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
2 0 0 9
A N N U A L
R E P O R T
T H I S
P A G E
L E F T
B L A N K
I N T E N T I O N A L L Y
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Peoples Financial Corporation (the “Company”) is a one-bank holding company headquartered in Biloxi, MS. The following presents Management’s dis-
cussion and analysis of the consolidated financial condition and results of operations of the Company and its consolidated subsidiaries for the years ended
December 31, 2009, 2008 and 2007. These comments highlight the significant events for these years and should be considered in combination with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this annual report.
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Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company’s anticipat-
ed future financial performance. This act provides a safe harbor for such disclosure which protects the companies from unwarranted litigation if actual
results are different from management expectations. This report contains forward-looking statements and reflects industry conditions, company per-
formance and financial results. These forward-looking statements are subject to a number of factors and uncertainties which could cause the Company’s
actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements. Such factors and
uncertainties include, but are not limited to: changes in interest rates and market prices, changes in local economic and business conditions, increased
competition for deposits and loans, a deviation in actual experience from the underlying assumptions used to determine and establish the allowance for
loan losses, changes in the availability of funds resulting from reduced liquidity, changes in government regulations and acts of terrorism, weather or
other events beyond the Company’s control.
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Certain critical accounting policies affect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.
The Company’s single most critical accounting policy relates to its allowance for loan losses, which reflects the estimated losses resulting from the inabil-
ity of its borrowers to make loan payments. If there was a deterioration of any of the factors considered by Management in evaluating the allowance for
loan losses, the estimate of loss would be updated, and additional provisions for loan losses may be required.
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The Company is a community bank serving the financial and trust needs of its customers in Harrison, Hancock, Jackson and Stone Counties in Mississippi.
Maintaining a strong core deposit base and commercial and real estate lending in that trade area are the traditional focus of the Company. Growth has
largely been achieved through de novo activity, and it is expected that these principles will continue to be emphasized.
With the focus of our core business being on the Mississippi Gulf Coast, the local economy impacts the Company’s business. Additionally, the Company
is impacted by national economic trends, as the actions taken by the Federal Reserve touch all financial institutions. The interest rate reductions in 2007
and 2008, the continuing decline in the value of real estate and general economic downturn have affected the Company’s results. Managing the net inter-
est margin in the Company’s highly competitive market and in context of the larger national economic conditions has been very challenging and will con-
tinue to be so for the foreseeable future.
Net income for 2009 was $3,220,473 compared with $5,033,690 for 2008. The results for 2009 included increased provisions for loan losses of $2,878,000
and FDIC insurance assessments of $1,259,560 as compared with 2008. Net interest income for 2009 was $1,721,687 less than the prior year as a result of
the decrease in net yield. Earnings in 2008 included an impairment loss of $2,964,000 on the Company’s investment in Federal Home Loan Mortgage
Corporation preferred stock.
Monitoring asset quality and addressing potential losses in our loan portfolio continues to be emphasized during these tough economic times. During
2009, non-performing loans, particularly non-accrual loans, increased significantly. The Company charged-off $9,080,407 in loans during 2009 as com-
pared with only $1,284,000 during 2008. Approximately 68% of the charge-offs in 2009 related to three credit relationships in the residential develop-
ment industry. Nonaccrual loans increased to $22,005,748 at December 31, 2009 as compared with $15,553,447 at December 31, 2008. Nonaccrual loans at
December 31, 2009 include one loan with a balance of $9,843,129, which is a performing loan, but was classified as nonaccrual by the banking regulators
in their annual shared national credit review in the third quarter of 2009.
Total assets decreased to $869,006,899 at December 31, 2009 from $896,407,501 at December 31, 2008. This decrease was primarily attributable to the net
decrease in available for sale securities of $29,027,635 during 2009. As a result of decreasing interest rates, approximately $140,000,000 of these securi-
ties were called in 2009. Proceeds from these calls, as well as from two sales of available for sale securities, funded liquidity needs and any remaining
funds were re-invested in U.S. Agencies.
1
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NNeett IInntteerreesstt IInnccoommee
Net interest income, the amount by which interest income on loans, investments and other interest- earning assets exceeds interest expense on deposits
and other borrowed funds, is the single largest component of the Company’s income. Management’s objective is to provide the largest possible amount
of income while balancing interest rate, credit, liquidity and capital risk. Changes in the volume and mix of interest earning assets and interest-bearing
liabilities combined with changes in market rates of interest directly affect net interest income.
The Federal Open Market Committee (the “Committee”), a component of the Federal Reserve System, is charged under United States law with overseeing
the nation’s open market operations by making key decisions about interest rates and the growth of the United States money supply. During 2007 and
2008, the Committee dropped the fed funds rate by a total of 500 basis points, which resulted in similar decreases in prime interest rates during this time.
The fed funds rate did not change in 2009. The Committee’s actions were a part of the U.S. Government’s larger plan to stabilize the financial markets and
stimulate the national economy and flow of capital. The impact of these rate reductions was significant to the Company’s financial condition and results
of operations.
2009 as compared with 2008
The Company’s average interest-earning assets increased approximately $14,784,000, or 2%, from approximately $804,842,000 for 2008 to approximate-
ly $819,626,000 for 2009.
Also as a result of the Committee’s actions, the average yield on earning assets decreased 122 basis points, from 5.48% for 2008 to 4.26% for 2009. The
Company’s loan portfolio generally has a 40%/60% blend of fixed/floating rate term. This results in the Company being more asset sensitive to market
interest rates and generally is the cause of the decrease in interest income.
Average interest-bearing liabilities increased approximately $17,288,000, or 3%, from approximately $664,738,000 for 2008 to approximately
$682,026,000 for 2009. The decrease in time deposits that began in 2008 as a result of rate competition was reversed by the acquisition of brokered
deposits during 2009. The average rate paid on interest-bearing liabilities decreased 116 basis points, from 2.25% for 2008 to 1.09% for 2009.
The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.36% at
December 31, 2009, down 26 basis points from 3.62% at December 31, 2008.
2008 as compared with 2007
The Company’s average interest-earning assets decreased approximately $68,296,000, or 8%, from approximately $873,138,000 for 2007 to approximate-
ly $804,842,000 for 2008. As a direct result of the Committee’s rate reductions, available for sale securities with a par value of $184,000,000 were called
during 2008.
Also as a result of the Committee’s actions, the average yield on earning assets decreased 98 basis points, from 6.46% for 2007 to 5.48% for 2008. The
Company’s loan portfolio generally has a 40%/60% blend of fixed/floating rate term. This results in the Company being more asset sensitive to market
interest rates and generally is the cause of the decrease in interest income. In addition, the proceeds from the called securities that were reinvested in
similar securities were at lower interest rates.
Average interest-bearing liabilities decreased approximately $51,179,000, or 7%, from approximately $715,917,000 for 2007 to approximately $664,738,000
for 2008. The average rate paid on interest-bearing liabilities decreased 131 basis points, from 3.56% for 2007 to 2.25% for 2008.
The Company’s trade area generally experiences a very competitive interest rate environment for deposits. Beginning in 2007 and continuing into 2008,
this competition ramped up significantly. In some cases, the Company chose to not match higher rates offered to our customers by competitors. As a
result, retail time deposits of $100,000 or more decreased during 2008. This strategy resulted in a favorable improvement in the yield on interest-bearing
liabilities as well as an overall reduction in total deposits in 2008 as compared with 2007.
The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.62% at
December 31, 2008, up 7 basis points from 3.55% at December 31, 2007.
The tables on the following page analyze the changes in tax-equivalent net interest income for the years ended December 31, 2009 and 2008 and the years
ended December 31, 2008 and 2007.
2
A N A L Y S I S O F A V E R A G E B A L A N C E S , I N T E R E S T E A R N E D / P A I D A N D Y I E L D ( I N T H O U S A N D S )
2009
2008
Loans (2) (3)
Federal Funds Sold
Held to maturity:
Non taxable (1)
Available for sale:
Taxable
Non taxable (1)
Other
Total
Savings and demand,
interest bearing
Time deposits
Federal funds
purchased and
securities sold
under agreements
to repurchase
Borrowings from FHLB
Total
Net tax-equivalent yield
on earning assets
Loans (2) (3)
Federal Funds Sold
Held to maturity:
Taxable
Non taxable (1)
Available for sale:
Taxable
Non taxable (1)
Other
Total
Savings and demand,
interest bearing
Time deposits
Federal funds
purchased and
securities sold
under agreements
to repurchase
Borrowings from FHLB
Total
Net tax-equivalent yield
on earning assets
Average Balance
467,992
$
3,227
Interest Earned/Paid Rate
4.31
$ 20,189
0.25
8
3,265
307,332
34,437
3,373
819,626
232,916
192,893
$
$
172
12,840
1,699
17
$ 34,925
$
1,831
3,135
217,509
38,708
$ 682,026
1,905
530
$ 7,401
5.27
4.18
4.93
.50
4.26
.79
1.63
.88
1.37
1.09
3.36
Average Balance
463,505
$
5,694
Interest Earned/Paid
$
26,874
122
3,691
230
304,536
24,394
3,022
$ 804,842
$ 251,792
191,904
15,331
1,433
148
$ 44,138
$ 3,856
6,094
210,049
10,993
$ 664,738
4,521
492
$ 14,963
2008
2007
Average Balance
463,505
$
5,694
Interest Earned/Paid Rate
5.80
$ 26,874
2.14
122
Average Balance
428,447
$
5,763
Interest Earned/Paid
$
33,642
295
3,691
304,536
24,394
3,022
804,842
251,792
191,904
$
$
230
15,331
1,433
148
$ 44,138
$ 3,856
6,094
210,049
10,993
$ 664,738
4,521
492
$ 14,963
6.23
5.03
5.87
4.90
5.48
1.53
3.18
2.15
4.48
2.25
3.62
21,443
4,780
388,577
18,864
5,264
$ 873,138
$ 268,710
213,167
1,082
302
19,822
1,109
199
$ 56,451
$ 5,358
9,356
225,246
8,794
$ 715,917
10,212
526
$ 25,452
(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2009 and 2008 and 35% in 2007.
(2) Loan fees of $476, $786 and $854 for 2009, 2008 and 2007, respectively, are included in these figures.
(3) Includes nonaccrual loans.
Rate
5.80
2.14
6.23
5.03
5.87
4.90
5.48
1.53
3.18
2.15
4.48
2.25
3.62
Rate
7.85
5.12
5.05
6.32
5.10
5.88
3.78
6.46
1.99
4.39
4.53
5.98
3.56
3.55
3
PPrroovviissiioonn ffoorr LLooaann LLoosssseess
In the normal course of business, the Company assumes risk in extending credit to its customers. This credit risk is managed through compliance with the
loan policy, which is approved by the Board of Directors. The policy establishes guidelines relating to underwriting standards, including but not limited
to financial analysis, collateral valuation, lending limits, pricing considerations and loan grading. A loan review process further assists with evaluating
credit quality and assessing potential performance issues. Loan delinquencies and deposit overdrafts are closely monitored in order to identify devel-
oping problems as early as possible. In addition, the Company continuously monitors its relationships with its loan customers in concentrated industries
such as gaming and hotel/motel, as well as the exposure for out of area, land, development, construction and commercial real estate loans, and their
direct and indirect impact on its operations. A watch list of credits which pose a potential loss to the Company is prepared based on the loan grading
system. This list forms the foundation of the Company’s allowance for loan loss computation.
Management relies on its guidelines and existing methodology to monitor the performance of its loan portfolio and to identify and estimate potential
losses based on the best available information. The recent economic downturn and its impact in the housing market during the last eighteen months
resulted in increased scrutiny of the Company’s residential development loan portfolio. At December 31, 2009, three residential development credit rela-
tionships with a total balance of $6,542,612 represented $1,323,872 of total allowance of $7,827,806. During 2009, the Company’s on-going, systematic
evaluation resulted in the Company recording a provision for loan losses of $5,225,000 and $2,347,000 in 2009 and 2008, respectively. In 2007, the
Company recorded a negative provision of $1,405,000, effectively reversing part of the Katrina-related provision from 2005.
The allowance for loan losses is an estimate and, as such, events may occur in the future which may affect its accuracy. The Company anticipates that it
is possible that additional information will be gathered in future quarters which may require an adjustment to the allowance for loan losses. Management
will continue to closely monitor its portfolio and take such action as it deems appropriate to accurately report its financial condition and results of oper-
ations.
NNoonn--iinntteerreesstt iinnccoommee
During 2008, the Company recorded a charge to earnings for the other-than-temporary impairment of its investment in FHLMC preferred stock of
$2,964,000. This resulted in an increase in non-interest income in 2009 as compared with 2008 and a decrease in non-interest income in 2008 as com-
pared with 2007.
