P E O P L E S F I N A N C I A L C O R P O R A T I O N A N N U A L R E P O R T
P E O P L E S F I N A N C I A L C O R P O R A T I O N A N N U A L R E P O R T
2004
T O O U R S H A R E H O L D E R S :
As you travel along the beach, you will
see that things are looking up along the
T H E C O A S T L O O K S U P — L I T E R A L L Y A N D E C O N O M I C A L L Y
T H E C O A S T L O O K S U P — L I T E R A L L Y A N D E C O N O M I C A L L Y
Mississippi Gulf Coast. For the first time in
more than six years, a new casino is rising
on the beach in Biloxi, and for the first time
in history, new high-rise condominiums are
going up as well. This is good for the Coast.
IIf 2004 saw the beginning of a new phase of construction activity, the year
advanced stages of planning, and the expansion of the Coast Coliseum is
ahead promises even more. At least two more casino resorts are in
expected to begin later this year.
All this construction activity—what I like to refer to as the “Crane Index”—
Shrimp boats at the dock behind the rising Hard Rock Casino under construction
symbolize the past and the future of the Mississippi Gulf Coast and The Peoples Bank.
We spent a good deal of our efforts in 2004 positioning our bank to benefit
even more from the growth of tourism. During the fourth quarter, we sold
a number of investment securities in order to provide liquidity to maintain
the pace of our loan growth. In addition, we increased our deposit base,
offering an innovative product named the “Turbo CD” that gives the bank
long-term deposits and the customer an opportunity to increase the yield
points to more jobs today and ultimately more tourists tomorrow, all of
one time during the life of the CD. These steps give us capacity for more
which ripple through our local economy to create even more jobs, more
loans, which generate significantly greater return to the bank.
spending and more business. We find ourselves here along the Coast in
a revitalized cycle of economic development.
In closing out a very successful 2004, I want to recognize and thank our
great team of dedicated employees, managers and directors for making it
As our local economy continues its transition to a tourism foundation, The
so. They collectively deserve the credit for developing our strategic plan
Peoples Bank is reaping the benefit of the change. Our loan volume in 2004
and implementing it every day with every customer to benefit our com-
rose a solid 11%, significantly greater than the growth of the overall healthy
munity and our shareholders. On their behalf, I want to express our shared
economy on the Coast. In addition, we are seeing consistent improvement
commitment to enhancing the value of your investment.
in the quality of our loans, with a corresponding reduction in our
allowance for loan loss from 2.12% in 2003 down to 1.97% in 2004.
Sincerely,
Chevis C. Swetman
Chairman of the Board, Chief Executive Officer & President
1
$5,794
$5,018
$0.26
$0.24
$3,191
$0.32
$332,703
$312,296
$297,923
4.35%
8.33%
23.08%
2002
2003
2004
2002
2003
2004
2002
2003
2004
Net Income (in thousands)
Dividends (per share)
% increase from previous year
Loans (in thousands)
T H E Y E A R I N R E V I E W
E A R N I N G S I N C R E A S E 1 5 % , L O A N S G R O W 1 1 %
E A R N I N G S I N C R E A S E 1 5 % , L O A N S G R O W 1 1 %
Net income in 2004 reached $5.8 million, a 15% increase over 2003
and the highest since 1999. In addition, loan volume grew 11%
during 2004, indicating a significant increase in business
activity along the Mississippi Gulf Coast.
W
We began to see our loan volume begin to pick up in early 2004, and it
continued its pace throughout the year. At the same time, the quality
of loans on our books continues to improve, which has allowed the bank
to reduce its provision for loan loss to less than $500,000 each of the
last two years. We are confident that we have successfully worked
through a series of credit problems that impacted our earnings a few
years ago.
The improvement in our credit quality can be attributed to two distinct
but related factors. The first is the establishment of a separate credit
administration function as part of our new management structure
2
initiated in late 2003 and implemented throughout 2004. Our new credit
administration function works together with our lenders to significantly
strengthen the underwriting, communications and monitoring of our
growing loan portfolio.
The second factor in helping us increase both the quantity and the quality
of our loans is, ironically, the Sarbanes-Oxley Act, which was originally
passed by Congress to combat accounting fraud. Beyond tactical compliance
with a number of new regulations, the underlying intent of Sarbanes-
Oxley is to strongly encourage—if not force—publicly owned companies to
establish a policy of “best practices” in their corporate governance.
Led by our board of directors, we have set high goals for embracing
the spirit of Sarbanes-Oxley, and we have established a number
of new procedures to make certain the federally mandated
guidelines are not only met but exceeded.
We have improved communications between management
and the board; we have reorganized and empowered
committees of independent board members, especially
audit and nominating committees; we have implemented more effective
disclosure procedures for financial reporting and we are in the process of
examining our internal controls over financial reports.
All of these steps make us a better company under the law. However, com-
bined with our new management structure, they have made us a better
bank. Today, we are more capable of managing the higher loan volumes
we are experiencing and more prepared than ever before to accommodate
additional growth in the future.
D I V I D E N D I N C R E A S E S T W I C E
As a result of the higher earnings in 2004 and the prospect of continued
strength indicated by the growth of loan volume, the Board of Directors
raised the semi-annual common stock dividend twice during the year. The
January dividend was increased to $.15 a common share, and the July
dividend was raised to $.17 a share. The annual dividend of $.32 a share
paid in 2004 was 23% higher than what was paid in 2003. In December
2004, the Board approved another increase in the semi-annual dividend to
$.18 a share, the fourth rise in two years.
N E W B R A N C H E S B U I L T
During the year, we expanded our retail footprint with the construction of
two new branches. The first is located in Waveland to serve the rapidly
growing population of Hancock county. The Waveland branch opened
October 12 and was formally dedicated October 28, 2004.
The second new branch is located in the Cedar Lake area of Biloxi and
replaces an older facility, which was sold at a profit to another local Gulf
Coast business, providing much of the funding for construction of the
new, larger location. The new Cedar Lake branch opened January 18, 2005,
offering customers three drive-up teller lanes, a 24-hour drive-up ATM, an
after-hours depository and about 120 safe deposit boxes.
Bank president Chevis C. Swetman wields the golden scissors to cut the ceremonial
ribbon festooned with real $1,000 bills at the grand opening of The Peoples Bank
branch in Waveland held in October.
Gertrude Newman, right, of The Peoples Bank presents a donation of $9,520 to
Angie Sharp, representing LIFE of South Mississippi. In addition, employees of
The Peoples Bank donated the same amount of funds to Morning Star Pregnancy
Center during the year.
3
Bank president Chevis C. Swetman presents a check
for $12,000 to a representative of the Make-A-Wish
Foundation, on behalf of Cruisin’ the Coast presented
by The Peoples Bank.
Cruisin’ the Coast presented by The Peoples Bank has
grown from 374 registered entries in its first year to
some 5,000 in 2004, seen here gathered in Gulfport’s
Rice Pavilion.
One of the annual highlights of Cruisin’ the Coast
presented by The Peoples Bank is the Biloxi Block
Party, which is held right in front of the bank’s
main branch on Lameuse Street.
C R U I S I N ’ T H E C O A S T P R E S E N T E D B Y T H E P E O P L E S B A N K
Perhaps the most widely visible action taken during the year was
to sign on as the presenting sponsor of Cruisin’ the Coast, the
single largest consumer tourism event of the year in our community.
Cruisin’ has grown from 374 cars in its inaugural year 1996 to
more than 5,000 registered entrants in 2004.
A
An economic impact study conducted during the 2004 event by Decision
Scientific, a noted consulting and research firm, estimates the direct
economic impact of the event to the Mississippi Gulf Coast totals some
$15 million. The 2004 edition of Cruisin’ the Coast was impacted by the
sudden appearance of a late-season tropical storm, which significantly
reduced attendance and spending late in the week. Therefore, more normal
weather conditions would have produced greater attendance, higher
spending and even more economic impact.
However, the research study was able to generate some significant findings
that were independent of weather, including:
◆∑ 93.8% of respondents stated their experience was excellent or good.
∑◆ 30.1% said their experience was much better or better than expected.
∑◆ 98.5% said they were either very satisfied or satisfied with the Cruisin’
experience.
4
∑◆ 75.4% said they were very likely to return.
◆ ∑ 78.4% said they were very likely to recommend Cruisin’ to friends.
∑ ◆ 59% reported household income in excess of $60,000 and 33.9% in
excess of $80,000, with a mean expenditure of $82.82 per day and a
mean stay of 4.63 nights on the Coast (probably shortened by the
tropical storm).
The Peoples Bank immediately enjoyed an excellent return on our investment
through increased exposure, promotional opportunities that generated
traffic to our branches and direct marketing programs to registered
participants. Our experience in the first year of sponsorship gives a high
level of confidence that our investment in Cruisin’ the Coast will prove
even more directly profitable to The Peoples Bank in the years ahead.
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S O F F I N A N C I A L C O N D I T I O N A N D R E S U LT S O F O P E R AT I O N S
P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S
The following presents Management's discussion and analysis
of the consolidated financial condition and results of operations of
Peoples Financial Corporation and Subsidiaries (the Company)
for the years ended December 31, 2004, 2003 and 2002.
These comments highlight the significant events for these years and
premises during the current year of $838,000, net of taxes. After several
should be considered in combination with the Consolidated Financial
years of decline, the local economy has stabilized during the past eight-
Statements and Notes to Consolidated Financial Statements included in
een months. Economic activity has translated into increased loan volume
this annual report.
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F O R W A R D - L O O K I N G I N F O R M A T I O N
Congress passed the Private Securities Litigation Act of 1995 in an effort to
for the Company, which has increased 11% during 2004. This growth has
been funded through deposits and maturities and sales of investments.
Managing the net interest margin in its trade area's extremely competitive
environment continues to be a priority for the Company. The majority of
encourage corporations to provide information about a company's antic-
the Company’s loans are at a floating rate, which generally reprice faster
ipated future financial performance. This act provides a safe harbor for
than deposits and other funding sources. These factors benefit the
such disclosure which protects the companies from unwarranted litigation
Company in the current rising rate environment. The Company's net
if actual results are different from management expectations. This report
interest margin has increased from 3.39% at December 31, 2003 to 3.55%
contains forward-looking statements and reflects industry conditions,
at December 31, 2004.
company performance and financial results. These forward-looking
statements are subject to a number of factors and uncertainties
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F I N A N C I A L C O N D I T I O N
which could cause the Company's actual results and experience to
Available for Sale Securities
differ from the anticipated results and expectations expressed in such
Available for sale securities decreased $34,455,000 at December 31, 2004 as
forward-looking statements.
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C R I T I C A L A C C O U N T I N G P O L I C I E S
Certain critical accounting policies affect the more significant estimates
and assumptions used in the preparation of the consolidated financial
compared with December 31, 2003 primarily as a result of the management
of the bank subsidiary's liquidity position and its interest margin. The
Company invested funds from maturities and sales of available for sale
securities in loans.
statements. The Company's single most critical accounting policy relates
Gross unrealized gains were $347,000, $2,113,000 and $3,032,000 and gross
to its allowance for loan losses, which reflects the estimated losses result-
unrealized losses were $1,754,000, $1,094,000 and $12,000 for available for
ing from the inability of its borrowers to make loan payments. If there was
sale securities at December 31, 2004, 2003 and 2002, respectively. Gains
a deterioration of any of the factors considered by Management in evalu-
(losses) of $(259,000), $57,000 and $210,000 were realized on the liquidation
ating the allowance for loan losses, as discussed in Note A, the estimates
or sale of available for sale securities in 2004, 2003 and 2002, respectively.
of loss would be updated, and additional provisions for loan losses may
be required.
Held to Maturity Securities
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O V E R V I E W
Net income for 2004 was $5,794,000 as compared with $5,018,000 for 2003.
