Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0 - 30050
PEOPLES FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Mississippi 64-0709834
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Lameuse and Howard Avenues, Biloxi, Mississippi 39533
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(228) 435-5511
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Peoples Financial Corporation has only one class of common stock authorized. At
October 31, 2003, there were 15,000,000 shares of $1 par value common stock
authorized, and 5,558,699 shares issued and outstanding.
Page 1 of 20
PART I
FINANCIAL INFORMATION
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31, and September 30, 2003 2002 2002
-------------------------------------------- ------------- ------------- -------------
ASSETS
Cash and due from banks $ 29,452,234 $ 39,654,247 $ 40,104,878
Held to maturity securities, market value of
$7,558,000 - September 30, 2003;
$18,026,000 - December 31, 2002;
$19,148,000 - September 30, 2002 7,354,334 17,587,690 18,589,305
Available for sale securities, at market value 223,843,642 151,483,997 147,882,866
Federal Home Loan Bank Stock, at cost 1,964,300 1,927,000 1,912,600
Federal funds sold 3,450,000
Loans 286,269,051 312,296,263 324,830,140
Less: Allowance for loan losses 6,402,722 6,696,911 5,105,876
------------- ------------- -------------
Loans, net 279,866,329 305,599,352 319,724,264
Bank premises and equipment, net of accumulated
depreciation of $15,914,000 - September 30,
2003; $14,960,000 - December 31, 2002; and
$14,534,000 - September 30, 2002 18,130,419 17,059,400 17,198,524
Other real estate 1,417,646 1,195,720 1,620,509
Accrued interest receivable 3,070,728 2,858,190 2,923,366
Other assets 13,922,481 12,773,580 11,387,284
------------- ------------- -------------
TOTAL ASSETS $ 579,022,113 $ 550,139,176 $ 564,793,596
============= ============= =============
Page 2 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
September 30, December 31, and September 30, 2003 2002 2002
-------------------------------------------- ------------- ------------- -------------
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand, non-interest bearing $ 89,320,951 $ 75,698,316 $ 77,035,214
Savings and demand, interest bearing 169,862,914 164,954,932 169,153,779
Time, $100,000 or more 60,321,462 74,064,356 79,302,974
Other time deposits 67,341,920 73,456,208 73,935,836
------------- ------------- -------------
Total deposits 386,847,247 388,173,812 399,427,803
Accrued interest payable 265,135 300,042 518,307
Federal funds purchased and securities sold under
agreements to repurchase 95,663,210 67,245,703 71,169,774
Borrowings from Federal Home Loan Bank 6,791,786 6,313,077 5,982,614
Notes payable 264,920 334,371 357,582
Other liabilities 6,123,710 6,040,565 5,416,258
------------- ------------- -------------
TOTAL LIABILITIES 495,956,008 468,407,570 482,872,338
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 15,000,000 shares
authorized, 5,558,699 shares issued and
outstanding at September 30, 2003, 5,583,472
shares issued and outstanding at December 31,
2002 and 5,600,666 shares issued and
outstanding at September 30, 2002 5,558,699 5,583,472 5,600,666
Surplus 65,780,254 65,780,254 65,780,254
Undivided profits 11,047,120 8,510,341 8,664,342
Unearned compensation (107,043) (143,043) (155,043)
Accumulated other comprehensive income 787,075 2,000,582 2,031,039
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 83,066,105 81,731,606 81,921,258
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 579,022,113 $ 550,139,176 $ 564,793,596
============= ============= =============
See Selected Notes to Condensed Consolidated Financial Statements.