Total non-interest income increased $2,878,172 in 2009 as compared with 2008. In addition to the impact of the impairment loss, non-interest income in
2009 was affected by the change in trust department income and fees, gains on the liquidation, sale and calls of securities, gain (loss) on other invest-
ments and other income. The decrease in trust department income and fees of $274,258 was the result of the decrease in market value, on which fees are
based, of personal trust accounts. In 2009, the Company realized a gain on the sale of securities of $869,123 as compared with only $397,852 in 2008. In
2009, the Company’s investment in a low-income housing partnership resulted in a gain of $146,979 as compared with a loss of $270,676 in 2008 as a result
of the completion of renovations in 2009 which resulted in increased occupancy. Other income in 2008 included a gain of $150,000 from the sale of the
bank subsidiary’s merchant card portfolio.
Total non-interest income decreased $2,499,043 in 2008 as compared with 2007. During 2008, the Company recorded a charge to earnings for the other-
than-temporary impairment of its investment in FHLMC preferred stock of $2,964,000. During 2008, a gain of $397,852 from sales, calls and liquidation
of available for sale securities was recorded as compared with a loss of $605,813 from such activity in 2007. Also during 2008, the Company recorded a
loss of $270,676 from its investment in a low income housing partnership.
NNoonn--iinntteerreesstt eexxppeennssee
Total non-interest expense increased $1,114,702 for 2009 as compared with 2008. The largest component of this increase was from FDIC assessments, which
were $1,259,560 larger in 2009 than in 2008. Salaries and employee benefits decreased $198,477 for 2009 as compared with 2008. This change included a
decrease in salaries and related payroll tax expense of $480,503 as a result of a hiring freeze and loss of employees through attrition and elimination of
Management bonuses in 2009. This decrease was partially offset by an increase in costs of $180,209 for the Company’s liability for a deferred compensa-
tion plan as the discount rate used to compute the liability was changed to bring the plan into alignment with other plans. Changes in other salaries and
employee benefit components include the increase in health insurance costs of $317,490 and the increase of $196,400 for the retiree health plan. Net occu-
pancy expense increased by $280,761 in 2009 as a result of the increase in property taxes of $102,132, the increase in insurance costs of $71,618 and the
increase in telephone expense of $103,454. Property taxes increased as banking premises in Jackson County was reassessed and facilities in Pass Christian
and Biloxi were added to the tax rolls. Like most other businesses on the Mississippi Gulf Coast, the Company’s insurance costs continue to rise. The cost
of additional data line availability for technology upgrades in 2009 resulted in increased telephone expenses.
Total non-interest expense increased $1,257,896 for 2008 as compared with 2007. Equipment rentals, depreciation and maintenance expense increased
by $645,221 in 2008, primarily as a result of depreciation expense on banking premises which were placed into service after March 31, 2007. Other expense
increased $601,086 during 2008 primarily as a result of an increase in accounting and legal fees of $537,645. These increases were the result of the out-
sourcing of the I/T internal audit function, an increase in external audit fees and legal fees associated with litigation and other matters in the ordinary
course of the Company’s business.
4
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Available for sale securities decreased $29,027,635 at December 31, 2009, compared with December 31, 2008. The Committee reduced the fed funds rate by 400 basis
points during 2008, which resulted in more than $140,000,000 of the Company’s U.S. Agency securities being called during the year. While some of these proceeds
were reinvested in U.S. Agency securities, the remaining funds were utilized in the Company’s daily management of its liquidity needs.
The Company’s held to maturity portfolio was invested solely in debt securities issued by state and political subdivisions at December 31, 2009 and
December 31, 2008.
The Company increased its investment in Federal Home Loan Bank common stock by $2,945,200 in order to increase its borrowing ability from that agency.
Gross loans decreased $2,400,748 at December 31, 2009 as compared with December 31, 2008. During 2009, regularly schedule principal payments and
maturities as well as charge-offs totaling $9,080,000 outpaced new loans.
Other real estate increased by $1,124,131 at December 31, 2009 as compared with December 31, 2008. As problem loans increased during 2009, the Company
was forced to foreclose on the collateral securing its loans more often. Other real estate increased to more than $3,000,000 during the year; however, the
Company has been able to sell two large parcels worth more than $1,700,000 at a gain of $172,739.
Accrued interest receivable decreased $798,015 at December 31, 2009 as compared with December 31, 2008 as a result of the decrease in yields earned on
interest-earning assets.
FDIC assessments increased by $4,906,212 as assessments for 2010 – 2012 were prepaid on December 30, 2009.
Other assets decreased $985,902 at December 31, 2009 as compared with December 31, 2008. Prepaid expenses decreased by $694,938 at December 31, 2009
as compared with December 31, 2008 as multi-year payments amortized. At December 31, 2008, the Company recorded federal income taxes receivable of
$704,146 as a result of overpayments during that year, while at December 31, 2009, the Company had a liability for federal income taxes of $118,000.
Total deposits decreased $39,774,107 at December 31, 2009, as compared with December 31, 2008. Fluctuations among the different types of deposits
represent recurring activity for the Company. This significant decrease primarily resulted from the Company’s decision to not match higher rates offered
to our customers by competitors. The Company anticipates that deposits will continue at or near their present level during 2010. Federal funds purchased
and securities sold under agreements to repurchase decreased $52,178,354 at December 31, 2009 as compared with December 31, 2008 as the Company
rested its correspondent lines of credit in favor of borrowing from the Federal Home Loan Bank at the end of 2009. The Company will continue to utilize
federal funds purchased as an important source of liquidity.
Borrowings from the Federal Home Loan Bank increased $67,332,766 at December 31, 2009 as compared with December 31, 2008. During 2009, the Company
increased its borrowing lines with the Federal Home Loan Bank in order to expand its liquidity options.
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Strength, security and stability have been hallmarks of the Company since its founding in 1985 and of its bank subsidiary since its founding in 1896. A
strong capital foundation is fundamental to the continuing prosperity of the Company and the security of its customers and shareholders. The primary
and risk-based capital ratios are important indicators of the strength of a Company’s capital. These figures are presented in the Five-Year Comparative
Summary of Selected Financial Information.
The measure of capital adequacy which is currently used by Management to evaluate the strength of the Company’s capital is the primary capital ratio
which was 12.49% at December 31, 2009, which is well above the regulatory minimum of 6.00%. Management continues to emphasize the importance of
maintaining the appropriate capital levels of the Company and has established the goal of maintaining its primary capital ratio at 8.00%, which is the
minimum requirement for classification as being “well-capitalized” by the banking regulatory authorities.
Significant transactions affecting shareholders’ equity during 2009 are described in Note K. The Statement of Shareholders’ Equity also presents all activ-
ity in the Company’s equity accounts.
LL II QQ UU II DD II TT YY
Liquidity represents the Company’s ability to adequately provide funds to satisfy demands from depositors, borrowers and other commitments by either
converting assets to cash or accessing new or existing sources of funds. Note L discloses information relating to financial instruments with off-balance-
sheet risk, including letters of credit and outstanding unused loan commitments. The Company closely monitors the potential effects of funding these
commitments on its liquidity position. Management monitors these funding requirements in such a manner as to satisfy these demands and to provide
the maximum return on its earning assets.
The Company monitors its liquidity position diligently through a number of methods, including through the computation of liquidity and dependency
ratios on a monthly basis. The formula for these ratios are those used for the Uniform Bank Performance Report, such that the Company may monitor and
evaluate its own risk, but also compare itself to its peers. Management carefully monitors its liquidity needs, particularly relating to potentially volatile
deposits, and the Company has encountered no problems with meeting its liquidity needs.
5
Deposits, payments of principal and interest on loans, proceeds from maturities of investment securities and earnings on investment securities are the
principal sources of funds for the Company. The Company generally anticipates using these sources of funds, as well as purchases of federal funds and
borrowings from the Federal Home Loan Bank for its liquidity needs in 2010.
During 2009, the Company received approval to participate in the Federal Reserve Bank’s Discount Window Primary Credit Program. The Company intends
to use this program as a part of its liquidity contingency plans only.
RR EE GG UU LL AA TT OO RR YY MM AA TT TT EE RR SS
During 2009, Management identified opportunities for improving risk management, addressing asset quality concerns, managing concentrations of cred-
it risk and ensuring sufficient liquidity at the Bank as a result of its own investigation as well as examinations performed by certain bank regulatory agen-
cies. In concert with the regulators, the Company has identified specific corrective steps and actions to enhance its risk management, asset quality and
liquidity policies, controls and procedures. The Company and the Bank may not declare or pay any cash dividends without the prior written approval of
their regulators.
OO FF FF -- BB AA LL AA NN CC EE SS HH EE EE TT AA RR RR AA NN GG EE MM EE NN TT SS
The Company is a party to off-balance-sheet arrangements in the normal course of business to meet the financing needs of its customers. The Company
uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet arrangements. Since some of the com-
mitments and irrevocable letters of credit may expire without being drawn upon, the total amount does not necessarily represent future cash require-
ments. As discussed previously, the Company carefully monitors its liquidity needs and considers its cash requirements, especially for loan commitments,
in making decisions on investments and obtaining funds from its other sources. Further information relating to off-balance-sheet instruments can be
found in Note M.
EE MM EE RR GG EE NN CC YY EE CC OO NN OO MM II CC SS TT AA BB II LL II ZZ AA TT II OO NN AA CC TT
The Emergency Economic Stabilization Act of 2008 (the “Act”) was enacted to restore liquidity and stability to the financial system. The Troubled Asset
Relief Program (“TARP”) is one of the provisions of the Act. The Company did not participate in TARP. The Act also temporarily raised the basic limit on
federal deposit insurance coverage from $100,000 to $250,000 per depositor and will be in effect through December 31, 2013. Additionally, the Federal
Deposit Insurance Corporation (“FDIC”) announced on October 14, 2008, a new program, the Temporary Liquidity Guarantee Program (“TLGP”), which
guarantees newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and provides full coverage of non-interest bearing
deposit transaction accounts, regardless of dollar amount. The Company is participating in TLGP.
QQ UU AA NN TT II TT AA TT II VV EE AA NN DD QQ UU AA LL II TT AA TT II VV EE DD II SS CC LL OO SS UU RR EE AA BB OO UU TT MM AA RR KK EE TT RR II SS KK
Market risk is the risk of loss arising from adverse changes in market prices and rates. Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the
Company’s business activities. Also, the Company does not currently, and has no plans to, engage in trading activities or use derivative or off-balance
sheet instruments to manage interest rate risk.
The Company has risk management policies in place to monitor and limit exposure to market risk. The Asset/Liability Committee (“ALCO Committee”),
whose members include the chief executive officer and senior and middle management from the financial, lending, investing and deposit areas, is respon-
sible for the day-to-day operating guidelines, approval of strategies affecting net interest income and coordination of activities within policy limits
established by the Board of Directors based on the Company’s tolerance for risk. Specifically, the key objectives of the Company’s asset/liability manage-
ment program are to manage the exposure of planned net interest margins to unexpected changes due to interest rate fluctuations. These efforts will also
affect loan pricing policies, deposit interest rate policies, asset mix and volume guidelines and liquidity. The ALCO Committee utilizes a number of tools
in its activities, including software to assist with interest rate risk management and balance sheet management. The ALCO Committee reports to the Board
of Directors on a quarterly basis.
The Company has implemented a conservative approach to its asset/liability management. The net interest margin is managed on a daily basis largely as
a result of the management of the liquidity needs of the bank subsidiary. The Company generally follows a policy of investing in short term U. S. Treasury
Bills and U. S. Agency securities with maturities of two years or less. Due to the low interest rate environment, the duration of investments has been extend-
ed to seven years or less with call provisions. The loan portfolio consists of a 40% /60% blend of fixed and floating rate loans. It is the general loan poli-
cy to offer loans with maturities of five years or less; however the market is now dictating floating rate terms to be extended to fifteen years. During 2009,
the Company began including floors on variable rate loans in the management of its interest margin. On the liability side, more than 68% of the deposits
are demand and savings transaction accounts. Additionally, approximately 65% of the certificates of deposit mature within eighteen months. Since the
Company’s deposits are generally not rate-sensitive, they are considered to be core deposits. The short term nature of the financial assets and liabilities
allows the Company to meet the dual requirements of liquidity and interest rate risk management.
The interest rate sensitivity tables on the next page provide additional information about the Company’s financial instruments that are sensitive to
changes in interest rates. The negative gap in 2010 is mitigated by the nature of the Company’s deposits, whose characteristics have been previously
described. The tabular disclosure reflects contractual interest rate repricing dates and contractual maturity dates. Loan maturities have been adjusted
for the reserve for loan losses. There have been no adjustments for such factors as prepayment risk, early calls of investments, the effect of the maturity
of balloon notes or the early withdrawal of deposits. The Company does not believe that the aforementioned factors have a significant impact on
expected maturity.
