e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended June 30, 2008
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-12103
PEOPLES FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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Mississippi
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64-0709834 |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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Lameuse and Howard Avenues, Biloxi, Mississippi
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39533 |
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(Address of principal executive offices)
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(Zip Code) |
(228) 435-5511
(Registrants 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
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer þ |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the last practicable date. Peoples Financial Corporation has only one class of common stock
authorized. At July 31, 2008, there were 15,000,000 shares of $1 par value common stock
authorized, and 5,330,390 shares issued
and outstanding.
Part 1 Financial Information
Item 1: Financial Statements
Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Condition
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June 30, 2008 |
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December 31, 2007 |
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(Unaudited) |
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(Audited) |
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Assets |
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Cash and due from banks |
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$ |
38,023,789 |
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$ |
34,665,370 |
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Federal funds sold |
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810,000 |
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270,000 |
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Available for sale securities |
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327,756,116 |
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387,028,925 |
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Held to maturity securities, fair value of
$3,438,637 at June 30, 2008;
$4,676,471 at December 31, 2007 |
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3,392,881 |
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4,629,992 |
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Other investments |
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3,160,000 |
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Federal Home Loan Bank Stock, at cost |
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928,100 |
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936,200 |
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Loans |
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472,964,561 |
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450,992,074 |
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Less: Allowance for loan losses |
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9,327,780 |
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9,378,137 |
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Loans, net |
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463,636,781 |
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441,613,937 |
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Bank premises and equipment, net
of accumulated depreciation |
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34,861,451 |
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34,410,789 |
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Accrued interest receivable |
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6,411,661 |
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7,371,216 |
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Cash surrender value of life insurance |
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14,408,531 |
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13,578,536 |
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Other assets |
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3,147,524 |
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2,851,608 |
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Total assets |
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$ |
896,536,834 |
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$ |
927,356,573 |
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2
Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Condition (continued)
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June 30, 2008 |
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December 31, 2007 |
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(Unaudited) |
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(Audited) |
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Liabilities & Shareholders Equity |
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Liabilities: |
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Deposits: |
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Demand, non-interest bearing |
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$ |
121,021,954 |
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$ |
113,916,041 |
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Savings and demand, interest bearing |
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264,908,659 |
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231,435,685 |
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Time, $100,000 or more |
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123,004,126 |
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166,078,473 |
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Other time deposits |
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55,687,734 |
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57,700,280 |
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Total deposits |
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564,622,473 |
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569,130,479 |
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Federal funds purchased and securities sold under
agreements to repurchase |
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205,356,130 |
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231,225,118 |
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Borrowings from Federal Home Loan Bank |
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7,018,242 |
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7,100,305 |
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Other liabilities |
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14,013,402 |
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13,359,047 |
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Total liabilities |
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791,010,247 |
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820,814,949 |
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Shareholders Equity: |
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Common stock, $1 par value, 15,000,000 shares
authorized, 5,340,355 and 5,420,204 shares issued
and outstanding at June 30, 2008 and December 31,
2007, respectively |
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5,340,355 |
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5,420,204 |
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Surplus |
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65,780,254 |
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65,780,254 |
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Undivided profits |
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35,446,170 |
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34,458,291 |
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Accumulated other comprehensive income, net of tax |
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(1,040,192 |
) |
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882,875 |
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Total shareholders equity |
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105,526,587 |
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106,541,624 |
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Total liabilities & shareholders equity |
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$ |
896,536,834 |
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$ |
927,356,573 |
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See selected notes to consolidated financial statements.
3
Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
Interest income: |
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Interest and fees on loans |
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$ |
6,675,902 |
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$ |
8,422,725 |
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$ |
14,108,247 |
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$ |
16,212,614 |
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Interest and dividends on
securities: |
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|
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U. S. Treasury |
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776,286 |
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|
1,152,278 |
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1,590,226 |
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2,467,589 |
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U.S. Government agencies |
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2,700,844 |
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4,144,884 |
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5,714,331 |
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8,416,417 |
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Mortgage-backed securities |
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|
435,554 |
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|
253,532 |
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|
896,926 |
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|
333,597 |
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States and politicial
subdivisions |
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|
249,196 |
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|
233,953 |
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|
509,246 |
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|
457,115 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other investments |
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|
38,063 |
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|
42,688 |
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|
100,980 |
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|
106,171 |
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|
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|
|
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|
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|
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|
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|
Interest on federal funds sold |
|
|
25,258 |
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|
|
30,602 |
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|
62,070 |
|
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|
81,711 |
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|
|
|
|
|
|
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|
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|
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|
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|
Total interest income |
|
|
10,901,103 |
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|
14,280,662 |
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|
22,982,026 |
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|
28,075,214 |
|
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|
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|
Interest expense: |
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Deposits |
|
|
2,618,729 |
|
|
|
3,704,829 |
|
|
|
5,837,741 |
|
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|
7,231,163 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Long-term borrowings |
|
|
117,531 |
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|
165,304 |
|
|
|
239,765 |
|
|
|
279,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and
securities
sold under agreements to
repurchase |
|
|
1,081,298 |
|
|
|
2,845,117 |
|
|
|
2,619,692 |
|
|
|
5,570,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total interest expense |
|
|
3,817,558 |
|
|
|
6,715,250 |
|
|
|
8,697,198 |
|
|
|
13,081,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
7,083,545 |
|
|
|
7,565,412 |
|
|
|
14,284,828 |
|
|
|
14,994,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for allowance for
losses
on loans |
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|
48,000 |
|
|
|
51,000 |
|
|
|
94,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision
for allowance for losses on
loans |
|
$ |
7,035,545 |
|
|
$ |
7,514,412 |
|
|
$ |
14,190,828 |
|
|
$ |
14,894,035 |
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|
|
|
4
Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income (continued)
(Unaudited)
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust department income
and fees |
|
$ |
434,025 |
|
|
$ |
449,625 |
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|
$ |
829,115 |
|
|
$ |
898,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on
deposit accounts |
|
|
1,729,375 |
|
|
|
1,631,897 |
|
|
|
3,421,835 |
|
|
|
3,303,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sales or
calls of securites |
|
|
27,629 |
|
|
|
(603,022 |
) |
|
|
115,277 |
|
|
|
(619,015 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
439,686 |
|
|
|
483,204 |
|
|
|
802,280 |
|
|
|
1,028,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
2,630,715 |
|
|
|
1,961,704 |
|
|
|
5,168,507 |
|
|
|
4,611,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee
benefits |
|
|
3,611,848 |
|
|
|
3,478,055 |
|
|
|
7,077,246 |
|
|
|
6,865,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net occupancy |
|
|
467,333 |
|
|
|
541,789 |
|
|
|
1,007,158 |
|
|
|
919,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentals, depreciation and
maintenance |
|
|
872,248 |
|
|
|
834,905 |
|
|
|
1,794,301 |
|
|
|
1,618,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense |
|
|
1,452,833 |
|
|
|
1,425,117 |
|
|
|
3,090,232 |
|
|
|
2,902,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
6,404,262 |
|
|
|
6,279,866 |
|
|
|
12,968,937 |
|
|
|
12,306,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
3,261,998 |
|
|
|
3,196,250 |
|
|
|
6,390,398 |
|
|
|
7,199,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
1,084,000 |
|
|
|
1,210,000 |
|
|
|
2,123,000 |
|
|
|
2,498,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
2,177,998 |
|
|
$ |
1,986,250 |
|
|
$ |
4,267,398 |
|
|
$ |
4,701,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings
per share |
|
$ |
.41 |
|
|
$ |
.36 |
|
|
$ |
.79 |
|
|
$ |
.85 |
|
|
|
|
See selected notes to consolidated financial statements.