Held to maturity securities increased $2,235,000 at December 31, 2004,
compared with December 31, 2003. The increase in these securities is
directly attributable to the management by the Company of its liquidity
This increase is largely attributable to the gain on the sale of bank
position, as discussed above.
5
Gross unrealized gains were $113,000, $176,000 and $438,000, at December
Federal Funds Purchased and Securities Sold Under
31, 2004, 2003 and 2002, respectively, while gross unrealized losses were
Agreements to Repurchase
$2,000 at December 31, 2004 and 2003. There were no significant realized
Federal funds purchased and securities sold under agreements to
gains or losses from calls of these investments for the years ended
repurchase decreased $7,762,000 at December 31, 2004, as compared
December 31, 2004, 2003 and 2002.
with December 31, 2003. This fluctuation is directly related to customers'
Federal Home Loan Bank Stock
management of the Company's liquidity position.
The Company's investment in Federal Home Loan Bank ("FHLB") stock
decreased $572,000 at December 31, 2004 as compared with December 31, 2003,
Borrowings from Federal Home Loan Bank
due to the redemption of the stock by the FHLB.
The Company acquires funds from the Federal Home Loan Bank in
periodic reallocation of their funds in a non-deposit product and the
Loans
the management of the liquidity position. At December 31, 2003, the
Company acquired $10,000,000
in advances which matured on
The Company's loan portfolio increased $32,038,000 at December 31, 2004,
January 9, 2004.
as compared with December 31, 2003. Beginning with the fourth quarter of
2003 and continuing in 2004, the loan portfolio increased as the local
Other Liabilities
economy became stabilized. This stabilization resulted in increased loan
Other liabilities increased $812,000 at December 31, 2004, as compared
demand. The Company anticipates that this positive loan growth will
with December 31, 2003, primarily due to the impact of increasing health
continue in 2005. Fluctuations in the various categories of loans are
care costs on the liability for post retirement health benefits and an
illustrated in Note C.
Other Real Estate
increase in liabilities related to deferred compensation benefits for officers
of the bank subsidiary.
The Other Real Estate (ORE) portfolio decreased $1,215,000 at December 31,
Shareholders' Equity
2004 as compared with December 31, 2003 due to the sale of several large
During 2004, 2003 and 2002, there were significant events that impacted
parcels of real estate. Gains (losses) realized on sales of ORE were $100,750,
the components of shareholders' equity. These events are detailed in
$248,170 and ($43,666) for the years ended December 31, 2004, 2003
Note I to the Consolidated Financial Statements included in this report.
and 2002, respectively.
Other Assets
Strength, security and stability have been the hallmark of the Company
since its founding in 1985 and of its bank subsidiary since its founding in
Other assets increased $1,337,000 at December 31, 2004, as compared with
1896. A strong capital foundation is fundamental to the continuing pros-
December 31, 2003, due to deferred taxes on unrealized losses on available
perity of the Company and the security of its customers and shareholders.
for sale securities.
Deposits
There are numerous indicators of capital adequacy including primary
capital ratios and capital formation rates. The Five-Year Comparative
Summary of Selected Financial Information presents these ratios for those
Total deposits increased $12,403,000 at December 31, 2004, as compared
periods. This summary is included in the annual report to shareholders.
with December 31, 2003. Significant increases or decreases in total deposits
The Company's total risk-based capital ratio at December 31, 2004, 2003
and/or significant fluctuations among the different types of deposits are
and 2002 was 24.29%, 24.81% and 24.16% as compared with the required
anticipated by Management as customers in the casino industry and
standard of 8.00%. The Five-Year Comparative Summary of Selected
county and municipal areas reallocate their resources periodically. The
Financial Information presents these figures.
Company has managed its funds, including planning the timing of invest-
ment maturities and the classification of investments and using other
Bank regulations limit the amount of dividends that may be paid by the
funding sources and their maturity, so as to achieve appropriate liquidity.
bank subsidiary without prior approval of the Commissioner of Banking
In prior years, the Company had acquired brokered deposits which have
and Consumer Finance of the State of Mississippi. At December 31, 2004,
all matured.
6
approximately $11,389,000 of undistributed earnings of the bank sub-
sidiary included in consolidated surplus and retained earnings was avail-
able for future distribution to the Company as dividends, subject to
approval by the Board of Directors. The Company cannot predict what div-
idends, if any, will be paid in the future, however the Board of Directors
has established a goal of achieving a 35% dividend payout ratio (before
extraordinary items).
(cid:1)
R E S U L T S O F O P E R A T I O N S
Net Interest Income
any improvements to specific credits previously identified in prior years as
having a potential loss. Any such improvements and their potential
Net interest income, the amount by which interest income on loans, invest-
impact on the provision for loan losses are considered on a periodic basis.
ments and other interest earning assets exceeds interest expense on deposits
Although some uncertainty exists, the Company is monitoring positive
and other borrowed funds, is the single largest component of the Company's
events with respect to specific credits that may be resolved during 2005.
income. Management's objective is to provide the largest possible amount of
Absent any unforeseen unusual events, the Company expects to provide
income while balancing interest rate, credit, liquidity and capital risk.
only for potential losses on new loans during 2005.
Total interest income decreased $499,000 for the year ended December 31,
Service Charges on Deposit Accounts
2004, as compared with the year ended December 31, 2003, and had
Service charges on deposit accounts decreased $951,000 for the year ended
decreased $2,359,000 for the year ended December 31, 2003, as compared
December 31, 2004 as compared with the year ended December 31, 2003 due
with the year ended December 31, 2002. During 2004, the Company real-
to a decrease in fee income from off-site ATMs no longer under contract with
ized an increase in loan volume of 11%. Coinciding with the Federal
the Company.
Reserve's increases in the discount rates during 2004, the Company's yield
on loans has improved, given that the loan portfolio includes a 65%-35%
Gain (Loss) on Liquidation, Sale and Calls of Securities
mix of variable and fixed rate term. The funding of this loan growth came
The Company realized a loss of $259,000 during 2004 as a direct result of the
from the maturity and sale of available for sale securities, primarily U. S.
sale of investment securities. The sales were executed in order to provide
Government Agencies. The Company had experienced a decline in interest
funding for increased loan demand.
income, particularly from loans, as a result of the decrease in the volume
of loans and the decrease in interest rates earned on loans in prior years.
Other Income
Total interest expense decreased $748,000 for the year ended December 31,
as compared with the year ended December 31, 2003, primarily as result of
2004, as compared with the year ended December 31, 2003, and had
the sale of bank premises during 2004. See Note J for further information.
Other income increased $1,160,000 for the year ended December 31, 2004,
decreased $3,777,000 for the year ended December 31, 2003, as compared
with the year ended December 31, 2002. As previously discussed, the
Other Expense
Company has used brokered time deposits and borrowings from the
Other expense decreased $696,000 for the year ended December 31, 2004,
Federal Home Loan Bank to address its liquidity position in prior years. The
as compared with the year ended December 31, 2003, as a result of a
cost of these funding sources was higher than other more traditional
decrease in expense for off-site ATMs no longer under contract with the
deposit funds, and had a negative impact on the Company's net margin.
Company. See Note J for further information.
As these funds have been repriced more favorably, the Company has real-
ized a positive improvement in its interest margin.
Provision for Loan Losses
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R E L A T E D P A R T I E S
The Company extends loans to certain officers and directors and their per-
sonal business interests, at terms and rates comparable to other loans of sim-
The Company continuously monitors its relationships with its loan cus-
ilar credit risks. Further disclosure of these transactions are presented in Note C.
tomers, especially those in concentrated industries such as seafood, gam-
The Company has not currently engaged, nor does it have any plans to engage,
ing and hotel/motel, and their direct and indirect impact on its opera-
in any other transactions with any related persons or entities.
tions. A thorough analysis of current economic conditions and the quality
of the loan portfolio is conducted on a quarterly basis using the latest
available information. These analyses are utilized in the computation of
(cid:1)
L I Q U I D I T Y
Liquidity represents the Company's ability to adequately provide funds to
the adequacy of the allowance for loan losses. A provision is charged to
satisfy demands from depositors, borrowers and other commitments by
income on a periodic basis to absorb potential losses based on these
either converting assets to cash or accessing new or existing sources of
analyses. Further information related to the computation of the provision
funds. Management monitors these funds requirements in such a manner
is presented in Note A.
as to satisfy these demands and provide the maximum earnings on its
earning assets. Note K discloses information relating to financial instru-
During 2002, the Company identified negative events with respect to an
ments with off-balance-sheet risk, including letters of credit and out-
overall softening of the economy and negative events with respect to spe-
standing unused loan commitments. The Company closely monitors the
cific credits which required a large increase to the Company's provision for
potential effects of funding these commitments on its liquidity position.
loan losses. The Company believes that this action provided sufficient
The Company monitors its liquidity position closely through a number of
funds to absorb significant potential losses. Provisions for loan losses
methods, including through the computation of liquidity and dependen-
amounted to $448,000, $447,000 and $2,428,000 for the years ended
cy ratios on a monthly basis. The formula for these ratios is that used for
December 31, 2004, 2003 and 2002, respectively. Management continues
the Uniform Bank Performance Report, such that the Company may moni-
to closely evaluate the entire loan portfolio, in accordance with its policies
tor and evaluate its own risk, but also compare itself to its peers.
and procedures and will provide for any future potential losses as deemed
necessary. As a part of this evaluation, the Company also closely monitors
7
Deposits, payment of principal and interest on loans, proceeds from sales
the commitments and irrevocable letters of credit may expire without
and maturities of investment securities, earnings on investment securities,
being drawn upon, these amounts do not necessarily represent future
and purchases of federal funds and securities sold under agreements to
cash requirements. As discussed previously, the Company carefully mon-
repurchase are the principal sources of funds for the Company. During 2000,
itors its liquidity needs and considers the cash requirements, especially for
the Company began using other, non-traditional sources of funds, includ-
loan commitments, in making decisions on investments and obtaining
ing borrowings from the Federal Home Loan Bank. The Company generally
funds from its other sources. Further information relating to off-balance-
anticipates relying on traditional sources of funds, especially deposits, the
sheet instruments can be found in Note K.
sale, maturity or call of securities and purchases of federal funds, for its liquid-
ity needs in 2005. At December 31, 2004, the Company was able to purchase
federal funds up to $68,000,000.
(cid:1)
Q U A N T I T A T I V E A N D Q U A L I T A T I V E
D I S C L O S U R E S A B O U T M A R K E T R I S K
Market risk is the risk of loss arising from adverse changes in market prices
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T H E S A R B A N E S - O X L E Y A C T O F 2 0 0 2
The Sarbanes - Oxley Act of 2002 (the "Act") requires the implementation
and rates. Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency exchange
of provisions designed to enhance public company governance, respon-
rate risk and commodity price risk, do not arise in the normal course of the
sibility and disclosure. The issues addressed by the Act include the com-
Company's business activities. Also, the Company does not currently, and
position and responsibilities of a public company's board of directors and its
has no plans to, engage in trading activities or use derivative or off-bal-
committees, especially the Audit and Nominating Committees, the certifica-
ance sheet instruments to manage interest rate risk.
tion of financial statements by the chief executive officer and chief financial
officer, timely reporting of trading by insiders and independence of external
The Company has risk management policies in place to monitor and limit
auditors. The Company believes that the spirit of the Act represents a best
exposure to market risk. The Asset/Liability Committee (ALCO), whose
practices approach to corporate governance. We have worked to improve
members include the chief executive officer and senior and middle man-
communication between management and the board, empowered the com-
agement from the financial, lending, investing, and deposit areas, is
mittees of the board, especially the audit and nominating committees, and
responsible for the day-to-day operating guidelines, approval of strate-
implemented an effective disclosure process for financial reporting. During
gies affecting net interest income and coordination of activities within
2005, the Company will be working on compliance on the documentation,
policy limits established by the Board of Directors based on the Company's
evaluation of and reporting on internal controls over financial reporting as
tolerance for risk. Specifically, the key objectives of the Company's
required by Section 404. The Company's first report under Section 404 will be
asset/liability management program are to manage the exposure of
required for the 2005 annual report. The Company will continue to take the
planned net interest margins to unexpected changes due to interest rate
necessary actions to ensure compliance with the Act, as well as the listing
fluctuations. These efforts will also affect loan pricing policies, deposit
requirements of NASDAQ, on which the Company is registered.
interest rate policies, asset mix and volume guidelines and liquidity. The
(cid:1)
N E W A C C O U N T I N G P R O N O U N C E M E N T S
The Financial Accounting Standards Board (FASB) issued Statement 151,
During 2004, the ALCO committee enhanced its risk management analysis
through the implementation of software to assist in interest rate risk
"Inventory Costs, an Amendment of ARB No. 43, Chapter 4", during the
analysis. Other tools for balance sheet management and portfolio model-
ALCO committee reports to the Board of Directors on a quarterly basis.
current year, which is effective for fiscal years beginning after June 15,
ing will be implemented in 2005.