6
Interest rate sensitivity at December 31, 2009 was as follows (in thousands):
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
B E Y O N D
1 2 / 3 1 / 0 9
F A I R
V A L U E
T O T A L
$ 310,429
$ 42,856
$ 41,335
$ 28,025
$ 19,958
$ 14,545
$ 457,148
$ 460,588
Interest rate sensitivity at December 31, 2008 was as follows (in thousands):
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
B E Y O N D
1 2 / 3 1 / 0 8
F A I R
V A L U E
T O T A L
$ 293,576
$ 33,159
$ 46,649
$ 37,308
$ 28,744
$ 16,827
$ 456,263
$ 461,113
4.33%
19,662
3.19%
330,091
4.28%
359,363
1.96%
4.23%
45,717
3.44%
339,293
4.14%
375,298
1.80%
Loans, net
Average rate
Securities
Average rate
Total Financial Assets
Average rate
Interest Bearing Deposits
Average rate
Federal funds purchased and securities
sold under agreements to repurchase
174,431
Average rate
Long-term funds
Average rate
Total Financial Liabilities
Average rate
0.75%
102,178
4.86%
635,972
2.92%
Loans, net
Average rate
Securities
Average rate
Total Financial Assets
Average rate
Interest Bearing Deposits
Average rate
Federal funds purchased and securities
sold under agreements to repurchase 226,609
Average rate
Long-term funds
Average rate
Total Financial Liabilities
Average rate
1.25%
30,178
0.80%
632,085
1.62%
6.50%
6,276
4.42%
49,132
6.31%
7,756
2.80%
196
4.81%
7,952
2.88%
5.58%
14,394
3.80%
55,729
5.24%
4,168
3.07%
6.80%
30,719
3.24%
6.00%
20,480
3.23%
58,744
40,438
5.58%
1,723
2.68%
5.02%
1,149
2.68%
196
4.81%
4,364
3.19%
196
4.81%
1,919
3.04%
196
4.81%
1,345
3.18%
4.92%
232,157
4.68%
246,702
4.69%
1
2.52%
1,308
4.81%
1,309
4.81%
5.05%
323,688
4.28%
780,836
4.82%
374,160
2.03%
174,431
0.75%
104,270
4.86%
652,861
2.94%
323,828
784,426
375,052
174,431
105,815
655,298
6.27%
45,286
2.67%
78,445
4.95%
20,276
3.43%
5,177
6.46%
25,453
4.41%
6.03%
35,065
4.08%
81,714
5.37%
3,290
3.69%
177
4.86%
3,467
3.77%
6.21%
24,812
4.40%
62,120
5.63%
1,455
3.83%
177
4.86%
1,632
3.97%
6.92%
30,053
3.83%
58,797
5.79%
1,116
3.15%
177
4.86%
1,293
3.50%
5.17%
168,883
5.40%
185,710
5.38%
7
2.82%
1,052
4.86%
1,059
4.85%
5.80%
349,816
4.42%
806,079
5.29%
401,442
2.01%
349,860
810,973
402,361
226,609
226,609
1.25%
36,938
4.18%
664,989
2.11%
37,547
666,517
7
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
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
Federal funds sold
Available for sale securities
Held to maturity securities, fair value of
$3,340,974 - 2009; $3,438,108 - 2008;
$4,676,471 - 2007
Other investments
Federal Home Loan Bank Stock, at cost
Loans
Less: Allowance for loan losses
Loans, net
Bank premises and equipment, net of accumulated depreciation
Other real estate
Accrued interest receivable
Cash surrender value of life insurance
Prepaid FDIC assessments
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
Other liabilities
Total liabilities
Shareholders' Equity:
Common Stock, $1 par value, 15,000,000 shares
authorized, 5,151,697, 5,279,268 and
5,420,204 shares issued and outstanding at
December 31, 2009, 2008 and 2007, respectively
Surplus
Undivided profits
Accumulated other comprehensive income (loss), net of tax
Total shareholders' equity
2 0 0 9
2 0 0 8
2 0 0 7
$ 29,155,294
$ 34,015,590
311,434,437
3,201,966
4,036,304
5,015,900
464,976,291
7,827,806
457,148,485
31,418,884
1,521,313
4,646,752
15,329,394
4,958,309
1,139,861
4,000
340,462,072
3,394,212
3,889,324
2,070,700
467,377,039
11,113,575
456,263,464
33,600,170
397,182
5,444,767
14,688,160
52,097
2,125,763
$ 34,665,370
270,000
386,028,925
4,629,992
1,000,000
936,200
450,992,074
9,378,137
441,613,937
34,410,789
19,508
7,371,216
13,578,536
15,702
2,816,398
$ 869,006,899
$ 896,407,501
$ 927,356,573
$ 96,541,387
$ 109,033,184
$ 113,916,041
206,167,484
117,347,663
50,644,895
470,701,429
174,430,877
104,270,452
16,016,204
765,418,962
5,151,697
65,780,254
32,853,346
(197,360)
103,587,937
239,990,238
104,540,112
56,912,002
510,475,536
226,609,231
36,937,686
15,384,934
789,407,387
5,279,268
65,780,254
33,412,596
2,527,996
107,000,114
231,435,685
166,078,473
57,700,280
569,130,479
231,225,118
7,100,305
13,359,047
820,814,949
5,420,204
65,780,254
34,458,291
882,875
106,541,624
Total liabilities and shareholders' equity
$ 869,006,899
$ 896,407,501
$ 927,356,573
See Notes to Consolidated Financial Statements.
8
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
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 9
2 0 0 8
2 0 0 7
$ 20,189,200
$ 26,874,057
$ 33,642,030
1,229,237
10,043,869
1,566,573
1,234,917
17,347
8,159
34,289,302
4,965,439
530,082
1,905,383
7,400,904
26,888,398
5,225,000
21,663,398
1,363,489
6,661,209
869,123
(149,517)
146,979
1,255,348
10,146,631
14,250,002
2,501,431
3,766,582
7,117,541
27,635,556
4,174,473
954,000
2,972,851
10,625,314
1,733,026
1,097,790
148,328
122,066
43,573,432
9,950,478
492,048
4,520,821
14,963,347
28,610,085
2,347,000
26,263,085
1,637,747
6,793,404
397,852
(2,964,000)
(270,676)
142,607
1,531,525
7,268,459
14,051,655
2,220,670
3,749,274
6,499,255
26,520,854
7,010,690
1,977,000
4,320,309
15,519,419
1,064,149
931,292
198,968
294,812
55,970,979
14,713,824
526,369
10,212,201
25,452,394
30,518,585
(1,045,000)
31,563,585
1,791,417
6,709,142
(605,813)
635,271
1,237,485
9,767,502
14,284,532
1,976,204
3,104,053
5,898,169
25,262,958
16,068,129
5,042,000
$ 3,220,473
$ .62
$ 5,033,690
$ .94
$
11,026,129
$ 2.01
Interest income:
Interest and fees on loans
Interest and dividends on securities:
U.S. Treasury
U.S. Government agencies
Mortgage-backed securities
States and political subdivisions
Other securities
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
Non-interest income:
Trust department income and fees
Service charges on deposit accounts
Gain (loss) on liquidation, sale and calls of securities
Writedown of investments to market value
Gain (loss) on other investments
Gain from sale of bank premises
Other income
Total non-interest income
Non-interest expense:
Salaries and employee benefits
Net occupancy
Equipment rentals, depreciation and maintenance
Other expense
Total non-interest expense
Income before income taxes
Income taxes
Net income
Basic and diluted earnings per share
See Notes to Consolidated Financial Statements.
9
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
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
5,548,199
C o m m o n
S t o c k
$ 5,548,199
S u r p l u s
$ 65,780,254
A c c u m u l a t e d
O t h e r
U n d i v i d e d
C o m p r e h e n s i v e
C o m p r e h e n s i v e
I n c o m e
$ (2,349,583)
I n c o m e
T o t a l
$ 98,232,695
Balance, January 1, 2007
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
Gain from unfunded post-retirement benefit obligation, net of tax
Total comprehensive income
Cash dividends ($ .25 per share)
Dividend declared ($ .27 per share)
Retirement of stock
Balance, December 31, 2007
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
Loss from unfunded post-retirement benefit obligation, net of tax
Total comprehensive income
Cumulative effect adjustment from adoption of EITF 06-04
Effect of stock retirement on accrued dividends
Cash dividends ($ .29 per share)
Dividend declared ($ .30 per share)
Retirement of stock
Balance, December 31, 2008
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
Gain from unfunded post-retirement obligation, net of tax
Total comprehensive income
Effect of stock retirement on accrued dividends
Cash dividends ($ .20 per share)
Dividend declared ($ .10 per share)
Retirement of stock
Balance, December 31, 2009
See Notes to Consolidated Financial Statements.
(127,995)
5,420,204
(127,995)
5,420,204
65,780,254
(140,936)
5,279,268
(140,936)
5,279,268
65,780,254
2,527,996
(127,571)
$ 5,151,697
(127,571)
5,151,697
10
$ 65,780,254
$ 32,853,346
$ (197,360)
$
103,587,937
P r o f i t s
$ 29,253,825
11,026,129
(1,378,945)
(1,463,455)
(2,979,263)
34,458,291
5,033,690
(56,732)
8,816
(1,548,703)
(1,588,465)
(2,894,301)
33,412,596
3,220,473
4,774
(1,030,339)
(515,170)
(2,238,988)
2,308,621
399,837
524,000
882,875
745,909
1,693,658
(794,446)
$
11,026,129
2,308,621
399,837
524,000
$
14,258,587
$
5,033,690
745,909
1,693,658
(794,446)
$
6,678,811
$ 3,220,473
(2,392,524)
(2,392,524)
(474,940)
142,108
(474,940)
142,108
$ 495,117
11,026,129
2,308,621
399,837
524,000
(1,378,945)
(1,463,455)
(3,107,258)
106,541,624
5,033,690
745,909
1,693,658
(794,446)
(56,732)
8,816
(1,548,703)
(1,588,465)
(3,035,237)
107,000,114
3,220,473
(2,392,524)
(474,940)
142,108
4,774
(1,030,339)
(515,170)
(2,366,559)
N u m b e r o f
C o m m o n
S h a r e s
5,548,199
C o m m o n
S t o c k
$ 5,548,199
S u r p l u s
$ 65,780,254
(127,995)
5,420,204
(127,995)
5,420,204
65,780,254
(140,936)
5,279,268
(140,936)
5,279,268
65,780,254
(127,571)
5,151,697
(127,571)
$ 5,151,697
Balance, January 1, 2007
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
Gain from unfunded post-retirement benefit obligation, net of tax
Total comprehensive income
Cash dividends ($ .25 per share)
Dividend declared ($ .27 per share)
Retirement of stock
Balance, December 31, 2007
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
Loss from unfunded post-retirement benefit obligation, net of tax
Total comprehensive income
Cumulative effect adjustment from adoption of EITF 06-04
Effect of stock retirement on accrued dividends
Cash dividends ($ .29 per share)
Dividend declared ($ .30 per share)
Retirement of stock
Balance, December 31, 2008
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
Gain from unfunded post-retirement obligation, net of tax
Total comprehensive income
Effect of stock retirement on accrued dividends
Cash dividends ($ .20 per share)
Dividend declared ($ .10 per share)
Retirement of stock
Balance, December 31, 2009
See Notes to Consolidated Financial Statements.
