PEOPLES FINANCIAL CORP /MS/ - Annual Report: 2005 (Form 10-K)
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2005
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 incorporation or organization) |
(I.R.S. Employer Identification number |
|
| Lameuse and Howard Avenues, Biloxi, Mississippi | 39533 | |
| (Address of principal executive offices) | (Zip code) | |
228-435-5511
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
| Title of Each Class | Name of Each Exchange on Which Registered |
|
| None | None | |
Securities registered pursuant to Section 12 (g) of the Act:
Common, $1.00 Par Value
(Title of each class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.
o Yes þ No
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act. o Yes
þ No
Note-
Checking the box above will not relieve any registrant required to
file reports pursuant to Section 13 or 15(d) of the Exchange Act from
their obligations under those Sections.
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 if disclosure of delinquent filers pursuant to item 405
of Regulation S-K (§299.405 of this chapter) is
not contained herein, and will not be contained, to the best of the Registrant’s knowledge in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to the Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer 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
At June 30, 2005, the aggregate market value of the registrant’s voting stock held by
non-affiliates was approximately $81,000,000.
On March 1, 2006, the registrant had outstanding 5,549,128 shares of common stock, par value of
$1.00 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Annual Report to Stockholders for the year ended December 31, 2005 are
incorporated by reference into Parts I, II and III of this report. Portions of the Registrant’s
Definitive Proxy Statement issued in connection with the Annual Meeting of Shareholders to be held
April 12, 2006, are incorporated by reference into Part III of this report.
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CONTENTS
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PART I
ITEM 1 — DESCRIPTION OF BUSINESS
THE REGISTRANT
Peoples Financial Corporation (the “Company”) was established as a one bank holding company on
December 18, 1984. The Company is headquartered in Biloxi, Mississippi. At December 31, 2005, the
Company operated in the state of Mississippi through its wholly-owned subsidiary, The Peoples Bank,
Biloxi, Mississippi (“the Bank”). The Company is now engaged, through this subsidiary, in the
banking business. The Bank is the Company’s principal asset and primary source of revenue.
NONBANK SUBSIDIARY
On August 22, 1985, PFC Service Corp. (“PFC”) was chartered and began operations as the second
wholly-owned subsidiary of Peoples Financial Corporation on October 3, 1985. The purpose of PFC
was principally the leasing of automobiles and equipment under direct financing and sales-type
leases that expired in various periods through 1993. PFC is inactive at this time.
THE BANK SUBSIDIARY
The Company’s wholly-owned bank subsidiary is The Peoples Bank, which was originally chartered in
1896 in Biloxi, Mississippi. The Bank is a state chartered bank whose deposits are insured under
the Federal Deposit Insurance Act. The Bank is not a member of the Federal Reserve System. The
legal name of the Bank was changed to The Peoples Bank, Biloxi, Mississippi, during 1991.
The Bank currently offers a variety of loan and deposit services to individuals and small to middle
market businesses within its trade area. Deposit services include interest bearing and
non-interest bearing checking accounts, savings accounts, certificates of deposit, and IRA
accounts. The Bank also offers a non-deposit funds management account, which is not insured by the
FDIC. Loan services include business, real estate, construction, personal and installment loans,
with an emphasis on commercial lending. The Bank also offers a variety of other functions
including collection services, asset management and trust services, wire services, safe deposit box
facilities, night drop facilities, cash management, automated teller machines and Internet, or
home, banking.
The Bank has a large number of customers acquired over a period of many years and is not dependent
upon a single customer or upon a few customers. The Bank also provides services to customers
representing a wide variety of industries including seafood, retail, hospitality, gaming and
construction. While the Company has pursued external growth strategies on a limited basis, its
primary focus has been on internal growth by the Bank through the establishment of new branch
locations and an emphasis on strong customer relationships.
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The Main Office, operations center and asset management and trust services of the Bank
are located in downtown Biloxi, MS. At December 31, 2005, the Bank also had fifteen (15) branches
located throughout Harrison, Hancock, Jackson and Stone Counties. The Bank has automated teller
machines (“ATM”) at its Main Office, all branch locations and at numerous non-proprietary
locations.
At December 31, 2005, the Bank employed 203 full-time employees and 19 part-time employees.
HURRICANE KATRINA
On August 29, 2005, Hurricane Katrina hit the Mississippi Gulf Coast, negatively impacting the
Company’s entire trade area. The Bank subsidiary suffered significant damage to its branch
facilities and the Company has encountered numerous challenges
including but not limited to extraordinary customer service needs, addressing unusual facility management issues, and dealing with potentially
hazardous materials. Further information concerning the impact of Hurricane Katrina on the
Company’s operations, financial condition and results of operations are presented in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” which is on pages 5 — 9
of the 2005 Annual Report and which is incorporated herein by reference. The impact of Hurricane
Katrina on reporting requirements under Section 404 of The Sarbanes-Oxley Act of 2002 is disclosed
in Item 9a.
COMPETITION
The Bank is in direct competition with numerous local and regional commercial banks as well as
other non-bank institutions. Interest rates paid and charged on deposits and loans are the
primary competitive factors within the Bank’s trade area. The Bank also competes for deposits
and loans with insurance companies, finance companies and automobile finance companies. The Bank
intends to continue its strategy of being a local, community bank offering traditional bank
services and providing quality service in its local trade area.
ASSET MANAGEMENT AND TRUST SERVICES
The Bank’s Asset Management and Trust Services Department offers personal trust, agencies and
estate services including living and testamentary trusts, executorships, guardianships, and
conservatorships. Benefit accounts maintained by the Department primarily include self-directed
individual retirement accounts. Escrow management, stock transfer and bond paying agency accounts
are available to corporate customers.
MISCELLANEOUS
The Bank holds no patents, licenses (other than licenses required to be obtained from appropriate
bank regulatory agencies), franchises or concessions. During 1994, the Bank obtained the rights to
the registered trademark, “The Mint”. There has been no significant change in the kind of services
offered by the Bank during the last three fiscal years.
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The Bank has not engaged in any research activities relating to the development of new services or
the improvement of existing services except in the normal course of its business activities. The
Bank presently has no plans for any new line of business requiring the investment of a material
amount of total assets.
Most of the Bank’s business originates from within Harrison, Hancock, Stone and Jackson Counties in
Mississippi; however, some business is obtained from other counties in southern Mississippi. There
has been no material effect upon the Bank’s capital expenditures, earnings or competitive position
as a result of federal, state or local environmental regulations.
REGULATION AND SUPERVISION
The Company is required to file certain reports with, and otherwise comply with the rules and
regulations of, the Securities and Exchange Commission under federal securities laws. The common
stock of the Company is listed on the NASDAQ small market exchange, such listing subjecting the
Company to compliance with the exchange’s requirements with respect to reporting and other rules
and regulations. See the comments regarding The Sarbanes-Oxley Act of 2002 presented in
“Management’s Discussion and Analysis” at pages 5 — 9 of the 2005 Annual Report to Shareholders,
which is incorporated herein by reference.