Page 3 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For The Quarters Ended September 30, For The Nine Months Ended September 30,
------------------------------------ ---------------------------------------
2003 2002 2003 2002
--------------- -------------- -------------- -------------
INTEREST INCOME:
Interest and fees on loans $ 4,180,508 $ 5,072,790 $ 13,119,200 $ 15,203,016
Interest and dividends on
securities:
U. S. Treasury 338,278 364,879 986,570 1,058,075
U. S. Government agencies and
corporations 1,496,709 1,097,900 4,287,439 3,957,753
States and political subdivisions 92,773 78,762 270,245 263,696
Other investments 60,682 107,512 194,345 242,657
Interest on federal funds sold 5,207 65,234 58,996 172,314
--------------- -------------- -------------- -------------
TOTAL INTEREST INCOME 6,174,157 6,787,077 18,916,795 20,897,511
--------------- -------------- -------------- -------------
INTEREST EXPENSE:
Time deposits of $100,000 or more 249,717 660,740 1,022,659 2,584,708
Other deposits 691,255 1,214,692 2,521,050 3,916,433
Borrowing from Federal Home Loan
Bank 113,933 93,757 321,081 275,696
Mortgage indebtedness 1,848 2,067 5,711 6,356
Federal funds purchased and securities
sold under agreements to repurchase 234,213 308,619 729,252 929,823
--------------- -------------- -------------- -------------
TOTAL INTEREST EXPENSE 1,290,966 2,279,875 4,599,753 7,713,016
--------------- -------------- -------------- -------------
NET INTEREST INCOME 4,883,191 4,507,202 14,317,042 13,184,495
Provision for losses on loans 65,299 135,841 383,044 748,776
--------------- -------------- -------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
LOSSES ON LOANS 4,817,892 4,371,361 13,933,998 12,435,719
--------------- -------------- -------------- -------------
OTHER OPERATING INCOME:
Trust department income and fees 345,707 205,537 1,106,719 688,546
Service charges on deposit accounts 1,696,696 1,775,274 5,135,318 5,054,607
Other service charges, commissions and
fees 87,446 67,932 221,364 205,981
Other income 314,467 321,876 912,631 1,437,044
--------------- -------------- -------------- -------------
TOTAL OTHER OPERATING INCOME $ 2,444,316 $ 2,370,619 $ 7,376,032 $ 7,386,178
--------------- -------------- -------------- -------------
Page 4 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
For The Quarters Ended September 30, For The Nine Months Ended September 30,
------------------------------------ ---------------------------------------
2003 2002 2003 2002
--------------- -------------- -------------- -------------
OTHER OPERATING EXPENSE:
Salaries and employee benefits $ 2,729,284 $ 2,575,306 $ 8,335,718 $ 8,473,216
Net occupancy 335,896 356,743 979,711 1,026,906
Equipment rentals, depreciation and
maintenance 593,606 673,557 2,092,522 2,135,500
Other expense 1,487,713 1,585,629 4,803,682 4,954,889
--------------- -------------- -------------- -------------
TOTAL OTHER OPERATING EXPENSE 5,146,499 5,191,235 16,211,633 16,590,511
--------------- -------------- -------------- -------------
INCOME BEFORE INCOME TAXES 2,115,709 1,550,745 5,098,397 3,231,386
Income taxes 605,000 405,701 1,462,080 761,382
--------------- -------------- -------------- -------------
NET INCOME $ 1,510,709 $ 1,145,044 $ 3,636,317 $ 2,470,004
=============== ============== ============== =============
See Selected Notes to Condensed Consolidated Financial Statements.