5
Peoples Financial Corporation and Subsidiaries
Consolidated Statement of Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Common |
|
|
Common |
|
|
|
|
|
|
Undivided |
|
|
Comprehensive |
|
|
Comprehensive |
|
|
|
|
|
|
Shares |
|
|
Stock |
|
|
Surplus |
|
|
Profits |
|
|
Income |
|
|
Income |
|
|
Total |
|
|
|
|
Balance, January 1,
2008 |
|
|
5,420,204 |
|
|
$ |
5,420,204 |
|
|
$ |
65,780,254 |
|
|
$ |
34,458,291 |
|
|
$ |
882,875 |
|
|
|
|
|
|
$ |
106,541,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,267,398 |
|
|
|
|
|
|
$ |
4,267,398 |
|
|
|
4,267,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss
on
available for sale
securities, net of
tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,542,565 |
) |
|
|
(2,542,565 |
) |
|
|
(2,542,565 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
adjustment for
available
for sale securities
called
or sold in current
year,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76,083 |
) |
|
|
(76,083 |
) |
|
|
(76,083 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from unfunded
post-
retirement benefit
obligation, net of
tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
695,581 |
|
|
|
695,581 |
|
|
|
695,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,344,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect
adjustment
from
adoption of EITF
06-04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,732 |
) |
|
|
|
|
|
|
|
|
|
|
(56,732 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of stock retirement
on accrued dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,868 |
|
|
|
|
|
|
|
|
|
|
|
5,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend declared,
($ .29 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,548,703 |
) |
|
|
|
|
|
|
|
|
|
|
(1,548,703 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of stock |
|
|
(79,849 |
) |
|
|
(79,849 |
) |
|
|
|
|
|
|
(1,679,952 |
) |
|
|
|
|
|
|
|
|
|
|
(1,759,801 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2008 |
|
|
5,340,355 |
|
|
$ |
5,340,355 |
|
|
$ |
65,780,254 |
|
|
$ |
35,446,170 |
|
|
$ |
(1,040,192 |
) |
|
|
|
|
|
$ |
105,526,587 |
|
|
|
|
|
|
|
|
|
|
|
Note: Balances as of January 1, 2008 were audited.
See
selected notes to consolidated financial statements.
6
Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,267,398 |
|
|
$ |
4,701,573 |
|
|
|
|
|
|
|
|
|
|
Adjustment to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
1,097,500 |
|
|
|
910,000 |
|
Provision for allowance for loan losses |
|
|
94,000 |
|
|
|
100,000 |
|
Gain on sale of bank premises |
|
|
(142,607 |
) |
|
|
(417,107 |
) |
Gain on sale of other real estate |
|
|
|
|
|
|
(10,470 |
) |
(Gain) loss on sales and calls of securities |
|
|
(115,277 |
) |
|
|
619,015 |
|
Change in accrued interest receivable |
|
|
959,555 |
|
|
|
(270,777 |
) |
Change in other assets |
|
|
776,622 |
|
|
|
(866,793 |
) |
Change in other liabilities |
|
|
776,346 |
|
|
|
(7,810,083 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
7,713,537 |
|
|
|
(3,044,642 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities, sales and calls of available for
sale securities |
|
|
138,371,132 |
|
|
|
105,881,327 |
|
Investment in available for sale securities |
|
|
(82,129,694 |
) |
|
|
(124,481,485 |
) |
Proceeds from maturities of held to maturity securities |
|
|
1,240,000 |
|
|
|
75,390,000 |
|
Investment in held to maturity securities |
|
|
(2,889 |
) |
|
|
(5,508,486 |
) |
Purchases of other investments |
|
|
(3,160,000 |
) |
|
|
|
|
(Investment in) redemption of Federal Home Loan Bank Stock |
|
|
8,100 |
|
|
|
(29,600 |
) |
Proceeds from sales of other real estate |
|
|
19,500 |
|
|
|
55,000 |
|
Loans, net change |
|
|
(22,264,844 |
) |
|
|
(28,736,474 |
) |
Proceeds from sale of bank premises |
|
|
266,812 |
|
|
|
474,907 |
|
Acquisition of premises and equipment |
|
|
(1,672,367 |
) |
|
|
(5,551,234 |
) |
Other assets |
|
|
(814,423 |
) |
|
|
(344,428 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by investing activities |
|
$ |
29,861,327 |
|
|
$ |
17,149,527 |
|
|
|
|
|
|
|
|
7
Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and savings deposits, net change |
|
$ |
40,578,887 |
|
|
$ |
44,782,320 |
|
Time deposits, net change |
|
|
(45,086,893 |
) |
|
|
10,756,175 |
|
Cash dividends |
|
|
(1,457,587 |
) |
|
|
(1,276,086 |
) |
Retirement of common stock |
|
|
(1,759,801 |
) |
|
|
(815,875 |
) |
Borrowings from Federal Home Loan Bank |
|
|
12,000,000 |
|
|
|
35,850,030 |
|
Repayments to Federal Home Loan Bank |
|
|
(12,082,063 |
) |
|
|
(29,135,201 |
) |
Federal funds purchased and securities sold
under agreements to repurchase, net change |
|
|
(25,868,988 |
) |
|
|
(28,889,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(33,676,445 |
) |
|
|
31,271,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
3,898,419 |
|
|
|
45,376,696 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
|
34,935,370 |
|
|
|
44,193,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
38,833,789 |
|
|
$ |
89,570,189 |
|
|
|
|
|
|
|
|
See selected notes to consolidated financial statements.