U n d i v i d e d
P r o f i t s
$ 29,253,825
11,026,129
(1,378,945)
(1,463,455)
(2,979,263)
34,458,291
5,033,690
(56,732)
8,816
(1,548,703)
(1,588,465)
(2,894,301)
33,412,596
3,220,473
4,774
(1,030,339)
(515,170)
(2,238,988)
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
$ (2,349,583)
C o m p r e h e n s i v e
I n c o m e
T o t a l
$ 98,232,695
2,308,621
399,837
524,000
882,875
745,909
1,693,658
(794,446)
$
11,026,129
2,308,621
399,837
524,000
$
14,258,587
$
5,033,690
745,909
1,693,658
(794,446)
$
6,678,811
2,527,996
$ 3,220,473
(2,392,524)
(2,392,524)
(474,940)
142,108
(474,940)
142,108
$ 495,117
11,026,129
2,308,621
399,837
524,000
(1,378,945)
(1,463,455)
(3,107,258)
106,541,624
5,033,690
745,909
1,693,658
(794,446)
(56,732)
8,816
(1,548,703)
(1,588,465)
(3,035,237)
107,000,114
3,220,473
(2,392,524)
(474,940)
142,108
4,774
(1,030,339)
(515,170)
(2,366,559)
$ 65,780,254
$ 32,853,346
$ (197,360)
$
103,587,937
11
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
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:
Depreciation
Provision for allowance for loan losses
Impairment loss on investments
(Gain) loss on other investments
Gain on sales of other real estate
(Gain) loss on sales, calls and liquidation of securities
Gain on sale of bank premises
Change in accrued interest receivable
Change in other assets
Change in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from maturities, sales, liquidation and
calls of available for sale securities
Investment in available for sale securities
Proceeds from maturities of held to maturity securities
Investment in held to maturity securities
Purchases of other investments
Investment in Federal Home Loan Bank stock
Redemption of Federal Home Loan Bank stock
Proceeds from sales of other real estate
Loans, net increase
Proceeds from sale and retirement of bank premises
Acquisition of premises and equipment
Other assets
Net cash provided by investing activities
Cash flows from financing activities:
Demand and savings deposits, net change
Time deposits, net change
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 change
Net cash used in financing activities
Net 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
2 0 0 9
2 0 0 8
2 0 0 7
$ 3,220,473
$ 5,033,690
$ 11,026,129
2,390,912
5,225,000
149,517
(146,979)
(150,058)
(869,123)
798,015
(3,582,781)
2,975,089
10,010,065
277,022,490
(251,622,168)
195,000
(2,754)
2,451,966
2,347,000
2,964,000
270,676
(214,210)
(397,852)
(142,607)
1,926,449
314,965
85,281
14,639,358
257,886,217
(211,168,426)
1,240,000
(4,220)
1,712,000
(1,045,000)
(10,470)
605,813
(635,271)
771,014
(1,967,771)
(3,167,174)
7,289,270
209,677,761
(195,300,371)
86,460,000
(5,515,732)
(2,945,200)
(1,134,500)
(3,160,000) (700,000)
3,108,801
(10,192,895)
(209,626)
(627,636)
14,726,012
(46,314,551)
6,540,444
(2,614,119)
(2,366,559)
377,346,745
(310,013,979)
(52,178,354)
(29,600,373)
(4,864,296)
34,019,590
236,261
(17,396,252)
266,812
(1,765,552)
(1,083,450)
23,916,890
3,671,696
(62,326,639)
(3,003,342)
(3,035,237)
111,513,000
(81,675,619)
(4,615,887)
(39,472,028)
(915,780)
34,935,370
192,300
55,000
(50,235,794)
1,020,247
(16,849,180)
(575,724)
28,228,507
(74,435,300)
30,395,985
(2,655,031)
(3,107,258)
47,900,375
(48,067,419)
5,192,748
(44,775,900)
(9,258,123)
44,193,493
$ 29,155,294
$ 34,019,590
$ 34,935,370
12
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T 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
NN OO TT EE AA -- BB UU SS II NN EE SS SS AA NN DD SS UU MM MM AA RR YY OO FF SS II GG NN II FF II CC AA NN TT AA CC CC OO UU NN TT II NN GG PP OO LL II CC II EE SS ::
BBuussiinneessss ooff TThhee CCoommppaannyy
Peoples Financial Corporation (the “Company”) is a one-bank holding company headquartered in Biloxi, Mississippi. Its two operating subsidiaries are
The Peoples Bank, Biloxi, Mississippi (the “Bank”), and PFC Service Corp. Its principal subsidiary is The Peoples Bank, Biloxi, Mississippi, which provides a
full range of banking, financial and trust services to state, county and local government entities and individuals and small and commercial businesses
operating in Harrison, Hancock, Stone and Jackson counties.
PPrriinncciipplleess ooff CCoonnssoolliiddaattiioonn
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
BBaassiiss ooff AAccccoouunnttiinngg
The Company and its subsidiaries recognize assets and liabilities, and income and expense, on the accrual basis of accounting. The preparation of finan-
cial statements in conformity with accounting principles generally accepted in the United States of America requires Management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial state-
ments and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
NNeeww AAccccoouunnttiinngg PPrroonnoouunncceemmeennttss
In June 2009, the Financial Accounting Standards Board (“FASB”) issued an accounting standard which established the Accounting Standards Codification
(“Codification” or “ASC”) to become the single source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to
be applied by nongovernmental entities, with the exception of guidance issued by the SEC and its staff. All guidance contained in the Codification car-
ries an equal level of authority. The Codification is not intended to change GAAP, but rather is expected to simplify accounting research by reorganizing
current GAAP into approximately 90 accounting topics. The switch to the ASC affects the way companies refer to GAAP in financial statements and account-
ing policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and
Paragraph structure. The Company adopted this accounting standard in preparing the Consolidated Financial Statements for the period ended September
30, 2009. The adoption of this accounting standard, which was subsequently codified into ASC Topic 105, “Generally Accepted Accounting Principles,” had
no impact on the Company’s financial statements.
New authoritative accounting guidance under ASC Topic 815, “Derivatives and Hedging,” amends prior guidance to amend and enhance the disclosure
requirements for derivatives and hedging to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how deriva-
tive instruments and related hedge items are accounted for under ASC Topic 815, and (iii) how derivative instruments and related hedged items affect an
entity’s financial position, results of operations and cash flows. To meet those objectives, ASC Topic 815 requires qualitative disclosures about objectives
and strategies for using derivative instruments, quantitative disclosures about fair values of derivative instruments and their gains and losses and dis-
closures about credit-risk-related contingent features of the derivative instruments and their potential impact on an entity’s liquidity. ASC Topic 815 was
effective on January 1, 2009, and did not have a significant impact on the Company’s financial statements.
New authoritative accounting guidance under ASC Topic 855, “Subsequent Events,” establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC Topic 855 defines (i) the period
after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recogni-
tion or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the bal-
ance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance
sheet date. ASC Topic 855 became effective for the Company’s financial statements for periods ending after June 15, 2009, and did not have a significant
impact on the Company’s financial statements.
New authoritative accounting guidance under ASC Topic 820, “Fair Value Measurements and Disclosures,” affirms that the objective of fair value when the
market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional fac-
tors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. ASC Topic
820 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. The new accounting guidance
amended prior guidance to expand certain disclosure requirements. The Company adopted the new authoritative accounting guidance under ASC Topic
820 during the first quarter of 2009. Adoption of the new guidance did not have a significant impact on the Company’s financial statements.
Further new authoritative accounting guidance (Accounting Standards Update No. 2009-5) under ASC Topic 820 provides guidance for measuring the fair
value of a liability in circumstances in which a quoted price in an active market for the identical liability is not available. In such instances, a reporting
entity is required to measure fair value utilizing a valuation technique that uses (i) the quoted price of the identical liability when traded as an asset, (ii)
quoted prices for similar liabilities or similar liabilities when traded as assets, or (iii) another valuation technique that is consistent with the existing prin-
ciples of ASC Topic 820, such as an income approach or market approach. The new authoritative accounting guidance also clarifies that when estimating
the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restric-
tion that prevents the transfer of the liability. The foregoing new authoritative accounting guidance under ASC Topic 820 became effective for the
Company’s financial statements on October 1, 2009, and is not expected to have a significant impact on the Company’s financial statements.
New authoritative accounting guidance under ASC Topic 825, “Financial Instruments,” requires an entity to provide disclosures about the fair value of
financial instruments in interim financial information and amends prior guidance to require those disclosures in summarized financial information at
interim reporting periods. The Company adopted this accounting standard in preparing its financial statements for the period ended June 30, 2009. As
ASC Topic 825 amended only the disclosure requirements about the fair value of financial instruments in interim periods, the adoption had no impact on
the Company’s financial statements.
13
New authoritative accounting guidance under ASC Topic 320, “Investments – Debt and Equity Securities,” amended other-than-temporary impairment
(“OTTI”) guidance in GAAP for debt securities by requiring a write-down when fair value is below amortized cost in circumstances where: (1) an entity has
the intent to sell a security; (2) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or
(3) an entity does not expect to recover the entire amortized cost basis of the security. If an entity intends to sell a security or if it is more likely than not
that the entity will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference between
the security’s amortized cost basis and its fair value. If an entity does not intend to sell the security or it is not more likely than not that it will be required
to sell the security before recovery, the OTTI write-down is separated into an amount representing credit loss, which is recognized in earnings, and an
amount related to all other factors, which is recognized in other comprehensive income. This accounting standard does not amend existing recognition
and measurement guidance related to OTTI write-downs of equity securities. This accounting standard also extends disclosure requirements related to
debt and equity securities to interim reporting periods. ASC Topic 320 became effective for the Company’s financial statements for periods ending after
June 15, 2009, and did not have a significant impact on the Company’s financial statements.
CCaasshh aanndd DDuuee ffrroomm BBaannkkss
The Company is required to maintain average reserve balances in its vault or on deposit with the Federal Reserve Bank. The average amount of these reserve
requirements was approximately $542,000, $696,000 and $19,964,000 for the years ending December 31, 2009, 2008 and 2007, respectively. The Company’s
bank subsidiary maintained account balances in excess of amounts insured by the Federal Deposit Insurance Corporation. At December 31, 2009, the bank
subsidiary had excess deposits of $8,635,587.
SSeeccuurriittiieess
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 maturity. Securities held to maturity are stated at amortized cost. Securities not classified as held
to maturity are classified as available for sale and are stated at fair value. Unrealized gains and losses, net of tax, on these securities are recorded in share-
holders’ equity as accumulated other comprehensive income.
The amortized cost of available for sale securities and held to maturity securities is adjusted for amortization of premiums and accretion of discounts to
maturity, determined using the interest method. Such amortization and accretion is included in interest income on securities. Declines in the fair value of
securities below their cost that are deemed to be other than temporary would be reflected in earnings, or other comprehensive income, as appropriate.
In estimating other-than-temporary losses, Management considers the length of time and the extent to which the fair value has been less than cost, the
financial condition and nature of the issuer, the cause of the decline, especially if related to a change in interest rates, and the intent and ability of the
Company to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The specific identifica-
tion method is used to determine realized gains and losses on sales of securities, which are reported as gain (loss) on liquidation, sale and calls of secu-
rities in non-interest income.
OOtthheerr IInnvveessttmmeennttss
Other investments include a low income housing partnership in which the Company is a 99% limited partner. The partnership has qualified to receive annual
low income housing federal tax credits that are recognized as a reduction of the current tax expense. The investment is accounted for using the equity method.
FFeeddeerraall HHoommee LLooaann BBaannkk SSttoocckk
Federal Home Loan Bank Stock has no readily determined market value and is carried at cost. Due to the redemption provisions of the investment, the fair
value equals cost and no impairment exists.
LLooaannss
The loan portfolio consists of commercial and industrial and real estate loans within the Company’s trade area in South Mississippi. The loan policy estab-
lishes guidelines relating to pricing, repayment terms, collateral standards including loan to value limits, appraisal and environmental standards, lend-
ing authority, lending limits and documentation requirements.
Loans are stated at the amount of unpaid principal, reduced by unearned income and the allowance for loan losses. Interest on loans is recognized over
the terms of each loan based on the unpaid principal balance. Loan origination fees are recognized as income when received. Revenue from these fees is
not material to the financial statements.
The Company places loans on a nonaccrual status when, in the opinion of Management, they possess sufficient uncertainty as to timely collection of inter-
est or principal so as to preclude the recognition in reported earnings of some or all of the contractual interest. Accrued interest on loans classified as
nonaccrual is reversed at the time the loans are placed on nonaccrual. Interest received on nonaccrual loans is applied against principal. Loans are
restored to accrual status when the obligation is brought current or has performed in accordance with the contractual terms for a reasonable period of
time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.
The Company considers a loan to be impaired when, based upon current information and events, Management believes it is probable that the
Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company’s impaired loans include
non-performing material loans for which full payment of principal or interest is not expected. The Company calculates an allowance required for impaired
loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the
fair value of its collateral. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance is required as a
component of the allowance for loan losses. Changes to the valuation allowance are recorded as a component of the provision for loan losses.
Generally, loans which become 90 days delinquent are reviewed relative to collectability. Unless such loans are in the process of terms revision to bring
them to a current status or foreclosure or in the process of collection, those loans deemed uncollectible are charged off against the allowance account.
14
AAlllloowwaannccee ffoorr LLooaann LLoosssseess
The allowance for loan losses is established through provisions for loan losses charged against earnings. Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is based on Management's evaluation of the loan portfolio under current economic conditions and is an amount that
Management believes will be adequate to absorb probable losses on loans existing at the reporting date. The evaluation includes Management’s assess-
ment of several factors: review and evaluations of specific loans, changes in the nature and volume of the loan portfolio, current and anticipated eco-
nomic conditions and the related impact on specific borrowers and industry groups, a study of loss experience, a review of classified, nonperforming and
delinquent loans, the estimated value of any underlying collateral, an estimate of the possibility of loss based on the risk characteristics of the portfolio,
adverse situations that may affect the borrower’s ability to repay and the results of regulatory examinations. This evaluation is inherently subjective as it
requires material estimates that may be susceptible to significant change.