Page 5 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Accumu-
Unearned lated Other Compre-
# of Common Undivided Compensa- Comprehen- hensive
Shares Stock Surplus Profits tion sive Income Income Total
---------- ---------- ------------ ------------ ------------ ------------ ----------- -----------
Balance,
January 1,
2002 5,620,239 $5,620,239 $ 65,780,254 $ 7,052,559 $ (174,043) $ 1,790,017 $80,069,026
Comprehensive
Income:
Net income 2,470,004 $ 2,470,004 2,470,004
Net unrealized
gain on
available for
sale securities,
net of tax 464,758 464,758 464,758
Reclassifica-
tion adjust-
ment for
available for
sale securities
sold in
current year,
net of tax (223,736) (223,736) (223,736)
-----------
Total
comprehensive
income $ 2,711,026
===========
Allocation of
ESOP shares 19,000 19,000
Retirement of
stock (26,715) (26,715) (278,987) (305,702)
Issuance of
stock 7,142 7,142 92,846 99,988
Cash dividends,
($ .12 per
share) (672,080) (672,080)
---------- ---------- ------------ ------------ ------------ ------------ -----------
Balance,
September 30,
2002 5,600,666 $5,600,666 $ 65,780,254 $ 8,664,342 $ (155,043) $ 2,031,039 $81,921,258
========== ========== ============ ============ ============ ============ ===========
Page 6 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
(Unaudited)
Accumu-
Unearned lated Other Compre-
# of Common Undivided Compensa- Comprehen- hensive
Shares Stock Surplus Profits tion sive Income Income Total
---------- ---------- ------------ ------------ ------------ ------------ ----------- -----------
Balance,
January 1,
2003 5,583,472 $5,583,472 $ 65,780,254 $ 8,510,341 $ (143,043) $ 2,000,582 $81,731,606
Comprehensive
Income:
Net income 3,636,317 $ 3,636,317 3,636,317
Net unrealized
loss on
available for
sale securities,
net of tax (1,082,738) (1,082,738) (1,082,738)
Reclassification
adjustment for
available for
sale
securities
sold or
liquidated in
current year,
net of tax (130,769) (130,769) (130,769)
-----------
Total
comprehensive
income $ 2,422,810
===========
Allocation of
ESOP shares 36,000 36,000
Retirement of
stock (24,773) (24,773) (320,968) (345,741)
Cash
dividends,
($ .14 per
share) (778,570) (778,570)
---------- ---------- ------------ ------------ ------------ ------------ -----------
Balance,
September 30,
2003 5,558,699 $5,558,699 $ 65,780,254 $ 11,047,120 $ (107,043) $ 787,075 $83,066,105
========== ========== ============ ============ ============ ============ ===========
See Selected Notes to Condensed Consolidated Financial Statements.
Page 7 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Nine Months Ended September 30, 2003 2002
- -------------------------------------------------- -------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,636,317 $ 2,470,004
Adjustments to reconcile net income to net cash
provided by operating activities:
(Gain) loss on sales of other real estate (218,170) 71,466
Gain on liquidation or sale of available for
sale securities (199,951)
Stock issued under incentive plan 99,988
Gain on sale of bank premises (123,733) (42,539)
Depreciation and amortization 1,294,000 1,394,000
Provision for losses on loans 383,044 748,776
Provision for losses on other real estate 198,579 470,259
Changes in assets and liabilities:
Accrued interest receivable (212,538) 805,484
Other assets (473,115) 978,926
Accrued interest payable (34,907) (95,455)
Other liabilities 535,645 226,542
-------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,985,122 6,927,500
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of held to
maturity securities 10,233,356 19,745,000
Investment in held to maturity securities (55,343)
Proceeds from maturities, sales and calls of
available for sale securities 108,203,468 110,217,242
Investment in available for sale securities (182,411,069) (114,634,061)
Investment in Federal Home Loan Bank stock (37,300) (42,100)
Loans, net 24,599,979 20,077,086
Proceeds from sale of bank premises 479,673 153,120
Acquisition of premises and equipment (2,720,959) (585,197)
Proceeds from sales of other real estate 547,665 597,723
Federal funds sold (3,450,000)
Other assets 176,180 (5,268,871)
-------------- ---------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ (40,929,007) $ 26,754,599
-------------- ---------------
Page 8 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For The Nine Months Ended September 30, 2003 2002
- ----------------------------------------------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand and savings deposits, net increase $ 18,530,617 $ 24,725,131
Time deposits, net decrease (19,857,182) (37,839,990)
Principal payments on notes (33,451) (32,468)
Notes payable 72,799
Cash dividends (1,448,587) (1,346,508)
Retirement of stock (345,741) (305,702)
Federal funds purchased and securities sold
under agreements to repurchase 28,417,507 (11,319,085)
Borrowings from Federal Home Loan Bank 478,709 433,626
-------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 25,741,872 (25,612,197)
-------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,202,013) 8,069,902
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 39,654,247 32,034,976
-------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 29,452,234 $ 40,104,878
============== ===============
See Selected Notes to Condensed Consolidated Financial Statements.