2005. FASB issued Statement 152, "Accounting for Real Estate Time-Sharing
Transactions - an Amendment of FASB Statements Nos. 66 and 67", during
The Company has implemented a conservative approach to its asset/liabil-
the current year, which is effective for fiscal years beginning after June 15,
ity management. The net interest margin is managed on a daily basis
2005. FASB issued Statement 153, "Exchange of Nonmonetary Assets - an
largely as a result of the management of the liquidity needs of the bank
Amendment of APB Opinion No. 29", during the current year, and which is
subsidiary. The Company generally follows a policy of investing in short
effective for fiscal periods beginning after June 15, 2005. The Company
term U. S. Agency securities with maturities of two years or less. Due to the
evaluated the implementation of adopting these new pronouncements
low interest rate environment, the duration of investments has been
and determined that their adoption would not have a material effect on its
extended to seven years or less with call provisions. The loan portfolio
financial statements.
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O F F - B A L A N C E S H E E T A R R A N G E M E N T S
The Company is a party to off-balance-sheet arrangements in the normal
consists of a 35% - 65% blend of fixed and floating rate loans. It is the gen-
eral loan policy to offer loans with maturities of five years or less; howev-
er the market is now dictating floating rate terms to be extended to fifteen
years. On the liability side, more than 66% of the deposits are demand and
course of business to meet the financing needs of its customers. These
savings transaction accounts. Additionally, more than 75% of the certifi-
arrangements include unused commitments to extend credit, which
cates of deposit mature within eighteen months. Since the Company's
amounted to $113,500,000 at December 31, 2004, and irrevocable letters of
deposits are generally not rate-sensitive, they are considered to be core
credit, which amounted to $3,113,000 at December 31, 2004. The Company
deposits. The short term nature of the financial assets and liabilities allows
uses the same credit policies in making commitments and conditional
the Company to meet the dual requirements of liquidity and interest rate
obligations as it does for on-balance-sheet arrangements. Since some of
risk management.
8
The interest rate sensitivity tables below provide additional information about
risk, early calls of investments, the effect of the maturity of balloon notes or the
the Company's financial instruments that are sensitive to changes in interest
early withdrawal of deposits. The Company does not believe that the afore-
rates. The tabular disclosure reflects contractual interest rate repricing dates
mentioned factors have a significant impact on expected maturity.
and contractual maturity dates. Loan maturities have been adjusted for reserve
for loan losses. There have been no adjustments for such factors as prepayment
Interest rate sensitivity at December 31, 2004 was as follows (in thousands):
Loans, net
Average rate
Securities
Average rate
2 0 0 5
228,658
$
2 0 0 6
7,337
$
2 0 0 7
7,248
$
2 0 0 8
$
20,443 $
2 0 0 9
58,895
B E Y O N D
5,043
$
$
1 2 / 3 1 / 0 4
F A I R
V A L U E
331,044
$
T O T A L
327,624
6.11
50,329
2.02
7.50
15,317
2.64
6.69
6.69
6.12
5.60
6.49
10,076
29,617
15,274
60,408
181,020
181,132
3.20
3.50
3.89
4.39
3.55
Total Financial Assets
278,987
22,654
17,324
50,060
74,169
65,451
508,644
512,176
5.30
5.31
5.80
4.51
5.81
3,787
6,093
4,062
3
299,662
300,188
Average rate
Deposits
Average rate
Long-term funds
Average rate
6.10
275,935
1.61
222
4.89
5.44
9,782
2.46
235
4.89
3.02
165
4.89
3.58
3.58
156
147
4.89
4.89
Total Financial Liabilities
276,157
10,017
3,952
6,249
4,209
Average rate
1.61
2.57
3.14
3.62
3.64
Interest rate sensitivity at December 31, 2003 was as follows (in thousands):
3.59
6,278
6.24
6,281
6.24
1.82
7,203
5.36
7,906
306,865
308,094
2.05
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
B E Y O N D
1 2 / 3 1 / 0 3
F A I R
V A L U E
T O T A L
Loans, net
Average rate
Securities
Average rate
$ 200,110
$
27,523
$
6,233
$ 10,399
$ 33,757
$
17,734
$
295,756
$
298,918
5.58
7.60
7.51
6.22
5.92
6.05
5.82
31,568
14,560
9,320
31,852
50,176
76,337
213,813
213,987
3.45
5.11
3.34
3.55
3.63
4.31
3.87
Total Financial Assets
231,678
42,083
15,553
42,251
83,933
94,071
509,569
512,905
5.75
7.12
5.86
4.52
4.83
4.74
5.31
273,322
15,088
4,387
2,035
1,356
2
296,190
297,065
Average rate
Deposits
Average rate
Long-term funds
Average rate
1.38
10,273
1.30
3.69
184
4.91
3.11
236
4.91
168
4.91
3.39
3.39
160
4.91
1,516
3.59
Total Financial Liabilities
283,595
15,272
4,623
2,203
Average rate
1.37
3.71
3.24
3.55
3.67
6,159
6.26
6,161
6.26
1.96
17,180
4.96
18,076
313,370
315,141
2.34
9
P E O P L E S F I N A N C I A L C O R P O R AT I O N A N D S U B S I D I A R I E S
C O N S O L I D A T E D S T A T E M E N T S O F C O N D I T I O N
D E C E M B E R 3 1 ,
Assets
Cash and due from banks
Available for sale securities
Held to maturity securities, fair value of
$6,698,000 - 2004; $4,527,000 - 2003;
$18,026,000 - 2002
Federal Home Loan Bank Stock, at cost
Loans
Less: Allowance for loan losses
Loans, net
Bank premises and equipment, net
Other real estate
Accrued interest receivable
Other assets
Total assets
Liabilities & Shareholders' Equity
Liabilities:
Deposits:
Demand, non-interest bearing
Savings and demand, interest bearing
Time, $100,000 or more
Other time deposits
Total deposits
Federal funds purchased and securities sold under
agreements to repurchase
Borrowings from Federal Home Loan Bank
Notes payable
Other liabilities
Total liabilities
Shareholders' Equity:
Common Stock, $1 par value, 15,000,000 shares
authorized, 5,555,419, 5,557,379, and
5,583,472 shares issued and outstanding at
December 31, 2004, 2003 and 2002, respectively
Surplus
Undivided profits
Unearned compensation
Accumulated other comprehensive income, net of tax
Total shareholders' equity
Total liabilities and shareholders' equity
See Notes to Consolidated Financial Statements.
10
2 0 0 4
2 0 0 3
2 0 0 2
$
32,724,625
$
33,861,029
$
39,654,247
173,030,808
207,486,172
151,483,997
6,587,375
1,401,900
334,193,124
6,569,614
327,623,510
18,018,504
168,091
2,745,235
15,141,101
4,352,854
1,974,200
302,155,275
6,398,694
295,756,581
17,952,504
1,383,451
3,096,002
13,804,039
17,587,690
1,927,000
315,827,590
6,696,911
309,130,679
17,059,400
1,195,720
2,858,190
12,773,580
$
577,441,149
$
579,666,832
$
553,670,503
$
89,529,270
$
80,598,685
$
79,171,739
180,464,256
51,948,077
67,249,927
389,191,530
87,277,125
7,202,970
1,239
7,966,852
491,639,716
5,555,419
65,780,254
15,391,524
(925,764)
85,801,433
173,970,603
58,182,870
64,036,836
376,788,994
95,039,261
17,069,848
110,235
7,154,545
496,162,883
5,557,379
65,780,254
11,574,074
(94,899)
687,141
83,503,949
165,012,836
74,064,356
73,456,208
391,705,139
67,245,703
6,313,077
334,371
6,340,607
471,938,897
5,583,472
65,780,254
8,510,341
(143,043)
2,000,582
81,731,606
$
577,441,149
$ 579,666,832
$ 553,670,503
P E O P L E S F I N A N C I A L C O R P O R AT I O N A N D S U B S I D I A R I E S
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
Y E A R S E N D E D D E C E M B E R 3 1 ,
2 0 0 4
2 0 0 3
2 0 0 2
Interest income:
Interest and fees on loans
Interest and dividends on securities:
U. S. Treasury
U. S. Government agencies and corporations
States and political subdivisions
Other investments
Interest on federal funds sold
Total interest income
Interest expense:
Deposits
Long-term borrowings
Federal funds purchased and securities sold under agreements to repurchase
Total interest expense
Net interest income
Provision for allowance for losses on loans
Net interest income after provision for allowance for losses on loans
Other operating income:
Trust department income and fees
Service charges on deposit accounts
Gain (loss) on liquidation, sale and calls of securities
Other income
Total other operating income
Other operating expense:
Salaries and employee benefits
Net occupancy
Equipment rentals, depreciation and maintenance
Other expense
Total other operating expense
Income before income taxes
Income taxes
Net income
Basic and diluted earnings per share
See Notes to Consolidated Financial Statements.
$
17,526,210
$
17,181,975
$
20,061,342
1,366,831
4,833,893
532,688
229,550
76,780
24,565,952
3,600,386
447,401
1,043,112
5,090,899
19,475,053
448,000
19,027,053
1,391,314
5,758,727
(258,888)
2,671,704
9,562,857
11,334,384
1,461,492
2,416,749
5,551,947
20,764,572
7,825,338
2,031,300
5,794,038
1.04
$
$
1,320,545
5,882,469
368,934
249,185
62,109
25,065,217
4,383,806
456,694
998,139
5,838,639
19,226,578
447,000
18,779,578
1,458,037
6,709,852
57,356
1,512,169
9,737,414
10,989,269
1,466,797
2,760,125
6,247,956
21,464,147
7,052,845
2,035,000
1,397,148
5,161,358
350,498
257,339
196,207
27,423,892
8,052,732
382,912
1,179,993
9,615,637
17,808,255
2,428,000
15,380,255
1,419,463
6,822,638
209,659
1,920,452
10,372,212
10,923,858
1,506,113
2,802,343
6,641,849
21,874,163
3,878,304
687,582
$
5,017,845
$ .90
$
3,190,722
$ .57
11
P E O P L E S F I N A N C I A L C O R P O R AT I O N A N D S U B S I D I A R I E S
C O N S O L I D A T E D S T A T E M E N T S O F S H A R E H O L D E R S ’ E Q U I T Y
N u m b e r o f
C o m m o n
S h a r e s
5,620,239
C o m m o n
S t o c k
5,620,239
$
S u r p l u s
65,780,254
$
Balance, January 1, 2002
Comprehensive Income:
Net income
Net unrealized gain on available for sale securities, net of tax
Reclassification adjustment for available for sale securities
called or sold in current year, net of tax
Total comprehensive income
Allocation of ESOP shares
Cash dividends ($ .12 per share)
Dividend declared ($ .12 per share)
Issuance of stock for stock incentive plan
Retirement of stock
Balance, December 31, 2002
Comprehensive Income:
Net income
Net unrealized loss on available for sale securities, net of tax
Reclassification adjustment for available for sale securities
called or sold in current year, net of tax
Total comprehensive income
Allocation of ESOP shares
Cash dividends ($ .14 per share)
Dividend declared ($ .15 per share)
Retirement of stock
Balance, December 31, 2003
Comprehensive Income:
Net income
Net unrealized loss on available for sale securities, net of tax
Reclassification adjustment for available for sale securities
called or sold in current year, net of tax
Total comprehensive income
Allocation of ESOP shares
Cash dividends ($ .17 per share)
Dividend declared ($ .18 per share)
Retirement of stock
Balance, December 31, 2004
See Notes to Consolidated Financial Statements.