The allowance consists of specific and general components. The specific component relates to loans that are classified. For such loans, a specific allowance
is established when the collateral value is lower than the carrying value of the loan. The general component of the allowance relates to loans that are not
classified and is based on historical loss experience and qualitative factors as determined by Management.
BBaannkk PPrreemmiisseess aanndd EEqquuiippmmeenntt
Bank premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed by the straight-line method based on the
estimated useful lives of the related assets.
OOtthheerr RReeaall EEssttaattee
Other real estate acquired through foreclosure is carried at fair value, less estimated costs to sell. If, at foreclosure, the carrying value of the loan is greater
than the estimated market value of the property acquired, the excess is charged against the allowance for loan losses and any subsequent adjustments
are charged to expense. Costs of operating and maintaining the properties, net of related income and gains (losses) on their disposition, are charged to
expense as incurred.
TTrruusstt DDeeppaarrttmmeenntt IInnccoommee aanndd FFeeeess
Corporate trust fees are accounted for on an accrual basis and personal trust fees are recorded when received.
IInnccoommee TTaaxxeess
The Company files a consolidated tax return with its wholly-owned subsidiaries. The tax liability of each entity is allocated based on the entity’s contri-
bution to consolidated taxable income. The provision for applicable income taxes is based upon reported income and expenses as adjusted for differ-
ences between reported income and taxable income. The primary differences are exempt income on state, county and municipal securities; differences
in provisions for losses on loans as compared to the amount allowable for income tax purposes; directors' and officers' life insurance; depreciation for
income tax purposes over (under) that reported for financial statements and gains on the sale of bank premises which were structured under the provi-
sions of Section 1031 of the Internal Revenue Code.
LLeeaasseess
All leases are accounted for as operating leases in accordance with the terms of the leases.
EEaarrnniinnggss PPeerr SShhaarree
Basic and diluted earnings per share are computed on the basis of the weighted average number of common shares outstanding, 5,170,430, 5,342,470 and
5,489,861 in 2009, 2008 and 2007, respectively.
SSttaatteemmeennttss ooff CCaasshh FFlloowwss
The Company has defined cash and cash equivalents to include cash and due from banks and federal funds sold. The Company paid $7,576,159, $14,961,180 and $24,853,712 in
2009, 2008 and 2007, respectively, for interest on deposits and borrowings. Income tax payments totaled $520,000, $1,635,000 and $4,819,000 in 2009, 2008 and 2007, respec-
tively. Loans transferred to other real estate amounted to $4,082,874, $399,725 and $19,500 in 2009, 2008 and 2007, respectively. The income tax effect from the unrealized gain
(loss) on available for sale securities on accumulated other comprehensive income was $(1,477,178), $1,277,519 and $1,395,266, at December 31, 2009, 2008 and 2007, respec-
tively. The income tax effect from the gain (loss) from unfunded post-retirement benefit obligation on accumulated other comprehensive income was $(92,434) , $204,124 and
$(282,000) at December 31, 2009, 2008 and 2007, respectively.
FFaaiirr VVaalluuee MMeeaassuurreemmeenntt
The Company reports certain assets and liabilities at their estimated fair value. These assets and liabilities are classified and disclosed in one of three cat-
egories based on the inputs used to develop the measurements. The categories, which establish a hierarchy for ranking the quality and reliability of the
information used to determine fair value, are: Level 1 – Quoted market prices in active markets for identical assets or liabilities, Level 2 – Observable mar-
ket based inputs or unobservable inputs that are corroborated by market data, or Level 3 – Unobservable inputs that are not corroborated by market data.
SSuubbsseeqquueenntt EEvveennttss
The Company has performed an evaluation of subsequent events through March 11, 2010, which is the date the financial statements were issued.
15
RReeccllaassssiiffiiccaattiioonnss
Certain reclassifications have been made to the prior year statements to conform to current year presentation. The reclassifications had no effect on prior
year net income.
NN OO TT EE BB -- SS EE CC UU RR II TT II EE SS ::
The amortized cost and estimated fair value of securities at December 31, 2009, 2008 and 2007, respectively, are as follows (in thousands):
December 31, 2009
Available for sale securities:
Debt securities:
U.S. Treasury
U.S. Government agencies
Mortgage-backed securities
States and political subdivisions
Total debt securities
Equity securities
Total available for sale securities
Held to maturity securities:
States and political subdivisions
Total held to maturity securities
December 31, 2008
Available for sale securities:
Debt securities:
U.S. Treasury
U.S. Government agencies
Mortgage-backed securities
States and political subdivisions
Total debt securities
Equity securities
Total available for sale securities
Held to maturity securities:
States and political subdivisions
Total held to maturity securities
December 31, 2007
Available for sale securities:
Debt securities:
U.S. Treasury
U.S. Government agencies
Mortgage-backed securities
States and political subdivisions
Total debt securities
Equity securities
Total available for sale securities
Held to maturity securities:
States and political subdivisions
Total held to maturity securities
Amortized Cost
Gross
Unrealized Gains
Gross
Unrealized Losses
$
23,987
216,473
30,035
39,291
309,786
650
$ 310,436
$
$
3,202
3,202
$
753
695
1,278
1,179
3,905
$
–
(2,590)
(51)
(266)
(2,907)
$ 3,905
$ (2,907)
$ 139
$ 139
$
$
–
–
Amortized Cost
Gross
Unrealized Gains
Gross
Unrealized Losses
$ 64,963
208,918
28,993
31,594
334,468
650
$ 335,118
$
$
3,394
3,394
$
1,746
3,552
788
317
6,403
$
–
(74)
(985)
(1,059)
$ 6,403
$ (1,059)
$ 52
$ 52
$ (8)
$ (8)
Amortized Cost
Gross
Unrealized Gains
Gross
Unrealized Losses
$ 71,952
252,130
33,343
22,698
380,123
4,229
$ 384,352
$
$
4,630
4,630
$
1,354
1,729
48
152
3,283
62
$ 3,345
$ 53
$ 53
$ –
(60)
(7)
(367)
(434)
(1,234)
$ (1,668)
$ (7)
$ (7)
Estimated
Fair Value
$ 24,740
214,578
31,262
40,204
310,784
650
$ 311,434
$
$
3,341
3,341
Estimated
Fair Value
$ 66,709
212,396
29,781
30,926
339,812
650
$ 340,462
$
$
3,438
3,438
Estimated
Fair Value
$ 73,306
253,799
33,384
22,483
382,972
3,057
$ 386,029
$ 4,676
4,676
$
16
The Company’s available for sale securities are reported at their estimated fair value, which is determined utilizing several sources. The primary source is
Interactive Data Corporation, which utilizes pricing models that vary based on asset class and include available trade, bid and other market information
and whose methodology includes broker quotes, proprietary models and vast descriptive databases. The other source for determining fair value is matrix
pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the spe-
cific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.
The table below presents the balances of available for sale securities, which are the only assets measured at fair value on a recurring basis, by level with-
in the fair value hierarchy as of December 31, 2009.
December 31, 2009
Total
$311,434,437
Level 1
Fair Value Measurement Using
Level 2
Level 3
$311,434,437
Available for sale securities with an amortized cost of $310,436,523 were reported at a fair value, net of unrealized gains and losses, of $311,434,437 at
December 31, 2009. The net change in unrealized gains and losses of $(2,867,464) was included in comprehensive income during 2009.
The amortized cost and estimated fair value of debt securities at December 31, 2009, 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
(in thousands):
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
Mortgage-backed securities
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
Totals
$
$
$
$
19,104
68,609
62,436
129,602
30,035
309,786
305
1,901
996
3,202
$ 19,357
69,968
62,484
127,713
31,262
310,784
$
$
308
2,001
1,032
$ 3,341
Information pertaining to securities with gross unrealized losses at December 31, 2009, 2008 and 2007, respectively, aggregated by investment category
and length of time that individual securities have been in a continuous loss position, is as follows (in thousands):
Less than twelve months
Over twelve months
Total
December 31, 2009
U.S. Government Agencies
States and political subdivisions
Mortgage-backed securities
Total
Fair Value
$ 138,914
9,501
4,856
$ 153,271
Gross Unrealized Loss
$ 2,590
148
51
2,789
$
Fair Value
2,826
$
2,521
$
2,521
Gross Unrealized Loss
$ 254
118
$ 118
Fair Value Gross Unrealized Loss
$ 2,590
$
266
51
$ 2,907
138,914
12,022
4,856
$ 155,792
Less than twelve months
Over twelve months
Total
December 31, 2008
U.S. Government Agencies
States and political subdivisions
Total
Fair Value
10,781
$
16,545
$ 27,326
Gross Unrealized Loss
$ 74
740
$ 814
Fair Value
2,826
$
2,826
2,826
$
Gross Unrealized Loss
$ 254
253
$ 253
Fair Value Gross Unrealized Loss
$ 74
$
993
$ 1,067
10,781
19,371
$ 30,152
Less than twelve months
Over twelve months
Total
December 31, 2007
U.S. Government Agencies
States and political subdivisions
Mortgage-backed securities
FHLMC preferred stock
Total
Fair Value
10,974
$
5,998
14,201
$
31,173
Gross Unrealized Loss
$ 24
249
7
$ 280
Fair Value
$ 17,464
7,047
1,841
$ 26,352
Gross Unrealized Loss
$ 36
125
1,234
$ 1,395
Fair Value Gross Unrealized Loss
$ 60
$ 28,438
374
13,045
7
14,201
1,234
1,841
$ 1,675
$ 57,525
\
17
At December 31, 2009, 29 of the 45 securities issued by U.S. Government agencies, 32 of 147 securities issued by state and political subdivisions and 1 of
the 10 mortgage-backed securities contained unrealized losses.
Management evaluates securities for other-than-temporary impairment on a monthly basis. Consideration is given to the length of time and the extent
to which the fair value has been less than cost. The Company has also considered that securities are primarily issued by U.S. Treasury and U.S. Government
Agencies, the cause of the decline in value, the intent and ability of the Company to hold these securities until maturity and that the Company has tradi-
tionally held virtually all of its securities, including those classified as available for sale, until maturity. Any sales of available for sale securities, which
have been infrequent and immaterial, have been for liquidity purposes. 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 2009, 2008 and 2007 were $195,000, $1,240,000 and $86,460,000, respective-
ly. There were no sales of held to maturity debt securities during 2009, 2008 and 2007. Proceeds from maturities, sales and calls of available for sale debt
securities were $277,022,490, $257,886,217 and $209,677,761 during 2009, 2008 and 2007, respectively. Available for sale debt securities were sold in 2009
and 2007 for a realized gain (loss) of $869,123 and $(605,813). There were no sales of available for sale debt securities in 2008. The Company realized a
gain of $249,000 from the liquidation of equity securities in 2008. During 2009, the Company recorded a loss of $149,517 from the other-than-temporary
impairment of an equity investment. During 2008, the Company recorded a loss of $2,964,000 from the other-than-temporary impairment of its invest-
ment in Federal Home Loan Mortgage Corporation Preferred Stock.
Securities with an amortized cost of $296,176,580, $328,047,697 and $342,084,423 at December 31, 2009, 2008 and 2007, respectively, were pledged to
secure public deposits, federal funds purchased and other balances as required by law.
The Company invests in Federal Home Loan Bank (FHLB) common stock as a prerequisite for participation in certain FHLB programs. The amount to be
invested in FHLB stock is calculated according to FHLB guidelines as a percentage of certain mortgage loans. Based on this calculation, the FHLB may peri-
odically automatically redeem its common stock. The investment is carried at cost. Dividends received are reinvested in FHLB stock.
NN OO TT EE CC -- LL OO AA NN SS ::
The composition of the loan portfolio was as follows (in thousands):
December 31,
Real estate, construction
Real estate, mortgage
Loans to finance agricultural production
Commercial and industrial loans
Loans to individuals for household, family and other consumer expenditures
Obligations of states and political subdivisions
All other loans
Totals
Transactions in the allowance for loan losses were as follows (in thousands):
Balance, January 1
Recoveries
Loans charged off
Provision for allowance for loan losses
Balance, December 31
2009
$ 94,460
299,403
1,755
52,250
9,049
7,891
168
$ 464,976
2009
11,114
569
(9,080)
5,225
7,828
$
$
$
2008
118,455
290,458
3,178
43,312
10,202
1,733
39
$ 467,377
2008
$ 9,378
673
(1,284)
2,347
$ 11,114
$
2007
93,739
265,465
2,545
76,267
11,173
1,747
56
$ 450,992
2007
$ 10,841
266
(684)
(1,045)
9,378
$
As a part of its evaluation of the quality of the loan portfolio, Management monitors the Company’s credit concentrations on a monthly basis. Total out-
standing concentrations were as follows (in thousands):
December 31,
Gaming
Hotel/motel
Out of area
2009
$69,938
47,714
46,697
2008
2007
$
79,510
$
74,595
35,962
44,458
23,234
31,325
During 2009, the Company began monitoring its exposure to land, development and construction loans. At December 31, 2009, this exposure totaled
$95,060,478.