Page 9 of 20
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2003 and 2002
1. The accompanying unaudited condensed consolidated financial statements have
been prepared with the accounting policies in effect as of December 31, 2002 as
set forth in the Notes to the Consolidated Financial Statements of Peoples
Financial Corporation and Subsidiaries (the Company). In the opinion of
Management, all adjustments necessary for a fair presentation of the condensed
consolidated financial statements have been included and are of a normal
recurring nature. The accompanying unaudited condensed consolidated financial
statements have been prepared also in accordance with the instructions to Form
10-Q and Rule 10-01 of Regulations S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The statements include information
required for interim financial statements.
2. The results of operations for the nine months ended September 30, 2003 and
2002, are not necessarily indicative of the results to be expected for the full
year.
3. Per share data is based on the weighted average shares of common stock
outstanding of 5,564,641 and 5,607,913 for the nine months ended September 30,
2003 and 2002, respectively.
4. At September 30, 2003 and 2002, the total recorded investment in impaired
loans amounted to $6,962,000 and $6,557,000. The average recorded investment in
impaired loans amounted to approximately $6,947,000 and $6,273,000 at September
30, 2003 and 2002, respectively. The amount of that recorded investment in
impaired loans for which there is a related allowance for loan losses was
$6,962,000 at September 30, 2003. The allowance for losses related to these
loans amounted to approximately $1,120,000 at September 30, 2003. Interest not
accrued on these loans amounted to $219,000 and $168,000 for the nine months
ended September 30, 2003 and 2002, respectively.
5. Transactions in the allowance for loan losses were as follows:
For the Nine For the Year For the Nine
Months Ended Ended Months Ended
September 30, December 31, September 30,
2003 2002 2002
--------------------- ---------------------- ----------------------
Balance, beginning of period $ 6,696,911 $ 5,658,210 $ 5,658,210
Recoveries 507,596 675,491 523,055
Loans charged off (1,184,829) (2,064,790) (1,824,165)
Provision for loan losses 383,044 2,428,000 748,776
--------------------- ---------------------- ----------------------
Balance, end of period $ 6,402,722 $ 6,696,911 $ 5,105,876
===================== ====================== ======================
Page 10 of 20
6. The Company has defined cash and cash equivalents to include cash and due
from banks. The Company paid $4,636,000 and $7,808,000 for the nine months ended
September 30, 2003 and 2002, respectively, and $9,929,000 for the twelve months
ended December 31, 2002, for interest on deposits and borrowings. Income tax
payments totaled $1,832,000 and $1,410,000 for the nine months ended September
30, 2003 and 2002, respectively, and $1,640,000 for the twelve months ended
December 31, 2002. Loans transferred to other real estate amounted to $750,000
and $960,000 for the nine months ended September 30, 2003 and 2002,
respectively, and $984,000 for the twelve months ended December 31, 2002.
7. The income tax effect on the accumulated other comprehensive income was
($625,000) and $124,000 at September 30, 2003 and 2002, respectively.
Page 11 of 20
Independent Accountants' Review Report
Board of Directors
Peoples Financial Corporation
Biloxi, Mississippi
We have reviewed the accompanying condensed consolidated balance sheets of
Peoples Financial Corporation as of September 30, 2003, September 30, 2002 and
December 31, 2002, and the related condensed consolidated statements of income,
shareholders' equity, and cash flows for the nine months ended September 30,
2003 and September 30, 2002. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheets of
Peoples Financial Corporation as of December 31, 2002, and the related
consolidated statements of income, shareholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated January 17,
2003, except for Note P as to which the date was February 18, 2003, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 2002, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ Piltz, Williams, LaRosa & Co.