12
7,142
(43,909)
7,142
(43,909)
5,583,472
5,583,472
65,780,254
(26,093)
5,557,379
(26,093)
5,557,379
65,780,254
(1,960)
5,555,419
(1,960)
$
5,555,419
$
65,780,254
U n d i v i d e d
P r o f i t s
7,052,559
$
3,190,722
U n e a r n e d
C o m p e n s a t i o n
(174,043)
$
31,000
A c c u m u l a t e d
O t h e r
C o m p r e h e n s i v e
I n c o m e
1,790,017
$
C o m p r e h e n s i v e
I n c o m e
T o t a l
80,069,026
$
471,295
(260,730)
$
3,190,722
471,295
(260,730)
$
3,401,287
3,190,722
471,295
(260,730)
31,000
(672,080)
(670,017)
99,988
(527,598)
81,731,606
5,017,845
(1,195,267)
(143,043)
2,000,582
(1,195,267)
$
5,017,845
(1,195,267)
(118,174)
(118,174)
(118,174)
$
3,704,404
48,144
(94,899)
687,141
(1,720,706)
107,801
$
5,794,038
(1,720,706)
107,801
$
4,181,133
94,899
48,144
(778,570)
(833,607)
(368,028)
83,503,949
5,794,038
(1,720,706)
107,801
94,899
(944,591)
(999,975)
(33,982)
(672,080)
(670,017)
92,846
(483,689)
8,510,341
5,017,845
(778,570)
(833,607)
(341,935)
11,574,074
5,794,038
(944,591)
(999,975)
(32,022)
$
15,391,524
$
(174,043)
$
(925,764)
$
85,801,433
13
P E O P L E S F I N A N C I A L C O R P O R AT I O N A N D S U B S I D I A R I E S
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Y E A R S E N D E D D E C E M B E R 3 1 ,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
(Gain) loss on sales of other real estate
(Gain) loss on sales, calls and liquidation of securities
Gain on sale of bank premises
Stock incentive plan
Depreciation
Provision for allowance for loan losses
Provision for losses on other real estate
Changes in assets and liabilities:
Accrued interest receivable
Other assets
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from maturities, sales and calls of available for sale securities
Investment in available for sale securities
Proceeds from maturities and calls of held to maturity securities
Investment in held to maturity securities
Investment in Federal Home Loan Bank stock
Redemption of Federal Home Loan Bank stock
Proceeds from sales of other real estate
Loans, net (increase) decrease
Proceeds from sale of bank premises
Acquisition of premises and equipment
Other assets
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Demand and savings deposits, net increase
Time deposits made, net decrease
Notes payable
Principal payments on notes
Cash dividends
Retirement of common stock
Borrowings from Federal Home Loan Bank
Repayments to Federal Home Loan Bank
Federal funds purchased and securities sold
under agreements to repurchase, net increase (decrease)
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See Notes to Consolidated Financial Statements.
14
2 0 0 4
2 0 0 3
2 0 0 2
$
5,794,038
$
5,017,845
$
3,190,722
(100,750)
258,888
(1,270,697)
1,447,000
448,000
354,360
350,767
(238,021)
778,939
7,822,524
174,457,599
(142,688,628)
1,405,000
(3,639,521)
(28,700)
601,000
1,074,000
(32,427,179)
2,837,500
(3,079,803)
(417,441)
(1,906,173)
15,424,238
(3,021,702)
(14,097)
(1,778,198)
(33,982)
30,292,102
(40,158,980)
(7,762,136)
(7,052,755)
(1,136,404)
33,861,029
(248,170)
(57,356)
(130,503)
1,676,000
447,000
210,358
(237,812)
(323,618)
304,832
6,658,576
130,443,200
(188,388,210)
13,234,836
(47,200)
827,665
11,949,514
445,068
(2,883,669)
325,425
(34,093,371)
10,384,713
(25,300,858)
(175,992)
(1,448,587)
(368,028)
95,855,031
(85,098,260)
27,793,558
21,641,577
(5,793,218)
39,654,247
43,666
(209,659)
(182,861)
99,988
1,842,000
2,428,000
533,848
870,660
448,969
40,412
9,105,745
145,297,421
(153,352,620)
20,745,000
(53,728)
(56,500)
1,010,723
28,967,447
355,620
(956,251)
(6,282,010)
35,675,102
22,720,713
(43,558,236)
72,799
(43,679)
(1,346,508)
(527,598)
806,801
(42,712)
(15,243,156)
(37,161,576)
7,619,271
32,034,976
$
32,724,625
$
33,861,029
$
39,654,247
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S
P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S
(cid:1)
N O T E A - B U S I N E S S A N D S U M M A R Y O F
S I G N I F I C A N T A C C O U N T I N G P O L I C I E S :
Business of The Company
Securities
The classification of securities is determined by Management at the time
of purchase. Securities are classified as held to maturity when the
Company has the positive intent and ability to hold the security until
Peoples Financial Corporation is a one-bank holding company headquar-
maturity. Securities held to maturity are stated at amortized cost.
tered in Biloxi, Mississippi. Its two operating subsidiaries are The Peoples
Bank, Biloxi, Mississippi, and PFC Service Corp. Its principal subsidiary is
Securities not classified as held to maturity are classified as available for
The Peoples Bank, Biloxi, Mississippi, which provides a full range of bank-
sale and are stated at fair value. Unrealized gains and losses, net of tax,
ing, financial and trust services to individuals and small and commercial
on these securities are recorded in shareholders’ equity as accumulated
businesses operating in Harrison, Hancock, Stone and Jackson counties.
other comprehensive income.
Principles of Consolidation
The amortized cost of available for sale securities and held to maturity
The consolidated financial statements include the accounts of Peoples
securities is adjusted for amortization of premiums and accretion of dis-
Financial Corporation and its wholly-owned subsidiaries, The Peoples
counts to maturity, determined using the interest method. Such amortiza-
Bank, Biloxi, Mississippi, and PFC Service Corp. All significant intercompany
tion and accretion is included in interest income on securities. Declines in
transactions and balances have been eliminated in consolidation.
the fair value of securities below their cost that are deemed to be other
Basis of Accounting
than temporary would be reflected in earnings as realized losses. In esti-
mating other-than-temporary losses, management considers the length
Peoples Financial Corporation and Subsidiaries recognize assets and lia-
of time and the extent to which the fair value has been less than cost, the
bilities, and income and expense, on the accrual basis of accounting. The
financial condition and nature of the issuer and the intent and ability of
preparation of financial statements in conformity with generally accepted
the Company to retain the investment in the issuer for a period of time suf-
accounting principles requires Management to make estimates and
ficient to allow for any anticipated recovery in fair value. The specific
assumptions that affect the reported amounts of assets and liabilities and
identification method is used to determine realized gains and losses on
disclosure of contingent assets and liabilities at the date of the financial
sales of securities, which are reported as gain or loss on sale and calls of
statements and the reported amounts of revenues and expenses during
securities in other operating income.
the reporting period. Actual results could differ from these estimates.
Loans
Cash and Due from Banks
The loan portfolio consists of commercial and industrial and real estate loans
The Company is required to maintain average reserve balances in its vault or
within the Company’s trade area in South Mississippi. The loan policy estab-
on deposit with the Federal Reserve Bank. The average amount of these reserve
lishes guidelines relating to pricing, repayment terms, collateral standards
requirements was approximately $11,623,000, $10,220,000 and $9,013,000 for
including loan to value (LTV) limits, appraisal and environmental standards,
the years ending December 31, 2004, 2003 and 2002, respectively.
lending authority, lending limits and documentation requirements.
The Company’s bank subsidiary maintained account balances in excess of
Loans are stated at the amount of unpaid principal, reduced by unearned
amounts insured by the Federal Deposit Insurance Corporation. At
income and the allowance for loan losses. Interest on loans is recognized
December 31, 2004, the bank subsidiary had excess deposits of $5,348,000.
over the terms of each loan based on the unpaid principal balance.
These amounts were uninsured and uncollateralized.
Loan origination fees are recognized as income when received. Revenue
from these fees is not material to the financial statements.
15
The Company places loans on a nonaccrual status when, in the opinion of
subsequent adjustments are charged to expense. Costs of operating and
Management, they possess sufficient uncertainty as to timely collection of
maintaining the properties, net of related income and gains (losses) on
interest or principal so as to preclude the recognition in reported earnings
their disposition, are charged to expense as incurred.
of some or all of the contractual interest. Accrued interest on loans classi-
fied as nonaccrual is reversed at the time the loans are placed on nonac-
Trust Department Income and Fees
crual. Interest received on nonaccrual loans is applied against principal.
Corporate trust fees are accounted for on an accrual basis and personal
Loans are restored to accrual status when the obligation is brought current
trust fees are recorded when received for 2004 and 2003. All trust fees were
or has performed in accordance with the contractual terms for a reason-
recorded for 2002 when received.
able period of time and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt. Loans classified as nonaccru-
Income Taxes
al are generally identified as impaired loans. The policy for recognizing
The Company files a consolidated tax return with its wholly-owned
income on impaired loans is consistent with the nonaccrual policy.
subsidiaries. The tax liability of each entity is allocated based on the
Allowance for Loan Losses
entity’s contribution to consolidated taxable income. The provision for
applicable income taxes is based upon reported income and expenses
The allowance for loan losses is established through provisions for loan
as adjusted for differences between reported income and taxable income.
losses charged against earnings. Loans deemed to be uncollectible are
The primary differences are exempt income on state, county and
charged against the allowance for loan losses, and subsequent recoveries,
municipal securities; differences in provisions for losses on loans as com-
if any, are credited to the allowance.
pared to the amount allowable for income tax purposes; directors' and
officers' insurance; depreciation for income tax purposes over (under)
The allowance for loan losses is based on Management's evaluation of the
that reported for financial statements; gains reported under the install-
loan portfolio under current economic conditions and is an amount that
ment sales method for tax purposes and gains on the sale of bank prem-
Management believes will be adequate to absorb probable losses on loans
ises which were structured under the provisions of Section 1031 of the
existing at the reporting date. The evaluation includes Management’s
Internal Revenue Code.
assessment of several factors: review and evaluations of specific loans,
changes in the nature and volume of the loan portfolio, current and antic-
Advertising
ipated economic conditions and the related impact on specific borrowers
Advertising costs are expensed as incurred.
and industry groups, a study of loss experience, a review of classified,
nonperforming and delinquent loans, the estimated value of any under-
Leases
lying collateral, an estimate of the possibility of loss based on the risk
All leases are accounted for as operating leases in accordance with the
characteristics of the portfolio, adverse situations that may affect the
terms of the leases.
borrower’s ability to repay and the results of regulatory examinations.
This evaluation is inherently subjective as it requires material estimates
Earnings Per Share
that may be susceptible to significant change.