The Company is a registered one bank holding company under the Bank Holding Company Act. As such,
the Company is required to file periodic reports and such additional information as the Federal
Reserve may require. The Federal Reserve Board may also make examinations of the Company and its
subsidiaries. The Bank Holding Company Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before it may acquire substantially all the assets of any
bank or ownership or control of any voting shares of any bank if, after the acquisition, it would
own or control, directly or indirectly, more than 5 percent of the voting shares of the bank.
A bank holding company is generally prohibited from engaging in, or acquiring direct or indirect
control of, voting shares of any company engaged in non-banking activities. One of the principal
exceptions to this prohibition is for activities found by the Federal Reserve to be so closely
related to banking or the managing or controlling of banks as to be a proper incident thereto.
Some of the activities the Federal Reserve Board has determined by regulation to be closely related
to banking are the making and servicing of loans, performing certain bookkeeping or data processing
services, acting as fiduciary or investment or financial advisor, making equity or debt investments
in corporations or projects designed primarily to promote community welfare, leasing transactions
if the functional equivalent of an extension of credit and mortgage banking or brokerage.
A bank holding company and its subsidiaries are also prohibited from acquiring any voting shares of
or interest in, any banks located outside the state in which the operations of the bank holding
company’s subsidiaries are located, unless the acquisition is specially authorized by the statute
of the state in which the target is located. Mississippi has enacted legislation which authorizes
interstate acquisitions of banking organizations by bank holding companies outside of Mississippi,
and also interstate branching transactions, subject to certain conditions and restrictions.
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The Bank is subject to the regulation of and examination by the Mississippi Department of Banking
and Consumer Finance (“Department of Banking”) and the Federal Deposit Insurance Corporation
(“FDIC”). Areas subject to regulation include reserves, investments, loans, mergers, branching,
issuance of securities, payment of dividends, capital adequacy, management practices and all other
aspects of banking operations. In addition to regular examinations, the Bank must furnish periodic
reports to its regulatory authorities containing a full and accurate statement of affairs. The
Bank is subject to deposit insurance assessments by the FDIC and the Department of Banking.
The earnings of commercial banks and bank holding companies are affected not only by general
economic conditions but also by the policies of various governmental regulatory authorities,
including the Federal Reserve Board. In particular, the Federal Reserve Board regulates money and
credit conditions, and interest rates, primarily through open market operations in U. S. Government
securities, varying the discount rate of member and nonmember bank borrowing, setting reserve
requirements against bank deposits and regulating interest rates payable by banks on certain
deposits. These policies influence to a varying extent the overall growth and distribution of bank
loans, investments and deposits and the interest rates charged on loans. The monetary policies of
the Federal Reserve Board have had a significant effect on the operating results of commercial
banks in the past and are expected to continue to do so in the future.
RECENT REGULATION AND SUPERVISION LEGISLATION
The Gramm-Leach-Bliley Act (the “Act”) allows bank holding companies to engage in a wider range of
financial activities. In order to engage in such activities, which, among others, include
underwriting and selling insurance, providing financial, investment or economic advisory services,
and underwriting, dealing in or making a market in, services, a bank holding company must elect to
become a financial holding company. The Act also authorized the establishment of financial
subsidiaries in order to engage in such financial activities, with certain limitations.
The Act also contains a number of other provisions affecting the Company’s operations . One of the
most important of these provisions relates to the issue of privacy. Federal banking regulators were
authorized by the Act to adopt rules designed to protect the financial privacy of consumers. These
rules implemented notice requirements and restrictions on a financial institution’s ability to
disclose nonpublic personal information about consumers to non-affiliated third parties.
As of the date of this Form 10-K, the Company has not taken any action to adopt either the
financial holding company or the financial subsidiary structures that were authorized by the Act.
SUPPLEMENTAL STATISTICAL INFORMATION
Schedules I-A through VII present certain statistical information regarding the Company. This
information is not audited and should be read in conjunction with the Company’s Consolidated
Financial Statements and Notes to Consolidated Financial Statements found at pages 10 — 29 of the
2005 Annual Report to Shareholders.
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DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY AND INTEREST RATES AND DIFFERENTIALS
Net Interest Income, the difference between Interest Income and Interest Expense, is the most
significant component of the Company’s earnings. For interest analytical purposes, Management
adjusts Net Interest Income to a “taxable equivalent” basis using a 34% Federal Income Tax rate on
tax-exempt items (primarily interest on municipal securities).
Another significant statistic in the analysis of Net Interest Income is the effective interest
differential, also called the net yield on earning assets. The net yield is the difference between
the rate of interest earned on earning assets and the effective rate paid for all funds,
non-interest bearing as well as interest bearing. Since a portion of the Bank’s deposits do not
bear interest, such as demand deposits, the rate paid for all funds is lower than the rate on
interest bearing liabilities alone.
Recognizing the importance of interest differential to total earnings, Management places great
emphasis on managing interest rate spreads. Although interest differential is affected by
national, regional and area economic conditions, including the level of credit demand and interest
rates, there are significant opportunities to influence interest differential through appropriate
loan and investment policies which are designed to maximize the interest differential while
maintaining sufficient liquidity and availability of “incremental funds” for purposes of meeting
existing commitments and investment in lending and investment opportunities that may arise.
The information included in Schedule I-F presents the change in interest income and interest
expense along with the reason(s) for these changes. The change attributable to volume is computed
as the change in volume times the old rate. The change attributable to rate is computed as the
change in rate times the old volume. The change in rate/volume is computed as the change in rate
times the change in volume.
SUMMARY OF LOAN LOSS EXPERIENCE
In the normal course of business, the Bank assumes risks in extending credit. The Bank manages
these risks through its lending policies, loan review procedures and the diversification of its
loan portfolio. Although it is not possible to predict loan losses with complete accuracy,
Management constantly reviews the characteristics of the loan portfolio to determine its overall
risk profile and quality.
Constant attention to the quality of the loan portfolio is achieved by the loan review process.
Throughout this ongoing process, Management is advised of the condition of individual loans and of
the quality profile of the entire loan portfolio. Any loan or portion thereof which is classified
“loss” by regulatory examiners or which is determined by Management to be uncollectible because of
such factors as the borrower’s failure to pay interest or principal, the borrower’s financial
condition, economic conditions in the borrower’s industry or the inadequacy of underlying
collateral, is charged-off.
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Provisions are charged to operating expense based upon historical loss experience, and additional
amounts are provided when, in the opinion of Management, such provisions are not adequate based
upon the current factors affecting loan collectibility.
The allocation of the allowance for loan losses by loan category is based on the factors
mentioned in the preceding paragraphs. Accordingly, since all of these factors are subject to
change, the allocation is not necessarily indicative of the breakdown of future losses.