PILTZ, WILLIAMS, LAROSA & CO.
November 4, 2003
Biloxi, Mississippi
Page 12 of 20
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 nine months ended September 30, 2003 and
2002. These comments highlight the significant events and should be considered
in combination with the Condensed Consolidated Financial Statements included in
this report on Form 10-Q.
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 from 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.
OVERVIEW
Net income for the nine months ended September 30, 2003 was $3,636,000 compared
with $2,470,000 for the same period in 2002. Net interest income improved from
$13,184,000 for the nine months ended September 30, 2002 to $14,317,000 for the
nine months ended September 30, 2003 as the Company continues its interest rate
management policies begun in 2002, particularly with respect to rates paid on
deposits. Also, the provision for loan losses was $ 749,000 for the nine months
ended September 30, 2002, as compared to $383,000 for the nine months ended
September 30, 2003, as the Company has previously identified and provided for
potential significant loan losses before January 1, 2003.
The following schedule compares financial highlights for the nine months ended
September 30, 2003 and 2002:
For the nine months ended September 30, 2003 2002
--------------------------------------- -------- --------
Net income per share $ 0.65 $ 0.44
Book value per share $ 14.94 $ 14.63
Return on average total assets .85% .57%
Return on average shareholders' equity 5.88% 4.07%
Allowance for loan losses as a % of loans,
net of unearned discount 2.24% 1.57%
Page 13 of 20
FINANCIAL CONDITION
HELD TO MATURITY SECURITIES
Held to maturity securities decreased $11,235,000 at September 30, 2003, as
compared with September 30, 2002, as a result of the management of the Company's
liquidity position. Funds available from the maturity of these securities were
generally invested in available for sale securities. Gross unrealized gains for
held to maturity securities were $204,000 and $559,000 at September 30, 2003 and
2002, respectively. The following schedule reflects the mix of the held to
maturity investment portfolio at September 30, 2003 and 2002:
September 30, 2003 2002
- ------------------------- ------------------------ -------------------------
Amount % Amount %
----------- ---- ------------ -------
U. S. Treasury securities $ 999,645 14% $ 5,996,769 32%
U. S. Government agencies 3,000,000 40% 8,001,423 43%
States and political
subdivisions 3,354,688 46% 4,591,113 25%
----------- ---- ------------ -------
Totals $ 7,354,333 100% $ 18,589,305 100%
=========== ==== ============ =======
AVAILABLE FOR SALE SECURITIES
Available for sale securities increased $75,961,000 at September 30, 2003, as
compared with September 30, 2002, as the result of the management of the
Company's liquidity position, as discussed above. Gross unrealized gains were
$2,361,000 and $3,073,000 at September 30, 2003 and 2002, respectively, and
gross unrealized losses were $1,189,000 and $7,000 at September 30, 2003 and
2002, respectively. The following schedule reflects the mix of available for
sale securities at September 30, 2003 and 2002:
September 30, 2003 2002
- --------------------------------- -------------------------- -------------------------
Amount % Amount %
------------- ---- ------------ -------
U. S. Treasury securities $ 55,514,592 25% $ 49,544,202 34%
U. S. Government agencies 157,581,451 70% 91,264,968 62%
States and political subdivisions 6,385,248 3% 2,451,317 1%
Other securities 4,362,351 2% 4,622,379 3%
------------- ---- ------------ -------
Totals $ 223,843,642 100% $147,882,866 100%
============= ==== ============ =======
Page 14 of 20
FEDERAL FUNDS SOLD
The Company invests in Federal funds sold, as it deems necessary, in the
management of the bank subsidiary's liquidity position.
LOANS
Loans decreased $38,561,000 at September 30, 2003, as compared with September
30, 2002. This decrease is the result of the decreased loan demand in the
Company's trade area caused by the softening of the local economy. Another
contributing factor is the refinancing of loans in our trade area's highly
competitive interest rate environment. The Company anticipates that loan demand
will continue to be flat or slightly decrease throughout the remainder of 2003.