Basic and diluted earnings per share are computed on the basis of the
weighted average number of common shares outstanding, 5,556,251,
The allowance consists of specific and general components. The specific
5,563,015 and 5,603,834 in 2004, 2003 and 2002, respectively.
component relates to loans that are classified as either doubtful or sub-
standard. For such loans, a specific allowance is established when the col-
Statements of Cash Flows
lateral value or observable market price of the loan is lower than the car-
The Company has defined cash and cash equivalents to include cash and
rying value of the loan. The general component of the allowance relates to
due from banks. The Company paid $5,044,207, $5,937,967 and $9,929,357
loans that are not classified and is based on historical loss experience.
in 2004, 2003 and 2002, respectively, for interest on deposits and borrow-
Bank Premises and Equipment
ings. Income tax payments totaled $2,062,000, $2,537,223 and $1,639,612
in 2004, 2003 and 2002, respectively. Loans transferred to other real estate
Bank premises and equipment are stated at cost, less accumulated
amounted to $112,250, $977,584 and $984,430 in 2004, 2003 and 2002,
depreciation. Depreciation is computed primarily by the straight-line
respectively. The income tax effect on the accumulated other comprehen-
method based on the estimated useful lives of the related assets.
sive income was $(830,890), $(676,621) and $108,473, at December 31,
Other Real Estate
Other real estate acquired through foreclosure is carried at the lower
Reclassifications
2004, 2003 and 2002, respectively.
of cost (primarily outstanding loan balance) or estimated market value,
Certain reclassifications have been made to the prior year statements to
less estimated costs to sell. If, at foreclosure, the carrying value of the loan
conform to current year presentation. The reclassifications had no effect
is greater than the estimated market value of the property acquired,
on prior year net income.
the excess is charged against the allowance for loan losses and any
16
(cid:1)
N O T E B - S E C U R I T I E S :
The amortized cost and estimated fair value of securities at December 31, 2004, 2003, and 2002, respectively, are as follows (in thousands):
December 31, 2004
Amortized cost
Gross
unrealized gains
Gross
unrealized losses
Estimated
fair value
Available for sale securities:
Debt securities:
U. S. Treasury
U. S. Government agencies and corp.
States and political subdivisions
Total debt securities
Equity securities
$
64,817
92,538
13,254
170,609
3,829
Total available for sale securities
$
174,438
Held to maturity securities:
States and political subdivisions
Total held to maturity securities
$
$
6,587
6,587
$
$
$
$
000
41
244
285
62
347
113
113
$
(165)
(766)
(115)
(1,046)
(708)
$
64,652
91,813
13,383
169,848
3,183
$
(1,754)
$
173,031
$
$
(2)
(2)
$
$
6,698
6,698
December 31, 2003
Amortized cost
Gross
unrealized gains
Gross
unrealized losses
Estimated
fair value
Available for sale securities:
Debt securities:
U. S. Treasury
$
49,977
$
U. S. Government agencies and corp.
States and political subdivisions
Total debt securities
Equity securities
145,507
7,154
202,638
3,829
Total available for sale securities
$
206,467
Held to maturity securities:
U. S. Treasury
States and political subdivisions
Total held to maturity securities
$
$
1,000
3,353
4,353
$
$
$
465
778
161
1,404
709
2,113
17
159
176
$
(38)
(801)
(48)
(887)
(207)
$
50,404
145,484
7,267
203,155
4,331
$
(1,094)
$
207,486
$
$
0
(2)
(2)
$
$
1,017
3,510
4,527
17
December 31, 2002
Available for sale securities:
Debt securities:
U. S. Treasury
U. S. Government agencies and corp.
States and political subdivisions
Total debt securities
Equity securities
Total available for sale securities
Held to maturity securities:
U. S. Treasury
U. S. Government agencies and corp.
States and political subdivisions
Total held to maturity securities
Amortized cost
Gross
unrealized gains
Gross
unrealized losses
Estimated
fair value
$
$
$
$
46,948
93,627
4,061
144,636
3,828
148,464
5,998
7,000
4,590
17,588
$
$
$
$
709
1,468
89
2,266
766
3,032
120
143
175
438
$
(1)
(11)
(12)
(12)
(12)
(12)
$
$
$
$
$
$
$
47,656
95,095
4,139
146,890
4,594
151,484
6,118
7,143
4,765
18,026
The amortized cost and estimated fair value of debt securities at December 31, 2004, (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.
Amortized cost
Estimated fair value
Available for sale securities:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Totals
Held to maturity securities:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Totals
$
$
$
$
49,961
68,674
46,376
5,598
170,609
436
1,836
3,144
1,171
6,587
$
$
$
$
49,893
68,448
46,004
5,503
169,848
438
1,844
3,186
1,230
6,698
Information pertaining to securities with gross unrealized losses at December 31, 2004, aggregated by investment category and length of time that indi-
vidual securities have been in a continuous loss position is as follows (in thousands):
Less Than Twelve Months
Over Twelve Months
Total
U. S. Treasury
U. S. Government Agencies
States and political subdivisions
FHLMC Preferred stock
Total
Fair Value
57,716
$
54,550
5,318
$ 117,584
Gross Unrealized Loss
165
417
115
$
$
697
Fair Value
10,832
$
10,735
97
2,367
13,199
$
$
Gross Unrealized Loss
352
349
2
708
1,059
$
$
Fair Value Gross Unrealized Loss
165
$
766
117
708
1,756
57,716
65,285
5,415
2,367
$ 130,783
$
As a result of the evaluation of the impairment of these securities, the
Company has determined that the declines summarized in the table above
are not deemed to be other-than-temporary.
Proceeds from maturities and calls of held to maturity debt securities during
2004, 2003 and 2002 were $1,405,000, $13,234,836 and $20,745,000, respectively.
There were no sales of held to maturity debt securities during 2004, 2003 and
2002. Proceeds from maturities, sales and calls of available for sale debt secu-
rities were $174,457,599, $130,443,200 and $145,297,421 during 2004, 2003 and
2002, respectively. Available for sale debt securities were sold in 2004 for a real-
ized loss of $258,888. There were no sales of available for sale debt securities
during 2003 and 2002. The Company realized gains of $57,356 and $209,659
18
from the liquidation of equity securities in 2003 and 2002, respectively.
Securities with an amortized cost of approximately $166,311,000,
$154,105,000 and $139,625,000 at December 31, 2004, 2003 and 2002,
respectively, were pledged to secure public deposits, federal funds pur-
chased and other balances required by law.
Federal Home Loan Bank (FHLB) common stock was purchased during 1999
in order for the Company to participate in certain FHLB programs. The
amount to be invested in FHLB stock was calculated according to FHLB
guidelines as a percentage of certain mortgage loans. The investment is
carried at cost. Dividends received are reinvested in FHLB stock.
(cid:1)
N O T E C - L O A N S :
The composition of the loan portfolio was as follows (in thousands):
December 31,
Real estate, construction
Real estate, mortgage
Loans to finance agricultural production and other loans to farmers
Commercial and industrial loans
Loans to individuals for household, family and other consumer expenditures
Obligations of states and political subdivisions (primarily industrial
revenue bonds and local government tax anticipation notes)
All other loans
Totals
Transactions in the allowance for loan losses are as follows (in thousands):
Balance, January 1
Recoveries
Loans charged off
Provision for allowance for loan losses
Balance, December 31
2004
$
20,926
$
250,676
4,251
44,983
11,387
1,654
316
2003
14,896
223,246
3,980
41,832
15,252
2,560
389
$
2002
21,534
197,478
7,375
65,946
19,522
3,637
336
$
334,193
$
302,155
$
315,828
2004
6,399
494
(771)
448
6,570
$
$
2003
6,697
600
(1,345)
447
6,399
$
$
2002
5,658
676
(2,065)
2,428
6,697
$
$
In the ordinary course of business, the Company extends loans to certain
officers and directors and their personal business interests at, in the opin-
ion of Management, terms and rates comparable to other loans of similar
credit risks. These loans do not involve more than normal risk of
collectibility and do not include other unfavorable features.
An analysis of the activity with respect to such loans to related parties is as follows (in thousands):
Balance, January 1
New loans and advances
Repayments
Balance, December 31
2004
7,637
14,412
(13,190)
8,859
$
$
2003
9,183
13,517
(15,063)
7,637
$
$
2002
11,920
18,817
(21,554)
9,183
$
$
Industrial revenue bonds with a carrying value of $502,187 and $700,356
which there is a related allowance for loan losses was $6,164,000,
at December 31, 2003 and 2002, respectively, were pledged to secure
$7,415,000 and $6,550,000 at December 31, 2004, 2003 and 2002, respec-
public deposits.
tively. At December 31, 2004, 2003 and 2002, the average recorded invest-
ment in impaired loans was $6,355,000, $7,400,000 and $6,602,000,
Nonaccrual loans amounted to approximately $6,164,000, $7,415,000 and
respectively. The amount of interest not accrued on these loans was
$6,550,000 at December 31, 2004, 2003 and 2002, respectively.
approximately $15,000, $261,000 and $212,000 in 2004, 2003 and 2002,
respectively. In compliance with a bankruptcy court order, interest in the
The total recorded investment in impaired loans amounted to $6,164,000,
amount of $255,000 was received and recorded as interest income relating
$7,415,000 and $6,550,000 at December 31, 2004, 2003 and 2002, respec-
to one impaired loan, with an average balance of $5,725,000 for the year
tively. The amount of that recorded investment in impaired loans for
ended December 31, 2004.
19
(cid:1)
N O T E D - B A N K P R E M I S E S A N D E Q U I P M E N T :
Bank premises and equipment are shown as follows (in thousands):
December 31,
Land
Buildings
Furniture, fixtures and equipment
Totals, at cost
Less: Accumulated depreciation
Totals
Estimated useful lives
5-40 years
3-10 years
2004
5,033
17,463
12,697
35,193
17,174
18,019
$
$
$
2003
4,522
17,533
12,173
34,228
16,275
2002
$
4,839
15,584
11,596
32,019
14,960
$
17,953
$
17,059
(cid:1)
N O T E E - D E P O S I T S
At December 31, 2004, the scheduled maturities of time deposits (in thousands) are as follows:
2005
2006
2007
2008
2009
Thereafter
Total
$
95,471
9,782
3,787
6,093
4,062
3
$
119,198
(cid:1)
N O T E F - B O R R O W I N G S F R O M F E D E R A L H O M E L O A N B A N K :
At December 31, 2004, the Company had $5,000,000 outstanding in
in 2010. The advances are collateralized by a blanket floating lien on the
advances under a $76,000,000 line of credit with the Federal Home Loan
Company’s residential first mortgage loans.
Bank of Dallas (“FHLB”). This advance bore interest at 6.50% and matures
2004
2003
2002
$
1,239
$
1,2 9
$
147,029
1,239
15,336
44,299
$
1,239
94,899
$
110,235
143,043
$ 334,371
(cid:1)
N O T E G - N O T E S P A Y A B L E :
December 31,
Small Business Administration,
outstanding mortgage on property acquired.
The note bears interest at 5 3/8% & is payable at
$1,952 monthly through January 2004.
Notes payable on automobiles.
The notes are non interest-bearing and payable in
monthly installments through January 2005.
RiverHills Bank, $750,000 line of credit for
Peoples Financial Corporation Employee Stock Ownership Plan,
secured by the guarantee of the Company; Interest at New York Prime
(4.00% at December 31, 2003) due quarterly, principal due at maturity in June 2004.