8
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2008 and 2007
1. Basis of Presentation:
The accompanying unaudited consolidated financial statements and notes thereto contain all
adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in
accordance with accounting principles generally accepted in the United States of America, the
financial position of Peoples Financial Corporation and its subsidiaries (the Company) as of June
30, 2008 and the results of their operations and their cash flows for the periods presented. The
interim financial information should be read in conjunction with the annual consolidated financial
statements and the notes thereto included in the Companys 2007 Annual Report and Form 10-K.
The results of operations for the six months ended June 30, 2008, are not necessarily indicative of
the results to be expected for the full year.
Use of
Estimates - The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reported period. Actual results could differ
from those estimates.
Summary of
Significant Accounting Policies - The accounting and reporting policies of the Company
conform with accounting principles generally accepted in the United States of America and general
practices within the banking industry. With the exception of the adoption of new accounting
pronouncements as discussed in Note 8, there have been no material changes or developments in the
application of principles or in our evaluation of the accounting estimates and the underlying
assumptions or methodologies that we believe to be Critical Accounting Policies as disclosed in our
Form 10-K for the year ended December 31, 2007.
2. Earnings Per Share:
Per share data is based on the weighted average shares of common stock outstanding of 5,379,112 and
5,541,765 for the six months ended June 30, 2008 and 2007, respectively, and 5,361,327 and
5,535,402 for the quarters ended June 30, 2008 and 2007, respectively.
3. Statements of Cash Flows:
The Company has defined cash and cash equivalents to include cash and due from banks and federal
funds sold. The Company paid $9,007,014 and $13,029,585 for the six months ended June 30, 2008 and
2007, respectively, for interest on deposits and borrowings. Income tax payments of $500,000 and
$3,444,000 were made during the six months ended June 30, 2008 and 2007, respectively. Loans in
the amount of $148,000 were transferred to other real estate during the six months ended June 30,
2008. There were no loans transferred to other real estate during the six months ended June 30,
2007.
9
4. Investments:
Securities with gross unrealized losses at June 30, 2008, aggregated by investment category and
length of time that individual securities have been in a continuous
loss position are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Twelve Months |
|
Over Twelve Months |
|
Total |
|
|
|
|
|
|
Gross |
|
|
|
|
|
Gross |
|
|
|
|
|
Gross |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
Unrealized |
|
|
|
|
|
Unrealized |
|
|
Fair Value |
|
Loss |
|
Fair Value |
|
Loss |
|
Fair Value |
|
Loss |
|
|
|
U.S. Government
Agencies |
|
$ |
83,222,180 |
|
|
$ |
1,498,182 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
83,222,180 |
|
|
$ |
1,498,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities |
|
|
24,151,931 |
|
|
|
308,322 |
|
|
|
|
|
|
|
|
|
|
|
24,151,931 |
|
|
|
308,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political
subdivisions |
|
|
12,164,684 |
|
|
|
356,198 |
|
|
|
1,159,950 |
|
|
|
88,369 |
|
|
|
13,324,634 |
|
|
|
444,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC preferred stock |
|
|
|
|
|
|
|
|
|
|
1,594,807 |
|
|
|
1,480,193 |
|
|
|
1,594,807 |
|
|
|
1,480,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
119,538,795 |
|
|
$ |
2,162,702 |
|
|
$ |
2,754,757 |
|
|
$ |
1,568,562 |
|
|
$ |
122,293,552 |
|
|
$ |
3,731,264 |
|
|
|
|
Management evaluates securities for other-than-temporary impairment on a monthly basis. In
performing this evaluation, the length of time and the extent to which the fair value has been less
than cost and the fact that the Companys securities are primarily issued by U.S. Treasury and U.S.
Government Agencies are considered. In addition, the Company assesses the cause of the decline in
value and the intent and ability of the Company to hold these securities until maturity. While
some available for sale securities have been sold for liquidity purposes, the Company has
traditionally held its securities, including those classified as available for sale, until
maturity. As a result of this evaluation, the Company has determined that the declines summarized
in the table above are not deemed to be other-than-temporary.
5. Past Due and Impaired Loans:
Loans past due ninety days or more and still accruing were $957,295 and $1,233,761 at June 30, 2008
and December 31, 2007, respectively.
Impaired loans include performing and non-performing loans for which full payment of principal or
interest is not expected. At June 30, 2008 and December 31, 2007, performing loans which were
classified as impaired loans totaled $11,670,612 and $11,654,527, respectively. At June 30, 2008
and December 31, 2007, non-performing loans which were classified as impaired loans included
nonaccrual loans which amounted to $4,868,673 and $44,612, respectively. The total average recorded
investment in impaired loans amounted to approximately $16,789,234 and $11,092,658 at June 30, 2008
and December 31, 2007, respectively. The Company had $5,098,035 and $5,642,719 of specific
allowance related to impaired loans at June 30, 2008 and December 31, 2007, respectively. Interest
income recognized on impaired loans was $326,763 and $621,290 during the six months ended June 30,
2008 and the year ended December 31, 2007, respectively.
Interest income recognized on impaired loans if the Company had used the cash-basis
method of accounting
10
would have been $336,696 and $669,971 during the six months ended June 30, 2008 and the year ended
December 31, 2007, respectively.
6. Allowance for Loan Losses:
Transactions in the allowance for loan losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
Balance, beginning of period |
|
$ |
9,404,270 |
|
|
$ |
10,854,058 |
|
|
$ |
9,378,137 |
|
|
$ |
10,841,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries |
|
|
211,039 |
|
|
|
66,486 |
|
|
|
279,130 |
|
|
|
130,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged off |
|
|
(335,529 |
) |
|
|
(107,278 |
) |
|
|
(423,487 |
) |
|
|
(207,746 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for allowance for loan losses |
|
|
48,000 |
|
|
|
51,000 |
|
|
|
94,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
9,327,780 |
|
|
$ |
10,864,266 |
|
|
$ |
9,327,780 |
|
|
$ |
10,864,266 |
|
|
|
|
7. Other Comprehensive Income:
The income
tax effect from the unrealized loss on available for sale securities on accumulated
other comprehensive income was ($1,349,000) at June 30, 2008. The income tax effect from the gain
on unfunded post-retirement benefit obligation on accumulated other comprehensive income was
$358,330 at June 30, 2008.