Funds that are available to fund loan demand are presently invested primarily in
available for sale securities.
OTHER REAL ESTATE
Other real estate decreased $203,000 at September 30, 2003 as compared with
September 30, 2002, due to the sale of several parcels of commercial real estate
during the last quarter of 2002 and the first three quarters of 2003.
OTHER ASSETS
Other assets increased $2,535,000 at September 30, 2003, as compared with
September 30, 2002, primarily due to an increase in deferred income taxes of
$1,100,000, which was the result of unrealized losses on available for sale
securities. This increase in other assets is also due to the investment of
$800,000 in bank owned life insurance to fund deferred compensation plans to
executive officers and directors.
DEPOSITS
Total deposits decreased $12,581,000 at September 30, 2003, as compared with
September 30, 2002. Significant increases or decreases in total deposits and/or
significant fluctuations among the different types of deposits from quarter to
quarter are anticipated by Management as customers in the casino industry and
county and municipal areas reallocate their resources periodically. As discussed
above, the Company has managed its funds including planning the timing and
classification of investment maturities and using other funding sources and
their maturity so as to achieve appropriate liquidity. Specifically, the Company
obtained brokered deposits of $30,000,000 during the third quarter of 2000. The
last of these deposits matured during the third quarter of 2003. The Company
currently does not plan to obtain further brokered deposits.
ACCRUED INTEREST PAYABLE
Accrued interest payable decreased $253,000 at September 30, 2003, as compared
with September 30, 2002 as a result of the decline in interest rates paid on
deposits.
FEDERAL FUNDS PURCHASED
Federal funds purchased increased $24,493,000 at September 30, 2003, as compared
with September 30, 2002, in the management of the Company's liquidity position
and the reallocation of funds by certain customers between deposit and
non-deposit products.
OTHER LIABILITIES
Other liabilities increased $707,000 at September 30, 2003, as compared with
September 30, 2002, primarily as a result of an increase in liabilities related
to deferred compensation benefits for a retired officer and current officers and
directors of the bank subsidiary.
Page 15 of 20
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
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.
One measure of capital adequacy is the primary capital ratio which was 15.67% at
September 30, 2003, as compared with 14.97% at September 30, 2002. These ratios
are well above the regulatory minimum of 6.00%. Management continues to
emphasize the importance of maintaining the appropriate capital levels of the
Company.
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. The following
schedule summarizes net interest earnings and net yield on interest earning
assets:
Net Interest Earnings and Net Yield on Interest Earning Assets
Nine Months Ended September 30, (In
thousands, except percentages) 2003 2002
- ----------------------------------- --------- ----------
Total interest income (1) $ 19,055 $ 21,033
Total interest expense 4,600 7,713
--------- ----------
Net interest earnings $ 14,455 $ 13,320
========= ==========
Net yield on interest earning assets 3.83% 3.44%
========= ==========
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 2003 and 2002.
The schedule on page 17 provides an analysis of the change in total interest
income and total interest expense for the nine months ended September 30, 2003
and 2002.