Hurricane Katrina destroyed tens of thousands of homes and businesses in the Company’s trade area,
thus resulting in potential loan losses to the Bank
subsidiary. An evaluation of the loan portfolio to asses the impact of Hurricane Katrina was
initiated by the Company as soon as possible, in accordance with generally accepted accounting
principles and established loan review polices. The comments concerning the provision for loan losses and the allowance for loan losses presented
in “Management’s Discussion and Analysis” at pages 5 — 9 of the 2005 Annual Report to Shareholders
and “Note A — Business and Summary of Significant Accounting Policies” at pages 15 — 29 of the 2005
Annual Report to Shareholders, are incorporated herein by reference.
RETURN ON EQUITY AND ASSETS
The information under the captions “Five-Year Comparative Summary of Selected Financial
Information” on page 31 and “Management’s Discussion and Analysis” on pages 5 — 9 of the 2005
Annual Report are incorporated herein by reference.
DIVIDEND PAYOUT
| Years Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
Dividend payout ratio |
37.74 | % | 33.65 | % | 32.22 | % | ||||||
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SCHEDULE I-A
Distribution of Average Assets, Liabilities and Shareholders’ Equity for the Periods Indicated (2)
Distribution of Average Assets, Liabilities and Shareholders’ Equity for the Periods Indicated (2)
| Years Ended December 31, (In thousands) | 2005 | 2004 | 2003 | |||||||||
ASSETS: |
||||||||||||
Cash and due from financial institutions |
$ | 39,162 | $ | 33,377 | $ | 34,423 | ||||||
Available for sale securities: |
||||||||||||
Taxable securities |
181,041 | 189,371 | 189,053 | |||||||||
Non-taxable securities |
14,027 | 6,272 | 5,359 | |||||||||
Other securities |
4,446 | 5,088 | 6,454 | |||||||||
Held to maturity securities: |
||||||||||||
Taxable securities |
22,991 | 374 | 6,629 | |||||||||
Non-taxable securities |
6,253 | 3,162 | 3,619 | |||||||||
Net loans (1) |
331,404 | 316,638 | 287,504 | |||||||||
Federal funds sold |
40,323 | 5,825 | 5,685 | |||||||||
Other assets |
37,956 | 29,798 | 35,522 | |||||||||
TOTAL ASSETS |
$ | 677,603 | $ | 589,905 | $ | 574,248 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY: |
||||||||||||
Non-interest bearing deposits |
$ | 112,922 | $ | 62,655 | $ | 119,038 | ||||||
Interest bearing deposits |
337,737 | 331,305 | 267,017 | |||||||||
Total deposits |
450,659 | 393,960 | 386,055 | |||||||||
Federal funds purchased and securities
sold under agreements to
repurchase |
122,263 | 95,922 | 87,912 | |||||||||
Other liabilities |
16,260 | 15,958 | 17,793 | |||||||||
Total liabilities |
589,182 | 505,840 | 491,760 | |||||||||
Shareholders’ equity |
88,421 | 84,065 | 82,488 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’
EQUITY |
$ | 677,603 | $ | 589,905 | $ | 574,248 | ||||||
| (1) | Gross loans and discounts, net of unearned income and allowance for loan losses. | |
| (2) | All averages are computed on a daily basis with the exception of deposits, which were computed on a monthly basis in 2004 and 2003. Daily averages were not available for deposits in 2004 and 2003. |
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SCHEDULE I-B
Average (2) Amount Outstanding for Major Categories of Interest Earning Assets
and Interest Bearing Liabilities for the Periods Indicated
Average (2) Amount Outstanding for Major Categories of Interest Earning Assets
and Interest Bearing Liabilities for the Periods Indicated
| Years Ended December 31, (In thousands) | 2005 | 2004 | 2003 | |||||||||
INTEREST EARNING ASSETS: |
||||||||||||
Loans (1) |
$ | 338,761 | $ | 323,190 | $ | 293,708 | ||||||
Federal funds sold |
40,323 | 5,825 | 5,685 | |||||||||
Available for sale securities: |
||||||||||||
Taxable securities |
181,041 | 189,371 | 189,053 | |||||||||
Non-taxable securities |
14,027 | 6,272 | 5,359 | |||||||||
Other securities |
4,446 | 5,088 | 6,454 | |||||||||
Held to maturity securities: |
||||||||||||
Taxable securities |
22,991 | 374 | 6,629 | |||||||||
Non-taxable securities |
6,253 | 3,162 | 3,619 | |||||||||
TOTAL INTEREST EARNING ASSETS |
$ | 607,842 | $ | 533,282 | $ | 510,507 | ||||||
INTEREST BEARING LIABILITIES: |
||||||||||||
Savings and negotiable interest
bearing deposits |
$ | 223,002 | $ | 205,353 | $ | 129,799 | ||||||
Time deposits |
114,735 | 125,952 | 137,218 | |||||||||
Federal funds purchased and securities
sold under agreements to
repurchase |
122,263 | 95,922 | 87,912 | |||||||||
Other borrowed funds |
7,294 | 8,355 | 10,749 | |||||||||
TOTAL INTEREST BEARING LIABILITIES |
$ | 467,294 | $ | 435,582 | $ | 365,678 | ||||||
| (1) | Net of unearned income. Includes nonaccrual loans. | |
| (2) | All averages are computed on a daily basis with the exception of deposits, which were computed on a monthly basis in 2004 and 2003. Daily averages were not available for deposits in 2004 and 2003. |
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SCHEDULE I-C
Interest Earned or Paid on the Major Categories of Interest Earning Assets
and Interest Bearing Liabilities for the Periods Indicated
Interest Earned or Paid on the Major Categories of Interest Earning Assets
and Interest Bearing Liabilities for the Periods Indicated
| Years Ended December 31, (In thousands) | 2005 | 2004 | 2003 | |||||||||
INTEREST EARNED ON: |
||||||||||||
Loans (2) |
$ | 22,690 | $ | 17,526 | $ | 17,182 | ||||||
Federal funds sold |
1,410 | 77 | 62 | |||||||||
Available for sale securities: |
||||||||||||
Taxable securities |
6,437 | 6,180 | 6,893 | |||||||||
Non-taxable securities |
799 | 559 | 268 | |||||||||
Other securities |
194 | 230 | 249 | |||||||||
Held to maturity securities: |
||||||||||||
Taxable securities |
808 | 20 | 311 | |||||||||
Non-taxable securities |
421 | 248 | 290 | |||||||||
TOTAL INTEREST EARNED (1) |
$ | 32,759 | $ | 24,840 | $ | 25,255 | ||||||
INTEREST PAID ON: |
||||||||||||
Savings and negotiable
interest bearing deposits |
$ | 2,431 | $ | 1,462 | $ | 1,489 | ||||||
Time deposits |
2,866 | 2,138 | 2,896 | |||||||||
Federal funds purchased and
securities sold under
agreements to repurchase |
1,815 | 1,043 | 998 | |||||||||
