans as compared to 0.81% at the end of the previous calendar year.
Non-performing loans totaled 16.22% 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 June 30, 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 six-month period ended June 30, 1998, the Corporation recognized net
income of $1,542,000, an increase of $121,000 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-forsale 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, 1998 was $8.5 million,
an increase of $981,000 from the six-month period ended June 30, 1997. This
increase is attributed to an $881,000 increase in interest on the loan
portfolio. Interest expense for the six-month period ended June 30, 1998 was
approximately $4.4 million, a $448,000 increase over the same six-month period
ended June 30, 1997. Management attributes this increase primarily to the $9.4
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 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, 1998, PFC Bank recorded $80,000 to the
provision for loan losses as compared to $25,000 for the same period in the
previous year. Net charge-offs for the six-month period ended June 30, 1998
amounted to $206,000 as compared to $31,000 for the six month period ended June
30, 1997. This increase was attributed to a single loan charge-off of $151,000
arising from a successor letter of credit, derived from a letter of credit
originally issued in 1985 by past management.
Other Income
Other income for the six-month period ended June 30, 1998 was approximately
$708,000, a decrease of approximately $194,000 over the six-month period ended
June 30, 1997. This decrease is directly attributable to flood insurance
proceeds of $206,000 received in the six month period ended June 30, 1997.
Net investment gains were $377,000 for the six-month period ended June 31, 1998
as compared to $354,000 for the same six-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 increased by $37,000 for the six-month period ended June
30, 1998 when compared to the same period in the prior year. This increase was
primarily the result of increases in pension expense of $90,000 and occupancy
expense of $19,000. These increases were offset by decreases in legal and
professional expenses of $31,000 and miscellaneous operating expenses of
$51,000.
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 $518,000 for the
six-month period ended June 30, 1998, as compared to $422,000 for the same
period ended June 30, 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 expects 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 Bank's computer systems to the "Year 2000 problem."
Modification or replacements of computer systems to attain Year 2000 internal
compliance have begun, and the Bank expects to attain Year 2000 internal
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 noncompliant third party computers could
impact the Bank's computer systems. The Bank could be adversely affected by the
Year 2000 problem if it or unrelated parties fail to successfully address the
problem. The Bank has taken steps to communicate with the unrelated parties with
whom it deals to coordinate Year 2000 compliance. Additionally, we are dependent
on external suppliers, such as, wire transfer systems, telephone systems,
electric companies, and other utility companies for continuation of service. The
Bank is also assessing the impact, if any, the century date change may have on
its credit risk. The Bank is contacting its large commercial loan customers
concerning their level of readiness for Year 2000.
The financial impact to the Corporation of Year 2000 internal compliance has not
been and is not anticipated to be material to the Corporation's financial
position or results of operations. If major external suppliers of services fail
to provide services, such failures may have a material impact to the
Corporation's financial position of results of operations. The Corporation is in
the process of obtaining back up service providers and assessing the potential
adverse risk to the Corporation.
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
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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 was no submission of matters brought to a vote of security
holders in the second quarter of 1998.
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 June 30, 1998:
No 8-K reports filed in the quarter ended June 30, 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: August 7, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,603
<INT-BEARING-DEPOSITS> 7,048
<FED-FUNDS-SOLD> 4,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,002
<INVESTMENTS-CARRYING> 40,365
<INVESTMENTS-MARKET> 40,365
<LOANS> 162,766
<ALLOWANCE> 1,122
<TOTAL-ASSETS> 255,066
<DEPOSITS> 201,773
<SHORT-TERM> 0
<LIABILITIES-OTHER> 13,233
<LONG-TERM> 0
<COMMON> 265
0
0
<OTHER-SE> 39,795
<TOTAL-LIABILITIES-AND-EQUITY> 255,066
<INTEREST-LOAN> 6,791
<INTEREST-INVEST> 1,682
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,473
<INTEREST-DEPOSIT> 4,076
<INTEREST-EXPENSE> 4,076
<INTEREST-INCOME-NET> 4,397
<LOAN-LOSSES> 80
<SECURITIES-GAINS> 377
<EXPENSE-OTHER> 2,965
<INCOME-PRETAX> 2,060
<INCOME-PRE-EXTRAORDINARY> 2,060
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,542
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.75
<YIELD-ACTUAL> 8.11
<LOANS-NON> 182
<LOANS-PAST> 480
<LOANS-TROUBLED> 139
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,249
<CHARGE-OFFS> 221
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 1,122
<ALLOWANCE-DOMESTIC> 1,122
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