Page 16 of 20
Analysis of Changes in Interest Income and Interest Expense
(In Thousands)
For the Nine For the Nine
Months Months Attributable To:
Ended Ended ------------------------------------------
September September Increase Rate/
30, 2003 30, 2002 (Decrease) Volume Rate Volume
------------ ------------ ------------------------------------------
INTEREST
INCOME: (1)
Loans (2) $ 13,119 $ 15,203 $ (2,084) $ (1,477) $ (672) $ 65
Federal funds sold 59 172 (113) (147) 228 (194)
Held to maturity:
Taxable securities 287 779 (492) (472) (50) 30
Non-taxable securities 226 293 (67) (85) 25 (7)
Available for sale:
Taxable securities 4,987 4,236 751 1,255 (389) (115)
Non-taxable
securities 183 107 76 214 (46) (92)
Other securities 194 243 (49) (1) (48)
-----------------------------------------------------------------------
Total $ 19,055 $ 21,033 $ (1,978) $ (713) $ (952) $ (313)
=======================================================================
INTEREST
EXPENSE:
Savings and negotiable
interest bearing
deposits $ 1,180 $ 1,935 $ (755) $ (288) $ (549) $ 82
Time deposits 2,364 4,566 (2,202) (936) (1,592) 326
Borrowings from FHLB 321 276 45 138 (62) (31)
Federal funds
purchased and
securities sold under
agreements to
repurchase 729 930 (201) 99 (271) (29)
Mortgage
indebtedness 6 6
-----------------------------------------------------------------------
Total $ 4,600 $ 7,713 $ (3,113) $ (987) $ (2,474) $ 348
=======================================================================
(1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 2003 and 2002.
(2) Loan fees are included in these figures. Includes nonaccrual loans.
Page 17 of 20
PROVISION FOR LOAN LOSSES
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. A
thorough analysis of current economic conditions and the quality of the loan
portfolio are conducted on a quarterly basis using the latest available
information. These analyses are utilized in the computation of the adequacy of
the allowance for loan losses. Based on these analyses, the Company provided
$383,000 and $749,000 during the nine months ended September 30, 2003 and 2002,
respectively, for loan losses. Although it does not anticipate that further loan
loss provisions will be required in 2003, the Company will continue to closely
monitor the allowance and will provide for such losses as deemed necessary.
TRUST DEPARTMENT INCOME AND FEES
Trust department income and fees increased $418,000 for the nine months ended
September 30, 2003, as compared with the nine months ended September 30, 2002.
This increase was due to the change in accounting for corporate bond fee income
from a cash basis to accrual basis in 2003.
OTHER INCOME
Other income decreased $524,000 for the nine months ended September 30, 2003, as
compared with the nine months ended September 30, 2002, primarily as a result of
the income realized in 2002 from proceeds from whole life insurance owned by the
bank subsidiary.
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 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,
payments 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. As discussed previously, the Company has
utilized non-traditional sources of funds including brokered certificates of
deposit and borrowings from the Federal Home Loan Bank. These additional sources
have allowed the Company to satisfy its liquidity needs. The Company will
continue to utilize these sources of funds throughout 2003, as necessary.
ITEM 4: CONTROLS AND PROCEDURES
Based on their evaluation, as of September 30, 2003, our Chief Executive Officer
and Chief Financial Officer have concluded that our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(c) and 15d-15(c) and
internal control over financial reporting (as defined in Exchange Act Rules 13a
- - 15(f) and 15d - 15(f)) are effective. During the period ending September 30,
2003, there were no changes in internal controls over financial reporting that
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
Page 18 of 20
PART II
OTHER INFORMATION
Item 5 - Other Information
In October 2003, a lawsuit was filed again the Company's bank subsidiary. This
litigation, which specifies damages of $1,500,000 and punitive damages of
$12,500,000, has been filed by an insurance company trying to reverse a
settlement it voluntarily agreed to in 2000. The bank subsidiary intends to
vigorously contest the allegations of the complaint. The Company replied to
media inquiries about this matter in its statement dated October 16, 2003, which
was filed as an exhibit to Form 8-K on October 17, 2003.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 23 Consent of Certified Public Accountants
Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. ss. 1350
Exhibit 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. ss. 1350.
(b) Reports on Form 8-K
A Form 8-K was filed by the Company on October 17, 2003.
Page 19 of 20
SIGNATURES
Pursuant to the requirement 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: November 7, 2003
By: /s/ Chevis C. Swetman
--------------------------------
Chevis C. Swetman
Chairman, President and Chief Executive Officer
Date: November 7, 2003
By: /s/ Lauri A. Wood
-------------------------------
Lauri A. Wood
Chief Financial Officer and Controller
(principal financial and accounting officer)
Page 20 of 20