Other borrowed funds |
437 | 447 | 456 | |||||||||
TOTAL INTEREST PAID |
$ | 7,549 | $ | 5,090 | $ | 5,839 | ||||||
| (1) | All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2005, 2004 and 2003. | |
| (2) | Loan fees of $517, $588 and $547 for 2005, 2004 and 2003, respectively, are included in these figures. |
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SCHEDULE I-D
Average Interest Rate Earned or Paid for Major Categories of
Interest Earning Assets and Interest Bearing Liabilities for the Periods Indicated
Average Interest Rate Earned or Paid for Major Categories of
Interest Earning Assets and Interest Bearing Liabilities for the Periods Indicated
| Years Ended December 31, (In thousands) | 2005 | 2004 | 2003 | |||||||||
AVERAGE RATE EARNED ON: |
||||||||||||
Loans |
6.70 | % | 5.42 | % | 5.85 | % | ||||||
Federal funds sold |
3.50 | 1.32 | 1.09 | |||||||||
Available for sale securities: |
||||||||||||
Taxable securities |
3.56 | 3.27 | 3.65 | |||||||||
Non-taxable securities |
5.70 | 8.91 | 5.00 | |||||||||
Other securities |
4.36 | 4.52 | 3.86 | |||||||||
Held to maturity securities: |
||||||||||||
Taxable securities |
3.51 | 5.35 | 4.69 | |||||||||
Non-taxable securities |
6.73 | 7.84 | 8.01 | |||||||||
TOTAL (weighted average rate) (1) |
5.39 | % | 4.66 | % | 4.95 | % | ||||||
AVERAGE RATE PAID ON: |
||||||||||||
Savings and negotiable interest
bearing deposits |
1.09 | % | 0.71 | % | 1.15 | % | ||||||
Time deposits |
2.50 | 1.70 | 2.11 | |||||||||
Federal funds purchased and
securities sold under
agreements to repurchase |
1.48 | 1.09 | 1.14 | |||||||||
Other borrowed funds |
5.99 | 5.36 | 4.24 | |||||||||
TOTAL (weighted average rate) |
1.62 | % | 1.17 | % | 1.60 | % | ||||||
| (1) | All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2005, 2004 and 2003. |
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SCHEDULE I-E
Net Interest Earnings and Net Yield on Interest Earning Assets
Net Interest Earnings and Net Yield on Interest Earning Assets
| Years Ended December 31, | ||||||||||||
| (In thousands except percentages) | 2005 | 2004 | 2003 | |||||||||
Total interest income (1) |
$ | 32,759 | $ | 24,840 | $ | 25,255 | ||||||
Total interest expense |
7,549 | 5,090 | 5,839 | |||||||||
Net interest earnings |
$ | 25,210 | $ | 19,750 | $ | 19,416 | ||||||
Net yield on interest earning assets |
4.15 | % | 3.75 | % | 3.83 | % | ||||||
| (1) | All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2005, 2004 and 2003. |
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SCHEDULE I-F
Analysis of Changes In Interest Income and Interest Expense
(In thousands)
Analysis of Changes In Interest Income and Interest Expense
(In thousands)
| Attributable to: | ||||||||||||||||||||||||
| Increase | Rate / | |||||||||||||||||||||||
| 2005 | 2004 | (Decrease) | Volume | Rate | Volume | |||||||||||||||||||
INTEREST INCOME:(1) |
||||||||||||||||||||||||
Loans (2) (3) |
$ | 22,690 | $ | 17,526 | $ | 5,164 | $ | 844 | $ | 4,121 | $ | 199 | ||||||||||||
Federal funds sold |
1,410 | 77 | 1,333 | 456 | 127 | 750 | ||||||||||||||||||
Available for sale securities: |
||||||||||||||||||||||||
Taxable securities |
6,437 | 6,180 | 257 | (272 | ) | 552 | (23 | ) | ||||||||||||||||
Non-taxable securities |
799 | 559 | 240 | 691 | (202 | ) | (249 | ) | ||||||||||||||||
Other securities |
194 | 230 | (36 | ) | (29 | ) | (8 | ) | 1 | |||||||||||||||
Held to maturity securities: |
||||||||||||||||||||||||
Taxable securities |
808 | 20 | 788 | 1,209 | (7 | ) | (414 | ) | ||||||||||||||||
Non-taxable securities |
421 | 248 | 173 | 242 | (35 | ) | (34 | ) | ||||||||||||||||
Total |
$ | 32,759 | $ | 24,840 | $ | 7,919 | $ | 3,141 | $ | 4,548 | $ | 230 | ||||||||||||
INTEREST EXPENSE: |
||||||||||||||||||||||||
Savings and negotiable
interest bearing deposits |
$ | 2,431 | $ | 1,462 | $ | 969 | $ | 126 | $ | 776 | $ | 67 | ||||||||||||
Time deposits |
2,866 | 2,138 | 728 | (190 | ) | 1,008 | (90 | ) | ||||||||||||||||
Federal funds purchased and
securities sold under
agreements to repurchase |
1,815 | 1,043 | 772 | 286 | 381 | 105 | ||||||||||||||||||
Other borrowed funds |
437 | 447 | (10 | ) | (57 | ) | 54 | (7 | ) | |||||||||||||||
Total |
$ | 7,549 | $ | 5,090 | $ | 2,459 | $ | 165 | $ | 2,219 | $ | 75 | ||||||||||||
| (1) | All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2005 and 2004. | |
| (2) | Loan fees are included in these figures. | |
| (3) | Includes interest on nonaccrual loans. |
14
Table of Contents
SCHEDULE I-F (continued)
Analysis of Changes in Interest Income and Interest Expense
(In thousands)
Analysis of Changes in Interest Income and Interest Expense
(In thousands)
| Attributable to: | ||||||||||||||||||||||||
| Increase | Rate / | |||||||||||||||||||||||
| 2004 | 2003 | (Decrease) | Volume | Rate | Volume | |||||||||||||||||||
INTEREST INCOME:(1) |
||||||||||||||||||||||||
Loans (2) (3) |
$ | 17,526 | $ | 17,182 | $ | 344 | $ | 1,725 | $ | (1,255 | ) | $ | (126 | ) | ||||||||||
Federal funds sold |
77 | 62 | 15 | 2 | 12 | 1 | ||||||||||||||||||
Available for sale securities: |
||||||||||||||||||||||||
Taxable securities |
6,180 | 6,893 | (713 | ) | 12 | (724 | ) | (1 | ) | |||||||||||||||
Non-taxable securities |
559 | 268 | 291 | 46 | 210 | 35 | ||||||||||||||||||
Other securities |
230 | 249 | (19 | ) | (53 | ) | 43 | (9 | ) | |||||||||||||||
Held to maturity securities: |
||||||||||||||||||||||||
Taxable securities |
20 | 311 | (291 | ) | (293 | ) | 43 | (41 | ) | |||||||||||||||
Non-taxable securities |
248 | 290 | (42 | ) | (37 | ) | (6 | ) | 1 | |||||||||||||||
Total |
$ | 24,840 | $ | 25,255 | $ | (415 | ) | $ | 1,402 | $ | (1,677 | ) | $ | (140 | ) | |||||||||
INTEREST EXPENSE: |
||||||||||||||||||||||||
Savings and negotiable
interest bearing deposits |
$ | 1,462 | $ | 1,489 | $ | (27 | ) | $ | 867 | $ | (565 | ) | $ | (329 | ) | |||||||||
Time deposits |
2,138 | 2,896 | (758 | ) | (238 | ) | (567 | ) | 47 | |||||||||||||||
Federal funds purchased and
securities sold under
agreements to repurchase |
1,043 | 998 | 45 | 91 | (42 | ) | (4 | ) | ||||||||||||||||
Other borrowed funds |
447 | 456 | (9 | ) | (102 | ) | 119 | (26 | ) | |||||||||||||||