In the ordinary course of business, the Company's subsidiary extends loans to certain officers and directors and their personal business interests at, in the
opinion of Management, the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans of similar credit risk
with persons not related to the Company or its subsidiaries. These loans do not involve more than normal risk of collectability and do not include other
unfavorable features.
18
An analysis of the activity with respect to such loans to related parties is as follows (in thousands):
Years Ended December 31,
Balance, January 1
New loans and advances
Repayments
Balance, December 31
2009
$ 7,800
1,128
(2,037)
$ 6,891
2008
$ 7,318
2,743
(2,261)
7,800
$
2007
$ 8,554
3,548
(4,784)
$ 7,318
Performing loans totaling $8,354,210, $8,151,194 and $11,655,577 had specific reserves of $2,531,291, $3,582,298 and $5,598,107 at December 31, 2009, 2008
and 2007, respectively.
Loans past due ninety days or more and still accruing were $4,217,835, $2,340,190 and $1,233,761 at December 31, 2009, 2008 and 2007, respectively.
Impaired loans include nonaccrual loans which amounted to $22,005,748, $15,553,447 and $44,612 at December 31, 2009, 2008 and 2007, respectively. The
total average recorded investment in impaired loans amounted to $25,551,787, $15,595,942 and $46,612 at December 31, 2009, 2008 and 2007, respective-
ly. The Company had $1,895,414, $3,725,593 and $44,612 of specific allowance related to impaired loans at December 31, 2009, 2008, and 2007, respective-
ly. No material interest income was recognized on impaired loans for the years ended December 31, 2009, 2008 and 2007, respectively.
At each reporting period, the Company determines which loans are impaired. Accordingly, the Company’s impaired loans are reported at their estimat-
ed fair value on a non-recurring basis. An allowance for each impaired loan, which are generally collateral-dependent, is calculated based on the fair
value of its collateral. The fair value of the collateral is based on appraisals performed by third-party valuation specialists. Factors including the assump-
tions and techniques utilized by the appraiser are considered by Management. If the recorded investment in the impaired loan exceeds the measure of
fair value of the collateral, a valuation allowance is recorded as a component of the allowance for loan losses.
Impaired loans, which are measured at fair value on a non-recurring basis, by level within the hierarchy as of December 31, 2009 were as follows:
December 31, 2009
Total
$20,110,334
Level 1
Fair Value Measurement Using
Level 2
Level 3
$20,110,334
At December, 31, 2009, impaired loans with a carrying amount of $22,005,748 were written down to their fair value of $20,110,334 through a $1,895,414
charge to the provision for loan losses in prior periods.
NN OO TT EE DD -- BB AA NN KK PP RR EE MM II SS EE SS AA NN DD EE QQ UU II PP MM EE NN TT ::
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
2009
$ 5,986
30,233
15,378
51,597
20,178
$ 31,419
2008
$ 5,978
30,427
14,982
51,387
17,787
$ 33,600
$
2007
6,102
29,180
15,187
50,469
16,058
$ 34,411
NN OO TT EE EE –– OO TT HH EE RR RR EE AA LL EE SS TT AA TT EE ::
Other real estate acquired through foreclosure is carried at fair value, less estimated costs to sell. The fair value of the collateral is based on appraisals
performed by third-party valuation specialists. Factors including the assumptions and techniques utilized by the appraiser are considered by
Management. Accordingly, the Company’s other real estate is reported at its estimated fair value on a non-recurring basis. The balance of other real
estate, which is measured at fair value on a non-recurring basis, by level within the hierarchy as of December 31, 2009 was as follows:
Fair Value Measurement Using
Level 2
Level 3
Level 1
Total
December 31, 2009
$1,521,313
$1,521,313
NN OO TT EE FF -- DD EE PP OO SS II TT SS ::
At December 31, 2009, the scheduled maturities of time deposits are as follows (in thousands):
$ 153,196
7,756
4,168
1,723
1,149
1
167,993
2010
2011
2012
2013
2014
Beyond
Total
$
Time deposits of $100,000 or more at December 31, 2009 included brokered deposits of $30,030,000 which mature in 2010.
Deposits held for related parties amounted to $9,889,556, $8,659,875 and $8,903,098 at December 31, 2009, 2008 and 2007, respectively.
NN OO TT EE GG –– FF EE DD EE RR AA LL FF UU NN DD SS PP UU RR CC HH AA SS EE DD AA NN DD SS EE CC UU RR II TT II EE SS SS OO LL DD UU NN DD EE RR AA GG RR EE EE MM EE NN TT SS TT OO RR EE PP UU RR CC HH AA SS EE ::
At December 31, 2009, the Company had facilities in place to purchase federal funds up to $57,000,000 under established credit arrangements. At
December 31, 2009, 2008 and 2007, federal funds purchased and securities sold under agreements to repurchase included funds invested by customers in
a non-deposit product of the bank subsidiary of $167,280,777, $176,909,231 and $172,925,118, respectively. These accounts are non-insured, non-deposit
accounts which allow customers to earn interest on their account with no restrictions as to the number of transactions. They are set up as sweep accounts
with no check-writing capabilities and require the customer to have at least one operating deposit account.
19
NN OO TT EE HH -- BB OO RR RR OO WW II NN GG SS ::
During 2009, the Company received approval to participate in the Federal Reserve Bank Discount Window Primary Credit Program. The borrowing limit,
which was $41,216,000 at December 31, 2009, is based on the amount of collateral pledged, with certain loans from the Bank's portfolio serving as collat-
eral. Borrowings bear interest at 25 basis points over the current fed funds rate and have a maturity of one day. There was no outstanding balance at
December 31, 2009. At December 31, 2009, the Company had $104,270,452 outstanding in advances under a $133,693,944 line of credit with the Federal
Home Loan Bank of Dallas ("FHLB"). One advance in the amount of $5,000,000 bears interest at a fixed rate of 6.50%. One advance in the amount of
$30,000,000 bears interest at .15%. One advance in the amount of $12,000,000 bears interest at a fixed rate of .09%. One advance in the amount of
$10,000,000 bears interest at a fixed rate of .12%. One advance in the amount of $45,000,000 bears interest at a fixed rate of .10%. All of these advances
mature in 2010. The remaining balance consists of smaller advances bearing interest from 3.35% to 7.00% with maturity dates from 2015 - 2040. The
advances are collateralized by a blanket floating lien on the Company's residential first mortgage loans.
NN OO TT EE II -- NN OO TT EE SS PP AA YY AA BB LL EE ::
The Company had a $5,000,000 unsecured line of credit with Silverton Bank, N.A. The line bore interest at .50% under Wall Street Journal Prime and
required interest only payments quarterly with all principal and accrued interest due at maturity, which was July 6, 2009. There was no outstanding bal-
ance on this line at December 31, 2008. At December 31, 2007, the outstanding balance on this line was $150,000, which was included in Other Liabilities.
The Company has a $2,500,000 unsecured line of credit with Mississippi National Bankers Bank. The line bears interest at Wall Street Journal Prime with a
floor of 4.00% and requires interest only payments quarterly with all principal and accrued interest due at maturity, which is March 11, 2010. There was no
outstanding balance on this line at December 31, 2009.
NN OO TT EE JJ -- II NN CC OO MM EE TT AA XX EE SS ::
Deferred taxes (or deferred charges) as of December 31, 2009, 2008 and 2007, 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
Earned retiree health benefits plan liability
Unearned retiree health benefits plan liability
Other
Deferred tax assets
Deferred tax liabilities:
Unrealized gain on available for sale securities, charged to equity
Bank premises and equipment
Other
Deferred tax liabilities
Net deferred taxes
Income taxes consist of the following components (in thousands):
Years Ended December 31,
Current
Deferred
Totals
2009
2008
2007
$
2,661
$
3,779
3,005
1,225
299
540
7,730
339
6,547
489
7,375
2,579
1,011
419
316
8,104
1,817
6,093
35
7,945
$ 3,282
2,268
891
123
327
6,891
589
6,094
36
6,719
√$
355
$
159
$ 172
2009
2008
$ (208)
$ 2,897
1,162
(920)
$ 954
$ 1,977
2007
$ 2,435
2,607
$ 5,042
Income taxes amounted to less than the amounts computed by applying the U.S. Federal income tax rate of 34.0% for 2009 and 2008 and 35.0% for 2007
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
Income from BOLI
Federal tax credits
Deferred expense adjustment
Other
Total income taxes
2009 Amount
$ 1,419
(385)
(183)
(129)
228
4
$ º954
%
34.0
(9.2)
(4.4)
(3.1)
5.5
0.1
22.9
2008 Amount
$ 2,384
(365)
(168)
%
34.0
(5.2)
(2.4)
2007 Amount
$ 5,624
(303)
(177)
126
1.8
(102)
$ 1,977
28.20
$ 5,042
%
35.0
(1.9)
(1.1)
(0.6)
31.40
The Company has reviewed its income tax positions and specifically considered the recognition and measurement requirements of the benefits recorded
in its financial statements for tax positions taken or expected to be taken in its tax returns. Based on its evaluation of these tax positions for its open tax
years, the Company has not recorded any tax liability for uncertain tax positions as of December 31, 2009, 2008 and 2007.
20
NN OO TT EE KK -- SS HH AA RR EE HH OO LL DD EE RR SS ’’ EE QQ UU II TT YY ::
Shareholders’ equity of the Company includes the undistributed earnings of the bank subsidiary. Dividends to the Company’s shareholders can
generally be paid only from dividends paid to the Company by its bank subsidiary. Consequently, dividends are dependent upon the earnings, capital
needs, regulatory policies and statutory limitations affecting the bank subsidiary. Dividends paid by the bank subsidiary are subject to the approval of
the Commissioner of Banking and Consumer Finance of the State of Mississippi. At December 31, 2009, approximately $23,194,000 of undistributed earn-
ings of the bank subsidiary included in consolidated surplus and retained earnings was available for future distribution to the Company as dividends.
Dividends paid by the Company are subject to the approval of the Federal Reserve Bank.
On November 26, 2002 the Company’s Board of Directors (the “Board”) approved the repurchase of up to 2.50% of the Company’s common stock. On November 22,
2005, the Board approved a three year extension of the plan originally approved on November 26, 2002. As a result of this repurchase plan, which was completed
during 2007, 139,475 shares were repurchased and retired. On July 25, 2007, the Board approved the repurchase of up to 2.50% of the outstanding shares of the
Company’s common stock. As a result of this repurchase plan, which was completed during 2008, 135,987 shares were repurchased and retired. On September 24,
2008, the Board approved the repurchase of up to 2.50% of the outstanding shares of the Company’s common stock. As a result of this repurchase plan, which was
completed during 2009, 132,588 shares were repurchased and retired. On February 25, 2009, the Board approved the repurchase of up to 3% of the outstanding
shares of the Company’s common stock. As a result of this repurchase plan, 19,245 shares were repurchased and retired as of December 31, 2009. The Company must
receive approval from the Federal Reserve Bank before repurchasing additional shares.
On December 4, 2009, the Company’s Board of Directors approved a semi-annual dividend of $.10 per share. This dividend has a record date of January 8,
2010 and a distribution date of January 15, 2010.
The bank subsidiary is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capi-
tal requirements can initiate certain mandatory, and possibly additional discretionary, actions by the regulators that, if undertaken, could have a direct
material effect on the bank subsidiary’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, the bank subsidiary must meet specific capital guidelines that involve quantitative measures of the bank subsidiary’s assets, liabilities and cer-
tain off-balance sheet items as calculated under regulatory accounting practices. The bank subsidiary’s capital amounts and classification are also sub-
ject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the bank subsidiary to maintain minimum amounts and ratios of Total
and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets.
As of December 31, 2009, the most recent notification from the Federal Deposit Insurance Corporation categorized the bank subsidiary as well capitalized
under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the bank subsidiary must have a Total risk-based cap-
ital ratio of 10.00% or greater, a Tier 1 risk-based capital ratio of 6.00% or greater and a Leverage capital ratio of 5.00% or greater. There are no conditions
or events since that notification that Management believes have changed the bank subsidiary’s category.
