PEOPLES FINANCIAL CORP /MS/ - Quarter Report: 2019 September (Form 10-Q)

 

 

UNITED STATES

           SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

September 30, 2019

or

[   ] 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)

 

Mississippi	64-0709834
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

 

Lameuse and Howard Avenues, Biloxi, Mississippi	39533
(Address of principal executive offices)	(Zip Code)

           

(228) 435-5511

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes  X    No ___

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes   X    No ___

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ___	Accelerated filer	Smaller reporting company   X
Non-accelerated filer ____		Emerging growth company ___

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. _____

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes _____ No   X  

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	PFBX	None

 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date. Peoples Financial Corporation has only one class of common stock authorized. At October 31, 2019, there were 15,000,000 shares of $1 par value common stock authorized, with 4,943,186 shares issued and outstanding.

 

 

 

		September 30, 2019				December 31, 2018
		(unaudited)				(audited)
Assets
Cash and due from banks		$	28,479			$	17,191
Available for sale securities			219,930				222,110
Held to maturity securities, fair value of $56,416 at September 30, 2019; $53,459 at December 31, 2018			55,262				54,598
Other investments			2,693				2,811
Federal Home Loan Bank Stock, at cost			2,103				2,069
Loans			264,815				273,346
Less: Allowance for loan losses			4,383				5,340
Loans, net			260,432				268,006
Bank premises and equipment, net of accumulated depreciation			17,820				18,879
Other real estate			7,606				8,943
Accrued interest receivable			2,227				1,956
Cash surrender value of life insurance			19,248				18,841
Other assets			1,689				1,382
Total assets		$	617,489			$	616,786

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		September 30, 2019				December 31, 2018
		(unaudited)				(audited)
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand, non-interest bearing		$	134,401			$	114,512
Savings and demand, interest bearing			283,170				278,772
Time, $100,000 or more			57,818				52,787
Other time deposits			26,057				27,435
Total deposits			501,446				473,506
Borrowings from Federal Home Loan Bank			1,041				36,142
Employee and director benefit plans liabilities			18,782				18,415
Other liabilities			1,893				1,789
Total liabilities			523,162				529,852
Shareholders' Equity:
Common stock, $1 par value, 15,000,000 shares authorized, 4,943,186 shares issued and outstanding at September 30, 2019 and December 31, 2018			4,943				4,943
Surplus			65,780				65,780
Undivided profits			20,827				20,324
Accumulated other comprehensive income (loss), net of tax			2,777				(4,113	)
Total shareholders' equity			94,327				86,934
Total liabilities and shareholders' equity		$	617,489			$	616,786

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		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Interest income:
Interest and fees on loans		$	3,362			$	3,335			$	10,466			$	9,798
Interest and dividends on securities:
U.S. Treasuries			283				343				872				1,090
U.S. Government agencies			118				114				360				350
Mortgage-backed securities			801				662				2,419				1,835
States and political subdivisions			425				438				1,321				1,317
Collateralized mortgage obligations			50								100
Other investments			4				10				44				20
Interest on balances due from depository institutions			98				80				289				179
Total interest income			5,141				4,982				15,871				14,589
Interest expense:
Deposits			770				682				2,382				1,689
Federal funds purchased							1								8
Borrowings from Federal Home Loan Bank			42				26				200				131
Total interest expense			812				709				2,582				1,828
Net interest income			4,329				4,273				13,289				12,761
Provision for allowance for loan losses			59				28				169				91
Net interest income after provision for allowance for loan losses		$	4,270			$	4,245			$	13,120			$	12,670

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		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Non-interest income:
Trust department income and fees		$	439			$	475			$	1,225			$	1,360
Service charges on deposit accounts			971				941				2,771				2,771
Gain on liquidation, sales and calls of securities			61								61
Increase in cash surrender value of life insurance			110				109				326				349
Other income			142				123				405				364
Total non-interest income			1,723				1,648				4,788				4,844
Non-interest expense:
Salaries and employee benefits			2,758				2,706				8,269				8,260
Net occupancy			530				559				1,546				1,449
Equipment rentals, depreciation and maintenance			790				753				2,462				2,352
FDIC and state banking assessments			104				111				294				322
Data processing			343				359				1,000				1,016
ATM expense			181				167				511				439
Other real estate expense			148				174				638				658
Loss from other investments			6				115				118				214
Other expense			657				777				2,517				2,277
Total non-interest expense			5,517				5,721				17,355				16,987
Income before income taxes			476				172				553				527
Income tax
Net income		$	476			$	172			$	553			$	527
Basic and diluted earnings per share		$	.09			$	.03			$	.11			$	.10
Dividends declared per share		$				$	.01			$	.01			$	.02