Total |
$ | 5,090 | $ | 5,839 | $ | (749 | ) | $ | 618 | $ | (1,055 | ) | $ | (312 | ) | |||||||||
| (1) | All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2004 and 2003. | |
| (2) | Loan fees are included in these figures. | |
| (3) | Includes interest on nonaccrual loans. |
15
Table of Contents
SCHEDULE II-A
Securities Portfolio
Book Value of Securities Portfolio at the Dates Indicated
Securities Portfolio
Book Value of Securities Portfolio at the Dates Indicated
| December 31, (In thousands): | 2005 | 2004 | 2003 | |||||||||
Available for sale securities: |
||||||||||||
U. S. Government, agency and
corporate obligations |
$ | 161,301 | $ | 156,465 | $ | 195,888 | ||||||
States and political subdivisions |
14,150 | 13,383 | 7,267 | |||||||||
Other securities |
2,943 | 3,183 | 4,331 | |||||||||
Total |
$ | 178,394 | $ | 173,031 | $ | 207,486 | ||||||
Held to maturity securities: |
||||||||||||
U. S. Government, agency and
corporate obligations |
$ | 127,897 | $ | $ | 1,000 | |||||||
States and political subdivisions |
6,150 | 6,587 | 3,353 | |||||||||
Total |
$ | 134,047 | $ | 6,587 | $ | 4,353 | ||||||
16
Table of Contents
SCHEDULE II-B
Maturity of Securities Portfolio at December 31, 2005
And Weighted Average Yields of Such Securities
Maturity of Securities Portfolio at December 31, 2005
And Weighted Average Yields of Such Securities
| Maturity | ||||||||||||||||||||||||||||||||
| (In thousands except percentage data) | ||||||||||||||||||||||||||||||||
| After one but | After five but | |||||||||||||||||||||||||||||||
| Within one year | within five years | within ten years | After ten years | |||||||||||||||||||||||||||||
| Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||||||||||||||||
Available for
sale securities: |
||||||||||||||||||||||||||||||||
U. S.
Government,
agency and
corporate
obligations |
$ | 30,720 | 3.28 | % | $ | 117,877 | 3.84 | % | $ | 12,704 | 4.86 | % | $ | N/A | ||||||||||||||||||
States and
political
subdivisions |
867 | 2.86 | % | 4,781 | 3.66 | % | 6,111 | 3.82 | % | 2,391 | 4.47 | % | ||||||||||||||||||||
Other |
2,943 | 4.36 | % | |||||||||||||||||||||||||||||
Totals |
$ | 31,587 | 3.23 | % | $ | 122,658 | 3.83 | % | $ | 18,815 | 4.52 | % | $ | 5,334 | 4.41 | % | ||||||||||||||||
Held to
maturity
securities: |
||||||||||||||||||||||||||||||||
U. S. Government,
agency and
corporate
obligations |
$ | 118,905 | 4.11 | % | $ | 8,992 | 4.55 | % | $ | N/A | $ | N/A | ||||||||||||||||||||
States and
political
subdivisions |
525 | 5.74 | % | 1,610 | 3.86 | % | 3,146 | 4.51 | % | 869 | 4.53 | % | ||||||||||||||||||||
Totals |
$ | 119,430 | 4.12 | % | $ | 10,602 | 4.46 | % | $ | 3,146 | 4.51 | % | $ | 869 | 4.53 | % | ||||||||||||||||
Note: The weighted average yields are calculated on the basis of cost. Average yields on
investments in states and political subdivisions are based on their contractual yield.
17
Table of Contents
SCHEDULE III-A
Loan Portfolio
Loans by Type Outstanding (1)
Loan Portfolio
Loans by Type Outstanding (1)
| December 31, (In thousands): | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||
Real estate, construction |
$ | 20,663 | $ | 20,926 | $ | 14,896 | $ | 21,534 | $ | 25,636 | ||||||||||
Real estate, mortgage |
258,573 | 250,676 | 223,246 | 197,478 | 224,524 | |||||||||||||||
Loans to finance agricultural
production and other loans
to farmers |
2,795 | 4,251 | 3,980 | 7,375 | 7,241 | |||||||||||||||
Commercial and industrial
loans |
53,473 | 44,983 | 41,832 | 65,946 | 71,271 | |||||||||||||||
Loans to individuals for
household, family and other
consumer expenditures |
11,812 | 11,387 | 15,252 | 19,522 | 15,068 | |||||||||||||||
Obligations of states and
political
subdivisions |
1,423 | 1,654 | 2,560 | 3,637 | 3,233 | |||||||||||||||
All other loans |
607 | 316 | 389 | 336 | 196 | |||||||||||||||
Totals |
$ | 349,346 | $ | 334,193 | $ | 302,155 | $ | 315,828 | $ | 347,169 | ||||||||||
| (1) | No foreign debt outstanding. |
18
Table of Contents
SCHEDULE III-B
Maturities and Sensitivity to Changes in
Interest Rates of the Loan Portfolio as of December 31, 2005
Maturities and Sensitivity to Changes in
Interest Rates of the Loan Portfolio as of December 31, 2005
| Maturity (In thousands) | ||||||||||||||||
| Over one year | ||||||||||||||||
| One year or | through 5 | |||||||||||||||
| less | years | Over 5 years | Total | |||||||||||||
Loans: |
||||||||||||||||
Real estate, construction |
$ | 11,074 | $ | 3,893 | $ | 5,696 | $ | 20,663 | ||||||||
Real estate, mortgage |
51,219 | 136,434 | 70,920 | 258,573 | ||||||||||||
Loans to finance
agricultural production
and other loans to
farmers |
2,749 | 46 | 2,795 | |||||||||||||
Commercial and
industrial loans |
30,057 | 22,374 | 1,042 | 53,473 | ||||||||||||
Loans to individuals for
household, family and
other consumer
expenditures |
4,404 | 7,090 | 318 | 11,812 | ||||||||||||
Obligations of states and
political subdivisions |
89 | 65 | 1,269 | 1,423 | ||||||||||||
All other loans |
607 | 607 | ||||||||||||||
Totals |
$ | 100,199 | $ | 169,902 | $ | 79,245 | $ | 349,346 | ||||||||
Loans with
pre-determined interest
rates |
$ | 21,384 | $ | 115,504 | $ | 5,605 | $ | 142,493 | ||||||||
Loans with floating
interest rates |
78,815 | 54,398 | 73,640 | 206,853 | ||||||||||||
Totals |
$ | 100,199 | $ | 169,902 | $ | 79,245 | $ | 349,346 | ||||||||
19
Table of Contents
SCHEDULE III-C
Non-Performing Loans
Non-Performing Loans
| December 31, (In thousands): | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||
Loans accounted for on a
non-accrual basis (1) |
$ | 267 | $ | 6,164 | $ | 7,415 | $ | 6,550 | $ | 650 | ||||||||||
Loans which are contractually
past due 90 or more days as
to interest or principal
payment, but are not
included above |
762 | 1,190 | 4,867 | 2,828 | 1,732 | |||||||||||||||
(1) The Bank places loans on a nonaccrual status when, in the opinion of Management, they possess
sufficient uncertainty as to timely collection of interest or principal so as to preclude the
recognition in reported earnings of some or all of the contractual interest. See Note C to the 2005
Annual Report to Shareholders for discussion of impaired loans.