Totals
20
(cid:1)
N O T E H - I N C O M E T A X E S :
Federal income taxes payable (or refundable) and deferred taxes (or deferred charges) as of December 31, 2004, 2003 and 2002, included in other assets
or other liabilities, were as follows (in thousands):
December 31,
Deferred tax assets:
Allowance for loan losses
Employee benefit plans' liabilities
Unrealized loss on available for sale securities, charged from equity
Other
Deferred tax assets
Deferred tax liabilities:
Accumulated depreciation
Deferred gain on sale of bank premises
Installment sales
Unrealized gains on available for sale securities, charged to equity
Deferred tax liabilities
Net deferred taxes
Current payable (refundable)
Totals
Income taxes consist of the following components (in thousands):
Years Ended December 31,
Current
Deferred
Totals
Deferred income taxes (benefits) resulted from the following (in thousands):
Years Ended December 31,
Depreciation
Provision for loan losses
Officers' and directors' life insurance
Deferred gain on sale of bank premises
Unrealized gain on available for sale securities, charged to equity
Other
Totals
$
2004
2,282
1,489
479
915
(5,165)
524
1,784
2,308
(2,857)
603
$
2003
2,114
1,328
836
(4,278)
732
1,784
13
347
2,876
(1,402)
(20)
$
2002
2,215
1,145
685
(4,045)
820
1,750
13
1,026
3,609
(436)
200
$
(2,254)
$
(1,422)
$
(236)
$
$
$
$
$
$
2004
2,660
(629)
2,031
2004
(46)
(57)
(161)
(826)
(365)
$
2003
2,322
(287)
$
2,035
$
2003
(88)
101
(183)
34
(679)
(151)
$
(1,455)
$
(966)
$
2002
1,886
(1,198)
688
2002
(127)
(628)
(281)
63
213
(225)
(985)
21
Income taxes amounted to less than the amounts computed by applying the U.S. Federal income tax rate of 34.0% for 2004, 2003 and 2002, to earnings
before income taxes. The reason for these differences is shown below (in thousands):
Years Ended December 31,
Taxes computed at statutory rate
Increase (decrease) resulting from:
Tax-exempt interest income
Non-deductible interest
Non-taxable life insurance proceeds
Dividend exclusion
Other, net
Total income taxes
2004 Amount
$
2,660
(230)
6
(43)
(50)
(312)
$
2,031
%
34.0
(2.9)
0.1
(0.5)
(0.6)
(4.2)
25.9
2003 Amount
%
2002 Amount
$
2,398
34.0
$
1,319
(184)
8
(54)
(133)
$
2,035
(2.6)
0.1
(0.8)
(1.8)
28.9
(187)
15
(201)
(63)
(195)
$
688
%
34.0
(4.8)
0.4
(5.2)
(1.6)
(5.1)
17.7
(cid:1)
N O T E I - S H A R E H O L D E R S ' E Q U I T Y :
Banking regulations limit the amount of dividends that may be paid by
On December 6, 2002, the Company’s Board of Directors approved the ter-
mination of the stock incentive program, which was replaced by the acqui-
the bank subsidiary without prior approval of the Commissioner of
sition of endorsement split dollar policies for the two executive officers.
Banking and Consumer Finance of the State of Mississippi. At December 31,
2004, approximately $11,389,000 of undistributed earnings of the bank
On December 10, 2004, the Company’s Board of Directors approved a semi-
subsidiary included in consolidated surplus and retained earnings was
annual dividend of $ .18 per share. This dividend has a record date of
available for future distribution to the Company as dividends, subject to
January 10, 2005 and a distribution date of January 17, 2005.
the approval by Board of Directors.
The bank subsidiary is subject to various regulatory capital requirements
On May 24, 2000, the Company’s Board of Directors approved the repur-
administered by the federal banking agencies. Failure to meet minimum
chase of up to 2.50% of the outstanding shares of the Company’s common
capital requirements can initiate certain mandatory, and possibly addi-
stock. As of December 31, 2003, 147,633 shares available under this plan
tional discretionary, actions by the regulators that, if undertaken, could
had been repurchased and retired. On November 26, 2002, the Company’s
have a direct material effect on the bank subsidiary’s financial statements.
Board of Directors approved the repurchase of up to 2.50% of the out-
Under capital adequacy guidelines and the regulatory framework for
standing shares of the Company’s common stock. As of December 31, 2004,
prompt corrective action, the bank subsidiary must meet specific capital
23,573 shares had been repurchased and retired under the plan approved
guidelines that involve quantitative measures of the bank subsidiary’s
November 26, 2002.
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The bank subsidiary’s capital amounts
On May 23, 2001, the Company’s Board of Directors approved a stock incen-
and classification are also subject to qualitative judgments by the regula-
tive program for two executive officers. Under this plan, whole shares
tors about components, risk weightings and other factors.
valued as of the distribution date at $50,000 were distributed to each of
these officers who continue to meet the eligibility requirements on June 15,
Quantitative measures established by regulation to ensure capital ade-
2001, and on January 15 of the four succeeding years. On June 15, 2001 and
quacy require the bank subsidiary to maintain minimum amounts and
January 15, 2002, a total of 6,886 and 7,142 shares, respectively, of Peoples
ratios of Total and Tier 1 capital to risk-weighted assets, and Tier 1 capital
Financial Corporation common stock was issued. This incentive program was
to average assets.
established subsequent to the surrender of collateral assignment split
dollar policies that had been obtained on behalf of these executives.
22
As of December 31, 2004, the most recent notification from the Federal
Total risk-based capital ratio of 10.00% or greater, a Tier 1 risk-based cap-
Deposit Insurance Corporation categorized the bank subsidiary as well
ital ratio of 6.00% or greater and a Leverage capital ratio of 5.00% or
capitalized under the regulatory framework for prompt corrective action.
greater. There are no conditions or events since that notification that
To be categorized as well capitalized, the bank subsidiary must have a
Management believes have changed the bank subsidiary’s category.
The bank subsidiary’s actual capital amounts and ratios and required minimum capital amounts and ratios for 2004, 2003 and 2002, are as follows
(in thousands):
December 31, 2004:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
December 31, 2003:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
December 31, 2002:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
Actual
Amount
Ratio
For Capital Adequacy Purposes
Ratio
Amount
$88,983
84,405
84,405
$85,583
81,270
81,270
$83,768
79,437
79,437
24.29%
23.04%
14.66%
24.81%
23.56%
14.44%
24.16%
22.91%
13.98%
$29,302
14,651
23,028
$27,600
13,800
22,511
$27,720
13,860
22,798
8.00%
4.00%
4.00%
8.00%
4.00%
4.00%
8.00%
4.00%
4.00%
(cid:1)
N O T E J - O T H E R I N C O M E A N D E X P E N S E S :
Other income consisted of the following:
Years Ended December 31,
2004
Other service charges, commissions and fees
$
220,443
$
Gain on sale of bank premises
Rentals
Income from proceeds of insurance policies
Other income
Totals
1,270,698
480,267
128,117
572,179
$
2,671,704
$
2003
226,946
130,503
473,292
681,428
1,512,169
$
2002
189,835
182,861
494,055
592,436
461,265
$
1,920,452
23
Other expenses consisted of the following:
Years Ended December 31,
Advertising
Data processing
FDIC and state banking assessments
Legal and accounting
Postage and freight
Stationery, printing and supplies
Other real estate
ATM expense
Federal Reserve and other bank service charges
Conferences and classes
Taxes and licenses
Consulting fees
Trust expense
Other
Totals
$
2004
553,104
232,473
55,923
443,152
189,082
263,241
359,344
1,256,013
145,991
164,546
259,361
119,182
397,610
1,112,925
$
2003
515,538
282,420
117,271
382,161
167,517
250,976
59,887
2,223,479
154,701
120,293
267,319
363,282
381,233
961,879
2002
$
433,037
268,044
127,234
395,016
227,871
169,583
636,789
2,477,104
153,783
99,325
276,910
45,880
373,483
957,790
$
5,551,947
$
6,247,956
$
6,641,849
(cid:1)
N O T E K - F I N A N C I A L I N S T R U M E N T S
W I T H O F F - B A L A N C E - S H E E T R I S K :
The Company is a party to financial instruments with off-balance-sheet
fixed expiration dates or other termination clauses and may require pay-
ment of a fee. Since some of the commitments and irrevocable letters of
credit may expire without being drawn upon, the total amounts do not
risk in the normal course of business to meet the financing needs of its
necessarily represent future cash requirements. The Company evaluated
customers. These financial instruments include commitments to extend
each customer's creditworthiness on a case-by-case basis. The amount of
credit and irrevocable letters of credit. These instruments involve, to vary-
collateral obtained upon extension of credit is based on Management's
ing degrees, elements of credit and interest rate risk in excess of the
credit evaluation of the customer. Collateral obtained varies but may
amount recognized in the balance sheet. The contract amounts of those
include equipment, real property and inventory.
instruments reflect the extent of involvement the bank subsidiary has in
particular classes of financial instruments. The Company's exposure to
The Company generally grants loans to customers in its primary trade area
credit loss in the event of nonperformance by the other party to the finan-
of Harrison, Hancock, Jackson and Stone counties.
cial instrument for commitments to extend credit and irrevocable letters
of credit is represented by the contractual amount of those instruments.
At December 31, 2004, 2003 and 2002, the Company had outstanding
The Company uses the same credit policies in making commitments and
irrevocable letters of credit aggregating $3,113,033, $3,388,997 and
conditional obligations as it does for on-balance-sheet instruments.
$2,849,400, respectively. At December 31, 2004, 2003 and 2002, the
Commitments to extend credit are agreements to lend to a customer as
$113,500,000, $95,165,000 and $87,382,000, respectively. Approximately
long as there is no violation of any conditions established in the agree-
$24,637,000, $46,688,000 and $43,543,000 of outstanding commitments
ment. Irrevocable letters of credit written are conditional commitments
were at fixed rates and the remainder were at variable rates at December
Company had outstanding unused loan commitments aggregating
issued by the Company to guarantee the performance of a customer to a
31, 2004, 2003 and 2002, respectively.
third party. Commitments and irrevocable letters of credit generally have
24
(cid:1)N O T E L - C O N T I N G E N C I E S :
vigorously contest the allegations of the complaint. The bank is involved in
During 2003, a lawsuit was filed against the Company’s bank subsidiary. This
various other legal matters and claims which are being defended and han-
litigation, which specifies damages of $1,500,000 and punitive damages of
dled in the ordinary course of business. None of these matters is expected, in
$12,500,000, was filed by an insurance company trying to reverse a settle-
the opinion of Management, to have a material adverse effect upon the
ment it voluntarily agreed to in 2000. The bank subsidiary intends to
financial position or results of operations of the Company.
(cid:1)N O T E M - C O N D E N S E D P A R E N T C O M P A N Y
O N L Y F I N A N C I A L I N F O R M A T I O N :
Peoples Financial Corporation began its operations September 30, 1985,
when it acquired all the outstanding stock of The Peoples Bank,
Biloxi, Mississippi. A condensed summary of its financial information
is shown below.