8. New Accounting Pronouncements:
The Company adopted Financial Accounting Standards Board Statement No. 157, Fair Value
Measurement (SFAS 157) at January 1, 2008. There was no material impact to the financial
statements presented herein as a result of this adoption. SFAS 157 applies to all assets and
liabilities that are being measured and reported on a fair value basis. SFAS 157 requires new
disclosure that establishes a framework for measuring fair value in accounting principles generally
accepted in the United States of America, and expands disclosure about fair value measurements.
This statement enables the reader of the financial statements to assess the inputs used to develop
those measurements by establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values.
The statement requires that assets and liabilities carried at fair value will be classified and
disclosed in one of the following three categories: Level 1 Quoted market prices in active
markets for identical assets or liabilities, Level 2 Observable market based inputs or
unobservable inputs that are corroborated by market data, or Level 3 Unobservable inputs that are
not corroborated by market data. In determining the appropriate levels, a detailed analysis of the
assets and liabilities that are subject to SFAS 157 is performed. At each reporting period, all
assets and liabilities for which the fair value measurement is based on significant unobservable
inputs are classified as Level 3.
11
The Companys available for sale securities are reported at their estimated fair value, which is
determined utilizing several sources. The primary source is Interactive Data Corporation, which
utilizes pricing models that vary based by asset class and include available trade, bid and other
market information and whose methodology includes broker quotes, proprietary modes and vast
descriptive databases. The other source for determining fair value is matrix pricing, which is a
mathematical technique used widely in the industry to value debt securities without relying
exclusively on quoted prices for the specific securities but rather by relying on the securities
relationship to other benchmark quoted securities.
The table below presents the balances of available for sale securities, which are the only assets
measured at fair value on a recurring basis, by level within the hierarchy as of June 30, 2008.
The Company did not measure liabilities at fair value on a recurring basis at June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using |
|
|
|
June 30, 2008 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Available for sale
securities |
|
$ |
327,756,116 |
|
|
|
|
|
|
$ |
327,756,116 |
|
|
|
|
|
In accordance with Statement No. 115, available for sale securities with an amortized cost of
$329,244,029 were reported at June 30, 2008 at a fair value, net of unrealized gains and losses, of
$327,756,116. The net change in unrealized gains and losses of $2,618,648 was included in
comprehensive income during the first six months of 2008.
At each reporting period, the Company determines which loans are impaired. Accordingly, the
Companys impaired loans are reported at their estimated fair value on a non-recurring basis. An
allowance for each impaired loan, which are generally collateral-dependent, is calculated based on
the fair value of its collateral. The fair value of the collateral is based on appraisals
performed by third-party valuation specialists. Factors including the assumptions and techniques
utilized by the appraiser are considered by Management. If the recorded investment in the impaired
loan exceeds the measure of fair value of the collateral, a valuation allowance is recorded as a
component of the allowance for loan losses.
The table below presents the balances of impaired loans, which are the only assets measured at fair
value on a non-recurring basis, by level within the hierarchy as of June 30, 2008. The Company
did not measure liabilities at fair value on a non-recurring basis at June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using |
|
|
|
June 30, 2008 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Impaired loans |
|
$ |
11,441,250 |
|
|
|
|
|
|
$ |
11,441,250 |
|
|
|
|
|
In accordance with the provisions of Statement No. 114, impaired loans with a carrying amount of
$16,539,285 were written down to their fair value of $11,441,250, through a $5,098,035
charge to the provision for loan losses in prior periods.
12
The Company adopted Emerging Issue Task Force Issue No. 06-4, Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements, (EITF
06-4) at the beginning of our 2008 fiscal year. EITF 06-4 requires the accrual of the
post-retirement benefit over the service period for deferred compensation plans funded through
endorsement split-dollar life insurance. The Company is the owner and beneficiary of two
endorsement split dollar policies which provide a guaranteed death benefit to the participants
beneficiaries. As a result of adopting EITF 06-4 at January 1, 2008, a cumulative effect
adjustment to retained earnings of $56,732 was recorded.
9. Reclassifications:
Certain reclassifications, which had no effect on prior year net income, have been made to prior
period statements to conform to current year presentation.
13
Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
The Company is a one-bank holding company headquartered in Biloxi, Mississippi. It has two
operating subsidiaries, PFC Service Corp. and The Peoples Bank, Biloxi, Mississippi (the Bank).
The Bank provides a full range of banking, financial and trust services to state, county and
local government entities and individuals and small and commercial businesses in Harrison, Hancock,
Stone and Jackson counties in Mississippi.
The following presents Managements discussion and analysis of the consolidated financial condition
and results of operations of Peoples Financial Corporation and Subsidiaries. These comments
should be considered in combination with the Consolidated Financial Statements and Notes to
Consolidated Financial Statements included in this report on Form 10-Q and the Consolidated
Financial Statements, Notes to Consolidated Financial Statements and Managements Discussion and
Analysis included in the Companys Form 10-K for the year ended December 31, 2007.
Forward-Looking Information
Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage
corporations to provide information about a companys 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 Companys actual results and experience to differ from the anticipated
results and expectations
expressed in such forward-looking statements. Such factors and uncertainties include, but are not
limited to: changes in interest rates and market prices, changes in local economic and business
conditions, increased competition for deposits and loans, a deviation in actual experience from the
underlying assumptions used to determine and establish the allowance for loan losses, changes in
the availability of funds resulting from reduced liquidity, changes in government regulations and
acts of terrorism, weather or other events beyond the Companys control.
Critical Accounting Policies
Certain critical accounting policies affect the more significant estimates and assumptions used in
the preparation of the consolidated financial statements. The Companys single most critical
accounting policy relates to its allowance for loan losses, which reflects the estimated losses
resulting from the inability of its borrowers to make loan payments. If there was a deterioration
of any of the factors considered by Management in evaluating the allowance for loan losses, the
estimate of loss would be updated, and additional provisions for loan losses may be required.
14
OVERVIEW
Net income for the second quarter of 2008 was $2,177,998 compared with $1,986,250 for the second
quarter of 2007. Net interest income during the second quarter of 2008 decreased $481,867 as
compared with the second quarter of 2007. During the second quarter of 2008, the Company recorded
a net gain on the sale or call of securities of $27,629 as compared with a net loss of $603,022
during the second quarter of 2007.
Net income for the first six months 2008 was $4,267,398 compared with $4,701,573 for the first six
months of 2007. Net interest income during the first six months of 2008 decreased $709,207 as
compared with the first six months of 2008. During the first half of 2008, the Company recorded a
net gain on the sale or call of securities of $115,277 as compared with a net loss of $619,015
during the first half of 2007.