20
Table of Contents
SCHEDULE IV-A
Summary of Loan Loss Expenses
(In thousands except percentage data)
Summary of Loan Loss Expenses
(In thousands except percentage data)
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
Average amount of loans
outstanding (1) |
$ | 338,761 | $ | 323,190 | $ | 293,708 | $ | 324,757 | $ | 358,291 | ||||||||||
Balance of allowance for
loan losses at the
beginning of period |
$ | 6,570 | $ | 6,399 | $ | 6,697 | $ | 5,658 | $ | 4,568 | ||||||||||
Loans charged-off: |
||||||||||||||||||||
Commercial, financial and
agricultural |
37 | 105 | 109 | 139 | 895 | |||||||||||||||
Consumer and other |
525 | 666 | 1,236 | 1,926 | 1,079 | |||||||||||||||
Total loans charged-off |
562 | 771 | 1,345 | 2,065 | 1,974 | |||||||||||||||
Recoveries of loans
previously charged-off: |
||||||||||||||||||||
Commercial, financial and
agricultural |
6 | 49 | 42 | 64 | 230 | |||||||||||||||
Consumer and other |
1,338 | 445 | 558 | 612 | 331 | |||||||||||||||
Total recoveries |
1,344 | 494 | 600 | 676 | 561 | |||||||||||||||
Net loans charged-off |
(782 | ) | 277 | 745 | 1,389 | 1,413 | ||||||||||||||
Provision for loan losses
charged to operating
expense |
3,614 | 448 | 447 | 2,428 | 2,503 | |||||||||||||||
Balance of allowance for
loan losses at end of period |
$ | 10,966 | $ | 6,570 | $ | 6,399 | $ | 6,697 | $ | 5,658 | ||||||||||
Ratio of net charge-offs
during period to
average loans
outstanding |
(0.23 | )% | 0.09 | % | 0.25 | % | 0.43 | % | 0.39 | % | ||||||||||
| (1) | Net of unearned income. |
21
Table of Contents
SCHEDULE IV-B
Allocation of the Allowance for Loan Losses
Allocation of the Allowance for Loan Losses
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||||
| % of | ||||||||||||||||||||||||||||||||||||||||
| % of | % of | Loans | % of | % of | ||||||||||||||||||||||||||||||||||||
| Loans | Loans | to | Loans | Loans | ||||||||||||||||||||||||||||||||||||
| Balance at December | to Total | to Total | Total | to Total | to Total | |||||||||||||||||||||||||||||||||||
| 31, ( In thousands) | Amount | Loans | Amount | Loans | Amount | Loans | Amount | Loans | Amount | Loans | ||||||||||||||||||||||||||||||
Real estate,
construction |
$ | 941 | 5 | $ | 860 | 6 | $ | 658 | 5 | $ | 245 | 7 | $ | 256 | 7 | |||||||||||||||||||||||||
Real estate,
mortgage |
7,605 | 74 | 3,496 | 75 | 3,229 | 74 | 3,770 | 63 | 4,260 | 65 | ||||||||||||||||||||||||||||||
Loans to finance
agricultural
production and
other loans to
farmers |
28 | 1 | 38 | 1 | 20 | 1 | 70 | 2 | 72 | 2 | ||||||||||||||||||||||||||||||
Commercial and
industrial
loans |
2,184 | 15 | 2,072 | 13 | 1,963 | 14 | 2,425 | 21 | 875 | 20 | ||||||||||||||||||||||||||||||
Loans to
individuals for
household,
family and other
consumer
expenditures |
206 | 3 | 103 | 3 | 525 | 4 | 173 | 5 | 175 | 4 | ||||||||||||||||||||||||||||||
Obligations of
states and
political
subdivisions |
-0- | 1 | -0- | 1 | -0- | 1 | -0- | 1 | -0- | 1 | ||||||||||||||||||||||||||||||
All other loans |
2 | 1 | 1 | 1 | 4 | 1 | 14 | 1 | 15 | 1 | ||||||||||||||||||||||||||||||
Unallocated |
-0- | N/A | -0- | N/A | -0- | N/A | -0- | N/A | 5 | N/A | ||||||||||||||||||||||||||||||
Totals |
$ | 10,966 | 100 | $ | 6,570 | 100 | $ | 6,399 | 100 | $ | 6,697 | 100 | $ | 5,658 | 100 | |||||||||||||||||||||||||
22
Table of Contents
SCHEDULE V
Summary of Average Deposits and Their Yields
Summary of Average Deposits and Their Yields
| 2005 | 2004 | 2003 | ||||||||||||||||||||||
| Years Ended December 31, | ||||||||||||||||||||||||
| (In thousands except for | ||||||||||||||||||||||||
| percentage data) | Amount | Rate | Amount | Rate | Amount | Rate | ||||||||||||||||||
Demand deposits in
domestic offices |
$ | 112,922 | N/A | $ | 62,655 | N/A | $ | 119,038 | N/A | |||||||||||||||
Negotiable interest
bearing
deposits
in domestic offices |
175,686 | 1.17 | % | 163,391 | .70 | % | 86,447 | 1.27 | % | |||||||||||||||
Savings deposits in
domestic
offices |
47,316 | .80 | % | 41,962 | .76 | % | 43,352 | .92 | % | |||||||||||||||
Time deposits in
domestic
offices |
114,735 | 2.50 | % | 125,952 | 1.70 | % | 137,218 | 2.11 | % | |||||||||||||||
Total deposits |
$ | 450,659 | 1.18 | % | $ | 393,960 | 0.91 | % | $ | 386,055 | 1.14 | % | ||||||||||||
Certificates of deposit outstanding in amounts $100,000 or more (in thousands) by the amount of
time remaining until maturity as of December 31, 2005, are as follows:
Remaining maturity: |
||||
3 months or less |
$ | 33,225 | ||
Over 3 through 6 months |
8,596 | |||
Over 6 months through 12 months |
9,120 | |||
Over 12 months |
352 | |||
Total |
$ | 51,293 | ||
23
Table of Contents
SCHEDULE VI
Short Term Borrowings
(In thousands except percentage data)
Short Term Borrowings
(In thousands except percentage data)
| 2005 | 2004 | 2003 | ||||||||||
Amount outstanding at December 31, |
$ | 149,268 | $ | 87,277 | $ | 95,039 | ||||||
Weighted average interest rate at
December 31, |
0.95 | % | 1.31 | % | 1.03 | % | ||||||
Maximum outstanding at any month-end
during year |
$ | 159,090 | $ | 104,679 | $ | 97,757 | ||||||
Average amount outstanding during year |
$ | 122,263 | $ | 95,922 | $ | 87,912 | ||||||
Weighted average interest rate |
1.48 | % | 1.09 | % | 1.14 | % | ||||||
Note: Short term borrowings include federal funds purchased from other banks and securities
sold under agreements to repurchase.