C O N D E N S E D B A L A N C E S H E E T S ( I N T H O U S A N D S )
December 31,
2004
2003
2002
Assets
Investments in subsidiaries, at underlying equity:
Bank subsidiary
Nonbank subsidiary
Cash in bank subsidiary
Other assets
Total assets
Liabilities and Shareholders' Equity
Notes payable
Other liabilities
Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
$
$
$
$
85,991
1
268
823
87,083
87,083
1,282
1,282
85,801
87,083
C O N D E N S E D S T A T E M E N T S O F I N C O M E ( I N T H O U S A N D S )
Years Ended December 31,
2004
Income
Earnings of unconsolidated bank subsidiary:
Distributed earnings
Undistributed earnings
Interest income
Other income
Total income
Expenses
Other expense
Total expenses
Income before income taxes
Income tax (benefit)
Net income
$
$
1,575
4,246
3
43
5,867
87
87
5,780
(14)
5,794
$
82,957
$
81,558
1
546
1,462
84,966
95
1,367
1,462
83,504
84,966
2003
2,280
2,739
5
79
5,103
86
86
5,017
(1)
5,018
$
$
$
$
$
$
$
$
$
$
1
84
1,462
83,105
143
1,230
1,373
81,732
83,105
2002
1,400
1,752
7
230
3,389
185
185
3,204
13
3,191
25
C O N D E N S E D S T A T E M E N T S O F C A S H F L O W S ( I N T H O U S A N D S )
Years Ended December 31,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on liquidation of investment
Net income of unconsolidated subsidiaries
Stock incentive plan
Changes in assets and liabilities:
Other assets
Net cash used in operating activities
Cash flows from investing activities:
Proceeds from liquidation of investment
Dividends from unconsolidated subsidiary
Net cash provided by investing activities
Cash flows from financing activities:
Retirement of stock
Dividends paid
Net cash used in financing activities
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
2004
2003
2002
$
5,794
$
5,018
$
3,191
(22)
(5,821)
(14)
(63)
22
1,575
1,597
(34)
(1,778)
(1,812)
(278)
546
268
$
(57)
(5,019)
(58)
57
2,280
2,337
(368)
(1,449)
(1,817)
462
84
546
$
(210)
(3,152)
100
15
(56)
352
1,400
1,752
(528)
(1,347)
(1,875)
(179)
263
84
$
Peoples Financial Corporation paid income taxes of $2,062,000, $2,537,223 and $1,639,612 in 2004, 2003 and 2002, respectively. No interest was paid
during the three years ended December 31, 2004.
(cid:1)
N O T E N - E M P L O Y E E B E N E F I T P L A N S :
The Company sponsors the Peoples Financial Corporation Employee Stock
ESOP debt for acquisition of Company shares has been guaranteed by the
Company and is reported as a debt of the Company. Shares pledged as
Ownership Plan (ESOP). Employees who work more than 1,000 hours and
collateral are reported as unearned compensation in equity. ESOP debt for
are at least 21 years of age are eligible to participate in the ESOP. The Plan
acquisition from The Peoples Bank, Biloxi, Mississippi, is eliminated in
included 401(k) provisions and the former Gulf National Bank Profit
consolidation. As shares are committed to be released, the Company
Sharing Plan. Effective January 1, 2001, the ESOP was amended to separate
reports compensation expense equal to the current market price of the
the 401(k) funds into the Peoples Financial Corporation 401(k) Plan. The
shares, and the shares become outstanding for net income per share com-
separation had no impact on the eligibility or benefits provided to partic-
putations. Dividends on allocated ESOP shares are recorded as a reduction
ipants of either plan. The 401(k) provides for a matching contribution of
of retained earnings; dividends on unallocated ESOP shares are recorded
75% of the amounts contributed by the employee (up to 6% of compensa-
as a reduction of debt and accrued interest.
tion). Contributions are determined by the Board of Directors and may be
paid either in cash or Peoples Financial Corporation capital stock. Total
Compensation expense of $7,323,267, $7,021,816 and $7,167,143 relating to
contributions to the plan charged to operating expense were $459,000,
the ESOP was recorded during 2004, 2003 and 2002, respectively. The ESOP
$360,000 and $360,000 in 2004, 2003 and 2002, respectively.
held 472,744, 467,499 and 533,733 allocated shares at December 31, 2004,
2003 and 2002, respectively.
26
The Company established an Executive Supplemental Income Plan and a
carried at their cash surrender value, which amounted to $1,021,710,
Directors' Deferred Income Plan, which provide for pre-retirement and
$989,004 and $686,381 at December 31, 2004, 2003 and 2002, respectively.
post-retirement benefits to certain key executives and directors. The
The present value of accumulated benefits under these plans using an
Company has acquired insurance policies, with the bank subsidiary as
interest rate of 7.50% in 2004, 2003 and 2002 and the projected unit cost
owner and beneficiary, that it may use as a source to pay potential bene-
method has been accrued. The accrual amounted to $597,096 , $530,372
fits to the plan participants. These contracts are carried at their cash sur-
and $485,534 at December 31, 2004, 2003 and 2002, respectively.
render value, which amounted to $10,980,737, $10,588,084 and $10,276,887
at December 31, 2004, 2003 and 2002, respectively. The present value of
The Company provides post-retirement health insurance to certain of its
accumulated benefits under these plans, using an interest rate of 7.50%
retired employees. Employees are eligible to participate in the retiree
and the interest ramp-up method for 2004, 2003 and 2002, has been
health plan if they retire from active service no earlier than their Social
accrued. The accrual amounted to $3,783,850, $3,375,938 and $2,882,009
Security normal retirement age, which varies from 65 to 67 based on the
at December 31, 2004, 2003 and 2002, respectively.
year of birth. In addition, the employee must have at least 25 continuous
years of service with the Company immediately preceding retirement.
The Company also has additional plans for non-vested post-retirement
However, any active employee who was at least age 65 as of January 1,
benefits for certain key executives and directors. The Company has
1995, does not have to meet the 25 years of service requirement. The accu-
acquired insurance policies, with the bank subsidiary as owner and ben-
mulated post-retirement benefit obligation at January 1, 1995, was $517,599,
eficiary, that it may use as a source to pay potential benefits to the plan
which the Company elected to amortize over 20 years. The Company reserves
participants. Additionally, there are two endorsement split dollar policies,
the right to modify, reduce or eliminate these health benefits.
with the bank subsidiary as owner and beneficiary, which provide a guar-
anteed death benefit to the participants’ beneficiaries. These contracts are
The following is a summary of the components of the net periodic post-retirement benefit cost:
Years Ended December 31,
Service cost
Interest cost
Amortization of net transition obligation
2004
$
212,933
133,262
20,600
2003
$
157,515
104,409
20,600
2002
$
107,533
94,603
20,600
Net periodic post-retirement benefit cost
$
366,795
$
282,524
$
222,736
The discount rate used in determining the accumulated post-retirement
The Medicare Prescription Drug, Improvement and Modernization Act of
benefit obligation was 5.75% in 2004, 6.25% in 2003, and 6.50% in 2002.
2003 (the “Act”) introduces a prescription drug benefit under Medicare
The assumed health care cost trend rate used in measuring the accumulat-
Part D as well as a federal subsidy to sponsors of retiree health care bene-
ed post-retirement benefit obligation was 9.50% in 2004. The rate was
fit plans that provide a benefit that is at least actuarially equivalent to
assumed to decrease gradually to 5.00% for 2013 and remain at that level
Medicare Part D. The Act becomes effective in 2006. The Company believes
thereafter. If the health care cost trend rate assumptions were increased
that the coverage it provides under its retiree health plan is actuarially
1.00%, the accumulated post-retirement benefit obligation as of December
equivalent to Medicare Part D and that it will be entitled to the subsidy.
31, 2004, would be increased by 25.49%, and the aggregate of the service
The Company has elected to recognize the effect of this subsidy as
and interest cost components of the net periodic post-retirement benefit
of December 31, 2004, in accordance with FASB Staff Position 106-2.
cost for the year then ended would have increased by 29.70%. If the health
The recognition of this subsidy had no effect on the 2004 net periodic
care cost trend rate assumptions were decreased 1.00%, the accumulated
post-retirement benefit cost but did reduce the accumulated benefit
post-retirement benefit obligation as of December 31, 2004, would be
obligation as of December 31, 2004 by $650,109, as reflected in the follow-
decreased by 19.31%, and the aggregate of the service and interest cost
ing two tables.
components of the net periodic post-retirement benefit cost for the year
then ended would have decreased by 22.01%.
27
The following is a reconciliation of the accumulated post-retirement benefit obligation:
Accumulated post-retirement benefit obligation as of December 31, 2003
$
2,152,982
Service cost
Interest cost
Actuarial loss
Change due to Medicare Part D Subsidy
Benefits paid
173,757
133,262
485,747
(650,109)
(61,070)
Accumulated post-retirement benefit obligation as of December 31, 2004
$
2,234,569
December 31,
2004
2003
2002
Accumulated post-retirement benefit obligation:
Retirees
Eligible to retire
Not eligible to retire
Total
Plan assets at fair value
Accumulated post-retirement
benefit obligation in excess of plan assets
Unrecognized transition obligation
Unrecognized cumulative net
gain from past experience different from
that assumed and from changes in assumptions
$
717,323
$
659,859
$
422,403
1,517,246
2,234,569
-0-
2,234,569
(205,997)
1,493,123
2,152,982
-0-
2,152,982
(226,597)
50,218
1,220,501
1,693,122
-0-
1,693,122
(247,197)
(684,409)
(887,947)
(615,462)
Accrued post-retirement benefit cost
$
1,344,163
$
1,038,438
$
830,463
(cid:1)
N O T E O - F A I R V A L U E O F F I N A N C I A L
I N S T R U M E N T S :
SFAS 107, "Disclosures About Fair Value of Financial Instruments," requires all
entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the statement of condition, for
which it is practical to estimate its fair value. SFAS 107 excluded certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the Company. In preparing these dis-
closures, Management made highly sensitive estimates and assumptions in
developing the methodology to be utilized in the computation of fair value.
These estimates and assumptions were formulated based on judgments
regarding economic conditions and risk characteristics of the financial
instruments that were present at the time the computations were made.
Events may occur that alter these conditions and thus perhaps change the
assumptions as well. A change in the assumptions might affect the fair value
of the financial instruments disclosed in this footnote. In addition, the tax
consequences related to the realization of the unrealized gains and losses
have not been computed or disclosed herein. These fair value estimates,
methods and assumptions are set forth below.
Cash and Due from Banks
The amount shown as cash and due from banks approximates fair value.
Available for Sale Securities
The fair value of available for sale securities is based on quoted
market prices.
Held to Maturity Securities
The fair value of held to maturity securities is based on quoted
market prices.
Loans
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers
with similar credit ratings for the remaining maturities. The cash flows
considered in computing the fair value of such loans are segmented into
categories relating to the nature of the contract and collateral based on
contractual principal maturities. Appropriate adjustments are made to
reflect probable credit losses. Cash flows have not been adjusted for such
factors as prepayment risk or the effect of the maturity of balloon notes.
28
Deposits
Federal Funds Purchased and Securities Sold under
The fair value of non-interest bearing demand and interest bearing sav-
Agreements to Repurchase
ings and demand deposits is the amount reported in the financial state-
The amount shown as federal funds purchased and securities sold under
ments. The fair value of time deposits is estimated by discounting the cash
agreements to repurchase approximates fair value.
flows using current rates of time deposits with similar remaining maturi-
ties. The cash flows considered in computing the fair value of such
Long Term Funds
deposits are based on contractual maturities, since approximately 98% of
The fair value of long term funds is computed by discounting the cash
time deposits provide for automatic renewal at current interest rates.
flows using current borrowing rates.
The following table presents carrying amounts and estimated fair values for financial assets and financial liabilities at December 31, 2004, 2003 and 2002
(in thousands):
2004
2003
2002
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Financial Assets:
Cash and due from banks
$ 32,725
$ 32,725
$
33,861
$
33,861
$
39,654
$
39,654
Available for sale securities
Held to maturity securities
Loans, net
Financial Liabilities:
Deposits:
Non-interest bearing
Interest bearing
Total deposits
Federal funds purchased and
securities sold under
agreements to repurchase
Long term funds
174,438
6,587
327,624
89,529
299,663
389,192
87,277
7,203
173,031
6,698
331,044
89,529
300,188
389,717
87,277
7,906
206,467
4,353
295,757
80,599
296,190
376,789
95,039
17,180
207,486
4,527
298,918
80,599
297,065
377,664
95,039
18,076
151,484
17,588
309,130
79,172
312,533
391,705
67,246
6,647
151,484
18,026
311,032
79,172
314,552
393,724
67,246
7,398
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S
P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S
Board of Directors
In our opinion, the consolidated financial statements referred to above
Peoples Financial Corporation and Subsidiaries
present fairly, in all material respects, the financial position of Peoples
Biloxi, Mississippi
Financial Corporation and Subsidiaries at December 31, 2004, 2003 and
We have audited the accompanying consolidated statements of condition
ended, in conformity with U. S. generally accepted accounting principles.