Total assets decreased to $896,536,834 at June 30, 2008 from $927,356,573 at December 31, 2007.
This decrease was primarily attributable to the net decrease in available for sale securities of
$59,272,809 during the first half of 2008. This significant decrease was the result of calls of
available for sale securities of more than $112,000,000 since January 1, 2008. Proceeds from these
calls funded loan demand and liquidity needs with excess funds being invested primarily in U.S.
Agency securities.
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 Companys income. Managements objective is to provide the largest possible
amount of income while balancing interest rate, credit, liquidity and capital risk. Changes in the
volume and mix of interest earning assets and interest-bearing liabilities combined with changes in
market rates of interest directly affect net interest income.
During the first half of 2008, the Federal Open Market Committee (the Committee) dropped the
discount rate by a total of 225 basis points, which resulted in decreases in prime interest rates
during this time. The Committees actions were their attempt to stimulate the national economy and
address concerns of a looming recession. The impact of these rate reductions was significant to
the Companys financial condition and results of operations.
Quarter Ended June 30, 2008 as Compared with Quarter Ended June 30, 2007
The
Companys average interest earning assets decreased
approximately $85,784,000, or 10%, from
approximately $894,608,000 for the second quarter of 2007 to approximately $808,824,000 for the
second quarter of 2008. As a direct result of the Committees rate reductions, more than 20% of
the Companys available for sale securities portfolio were called during the first quarter of 2008.
15
Also as a result of the Committees actions, the average yield on earning assets decreased 99 basis
points, from 6.44% for the second quarter of 2007 to 5.45% for the second quarter of 2008. The
Companys loan portfolio generally has a 40%/60% blend of fixed/floating rate term. This results in
the Company being more asset sensitive to market interest rates and generally is the cause of the
decrease in interest income. In addition, the proceeds from the called securities that were
reinvested in similar securities were at lower interest rates.
Average interest bearing liabilities decreased approximately $69,029,000, or 9%, from approximately
$735,848,000 for the second quarter of 2007 to approximately $666,819,000 for the second quarter of
2008. The average rate paid on interest bearing liabilities decreased 136 basis points, from 3.65%
for the second quarter of 2007 to 2.29% for the second quarter of 2008.
The Companys trade area generally experiences a very competitive interest rate environment for
deposits. During the last two quarters of 2007, this competition ramped up significantly. In some
cases, the Company chose to not match higher rates offered to our customers by a competitor. This
strategy has resulted in a favorable improvement in the yield on interest-bearing liabilities as
well as an overall reduction in total deposits.
The Companys net interest margin on a tax-equivalent basis, which is net interest income as a
percentage of average earning assets, was 3.57% at June 30, 2008, up 13 basis points from 3.44% at
June 30, 2007.
Six Months Ended June 30, 2008 as Compared with Six Months Ended June 30, 2007
The
Companys average interest earning assets decreased approximately $74,896,000, or 8%, from
approximately $892,758,000 for the first half of 2007 to approximately $817,862,000 for the first
half of 2007. As a direct result of the Committees rate reductions, more than 20% of the
Companys available for sale securities portfolio were called during the first and second quarters
of 2008.
Also as a result of the Committees actions, the average yield on earning assets decreased 66 basis
points, from 6.34% for the first half of 2007 to 5.68% for the first half of 2008. The Companys
loan portfolio generally has a 40%/60% blend of fixed/floating rate term. This results in the
Company being more asset sensitive to market interest rates and generally is the cause of the
decrease in interest income. In addition, the proceeds from the called securities that were
reinvested in similar securities were at lower interest rates.
Average interest bearing liabilities decreased approximately $53,856,000, or 7%, from approximately
$729,014,000 for the first half of 2007 to approximately $675,158,000 for the first half of 2008.
The average rate paid on interest bearing liabilities decreased 101 basis points, from 3.59% for
the first half of 2007 to 2.58% for the first half of 2008.
The Companys trade area generally experiences a very competitive interest rate environment for
deposits. During the last two quarters of 2007, this competition ramped up significantly. In some
cases, the Company chose to not match higher rates offered to our customers by a competitor. This
strategy has resulted in a favorable improvement in the yield on interest-bearing liabilities as
well as
16
an overall reduction in total deposits.
The Companys net interest margin on a tax-equivalent basis, which is net interest income as a
percentage of average earning assets, was 3.56% at June 30,
2008, up 15 basis points from 3.41% at
June 30, 2007.
The tables on the following pages analyze the changes in tax-equivalent net interest income for the
quarters ended June 30, 2008 and 2007 and the six months ended June 30, 2008 and 2007.
