PEOPLES FINANCIAL CORP /MS/ - Quarter Report: 2020 March (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

March 31, 2020

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)

 

 

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 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 ☒  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 ☒  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 ☒
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 ☒

 

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 April 30, 2020, there were 15,000,000 shares of $1 par value common stock authorized, with 4,893,061 shares issued and outstanding.

 

 

 

		March 31, 2020				December 31, 2019
		(unaudited)				(audited)
Assets
Cash and due from banks		$	40,376			$	29,424
Available for sale securities			239,659				196,311
Held to maturity securities, fair value of $50,229 at March 31, 2020; $53,130 at December 31, 2019			48,718				52,231
Other investments			2,605				2,643
Federal Home Loan Bank Stock, at cost			2,129				2,129
Loans			270,928				268,949
Less: Allowance for loan losses			4,191				4,207
Loans, net			266,737				264,742
Bank premises and equipment, net of accumulated depreciation			16,753				17,421
Other real estate			6,573				7,453
Accrued interest receivable			2,045				1,687
Cash surrender value of life insurance			19,512				19,381
Other assets			1,042				1,280
Total assets		$	646,149			$	594,702

		March 31, 2020				December 31, 2019
		(unaudited)				(audited)
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand, non-interest bearing		$	133,549			$	122,592
Savings and demand, interest bearing			312,858				263,153
Time, $100,000 or more			54,270				64,492
Other time deposits			25,148				25,906
Total deposits			525,825				476,143
Borrowings from Federal Home Loan Bank			1,012				3,526
Employee and director benefit plans liabilities			18,453				18,361
Other liabilities			1,316				1,549
Total liabilities			546,606				499,579
Shareholders' Equity:
Common stock, $1 par value, 15,000,000 shares authorized, 4,893,061 and 4,943,186 shares issued and outstanding at March 31, 2020 and December 31, 2019			4,893				4,943
Surplus			65,780				65,780
Undivided profits			22,448				21,855
Accumulated other comprehensive income			6,422				2,545
Total shareholders' equity			99,543				95,123
Total liabilities and shareholders' equity		$	646,149			$	594,702

 

		Three Months Ended March 31,
		2020				2019
Interest income:
Interest and fees on loans		$	3,205			$	3,689
Interest and dividends on securities:
U.S. Treasuries			291				294
U.S. Government agencies			82				125
Mortgage-backed securities			749				822
Collateralized mortgage obligations			111				12
States and political subdivisions			413				460
Other investments			1				11
Interest on balances due from depository institutions			155				87
Total interest income			5,007				5,500
Interest expense:
Deposits			599				802
Borrowings from Federal Home Loan Bank			12				78
Total interest expense			611				880
Net interest income			4,396				4,620
Provision for allowance for loan losses			64				54
Net interest income after provision for allowance for loan losses		$	4,332			$	4,566

		Three Months Ended March 31,
		2020				2019
Non-interest income:
Trust department income and fees		$	371			$	371
Service charges on deposit accounts			911				882
Gain on sales and calls of available for sale securities			433
Increase in cash surrender value of life insurance			108				105
Other income			443				108
Total non-interest income			2,266				1,466
Non-interest expense:
Salaries and employee benefits			2,674				2,734
Net occupancy			487				474
Equipment rentals, depreciation and maintenance			794				833
FDIC and state banking assessments			98				102
Data processing			314				347
ATM expense			185				169
Other real estate expense			136				50
Loss from other investments			38				60
Other expense			749				858
Total non-interest expense			5,475				5,627
Net income		$	1,123			$	405
Basic and diluted earnings per share		$	.23			$	.08
Dividends declared per share		$				$

 

		Three Months Ended March 31,
		2020				2019
Net income		$	1,123			$	405
Other comprehensive income:
Net unrealized gain on available for sale securities			4,310				3,346
Reclassification adjustment for realized gains on available for sale securities called or sold in current year			(433	)
Total other comprehensive income			3,877				3,346
Total comprehensive income		$	5,000			$	3,751

 

																		Accumulated
		Number of																Other
		Common				Common								Undivided				Comprehensive
		Shares				Stock				Surplus				Profits				Income (Loss)				Total
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
Balance, January 1, 2020			4,943,186			$	4,943			$	65,780			$	21,855			$	2,545			$	95,123
Net income															1,123								1,123
Other comprehensive income																			3,877				3,877
Stock retirement			(50,125	)			(50	)							(530	)							(580	)
Balance, March 31, 2020			4,893,061			$	4,893			$	65,780			$	22,448			$	6,422			$	99,543

 

		Three Months Ended March 31,
		2020				2019
Cash flows from operating activities:
Net income		$	1,123			$	405
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			471				488
Provision for allowance for loan losses			64				54
Writedown of other real estate			98
(Gain) loss on sales of other real estate			(42	)			20
Loss from other investments			38				60
Gain on liquidation, sales and calls of securities			(433	)
Gain from sale of banking house			(318	)
Amortization (accretion) of available for sale securities			(71	)			50
Amortization of held to maturity securities			63				66
Change in accrued interest receivable			(358	)			(349	)
Increase in cash surrender value of life insurance			(108	)			(105	)
Change in other assets			238				(75	)
Change in other liabilities			(141	)			(333	)
Net cash provided by operating activities		$	624			$	281