2002, and the results of its operations and its cash flows for the years then
of Peoples Financial Corporation and Subsidiaries as of December 31, 2004,
2003 and 2002, and the related consolidated statements of income, share-
Certified Public Accountants
holders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's Management. Our
responsibility is to express an opinion on these financial statements based
PILTZ, WILLIAMS, LAROSA & CO.
on our audits.
We conducted our audits in accordance with the standards of the Public
January 24, 2005
Biloxi, Mississippi
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant esti-
mates made by Management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
30
F I V E - Y E A R C O M P A R A T I V E S U M M A R Y O F S E L E C T E D F I N A N C I A L I N F O R M A T I O N
( I N T H O U S A N D S E X C E P T P E R S H A R E D A T A )
Peoples Financial Corporation and Subsidiaries
Balance Sheet Summary
Total assets
Available for sale securities
Held to maturity securities
Loans, net of unearned discount
Deposits
Borrowings from FHLB
Long term notes payable
Shareholders' equity
Summary of Operations
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after
provision for loan losses
Non-interest income
Non-interest expense
Income before taxes and extraordinary gain
Applicable income taxes
Extraordinary gain
Net income
Per Share Data
Basic and diluted earnings per share
Basic and diluted earnings per share before
extraordinary gain
Dividends per share
Book value
2004
2003
2002
2001
2000
$
577,441
$
579,669
$
553,671
$
587,012
$
587,244
173,030
6,588
334,193
389,192
7,203
85,801
207,486
4,353
302,155
376,789
17,070
110
83,504
151,484
17,588
315,827
391,705
6,313
334
81,732
142,902
38,279
347,169
412,543
5,549
336
80,069
48,168
98,052
377,476
413,724
23,160
291
78,717
$
24,566
$
25,065
$
27,424
$
37,285
$
42,250
5,091
19,475
448
19,027
9,563
(20,765)
7,825
2,031
5,794
1.04
1.04
.32
15.44
$
$
5,838
19,227
447
18,780
9,737
(21,464)
7,053
2,035
5,018
.90
.90
.29
15.03
$
$
9,616
17,808
2,428
15,380
10,372
(21,874)
3,878
687
18,354
18,931
2,503
16,428
9,256
(21,197)
4,487
1,082
594
19,401
22,849
4,192
18,657
7,678
(19,632)
6,703
2,065
$
$
3,191
$
3,999
$
4,638
.57
.57
.24
14.64
$
.71
$
.79
.60
.24
14.25
.79
.21
13.58
Weighted average number of shares
5,556,251
5,563,015
5,603,834
5,629,872
5,857,232
Selected Ratios
Return on average assets
Return on average equity
Capital formation rate
Primary capital to average assets
Risk-based capital ratios:
Tier 1
Total
1.00%
6.84%
2.75%
15.87%
23.04%
24.29%
.88%
6.07%
2.17%
15.79%
23.56%
24.81%
.56%
3.94%
2.08%
15.39%
22.91%
24.16%
.68%
5.04%
1.72%
14.47%
20.65%
21.90%
.82%
5.93%
1.22%
14.68%
19.97%
21.13%
31
S U M M A R Y O F Q U A R T E R L Y R E S U L T S O F O P E R A T I O N S
( I N T H O U S A N D S E X C E P T P E R S H A R E D A T A )
Peoples Financial Corporation and Subsidiaries
Quarter Ended, 2004
Interest income
Net interest income
Provision for loan losses
Income before income taxes
Net income
Basic and diluted earnings per share
Quarter Ended, 2003
Interest income
Net interest income
Provision for loan losses
Income before income taxes and extraordinary items
Net income
Basic and diluted earnings per share
Market Information
March 31
$
5,916
June 30
$
5,811
September 30
December 31
$
6,190
$
6,649
4,738
180
1,529
1,072
.19
4,615
183
2,824
1,987
.36
4,870
61
1,943
1,425
.25
5,252
24
1,529
1,310
.24
March 31
$
6,410
June 30
September 30
December 31
$
6,332
$
6,174
$
6,149
4,725
179
1,384
1,037
.19
4,708
139
1,599
1,088
.19
4,883
65
2,116
1,511
.27
4,911
64
1,954
1,382
.25
The Company's stock is traded under the symbol PFBX and is quoted in publications under "PplFnMS". The following table sets forth the high and low sale
prices of the Company's common stock as reported on the NASDAQ Stock Market.
Year
2004
2003
Quarter
High
Low
Dividend per share
1st
2nd
3rd
4th
1st
2nd
3rd
4th
$
$
20
19
18
20
15
16
17
18
$
$
16
17
17
17
13
13
14
15
$
.15
.17
$
.12
.14
There were 625 holders of record of common stock of the Company at
The Commissioner of Banking and Consumer Finance of the State of
January 31, 2005, and 5,553,359 shares issued and outstanding. The prin-
Mississippi must approve all dividends paid to the Company by its bank
cipal source of funds to the Company for payment of dividends is the
subsidiary. Although Management cannot predict what dividends, if any,
earnings of the bank subsidiary.
will be paid in the future, the Company has paid regular semiannual cash
dividends since its founding in 1985.
32
B O A R D O F D I R E C T O R S
B O A R D O F D I R E C T O R S
Peoples Financial Corporation
B O A R D O F D I R E C T O R S
The Peoples Bank, Biloxi, Mississippi
Chevis C. Swetman, Chairman of the Board
Chevis C. Swetman, Chairman of the Board
Dan Magruder, Vice-Chairman; President, Rex Distributing Co., Inc.
Tyrone J. Gollott, Vice-Chairman; President, G & W Enterprises, Inc.
Drew Allen, President, Allen Beverages, Inc.
Drew Allen, President, Allen Beverages, Inc.
Rex E. Kelly, Director of Corporate Communications,
Liz Corso Joachim, President, Frank P. Corso, Inc.
Mississippi Power Company
Rex E. Kelly, Director of Corporate Communications,
Lyle M. Page, Partner, Page, Mannino, Peresich & McDermott, PLLC
Mississippi Power Company
O F F I C E R S
Peoples Financial Corporation
Chevis C. Swetman, President and CEO
Thomas J. Sliman, First Vice-President
Jeannette E. Romero, Second Vice-President
Dan Magruder, President, Rex Distributing Co., Inc.
Jeffrey H. O’Keefe, President, Bradford-O’Keefe Funeral Homes, Inc.
Lyle M. Page, Partner, Page, Mannino, Peresich & McDermott, PLLC
S E N I O R M A N A G E M E N T
The Peoples Bank, Biloxi, Mississippi
Robert M. Tucei, Vice-President
Chevis C. Swetman, President and CEO
A. Wes Fulmer, Vice-President and Secretary
Thomas J. Sliman, Senior Vice-President
Lauri A. Wood, Chief Financial Officer and Controller
Jeannette E. Romero, Senior Vice-President
Robert M. Tucei, Senior Vice-President
Lauri A. Wood, Senior Vice-President and Cashier
A. Wes Fulmer, Senior Vice-President
33
B R A N C H L O C A T I O N S
The Peoples Bank, Biloxi, Mississippi
Other Branches
Biloxi Branches
Bay St. Louis Office, 408 Highway 90 East, Bay St. Louis,
Mississippi 39520, (228) 897-8710
Main Office, 152 Lameuse Street, Biloxi, Mississippi 39530, (228) 435-5511
Diamondhead Office, 4408 West Aloha Drive, Diamondhead,
Cedar Lake Office, 1740 Popps Ferry Road, Biloxi, Mississippi 39532
Mississippi 39525, (228) 897-8714
(228) 435-8688
D’Iberville-St. Martin Office, 10491 Lemoyne Boulevard,
West Biloxi Office, 2560 Pass Road, Biloxi, Mississippi 39531,
D’Iberville, Mississippi 39540, (228) 435-8202
(228) 435-8203
Gulfport Branches
Gautier Office, 2601 Highway 90, Gautier, Mississippi 39553,
(228) 435-8694
Long Beach Office, 298 Jeff Davis Avenue, Long Beach, Mississippi 39560
(228) 897-8712
Downtown Gulfport Office, 1105 30th Avenue, Gulfport, Mississippi 39501,
Ocean Springs Office, 2015 Bienville Boulevard, Ocean Springs,
(228) 897-8715
Mississippi 39564, (228) 435-8204
Handsboro Office, 412 E. Pass Road, Gulfport, Mississippi 39507,
Pass Christian Office, 125 Henderson Avenue, Pass Christian,
(228) 897-8717
Mississippi 39571, (228) 897-8719
Orange Grove Office, 12020 Highway 49 North, Gulfport,
Saucier Office, 17689 Second Street, Saucier, Mississippi 39574,
Mississippi 39503, (228) 897-8718
(228) 897-8716
Waveland Office, 470 Highway 90, Waveland, Mississippi 39576,
(228) 467-7257
Wiggins Office, 1312 S. Magnolia Drive, Wiggins, Mississippi 39577
(228) 897-8722
34
C O R P O R A T E I N F O R M A T I O N
Peoples Financial Corporation and Subsidiaries
Independent Auditors
Piltz, Williams, LaRosa & Company, Biloxi, Mississippi
S.E.C. Form 10-K Requests
A copy of the Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission, may be obtained without charge by direct-
ing a written request to:
Lauri A. Wood, Chief Financial Officer and Controller
Peoples Financial Corporation
P. O. Drawer 529, Biloxi, Mississippi 39533-0529
(228) 435-8412, e-mail: lwood@thepeoples.com
Corporate Office
Mailing Address
P. O. Box 529
Biloxi, MS 39533-0529
Physical Address
152 Lameuse Street
Biloxi, MS 39530
(228) 435-8205
Website
www.thepeoples.com
Corporate Stock
The common stock of Peoples Financial Corporation is traded on the
NASDAQ Small Cap Market under the symbol: PFBX. The current market
makers are:
FTN Midwest Research Secs.
Knight Equity Markets, L.P.
Morgan Keegan & Company, Inc.
Sterne, Agee & Leach, Inc.
Stifel Nicolaus & Co.
Shareholder Information
For complete information concerning the common stock of Peoples
Financial Corporation, including dividend reinvestment, or general
information about the Company, direct inquiries to transfer
agent/investor relations:
Asset Management & Trust Services Department
The Peoples Bank, Biloxi, Mississippi
P. O. Box 1416, Biloxi, Mississippi 39533-1416
(228) 435-8208, e-mail: investorrelations@thepeoples.com
35
B O A R D O F D I R E C T O R S
PEOPLES FINANCIAL CORPORATION
THE PEOPLES BANK, BILOXI, MISSISSIPPI
BACK ROW FROM LEFT:
Jeffrey H. O’Keefe, President, Bradford-O’Keefe Funeral Homes, Inc.;
Tyrone J. Gollott, Vice-Chairman; President, G & W Enterprises, Inc.;
Lyle M. Page*, Partner, Page, Mannino, Peresich & McDermott, PLLC.
FRONT ROW FROM LEFT:
Rex E. Kelly*, Director of Corporate Communications, Mississippi Power
Company; Drew Allen*, President, Allen Beverages, Inc.; Chevis C.
Swetman*, Chairman of the Board; Dan Magruder*, Vice-Chairman of
Peoples Financial Corporation; President, Rex Distributing Co., Inc.;
Liz Corso Joachim, President, Frank P. Corso, Inc.
*Member of both boards
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P E O P L E S F I N A N C I A L C O R P O R A T I O N A N N U A L R E P O R T
P E O P L E S F I N A N C I A L C O R P O R A T I O N A N N U A L R E P O R T