17
Analysis of Average Balances, Interest Earned/Paid and Yield
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 |
|
Three Months Ended June 30, 2007 |
|
|
Average Balance |
|
Interest Earned/Paid |
|
Rate |
|
Average Balance |
|
Interest Earned/Paid |
|
Rate |
|
|
|
|
|
Loans (2)(3) |
|
$ |
463,561 |
|
|
$ |
6,676 |
|
|
|
5.76 |
% |
|
$ |
427,626 |
|
|
$ |
8,423 |
|
|
|
7.88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds Sold |
|
|
5,067 |
|
|
|
25 |
|
|
|
1.97 |
% |
|
|
2,183 |
|
|
|
31 |
|
|
|
5.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HTM: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,150 |
|
|
|
316 |
|
|
|
5.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non taxable (1) |
|
|
3,653 |
|
|
|
57 |
|
|
|
6.24 |
% |
|
|
4,837 |
|
|
|
75 |
|
|
|
6.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
306,118 |
|
|
|
3,912 |
|
|
|
5.11 |
% |
|
|
410,427 |
|
|
|
5,235 |
|
|
|
5.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non taxable (1) |
|
|
22,609 |
|
|
|
322 |
|
|
|
5.70 |
% |
|
|
18,953 |
|
|
|
279 |
|
|
|
5.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
7,816 |
|
|
|
38 |
|
|
|
1.94 |
% |
|
|
5,432 |
|
|
|
42 |
|
|
|
3.09 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
808,824 |
|
|
$ |
11,030 |
|
|
|
5.45 |
% |
|
$ |
894,608 |
|
|
$ |
14,401 |
|
|
|
6.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings & interest-
bearing DDA |
|
$ |
260,870 |
|
|
$ |
1,059 |
|
|
|
1.62 |
% |
|
$ |
276,133 |
|
|
$ |
1,346 |
|
|
|
1.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDs |
|
|
190,627 |
|
|
|
1,559 |
|
|
|
3.27 |
% |
|
|
207,896 |
|
|
|
2,359 |
|
|
|
4.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds
purchased |
|
|
207,973 |
|
|
|
1,082 |
|
|
|
2.08 |
% |
|
|
240,508 |
|
|
|
2,845 |
|
|
|
4.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances |
|
|
7,349 |
|
|
|
118 |
|
|
|
6.42 |
% |
|
|
11,311 |
|
|
|
165 |
|
|
|
5.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
666,819 |
|
|
$ |
3,818 |
|
|
|
2.29 |
% |
|
$ |
735,848 |
|
|
$ |
6,715 |
|
|
|
3.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tax-equivalent
yield on earning
assets |
|
|
|
|
|
|
|
|
|
|
3.57 |
% |
|
|
|
|
|
|
|
|
|
|
3.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2008
and 2007. |
|
(2) |
|
Loan fees of $293,340 and $148,527 for 2008 and 2007, respectively, are included in these
figures. |
|
(3) |
|
Includes nonaccrual loans. |
18
Analysis of Average Balances, Interest Earned/Paid and Yield
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008 |
|
Six Months Ended June 30, 2007 |
|
|
Average Balance |
|
Interest Earned/Paid |
|
Rate |
|
Average Balance |
|
Interest Earned/Paid |
|
Rate |
|
|
|
|
|
Loans (2)(3) |
|
$ |
456,822 |
|
|
$ |
14,108 |
|
|
|
6.18 |
% |
|
$ |
415,765 |
|
|
$ |
16,213 |
|
|
|
7.80 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds Sold |
|
|
4,825 |
|
|
|
62 |
|
|
|
2.57 |
% |
|
|
2,967 |
|
|
|
82 |
|
|
|
5.53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HTM: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,698 |
|
|
|
1,001 |
|
|
|
5.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non taxable (1) |
|
|
3,992 |
|
|
|
125 |
|
|
|
6.26 |
% |
|
|
4,933 |
|
|
|
155 |
|
|
|
6.28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
321,601 |
|
|
|
8,201 |
|
|
|
5.10 |
% |
|
|
405,738 |
|
|
|
10,216 |
|
|
|
5.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non taxable (1) |
|
|
22,636 |
|
|
|
647 |
|
|
|
5.72 |
% |
|
|
18,240 |
|
|
|
537 |
|
|
|
5.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
7,986 |
|
|
|
101 |
|
|
|
2.53 |
% |
|
|
5,417 |
|
|
|
106 |
|
|
|
3.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
817,862 |
|
|
$ |
23,244 |
|
|
|
5.68 |
% |
|
$ |
892,758 |
|
|
$ |
28,310 |
|
|
|
6.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings & interest-bearing DDA |
|
$ |
253,387 |
|
|
$ |
2,060 |
|
|
|
1.63 |
% |
|
$ |
281,986 |
|
|
$ |
2,784 |
|
|
|
1.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDs |
|
|
210,255 |
|
|
|
3,778 |
|
|
|
3.59 |
% |
|
|
201,840 |
|
|
|
4,447 |
|
|
|
4.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds
purchased |
|
|
203,600 |
|
|
|
2,620 |
|
|
|
2.57 |
% |
|
|
235,897 |
|
|
|
5,570 |
|
|
|
4.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances |
|
|
7,916 |
|
|
|
240 |
|
|
|
6.06 |
% |
|
|
9,291 |
|
|
|
280 |
|
|
|
6.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
675,158 |
|
|
$ |
8,698 |
|
|
|
2.58 |
% |
|
$ |
729,014 |
|
|
$ |
13,081 |
|
|
|
3.59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tax-equivalent
yield on earning assets |
|
|
|
|
|
|
|
|
|
|
3.56 |
% |
|
|
|
|
|
|
|
|
|
|
3.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2008
and 2007. |
|
(2) |
|
Loan fees of $409,311 and $307,027 for 2008 and 2007, respectively, are included in these
figures. |
|
(3) |
|
Includes nonaccrual loans. |
19
Provision for Loan Losses
In the normal course of business, the Company assumes risk in extending credit to its customers.
This credit risk is managed through compliance with the loan policy (the policy), which is
approved by the Board of Directors. The policy establishes guidelines relating to underwriting
standards, including but not limited to financial analysis, collateral valuation, lending limits,
pricing considerations and loan grading. A loan review process further assists with evaluating
credit quality and assessing potential performance issues. Loan delinquencies and deposit
overdrafts are closely monitored in order to identify developing problems as early as possible. In
addition, the Company continuously monitors its relationships with its loan customers in
concentrated industries such as gaming and hotel/motel, as well as the exposure for out of area
loans, and their direct and indirect impact on its operations. A watch list of credits which pose
a potential loss to the Company is prepared based on the loan grading system. This list forms the
foundation of the Companys allowance for loan loss computation.
Since Hurricane Katrina hit the Mississippi Gulf Coast in August of 2005, the Company has modified
its procedures to analyze its loan portfolio in light of the extraordinary impact of the storm on
its trade area. Specific consideration of credits and their underlying collateral were conducted
within weeks of the hurricanes landfall. Based on its evaluation, the Company recorded a
provision for loan losses of $5,055,000 during the third quarter of 2005. The Company continued to
closely monitor its portfolio during the quarters that followed, making note of the potential
impact of federal assistance, insurance availability and affordability, the pace of recovery in the
region and increasing construction costs. Another factor which was given serious consideration was
the length of time which has passed since August of 2005, since research has proven that a window
of approximately two years usually passes before potential losses from catastrophic events such as
Hurricane Katrina become apparent. Based on these factors and its ongoing analysis, the Company
recorded a negative provision of $1,250,000 during the third quarter of 2007, effectively reversing
approximately 25% of the provision recorded in 2005.
The Company continues to follow its guidelines and existing methodology for evaluating its loan
portfolio. Based on this evaluation, no provision for loan losses was recorded during the quarters
or six months ended June 2008 and 2007. The Company did record provisions during the quarters and
six months ended June 30, 2008 and 2007 relating to potential losses on overdrawn deposit accounts,
which is included in the provision for allowance for loan losses reported in the Consolidated
Statements of Income.
The allowance for loan losses is an estimate, and as such, events may occur in the future which may
affect its accuracy. The Company anticipates that it is possible that additional information will
be gathered in future quarters which may require an adjustment to the allowance for loan losses.