24
Table of Contents
SCHEDULE VII
Interest Sensitivity/Gap Analysis
Interest Sensitivity/Gap Analysis
| 0 - 3 | 4 - 12 | 1 - 5 | Over 5 | |||||||||||||||||
| December 31, 2005 (In thousands) | Months | Months | Years | Years | Total | |||||||||||||||
ASSETS: |
||||||||||||||||||||
Loans (1) |
$ | 215,409 | $ | 12,800 | $ | 115,414 | $ | 5,456 | $ | 349,079 | ||||||||||
Available for sale
securities |
3,090 | 28,497 | 122,658 | 24,149 | 178,394 | |||||||||||||||
Held to maturity securities |
61,640 | 57,790 | 10,602 | 4,015 | 134,047 | |||||||||||||||
Total assets |
$ | 280,139 | $ | 99,087 | $ | 248,674 | $ | 33,620 | $ | 661,520 | ||||||||||
FUNDING SOURCES: |
||||||||||||||||||||
Interest bearing deposits |
$ | 347,842 | $ | 40,019 | $ | 27,729 | $ | $ | 415,590 | |||||||||||
Long-term funds |
75 | 223 | 805 | 6,249 | 7,352 | |||||||||||||||
Total funding sources |
$ | 347,917 | $ | 40,242 | $ | 28,534 | $ | 6,249 | $ | 422,942 | ||||||||||
REPRICING/MATURITY GAP: |
||||||||||||||||||||
Period |
$ | (67,778 | ) | $ | 58,845 | $ | 220,140 | $ | 27,371 | $ | 238,578 | |||||||||
Cumulative |
(67,778 | ) | (8,933 | ) | 211,207 | 238,578 | ||||||||||||||
Period Gap/Total Assets |
(10.25 | %) | 8.90 | % | 33.28 | % | 4.14 | % | ||||||||||||
Cumulative Gap/Total Assets |
(10.25 | %) | (1.35 | )% | 31.93 | % | 36.07 | % | ||||||||||||
(1) Amounts stated include fixed and variable rate investments of the balance sheet that
are still accruing interest. Variable rate instruments are included in the next period in which
they are subject to a change in rate. The principal portions of scheduled payments on fixed rate
instruments are included in periods in which they become due or
mature.
25
Table of Contents
ITEM 2 — PROPERTIES
The principal properties of the Company are its 16 business locations, including the Main Office,
which is located at 152 Lameuse Street in Biloxi, MS. All such properties are owned by the
Company, with the exception of the Pass Christian location. The branch facility which had been
located at 125 Henderson Avenue in Pass Christian was completely destroyed in Hurricane Katrina.
Since October 2005, the Pass Christian Branch has been located in a modular branch facility
located at 129 Fleitas Avenue, which is owned by the City of Pass Christian. While public
utilities and services are being restored, city property was made available to local businesses.
The Company expects to rebuild a permanent branch facility in the City of Pass Christian during
2006. The address of the Main Office and branch locations are listed on page 34 of the 2005 Annual
Report to Shareholders.
ITEM 3 — LEGAL PROCEEDINGS
The information included in Note L to the Consolidated Financial Statements included in the 2005
Annual Report to Shareholders is incorporated herein by reference.
ITEM 4 — SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS
None.
PART II
ITEM 5 — MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information provided on page 32 of the 2005 Annual Report is incorporated herein by reference.
ITEM 6 — SELECTED FINANCIAL DATA
The information under the caption “Five Year Comparative Summary of Selected Financial Information”
on page 31 of the 2005 Annual Report is incorporated herein by reference.
ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information under the caption “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” on pages 5 — 9 of the 2005 Annual Report is incorporated herein by
reference.
26
Table of Contents
ITEM 7a — QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information under the caption “Quantitative and Qualitative Disclosures about Market Risk” on
pages 8 — 9 of the 2005 Annual Report is incorporated herein by reference.
ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The following consolidated financial statements of the Company and consolidated subsidiaries and
the independent auditors’ report appearing on pages 10 — 30 of the 2005 Annual Report are
incorporated herein by reference:
Consolidated Statements of Condition on page 10
Consolidated Statements of Income on page 11
Consolidated Statements of Shareholders’ Equity on page 12 — 13
Consolidated Statements of Cash Flows on page 14
Notes to Consolidated Financial Statements on pages 15 — 29
Report of Independent Registered Public Accounting Firm on page 30
Consolidated Statements of Condition on page 10
Consolidated Statements of Income on page 11
Consolidated Statements of Shareholders’ Equity on page 12 — 13
Consolidated Statements of Cash Flows on page 14
Notes to Consolidated Financial Statements on pages 15 — 29
Report of Independent Registered Public Accounting Firm on page 30
ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9a — CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As of December 31, 2005, 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 Company’s 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 Company’s 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 Commission’s rules and forms.
27
Table of Contents
Internal
Control over Financial Reporting
The Company became an Accelerated Filer on December 31, 2005, which requires the acceleration of
the filing deadlines of periodic reports as well as the application of reporting requirements under Section
404 of The Sarbanes-Oxley Act of 2002. However, due to the impact of Hurricane Katrina, the
Company has been unable to complete the assessment and reporting on internal controls over
financial reporting required by paragraphs (a) and (b) of Item 308 of Regulation S-K. In its Form
10-Q for the quarter ended September 30, 2005, the Company disclosed in Item 5 of Part II that it
would probably be unable to be compliant with the SOX 404 reporting in a timely manner.