The Company’s actual capital amounts and ratios and required minimum capital amounts and ratios for 2009, 2008 and 2007, are as follows (in thousands):
Actual
For Capital Adequacy Purposes
December 31, 2009:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
December 31, 2008:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
December 31, 2007:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
Amount
$ 111,060
103,785
103,785
$ 111,714
104,472
104,472
$ 112,510
105,345
105,345
Ratio
19.08%
17.83%
11.47%
19.28%
18.03%
11.61%
19.63%
18.38%
10.93%
Amount
$46,559
23,280
36,194
$46,348
23,174
35,983
$45,854
22,927
38,555
Ratio
8.00%
4.00%
4.00%
8.00%
4.00%
4.00%
8.00%
4.00%
4.00%
The bank subsidiary’s actual capital amounts and ratios and required minimum capital amounts and ratios for 2009, 2008 and 2007, are as follows (in
thousands):
December 31, 2009:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
December 31, 2008:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
December 31, 2007:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
Actual
Ratio
18.31%
17.06%
10.94%
18.83%
17.58%
11.31%
19.51%
18.26%
10.84%
Amount
$ 105,728
98,512
98,512
$ 108,207
101,022
101,022
$ 111,413
104,276
104,276
21
For Capital Adequacy Purposes
Ratio
Amount
$46,184
23,092
36,006
$45,984
22,992
35,743
$45,676
22,838
38,481
8.00%
4.00%
4.00%
8.00%
4.00%
4.00%
8.00%
4.00%
4.00%
NN OO TT EE LL -- OO TT HH EE RR II NN CC OO MM EE AA NN DD EE XX PP EE NN SS EE SS ::
Other income consisted of the following (in thousands):
Years Ended December 31,
Other service charges, commissions and fees
Rentals
Increase in cash surrender value of life insurance
Other
Totals
Other expenses consisted of the following (in thousands):
Years Ended December 31,
Advertising
Data processing
Legal and accounting
ATM expense
Consulting fees
Trust expense
FDIC and state assessments
Other
Totals
$
2009
83
484
535
153
$ 1,255
2009
$ 583
380
518
2,038
90
326
1,429
1,754
$ 7,118
2008
$
117
538
494
383
$ 1,532
2008
$ 636
344
680
2,024
176
356
169
2,114
$6,499
2007
$
171
345
505
216
$ 1,237
2007
$ 597
457
452
1,814
90
421
129
1,938
$5,898
NN OO TT EE MM -- FF II NN AA NN CC II AA LL II NN SS TT RR UU MM EE NN TT SS WW II TT HH OO FF FF -- BB AA LL AA NN CC EE -- SS HH EE EE TT RR II SS KK ::
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and irrevocable letters of credit. These instruments involve, to varying degrees, ele-
ments of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent
of involvement the bank subsidiary has in particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperfor-
mance by the other party to the financial instrument for commitments to extend credit and irrevocable letters of credit is represented by the contractu-
al amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-bal-
ance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the agreement.
Irrevocable letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.
Commitments and irrevocable letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Since some of the commitments and irrevocable letters of credit may expire without being drawn upon, the total amounts do not necessarily represent
future cash requirements. The Company evaluated each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained upon
extension of credit is based on Management's credit evaluation of the customer. Collateral obtained varies but may include equipment, real property
and inventory.
The Company generally grants loans to customers in its primary trade area of Harrison, Hancock, Jackson and Stone counties.
At December 31, 2009, 2008 and 2007, the Company had outstanding irrevocable letters of credit aggregating $6,037,976, $7,201,053 and $7,128,972,
respectively. At December 31, 2009, 2008 and 2007, the Company had outstanding unused loan commitments aggregating $97,882,869, $116,091,000 and
$133,771,000, respectively. Approximately $63,298,000, $69,684,000 and $72,208,000 of outstanding commitments were at fixed rates and the remainder
were at variable rates at December 31, 2009, 2008 and 2007, respectively.
NN OO TT EE NN -- CC OO NN TT II NN GG EE NN CC II EE SS ::
In 2007, USF&G filed a civil action against the Company’s bank subsidiary and other non-related parties alleging fraud in connection with the outcome
of a lawsuit between the bank subsidiary and USF&G. On December 29, 2008, the Company’s bank subsidiary and USF&G reached an out of court settle-
ment, pursuant to which the bank subsidiary did not admit any wrongdoing. This settlement effectively concluded the matter between USF&G and the
bank subsidiary only.
The bank is involved in various other legal matters and claims which are being defended and handled in the ordinary course of business. None of these
matters are expected, in the opinion of Management, to have a material adverse effect upon the financial position or results of operations of the Company.
22
NN OO TT EE OO -- CC OO NN DD EE NN SS EE DD PP AA RR EE NN TT CC OO MM PP AA NN YY OO NN LL YY FF II NN AA NN CC II AA LL II NN FF OO RR MM AA TT II OO NN ::
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,
Assets
Investments in subsidiaries, at underlying equity:
Bank subsidiary
Nonbank subsidiary
Cash in bank subsidiary
Other assets
Total assets
Liabilities and Shareholders' Equity
Other liabilities
Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
2009
2008
2007
$ 98,467
$ 103,701
$ 105,592
1
1,103
4,694
1
496
4,552
1
528
2,226
$ 104,265
$ 108,750
$ 108,347
$ 677
677
103,588
$ 104,265
$ 1,750
1,750
107,000
$ 108,750
$
1,805
1,805
106,542
$ 108,347
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,
Income
Earnings of unconsolidated bank subsidiary:
Distributed earnings
Undistributed earnings
Interest income
Other income
Total income
Expenses
Other
Total expenses
Income before income taxes
Income tax expense (benefit)
Net income
2009
2008
2007
$ 5,800
(2,511)
7
3,296
71
71
3,225
5
$ 8,550
$ 6,800
(3,511)
4
75
5,118
87
87
5,031
(3)
4,250
6
43
11,099
90
90
11,009
(17)
$ 3,220
$ 5,034
$ 11,026
23
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 (used in) operating activities:
Gain on liquidation of investment
(Gain) loss on other investments
Impairment loss on equity investments
Net income of consolidated subsidiaries
Change in assets and liabilities:
Other assets
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Investment in equity securities
Proceeds from liquidation of investment
Dividends from unconsolidated subsidiary
Net cash provided by investing activities
Advances on line of credit
Principal payments on line of credit
Retirement of stock
Dividends paid
Net cash used in financing activities
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
2009
2008
2007
$ 3,220
$ 5,034
$ 11,026
(147)
150
(3,290)
5
(62)
(150)
5,800
5,650
1,500
(1,500)
(2,367)
(2,614)
(4,981)
607
496
(249)
270
(5,039)
(11,050)
(3)
13
(3,160)
753
8,550
6,143
300
(450)
(3,035)
(3,003)
(6,188)
(32)
528
9
(15)
(700)
6,800
6,100
950
(800)
(3,107)
(2,655)
(5,612)
473
55
$ 1,103
$ 496
$ 528
Peoples Financial Corporation paid income taxes of $520,000, $1,650,000 and $4,819,000 in 2009, 2008 and 2007, respectively. No interest was paid dur-
ing the three years ended December 31, 2009.
NN OO TT EE PP -- EE MM PP LL OO YY EE EE BB EE NN EE FF II TT PP LL AA NN SS ::
The Company sponsors the Peoples Financial Corporation Employee Stock Ownership Plan (“ESOP”). Employees who are in a position requiring at least 1,000
hours of service during a plan year and who are 21 years of age are eligible to participate in the ESOP. The Plan included 401(k) provisions and the former
Gulf National Bank Profit Sharing Plan. Effective January 1, 2001, the ESOP was amended to separate the 401(k) funds into the Peoples Financial Corporation
401(k) Profit Sharing Plan. The separation had no impact on the eligibility or benefits provided to participants of either plan. The 401(k) provides for a
matching contribution of 75% of the amounts contributed by the employee (up to 6% of compensation). Contributions are determined by the Board of
Directors and may be paid either in cash or Peoples Financial Corporation capital stock. Total contributions to the plans charged to operating expense
were $400,000, $400,000 and $410,000 in 2009, 2008 and 2007, respectively.
Compensation expense of $9,091,240, $9,504,193 and $9,207,514 was the basis for determining the ESOP contribution allocation to participants for 2009,
2008 and 2007, respectively. The ESOP held 445,884, 445,741 and 445,038 allocated shares at December 31, 2009, 2008 and 2007, respectively.
The Company established an Executive Supplemental Income Plan and a Directors' Deferred Income Plan, which provide for pre-retirement and post-
retirement benefits to certain key executives and directors. Benefits under the Executive Supplemental Income Plan are based upon the position and salary
of the officer at retirement or death. Normal retirement benefits under the plan are equal to 67% of salary for the president and chief executive officer,
58% of salary for the executive vice president and 50% of salary for all other executive officers and are payable monthly over a period of fifteen years.
Under the Directors’ Deferred Income Plan, the directors are given an opportunity to defer receipt of their annual directors’ fees until age sixty-five.
For those who choose to participate, benefits are payable monthly for ten years beginning the first day of the month following the director’s normal
retirement date. The normal retirement date is the later of the normal retirement age (65) or separation from service. Interest on deferred fees accrues at
an annual rate of ten percent, compounded annually. The Company has acquired insurance policies, with the bank subsidiary as owner and beneficiary,
that it may use as a source to pay potential benefits to the plan participants. These contracts are carried at their cash surrender value, which amounted
to $14,167,091, $13,648,077 and $12,648,035 at December 31, 2009, 2008 and 2007, respectively. The present value of accumulated benefits under these
plans, using an interest rate of 6.00% in 2009, 2008 and 2007 and the interest ramp-up method for 2009, 2008 and 2007, has been accrued. The accrual
amounted to $7,768,888, $6,798,774 and $5,796,097 at December 31, 2009, 2008 and 2007, respectively, and is included in Other Liabilities.
24
The Company also has additional plans for post-retirement benefits for certain key executives. The Company has acquired insurance policies, with the
bank subsidiary as owner and beneficiary, which it may use as a source to pay potential benefits to the plan participants. These contracts are carried at
their cash surrender value, which amounted to $793,434, $687,407 and $593,946 at December 31, 2009, 2008 and 2007, respectively. The present value of
accumulated benefits under these plans using an interest rate of 6.00% in 2009 and 7.50% in 2008 and 2007 and the projected unit cost method has been
accrued. The accrual amounted to $835,249, $584,699 and $534,205 at December 31, 2009, 2008 and 2007, respectively, and is included in Other Liabilities.
Additionally, there are two endorsement split dollar policies, with the bank subsidiary as owner and beneficiary, which provide a guaranteed death ben-
efit to the participants’ beneficiaries. These contracts are carried at their cash surrender value, which amounted to $241,059, $233,903 and $226,417 at
December 31, 2009, 2008 and 2007, respectively. Beginning in 2008, the Company was required to accrue the post-retirement benefit payable under these
contacts and accordingly recorded a liability of $56,832 on January 1, 2008. The present value of accumulated benefits under these plans using an inter-
est rate of 6.00% in 2009 and 2008 and the projected unit cost method has been accrued. The accrual amounted to $66,717 and $60,232 at December 31,
2009 and 2008, respectively, and is included in Other Liabilities.
The Company has additional plans for post-retirement benefits for directors. The Company has acquired insurance policies, with the bank subsidiary as
owner and beneficiary, that it may use as a source to pay potential benefits to the plan participants. These contracts are carried at their cash surrender
value, that amounted to $127,810, $118,773 and $110,138 at December 31, 2009, 2008 and 2007, respectively. The present value of accumulated benefits under
these plans using an interest rate of 6.00% in 2009 and 2008 and 7.50% in 2007, and the projected unit cost method has been accrued. The accrual amount-
ed to $163,173, $142,088 and $150,587 at December 31, 2009, 2008 and 2007, respectively, and is included in Other Liabilities.
The Company provides post-retirement health insurance to certain of its retired employees. Employees are eligible to participate in the retiree health plan
if they retire from active service no earlier than their Social Security normal retirement age, which varies from 65 to 67 based on the year of birth. In addi-
tion, the employee must have at least 25 continuous years of service with the Company immediately preceding retirement. However, any active employ-
ee who was at least age 65 as of January 1, 1995, does not have to meet the 25 years of service requirement. The accumulated post-retirement benefit obli-
gation at January 1, 1995, was $517,599, which the Company elected to amortize over 20 years. The Company reserves the right to modify, reduce or elim-
inate these health benefits. The Company has chosen to not offer this post-retirement benefit to individuals entering the employ of the Company after
December 31, 2006.