		Three Months Ended March 31,
		2020				2019
Cash flows from investing activities:
Proceeds from maturities, sales or calls of available for securities		$	57,886			$	8,104
Purchases of available for sale securities			(96,853	)			(4,817	)
Proceeds from maturities of held to maturity securities			5,950				520
Purchases of held to maturity securities			(2,500	)			(620	)
Purchases of Federal Home Loan Bank stock							(8	)
Proceeds from sales of other real estate			747				419
Proceeds from insurance on other real estate			77
Loans, net change			(2,059	)			5,467
Acquisition of bank premises and equipment			(32	)			(171	)
Proceeds from sale of banking premises and equipment			547
Investment in cash surrender value of life insurance			(23	)			(36	)
Net cash provided by (used in) investing activities			(36,260	)			8,858
Cash flows from financing activities:
Demand and savings deposits, net change			60,662				37,944
Time deposits, net change			(10,980	)			9,887
Borrowings from Federal Home Loan Bank			59,500				223,250
Repayments to Federal Home Loan Bank			(62,014	)			(258,324	)
Retirement of common stock			(580	)
Net cash provided by financing activities			46,588				12,757
Net increase in cash and cash equivalents			10,952				21,896
Cash and cash equivalents, beginning of period			29,424				17,191
Cash and cash equivalents, end of period		$	40,376			$	39,087

 

1. Basis of Presentation:

Peoples Financial Corporation (the “Company”) is a one-bank holding company headquartered in Biloxi, Mississippi. The Company 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 March 31, 2020 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 2019 Annual Report and Form 10-K.

 

The results of operations for the quarter ended March 31, 2020, 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 reported 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, 2019.

 

Accounting Standards Update – In January 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2020-01 (“ASU 2020-01”), Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323) and Derivatives and Hedging (Topic 815). The amendments in this update improve current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. ASU 2020-01 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. The adoption of this ASU is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

 

In February 2020, the FASB issued Accounting Standards Update 2020-02 (“ASU 2020-02”), Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 843) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Lease (Topic 842) . This update adds an SEC paragraph pursuant to the issuance of SEC Staff Accounting Bulletin No. 119 relating the credit losses and addresses the adoption of new lease guidance. ASU 2020-02 is effective upon issuance. The adoption of this ASU is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

In March 2020, the FASB issued Accounting Standards Update 2020-03 (“ASU 2020-03”), Codification Improvements to Financial Instruments. This update amends or clarifies specific issues relating to fair value option disclosures, alignment of certain disclosures for depository and lending institutions, and improvement of guidance for debt instruments and net asset value practical expedient, leases, transfers and servicing. ASU 2020-03 is effective for various fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019 and beginning after December 15, 2022. The adoption of this ASU is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

2. Earnings Per Share:

Per share data is based on the weighted average shares of common stock outstanding of 4,927,616 and 4,943,186 for the three months ended March 31, 2020 and 2019, respectively.

 

3. Statements of Cash Flows:

The Company has defined cash and cash equivalents as cash and due from banks. The Company paid $611,708 and $852,975 for the three months ended March 31, 2020 and 2019, respectively, for interest on deposits and borrowings. No income tax payments were made during the three months ended March 31, 2020 and 2019. Loans transferred to other real estate amounted to $369,054 during the three months ended March 31, 2019. No loans were transferred to other real estate during the three months ended March 31, 2020.

 

4. Investments:

The amortized cost and fair value of securities at March 31, 2020 and December 31, 2019, are as follows (in thousands):

 

 

 

 

The amortized cost and fair value of debt securities at March 31, 2020 (in thousands), by contractual maturity, are shown below. 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 March 31, 2020 and December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows (in thousands):

 

 

At March 31, 2020, 6 of the 47 mortgage-backed securities, 2 of the 6 collateralized mortgage obligations and 12 of the 125 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 or calls of available for sale debt securities were $22,360,747 for the three months ended March 31, 2020 for a realized gain of $432,779. There were no sales or calls of available for sale debt securities during the three months ended March 31, 2019.

 

Securities with a fair value of $288,143,602 and $230,065,621 at March 31, 2020 and December 31, 2019, 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 March 31, 2020 and December 31, 2019, is as follows (in thousands):

 

 

 

The age analysis of the loan portfolio, segregated by class of loans, as of March 31, 2020 and December 31, 2019, 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 based 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 who 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 March 31, 2020 and December 31, 2019, 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 March 31, 2020 and December 31, 2019, are as follows (in thousands):

 

 

During the first quarter of 2020, the Company modified 96 loans with a total balance of $38,970,417 for certain customers by extending payments for 90 days as a result of the impact of COVID-19. All such loans were current at the time they were modified. Accordingly, such loans were not classified as troubled debt restructurings.

 

Prior to 2019, certain loans were modified by granting interest rate concessions to these customers with such loans being classified as troubled debt restructurings. During 2019 and 2020, the Company did not restructure any additional loans. Specific reserves of $63,106 were allocated to troubled debt restructurings as of March 31, 2020 and December 31, 2019. The Bank had no commitments to lend additional amounts to customers with outstanding loans classified as troubled debt restructurings as of March 31, 2020 and December 31, 2019.

 

 

Impaired loans, which include loans classified as nonaccrual and troubled debt restructurings, segregated by class of loans, as of March 31, 2020 and December 31, 2019, are as follows (in thousands):