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		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Net income		$	476			$	172			$	553			$	527
Other comprehensive income (loss):
Net unrealized gain (loss) on available for sale securities			1,043				(898	)			6,951				(3,983	)
Reclassification adjustment for realized gain on available for sale securities called or sold			(61	)							(61	)
Total other comprehensive income (loss)			982				(898	)			6,890				(3,983	)
Total comprehensive income (loss)		$	1,458			$	(726	)		$	7,443			$	(3,456	)

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																		Accumulated
		Number of																Other
		Common				Common								Undivided				Comprehensive
		Shares				Stock				Surplus				Profits				Gain (Loss)				Total
Balance, January 1, 2018			5,083,186			$	5,083			$	65,780			$	21,563			$	(2,927	)		$	89,499
Net income															292								292
Other comprehensive loss																			(2,594	)			(2,594	)
Retirement of stock			(10,392	)			(10	)							(135	)							(145	)
Balance, March 31, 2018			5,072,794				5,073				65,780				21,720				(5,521	)			87,052
Net income															63								63
Other comprehensive loss																			(491	)			(491	)
Dividends ($ .01 per share)															(51	)							(51	)
Retirement of stock			(35,075	)			(35	)							(452	)							(487	)
Balance, June 30, 2018			5,037,719				5,038				65,780				21,280				(6,012	)			86,086
Net income															172								172
Other comprehensive loss																			(898	)			(898	)
Dividends ($ .01 per share)															(50	)							(50	)
Retirement of stock			(24,533	)		$	(25	)							(317	)							(342	)
Balance, September 30, 2018			5,013,186			$	5,013			$	65,780			$	21,085			$	(6,910	)		$	84,968
Balance, January 1, 2019			4,943,186			$	4,943			$	65,780			$	20,324			$	(4,113	)		$	86,934
Net income															405								405
Other comprehensive income																			3,346				3,346
Balance, March 31, 2019			4,943,186				4,943				65,780				20,729				(767	)			90,685
Net loss															(328	)							(328	)
Other comprehensive income																			2,562				2,562
Dividends ($ .01 per share)															(50	)							(50	)
Balance, June 30, 2019			4,943,186				4,943				65,780				20,351				1,795				92,869
Net income															476								476
Other comprehensive income																			982				982
Balance, September 30, 2019			4,943,186			$	4,943			$	65,780			$	20,827			$	2,777			$	94,327

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		Nine Months Ended September 30,
		2019				2018
Cash flows from operating activities:
Net income		$	553			$	527
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			1,426				1,462
Provision for allowance for loan losses			169				91
Writedown of other real estate			442				320
Gain on sales of other real estate			(387	)
Loss from other investments			118				214
Amortization of held to maturity securities			200				192
Amortization of available for sale securities			136				249
Gain on sales and calls of securities			(61	)
Change in accrued interest receivable			(271	)			(348	)
Increase in cash surrender value of life insurance			(326	)			(349	)
Change in other assets			(307	)			(126	)
Change in employee and director benefit plan liabilities and other liabilities			471				271
Net cash provided by operating activities		$	2,163			$	2,503