On March 9, 2006, the Company filed a letter application with the Securities and Exchange
Commission specifically requesting an exemption from the requirement to include disclosures
specified in paragraphs (a) and (b) of Item 308 of Regulation S-K in the Company’s Form 10-K for
the fiscal year ended December 31, 2005, and an exemption from compliance with Rule 13a-15(c) under
the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2005, under authority
given to the Commission by Section 12(h) of the Exchange Act. A copy
of the letter application may be found at Exhibit 99.1.
On March 10, 2006, the Commission issued a Notice announcing that the Company’s application for
relief had been filed. A copy of the Notice may be found at the
Commission’s website, www.sec.gov. It is expected that the Notice will published in the Federal
Register on or about March 16, 2006. A comment period relating to this application extends until
March 30, 2006. At any time after this date, the Commission may issue an order granting the
application.
There were no changes in Company’s internal control over financial reporting that
occurred during the period ended December 31, 2005 that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9b — OTHER INFORMATION
Reports on Form 8-K:
A Report on Form 8-K was filed on December 9, 2005, for the purpose of announcing, by press
release, the declaration of a semi-annual dividend and the approval of the extension of the Stock
repurchase plan.
A Report on Form 8-K was filed on January 23, 2006, for the purpose of announcing, by press
release, the earnings for the year ended December 31, 2005.
28
Table of Contents
PART III
ITEM 10 — DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in Sections II, VII, VIII and IX contained in the Proxy Statement in connection
with the Annual Meeting of Shareholders to be held April 12, 2006, which was filed by the Company
in definitive form with the Commission on March 10, 2006, is incorporated herein by reference.
The Company’s Board of Directors has adopted a Code of Conduct that applies to not only the chief
executive officer and the chief financial officer, but also all of the officers, directors and
employees of the Company and its subsidiaries. A copy of this Code of Conduct can be found at the
Company’s internet website at www.thepeoples.com. The Company intends to disclose any
amendments to its Code of Conduct, and any waiver from a provision of the Code of Conduct granted
to the Company’s chief executive officer or chief financial officer on the Company’s internet
website within five business days following such amendment or waiver. The information contained on
or connected to the Company’s internet website is not incorporated by reference into this Form 10-K
and should not be considered part of this or any other report that the Company may file with or
furnish to the SEC.
ITEM 11 — EXECUTIVE COMPENSATION
The information in Section V contained in the Proxy Statement in connection with the Annual Meeting
of Shareholders to be held April 12, 2006, which was filed by the Company in definitive form with
the Commission on March 10, 2006, is incorporated herein by reference.
ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in Sections III and IV contained in the Proxy Statement in connection with the
Annual Meeting of Shareholders to be held April 12, 2006, which was filed by the Company in
definitive form with the Commission on March 10, 2006, is incorporated herein by reference.
ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in Sections V, VI, VII and IX contained in the Proxy Statement in connection with
the Annual Meeting of Shareholders to be held April 12, 2006, which was filed by the Company in
definitive form with the Commission on March 10, 2006, is incorporated herein by reference.
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ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information in Section XII contained in the Proxy Statement in connection with the Annual
Meeting of Shareholders to be held April 12, 2006, which was filed by the Company in definitive
form with the Commission on March 10, 2006, is incorporated herein by reference.
PART IV
ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 — K
(a) 1. Index of Financial Statements:
See Item 8.
(a) 2. Index of Financial Schedules:
All other schedules have been omitted as not applicable or not required or because the
information has been included in the financial statements or applicable notes.
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(a) 3. Index of Exhibits:
| Exhibit | ||||||||||||
| Incorporated by | Number | |||||||||||
| Reference to Registration | Form of | Date of | in | |||||||||
| Description | or file Number | Report | Report | Report | ||||||||
(3.1)
|
Articles of Incorporation | 0-30050 | 10/a | 6/21/99 | 3.1 | |||||||
(3.2)
|
By-Laws | 0-30050 | 10/a | 6/21/99 | 3.2 | |||||||
(10.1)
|
Description of Automobile Plan | 0-30050 | 10-K | 12/31/03 | 10.1 | |||||||
(10.2)
|
Directors’ Deferred Income Plan Agreements | 0-30050 | 10-K | 12/31/03 | 10.2 | |||||||
(10.3)
|
Executive Supplemental Income Plan Agreements | 0-30050 | 10-K | 12/31/03 | 10.3 | |||||||
(10.4)
|
Split Dollar Plan Agreements | 0-30050 | 10-K | 12/31/03 | 10.4 | |||||||
(10.5)
|
Deferred Compensation Plan | 33-15595 | 10-K | 12/31/93 | 10.5 | |||||||
(10.6)
|
Description of Stock Incentive Plan | 33-15595 | 10-K | 12/31/01 | 10.6 | |||||||
(13)
|
Annual Report to Shareholders for year ended December 31, 2005 * (C) | |||||||||||
(21)
|
Proxy Statement for Annual Meeting of Shareholders to be held April 12, 2006 | |||||||||||
(22)
|
Subsidiaries of the registrant | 33-15595 | 10-K | 12/31/88 | 22 | |||||||
(23)
|
Consent of Independent Registered Public Accounting Firm * | |||||||||||
(31.1)
|
Certification of Chief Executive
Officer Pursuant to Section 302 of
the Sarbanes — Oxley Act of 2002* |
|||||||||||
(31.2)
|
Certification of Chief Financial
Officer Pursuant to Section 302 of
the Sarbanes — Oxley Act of 2002* |
|||||||||||
(32.1)
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. ss. 1350* | |||||||||||
(32.2)
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. ss. 1350* | |||||||||||
(99.1)
|
Letter Application for Exemption
under Authority given by Section 12(h) of the Exchange |
81-00935 | 34-12H | 3/10/06 | ||||||||
(b) Reports on Form 8-K:
A Form 8-K was filed on December 9, 2005 and January 23, 2006.
A Form 8-K was filed on December 9, 2005 and January 23, 2006.
( c) Furnished for the information of the Commission only and not deemed “filed” except for those
portions which are specifically incorporated herein.
* Filed herewith.
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SIGNATURES
Pursuant to the requirements 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: March 16, 2006 | ||||||
| BY: | /s/ Chevis C. Swetman | |||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
| BY: | /s/ Chevis C. Swetman | |||||
| Date: | March 16, 2006 | |||||
| Chevis C. Swetman, Chairman, President and CEO |
BY:
|
/s/ Drew Allen | BY: | /s/ Dan Magruder | |||||
Date:
|
March 10, 2006 | Date: | March 10, 2006 | |||||
| Drew Allen, Director | Dan Magruder, Director | |||||||
BY:
|
BY: | /s/ Lyle M. Page | ||||||
Date:
|
Date: | March 9, 2006 | ||||||
| Rex E. Kelly, Director | Lyle M. Page, Director | |||||||
| BY: | /s/ Lauri A. Wood | |||||||
| Date: | March 9, 2006 | |||||||
| Lauri A. Wood, Principal Financial and Accounting Officer | ||||||||
32