Management will continue to closely monitor its portfolio and take such action as it deems
appropriate to accurately report its financial condition and results of operations.
20
Non-interest income
Total non-interest income increased $669,011 for the second quarter of 2008 as compared with the
second quarter of 2007. During the second quarter of 2008, the Company recorded a net gain on the
sale or call of securities of $27,629 as compared with a net loss of $603,022 during the second
quarter of 2007.
Total non-interest income increased $556,832 for the first half of 2008 as compared with the first
half of 2007. During the first half of 2008, the Company recorded a net gain on the sale or call
of securities of $115,277 as compared with a net loss of $619,015 during the first half of 2007.
Results for 2008 included gains from the sale of bank premises of $142,607 while results for 2007
included gains from the sale of bank premises of $417,107.
Non-interest expense
Total non-interest expense increased $124,396 for the second quarter of 2008 as compared with the
second quarter of 2007. The largest component of non-interest expense is salaries and employee
benefits, which increased $133,793 for the second quarter of 2008 compared with the second quarter
of 2007. Additional expenses in 2008 were attributable to salary and incentive increases of
$174,181 which were partially offset by the decrease in health insurance benefit costs of $55,823.
Total non-interest expense increased $662,800 for the first half of 2008 as compared with the first
half of 2007.
Salaries and employee benefits increased $212,015 for the first half of 2008 compared with the
first half of 2007. Additional expenses in 2008 were attributable to salary and incentive increases
of $291,021 and increases of $121,376 as a result of the reduction in the discount rate used for
computing deferred compensation liabilities after March 31, 2007. These increases were partially
offset by the decrease in health insurance benefit costs of $210,064.
Equipment rentals, depreciation and maintenance expenses increased $175,726 for the first half of
2008 compared with the first half of 2007. This increase was primarily attributable to an increase
in depreciation expense of $187,500 on banking premises which were placed into service after March
31, 2007.
Included in the increase of $187,395 in other expense for the first half of 2008 as compared with
the first half of 2007 are the increase in expense of $111,537 for offsite ATMs due to an increase
in the number of such ATMs and in the number of transactions at such ATMs and an increase in
accounting and auditing fees of $69,353 due to the outsourcing of the I/T internal audit function
in the current year and the increase in audit fees for 2008.
21
FINANCIAL CONDITION
Available for sale securities decreased $59,272,809 at June 30, 2008, compared with December 31,
2007. The Federal Reserve reduced interest rates by 200 basis points during the first quarter,
which resulted in more than $112,105,000 of the Companys U.S. Agency securities being called
during the first half of the year. Proceeds from these calls have provided funding for lending and
liquidity
requirements, and excess funds have been invested in U.S. Agency securities. The following
schedule reflects the mix of available for sale securities at June 30, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
|
|
|
Available for sale securities: |
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
71,167,542 |
|
|
$ |
73,306,340 |
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corp. |
|
|
200,001,923 |
|
|
|
253,799,811 |
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
30,095,635 |
|
|
|
33,383,897 |
|
|
|
|
|
|
|
|
|
|
States and political subdivisions |
|
|
22,742,710 |
|
|
|
22,482,364 |
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
3,748,306 |
|
|
|
4,056,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale securities |
|
$ |
327,756,116 |
|
|
$ |
387,028,925 |
|
|
|
|
The Companys held to maturity portfolio was invested solely in debt securities issued by state and
political subdivisions at June 30, 2008 and December 31, 2007. The decrease in these securities of
$1,237,111 since December 31, 2007 is the result of maturities.
The composition of the loan portfolio was as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
|
|
|
Real estate, construction |
|
$ |
111,414,069 |
|
|
$ |
93,739,256 |
|
Real estate, mortgage |
|
|
291,108,404 |
|
|
|
265,463,768 |
|
Loans to finance agricultural production |
|
|
783,390 |
|
|
|
2,545,169 |
|
Commercial and industrial loans |
|
|
57,217,123 |
|
|
|
76,267,162 |
|
Loans to individuals for household, family and other
consumer expenditures |
|
|
11,021,761 |
|
|
|
11,173,054 |
|
Obligations of states and political subdivisions |
|
|
1,418,738 |
|
|
|
1,747,293 |
|
All other loans |
|
|
1,076 |
|
|
|
56,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
472,964,561 |
|
|
$ |
450,992,074 |
|
|
|
|
22
Interest earning assets, particularly available for sale securities, have decreased since January
1, 2008 along with a decrease in interest rates earned on these assets. These trends directly
impact accrued interest receivable, which decreased $959,555 during the first half of 2008.
Total deposits decreased $4,508,006 at June 30, 2008, as compared with December 31, 2007.
Typically, 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 entities reallocate their resources
periodically. The Company anticipates that deposits will continue at or near their present level
throughout the remaining quarters of 2008.
Federal funds purchased and securities sold under agreements to repurchase primarily include
the bank subsidiarys funds management account, which is a non-deposit product. Balances in the
funds management accounts decreased $25,868,988 at June 30, 2008, as compared with December 31,
2007, as the result of the periodic reallocation of funds by certain customers between deposit
products and non-deposit products.
SHAREHOLDERS EQUITY AND CAPITAL ADEQUACY
As a part of its on-going stock repurchase program, the Company repurchased and retired 79,849
shares of its common stock, at a total repurchase price of $1,759,801 during the first half of
2008. Management believes that the Companys stock is undervalued, and plans to continue its
repurchase activities in future quarters.
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 12.47% at June 30, 2008,
which is well above the regulatory minimum of 6.00%. Management continues to emphasize the
importance of maintaining the appropriate capital levels of the Company and has established the
goal of maintaining its primary capital ratio at 8.00%, which is the minimum requirement for
classification as being well-capitalized by the banking regulatory authorities.
LIQUIDITY
Liquidity represents the Companys 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. Borrowings from the
Federal Home Loan Bank, federal funds sold and federal funds purchased are utilized by the Company
to manage its daily liquidity position.