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		Nine Months Ended September 30,
		2019				2018
Cash flows from investing activities:
Proceeds from maturities, sales and calls of available for sale securities		$	42,626			$	46,506
Proceeds from maturities of held to maturity securities			1,740				760
Purchases of available for sale securities			(33,631	)			(26,486	)
Purchases of held to maturity securities			(2,604	)			(2,155	)
Purchases of Federal Home Loan Bank stock			(34	)			(76	)
Proceeds from sales of other real estate			2,940				1,972
Loans, net change			5,747				1,697
Acquisition of bank premises and equipment			(367	)			(640	)
Investment in cash surrender value of life insurance			(81	)			(65	)
Net cash provided by investing activities			16,336				21,513
Cash flows from financing activities:
Demand and savings deposits, net change			24,287				(22,435	)
Time deposits, net change			3,653				(2,342	)
Borrowings from Federal Home Loan Bank			739,157				851,800
Repayments to Federal Home Loan Bank			(774,258	)			(853,842	)
Cash dividends paid			(50	)			(51	)
Stock repurchase							(974	)
Net cash used in financing activities			(7,211	)			(27,844	)
Net increase (decrease) in cash and cash equivalents			11,288				(3,828	)
Cash and cash equivalents, beginning of period			17,191				25,281
Cash and cash equivalents, end of period		$	28,479			$	21,453

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1. Basis of Presentation:

Peoples Financial Corporation (the “Company”) is a one-bank holding company headquartered in Biloxi, Mississippi. It has two subsidiaries, PFC Service Corp., an inactive company, 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 operating in those portions of Mississippi, Louisiana and Alabama which are within a fifty mile radius of the Waveland, Wiggins and Gautier branches, the Bank’s three most outlying locations (the “trade area”).

 

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 (“GAAP”), the financial position of the Company and its subsidiaries as of September 30, 2019 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 Company’s 2018 Annual Report and Form 10-K.

 

The results of operations for the quarter or nine months ended September 30, 2019, 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 GAAP 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 reporting period. Actual results could differ from those estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, the valuation of other real estate acquired in connection with foreclosure or in satisfaction of loans and valuation allowances associated with the realization of deferred tax assets, which are based on future taxable income.

 

Summary of Significant Accounting Policies - The accounting and reporting policies of the Company conform to GAAP and general practices within the banking industry. 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, 2018.

 

In April 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2019-04 (“ASU 2019-04”), Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. ASU 2019-04 includes technical corrections relating to scope, held to maturity disclosures, measurement alternative and remeasurement of equity securities. The effective date is for fiscal years beginning after December 31, 2019, including interim periods within those fiscal years. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, result of operations or cash flows.

 

 

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, is intended to provide financial statement users with more decision-useful information related to expected credit losses on financial instruments and other commitments to extend credit by replacing the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates.   As issued, ASU 2016-13 was to be effective for the Company for interim and annual periods beginning after December 15, 2019 and the Company intended to adopt ASU 2016-13 during the first quarter of 2020.   The Company’s Current Expected Credit Loss (CECL) Committee continues to evaluate the impact this ASU will have on the Company’s financial position, results of operations and financial statement disclosures and determine the most appropriate method of implementing this ASU.  Management will continue to evaluate the impact this ASU will have on the Company’s consolidated financial statements through its effective date. In October, FASB voted to delay the effective date of ASU 2016-13 for certain entities until January 1, 2023, which will apply to the Company. An ASU is expected to be issued in November to codify this action.

 

2. Earnings Per Share:

Per share data is based on the weighted average shares of common stock outstanding of 4,943,186 and 5,051,306 for the nine months ended September 30, 2019 and 2018, respectively. Per share data is based on the weighted average shares of common stock outstanding of 4,943,186 and 5,020,021 for the quarters ended September 30, 2019 and 2018, respectively.

 

3. Statements of Cash Flows:

The Company has defined cash and cash equivalents as cash and due from banks. The Company paid $2,565,020 and $1,816,998 for the nine months ended September 30, 2019 and 2018, respectively, for interest on deposits and borrowings. No income tax payments were made during the nine months ended September 30, 2019 and 2018. Loans transferred to other real estate amounted to $1,658,274 and $3,952,191 during the nine months ended September 30, 2019 and 2018, respectively.

 

 

 

4.  Investments:

The amortized cost and fair value of securities at September 30, 2019 and December 31, 2018, are as follows (in thousands):

 

 

 

 

The amortized cost and fair value of debt securities at September 30, 2019 (in thousands), by contractual maturity, are shown on the following page. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

 

Available for sale and held to maturity securities with gross unrealized losses at September 30, 2019 and December 31, 2018, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows (in thousands):

 

 

At September 30, 2019, 11 of 15 securities issued by the U.S. Treasury, 2 of the 5 securities issued by U.S. Government agencies, 3 of the 47 mortgage-backed securities, 2 of the 3 collateralized mortgage obligations and 16 of the 136 securities issued by states and political subdivisions, contained unrealized losses.