The following is a summary of the components of the net periodic post-retirement benefit cost:
Years Ended December 31,
2009
2008
Service cost, including amortization of loss
$ 396,918
$ 179,330
Interest cost
Amortization of net transition obligation
245,511
20,600
159,316
20,600
Net periodic post-retirement benefit cost
$ 663,029
$ 359,246
2007
$ 275,345
175,700
20,600
$ 471,645
The discount rate used in determining the accumulated post-retirement benefit obligation was 6.05% in 2009, 6.00% in 2008 and 6.50% in 2007. The
assumed health care cost trend rate used in measuring the accumulated post-retirement benefit obligation was 10.00% in 2003. The rate was assumed to
decrease gradually to 5.00% for 2013 and remain at that level thereafter. If the health care cost trend rate assumptions were increased 1.00%, the accumu-
lated post-retirement benefit obligation as of December 31, 2009, would be increased by 22.61%, and the aggregate of the service and interest cost com-
ponents of the net periodic post-retirement benefit cost for the year then ended would have increased by 25.75%. If the health care cost trend rate assump-
tions were decreased 1.00%, the accumulated post-retirement benefit obligation as of December 31, 2009, would be decreased by 17.59%, and the aggre-
gate of the service and interest cost components of the net periodic post-retirement benefit cost for the year then ended would have decreased by 19.59%.
The following table presents the estimated benefit payments for each of the next five years and in the aggregate for the next five years:
Year
2010
2011
2012
2013
2014
$ 64,000
73,000
74,000
87,000
4,000
2015 – 2019
1,092,000
25
The following is a reconciliation of the accumulated post-retirement benefit obligation, which is included in Other Liabilities:
Accumulated post-retirement benefit obligation as of December 31, 2008
Service cost
Interest cost
Actuarial gain
Benefits paid
Accumulated post-retirement benefit obligation as of December 31, 2009
$ 4,208,429
313,509
245,511
(111,305)
(57,257)
$ 4,598,887
The following is a summary of the change in plan assets:
Fair value of plan assets at beginning of year
Actual return of assets
Employer contribution
Benefits paid, net
Fair value of plan assets at end of year
Amounts recognized in Accumulated Other Comprehensive Income, net of tax, were:
December 31,
Net loss
Transition obligation
Prior service cost
Total accumulated other comprehensive income
2009
2008
2007
$
$
57,257
(57,257)
$
$
84,186
(84,186)
$
$
80,122
(80,122)
2009
2008
2007
$ 86,201
67,965
724,998
$ 879,164
$159,662
81,574
780,036
$ 1,021,272
$ 134,749
92,078
$226,827
Amounts recognized in the accumulated post-retirement benefit obligation and other comprehensive income were:
For the year ended December 31,
Unrecognized actuarial gain
Amortization of prior service cost
Amortization of transition obligation
Total accumulated other comprehensive income
2009
$ (111,305)
(83,409)
(20,600)
$ (215,314)
The estimated net loss and prior transition obligation for the other postretirement plan that will be amortized from accumulated other comprehensive
income into net periodic benefit cost during 2010 is $83,409 and $20,600, respectively.
NN OO TT EE QQ -- FF AA II RR VV AA LL UU EE OO FF FF II NN AA NN CC II AA LL II NN SS TT RR UU MM EE NN TT SS ::
All entities are required 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. Certain financial instruments and all nonfinancial instruments are excluded from these dis-
closure requirements. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and bank premises and
equipment.
26
Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. In preparing these disclosures,
Management made highly sensitive estimates and assumptions in developing the methodology to be utilized in the computation of fair value. These esti-
mates 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 perhaps change the assumptions as well. A change
in the assumptions might affect the fair value of the financial instruments disclosed in this footnote. These estimates do not reflect any premium or dis-
count that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Fair value estimates are based
on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets
and liabilities that are not considered financial instruments. In addition, the tax consequences related to the realization of the unrealized gains and loss-
es have not been computed or disclosed herein. These fair value estimates, methods and assumptions are set forth below.
CCaasshh aanndd DDuuee ffrroomm BBaannkkss
The carrying amount shown as cash and due from banks approximates fair value.
FFeeddeerraall FFuunnddss SSoolldd
The carrying amount shown as federal funds sold approximates fair value.
AAvvaaiillaabbllee ffoorr SSaallee SSeeccuurriittiieess
The fair value of available for sale securities is based on quoted market prices.
HHeelldd ttoo MMaattuurriittyy SSeeccuurriittiieess
The fair value of held to maturity securities is based on quoted market prices.
OOtthheerr IInnvveessttmmeennttss
The carrying amount shown as other investments approximates fair value.
FFeeddeerraall HHoommee LLooaann BBaannkk SSttoocckk
The carrying amount shown as Federal Home Loan Bank Stock approximates fair value.
LLooaannss
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 cred-
it losses. Cash flows have not been adjusted for such factors as prepayment risk or the effect of the maturity of balloon notes. The fair value of floating
rate loans is estimated to be its carrying value.
CCaasshh SSuurrrreennddeerr VVaalluuee ooff LLiiffee IInnssuurraannccee
The carrying amount of cash surrender value of bank-owned life insurance approximates fair value.
DDeeppoossiittss
The fair value of non-interest bearing demand and interest bearing savings and demand deposits is the amount reported in the financial statements. The
fair value of time deposits is estimated by discounting the cash flows using current rates of time deposits with similar remaining maturities. The cash flows
considered in computing the fair value of such deposits are based on contractual maturities, since approximately 98% of time deposits provide for auto-
matic renewal at current interest rates.
FFeeddeerraall FFuunnddss PPuurrcchhaasseedd aanndd SSeeccuurriittiieess SSoolldd uunnddeerr AAggrreeeemmeennttss ttoo RReeppuurrcchhaassee
The carrying amount shown as federal funds purchased and securities sold under agreements to repurchase approximates fair value.
BBoorrrroowwiinnggss ffrroomm FFeeddeerraall HHoommee LLooaann BBaannkk
The fair value of FHLB fixed rate borrowings is estimated using discounted cash flows based on current incremental borrowing rates for similar types of
borrowing arrangements. The Company has no FHLB variable rate borrowings.
CCoommmmiittmmeennttss ttoo EExxtteenndd CCrreeddiitt aanndd SSttaannddbbyy LLeetttteerrss ooff CCrreeddiitt
Because commitments to extend credit and standby letters of credit are generally short-term and at variable rates, the contract value and estimated value
associated with these instruments are immaterial.
27
The following table presents carrying amounts and estimated fair values for financial assets and financial liabilities at December 31, 2009, 2008 and 2007
(in thousands):
2009
2008
2007
Carrying
Amount
Fair
Value
$ 29,155
$ 29,155
311,434
3,341
4,036
5,016
460,588
Carrying
Amount
$ 34,016
4
340,462
3,394
3,889
2,071
456,263
Fair
Value
$ 34,016
4
340,462
3,438
3,889
2,071
461,113
Carrying
Amount
$ 34,665
270
386,029
4,630
1,000
936
441,614
Fair
Value
$ 34,665
270
386,029
4,676
1,000
936
439,694
Financial Assets:
Cash and due from banks
Federal funds sold
Available for sale securities
Held to maturity securities
Other investments
Federal Home Loan Bank Stock
Loans, net
Cash surrender value of
life insurance
Financial Liabilities:
Deposits:
Non-interest bearing
Interest bearing
Total deposits
Federal funds purchased and
securities sold under
agreements to repurchase
Borrowings from
Federal Home Loan Bank
311,434
3,202
4,036
5,016
457,148
15,329
96,541
374,160
470,701
174,431
104,270
15,329
14,688
14,688
13,579
13,579
96,541
375,052
471,593
174,431
105,815
109,033
401,442
510,475
109,033
402,361
511,394
113,916
455,214
569,130
113,916
456,490
570,406
226,609
226,609
231,255
231,255
36,938
37,547
7,100
7,811
28
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
R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M
To the Board of Directors
Peoples Financial Corporation
Biloxi, Mississippi
We have audited Peoples Financial Corporation and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2009, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Peoples Financial Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assess-
ment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Controls over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weak-
ness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included per-
forming such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial report-
ing and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s inter-
nal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accu-
rately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expendi-
tures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of com-
pliance with the policies or procedures may deteriorate.
In our opinion, Peoples Financial Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2009, based on criteria established in Internal Control-Integrated Frameworkissued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements
of condition of Peoples Financial Corporation and subsidiaries as of December 31, 2009, 2008 and 2007, and the related statements of income, sharehold-
ers’ equity and cash flows for the years then ended, and our report dated February 24, 2010, expressed an unqualified opinion on those consolidated finan-
cial statements.
Atlanta, Georgia
February 24, 2010
29
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
R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M
To the Board of Directors
Peoples Financial Corporation
Biloxi, Mississippi
We have audited the accompanying consolidated statements of condition of Peoples Financial Corporation and subsidiaries (“the Company”) as of
December 31, 2009, 2008 and 2007, and the related consolidated statements of income, shareholders’ 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
on our audits.
We conducted our audits in accordance with the standards of the Public 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 estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Peoples Financial
Corporation and subsidiaries as of December 31, 2009, 2008 and 2007, and the results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Peoples Financial Corporation
and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2010, expressed an unqualified opin-
ion on the effectiveness of Peoples Financial Corporation’s internal control over financial reporting.
Atlanta, Georgia
February 24, 2010
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
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
2009
2008
2007
2006
2005
$ 869,007
$ 896,408
$ 927,357
$ 964,023
$ 845,325
311,434
3,202
464,976
470,701
104,270
103,588
340,642
3,394
467,377
510,476
36,938
107,000
386,029
4,630
450,992
569,130
7,100
106,542
396,907
85,574
401,194
613,170
7,267
98,233
178,394\
134,047
349,346
592,217
7,352
87,503
$ 34,289
$ 43,573
$ 55,971
$ 48,894
$ 32,343
7,401
26,888
5,225
21,663
10,147
27,636
4,174
954
14,963
28,610
2,347
26,263
7,268
26,520
7,011
1,977
25,452
30,519
(1,045)
31,564
9,767
ª25,263
16,068
5,042
18,785
30,109
141
29,968
12,309
23,050
19,227
6,459
7,550
24,793
3,614
21,179
7,237
20,468
7,948
2,604
538
$ 3,220
$ 5,034
$ 11,026
$ 12,768
$ 5,882
Basic and diluted earnings per share
$
.62
$
.94
$
2.01
$ 2.30
$ 1.06
Basic and diluted earnings per share before
extraordinary gain
Dividends per share
Book value
.62
.50
20.11
.94
.56
20.27
2.01
.52
19.56
2.30
.44
17.71
.96
.38
15.77
Weighted average number of shares
5,170,430
5,342,470
5,489,861
5,548,300
5,550,477
Selected Ratios
Return on average assets
Return on average equity
Primary capital to average assets
Risk-based capital ratios:
Tier 1
Total
.36%
3.06%
12.49%
17.83%
19.08%
.55%
4.73%
12.81%
18.03%
19.28%
1.15%
10.77%
12.13%
18.38%
19.63%
1.41%
13.75%
11.91%
19.87%
21.12%
.82%
6.79%
13.67%
20.26%
21.51%
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, 2009
Interest income
Net interest income
Provision for loan losses
Income before income taxes
Net income
Basic and diluted earnings per share
Quarter Ended, 2008
Interest income
Net interest income
Provision for loan losses
Income before income taxes
Net income
Basic and diluted earnings per share
Market Information
March 31
$ 8,568
June 30
$ 8,595
September 30
December 31
$ 8,671
$
8,455
6,274
348
1,993
1,703
.33
6,569
1,502
151
201
.04
7,019
1,875
1,069
974
.19
7,026
1,500
961
342
.06
March 31
$ 12,081
June 30
$ 10,901
September 30
December 31
$
10,706
$
9,885
7,201
46
3,128
2,089
.39
7,084
48
3,262
2,178
.41
7,217
2,001
(1,658)
(1,053)
(.20)
7,108
252
2,279
1,820
.35
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
2009
2008
Quarter
High
Low
Dividend per share
$ 20.00
$
15.76
$ .30
21.49
21.49
21.39
16.00
17.30
15.35
.20
$ 25.49
$
19.89
$ .27
23.35
23.57
22.60
20.50
18.00
17.80
.29
1st
2nd
3rd
4th
1st
2nd
3rd
4th
32
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
C O R P O R A T E I N F O R M A T I O N
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
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
Independent Auditors
Porter Keadle Moore, LLP
Atlanta, Georgia
The common stock of Peoples Financial Corporation is traded
on the NASDAQ Capital Market under the symbol: PFBX.
S.E.C. Form 10-K Requests
The current market makers are:
A copy of the Annual Report on Form 10-K, as filed with the
FIG Partners
FTN Midwest Research Secs.
Howe Barnes Hoefer & Arnett
Knight Equity Markets, L.P.
Morgan Keegan & Company, Inc.
Sterne, Agee & Leach, Inc.
Stifel Nicolaus & Co.
Securities and Exchange Commission, may be obtained without
charge by directing 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
33