23
FINANCIAL HIGHLIGHTS (in thousands except per share data)
EARNINGS SUMMARY
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
2008 |
|
|
2007 |
|
|
Net interest income |
|
$ |
7,083 |
|
|
$ |
7,565 |
|
Provision for loan losses |
|
|
48 |
|
|
|
51 |
|
Non-interest income |
|
|
2,631 |
|
|
|
1,962 |
|
Non-interest expense |
|
|
6,404 |
|
|
|
6,280 |
|
Income taxes |
|
|
1,084 |
|
|
|
1,210 |
|
Net income |
|
|
2,178 |
|
|
|
1,986 |
|
Earnings per share |
|
|
.41 |
|
|
|
.36 |
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
2008 |
|
|
2007 |
|
|
Net interest income |
|
$ |
14,285 |
|
|
$ |
14,994 |
|
Provision for loan losses |
|
|
94 |
|
|
|
100 |
|
Non-interest income |
|
|
5,168 |
|
|
|
4,612 |
|
Non-interest expense |
|
|
12,969 |
|
|
|
12,306 |
|
Income taxes |
|
|
2,123 |
|
|
|
2,498 |
|
Net income |
|
|
4,267 |
|
|
|
4,702 |
|
Earnings per share |
|
|
.79 |
|
|
|
.85 |
|
PERFORMANCE RATIOS (annualized)
|
|
|
|
|
|
|
|
|
June 30, |
|
2008 |
|
|
2007 |
|
|
Return on average assets |
|
|
.92 |
% |
|
|
.95 |
% |
Return on average equity |
|
|
7.40 |
% |
|
|
9.06 |
% |
Net interest margin |
|
|
3.56 |
% |
|
|
3.41 |
% |
Efficiency ratio |
|
|
67 |
% |
|
|
63 |
% |
Item 4: Controls and Procedures
As of June 30, 2008, an evaluation was performed under the supervision and with the participation
of the Chief Executive Officer and Chief Financial Officer of the effectiveness of the Companys
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)). Based on that
evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the
Companys disclosure controls and procedures are effective to ensure that the information required
to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act
of 1934 is recorded, processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commissions rules and forms.
There were no changes in the Companys internal control over financial reporting that occurred
during the period ended June 30, 2008 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
24
PART
II - OTHER INFORMATION
Item 1: Legal Proceedings
The Companys bank subsidiary (the Bank) filed suit again USF&G in 1998 to recover damages for
USF&Gs bad faith failure to defend and indemnify the Bank in connection with a lawsuit filed
against the Bank in 1996. The Bank obtained legal representation from a local plaintiffs attorney
and customer (Attorney) on a contingent basis.
In December 2000, the case was transferred from the judge to whom it was originally assigned to a
second judge (the Judge). The Judge had previously handled some discovery matters in the case.
The Bank had made a routine loan to the Judge in November 1998, which was guaranteed by the
Attorney. The loan was repaid in February 2000 by someone other than the Judge, apparently at the
request of the Attorney. Neither the Attorney nor the Judge disclosed the loan or the repayment to
USF&G or its counsel.
During the course of the case, the Bank and USF&G filed competing motions for summary judgment.
The Judge granted summary judgment in the Banks favor on the issue of liability and subsequently
presided over a settlement conference in which he expressed his opinion about the value of the case
in monetary terms. The case was settled on December 24, 2001, for $1.5 million.
In 2003, the Attorney, the Judge and other parties were indicted for alleged fraud, bribery, etc.
involving various events, including allegations concerning the Bank v. USF&G lawsuit. Neither the
Bank nor any Bank employee was indicted. Following the indictments, USF&G filed a civil action
against the Attorney, the Judge and the Bank alleging fraud in connection with the outcome of the
Bank v. USF&G lawsuit. The complaint demands $2.5 million in compensatory damages and $10 million
in punitive damages, prejudgment interest and attorneys fees, etc. The USF&G v. Bank suit was
stayed until 30 days following the completion of the criminal case.
The criminal case against the Attorney, the Judge and other parties concluded on August 12, 2005.
No guilty verdicts were returned. The defendants received not guilty verdicts on several counts
and there was no verdict (mistrial) on a number of other counts, including the Bank v. USF&G
matter. On September 16, 2005, the U. S. Attorneys office announced that it would retry the
Attorney, the Judge and other parties on fraud and bribery charges related to the Bank v. USF&G
matter. The new trial began on February 7, 2007. On March 31, 2007, guilty verdicts on counts of
bribery, conspiracy, mail fraud/honest services fraud and racketeer influenced corrupt
organizations (RICO) violations were returned against the Attorney, the Judge and other parties.
The Attorney, the Judge and other parties have indicated that they plan to appeal the guilty
verdicts. On October 30, 2007, the judge in the USF&G lawsuit lifted the stay order in that case.
On February 4, 2008, USF&G filed an amended complaint against the Bank, the Attorney and the Judge.
In the amended complaint, USF&G seeks $2.5 million in compensatory damages, $10
25
million in
punitive damages and prejudgment interest and attorneys fees, etc. In addition, USF&G seeks a
declaratory judgment to set aside the settlement in the original lawsuit between USF&G and the
Bank. On February 20, 2008, the Bank filed an answer to the amended complaint. The court granted
the Banks motion to transfer the case from Jackson, MS, to Gulfport, MS and set a trial date of
February 9, 2009. Disclosure filings and discovery have been initiated. The Attorney and the
Judge have both appealed their convictions to the Fifth Circuit Court of Appeals.
The Company understands that this litigation, as with any litigation, is inherently uncertain and
it is reasonably possible that the Company may incur a loss in this matter. The Company has no
reason to conclude, however, that the loss is probable and cannot reasonably estimate the amount of
any possible loss. No liability for the USF&G lawsuit has been accrued. This conclusion is based
on relevant legal advice, the fact that this lawsuit is in its very earliest stages and the
Companys resolve to vigorously contest the case.
The bank is involved in various other legal matters and claims which are being defended and handled
in the ordinary course of business. None of these matters is expected, in the opinion of
Management, to have a material adverse effect upon the financial position or results of operations
of the Company.
Item 6
- Exhibits and Reports on Form 8-K
|
|
|
Exhibit 31.1:
|
|
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes - Oxley Act of 2002 |
|
|
|
Exhibit 31.2:
|
|
Certification of 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 on April 16, 2008, June 25, 2008 and July 17, 2008.
26
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:
|
|
August 8, 2008 |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Chevis C. Swetman |
|
|
|
|
|
|
Chevis C. Swetman
|
|
|
|
|
|
|
Chairman, President and Chief Executive Officer |
|
|
|
|
|
|
(principal executive officer) |
|
|
|
|
|
|
|
|
|
|
|
Date:
|
|
August 8, 2008 |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Lauri A. Wood |
|
|
|
|
|
|
Lauri A. Wood
|
|
|
|
|
|
|
Chief Financial Officer and Controller |
|
|
|
|
|
|
(principal financial and accounting officer) |
|
|
27