 

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, the fact that the Company’s securities are primarily issued by U.S. Treasury and U.S. Government Agencies and the cause of the decline in value are considered. In addition, the Company does not intend to sell and it is not more likely than not that it will be required to sell these securities before maturity. While some available for sale securities have been sold for liquidity purposes or for gains, the Company has traditionally held its securities, including those classified as available for sale, until maturity. As a result of the evaluation of these securities, the Company has determined that the unrealized losses summarized in the tables above are not deemed to be other-than-temporary.

 

 

Proceeds from sales and calls of available for sale securities were $5,051,884 during the nine months ended September 30, 2019. Available for sale debt securities were sold or called for a realized gain of $61,103 for the nine months ended September 30, 2019. There were no sales or calls of securities in 2018.

 

Securities with a fair value of $254,617,712 and $206,017,056 at September 30, 2019 and December 31, 2018, respectively, were pledged to secure public deposits, federal funds purchased and other balances required by law.

 

5. Loans:

The composition of the loan portfolio at September 30, 2019 and December 31, 2018, is as follows (in thousands):

 

 

 

The age analysis of the loan portfolio, segregated by class of loans, as of September 30, 2019 and December 31, 2018, is as follows (in thousands):

 

 

The Company monitors the credit quality of its loan portfolio through the use of a loan grading system. A score of 1 – 5 is assigned to the loan on factors including repayment ability, trends in net worth and/or financial condition of the borrower and guarantors, employment stability, management ability, loan to value fluctuations, the type and structure of the loan, conformity of the loan to bank policy and payment performance. Based on the total score, a loan grade of A, B, C, S, D, E or F is applied. A grade of A will generally be applied to loans for customers that are well known to the Company and that have excellent sources of repayment. A grade of B will generally be applied to loans for customers that have excellent sources of repayment which have no identifiable risk of collection. A grade of C will generally be applied to loans for customers that have adequate sources of repayment which have little identifiable risk of collection. A grade of S will generally be applied to loans for customers who meet the criteria for a grade of C but also warrant additional monitoring by placement on the watch list. A grade of D will generally be applied to loans for customers that are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans with a grade of D have unsatisfactory characteristics such as cash flow deficiencies, bankruptcy filing by the borrower or dependence on the sale of collateral for the primary source of repayment, causing more than acceptable levels of risk. Loans 60 to 89 days past due receive a grade of D. A grade of E will generally be applied to loans for customers with weaknesses inherent in the “D” classification and in which collection or liquidation in full is questionable. In addition, on a monthly basis the Company determines which loans are 90 days or more past due and assigns a grade of E to them. A grade of F is applied to loans which are considered uncollectible and of such little value that their continuance in an active bank is not warranted. Loans with this grade are charged off, even though partial or full recovery may be possible in the future.

 

 

An analysis of the loan portfolio by loan grade, segregated by class of loans, as of September 30, 2019 and December 31, 2018, is as follows (in thousands):

 

 

 

A loan may be impaired but not on nonaccrual status when the loan is well secured and in the process of collection. Total loans on nonaccrual as of September 30, 2019 and December 31, 2018, are as follows (in thousands):

 

 

Prior to 2018, certain loans were modified by granting interest rate concessions to these customers with such loans being classified as troubled debt restructurings. During 2018 and 2019, the Company did not restructure any additional loans. Specific reserves of $63,000 and $69,000 were allocated to troubled debt restructurings as of September 30, 2019 and December 31, 2018, respectively. The Bank had no commitments to lend additional amounts to customers with outstanding loans classified as troubled debt restructurings as of September 30, 2019 and December 31, 2018.

 

 

Impaired loans, which include loans classified as nonaccrual and troubled debt restructurings, segregated by class of loans, as of September 30, 2019 and December 31, 2018, are as follows (in thousands):